Compass Points Reviews The Balanced Scorecard

CSSP reviews

The Balanced Scorecard

by Robert S. Kaplan and David P. Norton
HBS Press, 1996 - 322 pages $26.96 (at Amazon.com)

Great strategy without sound implementation plans and determined follow-through can leave a companyּs performance firmly planted in the “also-ran” category. The Balanced Scorecard, by Robert S. Kaplan and David P. Norton, will help your organization create a strategic measurement and management system. This can be achieved by translating your mission and strategy into a comprehensive set of performance measures which the authors call a scorecard. The goal is breakthrough performance for the future.

Most traditional financial measures track past performance but fail to track the intangible factors that will be the basis for future competitive advantage. The authors have designed an overall scorecard framework that incorporates measures in the following four categories: 1) Financial 2) Customers 3) Internal Business Processes and 4) Learning and Growth. The fundamental intent is to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intellectual assets they need for future growth.

The balance in a well-crafted scorecard is intended to be three-fold:

External measures for shareholders and customers balanced with internal measures of business processes, innovation and growth.
Outcome measures (lagging indicators of past effortsּ effectiveness) balanced with performance driver measures (leading indicators of future success).
Objective, easily quantified outcome measures balanced with subjective, discretionary performance drivers of these outcomes.

The outcome measures must be clearly connected to the performance drivers. The lack of explicit connections can create uncertainty as to how the results should be achieved, leading to inappropriate or unfocused tactical decisions. The most effective balanced scorecards, through their linked list of drivers and outcomes, actually describe the companyּs strategy. Here, the authors summarize the desired detail of this driver/outcome integration:

“The scorecard should be based on a series of cause-and-effect relationships derived from the strategy, including estimates of the response times and magnitudes of the linkages among the scorecard measures. For example, how long before improvements in product quality and on-time delivery will lead to an increased share of customersּ business and higher margins on existing sales, and how large will the effect be? With such quantification of the linkages among scorecard measures, periodic reviews and performance monitoring can take the form of hypothesis testing.”

This last point is the basis for creating what the authors refer to as a strategic management system instead of a strategic measurement system: The goal is to learn from the system to help you understand what works for the business and how to adapt your strategies to changing market and business conditions. This closed loop feedback system for strategy modification is a hallmark of an effective scorecard.

Throughout the book, the authors communicate an understanding of the critical building blocks of a balanced scorecard and how one might develop the scorecard for their own business. The authors combine the use of conceptual models and adeptly targeted real-world business examples to illustrate each major point. The Balanced Scorecard approach provides another useful technique for strategy realization.

For more information or to order your copy of The Balanced Scorecard from Amazon.com, click on the title.

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