Estonian Business School BBA programme

Overview of Construction and Im plementation of Balanced Scorecard

Bachelor Theses

Written by: Marko Rillo

Promotor: Ruth Alas

Tallinn 2000

Kaitsmisele lubatud “……” ……………………… 2000. a.

Õppetooli juhataja või juhendaja ………………………………

Olen koostanud bakalaureusetöö iseseisvalt. Kõik töö koostamisel kasutatud teiste autorite tööd, põhimõttelised seisukohad, kirjandusallikatest ja mujalt pärinevad andmed on viidatud.

Marko Rillo


Executive summary........................................................................................................4 1. Theory behind the Balanced Scorecard.....................................................................5 1.1. Background of the Concept of Balanced Scorecard...............................................5 1.2. Balanced Scorecard as Complementary Tool for Management Accounting..........8 1.3. Balanced Scorecard as a Measurement Tool........................................................13 1.4. Balanced Scorecard as a Strategic Management System ....................................14 2. Constructing a Balanced Scorecard.........................................................................18 2.1. Establishing Strategy by Building up a Balanced Scorecard ...............................21 2.1.1. Clarifying and Translating the Vision and Strategy......................................21 2.1.2. Communicating and Linking Strategic Objectives and Measures................22 2.1.3. Planning, Setting Targets and Aligning Strategic Initiatives........................24 2.1.4. Enhancing Strategic Feedback and Learning...............................................25 2.2. Defining Critical Success Factors and Measures..................................................29 2.2.1. Financial Perspective....................................................................................29 2.2.2. Customer Perspective....................................................................................30 2.2.3. Internal Business Process Perspective..........................................................34 2.2.4. Learning and Growth Perspective................................................................35 2.2.5. Conclusions and Recommendations – How Many Measures to Choose?.....36 2.3. Testing the Balanced Scorecard ...........................................................................38 2.3.1. Analysing Outcomes and Performance Drivers ...........................................38 2.3.2. Analysing Cause and Effect...........................................................................38 2.4. Establishing Action Plan.......................................................................................40 2.4.1. Setting up Catalytic Mechanisms..................................................................40 3. Implementing a Balanced Scorecard as a Management System...........................42 3.1. Case Studies on Implementing a Balanced Scorecard..........................................43 3.1.1. Practical Aspects of Setting up Balanced Scorecard in a Service Company 43 3.1.2. Using the Balanced Scorecard at Metro Bank..............................................46 3.1.3. Using the Results of a Balanced Scorecard at Sears Company....................48 3.2. Conclusions and Recommendations on Implementing a Balanced Scorecard.....51 4. Summary....................................................................................................................53 Bibliography..................................................................................................................55 Resümee – Tasakaalustatud hindemaatriksi koostamine ja kasutamine................57


Executive summary The overall objective of the thesis is to analyse the use of Balanced Scorecard 1 as a performance measurement tool in the areas of general management and strategic management. The Balanced Scorecard may be described as a strategy-driven measurement system that retains traditional financial measures, but adds also the perspectives of present and potential (future) value of a company, namely its customers, suppliers, employees, processes, technology, and innovation. The purpose is to show that the Balanced Scorecard may be considered as one of the best remedies in tackling with the questions concerning: • helping to align key performance measures with overall organisation strategy at all levels of an organisation; • • linking strategic vision and long-term objectives to short term tactics; directing sophisticated and different critical paths of success in the light of strategic management; • review of strategic vision in the light of day-to-day operations management.

The concept of the Balanced Scorecard is not yet very familiar in Estonia. Therefore, the author pays very much effort in describing the theory side of the Balanced Scorecard and the details of starting up a Balanced Scorecard – based management. Those aspects constitute two first chapters of the thesis. In the third chapter, attention is given to day-to-day implementation of Balanced Scorecard using the examples of three case studies. Finally, some conclusions and recommendations are drawn based on practical use of the Balanced Scorecard.


The concept of the Balanced Scorecard was introduced in series of articles by Messrs. Robert S. Kaplan

and David P. Norton. Robert S. Kaplan is the Arthur Lowes Dickinson Professor of Accounting at the Harvard Business School in Boston, Massachusetts. David P. Norton is the founder and president of Renaissance Solutions, a consulting firm in Lincoln, Massachusetts.


1. Theory behind the Balanced Scorecard 1.1. Background of the Concept of Balanced Scorecard Throughout the history of contemporary management theories starting from the ones that were introduced by the intrusion of the mass production in the beginning of the 20 th century and until today, all the gurus of management have been trying to find uniform solutions on more efficient allocation and use of very limited resources available to businesses. Those paths in seeking the Holy Grail of operational efficiency have brought up several new management theories. In the dawn of the century, Frederick W. Taylor established the very concepts of resource allocation in his Principles of Scientific Management2. In 1920-ies it went around assembly line and motion studies3 as the first experience from systematic mass production had given theorists quite a lot of materials to be analysed from the point of view of using traditional blue-collar employees more efficiently. In the 1930-ies, the main topic was motivation of employees4, as it turned out that human nature does not enable to work long hours on a repetitive tasks without frustration level getting so high enough to diminish productivity. In the 1940-ies and 1950-ies, the first statistical and linear methods were introduced in trying to measure logistics of the operations management and its implications to overall company success in financial-analysis side.5 In the beginning of 1980-ies, partly because of introduction of electronic data processing equipment and quick development of computers, the whole array of management techniques were initiated. The particular reasons for the vast development of the new theories were catalysed mainly by ever growing competition generated through more systematic use of computers, and of course also by rapid growth of the importance of human capital.


Published in 1911. The works that describe the best those applications are written by father of contemporary scientific


management Frederick W. Taylor, psychologists Frank and Lillian Gilbrecht and practising manager Henry Ford.

Hereby referring to the works by Elton Mayo. Works by George B Dantzig and others.



roughly from 1850 to about 1975. A. 3. however.8 Industrial age companies created a sharp distinction between two groups of employees. Robert S. select and manage customers. in the last decades of the 20 th century. The information age environment for both manufacturing and service organisations requires new capabilities for competitive success. 1987). and Norton. physical assets. D. success accrued to companies that could embed the new technology into physical assets that offered efficient.. This direct labour work force was a principal factor of production. and supervise day-to-day operations. Massachusetts: Harvard University Press. David P. ultimately.6 Technology mattered. S. 1990). H. companies succeeded by how well they could capture the benefits from economies of scale and scope. the financial control systems were developed in major companies to facilitate and monitor efficient allocations of financial and physical capital. Massachusetts: Harvard University Press. Harvard Business School Press. T. The intellectual elite – managers and engineers – used their analytical skills to design products and processes. The emergence of the information era.. 1977) and Johnson. Jr. H. mass production of standard products. Boston. During the industrial age. but. The ability of a company to mobilise and exploit its intangible assets has become far more decisive than investing and managing tangible. Massachusetts: Harvard University Press. 7 Chandler. 1990). Industrial age competition is shifting to information age competition. During the industrial age. Relevance Lost: The Rise and Fall of Management Accounting (Boston: Harvard Business School Press. The second group was composed of the people who actually produced the products and delivered the services. 1996. Translating Strategy into Action – The Balanced Scorecard.7 A summary financial measure such as return-on-capital-employed (ROCE) could both direct a company’s internal capital to its most productive use and monitor the efficiency by which operating divisions used financial and physical capital to create value for shareholders. 6 . A. which performed its tasks under supervision of the first group. referred through Kaplan. Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge. Mobilizing Invisible Assets (Cambridge. and Kaplan R.Today’s companies are in the midst of a revolutionary transformation. has made obsolete many of the fundamental assumptions of industrial age competition. D. Jr. p. 8 Itami. Today automation and productivity have increased the number of people performing analytic 6 Chandler. The Visible Hand: The Managerial Revolution in American Business (Cambridge.

Employee empowerment. information age has brought about the concept of knowledge management. not as variable costs. marketing. 7 . Living company. Lean enterprise. others have proven to be in the best case just a short-time disturbance. W. Some of those programmes have meant in practice real breakthrough and improvement. As adapted from Kaplan. and so on9. Customer-focused organisation. 2) if some non-financial performance measurement even is made. David P. pp 6-40 and p. management and administration. Total quality management. it is solely based on employees’ tactical performance.functions: engineering. Therefore. Harvard Business School Press. The shift to successful knowledge management has introduced a variety of improvement initiatives: • • • • • • • • • Just-in-time. and Norton. Deming. Arie de Geus and many more authors. Business process re-engineering. 1996. 193. not on strategic performance. but in the worst cases total failures resulting in disarray or even bankruptcy of a particular company. the people are more viewed as problem solvers. Time-based competition. E. The main reason for that lies in five main implementation problems10: 1) current performance measurement systems are based on the traditional financial accounting model. which does not enable to objectively analyse information-age companies. Boston. Activity-based cost management. In other words. Robert S. 9 Theories by Tai-ichi Ohno. Translating Strategy into Action – The 10 Balanced Scorecard.

