Balanced Scorecard (BSC) for the Mittelstand

April 10th, 2014
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Balanced Scorecard (BSC) for the Mittelstand

Hans-Jörg Vohl, Project Management Partners, about the specific challenges and opportunities by the utilization of Balanced Scorecards within the Mittelstand.

1. Mr. Vohl, what kind of link do you have to the mittelstand the so called medium-sized companies? What has been the trigger for you to focus your interest regarding BSC in theory and practice?

I have a very close link to the mittelstand since my father’s family has led one of the oldest companies in Bavaria that was founded more than 250 years ago. Thereby, I learnt early and in nearly all aspects about the mittelstand specific challenges.
In my business as a management consultant the topic BSC started with a new customer searching for an appropriate and sustainable steering tool. Up-to that point in time the organization had no need for a vision or strategy. As a first step we elaborated a vision with the managing directors and shareholders. The second step was to jointly plan the implementation of the main targets together with the employees. In this context the BSC was a very helpful tool. Since the employees had been involved from the very early beginning there was a high level of energy and enthusiasm for the further implementation of the BSC. 18 years ago as I started studying BSC very intensively I had concerns if the BSC method can be successfully put into practice. With the success of this first customer project I got the final confirmation and found motivation to deep dive with BSC and publish a book about my experience and knowledge.

2. Over many years for managing directors or the senior management the BSC method is a known and wide-spread instrument for strategy implementation. What is from your perspective the central conceptual point of the BSC approach?

First of all, the elements of a BSC are not really something new. The core of a BSC is the combination of successful items to a single concept. The focus is the involvement of the employees, the clear conceptual approach and overview as well as the concentration of the essential parts and the transparency of interdependencies. This all together reduces the complexity and is a key success factor for the effectiveness of the BSC.

3. What is the main reason for the success of the BSC in practice?

The main advantage of the BSC is the conceptual transparency taking the whole organization into consideration as well as the individuality of single employees while continuously focusing the target. The methodology of the BSC integrates various perspectives by visualizing approach and change management in a very imaginative way. This is as simple as the scorecard for golfing showing results, status and assessment as a one-pager. This is the background for the word “scorecard”. “Balanced” in this context means the weighting of perspectives and targets.
The main benefits of a BSC are the connections between vision/strategy leading to single targets and measures. A BSC is finally implemented in the organization if the breakdown of the BSC leads to a common understanding motivating the employees to jointly implement the BSC:

4. Which competing approaches are used by medium-sized companies and what is the USP of the BSC?

There are several elements, e.g. like vision or strategy papers created in management workshops or KPIs delivered by the controlling department. Most of these documents or approaches do not cover the interdependencies and reasoning behind the figures or statements. Therefore most of them are not really competing due to their isolated or too specific focus.
In the mittelstand the entrepreneur is typically covering the operational roles for strategy, vision, and implementation in terms of a one-man-show. The entrepreneur is in general the driver and motivator for the employees, often the only one who can inspire the staff. But if the company has strong growths or is preparing the succession then the classical principles of leadership often do not work. In such a scenario competencies need to be delegated and an accompanying target system is required that motivates the employees do their work passionately and take decisions along the strategic path.
The advantages of a BSC are obviously to connect strategic elements with operational elements and to combine hard with soft factors.

5. The typical BSC dimentions are innovation & learning, customers, processes, and financials. Does the mittelstand also focus these dimensions? What are typical differences compared to large companies?

Other dimensions like they are used in large companies are of course possible. I personally regard the classic four dimensions which are key elements of a company in most cases as completely sufficient: Individuals who deliver according to processes to their customers result in satisfied customers and positive financial numbers.

6. What are the typical challenges that in particular the mittelstand needs to handle to implement and operate a BSC? How do you pro-actively deal with typical obstacles?

The biggest challenge is the name “Balanced Scorecard” itself. Even if the concept is known there are often withdrawal reflexes. To be honest in the beginning I also was refusing. Anglicisms spread by business consultant often trigger rejection in the mittelstand. The leaders often feel misunderstood and that the consultant does not fully understand their business needs. But also projects that tried to use German language exclusively failed in German mittelstand. To get the buy-in and to convince the involved people in the mittelstand it is very important to explain the BSC approach very thoroughly and wherever needed.
A further crucial and specific aspect for the mittelstand is a differentiated understanding of responsibility. The entrepreneur needs to be simultaneously the driver for the introduction, implementation, and continuity of the BSC and also being able to delegate competencies for the implementation.

7. What are the differences implementing a BSC in the mittelstand compared to large companies? What can maybe easier or more effectively be achieved in the mittelstand using a BSC?

Absolutely positive regarding the mittelstand are the implementation times compared to large companies. Since one is used to accelerate the delivery in the mittelstand the aspects of cultural change are partly underestimated and therefore not adequately managed as needed to achieve BSC targets. Cultural change needs time and capacity. Maybe because the employees are not used to deal with changes, maybe the CEO does not delegate competencies.

8. As a result of the introduction of a BSC cause and effect diagrams are defined and become transparent. Is this in our days with increased complexity as easy as 10 or 20 years ago?

BSC means reduction of complexity and focusing on the key elements. The number of influencing factors and uncertainty originates in the fact that employees and processes require a high degree of flexibility. The staff needs to clearly understand the customer needs due to the fact that the typical customer has become more volatile over the last couple of years.
The cause and effect diagrams should reflect the flexibility of the employees and processes as well as the customer needs. The relations need to be mapped and detailed to concrete measures. In this context the BSC is also an answer to a more flexible and complex working environment. The principle of focusing on the relevant aspects is very important. “Twenty is penty”, at maximum 20 targets, ideally 16 should be defined. Not every target should be linked to all other targets. It is important to map only the main effects.

9. What trends renew or improve the chances for the mittelstand in the context of their BSC? Do innovations like eLearning, big data or social media have a significant influence on these effects? Is there a risk that medium sized companies waste their time in the information flood of big data and social media?

What I see is that in the mittelstand and also in the large companies the staff is well educated and that the ratio of employees with an academic qualification does increase continuously. The employees want to take over more responsibility. This is a positive aspect regarding the BSC since the implementation deals with responsibility and decentralized decisions making to follow joint targets.
Big data, social media and e-Learning deal with knowledge that can be used in multiple ways.BSC in this context means also the decentral use of information and a faster transformation of knowledge on multiple locations. According to my experience mittelstand companies do not have such issues to react to changes in their environment like large companies.
Independent from the size of the company there is a risk to get lost in the flood of information. Therefore it is a value to follow targets and verify these targets in a defined frequency. This is basically what makes the difference between following a strategy and the operational rush.

10. According to our experience it is crucial for each strategic decision how the employees follow and support the changes and how the change is accompanied with adequate communication. How do you deal with situations where within a BSC project the strategy needs to be adapted or detailed, in particular if difficult changes for the company are required?

Is does obviously make sense to talk in detail about the strategy before starting its implementation. Maybe there already exists a BSC and the strategy required a change due to external factors. The very important principle in such scenarios is to have open communication on such questions and to explain the need for the change and discuss with the respective employees. On the short run this seems to be time consuming. But every company having a vision and a strategy thinks about the long run. And on the long run the balance is positive when discussing the strategy with the employees and developing joint targets, in particular in knowledge based companies.
BSC is not a medicine prescribed by the doctor. The employees whose motivation is needed would be incapacitated by such an approach. Moreover the individuals need room for communication to understand the instrument BSC and the related changes to sustainably implement the related strategy.