Using the Balanced Scorecard as a Strategic
Management System
by Robert S. Kaplan and David P. Norton
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Editors Note: In 1992, Robert S. Kaplan and David P. Nortons concept of the balanced
scorecard revolutionized conventional thinking about performance metrics. By going beyond
traditional measures of fnancial performance, the concept has given a generation of managers a
better understanding of how their companies are really doing.
These nonfnancial metrics are so valuable mainly because they predict future fnancial
performance rather than simply report whats already happened. This article, frst published in
1996, describes how the balanced scorecard can help senior managers systematically link
current actions with tomorrows goals, focusing on that place where, in the words of the authors,
the rubber meets the sky.
As companies around the world transform themselves for competition that is based on
information, their ability to exploit intangible assets has become far more decisive than their ability
to invest in and manage physical assets. Several years ago, in recognition of this change, we
introduced a concept we called the balanced scorecard. The balanced scorecard supplemented
traditional fnancial measures with criteria that measured performance from three additional
perspectivesthose of customers, internal business processes, and learning and growth. (See
the exhibit Translating Vision and Strategy: Four Perspectives.) It therefore enabled companies
to track fnancial results while simultaneously monitoring progress in building the capabilities and
acquiring the intangible assets they would need for future growth. The scorecard wasnt a
replacement for fnancial measures; it was their complement.
Recently, we have seen some companies move beyond our early vision for the scorecard to
discover its value as the cornerstone of a new strategic management system. Used this way, the
scorecard addresses a serious defciency in traditional management systems: their inability to link
a companys long-term strategy with its short-term actions.
Most companies operational and management control systems are built around fnancial
measures and targets, which bear little relation to the companys progress in achieving long-term
strategic objectives. Thus the emphasis most companies place on short-term fnancial measures
leaves a gap between the development of a strategy and its implementation.
Managers using the balanced scorecard do not have to rely on short-term fnancial measures as
the sole indicators of the companys performance. The scorecard lets them introduce four new
management processes that, separately and in combination, contribute to linking long-term
strategic objectives with short-term actions. (See the exhibit Managing Strategy: Four
Processes.)
The frst new processtranslating the visionhelps managers build a consensus around the
organizations vision and strategy. Despite the best intentions of those at the top, lofty statements
about becoming best in class, the number one supplier, or an empowered organization dont
translate easily into operational terms that provide useful guides to action at the local level. For
people to act on the words in vision and strategy statements, those statements must be
expressed as an integrated set of objectives and measures, agreed upon by all senior executives,
that describe the long-term drivers of success.
The second processcommunicating and linkinglets managers communicate their strategy up
and down the organization and link it to departmental and individual objectives. Traditionally,
departments are evaluated by their fnancial performance, and individual incentives are tied to
short-term fnancial goals. The scorecard gives managers a way of ensuring that all levels of the
organization understand the long-term strategy and that both departmental and individual
objectives are aligned with it.
The third processbusiness planningenables companies to integrate their business and
fnancial plans. Almost all organizations today are implementing a variety of change programs,
each with its own champions, gurus, and consultants, and each competing for senior executives
time, energy, and resources. Managers fnd it difcult to integrate those diverse initiatives to
achieve their strategic goalsa situation that leads to frequent disappointments with the
programs results. But when managers use the ambitious goals set for balanced scorecard
measures as the basis for allocating resources and setting priorities, they can undertake and
coordinate only those initiatives that move them toward their long-term strategic objectives.
The fourth processfeedback and learninggives companies the capacity for what we call
strategic learning. Existing feedback and review processes focus on whether the company, its
departments, or its individual employees have met their budgeted fnancial goals. With the
balanced scorecard at the center of its management systems, a company can monitor short-term
results from the three additional perspectivescustomers, internal business processes, and
learning and growthand evaluate strategy in the light of recent performance. The scorecard
thus enables companies to modify strategies to refect real-time learning.
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Robert S. Kaplan is the Marvin Bower Professor of Leadership Development at Harvard Business School,
in Boston, and the chairman and a cofounder of Balanced Scorecard Collaborative, in Lincoln,
Massachusetts.David P. Norton is the CEO and a cofounder of Balanced Scorecard Collaborative. They are
the coauthors of four books about the balanced scorecard, the most recent of which is Alignment: Using the
Balanced Scorecard to Create Corporate Synergies (Harvard Business School Publishing, 2006).
Balanced Scorecard Basics
The balanced scorecard is a strategic planning and management system that is used
extensively in business and industry, government, and nonproft organizations
worldwide to align business activities to the vision and strategy of the organization,
improve internal and external communications, and monitor organization
performance against strategic goals. It was originated by Drs. Robert aplan !"arvard
#usiness $chool% and David &orton as a performance measurement framewor' that
added strategic non(fnancial performance measures to traditional fnancial metrics to
give managers and executives a more )balanced) view of organizational performance.
*hile the phrase balanced scorecard was coined in the early +,,-s, the roots of the
this type of approach are deep, and include the pioneering wor' of .eneral /lectric on
performance measurement reporting in the +,0-1s and the wor' of 2rench process
engineers !who created the Tableau de Bord 3 literally, a 4dashboard4 of performance
measures% in the early part of the 5-th century.
