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What Is a Case Study?
When you’re performing research as part of your job or for a school assignment, you’ll probably come across case studies that help you to learn more about the topic at hand. But what is a case study and why are they helpful? Read on to learn all about case studies.
Deep Dive into a Topic
At face value, a case study is a deep dive into a topic. Case studies can be found in many fields, particularly across the social sciences and medicine. When you conduct a case study, you create a body of research based on an inquiry and related data from analysis of a group, individual or controlled research environment.
As a researcher, you can benefit from the analysis of case studies similar to inquiries you’re currently studying. Researchers often rely on case studies to answer questions that basic information and standard diagnostics cannot address.
Study a Pattern
One of the main objectives of a case study is to find a pattern that answers whatever the initial inquiry seeks to find. This might be a question about why college students are prone to certain eating habits or what mental health problems afflict house fire survivors. The researcher then collects data, either through observation or data research, and starts connecting the dots to find underlying behaviors or impacts of the sample group’s behavior.
Gather Evidence
During the study period, the researcher gathers evidence to back the observed patterns and future claims that’ll be derived from the data. Since case studies are usually presented in the professional environment, it’s not enough to simply have a theory and observational notes to back up a claim. Instead, the researcher must provide evidence to support the body of study and the resulting conclusions.
Present Findings
As the study progresses, the researcher develops a solid case to present to peers or a governing body. Case study presentation is important because it legitimizes the body of research and opens the findings to a broader analysis that may end up drawing a conclusion that’s more true to the data than what one or two researchers might establish. The presentation might be formal or casual, depending on the case study itself.
Draw Conclusions
Once the body of research is established, it’s time to draw conclusions from the case study. As with all social sciences studies, conclusions from one researcher shouldn’t necessarily be taken as gospel, but they’re helpful for advancing the body of knowledge in a given field. For that purpose, they’re an invaluable way of gathering new material and presenting ideas that others in the field can learn from and expand upon.
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Balanced Scorecard Case Study
What is it?
The Balanced Scorecard concept, popularised by Robert S Kaplan and David P Norton, is a performance management tool that encompasses the financial measures of an organisation and key non-financial measures relating to customers or clients, internal processes, and organisational learning and growth needs. It places these into a concise ‘scorecard’ that can be used to monitor performance.
Early implementations of the Balanced Scorecard tended to focus on including a balance of measures in the four domains or perspectives rather than on execution of strategy, but over time it has become a widely used strategic management tool. The Balanced Scorecard process attempts to identify important links between financial performance and the underlying customer, internal processes and organisational metrics. This creates a mechanism for translating the strategic vision into concrete actions necessary to achieve success.
This characteristic of the Balanced Scorecard places strategy at the core of management. When implemented properly, it can be used to align measures, actions and rewards to create a proper focus on the execution of strategic initiatives and achievement of strategic objectives, rather than a sole focus on the annual budget.
The widespread adoption of the Balanced Scorecard is due in part to its flexibility. Many companies have implemented their own variations to suit their strategic purposes. The Tesco ‘Steering Wheel’, for example, includes five perspectives, capturing their commitment to the community in addition to their financial, customer, operations and people aspects.
The Balanced Scorecard has also been successfully adapted for use by not-for-profit and public sector organisations. While the top line financial objectives of for-profit organisations are replaced by mission-related objectives, the process of identifying relevant stakeholder, internal process and resource measures serves much the same purpose.
The Balanced Scorecard
What benefits does the Balanced Scorecard provide?
The Balance Scorecard provides a means to clarify, articulate and communicate strategy. It is a shorthand way of putting all key measures into a ‘dashboard’ that can be used to monitor results. By including non-financial measures, it can be used to show how the non-financial aspects of performance, such as customer satisfaction, drive financial performance.
The Balanced Scorecard is a useful tool for motivating employees and focusing their attention on factors that are deemed to be critical to long-term performance rather than simply short-term financial results.
Questions to consider when implementing a Balanced Scorecard
- Do we have sufficient buy-in from top management?
- Are we willing to engage in a more participatory strategy and performance management process?
- Are we committed to the organisational change effort necessary for successful implementation?
- To what extent will our current management information systems be able to support implementation? What are the costs and benefits of making these changes?
- What are we already doing that we can incorporate into our scorecard? What do we need to modify or stop doing?
