Robert Kaplan, a professor at Harvard Business School, is a man who comes up with one big idea per decade. In the 1980s it was activity-based costing; in the 1990s it was the balanced scorecard.
The idea of the balanced scorecard is set out in an article that Kaplan wrote in 1992 for the Harvard Business Review, along with David Norton, president of a consulting firm called Renaissance Strategy Group. The article, entitled “The Balanced Scorecard – Measures that Drive Performance”, began with the idea that what you measure is what you get. If you measure only financial performance, then you get only financial performance. If you take a wider view, and measure things from other perspectives, then (and only then) do you stand a chance of achieving goals other than purely financial ones.
In particular, Kaplan and Norton suggested that companies should consider the following.
– The customer’s perspective. How does the customer see the organisation,
and what should the organisation do in order to remain that customer’s valued supplier?
– The company’s internal perspective. What are the internal processes that the company must improve if it is to achieve its objectives vis-a-vis customers, shareholders and others.
– Innovation and improvement. How can the company continue to improve and to create value in the future? What should it be measuring to make this happen?
The idea of the balanced scorecard was highly attractive when it first appeared. Companies were increasingly frustrated with traditional measures of performance that related only to the shareholders’ point of view. Many felt that this was unduly short-termist and too concerned with stockmarket twitches; it prevented boardrooms and managers from considering longer-term opportunities. The balanced scorecard not only broadens the organisation’s perception of where it stands today, but it also helps it to identify things that will ensure its success in the future.
Kaplan and Norton themselves saw some of the benefits of the balanced scorecard as follows.
– It helps companies to focus on what needs to be done in order to create a “breakthrough performance”.
– It acts as an integrating device for a variety of often disconnected corporate programmes, such as quality, re-engineering, process redesign and customer service.
– It translates strategy into performance measures and targets.
– It helps break down corporate-wide measures so that local managers and employees can see what they need to do to improve organisational effectiveness.
– It provides a comprehensive view that overturns the traditional idea of the organisation as a collection of isolated, independent functions and departments.