The Balanced Scorecard
The Balanced Scorecard
• Developed by Robert Kaplan and David
Norton.
• Introduced in the early 1990s.
• Motivated in part by Wall Street’s focus on
quarterly earnings.
• Widespread adoption (hundreds of
companies).
Financial Performance Measures
• Financial measures are lag indicators: they
report on the outcomes of past actions.
• Traditional financial measures fail to
accurately value intangible assets such as:
– Customer relationships
– Innovative products and services
– Operating processes
– Human capital
– Information technology systems
– Organizational climate
The Balanced Scorecard
Identified Four Perspectives
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•
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Financial
Customer
Internal business processes
Learning and growth
The Balanced Scorecard
Identified Four Perspectives
• Financial
– Increase shareholder value
• Revenue growth
–New markets, products, customers
–Additional sales to existing customers
• Productivity
–Reduce direct and indirect expenses
–Utilize assets more efficiently
The Balanced Scorecard
Identified Four Perspectives
• Customer
– Operational excellence
• Starbucks
– Customer intimacy
• Exceptional service
• Custom products and solutions
– Product leadership
• Apple
The Balanced Scorecard
Identified Four Perspectives
• Internal business processes
– Build the franchise (innovation processes)
– Increase customer value (customer
management processes)
– Operational excellence (operations and
logistics)
– Good corporate citizenship (regulatory and
environmental processes)
The Balanced Scorecard
Identified Four Perspectives
• Learning and growth
– Employee capabilities and skills
– Technology
– Organizational climate
Balanced Scorecard “look-alikes”
• Stakeholder scorecards
– Shareholders
– Customers
– Employees
• Key performance indicator scorecards
– a.k.a.: KPI scorecards
– A checklist approach
• The Difference: Performance Measurement
versus Strategic Management
The Balanced Scorecard
• Step 1: Review the organization’s mission
statement.
– Why does the organization exist?
– What are the organization’s core values?
• Step 2: Develop a strategic vision.
– What does the organization want to
become?
– Identify a clear picture of the organization’s
overall goal.
The Balanced Scorecard
• Step 3: Translate the strategy into operational
terms.
• Step 4: Align the organization to the strategy.
– Align across business units
– Align across staff functions
– Align with outside stakeholders (suppliers,
customers, etc.)
The Balanced Scorecard
• Step 5: Make strategy everyone’s everyday job.
– Communication and education
– Incentive compensation
• Step 6: Make strategy a continual process.
– Link strategy to the budgeting process
• Step 7: Mobilize leadership for change.