- Are we prepared to focus our reporting around the scorecard
Related and similar practices
- Strategy mapping
- Developing non-financial key performance indicators
- Performance management
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CGMA is the most widely held management accounting designation in the world with more than 137,000 designees. It was established in 2012 by the AICPA and CIMA to recognise a unique group of management accountants who have reached the highest benchmark of quality and competence. The CGMA designation is built on extensive global research to maintain the highest relevance with employers and develop the competencies most in demand. CGMA designation holders qualify through rigorous education, exam and experience requirements.
Association of International Certified Professional Accountants All rights reserved. This website has been developed by the AICPA and CIMA and is subject to license agreements between the AICPA, CIMA and the Association of International Certified Professional Accountants.
Balanced Scorecard Examples & Success Stories
What organizations are successfully using balanced scorecard.
Increasingly, as balanced scorecard (BSC) concepts become more refined, we have had more inquiries asking for examples of organizations that have implemented the BSC, how the BSC applies to a particular business sector, what metrics are appropriate for different sectors, etc. This page provides a database of working balanced scorecard examples that our research has located.
By 2004 about 57% of global companies were working with the balanced scorecard (according to Bain ). Much of the information in the commercial sector is proprietary, because it relates to the strategies of specific companies. Public-sector (government) organizations are usually not concerned with proprietary information, but also they may not have a mandate (or much funding) to post their management information on web sites.
Sample One-Page Balanced Scorecard Strategic Plan for Government
Click here to download (PDF Format)
Sample One-Page Balanced Scorecard Strategic Plan for Not for Profit
Sample One-Page Balanced Scorecard Strategic Plan for Business (for profit)
Mecklenburg county, nc.
At the time, they had no way of predicting the long-term impact of this decision but the system he implemented led to break-through performance toward achieving the County’s vision and the framework is, to this day, in use at Mecklenburg County. It is an integral part of how the County is managed and has become a model for other municipal governments around the country.
The National Marrow Donor Program®/Be The Match Registry®
Veolia Water North America
Federal Ministry of Health–Ethiopia
This case study primarily focuses on the recalibration of the FMOH scorecard in 2009-2010, the cascade work performed in 2011-2013, and the break-through improvements that the Ethiopian Health Sector achieved as a result of improved strategic direction and alignment using The Institute Wa y . In fact, it has been such a success that the Prime Minster of Ethiopia has now mandated that all Ministries in Ethiopia adopt the balanced scorecard as a strategic planning and performance management methodology.
Tolko Industries Ltd.
Shat-R-Shield
Kenya Red Cross
Douglas County, Colorado
The Douglas County Government shares their “eat the elephant one bite at time” approach for how they strategically aligned their organization from the top floor to the first floor.
U.S. Army Medical Department (AMEDD)
The following link will take you to our compilation of data on organizations that have reported at least a partial adoption of the balanced scorecard:
Adopters of the balanced scorecard (in alphabetical order of organization name)
Balanced Scorecard Examples
Below we offer links to some files and publications that will show you what the documents and results of balanced scorecards look like. Although these all differ in format and details, they serve to illustrate the visual effectiveness of the balanced scorecard approach to strategic management. (Note: these documents are the products of their respective organizations, not the Balanced Scorecard Institute).
Non-profit Organizations
Oak Knoll Academy – A primer on development of a management strategy for a fictitious private school. A strategy map for the school is also available.
Vinfen Corporation – A private, non-profit human services organization based in Cambridge, MA. They recently published a scorecard and a newsletter that provides details about their strategic plan and performance measures.
Government Organizations
Defense Finance and Accounting Service (DFAS) – Example of a balanced scorecard-based strategic plan for this world-class financial organization, and some additional information about how it was developed (Nov. 2001).
Federal Aviation Administration Logistics Center – A highly customer-focused organization with a balanced scorecard-based strategic plan. Their original plan is a rather large (37 MB) file, so we have removed the graphics and here we provide the text content only, in order to reduce the file size.
Department of Energy Federal Procurement System – One of the early Federal Government adopters of the balanced scorecard. Continues to lead by example with this FY2003 Performance Assessment.
Department of Energy Federal Personal Property Management Program – Example of a balanced scorecard for a major government program.
Government Strategy Map Example – Example of a generic strategy map for a government organization on the Federal, State or local level.
