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Building a scorecard can help managers link today’s!
actions with tomorrow’s goals. |
by Robert S, Kaplan and David P. Norton
As companies around the world transform them-
selves for competition that is based on informa-
| tion, their ability to exploit intangible assets has be-
come far more decisive than their ability to invest
in and manage physical assets. Several years ago, irr
recognition of this change, we introduced a con.
[cept we called the balanced scorecard. The balanced
scorecard supplemented traditional financial mea-
sures with criteria that measured performance
from three additional perspectives ~ those of cus-
[) tomers, intermal business processes, and beaming
and growth, (See the chart “Translating Vision
' Strategy: Four Perspectives.”| It therefore enabled
,, companies to track financial results while simulta
| neously monitoring progress in building the capa-
|) bilities and acquiring the intangible assets they
| would need for future growth. The scorecard wasn’t
[a replacement for financial measures; it was their
complement.
Recently, we have seen some companies move
: beyond our early vision for the scorecard to dis-
cover its value as the cornerstone of a new strategic
|’ management system. Used this way, the scorecard
_ addresses a scrious deficiency in traditional man-
[| agement systems: their inability to link a compa-
} | ny’s long-term strategy with its short-term actions,
Most companies’ operational and management
' control systems are built around financial mea-
sures and targets, which bear little relation to the
i
HARVARD BUSINESS REVIEW January-Febroary 1996
| Using the Balanced
Scorecard as a Strategic
Management System
company's progress in achieving long-term strate
tuic objectives. Thus the emphasis most éompanies
place on short-term financial measures I¢aves a gap
between the development of a strategy dnd its im
plementation,
‘Managers using the balanced scorecard do not
have to rely on short-term financial mbasures as
the sole indicators of the company's performance.
‘The scorecard lets them introduce four hew man-
agement processes that, separately and ir] combina
tion, contsibure to linking long-term stéaegie ob
jectives with short-term actions. (Seegthe chart
"Managing Strategy: Four Processes.”|
The first new process ~ translating tHe vision -
helps managers build a consensus around the orga-
nization’s vision and strategy. Despite the best in-
tentions of those at the top, lofty statements about
becoming “best in class,” “the number one supplier,”
Robert S. Kaplan is the Arthur Lowes Dickinson Profes-
sor of Accounting at the Harvard Business School in
Boston, Massachusetts. David P. Norton is the founder
and president of Renaissance Solutions, a consulting
firma in Lincoln, Massachusetts. They are thé authors of
“The Balanced Scorecard ~ Measures That Drive Perfor
mance" (HBR January-February 1992) and “Putting the
Balanced Scorecard to Work” (HBR September-October
1993). Kaplan and Norton have also written a book on
the balanced scorecard to be published in September
1996 by the Harvard Business School Press,
8
ndere meena unineme deere eons uoneminaaatee ea meant ha
| {"[rdnslating Vision and Strategy: Four Perspectives
BALANCED SCORECARD
< [Terma Business Procoss =]
IYounly ou [Chace Ness las — ie
|denilie
lade, |
leh bins |
a
or an “tmpowered organization” don’t translate
easily ihto operational terms that provide useful
guides
th ation atthe local level For people to act
fon the words in vision and strategy statements,
those statements must be expressed as an inte-
grated set of objectives and measures, agreed upon
by all senior executives, that describe the long-
term drivers of success
The second process ~ communicating and link.
jing lets managers communicate their strategy up
|
Lofty vision and strategy
statements don’t translate easily
into action at the local level.
and down the organization and link it to depart-
mental pnd individual objectives. Traditionally, de- |
partmeyts are evaluated by their financial perfor-
76
mance, and individual incentives are tied to short-
term financial goals. The scorecard gives managers }
a way of ensuring that all levels of the organization
understand the long-term strategy and that both de-
partmental and individual objectives are aligned |
with it '
The third process - business planning - enables |
‘companies to integrate their business and financial
plans. Almost all organizations today are imple:
mentinga variety of change programs, each with its |
‘own champions, gurus, and eonsul- |
I
tants, and each competing for senior
executives’ time, energy, and te-
sources. Managers find it difficult to
integrate those diverse initiatives to
achieve their strategic goals—a situa
tion that leads to frequent disag-
pointments with the programs’ re- |
sults But when managers use the
ambitious goals set for balanced scorecard mea-
sures as the basis for allocating resources and set:
ting priorities, they can undertake and coordinate
HARVARD BUSINESS REVIEW January-February 1936
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