A balance of truths

EVER heard of Rashomon?

This acclaimed piece of work, from the great Japanese filmmaker Akira Kurosawa, explores the relativity of truth, i.e. the premise that there is no single version of what is “true” — this being subject to whichever point of view one happens to take on an event or incident.

If Kaplan and Norton were fans of Japanese cinema, I would not have had any doubt that their inspiration for the balanced scorecard came from Kurosawa himself.

Accountants often speak of “the one version” of the truth, appropriating this authoritative mantle for the “one set of numbers” that they produce. Many organizations still believe this claim, and continue to base their decisions on what this “truth” is telling them. In fact — and pardon the obvious pun — nothing could be further from the truth.

For example, let us take the event of an organization meeting or exceeding its planned budget. One of my friends who happens to be a finance director for a well-known consumer goods organization, told me that they had just made budget for the year. Consequently, they are all going to get rewarded with handsome bonuses. Under his “truth,” they have done very well.

After a lengthier conversation with him, however, it became painfully apparent that despite making their bonuses, they were perhaps no different from Nero, sitting back and relaxing while their business was rapidly going down in flames.

A major component of their budget achievement came from “cost-cutting,” an exercise that by now is as ubiquitous as the computer in any organization. For example, to ensure that they pushed maximum volume out the door, they re-allocated their advertising and media spending to consumer and trade promotions, enticing short-term purchases and filling the distribution pipeline in the process. Overall, they spent less, and seemed to have been able to sell more for their money.

However, looking at the other indicators for their business, things were not looking quite as rosy. Their flagship brands were under threat by the major multinationals.

Market shares, which only a few years back were in the double digits, had dwindled to single figures. Their distribution system, which in the past used to be their differentiating competitive advantage, was becoming less potent, with lower cost third party distribution vastly improving over time.

From another vantage point, this business could not have been any sicker. And from this version of the truth, management should have been reprimanded, not rewarded. The problem is, no one is looking at things from any other perspective, but the financial one.

Balanced scorecards, whatever connotations it may have on managers of organizations, are nothing more than the Business Performance Management (BPM) equivalent of Akira Kurosawa’s Rashomon. The set of measures that it attempts to capture are so designed, that at any point in time they are able to capture the many version of truth that exist — covering the past (financial indicators), the present (operational indicators) and the future (marketing, research and development, strategic indicators, etc.).

Problem is, organizations still have to make the mental leap that is needed to make balanced scorecards work as intended — that accounting numbers are but one version — among many — of the real truth.

Invariably, even among those actively using balanced scorecards in their organizations, their performance and reward systems are still heavily focused on financial results, clearly exposing which “truth” they consider to be more truthful than the others.

Published in the Sun Star Daily, Saturday, August 04, 2007 (http://www.sunstar.com.ph/static/ceb/2007/08/04/bus/batuhan.a.balance.of.truths.html)