Commercial Organizations
Regional Airline – A strategy map, with objectives, performance measures and initiatives in the balanced scorecard framework.
Credit Card Company – A generic example of a possible strategy map for an innovative credit card company.
If you would like to share your balanced scorecard plans and/or results with the world contact us! .
Contact us to find out how we can help your organization focus on strategy and improve performance..
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20 companies using the balanced scorecard (& why), these 20 companies achieved greatness using the balanced scorecard—and you can too..
Marisa Sailus
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Strategic planning is a vital aspect of your company’s success—but when it comes to actually executing on that strategy, you might feel completely lost. If your current management system just isn’t getting you to where you need to go, it’s time for a better solution.
Enter the Balanced Scorecard .
Introduced in the early 1990s, the Balanced Scorecard (BSC) is one of the world’s top strategic management frameworks. It combines four different business perspectives —financial, customer, internal processes, and people—to help companies understand and achieve their organizational objectives. The Balanced Scorecard does not create strategy; rather, it organizes it in a visually-friendly format.
Although the Balanced Scorecard was introduced decades ago, it's still relevant and widely used. 2CG, a strategic execution consultancy firm, has been conducting yearly surveys about the Balanced Scorecard since 2009 in an effort to better understand why and how it’s used. ( You can find results from all nine of 2CG’s studies here. ) Of the organizations that participated in the 2017 survey:
- 77% report that their Balanced Scorecard is extremely or very useful.
- 75% use the Balanced Scorecard to influence business actions.
- Of the 64% of organizations that have refreshed their Balanced Scorecard, the majority—71%—did so during the previous 12 months.
- The Balanced Scorecard is used by both small and large organizations: 61% of respondents had less than 500 employees, and 9% had over 10,000 employees.
These survey results show that companies using the Balanced Scorecard are consistently benefitting from it. In fact, I bet you’ll recognize many of the companies below that have integrated the Balanced Scorecard in their organization. If you click each link, you’ll be able to read some Balanced Scorecard case studies and learn how the BSC has helped each of these organizations. Below this list, we also describe the benefits you will get from implementing a scorecard in your organization.
20 Companies Using The Balanced Scorecard
Private sector.
- Ford Motor Company
- Wells Fargo
- TD Canada Trust
- Mobil North America Marketing and Refining (NAM&R)
- Veolia Water
- Philips Electronics
- Sunnybrook Health Sciences Centre at the University of Toronto Hospital
- FMC Corporation
- Microsoft Latin America
Public Sector
- City of Charlotte, NC
- Defence Logistics Agency
- Federal Bureau of Investigations (FBI)
- University of Virginia
5 Ways The Balanced Scorecard Can Help Your Company
1. you’ll gain transparency throughout your organization..
If you were to ask team members whether they could properly describe your department’s operational strategy, chances are you’d be met with a few blank stares. Creating and implementing a Balanced Scorecard will help remedy this issue, as it provides direction on how employees can affect change and create value within their roles.
For example, envision your company’s operations as a map. The cardinal directions are the objectives, measurements, and initiatives. Without these tools, getting to your destination is going to be much trickier. With them, your team members can have better conversations about the strategic direction your company is headed, and how they’re involved.
2. You’ll grow your bottom line by looking at other perspectives.
Traditional reporting only considers the financial perspective; it fails to consider how organizational performance is also impacted by your customers, internal processes, and people (also called “learning & growth”). Analysis of these four perspectives together will help ensure you don’t neglect areas of your company that need attention.
3. Your operations will align with your mission.
Companies using the Balanced Scorecard are able to identify the factors that are hurting their business and outline a strategic change that will bring them better results. By clarifying what you’re doing now and how those activities will differ in the future, you will have a better chance at redirecting your company toward success.
4. Your high-level goals become tangible actions.
It can be difficult to think about how you’ll actually achieve high-level objectives unless they’re broken down. The Balanced Scorecard enables you to break those goals into measures, the measures into projects, and the projects into action items. For example, if one of the objectives in your people perspective (sometimes called the “learning & growth” perspective) is to have effective managers, you might measure the percentage of key managerial goals met.
