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Abstract: Robert Kaplan and David Norton developed the concept of Balanced Scorecard (BSC) while
working on the project Measurement of Future Organizational Performance, at the beginning of the 1990ies. The authors realized that in the modern society, the society of knowledge, it is not enough to use only
financial measurements in order to measure organizational performance, but also non-financial
measurements from the following perspectives: consumers (clients), internal processes, innovations, and
learning. During the later stages of BSC concept innovation, the authors develop BSC as a separate system
of strategic management, and then, through strategic maps and cascade system of connections and strategy
implementation on different organizational levels, they made the most sophisticated management system,
communication tool and methodology for connection between long-term (vision and strategy) and shortterm (activities) in strategy implementation. The purpose of this paper is to research the evolution of
Balanced Scorecard, as one of the most important innovations in 20th century management, in the area of
management of planning systems and system of organizational performance measurement.
Key words: performance, strategic system, Balanced Scorecard, strategy maps
Apstrakt: Robert Kaplan i David Norton su poetkom 1990-ih godina, radei na projektu Merenje
organizacionih performansi u budunosti, razvili koncept Balanced Scorecard-a (BSC). Autori s pravom
uoavaju da u novom drutvu, drutvu znanja, nije dovoljno meriti organizacione performanse samo sa
finansijskim merama, ve je neophodno ukljuiti i nefinansijske mere iz perspektiva: potroaa (klijenata),
internih procesa i inovacija i uenja. U kasnijim fazama inovacije koncepta BSC, autori razvijaju BSC kao
poseban menadment strategijski sistem, a zatim putem stratekih mapa i kaskadnog sistema povezivanja i
implementiranja strategije na razliitim organizacionaim nivoima, stvaraju najsofisticiraniji menadment
sistem, komunikacionon sredstvo i metodologiju za povezivanje dugog roka (vizije i strategije) sa kratkim
rokom (akcijama) na implementiranju strategije. Namera je da radom istraimo evoluciju koncepta
Balanced Scorecard-a, kao jednog od najznaajnijih inovacija u menadmentu 20. veka, u oblasti
menadment planskih sistema i sistema merenja organizacionih performansi.
Kljune rei: performansa, strategijski sistem, Balanced Scorecard, strategijske mape
INTRODUCTION
The changes at the end of the 20th and at the beginning of the 21 st century have become faster and
more radical than ever before. Global technological, economical, political, legal and sociocultural factors influence the speed of changes, as well as shaping of management methodology
and practice. Todays contemporary environment is becoming increasingly dynamic and
uncertain. The only certainty is the certainty of change, and the only stability is the stability of
changes (Peter Drucker, the founder of modern management).
"Increasingly more available information, related oversaturation and easy access to information
have catapulted the world from industrial economy to knowledge economy. The world is
transforming from the previous market to a virtual market space. Global business is no longer an
option, it is a requirement." [1, p. 9].
These trends and new emerging global organizational environment requires revision of current
business practices, organizational behavior, systems of strategic and operational management, as
well as business theories altogether. Theory of business and management is changing increasingly
faster in order to answer many new challenges of business management. There are new
paradigms (behavioral patterns), theories, models and methodologies, which are applied through
particular programs in organizations. We shall mention only some of the new concepts and
methodologies:
Learning Organization
Core Competence
Knowledge Management
Quality Programs (ISO, TQM)
Six Sigma
Lean Production (Lean Manufacturing)
Business Process Reengineering (BPR)
Mergers & Acquisitions
Balanced Scorecard (BSC).
This paper is focused on research of the Balanced Scorecard concept (BSC), whose main authors
are Robert Kaplan and David Norton. 1
Robert Kaplan is a professor at Harvard Business School. David Norton is a well known consultant and a
founder of Balanced Scorecard Collaborative and the manager of Palladium Group.
The basis of the BSC is the idea that it is not enough to use only financial indicators in
order to measure organizational performance (especially of economic organizations).
Namely, financial indicators (return on investment, return on assets, cash flow) are socalled deferred performance measurements. It means that financial indicators are made
with a certain time delay in relation to the specific factors that produced those financial
indicators. That is why it is necessary to combine the financial indicators with several
other indicators, which are, in fact, causal factors that are shown later in financial
indicators. In other words, the organizations are trying to reach a balanced combination
of performance measurements. Thence the name of Kaplan and Nortons initial approach:
Balanced performance measurements. Kaplan and Norton think that organizational
performance can best be grasped as a combination of four categories of indicators that
they call perspectives. Balanced performance measurements consist of the following
perspectives [3, p. 126]:
For an organizational strategist, the Balanced Scorecard is the same as a control panel to a pilot in
a cockpit of a plane. For flying a plane they need many pieces of information about height, speed,
distance, fuel etc. They have to be balanced, i.e. kept in equilibrium. It is the same with
measurement of organizational performance.
