long range planning

Long Range Planning 34 (2001) 441-461

www.lrpjournal.com

Applying the Balanced Scorecard Concept: An Experience Report

Heinz Ahn

The Balanced Scorecard is often recommended as a comprehensive management tool linking strategic and short-term action planning. While the literature offering general statements about the successful introduction of the Balanced Scorecard is plentiful, few reports of detailed experience are available. This article offers an insight into the process of elaborating the Balanced Scorecard for a strategic business unit of the ABB Industrie AG, outlining the experiences the unit gained during its introduction of the Balanced Scorecard, as well as emphasising important issues concerning the limitations of this approach. k c 2001 Elsevier Science Ltd. All rights reserved.

Introduction
Traditional systems measuring the performance of a business unit are usually based on short-term nancial goals. Such systems are no longer appropriate to master the challenges which confront companies nowadays. Besides a more thorough consideration of the objectives of relevant stakeholders, companies have to ensure that their strategy is translated into corresponding actions. In this context, Kaplan and Norton developed the Balanced Scorecard concept, a methodology that has achieved wide publicity among both scientists and managers. The Balanced Scorecard claims to ll the gap between the development of a strategy and its realisation by supporting and linking four critical management processes:

clarify and translate vision and strategy; communicate and link strategic objectives and measures; plan, set targets, and align strategic initiatives;

Heinz Ahn is an Associate Professor at the Faculty of Business Administration, University of Aachen, Germany. Corresponding address: RWTH Aachen, Chair of Industrial Controlling and Environmental Management, Templergraben 64, 52080 Aachen, Germany. E-mail: ahn@lut.rwth-aachen.de

0024-6301/01/$ - see front matter k c 2001 Elsevier Science Ltd. All rights reserved. PII: S 0 0 2 4 - 6 3 0 1 ( 0 1 ) 0 0 0 5 7 - 7

enhance strategic feedback and learning.1

The characteristic feature of balance is supposed to be guaranteed by considering short- and long-term/nancial and nonnancial/lagging and leading indicators, concerning four perspectives. On one hand, the strategy should be specied from the nancial and customer point of view as external perspectives; while on the other hand, it should be specied from the process and learning/development point of view as internal perspectives.2 Serious problems with the processes outlined above led ABB Industrie AG (Baden/Switzerland) to introduce the Balanced Scorecard in their company. About 1,500 people are employed at ABB Industrie AG, a leading worldwide supplier of automation products, drive units and complex electronic systems. The company is divided into six strategic business units, supported by ve staff departments (see Figure 1), which taken together, achieved a turnover of 634 billion CHF (about 380 billion USD) in 1999. The problems that confronted ABB Industrie AG stemmed mainly from insufcient management tools and procedures. In particular, three aspects could be distinguished:

Despite a very elaborate planning process, the generated company strategy was not reected by the yearly action plans of the business unit level: in fact, the short-term actions were based on uncoordinated suggestions for improvements in the status quo. A systematic consideration of the strategy, especially with regard to budgeting, did not take place. The management information system used by ABB Industrie AG focused on nancial measures. Such measures were inappropriate to support decision-making because they did not depict the critical success factors, e.g. customer satisfaction or qualied employees, which are relevant to attaining the nancial goals. The few non-nancial measures provided by the

Figure 1. Organisational structure of ABB Industrie AG

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information system, e.g. cycle times, had no explicit connection with the company strategy.

There was a general unawareness about the strategy to be pursued on the part of the employees: although the strategy was communicated to everybody in personnel meetings, the relevant information was soon forgotten.

To ABB Industrie AG, the Balanced Scorecard concept appeared to offer the most promise of overcoming the problems described. Hence, the decision was made to introduce this concept into the whole company, with the aims of:

leading to a more strategy-oriented action planning; providing the management with a comprehensible information tool; giving all employees a better understanding of the company strategy.

A specic Balanced Scorecard was to be developed for each strategic business unit. This paper refers exclusively to the pilot project, begun in March 1999, which introduced the Balanced Scorecard into the business unit Printing Facilities (PF). The PF Business Unit has a simple organisational structure (see Figure 2), with 150 employees, and offers various kinds of technical and electronical systems for newspaper production, achieving about 9% of the companys turnover. As Associate Professor for Industrial Controlling and Cost Management, I was involved in this pilot project through my cooperation with Petra Dickmeis, who was one of the project managers at ABB Industrie AG, at the same time as being a student of mine. This allowed me a deeper insight into the process and problems of developing the Balanced Scorecard than could have been gained simply from an outside observer perspective.3 The paper is structured as follows. Section 2 depicts the project phases for introducing the Balanced Scorecard into the PF busi-

Figure 2. Organisational structure of the PF Business Unit

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ness unit, and explains the elements of the concept. Section 3 describes ABB Industrie AGs experience with the concept so far, while Section 4 deals with substantial weaknesses in the approach.

