Sustainability Balanced Scorecard - SUM: Sustainability Management Wiki

The basis of the Sustainability Balanced Scorecard (SBSC) is the classic Balanced Scorecard (see figure 5) according to Kaplan and Norton, an approach to performance measurement for companies from 1992. ¹ With help of a BSC, a company can make clear in a top-down process which goals are particularly important to it and at the same time illustrate associated key figures. Since it is often the case that several objectives are relevant at the same time, the various objectives are divided into four perspectives on the scorecard in order to maintain an overview. The second core element of the BSC is the linking of the goals with key figures and indicators. ² Kaplan and Norton decided on a selection of perspectives that, in their view, made it possible to achieve a balance between goals and metrics. This also explains the name of the model: Balanced Scorecard. The first perspective is the financial perspective, which primarily includes the usual financial goals and metrics such as return on investment, profit, and sales. Number two is the customer perspective, which should represent customer opinions about the company. Factors here are things like customer satisfaction, complaints or the rate of customers who buy more than once. The quality of internal processes, for example, measurable by time, costs or rates of rework, is represented by the process perspective. Finally, Kaplan and Norton name the learning and development perspective, which is intended to show the extent to which a company is prepared for future developments. Indicators here are, for example, innovations, employee satisfaction or the image of the company. ³ The aim of the BSC is to visualize whether the previous actions of the company were successful and whether this will also be the case in the future. In order to do this as meaningfully as possible, a distinction is made between lagging indicators and leading indicators. ⁴ Late indicators are characterized by the fact that some time must pass before the success of an action can be evaluated. This means that only successes or failures that lie in the past are depicted. A good example of this is the profit total of a company. Early indicators, on the other hand, can show very soon after the action whether a measure has a positive or negative effect. In some cases, leading indicators are also able to anticipate developments. For example, an increasing number of complaints from customers indicates that overall satisfaction is also declining. ³⁹ Companies should pursue the goal of constantly improving their performance in all of the four perspectives mentioned. The BSC should help to show in a clear and comprehensible way whether decisions or measures taken contribute to the achievement of this goal.

However, the perspectives proposed by Kaplan and Norton are not rigid and can be adapted or expanded depending on the type and strategy of the company. ³⁹ Several economists took advantage of this and gradually established a further development: the SBSC. This is intended to make it easier to embed the three pillars of sustainability (economic, ecological, social) in successful strategy implementation. The aim is for the company to improve in terms of all three pillars and thus make a strong contribution to the general development of sustainability. ⁴⁰ This concept is particularly relevant because the BSC makes it possible to include non-monetary aspects, such as environmental and social concerns, in the evaluation of the company’s success. ⁴¹ In order to integrate environmental and social aspects into the classic BSC, three different approaches are proposed in the literature. One approach is to integrate the desired new issues into the four existing perspectives. Another option is to leave the four perspectives as they are and add a fifth perspective, which is then used to measure environmental and social measures. In this case, Figure 1 would have a fifth “Environment & Social” evaluation matrix. The third and probably most radical alternative would be to create a completely new scorecard that is no longer primarily oriented to economic goals, but to sustainability goals. ⁴²

The SBSC can help to successfully implement a change management process to increase sustainability. Since the perspectives are not rigid and can be adapted or expanded again and again, the tool can be used variably and can react to new circumstances during the change process without great difficulty. Furthermore, the BSC makes it possible to evaluate the effect of measures or actions in different stages and from different perspectives and to compare their success with other measures. In summary, it can be said that the SBSC is well suited to measure the actions during a change and to communicate the results externally or from top to bottom. Successes become more tangible and can increase acceptance and motivation for change. ³⁹ However, it is important to keep in mind that the BSC tends to only evaluate actions and can reveal certain relationships. It cannot, therefore, contribute to greater sustainability on its own, nor can it manage a change process. Another disadvantage could be that the BSC, which is largely based on key figures, reaches its limits when it comes to the topic of sustainability, which consists of countless factors and interrelationships. ⁴³

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Hahn, T. & Figge, F. Why Architecture Does Not Matter: On the Fallacy of Sustainability Balanced Scorecards, Journal of Business Ethics (2018) 150, 919-935 (2016).

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