The dilemma of what to measure is as old as business itself. From Frederick Taylor's scientific management at the turn of the twentieth century to contemporary notions of shareholder value, managers have soughts reassurance and motivation in measurement.
The trouble is that measurement tends to be one-dimensinioal. Enter the balanced scorecard which links strategic objectives to comprehensive indicators. Stuart Crainer interviews David Norton, the balances corecard's co-creator.
The balanced scorecard first saw the light of day early in the 1990s. David Norton, cofounder of the consulting company, Renaissance Solutions, and Robert Kaplan, the Marvin Bower Professor of Leadership Development at Harvard Business School, developed the concept in research sponsored by KPMG. The result was an article in the Harvard Business Review (“The balanced scorecard,” January/February 1993). This had a simple message for managers: what you measure is what you get.
Kaplan and Norton compared running a company to flying a plane. The pilot who relies on a single dial is unlikely to be safe. Pilots must utilise all the information contained in their cockpit. “The complexity of managing an organisation today requires that managers be able to view performance in several areas simultaneously,” said Kaplan and Norton. “Moreover, by forcing senior managers to consider all the important operational measures together, the balanced scorecard can let them see whether improvement in one area may be achieved at the expense of another.”
Kaplan and Norton suggested that four elements need to be balanced:
- The customer perspective. Companies must ask how customers perceive them.
- The internal perspective. Companies should ask what it is that they must excel at.
- The innovation and learning perspective. Companies must ask whether they can continue to improve and create value.
- The financial perspective. Companies must ask how the company looks to shareholders.
According to Kaplan and Norton, by focusing energies, attention and measures on all four of these dimensions, companies become driven by their mission rather than by short-term financial performance. Crucial to achieving this is applying measures to company strategy. Instead of being beyond measurement, the balanced scorecard argues that strategy must be central to any process of measurement – “A good balanced scorecard should tell the story of your strategy”.
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