When Robert S. Kaplan and David P. Norton published their Harvard Business Review article, "The Balanced Scorecard-- Measures that Drive Performance," in 1992, they had no idea they were about to launch a revolution. They were simply pointing out the shortcomings of using only financial metrics to judge corporate performance, and urging companies to measure such factors as quality and customer satisfaction as well.
By the thousands, companies embraced the idea. A balanced scorecard became the hallmark of a well-run company, and a whole new consulting specialty sprang up to help companies create one for themselves.
Today, many companies say the scorecard is the foundation of their management systems.
It is fair to say that the balanced scorecard has served its creators well, too. Since the original article and subsequent book were published, Kaplan, the Marvin Bower Professor of Leadership Development at Harvard Business School, and Norton have helped hundreds of companies implement the scorecard and have lectured in more than three dozen countries about it. In addition, Norton left his position as head of Renaissance Worldwide two years ago to become founder and president of Balanced Scorecard Collaborative Inc., a Lincoln, Massachusettsbased firm that facilitates the global use and awareness of the scorecard.
Recently, the duo also found time to write a sequel, The Strategy-Focused Organization (Harvard Business School Press, 2001). In it, they describe the evolution of the balanced scorecard from measurement system to a system for managing change. They examine its impact at some of the 200 companies that have implemented it, including Mobil Oil Corp., AT&T Canada, and Cigna Insurance. "For the first time," says Kaplan, "we've been able to document that it works."
Recently, Kaplan and Norton discussed the impact of the balanced scorecard with CFO deputy editor Lori Calabro, and argued its merits as a tool for effecting corporate strategy.
When you developed the balanced scorecard almost 10 years ago, did you have any idea how pervasive it would become in Corporate America?
Kaplan: I think not. We really set out to solve a performance measurement problem: Why are financial measures alone unable to capture the value-creating activities of contemporary organizations? The balanced scorecard was the solution to that. What we could not have anticipated was that it was also a solution for a much bigger problem: organizations' inability to implement new strategies and to move in new directions, particularly directions focused on customer-value propositions.
Norton: In addition, neither of us appreciated that the approach was hitting at the fundamental question in the New Economy, which is, "How do I create value from intangible assets?"
How widespread is the use of the balanced scorecard, really?
Norton: Bain & Co. does a survey every year of the management practices in large companies. This survey indicates that in North America, about 50 percent of Fortune 1,000 companies [are using the scorecard], and in Europe somewhere between 40 and 45 percent. I was just down in Australia. There, research done by one of the universities indicates that about 35 percent of companies claim to be using a balanced scorecard.
What about the other 50 percent of companies? Are they misdirected?
Norton: The approach has probably moved through the large organizations [first], because they tend to be more in tune with current management concepts.
Kaplan: We find that there needs to be a style of openness and transparency present [in order for the scorecard to be adopted]. Senior executives must want to communicate the objectives of the organization to everybody. Not all executives have that style. And, of course, until the new book came out, there had not really been any documentation that this works.
What are the main features of an organization that successfully uses the balanced scorecard to identify strategic goals and realize them--a so-called "strategy-focused organization"?
Kaplan: Each organization we studied did it a different way, but you could see that, first, they all had strong leadership from the top. Second, they translated their strategy into a balanced scorecard. Third, they cascaded the high-level strategy down to the operating business units and the support departments. Fourth, they were able to make strategy everybody's everyday job, and to reinforce that by setting up personal goals and objectives and then linking variable compensation to the achievement of those target objectives. Finally, they integrated the balanced scorecard into the organization's processes, built it into the planning and budgeting process, and developed new reporting frameworks as well as a new structure for the management meeting.
But how do you know it works?
Norton: Take Mobil. When they started the process in 1993, they would conduct an annual employee survey and ask questions such as, "Do you understand the strategy? Do you understand what we're trying to do with our customers, with quality, safety, and things like that?" Initially, they found that only 20 percent of the workforce understood the strategy. Five years later, that number was 80 percent. And the foundation for Mobil's subsequent success was its ability to get that 80 percent of the workforce to understand what the corporation was trying to do, and then tailor their own jobs and their own priorities to support that strategy.
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