Kaplan and Norton developed the balanced scorecard as a means of:
a. Not focusing too much on the financial measures of performance, and
b. tracking the effective implementation of strategy.
Their four key areas of control/ measures are:
- customer satisfaction
- operational efficiency
- employee morale
- financial performance
The main idea of the balanced score card is that one needs to measure and manage all of these indicators – and in balance, rather than primarily financial performance.
Balance Scorecard to be Implemented by 40% of Fortune 1000
According to the Gartner Group, 40% of Fortune 1000 companies will have implemented the Balanced Scorecard by the turn of the century.
What Is the Balanced Scorecard?
The Balanced Scorecard:
- Translates vision and strategy
- Defines the strategic linkages to integrate performance across organizations.
- Communicates objectives and measures to a business unit, joint venture, or shared service.
- Aligns strategic initiatives
- Aligns everyone within an organization so that all employees understand how what they do supports the strategy
- Provides a basis for compensation
- Provides feedback to senior management if the strategy is working
The Balanced Scorecard is part of a Performance Management system to enable organizations to achieve their goals.
The balanced scorecard translates a strategic business units mission and strategy into a set of measures built around four or five perspectives:
- Financial: How do we look to our shareholders?
- Customers: How do we become our targeted customers most valued supplier?
- Internal Processes: What processes – both long and short term – must we excel at, to achieve our financial and customer objectives?
- Innovation and Improvement: How can we continue to improve our processes and systems in order to create value?
- Employee: How does our organization and employees continue to learn and grow?
Balanced Scorecard Benefits
Balanced Scorecard benefits according to Kaplan & Norton, 1992:
- Make strategy operational by translating strategy into performance measures and targets.
- Helps focus entire organization on what must be done to create breakthrough performance.
- Integrates and acts as an umbrella for a variety of often disconnected corporate programs, such as quality, re-engineering, process redesign, and customer service.
- Breaks down corporate level measures so local managers, operators, and employees can see what they must do well in order to improve organizational effectiveness.
Balanced Scorecard Book
Kaplan, Robert S. and David Norton, Translating Strategy Into Action The Balanced Scorecard (Boston, MA: HBS Press 1997)
Balanced Scorecard Articles
Chow, Chee W., Kamal M. Haddad, and James E. Williamson, “Applying the Balanced Scorecard to Small Companies”, Management Accoounting, August 1997, p. 21.
Curtis, Carey C. and Lynn W. Ellis, “Balanced Scorecard For New Product Development”, Journal of Cost Management, May/June 1997 Vol 11, No. 3
Drucker, Peter F., “The Theory of Business”, Harvard Business Review, September-October 1994, p. 95.
Epstein, Mark J. and Jean-Francois Manzoni, “The Balanaced Scorecard and Tableau De Bord: Translating Strategy into Action”, Management Accounting, August 1997, p. 28.
Gaiss, Michael, “Enterprise Performance Management”, Management Accounting, December 1998, p. 44.
Hoffecker, John & Charles Goldenberg, “Using Balanced Scorecard to Develop Company wide Performance Measures“, Journal Cost Management, Warren, Gorham, & Lamont, Vol 8, No. 3, Fall, 1994
Kaplan, Robert S. and David P. Norton, “Why Does Business Need A Balanced Scorecard (Part 2)”, Journal of Strategic Performance Measurement, Jun/Jul 1997 Vol 1, No. 3, p. 5.
Kaplan, Robert and David Norton, ” Why Does Business Need A Balanced Scorecard”, Journal of Cost Management, May/June 1997 Vol 11, No. 3
Kaplan, Robert S. and David P. Norton, “Why Does Business Need A Balanced Scorecard”, Journal of Strategic Performance Measurement, Feb/Mar 1997 Vol 1, No. 1, p. 5.
Kaplan, Robert and David Norton, “The Balanced Scorecard–Measures That Drive Performance“, Harvard Business Review, January-February 1992, p. 71.
Kaplan, Robert and David Norton, “Using the Balanced Scorecard As a Strategic Management System“, Harvard Business Review, January-February 1996, p. 75
Kaplan, Robert and David Norton, Putting the Balanced Scorecard to Work, Harvard Business Review, September-October 1993, p. 134.
Maisel, Larry , “Performance Measurement: The Balanced Scorecard Approach”, Journal Of Cost Management, Warren, Gorham, & Lamont, Volume 6, No. 2, Summer, 1992, p. 47.
Porter, Michael E., “What is Strategy”, Harvard Business Review, November-December 1996, p. 61
Schneiderman, Arthur, “Why Balanced Scorecards Fail“, Strategic Performance Measurement, January 1999, Special Edition
Silk, Scott, “Automating the Balanced Scorecard“, Management Accounting, May 1998, p. 38.
Thomson, Jeff and Steve Varley, “Developing A Balanced Scorecard at AT&T”, Journal of Strategic Performance Measurement, Aug/Sep 1997 Vol 1, No. 4, p. 14.
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