Balance Scorecard

The
BALANCED
SCORECARD
Robert S. Kaplan
Harvard Business School
© 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 1
What Is a Balanced Scorecard?
A Measurement
System?
A Management
System?
A Management
Philosophy?
Translating Vision and Strategy: Four
Perspectives
FINANCIAL
“To succeed Objectives Measures Targets Initiatives
financially,
how should we
appear to our
shareholders?”
CUSTOMER INTERNAL BUSINESS PROCESS

“To achieve our Objectives Measures Targets Initiatives “To satisfy our Objectives Measures Targets Initiatives
vision, how Vision and shareholders
should we and customers,
appear to our Strategy what business
customers?” processes must
we excel at?”
LEARNING AND GROWTH

“To achieve our Objectives Measures Targets Initiatives
vision, how
will we sustain
our ability to
change and
improve?”
The Balanced Scorecard Focuses on Factors that
Create Long-Term Value
• Traditional financial reports look backward
– Reflect only the past: spending incurred and revenues earned
– Do not measure creation or destruction of future economic value
• The Balanced Scorecard identifies the factors that create long-term economic
value in an organization, for example:
– Customer Focus: satisfy, retain and acquire customers in targeted segments
– Business Processes: deliver the value proposition to targeted customers
• innovative products and services
• high-quality, flexible, and responsive operating processes
• excellent post-sales support
Customers
– Organizational Learning & Growth:
• develop skilled, motivated employees;
• provide access to strategic information Processes People
• align individuals and teams to business unit objectives
.
The Four Perspectives Apply to Mission Driven
As Well As Profit Driven Organizations
Profit
Profit Driven
Driven Mission
Mission Driven
Driven
• What must we do to satisfy our Financial Perspective • What must we do to satisfy our financial
shareholders? contributors?
• What are our fiscal obligations?
• What do our customers expect from Customer Perspective • Who is our customer?
us? • What do our customers expect from
us?
• What internal processes must we Internal Perspective • What internal processes must we excel
excel at to satisfy our shareholder and at to satisfy our fiscal obligations, our
customer? customers and the requirements of our
mission?
• How must our people learn and Learning & Growth • How must our people learn and develop
develop skills to respond to these and Perspective skills to respond to these and future
future challenges? challenges?
Answering these questions is the first step to develop a Balanced

Scorecard
The Balanced Scorecard Framework Is Readily Adapted to
Non-Profit and Government Organizations
The Mission
"If we succeed, how ”To achieve our vision,

will we look to our how must we look to
financial donors?” our customers?”
“To
“To satisfy
satisfy our
our customers,
customers,
financial
financial donors
donors and
and mission,
mission,
what
what business
business processes
processes
must
must we
we excel
excel at?"
at?"
“To
“To achieve
achieve our
our vision,
vision, how
how
must
must our
our people
people learn,
learn,
communicate,
communicate, and
and work
work
together?”
together?”
The Mission, rather than the financial / shareholder objectives,

drives the organization’s strategy
The City of Charlotte Corporate-level Linkage Model
Customer Perspective
Availability
Availability of
of
Increase
Increase Improve
Improve Maintain
Maintain Promote
Promote
Reduce
Reduce Strengthen
Strengthen Safe,
Safe,
Perception
Perception Service
Service Competitive
Competitive Economic
Economic
Crime
Crime Neighborhoods
Neighborhoods Convenient
Convenient
of
of Safety
Safety Quality
Quality Tax
Tax Rates
Rates Opportunity
Opportunity
Transportation
Transportation
Financial Accountability Perspective

Expand
Expand Maintain
Maintain
Maximize
Maximize Grow
Grow Tax
Tax
Non-City
Non-City AAA
AAA
Benefit/Cost
Benefit/Cost Base
Base
Funding
Funding Rating
Rating
Internal Process Perspective

Promote
Promote Secure
Secure Streamline Increase Promote
Increase
Increase Community
Community Funding/ Improve Streamline Increase Promote
Funding/ Improve Customer Infrastructure Business
Positive
Positive Based
Based Service Productivity Customer Infrastructure Business
Service Productivity Interactions Capacity Mix
Contacts
Contacts Problem
Problem Partners Interactions Capacity Mix
Partners
Solving
Solving
Learning and Growth

Perspective
Enhance
Enhance Achieve
Achieve
Knowledge
Knowledge Close
Close Positive
Positive
Management
Management Skills
Skills Gap
Gap Employee
Employee
Capabilities
Capabilities Climate
Climate
Why are Companies Adopting a Balanced Scorecard?
• Change The Revenue Gr o wth Strateg y
“Improve stability by broadening the sourc es of revenue from

current customer s”
Increase
Customer
Confidenc e
Our
Advice
Broaden
Revenue
Mi x
in
Financial
Improve
Returns
Improve
Operating
Efficienc y
The Prod uctivit y Strat eg y
“Improve operating effici ency by shifti ng customers to mor e cost-

effective c hannels of distribution”
Increase
Customer
Satisfaction
Through Superi or
Execution
Financial
Perspective
Customer
Perspective
Internal
Perspective
Understand Develop Cross-Sel l Shift to Provide