Project phases for introducing the Balanced Scorecard

Project organisation The responsibility of coordinating the introduction of the Balanced Scorecard into all six of ABB Industrie AGs business units lay within the Quality, Process, and IT Management department (see again Figure 1). This department was in charge of assembling suitable business unit teams as well as initiating and managing workshops for developing the specic Balanced Scorecards. The team assembled for the PF Business Unit (the BSCteam), included the managers of all PF departments (see again Figure 2), a composition designed to ensure that the organisational divisions entrusted with implementing company strategy were represented by the BSC-team. The interdisciplinarity of the BSC-team enabled various interests to inuence the development work and facilitated the creation of a broad basis for implementing the results generated. Several workshop units were planned to handle the essential elements of the Balanced Scorecard, i.e. strategic goals, chains of cause and effect, measures, milestones/targets, and corresponding action programs. A one-day workshop was scheduled for each element, with enough time reserved between these meetings for reappraisal of and reection on the results generated. Identifying strategic goals The objective of the initiating workshop was to deduce strategic goals from the PF Business Units given strategy and to assign them to the Balanced Scorecard perspectives. As a rst step, each BSC-team member had the task of working out those strategic goals which he viewed as relevant, thus including all team members in the process of goal identication, and ensuring that their points of view were taken into account. To help enable participants to assign their strategic goals to the perspectives, they were asked the questions listed in Figure 3. As shown in Figure 3, ABB Industrie AG adopted Kaplan and Nortons distinction of four perspectives:4

the investors interests are taken into account in the nancial perspective; customer needs serve as a basis for choosing the strategic goals of the customer perspective; the process perspective is directed at objectives related to internal processes; the potential perspective refers to constant improvement concerning employee qualication and information management.

Only the title of the fourth perspective deviates from the original
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Figure 3. Main questions for identifying strategic goals

title (learning and development perspective)however, there is no difference in terms of content. The questions concerning the perspectives (see again Figure 3) illustrate that:

the goals in the customer perspective should especially support the achievement of the nancial goals; the choice of strategic goals in the process perspective should be orientated according to the customer goals stated and to those of shareholders; the goals in the potential perspective should promote the achievement of the goals in the other three perspectives.

To ensure uniformity in the way the goals were formulated, guidelines were givenfor example, a combination of a noun and a verb should be used (we offer an innovative service concept)and care was taken to ensure that the desired nal state of affairs was properly expressed, since it was this goal that was to be described, rather than the path to its achievement. The results of the individual work were brought together in the next step. In order to direct management concentration and the distribution of resources towards those concerns that had the most decisive effect on competition, a selection process took place. Out of forty goals proposed, a maximum of twenty strategic goals were to be further pursued within the scope of the Balanced Scorecard. A moderator guided the workshop participants through the selection process. He proceeded from top to bottom (i.e. starting with the nancial perspective and proceeding through the customer, process, and potential perspective) and examined the goals with regard to their strategic signicance. The top-down approach was chosen according to the practice explained above of linking the goals of the perspectives. For the selection of the nal goals, the following lter criteria were used:
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Strategic signicance: A strategic goal should be connected to a competitive advantage; High improvement potential: The pursuance of ambitious targets should be possible; Zone of inuence: The expertise and action competencies required for the fullment of the goals must exist in the organisation; Correct ight altitude: This criterion serves to prevent goals from being adopted which are beyond the inuence of the hierarchy level in question; Measurability: The requirement of measurability focuses on the possibility of monitoring the degrees to which goals are being achieved; Feasibility of implementation: The resources required to achieve the goals (e.g. nancial means or management capacity) should be available.

