One of the key benefits for an organization using a Balanced Scorecard is improved strategic alignment. In their fourth annual CSR report, one company made an unexpectedly candid comment: “We strongly believe in the business case for corporate responsibility and reporting. However, there is more work to be done to more precisely quantify the benefits of these activities to our business.” The Balanced Scorecard can be an effective format for reporting TBL indicators, as it illustrates the cause-and-effect relationship between being a good corporate citizen and being a successful business.

The CSR Virtuous Cycle

Enterprises can use the combination of the Balanced Scorecard and CSR to help create a competitive advantage by letting decision makers know if they are truly entering into a CSR virtuous cycle -- a cycle in which economic and environmental performance, coupled with social impacts, combines to improve organizational performance exponentially.

How is this accomplished? A company could begin to compete on cost leadership as a result of improved technology and effective and efficient processes, which leads to improved ecological protection, which results in better risk management and a lower cost of capital. Alternatively, a company could differentiate itself from its competitors’ values and performance as a result of its community building activities, which can improve corporate reputation, result in improved brand equity, creating customer satisfaction, which increases sales. The move to a broad differentiation strategy can also be achieved through extensive knowledge of green consumers and leveraging their information needs through appropriate CSR reporting to improve brand equity and reputation. These examples are designed to illustrate the interrelationship in an organization’s triple bottom line.

Several organizations have already recognized this powerful combination and have adapted or introduced a Balanced Scorecard that includes CSR elements to successfully implement strategy reflective of evolving societal values. Dow is one such company.

Dow’s CSR-Balanced Scorecard

Dow realized in the early 1990s that it could and should improve its social, environmental and financial performance. The company’s early focus (over an initial ten-year period) was on opportunities and challenges most commonly associated with environment, health and safety (EH&S). Dow achieved many of its early objectives by focusing on the low-hanging fruit. In 2003, the company began to create another series of initiatives to address opportunities and challenges over another ten-year period. These initiatives were created and refined after the company made a significant effort to consult with stakeholders to better understand internal and external expectations, with a specific emphasis on CSR. How to accomplish and measure their success was a major question the company had to answer. Dow’s answer to this challenge is clearly communicated in its 2003 Public Report:

To bring more balance into how we measure our success and progress on the integration of the Triple Bottom Line, Dow will launch a Balanced Scorecard.... The scorecard is published for employees, is updated quarterly and is the basic internal measurement tool for our progress on the Triple Bottom Line.

Dow uses the GRI methodology to create, monitor and measure its broad progress towards sustainability and specific corporate social responsibility commitments. Why is this important? If Dow really believed that sustainable development is a business priority in the 21st century, then it had to translate strategy into action. Dow chose to use Balanced Scorecard and CSR reporting to help accomplish this important task.

The figure below demonstrates how the Balanced Scorecard can be either introduced or adapted to strategically align an organization’s values with specific market forces. A variety of GRI indicators were selected and paired with Bob Willard’s ten market forces to demonstrate the wide range of values that can be addressed through the Balanced Scorecard.


In a best case scenario, companies that either adapt and/or adopt a Balanced Scorecard that includes CSR elements could compete on either cost leadership or differentiation, or both -- a very powerful combination that will enable them to enter the CSR virtuous cycle.

Is it actually possible to enter the CSR virtuous cycle? In response to intense public criticism about labor conditions in its factories, Gap Inc., for instance, fundamentally changed the way it manages labor issues. Is Gap’s record on labor issues perfect? No, but it is much improved as a result of protests from activist shareholders and the civil society movement. When asked why Gap would pursue improved labor standards in its factories, in February 2005, Dan Henkle, Gap’s vice-president of global compliance, stated that “not only labor standards in factories (improve) but also every other dimension of what’s really important: overall productivity, quality, absenteeism, turnover rates in factories, it’s really all connected.”

As identified earlier in this article, values play a large role in the decision making process for green consumers. How truly important are values to organizations? Jim Collins in his book Good to Great: Why Some Companies Make the Leap and Others Don’t identified that the companies he and his team classified as “great” had a few common characteristics. One characteristic was a vision to make a difference, rather than simply making a profit. Another characteristic was shared values. It didn’t matter what the values were, rather that there were shared values.

Many management accountants are familiar with the Balanced Scorecard, thus have a tool at their disposal to help them navigate the sometimes foggy worlds of strategy and CSR. The Balanced Scorecard can help organizations strategically manage the alignment of cause-and-effect relationships of external market forces and impacts with internal CSR drivers, values and behavior. It is this alignment combined with CSR reporting that can enable enterprises to implement either broad differentiation or cost leadership strategies. If management accountants believe there will be resistance to stand-alone CSR initiatives, they can use the Balanced Scorecard to address CSR opportunities and challenges. Management accountants have the skills and tools to lead their organizations towards a CSR virtuous cycle of cognizant benefits, understanding precisely how and why their company’s profits are made.

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David Crawford, CMA, CCEP, is the market and technical services manager at Manitoba Product Stewardship Corporation. Todd Scaletta, CMA, MBA, is an educator and partner with Scoperta Solutions, a management consulting company located in Winnipeg, Manitoba. The authors wish to thank Bob Willard for his assistance in the preparation of this article.

This article has been reprinted courtesy of CMA Management. It first appeared in the October 2005 issue of that publication.