File Name: balanced scorecard kaplan and norton 1996 .zip
The Balanced Scorecard BSC translates an organization's mission and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system.
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The Balanced Scorecard—Measures that Drive Performance
Search This Site Share this Site. For more than 50 years, Auerbach Publications has been printing cutting-edge books on all topics IT. Read archived articles or become a new subscriber to IT Today, a free newsletter. This free newsetter offers strategies and insight to managers and hackers alike. Become a new subscriber today. Interested in submitting an article? Want to comment about an article? After working with several pioneering technology and manufacturing companies, Robert Kaplan, a Harvard Business School professor, and David Norton, president of a management consulting firm, found that performance management was defined very narrowly, focusing almost exclusively on financial measures.
They concluded that financial performance alone was insufficient to accurately measure an organization's achievement and total value and that a broader approach was needed.
In their book, The Balanced Scorecard: Translating Strategy into Action , published in , Kaplan and Norton defined a scorecard model, whereby in addition to financial measures, organizational performance should include measures from a customer perspective, an internal business process perspective, and a perspective measuring employee innovation and learning. Sometimes referred to as the four perspectives model, the name "Balanced Scorecard" was chosen to reflect the need for organizations to manage using a balanced assessment of performance measures.
A good scorecard, therefore, includes a mix of core outcome measures common to most strategies, and performance drivers that reflect the uniqueness of a particular strategy. The measures and drivers selected should distinguish between long- and short-term objectives, between financial and non-financial measures, between lagging and leading indicators and between internal and external performance perspectives.
Ultimately, all measures need to be tied back to financial performance. Originally conceived as a performance measurement system, executives using it encouraged the authors to further its potential as a strategic management system.
Early on, Kaplan and Norton believed that sustainable competitive advantage, both near-term and long-term, requires organizations to exploit intangible assets that are not necessarily reflected in financial measures. They believed that intangible assets possess unique hidden potential to The Balanced Scorecard , page 3 :. To realize the potential of intangible assets, organizations must consider a new set of operating assumptions The Balanced Scorecard , page 4 :.
As organizations seek to transform themselves based on these assumptions, they look to a variety of improvement initiatives such as The Balanced Scorecard , page 6 :. But many of these initiatives are also measured narrowly by quarterly and annual financial reports anchored to an aging accounting model. The Balanced Scorecard represented a new performance measurement system, and ultimately, a strategic management model, one derived from an organization's vision and strategy, and also accounts for value derived from intangible assets.
It is based on the belief that cause-and-effect relationships exist between the four measurement perspectives: financial, customer, internal business process, and learning and growth. Each aids the other in realizing their respective measures, and thus the strategic objectives of the organization.
To understand cause-and-effect relationships from The Balanced Scorecard perspective, think about the four perspectives in the following way:. This scenario demonstrates a basic cause-and-effect model highlighting how different business perspectives impact one another.
The Balanced Scorecard emphasizes the need to develop strategy, share it with all employees, and measure results as a holistic system. Financial or statistical measures from a departmental or organizational perspective are simply too narrow. Organizations that don't pay attention to cause-and-effect relationships between the four perspectives may be at a competitive disadvantage.
To better understand the Balanced Scorecard, let's take a closer look at each of the four perspectives. An organization's financial objectives differ depending upon its business lifecycle strategy.
Business lifecycles can be broadly defined, but to keep the explanation simple, Kaplan and Norton discuss the financial objectives of three typical lifecycle strategies: growth, sustain and harvest.
Growth businesses commit resources to develop and enhance new products and services, construct and expand production facilities, invest in systems and infrastructure, develop relationships, enter markets and nurture customers.
They typically operate with negative cash flows and low current returns on invested capital. Financial objectives will measure percentage growth rates in revenues, sales growth by targeted markets, customer groups or geographies.
Businesses operating with a sustain lifecycle strategy are required to earn attractive returns on invested capital and to maintain or grow market share. Investment is channeled to process management and continuous improvement. Managers are asked to maximize income and operate profitably. Return-on-investment, return-on-capital employed and value-added measures are used to evaluate financial performance.