goals were only placed on the Balanced Scorecard with full team consensus

The selection process in the BSC-team entailed long discussions; however, these were accepted as necessary to arrive at a situation where goals were only placed on the Balanced Scorecard with full team consensus. Finally a total of nineteen goals were selected, arranged according to the Balanced Scorecard perspectives (see Figure 4). Modelling chains of cause and effect The workshop Networking of Strategic Goals served to forge chains of cause-and-effect between the previously determined goals. (In basing the networking process on the strategic goals, ABB Industrie AGs approach differed from suggestions in the literature. Kaplan and Norton, for instance, recommend identifying the links after measures for the goals have been dened.5) ABB Industrie AG chose to network the selected goals directly as it was intended to determine only those measures which reect the identied chains of cause and effect. The development of cause-and-effect chains took place in two phases. Each team member was given the task of identifying links between the strategic goals, and the results of this individual work were then condensed to create a common network. Thus all participants took part in the linking process, ensuring that the nal network had the support of and was understood by everyone. To begin with, the team members received a chart showing the identied goals, grouped according to the perspectives. The participants were asked to pursue a bottom-up approach: the links were to be rst identied within the perspectives and then between them, starting from the potential perspective through the process and customer perspectives up to the nancial perspective. This approach corresponds to the basic idea of the Bal-

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Figure 4. Strategic goals of the PF Business Unit

anced Scorecard concept that the goals of the various perspectives build on one another and nally affect the achievement of the nancial goals. Only the most important links should be noted in order to prevent the creation of a confusing network of causal relations. The second phase started with collecting and explaining all the proposed links. Proceeding from bottom to top, the moderator then put the links up for discussion, questioning whether they formed a direct and strong causal relationship, and conrming or eliminating links only once the BSC-team had reached a consensus. In order to facilitate further communication, the agreed links were numbered, and their assumed effects were noted. Figure 5 illustrates the resulting network of chains of cause and effect, showing a total of thirty-six identied essential links between the strategic goals. In Figure 5, one succession of arrows is specially marked as an example of the description of cause-and-effect chains. The PF business unit bases the symbolised links on the following assumptions:

Link number 1: Pro-active human resources management can

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Figure 5. Network of the strategic goals

increase the competence and motivation of the PF staff. (For example, employees with high capabilities for maintaining the products and systems supplied should be hired.)

Link number 2: In order to make the systems easy to project and maintain, competent employees with specialist service knowledge are necessary. Such employees are capable of taking the service aspect into account when planning customerspecic system applications. Link number 3: Easily maintained systems support an innov-

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ative service concept by making it easier to realise system optimisations.

Link number 4: The innovative service concept will continue to be encouraged by a properly functioning product management, as the PF area product management includes the task of perceiving customer needs for new services. Link number 5: The innovative service concept inuences the net margin goal because the PF Business Unit can demand a high price for the new services, process optimisations, and service contracts, in comparison to the time and energy input required. Link number 6: The goal of a 30 per cent ROCE is supported by the service concept, since the amount of capital tied up in service tasks is only small and a quicker return of expenditure occurs. Link number 7: Turnover with customers at the end of the supply chain is increased by service activities as they are carried out directly for these customers.

Dening measures for quantifying achievement of goals In the next workshop, the identied strategic goals were linked to measures in order to allow for monitoring goal-achievements. First, a creative collection of measures took place with regard to the following requirements.6 Measures should:

quantify the benet of goal achievement and not the amount of effort required; have a motivating effect on the employees; cover the various aspects of a goal.

The measures proposed were then reduced to a maximum of two measures for each goal. For this the moderator introduced further requirements into the discussione.g. it should be possible to record the measures with a reasonable amount of effort, and it should be ensured that they are suitable for deriving actions. As a result of the selection process, a total of twentyve measures were recorded. Not all of these measures can be revealed here, but Figure 6 shows, as an example, the measures for the goals linked by the succession of arrows marked in Figure 5. The selected measures were subjected to a plausibility test before nally being accepted, to ensure that the measures reected the identied chains of cause and effect. It proved possible to conrm corresponding relations for all twenty-ve measures.
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Figure 6. Examples of measures selected by the BSC-team

