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The Balanced Scorecard…

In 1992 Robert S. Kaplan and David P. Norton wrote a book called "The Balanced Scorecard: Translating Strategy into Action." The article stressed the importance of not relying solely on financial measures to measure organizational success. It stressed the need for balance between short-term and long-term objectives, between financial and non-financial measures, between leading and lagging indicators, and between internal and external performance measures. The article was short on specific application, but its concepts struck a cord with many senior managers.

The popularity of the article forced Kaplan and Norton to write a couple of other articles in the HBR and two books on the subject. Each article and book attempted to provide more "how to" instructions but the majority of the content continued to focus on describing the concepts and philosophy. There are two key components of the Balanced Scorecard (BSC). The first is "what gets measured gets done." The second is that financial measures are not sufficient to manage the organization. The BSC creates a dashboard of indicators from all aspects of the organization's activities. It identifies measures from the perspectives of financial performance, customers, internal business processes, and people growth and learning. The expectation is that when these measures are linked to the organization's strategy people will naturally adopt appropriate behaviors to achieve the goals.

The basic concepts of the BSC are not new! The BSC is very similar to the concepts of Management by Objectives introduced by Peter Drucker back in the '50s. The concept of balancing focus on the multiple aspects of running a successful organization has been around since people began to work together. Every leader of an organization knows that you cannot treat employees poorly and expect success. You cannot ignore customers and then expect them to purchase additional products and services. You cannot continue to use the same processes and equipment and expect productivity gains. You cannot sell products and services for less than it costs to deliver them. These are basic organizational truths! Unfortunately in their rush to increase short-term shareholder value, many senior executives have forgotten these basic concepts. The primary benefit of the articles and books by Kaplan and Norton is that they have helped executives rediscover the basic concepts.

There are now many accounts of organizations adopting the concepts of the BSC with excellent results. There are also other organizations that tried to implement the BSC and failed miserably. The problem is that the successful organizations (and the consultants that helped them) claim that the BSC was the cause of their success. The organizations that failed claim that the complexity of the BSC caused it to fail. In reality neither statement is true. The concepts of the BSC are excellent. It is a great tool to identify a balanced set of measures that organizations can use to manage their efforts, but it is just one piece of the total management system. It is not a silver bullet that will cure all problems. Just like any other good process it requires management investment and nurturing for success.

 

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