Robert (Bob) Kaplan was born in New York on 2 May 1940.

He studied at MIT, where he

gained a B.S. and an M.S. in Electrical Engineering and then at Cornell University where he
gained a PhD in Operations Research. He then spent sixteen years on the faculty of CarnegieMellon University, serving as Dean from 1977 to 1983. He moved on to Harvard Business
School in 1984 and is now Baker Foundation Professor at the school. Kaplan has received a
number of awards and in 2006 he was elected to the Accounting Hall of Fame.
David Norton is a consultant, researcher and speaker in the field of strategic performance
management. He is the founder and Director of Palladium Group Inc, a professional services
firm focusing on performance measurement and management. Previously he worked at
Renaissance Solutions, Inc. a consulting company which he co-founded with Robert Kaplan
in 1992, and Nolan, Norton and Company where he was president for sixteen years.
The Balanced Scorecard is an aid to developing and managing strategy by looking at how
key measures inter-relate to track progress. Kaplan and Norton argue that adherence to
quarterly financial returns and the bottom line alone will not provide the organisation with an
overall strategic view. The balanced scorecard though, goes beyond the exploitation of
financial measures alone by incorporating three other key perspectives:

a customer perspective - which addresses how customers see the organisation

an internal business perspective - which requires the organisation to identify that at

which it needs to excel

a learning/innovation perspective - which addresses what the organisation needs to

improve to create value in the future.

By commenting on the present, and indicating the drivers of the future, the scorecard both
measures and motivates business performance.

Setting up the Balanced Scorecard

Kaplan and Norton argue that strategies often fail because they are not converted successfully
into actions that employees can understand and apply in their everyday work. The problem
comes with the search for realistic measures which are meaningful to those doing the work,
relate visibly to strategic direction, and provide a balanced picture of what is happening
throughout the organisation, not just one facet of it. It is this aspect that the balanced
scorecard addresses.
The balanced scorecard concentrates on measures in four key strategic areas - finance,
customers, internal business processes and learning and innovation - and requires the
implementing organisation to identify goals and measures for each of them. Research and
experimentation have come up with the following, which seem to be regularly applied in
many organisations.

Financial perspective

Goals: survival, success/growth, prosperity.

Measures: return on capital, cash flow, revenue growth, liquidity, cost reduction,
project profitability, performance reliability,. work (workers) and those who supervise
and plan it (managers).

Customer perspective

Goals: customer acquisition, retention, profitability, satisfaction.

Measures: market share, transaction cost ratios, customer loyalty satisfaction

surveys/index, supplier relationships, key accounts.

Internal business process perspective

Goals: core competencies, critical technologies, business processes, key skills.

Measures: efficiency measures of working practices and production processes, cycle

times, unit costs, defect rates, time to market.

Learning and innovation perspective

Goals: continuous improvement, new product development.

Measures: productivity of intrapreneurship, new ideas and suggestions from

employees, employee satisfaction, skill levels, staff attitude, retention and
profitability, rate of improvement.

The scorecard provides a description of the organisation's strategy. It will indicate where
problems lie because it shows the inter-relationships between goals and linked activities. It
creates an understanding of what is going on elsewhere in the organisation and shows all
employees how they are contributing. Providing that accurate and timely information is fed
into the system, it helps to focus attention where change and learning are needed, through the
cause and effect relationships it can reveal. Examples of the types of insight achieved were
detailed in Linking the balanced scorecard to strategy:
'If we increase employee training about products, then they will become more knowledgeable
about the full range of products they can sell;
If employees are more knowledgeable about products, then their sales effectiveness will
improve;
If their sales effectiveness improves, then the average margins of products they sell will
increase.'

Implementing the Balanced Scorecard

In Putting the balanced scorecard to work Kaplan and Norton identify eight steps towards
building a scorecard:

1. Preparation: Select/define the strategy/business unit to which to apply the scorecard.

Think in terms of the appropriateness of the four main perspectives defined above.
2. First interviews: Distribute information about the scorecard to senior managers along with
the organisation's vision, mission and strategy. A facilitator will interview each manager on
the organisation's strategic objectives and ask for initial thoughts on scorecard measures.
3. First executive workshop: Match measures to strategy. The management team is brought
together to develop the scorecard. From agreeing the vision statement, the team debates each
of the four key strategic areas, addressing the following questions:

If my vision succeeds, how will I differ?