Norton is the founder and president of Renaissance Solutions. accounting has been the one and only language of business. customers (satisfaction and image of company to outside partners). Norton. Norton. the prime mechanism for communicating the results of business operations. 4) overall company strategy is not closely linked to organisational and personal improvement programmes. the Balanced Scorecard uses a balanced measurement system that comprises of “the old” financial side and three “new” perspectives of: • • • business processes (operational efficiency). Massachusetts. Balanced Scorecard as Complementary Tool for Management Accounting Historically. 8 . The next sub-chapters will describe the main features of the Balanced Scorecard compared to traditional management systems. 1.3) majority of management and employee salary-based motivation schemes are only short-run profit oriented.11 Introduced in the beginning of 1990-ies by Robert S. but more and more attention needs to be paid to intangible sides of business. One of the most versatile tools for that purpose is Balanced Scorecard. Kaplan and David P. Kaplan is the Arthur Lowes Dickinson Professor of Accounting at the Harvard Business School in Boston. and 5) strategy is not generally linked to resource allocation. the leading management journals have published articles about how to build up a mechanism that would enable to control all the aspects of a company’s performance. growth and learning (knowledge management). Robert S. As for today. superior financial performance and efficiency in production are just not enough to gain sufficient competitive advantage.2. Massachusetts. David P. For at least 15 years. Kaplan and David P. Although financial 11 Which was introduced in series of articles by Messrs. that does not enable to align towards long-run goals. Robert S. which results in underfinancing some of the crucial parts of organisation’s development. a consulting firm in Lincoln.

the following example may be analysed. Xerox was through the mid-1970s virtually a monopoly on plain paper copiers business. one of the most successful U.12 Rather than redesign the machines so that they would break down less frequently. To illustrate this topic. Xerox’s dissatisfied and disloyal customers embraced them. Xerox did not sell its machines – it leased them and earned revenues on every copy made on these machines. apart from concern about high copying costs. Made in U. it today alone does not give sufficient guiding and evaluating grounds for organisation’s success. They wanted cost-efficient machines that did not break down. They permitted direct purchase of their machines. customers. Some of the outcomes of the analyses 12 Juran. return on investment – were signalling a highly successful strategy.measurement matters.A. were disgruntled about the high breakdown rates and malfunctions of these expensive machines.13 Only financial measures are inadequate for guiding and evaluating organisation’s success.: A Renaissance in Quality. Thus all the financial indicators – sales and profit growth. 13 Ibid. and then established an extensive field service force as a separate demand for its services. 9 . Harvard Business Review. When competitors were able to offer comparable machines that did not break down. for which no alternative was available.S. Jul-Aug 1993. Xerox executives saw an opportunity to enhance their financial results even further. But customers were still unhappy and surly. Only under a new CEO did the company make a remarkable turnaround in the 1980s by supporting significant investments into quality improvement initiatives. this division soon was a substantial contributor to Xerox’s profit growth. They are lagging indicators that capture the value created or destroyed by managers’ actions in the most recent accounting period. They did not want their supplier to excel at having a superb field service force. p. companies throughout 1955 to 1975 to nearly a failure. 45.S. Several analyses have expressed their concern with an overemphasis on financial measures of today’s corporate performance. Sales and profits from leasing and supporting services like paper and toner were large and growing. Joseph M. This lead Xerox.. However.

15 In today’s business world financial results still remain important. customer satisfaction.might be recited here. whose short-term returns are more difficult to measure. customer. From Balanced Scorecard. processes. 16 10 . In his book “Vital Signs”.14 Current system is less supportive to long-term investments. employee skill. Hronec16 has noted. Michael E. He defines those measures at an organisational level. because it favours forms of investment for which returns are most readily measurable. technology. 73. These four perspectives provide the framework for the Balanced Scorecard (see Figure 1 . and procedures necessary to improve the future performance. The objectives and measures of Balanced Scorecard have to be derived from an organisation’s vision and strategy. 15 Ibid. this leads to under-investment in intangible assets such as product and process innovation. Capital Disadvantage: America’s Failing Capital Investment System. The system also allows companies with very strong asset bases (such as in natural resources. consumer goods companies with strong brand names etc) to operate inefficiently without fully exploiting their undervalued assets. suppliers. quality and time. a process level and an individual level. as long as short-term earnings are satisfactory. managers can measure how business units create value for current and future customers and how they must enhance internal capabilities and the investment in people. p. Steven M. Harvard Business Review .The Main Framework of Balanced Scorecard17). The second most important school of theory is the Balanced Scorecard. Sept-Oct 1992. 14 Porter. which adds to the financial set the following components as information age companies must create future value through investment in customers. internal business process. but there is a growing recognition that non-financial measures are better indicators of the ultimate health of an organisation. and learning and growth. The objectives and measures view organisational performance from four perspectives: financial. that those non-financial measures should include cost. and innovation. employees. systems.

com/bscauthority 11 .bettermanagement. it is recommended to visit a valuable resource on this issue – the Internet site “The Scorecard Authority – Websites for Management Insights” at address http://www.Some recent theories have tried to merge the main features of both the Balanced Scorecard and various applications of financial accounting that are grounded on activity-based-costing. For more information about those developments.

Using the Balanced Scorecard as a Strategic Management System.Figure 1 . how will we sustain our ability to change and improve?Learning and GrowthObjectivesMeasuresTargetsInitiatives 17 From: Kaplan. how should we appear to our shareholders?FinancialObjectivesMeasuresTargetsInitiatives To achieve our vision..The Main Framework of Balanced Scorecard17 To succeed financially. Jan-Feb 1996. and Norton. p. David P. 76. what business processes must we excel at?Internal Business ProcessObjectivesMeasuresTargetsInitiatives To achieve our vision. Robert S. Harvard Business Review. . how should we appear to our customers? CustomerObjectivesMeasuresTargetsInitiatives Vision and Strategy To satisfy our shareholders and customers.

but I cannot concentrate on doing too many things well at the same time. Q: But I notice you do not even have a fuel gauge.1. We suspect that you would not board the plane after this discussion. Clearly. like pilots. fuel is significant. So on this flight I’m focusing on airspeed. I intend to concentrate on fuel consumption in the next set of flights. need instrumentation about many . Airspeed certainly seems important. Even if the pilot did an exceptional job on airspeed. as well as altitude. Now I have to concentrate on proper airspeed. Skilled pilots are able to process information from a large number of indicators to navigate their aircraft. Yet navigating today's organisations through complex competitive environments is at least as complicated as flying a jet. I am really working on airspeed this flight. But what about altitude? Would an altimeter be helpful? A: I worked on altitude for the last few flights and I’ve gotten pretty good on it. Wouldn’t that be useful? A: You are right. Q: That’ good. How would you feel about boarding the plane after the following conversation with the pilot? Q: I am surprised to see you operating the plane with only a single instrument. Kaplan and Norton bring the following example: Imagine entering the cockpit of a modern jet aeroplane and seeing only a single instrument there. Balanced Scorecard as a Measurement Tool To illustrate the use of today’s main measurement tools.3. Why should we believe that executives need anything less than a full battery of instrumentation for guiding their companies? Managers. you would be worried about colliding with tall mountains or running low on fuel. What does it measure? A: Airspeed. such a conversation is a fantasy since no pilot would dream of guiding a complex vehicle like a jet aeroplane through crowded air spaces with only a single instrument. Once I get to be excellent at airspeed.

Today. organisations are competing in complex environments so that an accurate understanding of their goals and the methods for attaining those goals is vital. 52. 1996). but comprises a whole new way of looking at business. David P. The Balanced Scorecard enables companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they need for future growth. The Balanced Scorecard translates an organisation’s mission and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system. Balanced Scorecard as a Strategic Management System However. at their front-line and customer-facing operations. Boston. Robert S. is there anything new about a call for a "balanced" set of measures? While virtually all organisations do indeed have financial and non-financial measures. During the implementation of a Balanced Scorecard. it has to be mentioned that the Balanced Scorecard is not just a measurement system. 14 .. 1. Senior managers use aggregate financial measures as if these measures could summarise adequately the results of operations performed by their lower and midlevel employees.4. many use their non-financial measures for local improvements. 19 Kaplan. 1. Robert S.18 The Balanced Scorecard provides managers with the thorough instrumentation they need to navigate to future competitive success. 1996. it requires so many improvement efforts throughout the organisation that it might be called a whole new management system. p. Harvard Business School Press.19 Finally.aspects of their environment and performance to monitor the journey toward excellent future outcomes. These organisations are using their financial and nonfinancial performance measures only for tactical comments and control of short-term operations. Translating Strategy into Action – The Balanced Scorecard. and Norton. David P. Translating Strategy into Action – The Balanced Scorecard (Boston: Harvard Business School Press. 18 Kaplan. p. and Norton.

Companies can develop an initial Balanced Scorecard with narrow objectives: to gain clarification. organising framework for their management processes (see Figure 2 . 15 . and Norton. and internal measures of critical business processes. somewhat judgmental. and then to communicate that strategy throughout the organisation. however. 1996). The four main steps in building up a strategy using the Balanced Scorecard are: 1. Robert S. enhancing strategic feedback and learning. Moreover. p.21 20 Kaplan.20 The Balanced Scorecard is more than a new measurement system. the scorecard is balanced between objective. David P. 9. and learning and growth. Innovative companies use the scorecard as the central. innovation.The Balanced Scorecard emphasises that financial and non-financial measures must be part of the information system for employees at all levels of the organisation. senior executives must understand the drivers of long-term financial success. consensus. easily quantified outcome measures and subjective. setting targets. performance drivers of the outcome measures. clarifying and translating vision and strategy 2. and focus on their strategy. they are derived from a top-down process driven by the mission and strategy of the business unit. The measures represent a balance between external measures for shareholders and customers. The objectives and measures for the Balanced Scorecard are more than a somewhat ad hoc collection of financial and non-financial performance measures.Balanced Scorecard as a Strategic Framework for Action22). The Balanced Scorecard should translate a business unit's mission and strategy into tangible objectives and measures. occurs when it is transformed from a measurement system to a management system. Translating Strategy into Action – The Balanced Scorecard (Boston: Harvard Business School Press. and aligning strategic initiatives 4. The real power of the Balanced Scorecard. planning. Front-line employees must understand the financial consequences of their decisions and actions. communicating and linking strategic objectives and measures 3.. The measures are balanced between outcome measures-the results from past efforts-and the measures that drive future performance.

16 . David P. Translating Strategy into Action – The Balanced Scorecard (Boston: Harvard Business School Press. the author is going to go through step-by-step in construction of a manageable Balanced Scorecard.. Robert S. 10. 1996). 21 Kaplan.During the next chapter. and Norton. p.

Robert S. and Norton.Balanced Scorecard as a Strategic Framework for Action22 Clarifying and Translating the Vision and Strategy Clarifying the vision Gaining concensus Communication and Linking Communicating and educating Setting goals Linking rewards to performance measures Strategic feedback and learning Articulating the shared vision Supplying strategic feedback Facilitating strategy review and learning Balanced Scorecard Planning and Target Setting Setting targets Aligning strategic initiatives Allocating resources Establishing milestones 22 From: Kaplan. Using the Balanced Scorecard as a Strategic Management System. Harvard Business Review. Jan-Feb 1996. . 77.Figure 2 . p.. David P.

financially we have to be cost-efficient.2. members of the organisation would have to identify a vision. It might be advisable to establish a test field to simulate how the Balanced Scorecard would start to respond to the actions taken. 6. Constructing a Balanced Scorecard One of the possible ways to go through all the steps of construction of successfully operating Balanced Scorecard might be shortly described as seen on Figure 3 . 5. 23 Slightly modified version of the model taken from QPR internet portal at address http://www. Everybody in the organisation has to agree upon one single goal where the organisation has to be heading. After the critical success factors are in place. First. 2. The next step is to go through appraisal of the established draft Balanced Scorecard to identify whether it would start measuring the right things and assist the management to steer the organisation to the right .qprservices.Creating a Balanced Scorecard. therefore all the measurement systems have to be figured out. they have to be measured somehow. Then organisation’s management has to recognise the strategies that will tell how to reach the vision. In some businesses.23 1. Then the perspectives have to be identified. • • • • Financial perspective (how do we look to our shareholders?) Customers perspective (how do we look to our customers?) Internal business process perspective (what processes do we have to be good at?) Learning and growth perspective (how will we sustain our ability to improve and change?) 4. 3. additional perspectives need to be measured. not necessarily all four are relevant. Example: for customers we have to deliver on time. on the development side we have to produce X amount of new ideas every week etc. In some areas. Then critical success factors for all the perspectives have to be found out.

