Putting the balanced scorecard to work harvard business review pdf

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Epstein Jeremy Cott. In early , Verizon Communications implemented a Human Resources Balanced Scorecard to evaluate the effectiveness of and payoffs from human resource Narayanan Lisa Brem.

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By it has achieved Kaplan Ricardo Reisen de Pinho. A new management team at VW do Brazil develops and deploys a strategy map and Balanced Scorecard to accomplish a turnaround and cultural change after Kaplan Monica Lee. A more recent framework that is getting popularized is the OKR Framework. Popularized by its use at Google, the OKR Putting the Balanced Scorecard to work.

Symposium asks: does the Balanced Scorecard work? Balanced Scorecard: Balanced Scorecard. Get access to this material, plus much more with a free Educator Account:. Already registered? Sign in. This article includes a one-page preview that quickly summarizes the key ideas and provides an overview of how the concepts work in practice along with suggestions for further reading.

In an earlier, groundbreaking article, Balanced Scorecard -- Measures That Drive Performance, the authors proposed a new measurement system that provided managers with a comprehensive framework to translate a company's strategic objectives into a coherent set of performance measures.

Now the authors show how several companies are putting the balanced scorecard to work. Effective measurement, the authors point out, must be an integral part of the management process. Incremental reductions in lead time do little to change the economics of this operation.

But if the build cycle time could be reduced to less than the six-week ordering time window for part or all of the build schedule, then a breakthrough occurs. The division can shift to a build-to-order schedule and eliminate the excess inventory caused by building to forecasts. In this case, the benefit from cycle-time reductions is a step-function that comes only when the cycle time drops below a critical level.

So here we have three businesses, three different processes, all of which could have elaborate systems for measuring quality, cost, and time but would feel the impact of improvements in radically different ways. All of our senior managers, however, understand output targets, particularly when they are displayed with historical trends and future targets.

Benchmarking has become popular with a lot of companies. Does it tie in to the balanced scorecard measurements? Unfortunately, benchmarking is one of those initially good ideas that has turned into a fad. And the difference between benchmarking and the scorecard helps reinforce the difference between process measures and output measures.

With the scorecard, we ask each division manager to go outside their organization and determine the approaches that will allow achievement of their long-term output targets. Each of our output measures has an associated long-term target. We have been deliberately vague on specifying when the target is to be accomplished.

We want to stimulate a thought process about how to do things differently to achieve the target rather than how to do existing things better. The activity of searching externally for how others have accomplished these breakthrough achievements is called target verification not benchmarking.

Well, the division managers did encounter some obstacles. Because of the emphasis on output measures and the previous focus on operations and financial measures, the customer and innovation perspectives proved the most difficult. These were also the two areas where the balanced scorecard process was most helpful in refining and understanding our existing strategies. But the initial problem was that the management teams ran afoul of both conditions: the measures they proposed tended to be nonquantifiable and input- rather than output-oriented.

Several divisions wanted to conduct customer surveys and provide an index of the results. We judged a single index to be of little value and opted instead for harder measures such as price premiums over competitors. We did conclude, however, that the full customer survey was an excellent vehicle for promoting external focus and, therefore, decided to use survey results to kick-off discussion at our annual operating reviews.

At first, several divisional managers were less than enthusiastic about the additional freedom they were being given from headquarters. They knew that the heightened visibility and transparency of the scorecard took away the internal trade-offs they had gained experience in making.

They initially interpreted the increase in visibility of divisional performance as just the latest attempt by corporate staff to meddle in their internal business processes.

To offset this concern, we designed targets around long-term objectives. We still closely examine the monthly and quarterly statistics, but these statistics now relate to progress in achieving long-term objectives and justify the proper balance between short-term and long-term performance. We also wanted to transfer quickly the focus from a measurement system to achieving performance results. A measurement orientation reinforces concerns about control and a short-term focus.

By emphasizing targets rather than measurements, we could demonstrate our purpose to achieve breakthrough performance. But the process was not easy. In the end, we were successful. We now have six converts who are helping us to spread the message throughout the organization.

I understand that you have started to apply the scorecard not just to operating units but to staff groups as well. Applying the scorecard approach to staff groups has been even more eye-opening than our initial work with the six operating divisions.

We have done very little to define our strategy for corporate staff utilization. We have just started to ask our staff departments to explain to us whether they are offering low cost or differentiated services. If they are offering neither, we should probably outsource the function.

This area is loaded with real potential for organizational development and improved strategic capability. My conversations with financial people in organizations reveal some concern about the expanded responsibilities implied by developing and maintaining a balanced scorecard. How does the role of the controller change as a company shifts its primary measurement system from a purely financial one to the balanced scorecard?

Historically, we have had two corporate departments involved in overseeing business unit performance. Strategists came up with five- and ten-year plans, controllers one-year budgets and near-term forecasts. Little interplay occurred between the two groups. But the scorecard now bridges the two. The financial perspective builds on the traditional function performed by controllers. In our old environment, division managers tried to balance short-term profits with long-term growth, while they were receiving different signals depending on whether or not they were reviewing strategic plans or budgets.

This structure did not make the balancing of short-term profits and long-term growth an easy trade-off, and, frankly, it let senior management off the hook when it came to sharing responsibility for making the trade-offs.

Perhaps the corporate controller should take responsibility for all measurement and goal setting, including the systems required to implement these processes.

The new corporate controller could be an outstanding system administrator, knowledgeable about the various trade-offs and balances, and skillful in reporting and presenting them. This role does not eliminate the need for strategic planning. It just makes the two systems more compatible. The scorecard can serve to motivate and evaluate performance. But I see its primary value as its ability to join together what had been strong but separated capabilities in strategy development and financial control.

I think we will ask group managers to review a monthly submission from each of their divisions, but the senior corporate team will probably review scorecards quarterly on a rotating basis so that we can review up to seven or eight division scorecards each month. I see the scorecard as a strategic measurement system, not a measure of our strategy. The monthly or quarterly scorecard measures operations that have been configured to be consistent with our long-term strategy. We have pushed division managers to choose measures that will require them to create change, for example, penetration of key markets in which we are not currently represented.

We can measure that penetration monthly and get valuable short-term information about the ultimate success of our long-term strategy. For the most part, however, the measures are calculated monthly. I sense that a number of companies are turning to scorecards in the same way they turned to total quality management, high-performance organization, and so on. It gets worse if you think of the scorecard as a new measurement system that eventually requires hundreds and thousands of measurements and a big, expensive executive information system.

These companies lose sight of the essence of the scorecard: its focus, its simplicity, and its vision. The real benefit comes from making the scorecard the cornerstone of the way you run the business. It should be the core of the management system, not the measurement system.

Senior managers alone will determine whether the scorecard becomes a mere record-keeping exercise or the lever to streamline and focus strategy that can lead to breakthrough performance.

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Create an account to read 2 more. Balanced scorecard. Putting the Balanced Scorecard to Work. Kaplan and David P. What makes a balanced scorecard special? Four characteristics stand out: 1. The Idea in Practice Linking measurements to strategy is the heart of a successful scorecard development process. The three key questions to ask here: 1.