Customer New the Product Appropriate Mini mize Rapid
Problems
Formulate and communicate a new strategy

Segments Products Line Channel Response
Increase
Employee
Producti vity Learning
Perspective
Develop Access to Align

Strategic Strategic Personal
Ski lls Infor mation Goals
for a more competitive environment
•Growth
Increase revenues, not just cut costs and
enhance productivity
• Implement
From the 10 to the 10,000. Every employee
implements the new growth strategy in their
day-to-day operations
Why Do We Need a Balanced Scorecard?
To Implement Business Strategy!
“Business Strategy is now the

single most important issue…
and will remain so for the next
five years”
Business Week
“Less than 10% of strategies

effectively formulated are
effectively executed”
Fortune
Our Research Has Identified Four Barriers to
Strategic Implementation
The Vision Barrier
Only 5% of the work force

understands the strategy
The People Barrier The Management Barrier

9 of 10 companies 85% of executive teams spend
Only 25% of managers have
incentives linked to strategy
fail to execute less than one hour per month
strategy discussing strategy
60% of organizations don’t link

budgets to strategy
The Resource Barrier
Today’s Management Systems Were Designed to Meet The Needs of Stable

Industrial Organizations That We’re Changing Incrementally
You Can’t Manage Strategy With a System Designed for Tactics
Balanced Scorecard “Early Adaptors” Have Executed
Their Strategies Reliably and Rapidly
1995 #1 in profitability
Mobil 1993
#6 in
profitability 1996 #1 in profitability
(USM&R) 1997 #1 in profitability
Profit Stock
$275M loss 1994 $15M $74

1993 1995 $60M $114
Stock Price = $59 1996 $80M $146
Property & Casualty
1997 $98M $205
#1 in growth
Losing
1993 1996 and
money
Brown & Root Engineering profitability
(Rockwater)
1994 Profits = $8x

1993 Profits = $x 1995 Profits = $13x
Retail Bank
1996 Profits = $19x
The BSC “Early Adaptors” Have Executed Their
Strategies Reliably and Rapidly
Beat the Odds Fast

9 of 10 companies 2 to 3 years to achieve
fail to execute their breakthrough results
strategies
The Solution Was Already There
• The BSC helped create focus and alignment to unlock the

organization’s “hidden assets”
Question:
Question:
How Answer:
Howcancancomplex
complexorganizations
organizations Answer:
achieve
achieve results likethis
results like thisininsuch
such
short periods of time?
short periods of time?
Alignment!
Alignment!
The Balanced Scorecard process allows an organization
to align and focus all its resources on its strategy
BUSINESS UNITS EXECUTIVE TEAM

STRATEGY
HUMAN RESOURCES INFORMATION

TECHNOLOGY
BUDGETS AND CAPITAL

INVESTMENTS
How Do They Do It?
The Seven Ingredients of Highly Successful Balanced Scorecard
Programs
1. A Process to Mobilize the Organization and Lead Ongoing Change

2. Scorecards That Describe the Strategy
3. Linking Scorecard to Create an Organization Alignment
4. Continuous Communication to Empower the Workforce
5. Aligning Personal Goals, Incentives, and Competencies With the
Strategy
6. Aligning Resources, Budgets and Initiatives With the Strategy
7. A Feedback Process That Encourages Learning and Experience
Sharing
The Ingredients of Highly Successful Balanced
Scorecard Programs
1. Leadership From the Top 4. Make Strategy a Continuous

– Create the Climate for Change Process
– Create a Common Focus for – Strategic Feedback That Encourages
Change Activities Learning
– Rationalize and Align the Formulate – Executive Teams Manage Strategic
Organization Themes
– Testing Hypotheses, Adapting, and
Learning
Communicate STRATEGY Navigate
2. Make Strategy Everyone’s Job 3. Unlock and Focus Hidden Assets

– Comprehensive Communication to Execute – Reengineer Work Processes
Create Awareness
– Create Knowledge Sharing Networks
– Align Goals and Incentives
– Integrate Budgeting with Strategic
Planning
– Align Resources and Initiatives
A Good Balanced Scorecard Tells the Story of
Your Strategy
• Every
Every measure
measure is
is part
part of
of aa chain
chain of
of cause
cause and
and effect
effect linkages
linkages
• A
A balance
balance exists
exists between
between outcome
outcome measures
measures and
and the
the
performance
performance drivers
drivers or
or desired
desired outcomes
outcomes
The Problem: Most of Today’s Feedback Systems Are
“Controls” Oriented
Variance
Detected
Correction
Applied
Management
Feedback &
Control Loop
Strategic Learning – Some Basic
Concepts…
Replacing the budget with the Balanced Scorecard is a step
in the right direction…
Pioneer’s Balanced Scorecard
FINANCIAL
Strategic Objectives Strategic Measures
! Financially Strong ! Return on Capital Employed

