Putting The Balanced Scorecard To Work

Topics: Strategic management, Balanced scorecard, Management Pages: 13 (6575 words) Published: April 13, 2015
What do companies like Rockwater, Apple Computer, and
Advanced Micro Devices have in commonl They're using the
scorecard to measure performance and set strategy.

Putting the Balanced
Scorecard to Work
by Robert S. Kaplan and David P. Norton
Today's managers recognize the impact that measures have on performance. But they rarely think of measurement as an essential part of their strategy.
For example, executives may introduce new strategies and innovative operating processes intended to achieve hreakthrough performance, then continue
to use the same short-term financial indicators
they have used for decades, measures like returnon-investment, sales growth, and operating income. These managers fail not only to introduce new measures to monitor new goals and processes hut also to question whether or not their old measures are

relevant to the new initiatives.
Effective measurement, however, must be an
integral part of the management process. The halanced scorecard, first proposed in the JanuaryFebruary 1992 issue of HBR {"The Balanced Scorecard - Measures that Drive Performance"), provides executives with a comprehensive framework that

translates a company's strategic ohjectives into
a coherent set of performance measures. Much
more than a measurement exercise, the balanced
scorecard is a management system that can motiRobert S. Kaplan is the Arthur Lowes Dickinson Professor of Aceounting at the Harvard Business School. David P. Norton is founder and president of Renaissance

Strategy Group, a consulting firm located in Lincoln,
Massachusetts.
134

vate breakthrough improvements in such critical
areas as product, process, customer, and market
development.
The scorecard presents managers with four different perspectives from which to ehoose measures. It complements traditional financial indicators with
measures of performance for customers, internal
processes, and innovation and improvement activities. These measures differ from those traditionally used by companies in a few important ways:
Clearly, many companies already have myriad
operational and physical measures for local activities. But these local measures are bottom-up and derived from ad hoc processes. The seorecard's
measures, on the other hand, are grounded in an
organization's strategic objectives and competitive
demands. And, by requiring managers to select
a limited number of critical indicators within each
of the four perspectives, the scorecard helps focus
this strategic vision.
In addition, while traditional financial measures
report on what happened last period without indicating how managers can improve performance in the next, the scorecard functions as the cornerstone
of a company's current and future success.
Moreover, unlike conventional metrics, the information from the four perspectives provides balance hetween external measures like operating HARVARD BUSINESS REVIEW Septemher-Octobcr 1993

income and internal measures like new product
development. This balanced set of measures both
reveals the trade-offs that managers have already
made among performance measures and encourages them to achieve their goals in the future without making trade-offs among key success factors. Finally, many companies that are now attempting to implement local improvement programs such as process reengineering, total quality, and

employee empowerment lack a sense of integration. The balanced scorecard can serve as the focal point for the organization's efforts, defining and
communicating priorities to managers, employees,
investors, even customers. As a senior executive at
one major company said, "Previously, the one-year
budget was our primary management planning device. The balanced scorecard is now used as the language, the benchmark against which all new
projects and businesses are evaluated."
The balanced scorecard is not a template that can
be applied to businesses in general or even industrywide. Different market...
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