Businesses operating with a harvest lifecycle strategy are mature and warrant little incremental investment. Emphasis is on maintaining operations profitably. Any investment is expected to yield short-term returns. Financial performance is measured by reduction in working capital requirements and cash flow improvement.
Organizations choose financial objectives from the themes that facilitate strategy and measure performance. Depending on the lifecycle of a strategy, revenue, cost or asset management becomes the priority. The scorecard helps executives to specify the metrics by which long-term performance will be evaluated by highlighting the variables associated with business lifecycle success.
This is a traditional approach to financial performance measurement. The critical message that the co-authors emphasize is that to best realize financial objectives, an organization must understand and control how the cause-and-effect relationships of the other perspectives influence financial results.
In other words, every measure selected in the scorecard should be part of a cause-and-effect relationship that, when complete, achieves the financial objectives being sought. In the cause-and-effect scenario stated earlier, the last relationship was a measurement of the financial result. Organizations identify value propositions and deliver to targeted customers and markets. In The Balanced Scorecard , success of the value propositions is determined through five core customer outcome measures The Balanced Scorecard , page 67 :.
Beyond aspiring to delight customers, organizations must translate their mission and strategy statements into specific market segments and customer-based objectives. Kaplan and Norton also believe there must be a focused effort in each targeted segment. They note that some managers sometimes object to this focus thinking that anyone willing to pay for goods and services is a good customer. Kaplan and Norton dismiss this attitude as short-sighted, arguing that it runs the risk of doing nothing well for anyone.
The essence of business strategy is not just choosing what to do; but also choosing what not to do. Boundaries help focus resources to create distinguishable value propositions. In The Balanced Scorecard , the relative strength or weakness of a value proposition drives the outcome of each of the five core customer measures. Realizing the desired outcome for customer acquisition, for example, demands that prospective customers perceive the organization's value proposition to be differentiated from competitors.
The attributes of value, therefore, need to be addressed to drive the desired outcome. Kaplan and Norton organize the attributes of value propositions into three categories The Balanced Scorecard , page 73 - 77 :.
Performance Measures from an Internal Business Process Perspective From the internal business process perspective, Kaplan and Norton believe that performance measurement systems for many organizations focus too heavily on departmental measures. The Balanced Scorecard approach emphasizes the measurement of integrated processes across an organization.
Cost, quality, throughput and time measures should be defined for processes that span multiple departments, such as procurement, production planning and control, order fulfillment, and others. Indeed, this model can be externalized to include customers, suppliers and other partners.
Cross-organizational process design impacts the workforce behavior and ushers in a new way of thinking about how individual, group and organizational objectives are managed and achieved. Organizations should focus on cross-organizational processes that are most critical for achieving customer and shareholder value. Management and measurement of these processes should be addressed by looking at them as end-to-end value chains that start with customer need and end with customer satisfaction.
All businesses have unique ways of creating customer value. But Kaplan and Norton highlight common denominators that define a generic value chain model. They suggest using this generic model as a starting point and template for organizations to model their unique performance measures for business processes.
Kaplan and Norton's value-chain is a generic, high-level process representation. It starts with innovation processes, where customer needs and markets are identified, and then products and services are designed to meet these needs. It proceeds to operations processes where products and services are crafted and delivered, and concludes with post sale services to assure that customer needs are meet, and if not, engages corrective actions to result in customer satisfaction.
Kaplan and Norton believe operations and post-sale services processes are important but view them somewhat generically in The Balanced Scorecard , only briefly reviewing the activities and performance measures unique to each. They advise pursuing other established business improvement initiatives like Total Quality Management TQM that use well-defined scientific practices and measures.
In recent years, other business process management and improvement methods have matured to offer the process measurement details missing in The Balanced Scorecard. Here, their message emphasizes the need for organizations to understand and anticipate customer need.
To realize ambitious customer objectives, The Balanced Scorecard illustrates through several examples the need for organizations to develop internal business processes that capture a deep understanding of customer needs, requirements, challenges and desires; and the need to be recognized by the customer that this knowledge is sufficient and accurate. Lacking such processes and such knowledge can cause the customer to seek alternatives.
