Robert Kaplan & David Norton

The term is generally associated with the research-driven collaborations of Robert S. Kaplan and David P. Norton, notably The Balanced Scorecard: Translating Strategy into Action (1996), The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment (2000), Strategy Maps (2004), and Execution Premium (2008). Here is the recommended process:

1. Develop goals and metrics for critical performance measurements. In other words, prepare a budget as anaction plan.

2. Develop goals and metrics for critical customer performance variables. First identify the target market, then develop metrics to measure variables such as customer loyalty through repeat purchases, response rates, new customer referrals, customer complaints, and price sensitivity.

3. Develop goals and metrics for critical internal performance variables. Focus on three areas: the innovation cycle or research, development, and design of products and service: the operations cycle in which the products are manufactured and delivered or services rendered; and the post-sale service cycle in which customer service is the primary activity.

4. Develop goals and metrics for critical learning, and growth performance measures. Step back and evaluate the infrastructure and capabilities needed for the organization to create and then sustain long-term growth that the strategic mission envisions.

As V.G. Narayanan explains in one of the volumes in the Harvard Business Press Pocket Mentor series, “The key to linking the balanced scorecard is to develop the performance measures or drivers that can help predict future outcomes. The balanced scorecard provides the guidance for planning – the budget – which, in turn, provides feedback and allows for course correction as the time period stipulated in the budget advances. This provides information managers can use to translate the strategic vision into reality and to constantly improve the budget-preparation process.”