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.
A third-generation balanced scorecard has four main components:
- A destination or Vision statement. This is a [one or two page] description of the organisation at a defined point in the future, 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.
The design process for third-generation balanced scorecard requires the active involvement of the management team who will eventually use the balanced scorecard. The managers themselves make all decisions about the balanced scorecard content. The process begins with the development of a 'destination or Vision 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 in outline these are assigned 'owners' from within the management team, who further define each objective, plus the measures and targets associated with achieving each objective. The main improvements with this third generation of balanced scorecard relate to the improved “ownership” of the objectives by managers, because objectives, goals and outcomes are refined by the responsible managers themselves. All measures and targets must be reviewed to ensure that they are interconnected (dependencies identifies) and congruent (appropriately prioritised and support one another).
In large/ complex organisations the scorecard can be developed by functional or project specific areas to relate to the management team for that area. It is important in this case for the team creating the scorecard to understand the linkages between their area and that of other management teams across the organization with whom they may collaborate or have as stakeholders/ customers. In many cases the objectives for the scorecard of a functional or project organization will include cascaded objectives and priorities of the host organization/ senior leaders/ their stakeholders (what is important to them).
- FAQ Answer: What is the Balanced Scorecard? (PDF), 2GC Active Management, archived from the original (PDF) on 20 June 2014
- Lawrie, Gavin J G; Cobbold, I (2004). "3rd Generation Balanced Scorecard: Evolution of an effective strategic control tool" (PDF). International Journal of Productivity and Performance Management. 53 (7): 611–623. Archived from the original (PDF) on 1 May 2014. Retrieved 28 May 2014.
- 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.