Setting milestones and targets for the measures The fourth step of the process set the desired target and several milestones for each of the previously determined measures. The target should describe the nal goal level to be achieved at the end of the 3-year strategic planning rhythm, and from this, stage values (milestones) for the individual years were derived. Since the analysis of a considerable amount of data was necessary for a sound estimation of the values, this was done by the BSC-team members without the support of the moderator and in preparation for the next Balanced Scorecard workshop. The desired targets were to represent high but realistic challenges for the PF Business Unit, and the chains of cause and effecti.e. the fact that the achievement of some goals inuence the achievement of othershad to be taken into account. Table 1 depicts the milestones and targets set for the measures listed in Figure 6, with the accompanying goals grouped according to the Balanced Scorecard perspectives. As can be seen in Table 1, the intervals between the values are not equidistant. This corresponds with the Balanced Scorecard idea that the goals of perspectives beneath the nancial perspective form the prerequisite for achieving the monetary goals. It can be assumed that the nancial values will develop more strongly towards the end of the strategic planning horizon.
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Table 1. Examples of Milestones and Targets for the PF Business Unit Perspectives Strategic Goals Measures Milestones End of 1st year Financial perspective Our net margin is constantly 15% Our ROCE is 30% Our turnover with end customers is 30% We offer an innovative service concept Net margin ROCE Turnover with end customers 13% 15% 15% End of 2nd year 15% 20% 20% Target End of 3rd year 15% 30% 30%

Customer perspective

Process perspective

Potential perspective

Number of realised process optimisations Share of sold systems with additional service contracts Our systems are easy Number of inquiries to project and necessary to carry maintain out service tasks We have a Number of new functioning product development projects management initiated by the product manager Our employees are Average number of competent and jobs to which an motivated employee can be assigned We pursue a proAverage number of active human months needed until resource management free resources are available to full a new task

1 15%

3 30%

5 40%

300

100

50

10

Developing strategic programs for achieving the goals In the nal Balanced Scorecard development workshop, strategic programs were determined in order to attain the targets. With a view to encourage creative participation in the process, the team members were rst given the task of individually determining possible strategic programs. At least one program was to be set for each strategic goal of the customer, process, and potential perspectives. (The goals of the nancial perspective were not taken into consideration, as they only depict the results of the initiatives on the other three levels.) All suggestions were then collected and examined with regard to their programmatic character, their support of a goal, and their feasibility in terms of implementation. Only those suggestions that fullled these requirements and upon which the BSCteam reached a consensus were selected. (Corresponding examples are shown in Table 2.) One team member was appointed for each chosen strategic program, with the particular
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Table 2. Examples of Strategic Programs Perspectives Strategic Goals Strategic Programes

Customer perspective We offer an innovative service concept

there is a lack of decision-making aids for companies

Introduction of pro-active service in sales negotiations Hiring or training of employees competent to carry out the service tasks optimisation and instruction Process perspective Our systems are easy Determination of to project and suggestions to improve the maintain systems and products We have a Making available enough functioning product time for product management management tasks Potential perspective Our employees are Encouragement of job competent and rotation motivated Development of training We pursue a proprograms active human Hiring and training resource management according to the capacity requirement plan one year in advance

responsibility of driving forward the implementation of that program sector over the following three years.