Lacking such recognition can cause misunderstanding, confusion and frustration, potentially harming the relationship. This assumes, of course, that the customer in fact knows what they need. Sometimes customers are uncertain about the outcomes they seek, knowing only that they need innovative solutions. In these circumstances, the organization must possess sufficient intelligence and knowledge of the environment to anticipate the need, suggest such innovation and be recognized for its expertise.
In any case, organizations must use their internal business processes and the employees closest to the customer to constantly build upon their knowledge of the customer and the market. Organizations must master customer solution development processes and analyze them to reveal new and unique processes that support a known need, or produce innovative value in the eyes of the customer. This level of effort propels organizations to outperform competitors and creates distinctive and sustainable competitive advantage.
In the learning and growth perspective of The Balanced Scorecard , resourceful and motivated employees drive achievement in the other three perspectives. Organizations that focus solely on financial objectives often treat investments to motivate and improve people as expenses to be eliminated when financial performance declines.
The Balanced Scorecard stresses the importance of investing in the future. That includes investing in the capabilities, productivity and motivation of employees and measuring the outcome of these investments by determining the rates of employee The Balanced Scorecard , page :. Most organizations should and do measure employee satisfaction, retention and productivity, and influence behavior with targeted incentives.
All can be measured in several ways. Employee satisfaction is typically measured by retention or the rate of staff turnover. The simplest and most common measure of productivity is revenue per employee. But managers indifferent to such workforce measures sometimes make simple tactical changes to improve the outcome without really improving the results.
For example, outsourcing some functions may improve employee productivity measures simply because there are fewer employees on the books. This doesn't mean that productivity actually improves or that customer objectives are being met. Ideas for improving the customer experience and realizing customer objectives must increasingly rely on input from the employees closest to both the customer and the organization's internal processes.
strategic learning & the balanced scorecard
What you measure is what you get. The traditional financial performance measures worked well […]. Think of a balanced scorecard as the instrument panel in the cockpit of an airplane. Tracking all the important measures at once guards against suboptimization—that is, achieving gains in one area at the expense of another. What you measure is what you get: the measures you use strongly affect the behavior of your managers and employees. Customer perspective.
Search This Site Share this Site. For more than 50 years, Auerbach Publications has been printing cutting-edge books on all topics IT. Read archived articles or become a new subscriber to IT Today, a free newsletter. This free newsetter offers strategies and insight to managers and hackers alike. Become a new subscriber today. Interested in submitting an article?
The aim of the Balanced Scorecard was "to align business activities to the vision and strategy of the business, improve internal and external communications, and monitor business performance against strategic goals. Jim co-founded tutor2u alongside his twin brother Geoff! Jim is a well-known Business writer and presenter as well as being one of the UK's leading educational technology entrepreneurs.
Kaplan and Norton, has a detailed methodology to link business objectives to functional and technical goals through their developed balanced scorecard method. A short summary of this paper. We are the best area to plan for your referred book. In their book The Strategy-Focused Organization, Kaplan and Norton transformed their Balanced Scorecard, in introduced in the Harvard Business Review as a performance measurement system, to a strategic management system.
The balanced scorecard is a performance measurement system that uses a set of performance targets and results to show an organization's performance in meeting its objectives relating to its various stakeholders. It recognizes that organizations are responsible to different stakeholder groups, such as employees, suppliers, customers, business partners, the community and shareholders. This method of measuring performance focuses attention on achieving strategic organizational objectives relating to the above stakeholders. Further, the balanced scorecard provides a system to channel the energies, abilities, and specific knowledge held by people through out the organization toward achieving these strategic objectives. Sometimes different stakeholders have different wants. For example, employees depend on an organization for their employment.
A balanced scorecard is a strategy performance management tool — a semi-standard structured report , that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions. The critical characteristics that define a Balanced Scorecard are: . Balanced Scorecard was initially proposed as a general purpose performance management system. Two of the ideas that underpin modern balanced scorecard designs concern making it easier to select which data to observe, and ensuring that the choice of data is consistent with the ability of the observer to intervene.
David Norton and I introduced the Balanced Scorecard in a Harvard Business generic strategy management system (Kaplan & Norton, a & b).
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