Based on the preparatory work the detailed action plans should be created and proper reporting systems have to be established to start operation of the Balanced Scorecard. The following chapter describes how to manage the construction of the Balanced Scorecard step-by-step. for instance. vision and strategy. For public non-profit organisations. It has to be amended. It has to be borne in mind. it has to be remembered that the Balanced Scorecard is not a “finished product”. Some other organisations may need to add additional features to their Balanced Scorecard. 8. Finally. improved and changed whenever there is a need for the organisation to change something in its vision or strategic goals. it would be necessary to replace financial part of the section of Balanced Scorecard with employee empowerment perspective. that the actual set-up of a particular Balanced Scorecard may vary from organisation to organisation because of very close linkages to particular establishment’s main functions. 19 .7.

qprservices. Identify Vision 2. Identify Measures What should we measure at each of those perspectives? 6. update and maintain our scorecard? 24 Slightly modified version of the chart taken from QPR internet portal at address http://www. Follow up and Manage How do we follow up. Identify Critical Success Factors of the Perspectives What do we have to do well to manage in the framework of those perspectives? 5. Identify Perspectives In which perspectives do we have to be good at? 4.Creating a Balanced Scorecard24 Define vision for the organisation/ entity . Identify Strategies Which strategies shall we follow? Which areas shall we focus on? 3. Create Action Plans Which actions should we undertake to reach our targets? 8.Figure 3 . Evaluate How do we evaluate our scorecard? 7.

in other words – tactics. Ruth. 26 Alas. 25 Kaplan.1. 42-46. strategists should choose a mission – a long-term purpose for the organisation. Campbell. What’s Wrong with Strategy Harvard Business Review. Andrew and Alexander. Establishing Strategy by Building up a Balanced Scorecard 2. profitability or cash flow generation. Sept-Oct 1993.Clarifying and Translating the Vision and Strategy As each organisation is unique and so follows its own path for building a Balanced Scorecard. 7.. Strategy and Tactics).1. Harvard Business Review. The ABC of the strategic management suggests that there should be a structure to strategy development that managers should follow. p.1. and Norton.and mid-term objectives that will move the organisation on a path towards the mission. The executive team may decide whether to head for revenues or market growth. From the management point of view it is also not particularly foreseen – it might be set up using the standard project management techniques (preparationinterviews-workshops-implementation-reviews) or be managed by a special unit that is co-ordinating the overall implementation.2. 21 . the first item that the senior executives of a particular company should consider is the financial goal. to implement the strategy. p. p. 27 Nov-Dec 1997. Robert S. Külim.26 According to the Balanced Scorecard methodology. David P. The first task in building up the Balanced Scorecard is clarifying and translating company’s vision and strategic goals. One systemised possibility of strategic management tools is the acronym MOST (Mission. 1997).27 First. A strategy can then be developed to achieve the objectives using short-term operating decisions. Strateegiline juhtimine (Tallinn. Marcus. 138.25 The overall purpose of the strategic management is to find a single priority long-term goal which would serve as a basis in resource allocation and organisational development. Putting the Balanced Scorecard to Work. Then they should define short. Objectives.

22 . In formulating the customer objective to the Balanced Scorecard. Translating Strategy into Action – The Balanced Scorecard (Boston: Harvard Business School Press.2. 1996) p. The communication serves three-fold goal. For example. Robert S. Thirdly. that each executive has a totally different understanding on A) what a superior service is. it encourages dialogue back from business unit to executive teams. or to a goal for rapid transfer of orders from one process to next. which reveals the rationale for investments in training employees. and Norton. Second. it then identifies the strategic objectives and measures for its internal business processes area. As such.Communicating and Linking Strategic Objectives and Measures The next task is to inform all levels of the organisation about the initiative of establishing the Balanced Scorecard. a strategic initiative to reduce product delivery might be translated into a Balanced Scorecard objective to reduce set-up times at a specific machine. experimental. The final link to be envisaged is learning and growth perspective. The executives may thereafter decide. This must be done in close co-operation with middle-level or operations managers to ensure that the processes are in line with current possibilities of resource allocation. and B) who are the specific clients that it is going to be targeted at. and knowledge management. or fully entering into just-in-time concept.28 2. For example. local improvement efforts become aligned with overall organisational success factors. the employees need to analyse what changes need to be made in current management of the customer relations. a company’s top executives may agree upon providing superior service to its customers. not just 28 Kaplan. and iterative than those simple models foresee. to build up a Balanced Scorecard’s customer-perspective. 11-12. however. In this way.. After the organisation has established its financial and customer objectives. internal business processes. who is the most desirable customer segment to the company and which area of services it might be offered. in information technology and systems that deal with research and development. David P. the vision is quite straightforward and easy to understand for everybody.1.But the process of developing a winning strategy is much more messy. it might become clear. It forwards information to all employees about the critical objectives that must be accomplished if an organisation’s strategy is to succeed.

For example. pp. 640-641. sixty per cent of bonuses of middle management might be based on financial measures (such as profit. Individuals at business unit level should have formulated local actions that contribute to achieving overall company’s objectives.30 29 Kaplan. return on investment) and the rest of the bonuses might be based on customer satisfaction. Management: Tasks. 23 .29 All the organisational efforts and initiatives should be aligned to the needed change processes.about the sole implementation of the strategy but about the continuous future strategy development. Robert S. Responsibilities and Practices (New York: Harper & Row. and Norton.. At the final stage of the communication and linkage process. David P. 30 Drucker. 13. Translating Strategy into Action – The Balanced Scorecard (Boston: Harvard Business School Press. All other decisions are either wrong or irrelevant. Peter F. as the ideal corporate strategy should be set up bearing in mind the principle that every decision has to support the achievement of strategic objectives. Throughout communicating and linking phase.. The second aim is to let middle management establish its learning and growth objectives. 1996). as well as the strategy for achieving these goals. we have to train our sales people and increase productivity by establishing a Research and Development department. It might be recommended that the Balanced Scorecard could be used as a single basis for bonus system. 1985). p. everybody in the organisation should understand the business unit’s long-term goals. For example: to increase the market share. partner satisfaction or productivity or turnover of its subordinates. For example: to satisfy the goal of increasing the market share by 20 per cent we need to bring x new products to the market with a targeted marketing campaign. The main aim of the communication and linking initiative is to let the middle management define their internal business processes. it is worth paying attention also to the question on how to link salary bonus system or other motivation systems to the achievement of goals.

31 Collins. it has to be kept in mind that all those initiatives have to be analysed and identified whether they are critical to company’s strategic success. Company may have to tackle with a series of serious constraints in doing so. managers must identify stretch targets for their customer. Setting Targets and Aligning Strategic Initiatives The third management task to do is to drive organisational change. another aspires to create the most lucrative Web site in cyberspace. audacious goal). hairy. re-engineering. as well as focus and integration for continuous improvement.Planning. pp. These targets can come from several sources. 14-102. internal-business-process. it can be assured that all the tasks that are necessary to achieve objectives will also receive the necessary funding. the goals to be set have to be so-called BHAG-s (big.2. To distinct from simple slogans of business re-engineering and other management fads. 1998). response time and re-engineering initiatives for achieving the breakthrough objectives.31 To achieve such ambitions financial or customer or trademark objectives. 32 Many organisations may encounter usual problems that they have established vision and strategic objectives but to fulfil them they are unable to find particular methods.3. It is possible to use benchmarking. By using Balanced Scorecard in close connection with budgetary process. In other words.1. and transformation programmes. Breaking the Constraints to World-Class Performance (Milwaukee. William H. 32 On the use of those methods and technologies. refer to Dettmer. managers can align their strategic quality. 24 . brainstorming etc. The executive team should establish targets for the Balanced Scorecard measures that will transform the company. those capabilities eventually have to become translated into the overall strategy. One might dream of making his brand more popular than Coke. Jim. Thus. Jul-Aug 1999. and learning and growth objectives. p. The targets should represent a discontinuity in the performance of business units. Turning Goals into Results: The Power of Catalytic Mechanisms Harvard Business Review. It is a way of continuous series of cause-and-effect work embodied with the Balanced Scorecard. Once targets are established. Wisconsin: ASQ Quality Press. 71. the Balanced Scorecard provides the front-end justification.

pp. mechanisms for fulfilment those outcomes are identified and possess the necessary financing and • short-term milestones have been set for the financial and non-financial measures of the Balanced Scorecard. Jim.1. It might be advisable to analyse the possibilities of using various catalytic mechanisms to drive performance of the company.Enhancing Strategic Feedback and Learning The last management process embeds the Balanced Scorecard in a strategic learning framework. At the time when a business establishes 3-5 year stretch targets for the strategic measures. Managers in organisations today do not have a procedure to receive feedback about their strategy and to test the hypotheses on which the strategy is based. 34 Kaplan. This process might be considered the most innovative and most important aspect of the entire Balanced Scorecard management process.34 33 Collins. to make fundamental changes in the strategy itself. 25 . 1996). 71-. This provides the capability for organisational learning at all levels. Robert S. Overall. 15. p. and Norton. See also Chapter “Setting up Catalytic Mechanisms” on page 40 of the thesis for more information. The second possibility is to monthly analyse all the operations and their accordance to fulfilment of strategies and responding funding. Turning Goals into Results: The Power of Catalytic Mechanisms Harvard Business Review.33 2. Jul-Aug 1999. Translating Strategy into Action – The Balanced Scorecard (Boston: Harvard Business School Press. managers may also forecast milestones for each measure during the next fiscal year.. the initiative should achieve that: • • long-term outcomes are quantified. The Balanced Scorecard enables them to monitor and adjust the implementation of their strategy.4. if necessary. David P. and.The Balanced Scorecard also enables a fundamental change in letting the organisation to integrate its strategic planning with its annual budgeting process.