5. You’ll be able to consolidate your strategic plan.
Companies using the Balanced Scorecard are usually tracking a wide variety of measures and other information. With many divisions, partners, and resellers, it can become confusing to decipher how the company is doing overall. A BSC brings all the important data together for the leadership team to view in a centralized location, giving them a birds’ eye view of how the company is running. You can then drill down from a high level into your divisions and departments using a consistent framework.
For More Information
If you want to learn more about the Balanced Scorecard (or are ready to create your own ), we suggest:
- This Harvard Business Review article , authored by Balanced Scorecard creators Kaplan and Norton.
- This exhaustive Balanced Scorecard example , complete with how to read a strategy map.
- This list of 10 signs that your Balanced Scorecard strategy isn’t working , and how you can fix it.
- This detailed explanation of who should manage your organization’s BSC.
Enjoy the reading, and happy scorecarding!
Balanced Scorecard — 8 min read
The Balanced Scorecard: What Is It? (Definition + Examples)
Balanced scorecard — 18 min read.
20 Strategic Planning Models To Consider
Balanced scorecard — 13 min read, how to effectively communicate your strategic plan to employees.
By Andreas Hofmann
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Balanced Scorecard Case Studies and Examples
The Balanced Scorecard is one of the most popular frameworks for strategy execution . Here you will find Balanced Scorecard case studies with examples of KPIs for different business domains.
Check out 31 examples of real Balanced Scorecard projects with strategy maps, KPIs, business goals, and BI dashboards.
Find free video tutorials and text guides that will help you to get started with your strategy scorecard.
Download ready-to-use templates or use the self-service wizard to generate your own template.
31 Balanced Scorecard Case Studies and Examples
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Getting Started Tutorials
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Balanced Scorecard Step by Step
Learn how to create your own maps or check out live examples of the Balanced Scorecard below.
Four Perspectives of the Balanced Scorecard Framework
The perspectives of the Balanced Scorecard help to establish a cause-and-effect logic for the strategy map. Learn how to properly map business goals into the Finance, Customer, Internal Processes, and Learning and Growth perspectives.
Why these four perspectives? What do we map inside? How to come up with the relevant goals? Part 1 >
The difference between perspectives. Examples of the goals and indicators for each perspective. Part 2 >
Advantages and Disadvantages of the Balanced Scorecard Framework
Any business framework has its area of recommended application, its advantages and drawbacks. Check out the details of the analysis .
Balanced Scorecard Audit Checklist – 12 Control Points
Use the checklist below to audit your Balanced Scorecard, find possible problems, and fix them during the early stages before they result in bigger issues.
We divided possible situations into the green , yellow , and red zones so that you can quickly learn if your Balanced Scorecard is at risk and how to fix it. Continue to the Balanced Scorecard checklist .
Balanced Scorecard in Practice
As a part of free strategic planning course we discussed how to describe a strategy using Balanced Scorecard framework and its key components – strategy map, business goals, KPIs, and initiatives. Find below a complete video of the Lesson 6:
Templates for Balanced Scorecard
Powerpoint and pdf templates for balanced scorecard.
We have designed some templates for Balanced Scorecard. These templates make it easy to represent KPIs and BSC perspectives visually.
Updated: 15 templates in PDF and PNG added!
Ready-to-use templates for Balanced Scorecard save you time; you don’t need to hire a professional designer – you already have what you need for a quick start.
PDF Template for Strategy Map
Do you plan to brainstorm your strategy? We recommend you have a look at this print-friendly template for a strategy map.
That’s the template that we use on live events to start the discussion around strategy. The template is available in several languages and has proven to be effective for strategy discussion.
Automate Your Scorecards
Your time is too valuable to spend it on routine design tasks. Even with the best templates, the Balanced Scorecard task will consume a lot of your energy. Join business professionals who use BSC Designer for their strategy scorecards:
- Free plan for small projects
- Beautiful strategy maps
- Full Toolkit for the KPIs
- Free product video tutorials
Looking for something more?
Review the sections of this article once again.
The BSC Designer team will be happy to assist you.
CEO | Trainer | Author
BSC Designer is a Balanced Scorecard software that is helping companies to better formulate their strategies and make the process of strategy execution more tangible with KPIs.
4 thoughts on “Balanced Scorecard Case Studies and Examples”
Hello, Thanks for this great article, but i can’t find the file with templates in order to download it.
Can you help me please?
