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THE HIGH-PERFORMANCE ORGANIZATION

1992
By the 1980s, many executives were convinced that 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, and costs. Second, what must your company
excel at? Determine the processes and competencies that are most c ritical, and
specify measures, such as cycle time, quality, employee skills, and productivity,
to track t hem. T hird, 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 has your 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 expense ofanother. Knowing that, say the authors, will protect
companies from posting suboptimal performance.

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

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 toexcel.

172

^ ^ " h a t you measure is what you
get Senk>r executives understand that
theii (rtganization'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 - activitiestoday's competitive environment demands. The traditional 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 inadequa-

cies of current performance measurement systems, some have focused on
making financial measures morerelevant. Others have said, "Forget the financial measures; improve operational
measures like cycle time and defect
rates. The financial 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
on one 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 ofthe business. Managers
want a balanced presentation of both
financial and operational measures.
HARVARD BUSINESS REVIEW

» THE HIGH-PERFORMANCE ORGANIZATION
During a yearlong research project
with 12 companies at the leading edge of
performance measurement, we devised
a"balanced scorecard"- a set of measures that gives top managers a fast but
comprehensive view ofthe business. The
balanced scorecard includes financial
measures that tell the results of actions
already taken. And it complements the
financial measures with operational
measures on customer satisfaction, internal processes, and the organization's
innovation and improvementactivities-operational measures that are the
drivers of future financial performance.
Think of the balanced scorecard as
the dials and indicators in an airplane
cockpit. For the complex task of navigating and flying a plane, pilots need detailed information about many aspects
ofthe fiight. They need information on
fuel, airspeed, altitude, bearing, destination, and other indicators that summarize the current...