First. which starts with the first process in the Figure 2 . Some ten years ago. how their role influences others and. it is necessary to take strategic decisions in fact. as the latter may be either too optimistic or too pessimistic. the goal of the process is to establish an ongoing and continuous improvement cycle. The planning. target setting. mobilises all individuals into actions directed at attaining organisational objectives. it might be necessary to amend long-term strategy’s timeline and contents. This in turn may lead to discovery of new cause-and-effect relationships. Second.One of the main distinctive qualities of the Balanced Scorecard is to give constant response about achievement of strategic and short-term objectives. As today’s business environment is so rapidly changing. To be more specific. eventually. The use of measurement as a language helps translate complex and frequently nebulous concepts into a more precise form that can gain consensus among senior executives. and strategic initiative process – the third process in the Figure 2 – defines specific. the entire organisation. It enables individuals in various parts of an organisation to understand how the pieces fit together. Finding all kinds of correlations definitely helps to clarify and improve the content of strategic goals and tactical steps. The first step is the clarification of a shared vision that the entire organisation wants to achieve. For example: between client satisfaction rate and the speediness of submitting invoices. it gives continuous strategic response to the managing team.Balanced Scorecard as a Strategic Framework for Action22. it speeds up the process of finding the cause-and-effect relationships between different Balanced Scorecard component. it makes possible to rephrase so-called shared vision. The communication and alignment process. it was customary to do strategic decisions about once in three months. where the opinions of all the levels of the organisation could be taken account in defining strategic goals and methods on achieving those. the second process in the Figure 2. The emphasis on cause and effect in constructing a scorecard introduces dynamic systems thinking. every day to safeguard the flexibility to changes in the market. quantitative performance goals for the organisation across a balanced set of 26 . Third. By foreseeing short-term milestones. which could be unknown for the senior management. For example: working morale may have a very strong impact on client satisfaction.

36 35 W. 27 .. Thus the learning and growth initiative has to be carried out in order to ensure continuous improvement. and Norton. 79. Thus the Balanced Scorecard not only measures. Edwards Deming. David P. Harvard Business Review. p. Kaplan. but also even fosters change.35 Please look at Figure 4 – Possible Steps to Go Around the Balanced Scorecard37 for more detailed description. Using the Balanced Scorecard as a Strategic Management 36 System. That kind of continuous improvement may remind also Deming’s so-called Plan-Do-Check-Act cycle.outcomes and performance drivers. Robert S. A comparison of the desired performance goals with current levels establishes the performance gap that strategic initiatives can be designed to close. but they alone would not be adequate in the real world. Jan-Feb 1996. The first three critical management processes are vital for implementing a strategy.

Harvard Business Review. 79.. Using the Balanced Scorecard as a Strategic Management System. and Norton. Jan-Feb 1996. Robert S. p. . David P.Figure 4 – Possible Steps to Go Around the Balanced Scorecard37 1 5 9 Communication and Linking Communicating and educating Setting goals Linking rewards to performance measures Clarifying and Translating the Vision and Strategy Clarifying the vision Gaining concensus 8 4 Strategic feedback and learning Articulating the shared vision Supplying strategic feedback Facilitating strategy review and learning 10 Balanced Scorecard 2 6 Planning and Target Setting Setting targets Aligning strategic initiatives Allocating resources Establishing milestones 7 3 37 Kaplan.

and distribution networks that will support relationships.2. and enhancing continuous improvement. 3. but are required to earn excellent returns on their invested capital. the financial perspective needs to be introduced the least as the main financial measurement systems have been analysed during the past years very thoroughly. They may have to make considerable investments to develop and enhance new products and services. where the company wants to harvest the investments made in the earlier to stages. infra-structure. California Management Review. Norton and Kaplan recommend to simplify the financial perspective measurement selection pool to identify first the organisation’s stage. These businesses are expected to maintain their existing market share and perhaps grow it somewhat. Investment projects will be more directed to relieving bottlenecks. Fall 1996. “harvest” organisations38 . 2. .are at the early stages of their life cycle. and mature businesses may emphasise maximising cash flow.2. David P. to invest in systems.. Any investment 38 Kaplan. to construct and expand production facilities. expanding capacity. 54-55. “rapid growth” organisations . pp. Defining Critical Success Factors and Measures 2. and Norton. which would mainly be one of the three: 1. Linking the Balanced Scorecard to Strategy.2. “sustain” organisations – organisations that still attract investment and reinvestment. While most of the organisations would emphasise profitability objectives. These businesses no longer warrant significant investment – only enough to maintain equipment and capabilities.have reached a mature phase of their life cycle. other possibilities may also be considered. The particular financial performance measures for any Balanced Scorecard should define long-run financial objectives for the organisation.1.Financial Perspective From all the measurement perspectives of a Balanced Scorecard. to build operating capabilities. Robert S. and to nurture and develop customer relationships. not to expand or build new capabilities. Businesses with many products in the early stage of their life cycle can stress rapid growth objectives.

Virtually no spending will be done for research or development or on expanding capabilities.2. which may encourage managers to seek additional investment funds based on future return projections. and distribution channels. Investment projects for businesses in the sustain category will be evaluated by standard.project will have to have very short and definite payback periods. operating income. such as return on capital employed. and gross margin. Financial objectives in the growth stage will emphasise sales growth. customer retention. The generic outcome measures include customer satisfaction. managers identify the customer and market segments in which the business unit will compete and the measures of the business unit's performance in these targeted segments. 56 30 . sales in new markets and to new customers. Financial objectives in the sustain stage will emphasise traditional financial measurements. Any investments must have immediate and certain cash paybacks. capital budgeting analyses. such as economic value added and shareholder value.Customer Perspective In the customer perspective of the Balanced Scorecard. While these measures may appear to be generic across all types of organisations. These metrics all represent the classic financial objective---earn excellent returns on the capital provided to the business. sales. The goal is not to maximise return on investment. they should be 39 Ibid.39 2.2. The main goal is to maximise cash flow back to the organisation. and market and account share in targeted segments. because of the short time remaining in the economic life of business units in their "harvest" phase. Some companies will employ newer financial metrics. maintaining adequate spending levels for product and process development. and establishment of new marketing. p. systems. discounted cash flow. employee capabilities. The customer perspective typically includes several generic measures of the successful outcomes from a well-formulated and implemented strategy. customer profitability. The financial objectives for businesses in each of these three stages are quite different. sales from new products and services. new customer acquisition. The financial objectives for the harvest businesses will stress cash flow.

newspaper and magazine publishers. credit card companies. banks. reveals how well a company is penetrating a desired market. That is. the share of business with these targeted customers could be decreasing because these customers are offering less business to all their suppliers. The measure of market share with targeted customers would balance a pure financial signal (sales) to indicate whether an intended strategy is yielding expected results. a company may temporarily be meeting sales growth objectives by retaining customers in non-targeted segments.6 Companies that can readily identify all of their customers-for example. industrial companies. For example. but not increasing its share in targeted segments. The overall market share measure based on business with these companies could be affected by the total amount of business these companies are offering in a given period. especially for targeted customer segments. distributors and wholesalers. they can also use a second market-share type measure: the account share of those customers' business (some refer to this as the share of the "customers' wallet"). Such a measure provides a strong focus to the company when trying to dominate its targeted customers' purchases of products or services in categories that it offers. Beyond just retaining 31 .customised to the targeted customer groups from whom the business unit expects its greatest growth and profitability to be derived. Market and Account Share Market share. When companies have targeted particular customers or market segments. Research on the service profit chain has demonstrated the importance of customer retention. and long-distance telephone supplierscan readily measure customer retention from period to period. Customer Retention Clearly. a desirable way for maintaining or increasing market share in targeted customer segments is to retain existing customers in those segments. computer on-line service companies. Companies can measure-customer by customer or segment by segment-how much of the customers' and market segments' business they are receiving.

one way to have extremely satisfied customers (and angry competitors) is to 32 . The importance of customer satisfaction probably can not be over-emphasised. Customer Profitability Succeeding in the core customer measures of share. Customer Satisfaction Both customer retention and customer acquisition are driven from meeting customers' needs.customers. and banking and other financial services solicit new customers through broad. Customer satisfaction measures provide feedback on how well the company is doing. Only when customers rate their buying experience as completely or extremely satisfying can the company count on their repeat purchasing behaviour. and the ratio of new customer revenues per sales call or per dollar of solicitation expense. in absolute or relative terms. acquisition. does not guarantee that the company has profitable customers. Obviously. however. retention. cable television. Companies such as those in the credit and charge card business. and profitability. often expensive. Customer Acquisition Companies seeking to grow their business will generally have an objective to increase their customer base in targeted segments. The customer acquisition measure tracks. cellular telephone service. These companies could examine the number of customer responses to solicitations and the conversion ratenumber of actual new customers divided by number of prospective inquiries. many companies will wish to measure customer loyalty by the percentage growth of business with existing customers. magazine subscriptions. Recent research has indicated that just scoring adequately on customer satisfaction is not sufficient for achieving high degrees of loyalty. retention. They could measure solicitation cost per new customer acquired. the rate at which a business unit attracts or wins new customers or business. Customer acquisition could be measured by either the number of new customers or the total sales to new customers in these segments. marketing efforts. and satisfaction.