Have a good day
It depends on what template you are looking for, here are the options: 1. A template in BSC Designer software (recommended if you plan to automate your scorecard with a software) – to get it look at the links below examples – normally one link goes to the online template and another to the article. 2. Graphical templates (in PowerPoint and PDF formats) – http://www.bscdesigner.com/bsc-templates-32J4B0C.zip 3. Strategy map template: https://bscdesigner.com/strategy-map-template.htm
I need help building a scorecard for a returns and credit group and also my order management team. Can someone help me with this
Hello Carlos,
It’s hard to give any recommendation without knowing the details. You can give it a try to Strategy wizard – https://bscdesigner.com/strategy-map-wizard.htm – that will guide you thought out the process by asking some questions.
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Real world, real business, real solutions.
The best case studies to help you put the balanced scorecard into practice, the balanced scorecard is one of the most widely implemented business strategy tools globally. there’s nothing like a case study example to gain inspiration and get a feel for exactly how this works in a corporate environment..
To save you time, Fact3 have sourced a handful of great examples from experienced organisations to help you get started. We’ve included some written examples, as well as some alternative examples of one pagers you can take inspiration from when writing your own. We’ve also included some sample outputs to give you an idea of the type of end results businesses have experienced.
To caveat, most documented examples of balanced scorecard usage are from large global organisations. Some of these are just a really interesting read and may not be totally applicable to smaller organisations, but you’ll find tips and tricks along the way that you can scale and implement according to your business environment.
How Apple uses the balanced scorecard to dominate their competition
Tesco’s adaptation of the balanced scorecard method to drive its strategy and operations
How Philips focus on their employees to stay ahead of the competition, and how the balanced scorecard has helped them do that
Using the balanced scorecard in public sector organisations - How Homeland Security take learnings from the private sector and adapt them
Combining the balanced scorecard with performance related pay for maximum results
The Emirates National Oil Company: Results achieved from implementing a balanced scorecard approach
Balanced scorecard visual example, Balanced Scorecard Example Intrafocus 2016 https://www.intrafocus.com/2016/06/balanced-scorecard-example/
R.S Kaplan and D.P. Norton, “Using the balanced scorecard as a strategic management system”, Harvard Business Review Jan-Feb 1996
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Balanced Scorecard Harvard Case Solution & Analysis
Home >> Harvard Case Study Analysis Solutions >> Balanced Scorecard
Balanced Scorecard Case Solution
Introduction:.
The Balanced Scorecard is a PM tool, which is is a planning system that organizations use to keep track of their activities and to align the daily activities. It is used by the managers to arrange the tasks according to their importance level. This strategy helps the managers in screening the progress of the project and the individuals associated with it. Big and leading companies use a balanced scorecard without questioning the results of the model. As companies are aware of the fact that the balanced scorecard is an effective element to manage and improve the performance and to achieve the strategic goals . The previous literature has also stated the pros of using a balanced scorecard for the organization.
The main purpose of the Balance scorecard is to communicate the strategic goals of the organization, to align the day-to-day activities of the project, prioritize projects, products, and services and to measure the progress of the goals. Initially,basic indicators are selected according to the set goals of the organization, which helps the managers in measuring the performance and status of the goals. It helps them in implementing the strategies accordingly. (Kaplan & Norton, 2000).The use and objects of the balanced scorecard are same for the companies,but researchers have stated that the use of a balanced scorecard is not generalized in the other firms, because the hindrances of companies vary from one another.
Balance scorecard has been used widely in the management area.Despite the fact that it is not limited to SCM; many frameworks have been issued by the scholars (Bhagwat & Sharma, 2007; Reefke & Trocchi, 2013). These researches have made enough impacton the SCM field. The SCOR model and Balance scorecard are the most used models for performance management in the supply chain management (Reddy et al, 2019). Another study argued that it is difficult for the managers in the supply chain to use PMSs, aligning them with the requirements of stakeholders.(Mishra et al., 2018) whereas, the managers should consider the context in which they are operating.(Culbertson & Phototropic, 2011)
The concept of 4.0 is currently very in.These industries prefer to use a balanced scorecard for performance and project management. A study stated that balanced scorecards are used by many renowned companies in the industry, and it is considered to be the highly used PMSs model (Voelpel et al., 2006)The usage of a balanced scorecard help the companies in having a plans and strategies, as a balanced scorecard provides a strategic map that helps the managers in analyzing the whole scenario and to check the effects of one activity over the strategic goals and to know that which goals overlap each other. Through this, the key indicators are found and kept in mind.(Kaplan & Norton, 1996)proposed a model which consisted of four perspectives, including: financial perspective, customer perspective, business perspective and learning and growth perspective.
