Balance sc ore card

www.hbr.org

BEST OF HBR 1992 The balanced scorecard tracks all the important elements of a company’s strategy—from continuous improvement and partnerships to teamwork and global scale. And that allows companies to excel.

The Balanced Scorecard
Measures That Drive Performance
by Robert S. Kaplan and David P Norton .
•

Reprint R0507Q

The balanced scorecard tracks all the importantelements of a company’s strategy—from continuous improvement and partnerships to teamwork and global scale. And that allows companies to excel.

BEST OF HBR 1992

The Balanced Scorecard
Measures That Drive Performance
by Robert S. Kaplan and David P Norton .

COPYRIGHT © 2005 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

By the 1980s, many executives were convincedthat traditional measures of financial performance didn’t let them manage effectively and wanted to replace them with operational measures. Arguing that executives should track both financial and operational metrics, Robert Kaplan and David Norton suggested four sets of parameters. First, how do customers see your company? Find out by measuring lead times, quality, performance and service, andcosts. Second, what must your company excel at? Determine the processes and competencies that are most critical, and specify measures, such as cycle time, quality, employee skills, and productivity, to track them. Third, can your company continue to improve and create value? Monitor your ability to launch new products, create more value for customers, and improve operating efficiencies. Fourth, how hasyour company done by its shareholders? Measure cash flow, quarterly sales growth, operating income by division, and increased market share by segment and return on equity. The balanced scorecard lets executives see whether they have improved in one area at the ex-

pense of another. Knowing that, say the authors, will protect companies from posting suboptimal performance.

What you measure iswhat you get. Senior executives understand that their organization’s measurement system strongly affects the behavior of managers and employees. Executives also understand that traditional financial accounting measures like return on investment and earnings per share can give misleading signals for continuous improvement and innovation— activities today’s competitive environment demands. Thetraditional financial performance measures worked well for the industrial era, but they are out of step with the skills and competencies companies are trying to master today. As managers and academic researchers have tried to remedy the inadequacies of current performance measurement systems, some have focused on making financial measures more relevant. Others have said, ‘‘Forget the financial measures;improve operational measures like cycle time and defect rates. The fi-

harvard business review • the high-performance organization • july–august 2005

page 1

The Balanced Scorecard •• •B EST OF HBR 1992

Robert S. Kaplan is the Marvin Bower Professor of Leadership Development at Harvard Business School in Boston. He is a cofounder of the Balanced Scorecard Collaborative. David P. Norton ispresident and a cofounder of the Balanced Scorecard Collaborative, a Palladium company. Kaplan and Norton are the coauthors of six HBR articles and four books on the Balanced Scorecard.

nancial results will follow.’’ But managers should not have to choose between financial and operational measures. In observing and working with many companies, we have found that senior executives do not rely onone set of measures to the exclusion of the other. They realize that no single measure can provide a clear performance target or focus attention on the critical areas of the business. Managers want a balanced presentation of both financial and operational measures. During a yearlong research project with 12 companies at the leading edge of performance measurement, we devised a ‘‘balanced...