Balanced Scorecards in Holding Companies

Large holding companies or conglomerates are essentially different form traditional single company structures when it comes to balanced scorecards implementation. The primary difference is the complex nature of the KPI formation of the holding company.

KPI Combinations

Choosing the right set of KPIs is always challenging. Simplification brought or promised by the balanced scorecard system is a double-edged sword. On one hand, it offers simplification of performance monitoring and reporting, and streamlining of strategic objectives and initiatives. On the other hand, by choosing a set of KPIs, companies are exposed to the risk of oversimplification, that is overlooking important performance indicators that are critical for the business, and its financial and operational health.

Using Multi-Layered KPI Trees

Since it is always advised to keep the number of KPIs within a reasonable limit to ensure the effectiveness and simplicity of the strategy framework, large holding companies should identify ways to work around this restriction, and this can be realized by creating composite performance indicators that consist of diverse set of secondary KPIs. This essentially requires KPIs to be linked in some sort of KPI tree, or designed in a multi-layered KPI structure. That is something that is much easier said than done. Advanced algorithms and methodologies are required to construct representative composite KPIs since holding companies may commonly hold assets that have different sizes, different relative importance, belong to different industries and have broadly different financial structures, largely imposed by the nature of the industry itself, for instance capital-intensive industry or brokerage business models are distinctive, and may be difficult to compare to a typical consumer products businesses.

Technical Requirements

The requirement for advanced multi-layered KPI trees may impose advanced technical requirements on the design of the scorecards-based performance management system to incorporate multidimensional data sets to facilitate in-depth analysis of KPIs and underlying factoring driving the change.

Precaution

It is noteworthy to highlight that performance management systems are designed to assist strategy planning and streamlining, but they cannot replace the need for serious strategic thinking, human judgement, and good understanding of the business. As Nicholas Taleb notes, the effortless retrieval of data  in the computer age made people less engaged in the data analytics, turning “strategizing” into a bureaucratic process, while in the not too distant past, before the boom of personal computing, people had to put real effort to make calculations, weigh assumptions using enormous amount of time, pencils, erasers, papers to scrutinize every business indicator or scenario.

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