A balanced scorecard also helps in implementing the strategies effectively, as it allows the managers to communicate easily within the company as well as outside it. A balanced scorecard also helps in aligning the project and heading to initiatives. Additionally, it also help in managing the information, improving the reporting, organizational alignment and process alignment. As (Kaplan and Norton, 1996) stated that balanced scorecard is a balanced model which improves the project’s process and its performance.........................
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Putting the Balanced Scorecard to Work
- Robert S. Kaplan
- David P. Norton
What do companies like Rockwater, Apple Computer, and Advanced Micro Devices have in common? They’re using the scorecard to measure performance and set strategy.
The Idea in Brief
What makes a balanced scorecard special? Four characteristics stand out:
1. It is a top-down reflection of the company’s mission and strategy. By contrast, the measures most companies track are bottom-up: deriving from local activities or ad hoc processes, they are often irrelevant to the overall strategy.
2. It is forward-looking. It addresses current and future success. Traditional financial measures describe how the company performed during the last reporting period—without indicating how managers can improve performance during the next.
3. It integrates external and internal measures. This helps managers see where they have made trade-offs between performance measures in the past, and helps ensure that future success on one measure does not come at the expense of another.
4. It helps you focus. Many companies track more measures than they can possibly use. But a balanced scorecard requires managers to reach agreement on only those measures that are most critical to the success of the company’s strategy. Fifteen to twenty distinct measures are usually enough, each measure custom-designed for the unit to which it applies.
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. If we succeed with our vision and strategy, how will we look different
- to our shareholders and customers?
- in terms of our internal processes?
- in terms of our ability to innovate and grow?
2. What are the critical success factors in each of the four scorecard perspectives?
3. What are the key measurements that will tell us whether we’re addressing those success factors as planned?
The balanced scorecard also brings an organizational focus to the variety of local change programs under way in a company at any given time. As the benchmark against which all new projects are evaluated, the scorecard functions as more than just a measurement system. In the words of FMC Corp. executive Larry Brady, it becomes “the cornerstone of the way you run the business,” that is, “the core of the management system” itself. Example:
Rockwater, an underwater engineering and construction firm, crafted a five-pronged strategy: to provide services that surpassed customers’ expectations and needs; to achieve high levels of customer satisfaction; to make continuous improvements in safety, equipment reliability, responsiveness, and cost effectiveness; to recruit and retain high-quality employees; and to realize shareholder expectations. Using the balanced scorecard, Rockwater’s senior management translated this strategy into tangible goals and actions.
- The financial measures they chose included return-on-capital employed and cash flow, because shareholders had indicated a preference for short-term results.
- Customer measures focused on those clients most interested in a high value-added relationship.
- The company introduced new benchmarks that emphasized the integration of key internal processes. It also added a safety index as a means of controlling indirect costs associated with accidents.
- Learning and growth targets emphasized the percentage of revenue coming from new services and the rate of improvement of safety and rework measures.
Today’s managers recognize the impact that measures have on performance. But they rarely think of measurement as an essential part of their strategy. For example, executives may introduce new strategies and innovative operating processes intended to achieve breakthrough performance, then continue to use the same short-term financial indicators they have used for decades, measures like return-on-investment, sales growth, and operating income. These managers fail not only to introduce new measures to monitor new goals and processes but also to question whether or not their old measures are relevant to the new initiatives.
Effective measurement, however, must be an integral part of the management process. The balanced scorecard, first proposed in the January-February 1992 issue of HBR (“The Balanced Scorecard—Measures that Drive Performance”), provides executives with a comprehensive framework that translates a company’s strategic objectives into a coherent set of performance measures. Much more than a measurement exercise, the balanced scorecard is a management system that can motivate breakthrough improvements in such critical areas as product, process, customer, and market development.
