Don't Confuse A Scorecard With A Scoreboard

Harvard Business Review
Published: September 13, 2011

I've always been a big believer in using results as the differentiator between success and failure. You either achieve your goals or you don't. Energy, creativity, and activity are all good things — but they don't create value unless results are achieved.

Most organizations take the same stance. They put a great deal of emphasis on reporting and celebrating quarterly and yearly results — with the assumption that there is a huge upside to being perceived as a winning company. After all, positive results attract investors, raise stock prices, reinforce customers, draw talent, and more.

But only athletic events produce clear winners and losers in the short-term — and most organizations are not actively engaged in those. In fact, in many cases, the immediate "results" are in reality unknown, ambiguous, or disconnected from current performance. Here are some common examples:

• When pharmaceutical companies announce that a new drug has been "approved," they are actually saying that their researchers made some breakthrough discoveries as far back as fifteen years ago. By the same token, when these same companies talk about the "quality of their current research pipeline," they have no way of knowing what will actually make it to market since over 95% of drug projects fail.
• Financial firms that report quarterly earnings are probably jumping the gun with their results. Many of the transactions included in their announcements cannot really be judged successful for several years, or until the loans mature. Similarly, when these firms share "lead tables" that compare the numbers of transactions between institutions, the results don't reflect the quality of the deals.
• Manufacturing firms that gauge their success and failure on short-term sales numbers are actually reporting on their capacity to leverage research, technology, manufacturing, marketing, sales, and other functions over time — in the context of the current economy. In other words, changes in sales results may not be a sufficient measure of current performance.

This is not to say that we should abandon any of these ways of viewing organizational performance. Rather, we need to better understand how these numbers were achieved and what they are actually saying about a company's long-term health. In other words, metrics are starting points for dialogue rather than conclusions. If we don't treat the announced results this way, we run the risk of being fooled. That's why we have analysts whose job it is to probe the numbers and interpret what they really mean if we don't have the time or access.

As individual managers we do not have the luxury of personal analysts, so we have to interpret the true meaning of results ourselves. But all too many managers avoid or ignore this part of their job — either because it takes too much time, is too difficult, or will lead to uncomfortable discussions. So instead they treat scorecards like scoreboards, with black and white numbers that they think tell the whole story.

Unfortunately without dialogue, interpretation, and reflection, numbers on a scorecard often lead to a distorted picture of performance — with too much, too little, or misplaced credit given for achievement. For example, in a financial services firm that was trying to introduce new products, the numbers alone made it look as though the sales team was floundering. But by probing deeper, the senior business leader realized that some of the products were poorly designed, that systems did not adequately support the new offerings, and that the sales team was unclear about priorities and preferred targets. She also found that some sales teams were able to hit their numbers despite these factors. Without trying to understand the nuances behind the results, the senior leader might have put all the responsibility for improvement on the sales function, which would have reinforced the lack of collaboration and perhaps made the situation worse.

Obviously, not every result requires deep analysis and interpretation. But without at least some amount of dialogue, we run the risk of misunderstanding what is really going on.