Balance scorecard

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FROM THE HARVARD BUSINESS REVIEW

OnPoint
A R T I C L E

HBR
The right way to think into action.

of the balanced scorecard is as software to translate your company’s strategy

Using the Balanced Scorecard as a Strategic Management System
by Robert S. Kaplan and David P. Norton

New sections to guide you through the article: • The Idea in Brief • The Idea at Work • Exploring Further.. .
PRODUCT NUMBER 4126

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Using the Balanced Scorecard as a Strategic Management System

hy do budgets often bear little direct relation to a company’s long-term strategic objectives? Because they don’t take enough into consideration. A balanced scorecard augments traditional financial measures with benchmarks for performance in three key nonfinancialareas:
• a company’s relationship with its customers • its key internal processes • its learning and growth.

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When performance measures for these areas are added to the financial metrics, the result is not only a broader perspective on the company’s health and activities, it’s also a powerful organizing framework. A sophisticated instrument panel for coordinating and fine-tuning a company’soperations and businesses so that all activities are aligned with its strategy.

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h e balanced scorecard relies on four processes to bind short-term activities to longterm objectives:
1. Translating the vision. By relying on measurement, the scorecard forces managers to come to agreement on the metrics they will use to operationalize their lofty visions.EXAMPLE: A bank had articulated its strategy as providing “superior service to targeted customers.” But the process of choosing operational measures for the four areas of the scorecard made executives realize that they first needed to reconcile divergent views of who the targeted customers were and what constituted superior service.

3. Business planning. Most companies have separate procedures(and sometimes units) for strategic planning and budgeting. Little wonder, then, that typical long-term planning is, in the words of one executive, where “the rubber meets the sky.” The discipline of creating a balanced scorecard forces companies to integrate the two functions, thereby ensuring that financial budgets do indeed support strategic goals. After agreeing on performance measures for thefour scorecard perspectives, companies identify the most influential “drivers” of the desired outcomes and then set milestones for gauging the progress they make with these drivers. 4. Feedback and learning. By supplying a mechanism for strategic feedback and review, the balanced scorecard helps an organization foster a kind of learning often missing in companies: the ability to reflect on inferencesand adjust theories about cause-and-effect relationships.

2. Communicating and linking. When a scorecard is disseminated up and down the organizational chart, strategy becomes a tool available to everyone. As the high-level scorecard cascades down to individual business units, overarching strategic objectives and measures are translated into objectives and measures appropriate to eachparticular group. Tying these targets to individual performance and compensation systems yields “personal scorecards.” Thus, individual employees understand how their own productivity supports the overall strategy.

Feedback about products and services. New learning about key internal processes. Technological discoveries. All this information can be fed into the scorecard, enabling strategic refinementsto be made continually. Thus, at any point in the implementation, managers can know whether the strategy is working—and if not, why.

HBR OnPoint © 2000 by Harvard Business School Publishing Corporation. All rights reserved.

Building a scorecard can help managers link today’s actions with tomorrow’s goals.

Using the Balanced Scorecard as a Strategic Management System
by Robert S....
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