Experiences with the Balanced Scorecard concept

Particular difculties of introducing the Balanced Scorecard The problems which arose during the introduction of the Balanced Scorecard at ABB Industrie AGs PF Business Unit can be divided into those associated with its development, and those concerning its use. The following explains the difculties, and the approaches pursued in solving them. Problems in developing the Balanced Scorecard Most of the problems which appeared in developing the Balanced Scorecard were a result of insufcient recommendations concerning the elaboration of the Balanced Scorecard concept.7 Above all, there is a lack of decision-making aids for companies both when generating and linking the strategic goals and when generating the measures and their values to be attained. For example, Kaplan and Norton suggest voting on the objectives in order to select the strategic goals, instead of supporting a rational group decision process.8 The BSC-team at ABB Industrie AG managed this problem by compiling goal requirements given in literature and using them as a lter in the selection process.
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The over-complexity caused by the derivation of too many cause-and-effect chains was another problem. The recommendation that such links should be expressed in ifthen statements was judged to be insufcient, as it was always possible to nd arguments in favour of links. The BSC-team at ABB Industrie AG failed to nd an analytical solution for this problem. The task of dening measures also led to difculties. The Kaplan and Norton recommendation of considering the lifecycle concept when deriving the measures for the goals of the nancial perspective was not seen as particularly helpful by the BSC-team. The lack of predictability regarding lifecycle development made it difcult to derive reliable future-orientated statements. In order to solve this problem, the BSC-team followed a procedure that rst encourages a creative determination of possible measures, and then selects those measures which were most easily recorded and of most signicance. The guidelines found in literature for determining the values for setting milestones and targets for the measures were also judged to be insufcient. Kaplan and Norton, e.g., only recommending setting stretch targets. Here, the BSC-team tried to take into account the interdependencies between the goals when quantifying the values of the measures to be attained each year. To sum up, it can be said that the very generally expressed recommendations for developing the Balanced Scorecard caused signicant problems. A detailed elaboration of the Balanced Scorecard proved necessary, and involved an unexpectedly large amount of time being required of the BSC-team to full its task. The warning of Weber and Scha ffer that the introduction of the Balanced Scorecard requires more management capacity than expected9 can be conrmed by ABB Industrie AGs experience. Five full-day workshops were spent just elaborating the Balanced Scorecard elements, with each workshop requiring an additional one or two days for preparation and review. The whole process of developing the Balanced Scorecard lasted four months. Problems in using the Balanced Scorecard The problems which occurred in using the Balanced Scorecard over the period of study mainly concerned recording and monitoring the twenty-ve dened measures. Gathering the respective data required a great amount of time and energy, and in order to be able to cope with the effort needed, the PF Business Unit introduced the measures into the organisation step by step. The question of whether the employees would accept new measures alongside the numerous measures already present proved to be another problem, and consideration had to be given as to which of the measures recorded to date should continue to be recorded in the future. One possibility considered to reduce the effort required was to handle them as diagnostic measures in the sense that they are only presented to the management when their values exceed a given range. Moreover, it is planned to substantially cut down the number of measures existing in the company that are outside the scope of the Balanced Scorecard.
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Management-oriented strengths of the Balanced Scorecard The Balanced Scorecard is used in the PF Business Unit to prepare action planning and budgeting, to control the unit as well as to provide information on strategy within the organisation. The concrete benet of the Balanced Scorecard for supporting these processes is explained in the following. The Balanced Scorecard as a guarantee for strategy-oriented action planning and budgeting Initial experience with the use of the Balanced Scorecard has proved it to be of considerable benet for connecting long-term strategic planning and short-term action and budget planning. In this regard, the strategic programs were translated into individual actions oriented towards step-by-step attainment of the milestones pursued. As an example, Table 3 shows some of the individual actions derived for the strategic programs of the potential perspective listed in Table 2, with the actions planned start- and nish-times marked by arrows. A broader circle of participants than just the BSC-team was included in order to determine these actions, as they have a concrete inuence on everyday company life and on operational processes. Budgetary resources were allocated on the basis of the action plan. The expected costs of each action were estimated, and the milestones for monetary and non-monetary measures having already been determined during Balanced Scorecard development were adopted directly into the budget. The explicit inclusion of non-monetary values was intended to prevent the feature of balance of the strategic planning from being destroyed in short-term planning by a focus on nancial values. Integrating the Balanced Scorecard into the process of company control ABB Industrie AG regards the Balanced Scorecard as suitable for supervising and leading the employees. It is used as an information-gathering tool, recording selected monetary and nonmonetary measures on a quarterly basis, serving to keep management informed of the current status of strategy implementation. Quarterly Balanced Scorecard meetings examine strategy implementation status. In such half-day meetings, the managers of the PF departments and their superiors compare the actual values of the measures with the milestones set. A negative deviation between these and the expected developments leads to considerations to optimise strategy implementation. Once a year, the assumptions regarding the Balanced Scorecardespecially the presumed chains of cause and effectare checked for their correctness, and the Balanced Scorecard is adapted if the causal relations originally drawn up cannot be conrmed. A lack of correlation between presumed driving factors and expected results is regarded as a signal that the previously planned path towards strategy implementation should be reconsidered.
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Table 3. Part of the Action Plan of the PF Business Uniti 1st Year 3rd Quarter July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May 4th Quarter 1st Quarter 2nd Quarter June 2nd Year

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Encouragement of job rotation Determination of employee needs with regard to job rotation Planning of job rotations one year in advance on the basis of discussions with employees Establishment of incentives for job rotations Development of training programes Determination of know-how deciencies Development of training programes with regard to recorded deciencies Realisation of the training programes Hiring and training according to the capacity requirement plan one year in advance Elaboration of a hiring and training project plan with a one-year planning horizon Establishment of a long-term plan for customer orders Development of a data bank for the administration of capacity requirements

Planned action start

; planned action nish .