This is particularly likely to occur for newly acquired customers. because of their growth potential. through their products and services. but the profitability of this business. and market and account share. A financial measure. The customer profitability measure may reveal that certain targeted customers are unprofitable. But unprofitable customers who have been with the company for many years will likely require explicit action to cope with their incurred losses. such as customer profitability. retention. particularly in targeted customer segments. Kaplan and Norton have observed a common set of attributes that 33 . can help keep customer-focused organisations from becoming customer-obsessed. The value proposition is the key concept for understanding the drivers of the core measurements of satisfaction. Activity-based cost (ABC) systems permit companies to measure individual and aggregate customer profitability.sell products and services at very low prices. to create loyalty and satisfaction in targeted customer segments. customers could value short lead times and on-time delivery. Or they could value a supplier able to anticipate their needs and capable of developing new products and approaches to satisfy those emerging needs. Companies should want more than satisfied and happy customers. companies will probably wish to measure not just the extent of business they do with customers. Newly acquired customers can still be valued. In these cases. they should want profitable customers. While value propositions vary across industries. even if currently unprofitable. where the considerable sales effort to acquire a new customer has yet to be offset from the margins earned by selling products and services to the customer. Since customer satisfaction and high market share are themselves only a means to achieving higher financial returns. They could value a constant stream of innovative products and services. lifetime profitability becomes the basis for deciding whether to retain or discourage currently unprofitable customers. Beyond the Core: Measuring Customer Value Propositions Customers' value propositions represent the attributes that supplying companies provide. For example. and across different market segments within industries. acquisition.

the customer perspective enables business unit managers to articulate their unique customer and market-based strategy that will deliver superior future financial returns.organises the value propositions in all of the industries where we have constructed scorecards. The customer relationship dimension includes the delivery of the product/service to the customer. Linking the Balanced Scorecard to Strategy. California Management Review.2. 34 . including the response and delivery time dimension. The 40 Kaplan. Fall 1996. and how the customer feels about the experience of purchasing from the company. its price. But they still focus on improving existing processes.3. The measures should be focused on the internal processes that will have the greatest impact on customer satisfaction and achieving the organisation’s financial objectives. executives identify the critical internal processes in which the organisation must excel. The critical internal business processes enable the business unit to deliver on the value propositions of customers in targeted market segments. Robert S. These attributes are organised into three categories. Traditional approaches attempt to monitor and improve existing business processes.Internal Business Process Perspective In the internal business process perspective. They may go beyond just financial measures of performance by incorporating quality and time-based metrics. 41 Ibid.. In summary.40 • • • Product/Service Attributes Customer Relationship Image and Reputation Product and service attributes encompass the functionality of the product/service. The internal business process perspective reveals two fundamental differences between traditional and the Balanced Scorecard approaches to performance measurement.41 2. The image and reputation dimension enables a company to proactively define itself for its customers. p. 62. and its quality. and Norton. David P. and satisfy shareholder expectations of excellent financial returns.

and 35 . Also.Learning and Growth Perspective The fourth Balanced Scorecard perspective. and internal business process objectives on the Balanced Scorecard will typically reveal large gaps between existing capabilities of people. The internal business process objectives highlight the processes most critical for the organisation’s strategy to succeed. The internal business process perspective of the Balanced Scorecard incorporates objectives and measures for both the long-wave innovation cycle as well as the short-wave operations cycle. businesses will have to invest in re-skilling employees.the short wave of value creation.Balanced Scorecard approach. and procedures and what will be required to achieve targets for breakthrough performance. intense global competition requires that companies continually improve their capabilities for delivering value to customers and shareholders. Traditional performance measurement systems focus on the processes of delivering today's products and services to today's customers. They attempt to control and improve existing operations . however. and organisational procedures. enhancing information technology and systems. identifies the infrastructure that the organisation must build to create long-term growth and improvement. customer. The innovation process-the long-wave of value creations. The customer and internal business process perspectives identify the factors most critical for current and future success. Learning and growth. The second departure of the Balanced Scorecard approach is to incorporate innovation processes into the internal business process perspective. 2. for many companies. But managers do not have to choose between these two vital internal processes. systems. a more powerful driver of future financial performance than the short-term operating cycle. The financial. systems. Organisational learning and growth come from three principal sources: people. To close these gaps. But the drivers of long-term financial success may require the organisation to create entirely new products and services that will meet the emerging needs of current and future customers.4.2. Businesses are unlikely to be able to meet their long-term targets for customers and internal processes using today's technologies and capabilities. will usually identify entirely new processes at which the organisation must excel to meet customer and financial objectives.

and Norton. David P. or a tenured full professor at a major university. 36 . 2.01deg of the optimum will not be one of the strategic success factors that will determine whether we become a chief executive of a company.Conclusions and Recommendations – How Many Measures to Choose? After the measures have been set for all the perspectives. and employee skillsalong with specific drivers of these generic measures. and measured rates of improvement in critical customer-based and internal processes.42 Many aspects of our bodily functions must perform within narrow operating parameters if we are to survive. Are body temperature and blood pressure important? Absolutely.. Organisational procedures can examine alignment of employee incentives with overall organisational success factors. p. As in the customer perspective. the organisation may face the problem of having either too little or too many items to measure. a senior partner in an international consulting firm.2. But while these 42 Kaplan. In such circumstances. Information systems capabilities can be measured by real-time availability of accurate customer and internal process information to front-line employees. such as detailed indexes of specific skills required for the new competitive environment. Linking the Balanced Scorecard to Strategy. Being able to control our body temperature to within 0.aligning organisational procedures and routines. we have a major problem that we must attend to and solve immediately. But we don't devote enormous energy to optimising our body temperature and blood pressure. the author would like to cite Norton and Kaplan. To illustrate this problem. employee-based measures include a mixture of generic outcome measuresemployee satisfaction. Should these measurements fall outside certain control limits. employee retention. California Management Review. Other factors are much more decisive in determining whether we achieve our unique personal and professional objectives. we have a serious problem for our survival. Robert S. employee training. These objectives are articulated in the learning and growth perspective of the Balanced Scorecard. Fall 1996. 67. If our body temperature departs from a normal 1-2deg window (away from 37degrees Celsius) or if our blood pressure drops too low or escalates too high.5. all our energies (and those of skilled medical professionals) are mobilised to restore these parameters back to their normal levels.

But these are not the drivers of businesses' competitive success. These measures should be monitored diagnostically with deviations from expectations noted rapidly. management by exception. and suppliers. pp. 43 Kaplan. As one executive remarked. technologies. and Norton. we chose 12 measures as the key to implementing our strategy. in effect. Such measures capture the necessary "hygiene factors" that enable the company to operate. Similarly. Robert S. In the case that the organisation uses an IT system to follow the developments according to the Balanced Scorecard. after he had implemented his first Balanced Scorecard: "Our division had always measured hundreds of operating variables. seven were entirely new measurements for the division. Sept-Oct 1993. diagnostic measures are not the basis for competitive breakthroughs. of measures that they can monitor to ensure that they are functioning as expected and that will signal when corrective action must be taken. perhaps thousands. David P.. markets. The outcome and performance driver measures on the Balanced Scorecard should be the subjects of intensive and extensive interactions among senior and middle-level managers as they evaluate strategies based on new information about competitors. Unlike the strategic measures selected for inclusion on the Balanced Scorecard.measurements are necessary. But it is impossible to give an optimum. for this is also up to the specifics of a particular establishment. Of these 12 measures. 143-145. they are not sufficient for the achievement of our long-run goals. corporations should have hundreds. the number may also rise accordingly. Harvard Business Review. 37 . Implementing the Balanced Scorecard at FMC Corporation: An Interview with Larry Brady."43 Choosing the right measures and right number of measures is definitely one of the most crucial parts in building up a Balanced Scorecard. Usually the set of 15-25 measures is identified as optimal. as for a single person in an organisation 6-8 measures to follow is the maximum ceiling. customers. In building a Balanced Scorecard.

measures reflect the common goals of many strategies. customer satisfaction.2.Analysing Cause and Effect A strategy is a set of hypotheses about cause and effect. If organisation increases employee training about products. as well as similar structures across industries and companies. and employee skills. The performance drivers reflect the uniqueness of the business unit's strategy: the drivers of profitability. For example.3. and the particular internal processes and learning and growth capabilities that enable the financial and customer objectives to be achieved. Conversely. They also do not provide an early indication about whether the strategy is being implemented successfully. the organisation can establish a link between improved sales training of employees to higher profits through the following sequence of hypotheses. The drivers of performance are the ones that tend to be unique for a particular business unit. into enhanced financial performance. the value propositions delivered to customers in the targeted market segments. Cause and effect relationships can be expressed by a sequence of if-then statements. If employees are more knowledgeable about products. A good Balanced Scorecard should have a mix of core outcome measures and performance drivers. customer retention. performance drivers (such as cycle times and part-per million defect rates) without outcome measures may enable the business unit to achieve short-term operational improvements. 2. but will fail to reveal whether the operational improvements have been translated into expanded business with existing and new customers-and. then they will become more knowledgeable about the full range of products they can sell.Analysing Outcomes and Performance Drivers All Balanced Scorecards use certain generic measures. Outcome measures without performance drivers do not communicate how the outcomes are to be achieved.2.3. eventually. A good Balanced Scorecard should have an appropriate mix of core outcome measures and the performance drivers of these outcomes. Testing the Balanced Scorecard 2. or core outcome.3. the market segments in which the unit chooses to compete. These generic. The generic measures include profitability.1. then their sales 38 . market share.

44 44 Kaplan.. the business may need to achieve short cycle times in operating processes and high-quality internal processes. In a very similar vein. 39 . p. then the average margins of the products they sell will increase. customer loyalty. and Norton. financial performance. customer satisfaction. The measurement system should make the relationships (hypotheses) among objectives (and measures) in the various perspectives explicit so that they can be managed and validated. A properly constructed Scorecard should tell the story of the business unit's strategy. 63. So. both factors that could be Scorecard measures in the internal perspective. And how do organisations improve the quality and reduce the cycle times of their internal processes? By training and improving the skills of their operating employees. So both customer loyalty and OTD are incorporated into the customer perspective of the Scorecard. Thus. and. market share. If their sales effectiveness improves. The driver of this financial measure could be repeat and expanded sales from existing customers. California Management Review. Fall 1996. The chain of cause and effect should pervade all four perspectives of a Balanced Scorecard. The process continues by asking what internal processes must the company excel at to achieve exceptional on-time-delivery. an objective that would be a candidate for the learning and growth perspective. is expected to lead to higher financial performance. in turn. eventually.effectiveness will improve. To achieve improved OTD. For example. How will the organisation achieve customer loyalty? Analysis of customer preferences may reveal that on-time delivery (OTD) of orders is highly valued by customers. improved OTD is expected to lead to higher customer loyalty which. return on capital employed (ROCE) may be an outcome measure in the financial perspective. recent work in the service profit chain has emphasised the causal relationships among employee satisfaction. customer loyalty gets put on the Scorecard (in the Customer perspective) because it is expected to have a strong influence on ROCE. the result of a high degree of loyalty among existing customers. Linking the Balanced Scorecard to Strategy. David P. Robert S.