The balanced scorecard has evolved from its early use as a simple performance
measurement framewor' to a full strategic planning and management system. The
6new7 balanced scorecard transforms an organization1s strategic plan from an
attractive but passive document into the 4marching orders4 for the organization on a
daily basis. It provides a framewor' that not only provides performance
measurements, but helps planners identify what should be done and measured. It
enables executives to truly execute their strategies.
This new approach to strategic management was frst detailed in a series of articles
and boo's by Drs. aplan and &orton. Recognizing some of the wea'nesses and
vagueness of previous management approaches, the balanced scorecard approach
provides a clear prescription as to what companies should measure in order to
)balance) the fnancial perspective. The balanced scorecard is a management system
!not only a measurement system% that enables organizations to clarify their vision
and strategy and translate them into action. It provides feedbac' around both the
internal business processes and external outcomes in order to continuously improve
strategic performance and results. *hen fully deployed, the balanced scorecard
transforms strategic planning from an academic exercise into the nerve center of an
enterprise.
aplan and &orton describe the innovation of the balanced scorecard as follows8
4The balanced scorecard retains traditional fnancial measures. #ut fnancial
measures tell the story of past events, an ade9uate story for industrial age
companies for which investments in long(term capabilities and customer relationships
were not critical for success. These fnancial measures are inade9uate, however, for
guiding and evaluating the :ourney that information age companies must ma'e to
create future value through investment in customers, suppliers, employees,
processes, technology, and innovation.4
;dapted from Robert $. aplan and David <. &orton, 6=sing the #alanced $corecard as
a $trategic >anagement $ystem,7 "arvard #usiness Review !?anuary(2ebruary +,,@%8
A@.
<erspectives
The balanced scorecard suggests that we view the organization from four
perspectives, and to develop metrics, collect data and analyze it relative to each of
these perspectives8
The Learning & Growth Perspective
This perspective includes employee training and corporate cultural attitudes related
to both individual and corporate self(improvement. In a 'nowledge(wor'er
organization, people (( the only repository of 'nowledge (( are the main resource. In
the current climate of rapid technological change, it is becoming necessary for
'nowledge wor'ers to be in a continuous learning mode. >etrics can be put into place
to guide managers in focusing training funds where they can help the most. In any
case, learning and growth constitute the essential foundation for success of any
'nowledge(wor'er organization.
aplan and &orton emphasize that )learning) is more than )training)B it also includes
things li'e mentors and tutors within the organization, as well as that ease of
communication among wor'ers that allows them to readily get help on a problem
when it is needed. It also includes technological toolsB what the #aldrige criteria call
4high performance wor' systems.4
The Business Process Perspective
This perspective refers to internal business processes. >etrics based on this
perspective allow the managers to 'now how well their business is running, and
whether its products and services conform to customer re9uirements !the mission%.
These metrics have to be carefully designed by those who 'now these processes
most intimatelyB with our uni9ue missions these are not something that can be
developed by outside consultants.
The Customer Perspective
Recent management philosophy has shown an increasing realization of the
importance of customer focus and customer satisfaction in any business. These are
leading indicators8 if customers are not satisfed, they will eventually fnd other
suppliers that will meet their needs. <oor performance from this perspective is thus a
leading indicator of future decline, even though the current fnancial picture may loo'
good.
In developing metrics for satisfaction, customers should be analyzed in terms of 'inds
of customers and the 'inds of processes for which we are providing a product or
service to those customer groups.
The Financial Perspective
aplan and &orton do not disregard the traditional need for fnancial data. Timely and
accurate funding data will always be a priority, and managers will do whatever
necessary to provide it. In fact, often there is more than enough handling and
processing of fnancial data. *ith the implementation of a corporate database, it is
hoped that more of the processing can be centralized and automated. #ut the point is
that the current emphasis on fnancials leads to the 4unbalanced4 situation with
regard to other perspectives. There is perhaps a need to include additional fnancial(
related data, such as ris' assessment and cost(beneft data, in this category.
$trategy >apping
$trategy maps are communication tools used to tell a story of how value is created
for the organization. They show a logical, step(by(step connection between strategic
ob:ectives !shown as ovals on the map% in the form of a cause(and(eCect chain.
.enerally spea'ing, improving performance in the ob:ectives found in the Dearning E
.rowth perspective !the bottom row% enables the organization to improve its Internal
<rocess perspective Fb:ectives !the next row up%, which in turn enables the
organization to create desirable results in the Gustomer and 2inancial perspectives
!the top two rows%.
#alanced $corecard $oftware
The balanced scorecard is not a piece of software. =nfortunately, many people
believe that implementing software amounts to implementinga balanced
scorecard.Fnce a scorecard has been developed and implemented,
however,performancemanagement software can be used to get the right performance
information to the right people at the right time. ;utomation adds structure and
discipline to implementing the #alanced $corecard system, helps transform disparate
corporate data into information and 'nowledge, and helps communicate performance
information. The #alanced $corecard Institute formally recommends the Huic'$core
<erformance Information $ystem
T>
developed by$pider $trategies and co(mar'eted by
the Institute.
>ore about $oftware II