455

The Balanced Scorecard is also the basis for obligatory discussions between every employee and their superior. Scheduled at least once a year, these meetings serve to balance the individual employee objectives with the targets set by the business unit. The chains of cause and effect are used to explain how the employee can contribute to the attainment of the set milestones and targets, ensuring that the connection to strategy implementation is made clear. However, ABB Industrie AG has not yet connected their incentive system to the Balanced Scorecard. The Balanced Scorecard as an aid for communicating strategy ABB Industrie AG views an easily understood communication of strategy to the employees as an important prerequisite for its realisation, and has introduced a Communication Program to run alongside the development of the Balanced Scorecard. This program started with a rst publication in the in-house company magazine, giving employees an overview of the Balanced Scorecard methods, the motives for its introduction and the development process of the pilot project in the PF Business Unit. In the next step, a Communication Day took place for the employees of the PF Business Unit to inform them of the developed Balanced Scorecard in detail, with the aim of encouraging an active role on the employees part. A workshop which all employees had to attend was organised for each area of responsibility in the PF Business Unit, where the strategic goals relevant to the respective area were discussed with the employees, as well as the specic chains of cause and effect, measures and strategic programs. During the workshops, the employees were given the task of explaining from their point of view the contribution they could make to the implementation of the strategic programs. The employees contributions were noted so that they could be referred to again in future discussions as well as be used for continuing detailed action planning. The Communication Day produced a broad acceptance and understanding of the strategic goals and accompanying programs among the employees, and the structured procedure provided by the Balanced Scorecard concept appeared to be suitable for explaining the strategic thrust of the PF Business Unit clearly. As Kaplan and Norton pointed out, communicating the elements of the Balanced Scorecard just once will not be sufcient to create awareness of strategy and to inuence the employees behaviour durably.10 It is intended to reinforce the Balanced Scorecard idea regularly with employees, for example by presenting the strategic goals together with their links visually in ofces and by informing employees periodically about the status of strategy implementation. The Balanced Scorecard as a comprehensive management tool As already outlined at the start of this paper, Kaplan and Nortons Balanced Scorecard concept claims to be the central
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element of a four-step management process.11 The following section discusses to what extent this claim is justied from ABB Industrie AGs point of view. The rst step of the management process promises to create a more precise strategy and a consensus about this strategy in the management team. And indeed, the process of developing the Balanced Scorecard for the PF Business Unit really did contribute to clarifying strategy and expressing it in concrete terms. (This experience is conrmed by, e.g., the American chemical corporation Amoco.12) A clear strength of the Balanced Scorecard was that of being an easily understood concept. Viewing the strategy from the four different perspectives, and identifying by links between them, clearly illustrated the causal relationship between the fullment of customers and employees expectations and those of shareholders.13 However, the structure of the Balanced Scorecard can be criticised in that the four perspectives suggested by Kaplan and Norton have to be translated into the specic needs of individual companies. Potential shortcomings might include, for example, that suppliers are not adequately taken into account,14 or that the nancial goals lose too much importance when competing with threeor even moreother perspectives.15 For ABB Industrie AG, these arguments were not of great relevance. The crucial problem ABB Industrie AG had to deal with concerned the fact that Kaplan and Nortons Balanced Scorecard concept does not give sufcient guidelines regarding structure. Creating a consensus on strategy, therefore, essentially depends on the way the process is designed. The second step within the strategic management process concerns the communication of strategy within the company, and ABB Industrie AG found the Balanced Scorecard a useful tool for this purpose. Its logical structure and the tying of actions to the strategic goals enabled the employees to understand the companys goals and to recognise their contribution to achieving them. At rst glance, the feature of linking the strategic goals to operational actions creates the impression that the Balanced Scorecard concept is also sufcient to carry out strategy-oriented action planning and resource allocation. ABB Industrie AGs experience, however, has shown that the concept needs to be specied for this third management process. In particular, the delayed attainment of individual targets due to chains of cause and effect needs to be considered within the scope of action planning so that the focus of action can be decided upon accordingly. The fourth management processstrategic feedback and learningis probably the most critical. In this process ABB Industrie AG deems the chains of cause and effect to be a crucial element of the Balanced Scorecard. With their aid, feedback and learning can be triggered by comparing those correlations that actually occurred with the assumptions made. As yet, however, ABB Industrie AG does not have sufcient reliable experience to

A clear strength of the Balanced Scorecard was that of being an easily understood concept

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judge whether the Balanced Scorecard tool can be really used for checking their original premises.