The scorecard presents managers with four different perspectives from which to choose measures. It complements traditional financial indicators with measures of performance for customers, internal processes, and innovation and improvement activities. These measures differ from those traditionally used by companies in a few important ways:
Clearly, many companies already have myriad operational and physical measures for local activities. But these local measures are bottom-up and derived from ad hoc processes. The scorecard’s measures, on the other hand, are grounded in an organization’s strategic objectives and competitive demands. And, by requiring managers to select a limited number of critical indicators within each of the four perspectives, the scorecard helps focus this strategic vision.
In addition, while traditional financial measures report on what happened last period without indicating how managers can improve performance in the next, the scorecard functions as the cornerstone of a company’s current and future success.
Moreover, unlike conventional metrics, the information from the four perspectives provides balance between external measures like operating income and internal measures like new product development. This balanced set of measures both reveals the trade-offs that managers have already made among performance measures and encourages them to achieve their goals in the future without making trade-offs among key success factors.
Finally, many companies that are now attempting to implement local improvement programs such as process reengineering, total quality, and employee empowerment lack a sense of integration. The balanced scorecard can serve as the focal point for the organization’s efforts, defining and communicating priorities to managers, employees, investors, even customers. As a senior executive at one major company said, “Previously, the one-year budget was our primary management planning device. The balanced scorecard is now used as the language, the benchmark against which all new projects and businesses are evaluated.”
The balanced scorecard is not a template that can be applied to businesses in general or even industry-wide. Different market situations, product strategies, and competitive environments require different scorecards. Business units devise customized scorecards to fit their mission, strategy, technology, and culture. In fact, a critical test of a scorecard’s success is its transparency: from the 15 to 20 scorecard measures, an observer should be able to see through to the business unit’s competitive strategy. A few examples will illustrate how the scorecard uniquely combines management and measurement in different companies.
Building a Balanced Scorecard
Each organization is unique and so follows its own path for building a balanced scorecard. At Apple and AMD, for instance, a senior finance or business development executive, intimately familiar with the strategic thinking of the top management group, constructed the initial scorecard without extensive deliberations. At Rockwater, however, senior management had yet to define sharply the organization’s strategy, much less the key performance levers that drive and measure the strategy’s success.
Companies like Rockwater can follow a systematic development plan to create the balanced scorecard and encourage commitment to the scorecard among senior and mid-level managers. What follows is a typical project profile:
1. Preparation
The organization must first define the business unit for which a top-level scorecard is appropriate. In general, a scorecard is appropriate for a business unit that has its own customers, distribution channels, production facilities, and financial performance measures.
2. Interviews: First Round
Each senior manager in the business unit—typically between 6 and 12 executives—receives background material on the balanced scorecard as well as internal documents that describe the company’s vision, mission, and strategy.
The balanced scorecard facilitator (either an outside consultant or the company executive who organizes the effort) conducts interviews of approximately 90 minutes each with the senior managers to obtain their input on the company’s strategic objectives and tentative proposals for balanced scorecard measures. The facilitator may also interview some principal shareholders to learn about their expectations for the business unit’s financial performance, as well as some key customers to learn about their performance expectations for top-ranked suppliers.
3. Executive Workshop: First Round
The top management team is brought together with the facilitator to undergo the process of developing the scorecard (see the chart “Begin by Linking Measurements to Strategy”). During the workshop, the group debates the proposed mission and strategy statements until a consensus is reached. The group then moves from the mission and strategy statement to answer the question, “If I succeed with my vision and strategy, how will my performance differ for shareholders; for customers; for internal business processes; for my ability to innovate, grow, and improve?”
Begin by Linking Measurements to Strategy
Videotapes of interviews with shareholder and customer representatives can be shown to provide an external perspective to the deliberations. After defining the key success factors, the group formulates a preliminary balanced scorecard containing operational measures for the strategic objectives. Frequently, the group proposes far more than four or five measures for each perspective. At this time, narrowing the choices is not critical, though straw votes can be taken to see whether or not some of the proposed measures are viewed as low priority by the group.
4. Interviews: Second Round
The facilitator reviews, consolidates, and documents the output from the executive workshop and interviews each senior executive about the tentative balanced scorecard. The facilitator also seeks opinions about issues involved in implementing the scorecard.
5. Executive Workshop: Second Round
A second workshop, involving the senior management team, their direct subordinates, and a larger number of middle managers, debates the organization’s vision, strategy statements, and the tentative scorecard. The participants, working in groups, comment on the proposed measures, link the various change programs under way to the measures, and start to develop an implementation plan. At the end of the workshop, participants are asked to formulate stretch objectives for each of the proposed measures, including targeted rates of improvement.