The main basis for forming the balanced scorecard is organizational strategy. Nevertheless,
strategy itself has starting points: mission and vision. The mission is a statement of reasons of
particular organizations existence, i.e. the purpose of its activities. The mission normally
contains organizations key values, which direct employees activities. The vision is a statement
of what an organization defines as success indicators. It could be considered as an image of the
organizations future. Whether the vision will be fulfilled and to what level depends on the
strategy, which represents a general program orientation for fulfilling the vision. Kaplan and
Norton added a strategic map to that concept, as a causal chain of objectives through which the
strategy should be implemented.
The starting point of the BSC looks like this [3, p. 130]:
Financial Perspective
Goals
Measures
Customer Perspective
Goals
- Survive
- Cash flow
- New products
- Succeed
- Responsive supply
- Prosper
- Preferred supplier
-Customer
partnership
Measures
-Technology
capability
-Manufacturing
excellence
-Design productivity
-New product
introduction
- Manufacturing
geometry vs.
competition
- Cycle time
- Unit cost
- Yield
- Silicon efficiency
- Engineering efficiency
- Actual introduction
schedule vs. plan
Measures
- Percent of sales from
new products
- Percent of sales from
proprietary products
- On-time delivery
(defined by customer)
- Share of key accounts'
purchases
- Ranking by key
accounts
- Number of
cooperative engineering
efforts
Measures
- Technology
leadership
- Manufacturing
learning
- Process time to
maturity
- Product focus
- Percent of products
that equals 80% sales
- New product
introduction vs.
competition
- Time to market
Management processes
As a strategic management system, the BSC consists of the following management processes [5,
p. 10]:
1.
2.
3.
4.
The named four processes and their content can be seen on figure 3. [5, p. 11]
CLARIFYING AND
TRANSLATING THE
VISION AND STRATEGY
Clarifying the vision
Gaining consensus
STRATEGIC FEEDBACK
AND LEARNING
COMMUNICATING
AND LINKING
Communicating
and educating
Setting goals
Linking rewards to
performance
measures
Balanced
Scorecard
Articulating the
shared vision
Supplying strategic
feedback
Facilitating strategy
review and learning
Setting targets
Aligning strategic
innitiatives
Allocating resources
Establishing milestones
Strategic feedback and learning as a means of business strategy adjustment enables the
organization to develop strategic learning concepts. Strategic learning implies not only adaptive
learning (cognition, understanding environmental changes and adaptation to those changes), but
also generative learning, which means creation and exploration of new strategic areas for the
purpose of organizational growth. The process of feedback and organizational learning has to be
the basis for organizational vision, strategy and change.
Research has shown that the majority of the companies in implementing the BSC based
strategic management system follow the sequence beginning with the first principle: Mobilize
change through strong effective leadership. The second step follows logically: Translate the
strategy to strategy maps of interconnected strategic goals, using measures and targets of BSC. In
their third book Strategy Maps: Converting Intangible Assets into Tangible Outcomes [7] Kaplan
and Norton elaborate the second principle of a strategy-focused organization, introducing a
general frame for translating strategy to goals that are interconnected and balanced by causal
relationships, as well as observing everything through four BSC perspectives: financial, customer,
internal business processes and learning/growth. Within that frame it is possible to balance
processes, people, technology and culture with customers demands and shareholders goals.
A strategy map is a frame to link intangible assets in value creating processes through four
interconnected perspectives. Strategy maps are made of goals, short statements of the things we
have to do right in each perspective in order to fulfill the strategy as successfully as possible. In
other words, strategy maps describe value creation for shareholders and customers in each
perspective during strategy execution. In that sense the strategy map is a tool to communicate to
all employees, managers, shareholders and board members what is crucial in strategy execution.
Kaplan and Norton expanded the third principle: aligning organization to the strategy. They
presented the use of strategy maps and BSC targets in translating strategy to operational terms,
starting from business units to corporate centre. Aligning organization enables synergy of
business units within a corporation.
