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The balanced scorecard: here and back: from its beginnings as a performance measurement tool that looked beyond the traditional financial measures, the balanced scorecard has evolved into an all-encompassing strategic management and control system.

Article Excerpt
The balanced scorecard is a strategic performance measurement system developed by Robert S. Kaplan and David P. Norton to help organizations achieve breakthrough results by embedding strategy at the heart of the organization. Developed 12 years ago, the concept was significantly different from any existing performance measurement system and generated considerable excitement. A variety of applications and variations of the balanced scorecard have emerged since its inception. It was received and used so enthusiastically and effectively that the Harvard Business Review labeled it in 1997 as one of the 75 most influential ideas of the 20th Century. (1) Early on, a navigation metaphor was used to illustrate the need for additional performance measures. Over time, the navigation metaphor expanded to include the process of strategic mapping and decisions about where to lead your company. This article outlines the evolution of the balanced scorecard.

BALANCED SCORECARD: THE INCEPTION

In 1990, the Nolan Norton Institute, the research arm of KPMG, sponsored a one-year, multi-company study on the future of performance measurement. David Norton, CEO of Nolan Norton, was the study leader, and Robert Kaplan served as an academic consultant. The 12 companies that formed the original study group believed that the exclusive reliance on financial performance metrics alone was causing their companies to do the wrong things. Many of the activities that create organizational value are not derived from the tangible, fixed assets of the firm. Intangible assets such as customer and supplier relationships, innovative product development, and intellectual capital are where most of the value lies. Decisions based on traditional financial measures often fail to incorporate the importance of these real value drivers.

Severe cost-cutting programs can have a significant impact on short-term financial measures. This results in a positive outcome guided by financial metrics alone. Unfortunately, long-term value-creating functions such as market development, employee growth, and research and development are often the target of these cost reductions. A strict reliance on financial measures alone to guide organizations often results in negative outcomes.

Kaplan, Norton, and the 12 company representatives met every other month throughout 1990 to develop a new performance measurement model. They began by analyzing case studies involving innovative performance measurement systems. The ideas investigated included: shareholder value, productivity and quality measurements, new compensation plans, and a case study of Analog Devices's "corporate scorecard." (2)

The group settled on the scorecard as the most promising system and set out to refine the concept. The end result was the balanced scorecard (BSC). They recommended that companies use four common perspectives in their scorecard, supplementing these with a number of customized perspectives as needed. The four perspectives were: financial, customer, internal, and innovation and learning. Each perspective helped answer a basic performance question: How do we look to shareholders? How do customers see us? What must we excel at? Can we improve and create value?

The performance measurement scorecard struck a balance between leading and lagging indicators, short-and long-term objectives, and external and internal performance perspectives. It also forced management to concentrate on drivers of future performance and not just on past performance. These operational drivers and measures complemented the traditional financial measures, providing a more comprehensive picture of the company's performance.

Several of the companies built prototype balanced...

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