Critical reection on the Balanced Scorecard

The detailed description of the case study gives a good impression of how the development and implementation of a Balanced Scorecard may be managed. In this context, the solutions ABB Industrie AG adopted to overcome their problems with the concept are of special interest. Although some of these problems were serious, they were never crucial, and the experiences ABB Industrie AG had with the concept were for the most part satisfactory. In spite of the promising picture that the case study painted of the Balanced Scorecard, however, managers who are considering whether to adopt the approach should be aware of its limitations. Some important issues concerning these limitations are pointed out in the following. To begin with, the Balanced Scorecard is not an elaborated system but a framework for performance measurement. This framework has to be worked out according to the strategy pursued. Applying another companys Balanced Scorecard development process as a guideline may be helpful, but it also increases the risk of not paying enough attention to the companys own competitive position. It is essential to realise that the competitive advantages can only be taken adequately into account by establishing a Balanced Scorecard unique to the company involved. In particular, the four original perspectives of the concept need to be individually adapted. Here, the stakeholder approach is considered a helpful instrument to identify the relevant perspectives, especially for those companies which are confronted with the new information age competition.16 From the point of view of decision theory, the determination of relevant perspectives is the rst step to build a multi-level hierarchy of goals (in decision theory called objectives), leading to a set of measures (in decision theory called attributes) capable of quantifying performance at the lowest level of the hierarchy. According to decision theory, such attributes as well as the hierarchy of objectives should meet a number of requirements, e.g. decomposability and non-redundancy.17 These desirable properties, based on ndings of decision-making research are, however, not even mentioned in the common Balanced Scorecard literature. With respect to this, the concept has to be revised in order to design a more sophisticated process of developing a Balanced Scorecard, especially regarding the identication of strategic goals and their measures. To master the high complexity of such a process, the assistance of decision-making specialists can be very helpful. Epstein and Manzoni, e.g., illustrate how they functioned as consultants for a group of business unit executives in order to support two steps of their Balanced Scorecard development, translating strategy into objectives and selecting performance indicators.18 As their explanations reveal, their suggestions for overcoming the prob458

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lems faced by these executives were closely connected with the requirements outlined above: concerning the rst step, they applied a hierarchical approach; concerning the second step, they focussed on desirable properties of measures, namely controllability and completeness. The importance of decision-making skills is also underlined by the ndings of Lipe and Salterio.19 Their experimental study covers several business units of a company, each of which has developed its own Balanced Scorecard measures: some measures applying to every business unit, while others are unique. These unique measures are of great signicance because they reect the individual strategy of the respective business unit. Lipe and Salterio discover, however, that managers who asked to evaluate multiple subordinate business units underestimate or even ignore the unique measures. Thus, the cognitive limitations of untrained decision-makers can signicantly reduce the outstanding potential of the Balanced Scorecard concept to capture a business units characteristic features. There is little research on how to connect the Balanced Scorecard concept to other management tools, reinforcing the impression that the Balanced Scorecard concept is far from being fully developed. It seems relatively easy to integrate individual methods like Benchmarking and Quality Function Deployment into the concept. But more effort will be needed to create coherence between the Balanced Scorecard concept and additional management systems, e.g. planning and budgeting systems, so that the employees receive consistent information.20 In this context, special importance is ascribed to linking a companys compensation system to the Balanced Scorecard measures,21 but there are also those who consider such an approach to have risks.22 The following judgement, however, meets with considerable approval: In order to play the dedicated key part in the management process, the Balanced Scorecard should replacenot complementa companys current performance measurement system. Beyond such concerns for the improvement of the Balanced Scorecard concept, some experts question the concept itself. For ffer argue that the Balanced Scorecard example, Weber and Scha can only be seen as a diagnostic system of performance measurement.23 Given the multitude of measures, managers who try to use it as an interactive system will be overburdened, and strategic supervision of original premises cannot be adequately taken into ffer to the conaccount. Both arguments lead Weber and Scha clusion that the Balanced Scorecard approach is only one step towards an active management of performance measures. The close linkage between the strategy pursued and the Balanced Scorecardusually judged to be an important advantageis the reason for an even more critical view of the concept. Such views start from the assumption that the traditional, formal planning systems will be more and more replaced by procedures of incremental planning, leading to strategies that will be continuously redened.24 This scenario is of special relevance for

the Balanced Scorecard should replacenot complementa companys current performance measurement system

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companies which are facing increasing pressure due to rapid change and erce competition. Under such conditions, a comparatively inexible performance measurement system like the Balanced Scorecard is judged to be inappropriate.25 There are thus a number of reasons why the introduction of the Balanced Scorecard may fail. Managers considering implementing the concept should therefore consider the limitations as well as the possible benets of this approach, and further research is necessary in order to help them make the right decision. However, it will remain impossible to predict the value of the Balanced Scorecard approach before implementation. Managers will have to be content with case studies and articles which attempt to outline some of its advantages and disadvantages.26

