A Balanced but Disconnected Scorecard

Twenty years ago, Robert Kaplan of the Harvard Business School and his business partner David Norton witnessed Analog Device's implementation of hoshin kanri and the result was the Balanced Scorecard. Of course the Balanced Scorecard was wildly popular and made many consultants a lot of money. But, the Balanced Scorecard is not hoshin kanri. This remains true despite Kaplan and Norton's dogged efforts to turn the Balanced Scorecard into a genuine strategic management system. To their credit, they have done a nice job integrating the business school literature on resource-based competition, and for this important task we thank them. But, every time--in the course of my lengthy lean manufacturing and lean healthcare consulting career--I run into it, I am always struck by the fact that the Scorecard never makes it far from the board room. I have never seen it connected to daily work on the front line. What happened?

My hypothesis about the Balanced Scorecard is that, despite Kaplan and Norton's good intentions, they didn't understand what they were looking at when they examined hoshin kanri. Perhaps Analog Devices didn't get it right in the first place, something that a short trip to Toyota would have cleared up. (This is the route that H. Thomas Johnson and Robert, old colleagues of Kaplan's, both took.) 

I believe that Kaplan and Norton made two errors:

1. The first error was to fail to understand that hoshin kanri exists mainly to make systematic adjustments to standard work. To be effective, a balanced scorecad must somehow be connected to the mechanism by which the drivetrain achieves traction. Strategic traction can only be achieved if the company's leaders make contact with the people on the front line of the organizaiton, where real value is added.
2. The second error was to fail to realize how thoroughly--no, how radically--decentralized Toyota truly is. With adherence to standard work assured through 5S, visual control, and poka yoke, things are pretty much under control at all times. And, given that standard work incorporates all elements of cost (task, sequence, time, and work-in-process inventory [staffing can be derived from task, sequence, and time]), this means that adherence to standard work amounts to auditing in real time. This is why Prof. Johnson reported that Toyota does not permit accountants on the shop floor.

The upshot of these two errors is a balanced scorecard that can be retrofitted to the pre-Toyota corporation, which was (get out your history books) invented at General Motors in the 1920s. The original "balanced scorecard" was not designed for a retrofit; it was designed for a double kaikaku of corproate structure:

• Kaikaku 1: Decentralize radically by establishing standard work and empowering front line employees to stop the process to fix problems;
• Kaikaku 2: Enable the matrix organization by abandoning functional silos in favor of cross-functional and interorganizational teams.

This is in fact the whole purpose of hoshin kanri and any balanced scorecard worthy of the name.