Read The Balanced Scorecard: Translating Strategy Into Action Online
Authors: Robert S. Kaplan,David P. Norton
Tags: #Non-Fiction, #Business
The Balanced Scorecard: Translating Strategy Into Action (37 page)
The capacity for organizational learning at the executive level—what we refer to as strategic learning—is perhaps the most innovative aspect of the
Balanced Scorecard. Strategic learning makes the journey worthwhile for those who learn how to use the scorecard as a strategic management system. The process begins with the clarification of the shared vision which the entire organization is attempting to achieve. The use of measurement as a language helps translate complex and frequently nebulous concepts into more precise ideas that align and mobilize all individuals into actions directed at attaining organizational objectives. The emphasis on constructing cause-and-effect relationships in the scorecard introduces dynamic systems thinking. It enables individuals in various parts of the organization to understand how the pieces fit together, how their role influences that of others. It facilitates the definition of performance drivers and related initiatives that not only measure change but also foster it. Finally, the approach facilitates team learning. The scorecard should be developed by a management team and used by that same team to monitor the performance of the business. Because the scorecard defines the theory of the business on which the strategy is based, performance monitoring can take the form of hypothesis testing and double-loop learning. We feel that this process of strategic learning and adaptation is fundamental to the successful implementation of business strategy.
1
. See, for example, R. N. Anthony,
Planning and Control Systems: A Framework for Analysis
(Boston: Harvard Business School, 1965).
2
. For extensive discussion of single-and double-loop learning in management processes, see C. Argyris,
Reasoning, Learning, and Action
(San Francisco: Jossey-Bass, 1982);
Strategy, Change and Defensive Routines
(New York: Harper & Row, 1985); and “Teaching Smart People How to Learn,”
Harvard Business Review
(May–June 1991): 99–109.
3
. See H. Mintzberg, “Crafting Strategy,”
Harvard Business Review
(July–August 1987): 66–75; and “The Design School: Reconsidering the Basic Premises of Strategic Management,”
Strategic Management Journal
(November–December 1990): 171–195; also Robert Simons,
Levers of Control: How Managers Use Innovative Control Systems to Drive Strategic Renewal
(Boston: Harvard Business School Press, 1995), 18–21.
4
. David Garvin, “Building a Learning Organization,”
Harvard Business Review
(July–August 1993): 78–91.
5
. James L. Heskett, Thomas O. Jones, Gary W. Loveman, W. Earl Sasser, Jr., and Leonard A. Schlesinger, “Putting the Service-Profit Chain to Work,”
Harvard Business Review
(March–April 1994): 164–174.
6
. Peter F. Drucker, “The Theory of the Business,”
Harvard Business Review
(September–October 1994): 95–104.
7
. Jon R. Katzenbach and Douglas K. Smith,
The Wisdom of Teams: Creating the High-Performance Organization
(Boston: Harvard Business School Press, 1993).
C h a p t e r T w e l v eImplementing a Balanced Scorecard Management Program
“I tried to tell my boss that a Balanced Scorecard was about management not measurement.”
T
HIS MANAGER
had been asked by his CEO to lead a middle-management task force to develop a Balanced Scorecard for the division. He sensed that this effort was doomed to failure, because the CEO viewed the scorecard as a narrow effort to improve the organization’s performance measurement system, not as a new way to manage the business.
Our experience corroborates and reinforces this manager’s concern. The goal of a scorecard project is not to develop a new set of measures. Measurement—how we describe results and targets—is indeed a powerful motivational and evaluation tool. But the measurement framework in the Balanced Scorecard should be deployed to develop a new management system. This distinction between a measurement and a management system is subtle but crucial. The measurement system should be only a means to achieve an even more important goal—a strategic management system that helps executives implement and gain feedback about their strategy. We have seen senior executives mobilize the power of the measurement framework in the Balanced Scorecard to create long-term organizational change.
Management processes and programs are built around frameworks. Traditional management systems have been built around a financial framework,
usually the ROI model originated at the turn of this century by DuPont. The financial framework worked well as long as financial measures could capture the great majority of value-creating (or value-destroying) activities that occurred during quarterly and annual periods. This framework became less valuable as more and more of an organization’s activities involved investments in relationships, technologies, and capabilities that could not be valued in the historical-cost financial model. Organizations adopt the Balanced Scorecard because it retains a focus on short-term financial results, but also recognizes the value of building intangible assets and competitive capabilities.
The scorecard provides a new tool for senior executives to focus their organizations on strategies for long-term success, an important task that until now has been difficult to accomplish. By identifying the most important objectives on which an organization should focus its attention and resources, the scorecard provides a framework for a strategic management system that organizes issues, information, and a variety of vital management processes (see Figure 12-1). As
Part Two
has illustrated, each component in this strategic management system can be linked to strategic goals. Objectives for customers, internal business processes, and employees and systems are linked to achieve long-run financial performance. Departmental, team, and personal goals are aligned with achieving strategic performance. Resource allocations, strategic initiatives, and annual budgets are driven by the strategy. And management reviews become opportunities for feedback and learning about strategy. The Balanced Scorecard does not eliminate a role for financial measurement in a management system. But it embeds financial measurement in a more balanced management system that links short-term operational performance with long-term strategic objectives.
Organizations launch scorecard programs for a variety of reasons (see Figure 12-2). Some examples of the rationales used by particular companies we are familiar with appear in the
Appendix
. Note that none of the reasons in Figure 12-2 relates solely to improving the measurement system. Each reason is part of a broad, overarching goal—mobilizing the organization to new strategic directions.
In our experience, CEOs have adopted the Balanced Scorecard for a specific strategic purpose. And, in each case, the initial scorecard exercise accomplished that purpose. But in none of the companies did the Balanced Scorecard continue to focus only on that initial purpose. Instead, the first application seemed to start a process of change that went well beyond the original aim of constructing a scorecard. Within a year after starting the scorecard effort, each organization was using the scorecard as the cornerstone of its management system.
Figure 12-1
Using the Balanced Scorecard as a Strategic Framework for Action
Figure 12-2
Most Companies Introduce the Scorecard to Drive Single Pieces of the Management Process