! !
CUST
Delight the Consumer Mystery Shopper Rating
! Win-Win Relationship ! Dealer / Pioneer Gross Profit Split
! Safe & Reliable ! Manufacturing Reliability Index
! Days Away from Work Rate
INTERNAL
! Competitive Supplier ! Laid Down Cost vs. Best

corrections ! Good Neighbor
Competitive Ratable Supply
! Environmental Index
result
! Quality ! Quality Index
L&G
! Motivated & Prepared ! Strategic Competency Availability
Performance
Performance
Initiatives & Programs

input output
It creates strategic focus but not strategic learning
Strategic Feedback Creates Strategic
Learning
The Strategy
Improve
Returns
Financial
Improve Perspective
FOLLOW-UP
Broaden Operating
Revenue Mix Efficiency
Increase Customer
Confidence in Our
Financial Advice
Increase
Customer
Satisfaction Through
Superior Execution
Customer
Perspective
ACTION
Internal
“Closing the loop”
Perspective
Understand Develop New Cross-Sell the Shift to Provide

Customer Products Product Line Appropriate Minimize Rapid
Problems
Segments Channel Response
update Increase
Employee
Productivity
Learning
Perspective
THE
the Develop
Strategic
Skills
Access to
Strategic
Information
Align
Personal
Goals MANAGEMENT
strategy strategic learning MEETING
loop “Team Problem
Pioneer’s Balanced Scorecard Solving”
FINANCIAL
! Financially Strong ! Return on Capital Employed

! Delight the Consumer ! Mystery Shopper Rating
CUST
! Win-Win Relationship ! Dealer / Pioneer Gross Profit Split

! Safe & Reliable ! Manufacturing Reliability Index
! Days Away from Work Rate
INTERNAL
! Competitive Supplier ! Laid Down Cost vs. Best

Competitive Ratable Supply
results
! Good Neighbor ! Environmental Index INSIGHT
! Quality ! Quality Index
! Motivated & Prepared ! Strategic Competency Availability HARVESTING
L&G
reallocate “Testing hypotheses

and capturing
priorities operational control loop learning”
Performance dialog
Performance
Initiatives & Programs
A New Structure for Corporate Governance– Executive
Team Takes Responsibility for Managing the Strategic
Cross-Functional Themes
Case Study: Board of Directors

Telecomm
CEO
Strategic Themes
New Business Professional Strategic

Business & Process Development Management
Growth Council Roundtable System
Traditional Organization Units
Commercial Retail Strategic Human

COO CFO
Services Services Planning Resources
The Ingredients of Highly Successful Balanced
Scorecard Programs
1. Leadership From the Top 4. Make Strategy a Continuous

– Create the Climate for Change Process
– Create a Common Focus for – Strategic Feedback That Encourages
Change Activities Learning
– Rationalize and Align the Formulate – Executive Teams Manage Strategic
Organization Themes
– Testing Hypotheses, Adapting, and
Learning
Communicate STRATEGY Navigate
2. Make Strategy Everyone’s Job 3. Unlock and Focus Hidden Assets

– Comprehensive Communication to Execute – Reengineer Work Processes
Create Awareness
– Create Knowledge Sharing Networks
– Align Goals and Incentives
– Integrate Budgeting with Strategic
Planning
– Align Resources and Initiatives
Not all Environments are Appropriate for a Balanced
Scorecard
• Balanced Scorecard must be driven from the top:

– CEO/COO as sponsor
– Executive leadership team commitment
• A clear sense of purpose is required to:
– Drive change
– Clarify and gain consensus about strategy
– Build a senior executive team
– Focus the organization: align programs and investments
– Integrate cross-functionally
– Educate and empower the organization
• The dynamics of the senior executive team will determine
whether the Balanced Scorecard becomes a strategic
management system
Key Pitfalls to Avoid
Process Philosophy
• Middle management task force • Measurement to control; not to
• Not driven by senior executive communicate
team • Management dictating actions
• Only one or a few individuals vs. employee improvisation to
involved achieve desired outcomes
• Too long a development • For management only, not
process (allowing the “best” to shared with all employees
be the enemy of the “good”)
• Delay introduction because of
missing measurements
• Static not dynamic process
• Treating the BSC as an EIS
THE BALANCED SCORECARD
MANAGEMENT SYSTEM
Significant results can be achieved in relatively short periods of time...
STRATEGY Implement a framework to align and focus the

organization from top to bottom on its strategy
ALIGNMENT
Identify the related key change initiatives required