Jul-Aug 1999. Moreover. the upscale department store that is world famous for delighting its customers. and asphalt.1. Twelve years ago.45 One of the possible examples to be analysed is 99-year-old Californian based company Granite Rock. when brothers Bruce and Steve Woolpert become co-presidents. “If you are not satisfied for any reason. and return a copy of this invoice along with your check for the balance. 71-82. The company has consistently gained market share in a commodity business. that sells crushed gravel. do not pay us for it. its financial 45 The following examples about catalytic mechanisms are taken from Collins. as has been widely reported. Jim. providing hard-to-ignore feedback about the quality of service and products. In the years since it was instituted.Setting up Catalytic Mechanisms After the process of initial setting up the Balanced Scorecard.2. short pay has had a profound and positive impact on Granite Rock.” To put the radical nature of short pay in perspective. imagine paying for airline tickets after the flight and having the power to short pay depending on your travel experience. it is advisable to establish various catalytic mechanisms to drive organisation’s performance towards achieving the strategic goals. concrete. Simply scratch out the line item. It has won the prestigious Malcolm Baldrige National Quality Award in 1992. Turning Goals into Results: The Power of Catalytic Mechanisms Harvard Business Review. 40 . pp. It also signals to employees and customers alike that Granite Rock is serious about customer satisfaction in a way that goes far beyond slogans. In addition. it has had success. They instituted a radical new policy called “short pay. they gave their company a goal to provide total customer satisfaction and achieve a reputation for service that met or exceeded that of Nordstrom. write a brief note about the problem. Establishing Action Plan 2. It serves as a warning system.4.” The bottom of every Granite Rock invoice reads. It impels managers to relentlessly track down the root causes of problems in order to prevent repeated short payments. sand.4.

The above however was just a single good example on how it is worthwhile to sometimes consider unorthodox ideas to better satisfy the needs of the customers. 46 Ibid. as it might lead such a company to a bankruptcy fairly quickly. 41 .46 It is obvious that Estonian business culture is not yet up to standards to try to implement Short Pay principle in some of our companies.performance has significantly improved from razor-thin margins to ratios above 10 per cent.

p.."48 47 Kaplan. David P. David P. not as a new way to manage the business. I would have been upset. 272-273. Or if I had left my monthly operating review somewhere and a competitor obtained a copy. Linking the Balanced Scorecard to Strategy. but. 64. This Balanced Scorecard. One division president reported to his parent company's president when he turned in his first Balanced Scorecard: "In the past. Robert S. 1996). but the measurement framework in the Balanced Scorecard should be deployed to develop a new management system. however. and Norton. I would have been angry but I would have gotten over it. 48 Kaplan. communicates my strategy so well. 42 . California Management Review.. Fall 1996. and Norton. Measurement as such is indeed a powerful motivational and evaluation tool. that a competitor seeing this would be able to block the strategy and cause it to become ineffective. In reality. Robert S. again. Implementing a Balanced Scorecard as a Management System It has to be mentioned that it is fairly simple to create just a scorecard. if you had lost my strategic planning document on an airplane and a competitor found it. Some examples of the failure to introduce the Balanced Scorecard have been linked to the fact that the executives have viewed the Balanced Scorecard as simply a measurement system. pp. 47 Using the Balanced Scorecard as a management system enables it to overcome the deficiency of most of the measurement systems – it enables to implement and receive feedback about organisation’s strategy. it wouldn't have been that big a deal.3. A test of whether a Balanced Scorecard truly communicates both the outcomes and the performance drivers of a business unit's strategy is its sensitivity and transparency. it wouldn't have been that big a loss. but to create a manageable Balanced Scorecard is a completely different thing. Translating Strategy into Action – The Balanced Scorecard (Boston: Harvard Business School Press.

1. two-legged structure that may be observed over the years. increased market share. One of the mistakes companies make is during the implementation phase by coming up with a list of measures of what they could measure instead of what they should be measuring. where companies try to determine how hey’re going to grow the top line of the business. a company also has to use it. "The first leg is the revenue-growth strategy. If a company thinks about what it needs to achieve to be successful in the eyes of its shareholders.businessfinancemag." Typical methods for accomplishing a revenue-growth strategy are adding new products to broaden the franchise and branching out into new businesses. companies must comprehend the importance of its four basic perspectives." says Downing.3. Case Studies on Implementing a Balanced Scorecard 3. To make the Balanced Scorecard work." says Laura Downing. “There’s a fairly standard. "Companies will tend to incorporate 49 The following is based on an interview referred through internet address in the Business Finance Magazine http://www.1. quarterly sales growth and operating income by division.Practical Aspects of Setting up Balanced Scorecard in a Service Company After the initial phase of building the Balanced Scorecard. The financial perspective This perspective tends to be the cornerstone of an organisation’s strategy.49 The other leg of the financial perspective is a productivity strategy that usually includes two components: basic expense management and effective asset utilisation. It includes such measures of profitability as cash flow. clients and internal that will yield operational activities that the organisation needs to do well to achieve those strategies.1. "The natural inclination is to focus on the financial perspective because people are more comfortable and familiar with it. 43 . and return on equity. vice president of the Massachusetts-based consulting firm Balanced Score Card Collaborative Inc.

The customer perspective can be divided into three major measures: • Product attributes. • Image an examination of the product’s reputation. However. an evaluation of how the company works with customers and whether it takes a high-touch or high-tech approach. a company typically needs to build a value chain by defining its value-creating activities and separating those activities from any type of organisational structure . The internal business perspective This aspect of the Balanced Scorecard focuses on quality. Companies must determine whether they need to seek partnerships with other organisations. inventory and manufacturing lead time to determine what key processes meet the needs of the customer and financial perspectives. they give organisations an opportunity to react to internal and external influences before detrimental activities affect financial measures." Downing says." The non-financial perspectives are predictive of a company’s future financial success.more financial measures than are really necessary. The first theme is innovation. To start building the internal perspective. all measures play out into cash flow. "We’ve observed four major themes in the internal perspective. However. on-time delivery. thinking outside the box about the added value the company brings to customers. • Customer service. a measure of how the product works its functionality and its price. time and efficiency measures such as head other words. But ultimately. and market share and product reliability. The customer perspective tends to get little attention because measuring such intangibles. this perspective is important. as customer satisfaction and customer loyalty is difficult. The customer perspective This component of the Balanced Scorecard includes such measures as customer response time. how much they need to spend on research and 44 . at the end of the day.

and how they can find other creative ways to increase revenue. event-driven phenomenon. the scorecard evaluation can become a process that continuously determines areas in which the company can improve. Just optimising that angle alone can be a major differentiator. It measures such factors as the number of new products a company launches and the length of time generating leading-edge products takes. "The third theme is operational excellence. This theme is particularly important in heavily regulated businesses such as financial services or public utilities. The Balanced Scorecard can not only translate strategy. it should ask whether it needs to address any cultural issues. If a company can say. create it. and there’s been this customer-focus fad — perhaps to the extreme — which has lasted for several years." Downing says. in some cases. Why does learning and growth often get short shrift? "Companies already have the financials down pat. The learning-and-growth perspective The most frequently overlooked of the four perspectives. Companies need to look at how they can better work with their customers and how they can improve customer service. the scorecard approach has helped companies translate business strategy into appropriate actions. Often when companies try to implement a new strategy. "It’s just been in the last couple of years that people have even started to ask how they can apply technological advancements to help them in their business. they need a cultural change to reflect the new strategy." The fourth theme involves regulatory factors that can come into play for certain types of business. "You need to find a way to manage inbound and outbound logistics.development." Until now." Downing says. The second theme targets customer management. but also help define it and. this aspect of the Balanced Scorecard should be of paramount importance to companies with a strategy of finding new revenue sources and expanding into new markets. Rather than a cyclical. a look at an organisation’s supply chain. "This 45 . As an organisation considers the four perspectives.

1996).cultural issue must change so that this process can be enacted so that customers will be happy so that we’ll make more money. The agendas of the two parents had never been fully rationalised into a single vision. increased competition. David P.. Metro Bank had 30% market share of the core deposit accounts of the region but with deregulation.1. income from these retail accounts could no longer be sustained. and Norton. Unfortunately. Translating Strategy into Action – The Balanced Scorecard (Boston: Harvard Business School Press. these two strategies were translated into objectives and measures in the four perspectives.. 110-112.2. A strategic review revealed excessive reliance on these accounts and a cost structure that could no longer profitably serve 80% of the bank's retail customers. 3. Metro embarked upon a two-pronged Balanced Scorecard-based strategy to deal with these problems: • Revenue Growth Strategy . pp. The financial objectives were clear: broaden the revenue mix. electronic banking instead of personal banking). without having achieved a synthesis or consensus on an operating style and strategy for the Metro Bank. Particular emphasis was placed on understanding and describing the cause and effect relationships on which the strategy was based. 50 As adapted from Kaplan. each competing for management time and resources.Using the Balanced Scorecard at Metro Bank50 Metro Bank was the retail banking division of two major banks. In the process of developing a Balanced Scorecard at Metro. leaving the bank with more than 70 different action programmes. At the same time. • Productivity Strategy . Robert S.Improve operating efficiency by shifting non-profitable customers to more cost-effective channels of distribution (e. 46 ." the need for cultural change becomes tangible. its managers had launched a major transformation programme in order to be more innovative and to create a bank tailored for the twenty-first century. the transformation programme had gone wild.Reduce the volatility of earnings by broadening the sources of revenue with additional products for current customers.g. 294-310. and a lower interest rate environment.

and then sell an expanded set of financial products and services to these targeted customers. Hours Spent With Customers. the scorecard design process then focused on the internal activities that had to be mastered for the strategy to succeed. helping customers to open accounts and to provide ongoing service. one study indicated that only 10% of a salesperson's time was spent with customers. identify the customers who would be likely candidates for a broader range of services. 47 . Hours Spent With Customers therefore was a "lead indicator" for the success of this piece of the strategy. The selling process. Having identified the financial objective. Increase Targeted Customers Confidence in our Financial Advice. they must shift customers' perception of the bank from that of a transactions processor of checks and deposits to a financial adviser. and Cross-Sell Multiple Products and Services. as the logical source for a broader array of products such as mutual funds. The branch personnel were reactive. Develop New Products and Services. The executives concluded that if the bank's new strategy were to be successful. Metro's executives determined that its targeted customers did not view the bank. or their banker. This "lag indicator" would tell whether the new process was working. and the new customer value proposition dictated by the financial objective. The Cross-Sell Ratio-the average number of products sold to a household-measured selling effectiveness. A relationship-based sales approach could not work unless face-to-face time with customers increased. credit cards. this meant that Metro would focus on its current customer base. Good advertising plus good location brought the customers to the banks. The bank did not have a selling culture. When customer objectives were analysed. The goal of the process was to create a relationship-selling approach where the salesperson became more of a financial advisor. Each of these business processes would have to be redesigned to reflect the demands of the new strategy.Strategically. however. In fact. and financial advice. Three crossbusiness processes were identified: Understand Customers. The second measure. Two measures of this process were included on the Balanced Scorecard. had historically been dominated by institutional advertising of the bank's services. for example. A major reengineering program was initiated to redefine the sales process. Broaden Revenue Mix. was included to send a signal to salespersons throughout the organisation of the new culture required by the strategy.