What are the critical success factors?

What are the critical measurements?

These questions help to focus attention on the impact of turning the vision into reality and
what to do to make it happen. It is important to represent the views of customers and
shareholders and gain a number of measures for each critical success factor.
4. Second interviews: The facilitator reviews and consolidates the findings of the workshop
and interviews each of the managers individually about the emerging scorecard.
5. Second workshop: Team debate on the proposed scorecard; the participants discuss the
proposed measures, link ongoing change programmes to the measures, and set targets or rates
of improvement for each of the measures. Start outlining the communication and
implementation processes.
6. Third workshop: Final consensus on vision, goals, measures and targets. The team
devises an implementation programme on communicating the scorecard to employees,
integrating the scorecard into management philosophy, and developing an information system
to support the scorecard.
7. Implementation: The implementation team links the measures to information support
systems and databases and communicates the what, why, where and who of the scorecard
throughout the organisation. The end-product should be a management information system
which links strategy to the shop-floor activity.
8. Periodic review: Balanced scorecard measures can be prepared for review by senior
management at appropriate intervals.
Since the publication of their first book on the balanced scorecard Kaplan and Norton have
continued to develop their ideas and clarify how they can be implemented to maximum
effect. In the Strategy-focused organization they looked at how companies were using the
scorecard and identified five principles for translating strategy into operational terms, and
aligning management and measurement systems to organisational strategy. A third book,
Strategy maps: converting intangible assets into intangible outcomes introduced the
concept of 'strategy maps' which provide a visual framework for describing how value is

created within organisations from each of the four balanced scorecard perspectives.
Alignment: using the balanced scorecard to create corporate strategies looks at how to align
organisational business units to overall strategy and how to use a strategy map to clarify and
communicate corporate priorities to all business units and their employees.
A new book to be published in July 2008, The Execution Premium, explores this theme
further focusing on how to put strategy into action to achieve financial success.

The Balanced Scorecard in perspective

The balanced scorecard can be seen as the latest in a long line of attempts at management
control, starting from F W Taylor through work measurement systems, quality assurance
systems and performance indicators. Commentators suggest that it is flexible and can be
adapted for use by individual organisations; it is practical, straightforward and devoid of
obscure theory. Most importantly it responds to many organisations' requirements to expand
strategically on traditional financial measures and points to areas for change. It is also used
successfully in the public sector, where the focus is on organisational mission, rather than
financial return for shareholders.
The balanced scorecard has become an increasingly popular tool and Bain and Company's
2007 survey of management tools suggests that 66 percent of companies are using it
worldwide, with usage at its highest in Asia and in large companies.
However, the level of satisfaction with the tool has declined since the previous survey and is
now below the average for the tools covered by the survey. In The design and
implementation of the balanced business scorecard: an analysis of three companies in
practice, Stephen Letza suggests that it cannot be regarded as a panacea. He states that the
balanced scorecard should highlight performance as a continuous, dynamic and integrated
process, act as an integrating tool, function as the pivotal tool for the organisation's current
and future direction, and deliver information that is the backbone of the strategy. He also
highlights some of the major drawbacks which may appear when using the balanced
scorecard and points out the need to:

Avoid being swamped by the minutiae of too many detailed measures and make sure
that measures relate to the strategic goals of the organisation.

Make sure all activities are included - this ensures that everyone is contributing to the
organisation's strategic goals.

Watch out for conflict as information becomes accessible to those not formerly in a
position to see it and try to harness conflict constructively.

Kaplan and Norton have attempted to ensure that the scorecard is used correctly through their
provision of education and consultancy programmes and by establishing a Hall of Fame,
which showcases companies which have successfully implemented the balanced scorecard.