How do you know of your organization is improving, deteriorating, or stagnant?
Note: Do not be deterred by the publication date of this business classic.” It provides an outstanding introduction to subsequent books (listed below) and is a “must read,” as are they. Business leaders who are unwilling and/or unable to invest time and effort in understanding what the Balanced Scorecard can do for them an their organization should consider Derek Bok’s suggestion: “If you think education is expensive, try ignorance.”
I read this book when it was first published (1996) and recently re-read it. As Kaplan and Norton explain in their Preface, “the Balanced Scorecard evolved from an improved measurement system to an improved management system.” The distinction is critically important to understanding this book as well as The Strategy-Focused Organization which they later wrote. Senior executives in various companies have used the Balanced Scorecard as the central organizing framework for important managerial processes such as individual and team goal setting, compensation, resource allocation, budgeting and planning, and strategic feedback and learning. When writing this book, it was the authors’ hope that the observations they share would help more executives to launch and implement Balanced Scorecard programs in their organizations.
The material is organized within two Parts, preceded by the excellent Preface and then two introductory chapters: “Measurement and Management in the Information Age” and “Why Does Business Need a Balanced Scorecard?” Logically, Part One examines measurement of business strategy; Part Two examines management of business strategy. Having read all of the 12 chapters, each concluded with a Summary of key points, readers are then provided with an Appendix: “Building a Balanced Scorecard.” That process consists of a series of specific “tasks”: (1) selection of the appropriate organizational unit, (2) identification of the SBU/corporate linkages, (3) completion of the first round of interviews during which key executives are briefed on the Balanced Scorecard program, (4) evaluation by the program’s “architect” and other members of design team of feedback from various interviews, (5) conducting a “first round” workshop for the top management team, (6) conducting meetings during which the “architect” works with several subgroups, (7) conducting a “second round” workshop for members of the top management team, their direct subordinates, and an appropriate number of middle managers, (8) formulating the implementation plan, (9) conducting the “third round” workshop, and finally (10) Finalizing the implementation plan. Kaplan and Norton guide their reader through each stage of the process, suggesting all manner of strategies and tactics for consideration without inhibiting their reader from determining what is most appropriate for her or his own organization.
Although decision-makers in larger organizations will derive substantial benefit from this book, it would be a mistake to assume that the Balanced Scorecard would not be appropriate to small-to-midsize organizations. On the contrary, it may be even more valuable to them because they have relatively fewer resources available; therefore, the consequences of a failed strategy have greater (in some instances fatal) impact. The two concepts of “balance” and “scorecard” are critically important.
All organizations must formulate and then effectively manage those strategies which enable them to achieve an appropriate balance of various resources while taking full advantage of measurement devices by which to obtain relevant as well as accurate and timely data for their strategies’ scoreboard. Kaplan and Norton obviously have all this in mind when suggesting, in the Appendix, “core” measures for finance (e.g. ROI/EVA), customer relationships (e.g. customer retention), and learning and growth (e.g. employee satisfaction).
A Balanced Scoreboard can help all organizations to achieve and then sustain profitable growth with effective management of a correct strategy.
Those who share my high regard for this book are urged to read Kaplan and Norton’s sequels to it: The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment, Strategy Maps: Converting Intangible Assets into Tangible Outcomes, The Execution Premium: Linking Strategy to Operations for Competitive Advantage, and Alignment: Using the Balanced Scorecard to Create Corporate Synergies.