But you do point out that financial measures have their limitations. Are some more limiting than others?
Kaplan: I don't think we're unhappy with the financial measures. They're good for what they are. And we're certainly very comfortable with the newer financial metrics like EVA [economic value added] and other shareholder value-based metrics as the overarching objective. If you were just using earnings per share or net income, you'd run into problems of overinvestment--investing too much in capital to generate earnings or net income.
What impact has technology had on disseminating the balanced scorecard information?
Kaplan: The major ERP [enterprise resource planning] vendors all have an application called Enterprise Management that aligns with the functional standards that we have established.
But one of the consultants at Gartner said that traditional [ERP] systems could only capture about 40 percent of the measures from the balanced scorecard. Is that true?
Norton: Yes. Traditional ERP systems are transaction-driven, whereas on the scorecard you get into things like competencies, critical skills, market surveys, employee surveys, or you'll get into measuring on-time delivery and things like that. A high percentage of that information does not exist in transaction systems. On the other hand, it's not that big a deal to build the databases for the high-level [data] because it is not transaction data, it's summary data.
What benefit are companies getting from stand-alone software products?
Norton: Most of the software has just come to the market in the past 12 months. So it's hard to say. I know there are hundreds of installations now. I think there are about 10 organizations that have gone through certification, including SAP and Oracle, as well as a lot of new niche companies that have come into the marketplace.
In some cases, time and cost of implementation have been a deterrent to using the scorecard. Is the cycle time getting shorter? Is it getting any cheaper?
Kaplan: There are two aspects. One is, what does it cost to get one up and running, and how long does it take? The second is, what about the ongoing maintenance of the system? In terms of building the system, I think we've accelerated it, and the templates help that. In addition, the tools that will soon be available on our Web site will help people implement systems at [a] lower cost and faster [speed].
But there is a front-end expense. I don't know how you'd quantify internal time versus external consultants and systems. Maybe it is measured in hundreds of thousands of dollars but not millions. [At the same time,] you're getting billions of dollars of value creation. And if a CFO only thinks, "Can the organization afford $300,000 for a new measurement system?" he's viewing it only as a measurement system. He's not saying, "How much am I willing to pay to get the organization aligned to implement this strategy?"
Have you actually done any studies on the impact of the balanced scorecard on stock price/shareholder value?
Kaplan: A lot of the applications were done in divisions, not in the entire corporation. We talk about Mobil, but that was really a division. It was a big division, $20 billion, but maybe only 20 percent of the company.
Norton: When Cigna started this, however, they had negative shareholder value. The parent company was trying to sell it and had no takers. They introduced a new strategy; introduced the new scorecard. Five years later, they were sold for $3 billion. That's [creating] shareholder value. Saachi & Saachi introduced the scorecard to try to create better segmentation in the way their branch offices were approaching the market. They introduced the scorecard, I believe, in 1997. Shareholder value at that time was $500 million. They were just acquired about six months ago, for $2.5 billion.
Does the balanced scorecard work in the New Economy, with its shorter cycle times and increased volatility?
Norton: If you're a pharmaceutical company and it takes 10 years to bring a product to market, the scorecard will describe the steps you have to take to do that. If you're a dot-com and it takes you 90 days to bring a new product to market, the scorecard will describe that. The major difference in the New Economy with the scorecard is the rate at which you learn, the rate at which things change.
Kaplan: You have to be very skilled in rapidly updating the scorecard in the New Economy, because as things change, you have the managerial challenge of getting the 100 or 500 people in your organization all aligned to the new direction. The scorecard turns out to be probably the most powerful tool these companies could have [to communicate] the new shared understanding. For it to work, however, it can't take six months to update. Candidly, though, I don't think the companies have recognized that if you want to be a very flexible, fast-moving organization, you need a mechanism to bring everybody along.
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