businessfinancemag. all focused on achieving specific objectives. Quinn discovered that maintaining the company’s increased shareholder value would require more change.1. to consolidate and to integrate the many change programmes currently under way. it was able to create consensus and teamwork among all the senior executives. improved access to information (e. 48 .. and realignment of the incentive systems to encourage the new behaviour. 3. regardless of which functional organisation they represented. The result of the Balanced Scorecard in the Metro Bank is the following. and • the realignment of individual goals and incentives to reflect the new prioritiesPersonal Goal Alignment.3. a financial counsellor with broad knowledge of the product line). For Sears. sustaining the Balanced Scorecard’s initial improvements required senior management to alter the company’s overall vision and incorporate a new perspective into the company’s Scorecard.The internal objectives led naturally to a final set of factors to implement the Revenue Growth strategy. The "lag indicators" included a productivity measure. This role change would require a broader set of skills (e. Average Sales per Salesperson. The learning and growth component of the scorecard identified the need for salespersons to undergo a major role change.g..Using the Results of a Balanced Scorecard at Sears Company51 Sears radically improved profitability using the Balanced Scorecard’s four perspectives. By clarifying the strategic Further. the access to information technology tools and data-Strategic Information Availability Ratio. 51 The following is based on an interview referred through Internet address in the Business Finance Magazine http://www. integrated customer files). However. as well as the attitudes of the work force as measured by an Employee Satisfaction Survey. the Balanced Scorecard created a vehicle to set priorities. The result was a much more manageable set of strategic initiatives. The lead indicators focused on the major changes that had to be orchestrated in the work force: • • the upgrading of the skill base and qualified people-Strategic Job Coverage Ratio.g. shortly after Sears’ implementation of the standard Scorecard.

It soon became clear to him that a small group of people had caused the company’s turnaround and that different long-term measures would have to be taken in order to sustain Sears’ renaissance. the group discussed methods for aligning itself more with what was happening outside the company. You have to be willing to go through cultural change. In addition to examining needed internal changes. Quinn formed task forces around the four basic perspectives of the Balanced Scorecard. "Satisfaction or your money back" had been a Sears mantra since the company’s inception in the 1890s. We had the top 100 people sitting through customer focus groups." Quinn was vice president of quality when he introduced Sears to the Balanced Scorecard concept in late 1992." Initially." says Quinn. Quinn lost most of the audience for his idea. Really changing senior management causes some discomfort. The task forces moved forward with the following initiatives: The customer task force was determined to get a firsthand assessment of how well the company was listening to its clientele. "Most organisations aren’t willing to pay that price. "We spent all of 1994 developing our Balanced Scorecard with our top people. As a result of this realisation. who retired from Sears in 1996 after a 26-year career with the company. Quinn began holding visioning sessions in early 1994 with the organisation’s top 100 executives. Sears had a net loss of almost $4 billion that year. Sears’ corporate managers developed a list of the company’s five-year objectives. identify Sears’ obstacles to achieving world-class status in that area. you have to ask yourself whether you’re ready to fire some of your senior team if they’re not willing to behave differently."You can’t look at the Scorecard as just helping you pull a bunch of strategic levers. digesting all the data and reading all the literature to the point that we almost had a palace revolt. "If you’re messing around with cultural change. Each group was asked to define "world-class status" in the area of its perspective. but the company posted the largest profit in its history in 1993. but the group was sceptical about whether senior management and frontline employees were doing everything they 49 . and design metrics for measuring the company’s progress in the area. After the company’s financial rebound." Quinn says. In off-site three-day sessions.

and it. building customer loyalty. providing superb customer service by hiring. This perspective was designed to measure overall company values. The task force also learned that two dimensions of employee satisfaction — attitude toward the job and toward the company — had a greater effect on employee loyalty and behaviour toward customers than all the other dimensions put together. Sears managers added a fifth perspective to the company’s Balanced Scorecard. trust and customer focus. The task force determined that Sears’ corporate culture was too paternal in nature and didn’t value people as much as it should. The financial task force focused on shareholder return and tried to determine what path Sears should take to be in the top 25 percent of Fortune 500 companies. Ultimately. too. The task force decided that performance should count more in employee appraisals than effort. and making Sears a fun place to shop. Customers frequently complained about being unable to find sales associates and rated Sears’ quality of overall service as poor. The values task force used employee surveys to identify six core values that Sears employees felt strongly about: honesty. integrity. respect for the individual. the customer task force set four goals: offering the right merchandise at competitive prices. 50 . The internal business task force found that repeatedly employees responded with the clear message that they were interested in the company’s success and were proud to work for Sears. teamwork. Each Sears employee was asked to complete a 70-question opinion survey every other year. To learn more about Sears’ customer-service challenges. was assigned to a task force. The internal business task force held 26 employee focus groups and studied extensive data on employee attitudes and behaviour. the task force held 80 focusgroup sessions with customers around the country. Some stores had trouble keeping merchandise in stock. training and retaining the best employees. As a result of its findings.could to increase customer satisfaction. The learning-and-growth task force conducted outside benchmarking launched a research project into the nature of change and suggested an effort to generate 1 million ideas from employees.

Sears’ customer service was above the industry average." Quinn adds. FMC Corporation. Shell. IBM. Second. 51 .. Sears. as every member’s task in formulating the core business information is certainly much higher than in the case of centralised strategic management systems." he notes. 33. Knowing the Score. it was possible to identify that throughout the world has the Balanced Scorecard received very warm welcome among numerous very prestigious companies. To mention just a fraction of them: Chase Manhattan. Hewlett-Packard.2. Tiit Elenurm. "First. Multilevel analysis of organisational strategy helps to identify possible shortcomings and flaws of existing objectives. Conclusions and Recommendations on Implementing a Balanced Scorecard From the possible research resources from Internet and major international business journals." 3. At 52 Kaplan. "There’s an appeal to the Balanced Scorecard on two fronts. and Norton. "In 1992. an independent study of 203 companies found that in 1996 Sears made the second-highest improvement in customer satisfaction.52 During the interview with Mr. it’s logical that those four perspectives go together for most people. The Balanced Scorecard is definitely a useful tool to renew an organisation’s mission and strategic objectives. Second. The number is constantly growing every day. it was identified that so far the applications of Balanced Scorecard and related instruments are not yet familiar to Estonian companies. The personal experience of the author is shortly the following. Mobil. David P. the more accountable I can hold someone. In addition. p. Nov-Dec 1996." By 1996.Quinn says these task-force findings showed the company why change was needed. "our customer satisfaction was below the industry average and 16 percentage points behind our leading competitor. managing director of Estonian-based consulting company EM-International. Financial Executive. there’s a blending of Scorecard and performance management — the whole idea is that the better the measurement system I put in place. the Balanced Scorecard has proven its usefulness also as a two-way communications tool that enables to pass information more easily to all the members of an organisation. Robert S. Texaco.

because some increase in bureaucracy and increase in reporting.or EFQM-based quality management systems. During the completion of the thesis. it avoids performing many tasks that are not in line with objectives and members start to diminish less important assignments that do not contribute to goals. which may diminish significantly the project implementation time and end in better results.the same time. the author managed to find at least four different software providers. the Balanced Scorecard simplifies the analysis of monthly performance review and compares the results of the review with strategic objectives. In the end. It might also be recommended to start building up the Balanced Scorecard together with the implementation of some ISO. 52 . The second problem is increasing time constraints. to diminish those backlogs it is definitely recommended to use an information-technology based solution in implementing Balanced Scorecard. market and sell their software solutions for better management of the Balanced Scorecard. However. because discussions on so many levels of management undoubtedly takes some time. The preparatory process for all of those initiatives is largely the same. As one of negative impacts of the Balanced Scorecard it may be noted slowing down of some strategic planning processes. who have started to actively develop. it turns the activities of an organisation much more efficient as its every member is more aware and committed to the strategy. Third.

Internal business processes have been targeted by several quality management systems. The number is constantly growing every day. Author goes through detailed steps in implementing the Balanced Scorecard in an organisation and during that tour he advises on practical questions which may arise in implementing the Balanced Scorecard for the first time. Hewlett-Packard. From the possible research resources from Internet and major international business journals. Therefore. The Balanced Scorecard may be described as a strategy-driven measurement system that retains traditional financial measures. Clients also have been subject to several kinds of statistical and non-statistical researches. Shell. processes. Texaco. By its nature the four-fold division of the Balanced Scorecard into the perspectives of a) financial. 53 . has nothing especially new. Sears.4. FMC Corporation. IBM. employees. Summary The overall objective of the thesis was to analyse the use of Balanced Scorecard as a performance measurement tool in the areas of general management and strategic management. the companies who are willing to remain competitive during today’s shift from industrial age business to information age business will have to start consider implementing the Balanced Scorecard. To mention just a fraction of them: Chase Manhattan. suppliers. but adds also the perspectives of present and potential (future) value of a company. the Balanced Scorecard methodology may be regarded as the most practical management tool since the SWOT analysis. it was possible to identify that throughout the world has the Balanced Scorecard received very warm welcome among numerous very prestigious companies. and innovation. Mobil. The main objective of the Balanced Scorecard is to bring those different perspectives together into an uniform system that would enable to measure them in a balanced way that is derived from the strategic objectives of an organisation. c) learning and growth. In author’s opinion. namely its customers. and d) clients. Learning and growth has been analysed by a few trends under knowledge management. technology. b) internal business processes.

During the completion of the thesis. The author finds that the Balanced Scorecard is definitely a useful tool to renew an organisation’s mission and strategic objectives. who have started to actively develop. Multilevel analysis of organisational strategy helps to identify possible shortcomings and flaws of existing objectives. The author found in the thesis show that the Balanced Scorecard may be considered as one of the best remedies in tackling with the questions concerning: • • linking strategic vision and long-term objectives to short term tactics.or EFQM-based quality management systems.Especially Estonian companies would have to try to acquire more information about the Balanced Scorecard and its possible implementation schemes in order to get competitive advantages in the European Union and world markets. It might also be recommended to start building up the Balanced Scorecard together with the implementation of some ISO. directing sophisticated and different critical paths of success in the light of strategic management. The preparatory process for all of those initiatives is largely the same. review of strategic vision in the light of day-to-day operations management. 54 . • • efficient performance measurement. To diminish some backlogs that might be encountered during implementation of the Balanced Scorecard it is definitely recommended to use an information-technology based solution in implementing Balanced Scorecard. the author managed to find at least four different software providers. market and sell their software solutions for better management of the Balanced Scorecard. which may diminish significantly the project implementation time and end in better results.

