1. DOES THE BALANCED SCORECARD TELL THE WHOLE PICTURE ABOUT STRATEGIC
CAPABILITIES?
The Balanced Scorecard (BSC) has become a standard de facto, widely used in many
corporations to support strategy formulation and execution. And capabilities, the drivers of
competitive advantage (and the main topic of this blog) are key components of any sound
business strategy. Is it possible that firms that have adopted the BSC approach are missing part
of the picture about strategic capabilities? I argue that some companies might run the risk of
strategic myopia by becoming BSC-fundamentalists. The BSC is not to blame here, but the way
some firms misinterpret what the BSC is and what is not!
I have a confession to make. When the BSC makes his entrance in the business literature, my
first reaction was: What is the point? What is new about this? I knew of many practitioners (myself
included) that had been using strategic maps to graphically depict corporate, business and
functional strategies, as well as scorecards with initiatives, metrics and responsibility centers to
make strategies operational enough for execution. Even the “balanced” part was not so hot, since
“practical” strategy maps in the late 80s and early 90s were already distinguishing between at
least three different levels of objectives related to: a) financial results, b) strategic positions that
provided those results, and c) key assets and capabilities (tangible or not) that drive market
success in the strategic positions.
So what is the value added by the BSC movement? I think its key contribution has been sound
standardization. A four-perspective architecture (finance, client, process, learning & development)
for strategy maps and a standard structure for a scorecard. From that base, Kaplan and Norton
have reviewed the extensive literature on strategy formulation and implementation and created
standard templates to draw and connect strategy maps at corporate, business and functional
levels, as well as standard recommendations about how to use the BSC as a shared framework
that integrates the key components of a management system: planning, budgeting, control,
evaluation, compensation and incentives. The rapid adoption of the BSC approach across
sectors and countries suggests that this standard is an authentic source of communication,
decision and coordination economies within corporate management systems.
So, how do firms go astray when adopting the BSC approach? These are the usual suspects I
have encountered in practice:
• Expect strategic thinking from the BSC: The BSC provides tools and rules to express a
business strategy, but is clueless about the strategic thinking underlying your strategy. Do not
expect the BSC would give you “strategic content”. It will only give you “strategic form”. To
develop content, strategists have to exercise creativity assisted by a diversity of strategic thinking
frameworks that have been proposed and tested over several decades.
• Ignore stakeholders beyond shareholders and customers: the first two perspective of a
BSC are associated to two stakeholders: shareholders and customers. Other stakeholders are
not explicitly represented by a perspective. The financial perspective lies at the apex of a BSC
strategy map. The firm efforts are directed to create shareholder value. This in turn is the result of
having created customer value in a cost-effective way. If other stakeholders are crucial to the
firm’s continuity and prosperity, you will have to adapt the standard BSC to incorporate their
perspective.

2. • Interpret “process” narrowly and forget about “activities”: the third perspective of a BSC
should describe key levers in the “activity system” that drive cost and customer value advantages.
The activity system has two components: activities and linkages. Activities are the units of work;
their identity comes from their specific functional, technological and economic profile. Linkages
among activities coordinate them in order to create and delivery customer value. Since the 80s,
“process” is the modern term for linkages. When the BSC named the third perspective as
“process”, it was using it to refer to the whole activity system; it was not emphasizing linkages at
the expense of activities. The firm that concentrates only on linkages is looking at part of the
picture of their activity system. This myopia will affect its understanding of cost and customer
value drivers.
These pitfalls reflect BSC-fundamentalism. Executives would derive greater benefits from the
BSC approach if they realized that it is a syntax system; it is agnostic in terms of semantics. If the
syntax side is glorified at the expense of semantics, you could end up having a “properly
constructed” strategic management system, with strategic thinking deficiencies built within it!
As I said before, the BSC approach is not to blame. Kaplan and Norton took an action research
approach when they derived the BSC. Starting from the “first scorecard” that Kaplan found at
Analog Devices (see www.schneiderman.com), adding the insight obtained from case studies of
other companies by Norton, they generated by induction the BSC approach. It is an open system
that evolves by learning.
How might BSC-fundamentalism affect negatively the development of strategic capabilities?
• Lack of “edge” in strategic objectives: those firms that expect strategic thinking from the
BSC tend to construct strategy maps with no strategic edge. Use this acid question: would your
BSC be 80% relevant to your competitor’s strategy? If the answer is yes, you probably have used
critical success factors at the industry level to build your BSC. But, what is your corporate and
competitive advantage, and where is it expressed in your BSC? These firms run the risk of
investing in capabilities that are not aligned to their key strategic business segments and their key
drivers of competitive advantage.
• Lack of attention to key stakeholders beyond shareholders and customers: in academia,
there is an interesting controversy going on regarding what is the “corporative objective function”
Underlying this fancy term, there are key questions: Should companies pursue other objectives
beyond shareholder’s value? Should management pursue simultaneous optimization of diverse
stakeholders´ objectives? Is this a feasible task for managers? Would society be better off if
companies would practice maximization of (multiple) stakeholders´ value? These are some of the
toughest questions that economists, management and organizational theorists, and political
philosophers will attempt to answer in the following decades. But, from a practical point of view,
companies do have key stakeholders beyond shareholders and customers. In heavily regulated
industries and societies, compliance with governmental regulations is a necessary condition for
business continuity. In some industries where supply markets are more imperfect than customer
markets, suppliers are key stakeholders and the firm needs to present them with a “supplier value
proposition”, to guarantee access to scarce inputs. In many global industries, as value chains
have been deconstructed and specialist firms have positioned themselves as the best performers
of certain activities, global firms are now coordinating a dynamic network of suppliers, service
providers, strategic partners, distributors and intermediaries, as well as final customers/clients.
The firm’s success depends on maintaining a healthy ecosystem where it is important that each
member of the ecosystem is being successful too. The ecosystem maintains its bonds through

3. the crossed value propositions among its members. These examples illustrate that many firms
need to strategize their relationships with multiple stakeholders. If strategic capabilities are
developed only for the two stakeholders explicitly recognized in the BSC (shareholders and
customers), it is possible that these firms are in fact missing a key part of the picture of their
strategic landscape.
• Lack of focus in configuration of the total activity system: as firms focus on processes as
the coordination of activities, they could downplay the importance of activity configuration.
Horizontal coordination of activities across functions, products, markets and geographies is
indeed a deep source of ideas for strategic advantage. But activity configuration is equally
important. Three macro-configuration decisions have a great economic impact on firm’s
performance: a) insource-outsource to strategic partner - outsource to market, b) execute activity
at the corporate or divisional/business unit level, and c) geographical location (concentration vs.
distribution). If the activity dimension is missing at the BSC´s process perspective, strategic
capabilities that are critical for the operational and service activity models might not be developed
If your company has adopted the BSC approach, take advantage of its great contributions to
management processes, but do not become a BSC-fundamentalist that confuses syntax with
semantics. The BSC is a language. As any language, its standardization adds great value to
communication and collective action. Useful languages are not “closed”, they are open and alive;
they evolve with the advances in the society that uses them. Do not worship the rules of BSC
syntax. That attitude may become a liability, reduce the breadth and depth of your strategic vision
and jeopardize the identification and development of strategic capabilities. Instead, use the BSC
approach to reflect the strategic reality of your company and if you find the “standard” version of
the language does not have the capability to express those strategic concerns, expand it. Your
version of the BSC might be an input to the way this language is used in the future.