Third-generation balanced scorecard
In business performance management, a third-generation balanced scorecard is a version of the traditional balanced scorecard, a structured report, supported by proven design methods and automated tools, that can be used by managers to keep track of the execution of activities by the staff within their control, and to monitor the consequences arising from these actions.
The third-generation version was developed in the late 1990s to address design problems inherent to earlier generations. It is distinguished by the components making up the balanced scorecard and the design process used to develop these components.
Components of a third-generation balanced scorecard
A third-generation balanced scorecard has four main components:
- A destination statement. This is a one or two page description of the organisation at a defined point in the future, typically three to five years away, assuming the current strategy has been successfully implemented. The descriptions of the successful future are segmented into perspectives for example financial & stakeholder expectations, customer & external relationships, processes & activities, organisation & culture
- A strategic linkage model. This is a version of the traditional ‘’strategy map’’ that typically contains 12-24 strategic objectives segmented into two perspectives, activities and outcomes, analogous to the logical framework. Linkages indicate hypothesised causal relations between strategic objectives.
- A set of definitions for each of the strategic objectives.
- A set of definitions for each of the measures selected to monitor each of the strategic objectives, including targets.
Design process for a third-generation balanced scorecard
The design process for third-generation balanced scorecard requires the active involvement of the entire management team who will eventually use the balanced scorecard. The managers themselves, not external experts, make all decisions about the balanced scorecard content. The process begins with the development of a ‘destination statement’ to build management consensus on longer term strategic goals; this document is then used to build a ‘strategic linkage model’, describing the shorter term management priorities, both the strategic activities to complete and the strategic outcomes to achieve. Once the ‘strategic objectives’ are decided these are assigned ‘owners’ from within the management team, who subsequently define the objective itself, plus the measures and targets associated with the objective. The main apparent improvements with this third generation of balanced scorecard relate to the greater relevance of the strategic objectives, because objectives are selected in the context of the organisation’s longer-term strategic goals, using a destination statement, and the greater “ownership” of the objectives by managers, because objectives are selected and defined by the responsible managers themselves.
- Cobbold, I.C. and Lawrie, G.J.G.; (2002). “Classification Of Balanced Scorecards Based On Their Effectiveness As Strategic Control Or Management Control Tools”, Proceedings, Third International Conference on Performance Measurement and Management (PMA 2002) Boston, MA, USA July 2002.
- Cobbold, I.C. and Lawrie, G.J.G., (2002) “The Development of the Balanced Scorecard as a Strategic Management tool”, Proceedings, Third International Conference on Performance Measurement and Management (PMA 2002) Boston, MA, USA July 2002.
- Lawrie, G.J.G., Cobbold, I., and Marshall, J., (2004), “Corporate Performance Management System in a Devolved UK Governmental Organisation: a Case Study”, International Journal of Productivity and Performance Management, Vol. 53, No. 4, pp. 353–370.
- Lawrie, G.J.G., Kalff, D., and Andersen, H.V., (2005). “Balanced Scorecard and Results-Based Management: Convergent Performance Management Systems”. Presented at 3rd Annual Conference on Performance Measurement and Management Control, The European Institute for Advanced Studies in Management (EIASM), Nice, France, September 2005
- Morisawa, T., (2002), “Building Performance Measurement Systems with the Balanced Scorecard Approach”. Nomura Research Institute, Paper No. 45 April 1, 2002.