References
1. R. S. Kaplan and D. P. Norton, The Balanced Scorecard, Harvard Business School Press, Boston, MA (1996). 2. P. Hepworth, Weighing it upa literature review for the Balanced Scorecard, Journal of Management Development 17(8), 559563 (1998). 3. H. Ahn and P. Dickmeis, Experiences with the introduction of the Balanced Scorecard at ABB Industrie AG, Working Report No. 2000/01, Chair of Industrial Controlling and Environmental Management, University of Aachen, Aachen (2000). 4. R. S. Kaplan and D. P. Norton, The Balanced Scorecard measures that drive performance, Harvard Business Review 70(January-February), 7179 (1992). 5. Kaplan and Norton (1996) (see Reference 1). 6. J. Creelman, Building and Implementing a Balanced ScorecardAn International Study of Corporate Best Practice in Strategy Implementation, Business Intelligence, London (1998). 7. Kaplan and Norton (1996) (see Reference 1). 8. C. -L. Hwang and M. -J. Lin, Group Decision Making Under Multiple CriteriaMethods and Applications, Springer, Berlin (1987). ffer, Balanced ScorecardGedanken 9. J. Weber and U. Scha zur Einordnung des Konzepts in das bisherige ControllingInstrumentarium, Zeitschrift fu r Planung 9(4), 341365 (1998). 10. Kaplan and Norton (1996) (see Reference 1). 11. R. S. Kaplan and D. P. Norton, Using the Balanced Scorecard as a strategic management system, Harvard Business Review 74(January-February), 7585 (1996). 12. R. W. Scalpone, Building a strategic scorecarding process at Amoco Corporation, Employment Relations Today (Winter), 4156 (1998). 13. J. Geanuracos and I. Meiklejohn, Performance MeasurementThe New Agenda, Business Intelligence, London
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(1993); R. Newing, Benets of a Balanced Scorecard, Accountancy 114(November), 5253 (1994). A. Atkinson, J. H. Waterhouse and R. B. Wells, A stakeholder approach to strategic performance measurement, Sloan Management Review 38(3), 2537 (1997). A. Butler, S. R. Letza and B. Neale, Linking the Balanced Scorecard to strategy, Long Range Planning 30(2), 242253 (1997). T. Clarke, The stakeholder corporationa business philosophy for the information age, Long Range Planning 31(2), 171180 (1998); M. Martinsons, R. Davison and D. Tse, The Balanced Scorecarda foundation for the strategic management of information systems, Decision Support Systems 25(1), 7178 (1999). R. L. Keeney and H. Raiffa, Decisions with Multiple ObjectivesPreferences and Value Tradeoffs, Cambridge University Press, Cambridge, MA (1993). M. Epstein and J.-F. Manzoni, Implementing corporate strategyfrom Tableaux de Bord to Balanced Scorecards, European Management Journal 16(2), 190203 (1998). M. G. Lipe and S. E. Salterio, The Balanced Scorecard judgemental effects of common and unique performance measures, The Accounting Review 75(3), 283298 (2000). S. Mooraj, D. Oyon and D. Hostettler, The Balanced Scorecarda necessary good or an unnecessary evil?, European Management Journal 17(5), 481491 (1999). D. P. Norton and F. Kappler, Balanced Scorecard best practicestrends and research implications, Controlling 12(1), 1522 (2000); Epstein and Manzoni (1998) (see Reference 18). C. W. Chow, K. M. Haddad and J. E. Williamson, Applying the Balanced Scorecard to small companies, Management Accounting 79(3), 2127 (1997). J. Weber and U. Scha ffer, On the way to active management of performance measures, in A. Neely (ed.), Performance Measurement 2000Past, Present and Future, pp. 672679, Conference Proceedings, Craneld (2000); J. Weber and U. ffer, On the Way to Active Management of Performance Scha Measures, Working Report No. 66E, Chair of Controlling and Logistics, Otto Beisheim Graduate School of Management, Vallendar (1999). P. Lorange, Strategy implementationthe new realities, Long Range Planning 31(1), 1829 (1998). D. Dinesh and E. Palmer, Management by objectives and the Balanced Scorecardwill Rome fall again?, Management Decision 36(6), 363369 (1998). Mooraj, Oyon and Hostettler (1999) (see Reference 20).

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