Peter F. Jr. 2. 1977). and Robert S. 13. Dettmer.: A Renaissance in Quality.Bibliography 1. A. Jul-Aug 1999.. Collins. 1997).. Massachusetts: Harvard University (last accessed by the author in 14th of April 2000). 5. Kaplan. 11.S. Responsibilities and Practices (New York: Harper & Row.bettermanagement. Joseph M. Kü 9. Management Challenges for the 21st Century (New York: Harper Business. Nov-Dec 1997. Massachusetts: Harvard University Press. Laura. 8. Wisconsin: ASQ Quality Press. Interview over internet address in the Business Finance Magazine http://www. A. D. Chandler. Drucker. 3. 1985). 12. D. 1999). Downing. Management: Tasks. Ruth... What’s Wrong with Strategy? Harvard Business Review. Chandler. Andrew and Marcus Alexander. 55 . William H. manager of EM-International.A. Campbell. Turning Goals into Results: The Power of Catalytic Mechanisms Harvard Business Review. The Scorecard Authority – Websites for Management Insights at address http://www. 1990). Elenurm. T. Jr. 1998). 4. 7.businessfinancemag. 10. H. vice president of the Massachusetts-based consulting firm Balanced Score Card Collaborative Inc. Jim. Harvard Business Review. Relevance Lost: The Rise and Fall of Management Accounting (Boston: Harvard Business School Press. Interview conducted in 31st of March 2000. Breaking the Constraints to World-Class Performance (Milwaukee. Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge. The Visible Hand: The Managerial Revolution in American Business (Cambridge. 1987). Made in U. Johnson. Strateegiline juhtimine (Tallinn.. Drucker. Alas. Tiit. Jul-Aug 1993. 6. Peter F. Juran.

Kaplan. Robert S. Norton. Interview over internet address in the Business Finance Magazine http://www. Harvard Business Review. Fortune. 1996). Devising a Balanced Scorecard Matched to Business Strategy. 21. 19. Using the Balanced Scorecard as a Strategic Management System. Kaplan. Harvard Business Review. Strategy and Leadership. 23. Norton. Translating Strategy into Action – The Balanced Scorecard (Boston: Harvard Business School Press. 1997. Norton. Putting the Balanced Scorecard to Work. Robert S. Joel. Strategic Learning and the Balanced Scorecard. 20. Norton. Kaplan. Financial Executive. Harvard Business Review. Sept-Oct 1996. Robert S. Rick . 22. 15. Harvard Business Review. Sept-Oct 1993. Robert S. Kaplan. and David P. and David P. Kaplan. Kaplan. Norton.businessfinancemag. Jan-Feb 1996. Robert S. Kaplan. Fall 1996. and David P. 17. Robert S. The Balanced Scorecard – Measures that Drive Performance. Roebuck & Co. Norton. former vice president of quality. Linking the Balanced Scorecard to Strategy. and David P.14. and David P. Robert S. Planning Review. Nov-Dec 1996. Robert S. Robert S. Kaplan. California Management Review. Jan-Feb 1992. Sears. Knowing the Score. Sept-Oct 1994. SeptOct 1993. 24. and David P. and David P. Norton. 16. 18. Is Your Company off Course? Now You can Find Out Why. Quinn.. Kurtzman. Implementing the Balanced Scorecard at FMC Corporation: An Interview with Larry Brady. and David P. 56 . 17th of February. Norton.

õppimise ja arengu osasid on analüüsitud teadmusjuhtimise erinevates suundades ning kliente on samuti uuritud erinevate küsitluste ja statistiliste analüüside käigus. b) sisemiste äriprotsesside-. mis koosneb a) rahalisest-. Maailma juhtivates majandusajakirjades on viimaste aastate jooksul mainitud. IBM. Tasakaalustatud hindemaatriksi ülesandeks ongi tuua kõik need erinevad organisatsiooni tegevust analüüsivad näitajad kokku ühtsesse süsteemi ning mõõta neid tasakaalustatult. miks ja tasakaalustatud hindemaatriksi professorite konsultantide Robert S. c) õppimise ja arengu. FMC Corporation. töötajate. Viimased seonduvad enamasti klientide. Sears. Oma olemuselt ei ole tasakaalustatud hindemaatriksi tinglikus nelikjaotuses. Nortoni poolt loodi. Shell. Tasakaalustatud hindemaatriks ongi definitsiooni kohaselt strateegiale orienteeritud tegevuse mõõtmissüsteem. äriprotsesside. mis annavad varasemast adekvaatsema pildi organisatsiooni tegevuse eesmärgipärasusest. et kuni 1980-date aastateni kasutusel olnud finantsnäitajatel baseeruvad mõõtmissüsteemid ei andnud adekvaatset pilti organisatsiooni edukuse tegelikust seisust. allhankijate. Harvardi Peamine Ülikooli põhjus. seisnes selles. Kaplani ja David P. Mobil.ning teabeühiskonna keskses ärikeskkonnas konkurentsieelise säilitamiseks firmadel hakata kasutama tasakaalustatud hindekaardi metodoloogiaid. organisatsiooni strateegilistest eesmärkidest lähtuvalt. Hewlett-Packard.ning d) klientideperspektiivist. tehnoloogiate ja uuendustega. mis analüüsib lisaks mineviku tegevuse edukusele viitavatele traditsioonilistele rahalistele näitajatele (nt kasum ja varade tootlus) ka organisatsiooni käesoleva hetke ning tuleviku näitajaid. iseenesest midagi uut. Sisemiste äriprotsessidega tegelevad varasemate teooriate raames põhjalikumalt kõikvõimalikud kvaliteedisüsteemid. Texaco on ainult lühike osa nimekirjast. Autor soovitab tänapäevases informatsiooni. mis täieneb 57 .Resümee – Tasakaalustatud hindemaatriksi koostamine ja kasutamine Bakalaureusetöö eesmärk oli analüüsida tasakaalustatud hindemaatriksi kasutamist strateegilise juhtimise ja üldjuhtimise lähenemine valdkonnas. et see on juba kasutusele võetud paljudes globaalsetes organisatsioonides: Chase Manhattan. Töös analüüsitakse tasakaalustatud hindemaatriksi rakendamisega seonduvaid detaile ning antakse nõu rakendamisel tekkivate küsimuste lahendamiseks praktiliste näidete varal.

. et kõik organisatsiooni liikmed oleksid organisatsiooni strateegiast paremini teadlikud ning sellele orienteeritud. Knowing the Score. Lõppkokkuvõttes aitab see vähendada nende tegevuste osakaalu. mille abil on tasakaalustatud hindemaatriksi haldamist organisatsioonis võimalik tunduvalt lihtsustada. Teiseks on tasakaalustatud hindemaatriks tõestanud ka enese kasulikkust strateegiate kommunikatsioonivahendina.53 Kahtlemata peaksid selle temaatikaga tegelema aktiivselt ka Eesti firmad. Samas on võimalik neid negatiivseid mõjusid vähendada juhul. 33. 53 Kaplan. mille abil täpsustada organisatsiooni missiooni ja strateegilisi eesmärke. Autori enese kogemus tööst tasakaalustatud hindemaatriksi rakendamisel võiks lühidalt kokku võtta järgmiselt. mis on kuidagiviisi ühendatud suureneva aruandlusega. Kahtlemata võib seda lugeda kasulikuks vahendiks. Lisaks aitab selle rakendamisel läbi viidav mitmetasandiline organisatsiooni protsesside analüüs identifitseerida võimalikke puudujääke olemasolevates eesmärkides. mis ei aita otseselt kaasa organisatsiooni eesmärkide saavutamisele ja on seega ebaefektiivsed. kuna erinevalt tsentraliseeritud strateegilise planeerimise süsteemidest on peaaegu iga organisatsiooni liige on kohustatud sõnastama mingi osa organisatsiooni tegevuse strateegilistest ja taktikalistest eesmärkidest ning nende seostest organisatsiooni missiooniga. Rakenduse negatiivsete aspektidena võiks välja tuua loomulikult strateegilise planeerimise teatud protsesside tunduva aeglustumise. sest saabuv liitumine Euroopa Liiduga raskendab praegust konkurentsi veelgi. mis paraku kaasneb kõikide süsteemide puhul. p. Financial Executive. and Norton. sest niivõrd mitmetel tasanditel toimuvad diskussioonid strateegiate sõnastamise osas kahtlemata võtavad rohkem aega. Käesoleva väitekirja kirjutamise ajal õnnestus autoril leida vähemalt nelja erineva tarkvarafirma poolt pakutavaid kohtvõrgul või internetil rajanevaid tarkvaralahendusi. Robert S. Nov-Dec 1996.iga päevaga. Teine ajaga seonduv negatiivne mõju on mõnevõrra suurenev bürokraatia. Kolmandaks lihtsustab tasakaalustatud hindemaatriks tunduvalt ülevaadet operatiivjuhtimise erinevatest osadest. 58 . Kahtlemata aitab see kanda ellu ka teist eesmärki – nimelt garanteerida seda. David P. kui maatriks ehitatakse üles infotehnoloogilise lahendusena ning selle abil on võimalik peaaegu reaalajas vaadelda muutusi organisatsiooni tegevuses.

millega lahendada alljärgnevaid küsimusi: • siduda omavahel strateegilisi. mistõttu nende rakenduste paralleelne kasutuselevõtt vähendab suuresti ajakulu ning lõppkokkuvõttes annab ka paremaid tulemusi. kliendihaldusprojektiga ning living company kontseptsiooniga. anda igapäevaste juhtimisotsuste kaudu hinnangut strateegilistele eesmärkidele. pikaajalisi eesmärke lühiajaliste operatiivjuhtimise sammudega. Põhjus on selles. 59 . et tasakaalustatud hindemaatriksit võib lugeda üheks parimaks vahenditest. et seda on soovitatav hakata rakendama koos ISOvõi EFQM-il põhineva kvaliteedisüsteemiga. et olemuselt kasutab tasakaalustatud hindemaatriks oma erinevates perspektiivides üpriski palju ülalnimetatud mõistete meetodeid. hinnata töö tulemuste efektiivsust. Autor leidis oma bakalaureusetöös.Teine otsene soovitus seoses tasakaalustatud hindemaatriksi kasutuselevõtuga on see. • • • juhtida erinevaid kriitilisi edutegureid strateegilise juhtimise metodoloogia valguses.

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