Managers rarely think of measurements as part of their strategy even though they recognize their
importance for evaluating performance. New strategies and processes are being introduced to improve
performance without examining whether old measures of performance are relevant or whether new
ones are necessary.
The balanced scorecard combines an effective measurement system that helps solidify a company’s
strategic objectives with a management system that can help drive change in key areas such as
product, process, customer, and market development. The scorecard gives managers four different
perspectives to choose measures from (financial, customers, internal processes, and innovation and
improvement activities). The measures of the balanced scorecard helps to focus a company’s strategic
vision, encourages thinking about current and future success, and helps provide a balance between
external and internal measures. This broad view helps managers see what trade offs they are making
among their key success factors. Looking at the scorecard measures of a company, which should be
different for every company, it should be clear what that company’s competitive strategy is.
The balanced scorecard replies on four processes to bind short term activities to long term objectives :
1. Translating the vision
2. Communicating and Linking
3. Business Planning
4. Feedback and Learning
Several companies that have used the balanced scorecard are given as examples in this article. They
used the balanced scorecard to respond to their changing industry. The CEO and senior management
develop a vision and strategy then transformed them into the balanced scorecard’s four perspectives.
The measures used included:
1. Financial Perspective
Return-on-Capital Employed,
Cash Flow
Project Profitability,
Profit Forecast Reliability,
Sales Backlog.
2. Customer Perspective
Pricing Index,
Customer Ranking Survey,
Customer Satisfaction Index,
Market Share.
3. Internal Processes
Hours with Customers on New Work,
Tender Success Rate,
Rework,
Safety Incident Index,
Project Performance Index,
Project Closeout Cycle.
4. Innovation and Learning Perspective
Percentage of Revenue from New Services,
Rate of Improvement Index,
Staff Attitude Survey,
Number of Employee Suggestions,
Revenue per Employee.
The balanced scorecard helped management implement changes to make it a leader in its industry.
A few examples of other companies are given to show how each uses the balanced scorecard
differently. Apple Computer uses the balanced scorecard as a planning tool rather than a control tool.
Advanced Micro Devices (AMD) made an easy transition to the use of the balanced scorecard
because it already had a clearly defined mission and performance measures. The balanced scorecard
helped AMD bring everything together in a more coherent fashion but did not cause any major
changes. The examples are used to illustrate that the balanced scorecard is most successful when used
to drive change.
Building a Balanced Scorecard
In a separate section an outline is provided for building a balanced scorecard. A typical process has
the following steps:
1. Preparation: Define the business unit that a top- level scorecard is appropriate.
2. Interviews: First Round-facilitator interviews executives too get input on strategic objectives
and possible scorecard measures.
3. Executive Workshop: First Round-group debates proposed mission and strategy statements
until a consensus is reached.
4.Interviews: Second Round-facilitator compiles information and interviews executives about
the tentative balanced scorecard.
5. Executive Workshop: Second Round-more debate vision, strategy, and tentative scorecard.
Start to develop implementation plan and objectives.
6. Executive Workshop: Third Round-come to final agreement on vision, objectives, and
measurements developed in the first two workshops. Agree on implementation plan.
7. Implementation: Team develops implementation plan for the scorecard.
8. Periodic Reviews: Used on a monthly or quarterly basis and reviewed annually.
At the end of the article Kaplan interviews Larry D. Brady, who discusses his company’s
implementation of the balanced scorecard. The balanced scorecard helped managers focus on
the company’s strategy. The types of measures included in the scorecard, implementation,
benchmarking, problems encountered, and the involvement of management are all discussed in
the interview.
