The Balanced Scorecard has proven to be one of the more enduring business management ideas of the last 20 years, and has proven surprisingly adaptable to the requirements of sustainability measurement. Building a Balanced Scorecard takes us through a conversation that answers four questions:
- How does the business appear from the perspective of an owner or investor?
- How does the business provide value to customers, and how does that affect their buying behavior and attitudes?
- How can we provide this value with maximum efficiency in terms of cost/materials/energy ?
- What organizational capacities – both tangible and intangible – do we need to put in place and maintain?
Each of these questions answers the concerns of a particular constituency.
- Owners, investors and analysts view the organization as a system that provides return on investment.
- Customers see the business’ products and services as a way to satisfy wants and desires at an appropriate cost – and, less tangibly, may buy out of an identification with brand.
- Efficiency, particularly sustainability metrics, is the concern of internal management and staff – as well as external constituencies such as as NGO’s, regulators, and the public at large that may not necessarily be investors or consumers.
- Organizational capacity is the foundation of the others – the physical infrastructure, culture, skills, and information systems required to plan, design, and deliver products and services.
Taken together, the answers to the four questions build a holistic view of the enterprise that describes:
- How non-financial factors (the “intangibles” that make up 50-75% of market value, including leadership, values, culture, and relationships) influence financial performance
- How we get there – translating strategies into actionable, accountable and measurable objectives -that easily and visually communicate the strategy to everyone in the organization
- How sustainability performance impacts “conventional” measures of success like financial and market performance
The last point is why Balanced Scorecard is a useful addition to the big outcome measures found in frameworks like the Global Reporting Initiative. The result is a collaboratively-developed “Story of the Strategy” that identifies the connection between sustainability performance and market and financial outcomes. This connection may be unique for every enterprise – although GRI identifies the important environmental and social outcomes that matter to all of us, each company has to do the heavy lifting of relating those outcomes to its own competitive differentiation.