The Balanced Scorecard

The Balanced Scorecard

Developed by Robert Kaplan and David
Norton.
Introduced in the early 1990s.
Motivated in part by Wall Streets 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 organizations mission
statement.
Why does the organization exist?
What are the organizations core values?
Step 2: Develop a strategic vision.
What does the organization want to
become?
Identify a clear picture of the organizations
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 everyones 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.