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 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.