KNOWLEDGE BASE INSIGHTS
to realize the strategy and mobilize the

PERFORMANCE
PERFORMANCE
organization
LEVERAGE
The Strategy Teams
Create feedback processes at all levels to

Balanced Scorecard
Outcomes
evaluate progress against strategy, monitor and
FINANCIAL
! F inancially Strong ! Return on Capital Employed

! D elight the Consumer ! Mys tery Shopper Rating
CUST
! Win-Win Relationship ! Dealer / Pioneer Gross Profit

! Safe & Reliable Split
! Manufac turing Reliability Index Processes
INTERNA L
! Days Away from Work R ate

! C ompetitiv e Supplier
manage issues and priorities, and measure

! Laid Dow n Cost v s. Best
! Good Neighbor Competitive Ratable Supply
! Environmental Index
Insights
! Quality
L&G
! Quality Index
! Motivated & Prepared
! Strategic Competency
Availability
LEARNING
performance and contribution to the business.
Balanced Scorecard References
Book: The Balanced Scorecard: Measures that Drive

Performance
HBR Articles (Jan-Feb. ‘92; Sept-Oct ‘93; Jan-Feb ‘96)
Cases: (Mobil, Chemical Bank, Charlotte, Citibank,
Wells Fargo)
Videos: Measuring Corporate Performance
CD-ROM Simulation: “Balancing Your Corporate Scorecard”
• Phone: (800) 668-6780 or (617) 496-1449

• Fax: (617) 495-6985
• Internet: www.hbsp.harvard.edu
For Further Information
Visit Our Website

Our Mission:
“To facilitate the worldwide
awareness, use, enhancement
and integrity of the Balanced
Scorecard as a value-added
management process”
www.bscol.com
Tel: (USA) 781.259.3737
Publications Research Training
Conferences Networking Implementation


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The

CUSTOMER INTERNAL BUSINESS PROCESS

LEARNING AND GROWTH

Answering these questions is the first step to develop a Balanced

"If we succeed, how ”To achieve our vision,

The Mission, rather than the financial / shareholder objectives,

Financial Accountability Perspective

Internal Process Perspective

Learning and Growth

• Change The Revenue Gr o wth Strateg y

“Improve stability by broadening the sourc es of revenue from

“Improve operating effici ency by shifti ng customers to mor e cost-

Understand Develop Cross-Sel l Shift to Provide

Formulate and communicate a new strategy

Develop Access to Align

for a more competitive environment

“Business Strategy is now the

“Less than 10% of strategies

Only 5% of the work force

The People Barrier The Management Barrier

60% of organizations don’t link

The Resource Barrier

Today’s Management Systems Were Designed to Meet The Needs of Stable

You Can’t Manage Strategy With a System Designed for Tactics

$275M loss 1994 $15M $74

1994 Profits = $8x

Beat the Odds Fast

The Solution Was Already There

• The BSC helped create focus and alignment to unlock the

BUSINESS UNITS EXECUTIVE TEAM

HUMAN RESOURCES INFORMATION

BUDGETS AND CAPITAL

1. A Process to Mobilize the Organization and Lead Ongoing Change

1. Leadership From the Top 4. Make Strategy a Continuous

Communicate STRATEGY Navigate

2. Make Strategy Everyone’s Job 3. Unlock and Focus Hidden Assets

Pioneer’s Balanced Scorecard

! Financially Strong ! Return on Capital Employed

! Competitive Supplier ! Laid Down Cost vs. Best

! Motivated & Prepared ! Strategic Competency Availability

Initiatives & Programs

It creates strategic focus but not strategic learning

Understand Develop New Cross-Sell the Shift to Provide

Strategic Objectives Strategic Measures

! Financially Strong ! Return on Capital Employed

! Win-Win Relationship ! Dealer / Pioneer Gross Profit Split

! Competitive Supplier ! Laid Down Cost vs. Best

reallocate “Testing hypotheses

Initiatives & Programs

Case Study: Board of Directors

New Business Professional Strategic

Traditional Organization Units

Commercial Retail Strategic Human

1. Leadership From the Top 4. Make Strategy a Continuous

Communicate STRATEGY Navigate

2. Make Strategy Everyone’s Job 3. Unlock and Focus Hidden Assets

• Balanced Scorecard must be driven from the top:

STRATEGY Implement a framework to align and focus the

Identify the related key change initiatives required

to realize the strategy and mobilize the

The Strategy Teams

Create feedback processes at all levels to

! F inancially Strong ! Return on Capital Employed

! Win-Win Relationship ! Dealer / Pioneer Gross Profit