The fourth principle means motivating employees, so that strategy would become everyones
everyday job. Creating strategic awareness in each individual, developing personal objectives and
initiatives, as well as skills development are essential functions of human resource management.
In order to make the strategy a continual process, it is necessary to make a system of operational
planning, budgeting and control, which is a basis for the fifth principle of the BSC organizations.
In their book The Execution Premium: Linking Strategy to Operations for Competitive Advantage
[9], Kaplan and Norton reach a new point in strategy management evolution. They presented an
overall management system which links strategy and operations, which makes a complete formal
management system. It was suggested that a BSC organization should form an Office of Strategy
Management, which would have a key role in strategy formulation and implementation. This
centre would coordinate activities of business functions and business units, as well as all the
processes within the system of strategic management.
MISSION
Why we exist?
VALUES
What is important to us?
VISION
What we want to be?
STRATEGY
Our game plan
STRATEGY MAP
Define and communicate priorities and focus
BALANCED SCORECARD
Measure performance against priorities
INITIATIVE AND PROCESS OF PLANNING
Manage actions and resources to drive change
EMPOWERMENT / PERSONAL OBJECTIVES
Motivate employees
STRATEGIC OUTCOMES
SATISFIED
SHAREHOLDERS
DELIGHTED
CUSTOMERS
EFFICIENT
AND
EFFECTIVE
PROCESSES
MOTIVATED
& PREPARED
WORKFORCE
Integrated management system linking strategy and operations can be seen on figure 5.
As we can see on the figure 5, the integrated management system linking strategy formulation
and planning to operational execution consists of six stages:
1. Stage 1. Develop the strategy. Managers develop the strategy using the strategy tools
in strategic analysis and strategy formulation. Clarification of mission, values and
vision is crucial for focusing the organization.
2. Stage 2. Plan the strategy. Organization plans the strategy using tools such as strategy
maps and Balanced Scorecard.
3. Stage 3. Align the organization. Managers align the organization with the strategy by
cascading linked strategy maps and Balanced Scorecard to all organizational units.
Employees are aligned through a formal communication process, and their personal
objectives and initiatives are linked to strategic objectives.
4. Stage 4. Plan operations. Integrated management system enables a direct link between
the strategy and daily operations. Managers use tools such as quality management
(TQM, ISO, Six Sigma), reengineering, process dashboard, rolling forecasts, resource
capacity planning, dynamic budgets etc.
5. Stage 5. Monitor and learn. Organizations use operational review meetings to
examine organizational performance and to address problems, as well as to monitor the
strategy execution.
6. Stage 6. Test and adapt. Periodically, managerial teams should test and adapt the
strategy, to see whether its assumptions remain valid. It should be done at least once a
year, and sometimes quarterly, to update the strategy according to the new information
about the external environment. After that, the new process of strategic planning and
operational execution should be started.
Kaplan and Nortons research show that organizations that use strategy management systems
based on the BSC have superior performance compared to their competitors, so that the BSC
concept became the leading system for managing organizational performance. [9, p. 6]
CONCLUSION
We can say that the Balanced Scorecard concept has been improving its methodology since it
appeared in 1992 until today. That development is related to the experience accumulated through
the work of many consultants during its application in many organizations. Today it is considered
that the Balanced Scorecard is one of the most important business methodologies for measuring
organizational performance and for strategic management.
REFERENCES
Drucker, P. (1998). Managing in a Time of Great Change. New York.
Kaplan, R. N. (2006). Alignment Using the Balanced Scorecard to Create Corporate
Synergies. Harvard Business School Press.
Kaplan, R. N. (1996). Balanced Scorecard: Translating Strategy into Action. Harvard
Business School Press.
Kaplan, R. N. (2001). Strategy Maps: Converting Intangible Assets into Tangible
Outcomes. Harvard Business School Press.
Kaplan, R. N. (2008). The Execution Premium: Linking Strategy to Operations for
Competitive Advantage. Harvard Business Scholl Press.
Kaplan, R. N. (2001). The Strategy Focused Organization: How Balanced Scorecard
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Kaplan, R. (2008). Using Strategy Maps and the Balanced Scorecard to Describe and
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Performance. Harvard Business Review.
Kaplan, R., & Norton, D. (1996). Using the Balanced Scorecard as Strategic
Management System. Harvard Business Review.
Porter, M. (2006). On Competition. Harvard Business Press.
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