6. Executive Workshop: Third Round
The senior executive team meets to come to a final consensus on the vision, objectives, and measurements developed in the first two workshops; to develop stretch targets for each measure on the scorecard; and to identify preliminary action programs to achieve the targets. The team must agree on an implementation program, including communicating the scorecard to employees, integrating the scorecard into a management philosophy, and developing an information system to support the scorecard.
7. Implementation
A newly formed team develops an implementation plan for the scorecard, including linking the measures to databases and information systems, communicating the balanced scorecard throughout the organization, and encouraging and facilitating the development of second-level metrics for decentralized units. As a result of this process, for instance, an entirely new executive information system that links top-level business unit metrics down through shop floor and site-specific operational measures could be developed.
8. Periodic Reviews
Each quarter or month, a blue book of information on the balanced scorecard measures is prepared for both top management review and discussion with managers of decentralized divisions and departments. The balanced scorecard metrics are revisited annually as part of the strategic planning, goal setting, and resource allocation processes.
Rockwater: Responding to a Changing Industry
Rockwater, a wholly owned subsidiary of Brown & Root/Halliburton, a global engineering and construction company, is a worldwide leader in underwater engineering and construction. Norman Chambers, hired as CEO in late 1989, knew that the industry’s competitive world had changed dramatically. “In the 1970s, we were a bunch of guys in wet suits diving off barges into the North Sea with burning torches,” Chambers said. But competition in the subsea contracting business had become keener in the 1980s, and many smaller companies left the industry. In addition, the focus of competition had shifted. Several leading oil companies wanted to develop long-term partnerships with their suppliers rather than choose suppliers based on low-price competition.
With his senior management team, Chambers developed a vision: “As our customers’ preferred provider, we shall be the industry leader in providing the highest standards of safety and quality to our clients.” He also developed a strategy to implement the vision. The five elements of that strategy were: services that surpass customers’ expectations and needs; high levels of customer satisfaction; continuous improvement of safety, equipment reliability, responsiveness, and cost effectiveness; high-quality employees; and realization of shareholder expectations. Those elements were in turn developed into strategic objectives (see the chart “Rockwater’s Strategic Objectives”). If, however, the strategic objectives were to create value for the company, they had to be translated into tangible goals and actions.
Rockwater’s Strategic Objectives
Rockwater’s strategic objectives had to be translated into tangible goals and actions.
Rockwater’s senior management team transformed its vision and strategy into the balanced scorecard’s four sets of performance measures (see the chart “Rockwater’s Balanced Scorecard”):
Rockwater’s Balanced Scorecard
Financial Measures:
The financial perspective included three measures of importance to the shareholder. Return-on-capital-employed and cash flow reflected preferences for short-term results, while forecast reliability signaled the corporate parent’s desire to reduce the historical uncertainty caused by unexpected variations in performance. Rockwater management added two financial measures. Project profitability provided focus on the project as the basic unit for planning and control, and sales backlog helped reduce uncertainty of performance.
Customer Satisfaction:
Rockwater wanted to recognize the distinction between its two types of customers: Tier I customers, oil companies that wanted a high value-added relationship, and Tier II customers, those that chose suppliers solely on the basis of price. A price index, incorporating the best available intelligence on competitive position, was included to ensure that Rockwater could still retain Tier II customers’ business when required by competitive conditions.
By the Same Authors
Using the balanced scorecard as a strategic management system.
- Robert S. Kaplan and David P. Norton
The company’s strategy, however, was to emphasize value-based business. An independent organization conducted an annual survey to rank customers’ perceptions of Rockwater’s services compared to those of its competitors. In addition, Tier I customers were asked to supply monthly satisfaction and performance ratings. Rockwater executives felt that implementing these ratings gave them a direct tie to their customers and a level of market feedback unsurpassed in most industries. Finally, market share by key accounts provided objective evidence that improvements in customer satisfaction were being translated into tangible benefits.
Internal Processes:
To develop measures of internal processes, Rockwater executives defined the life cycle of a project from launch (when a customer need was recognized) to completion (when the customer need had been satisfied). Measures were formulated for each of the five business-process phases in this project cycle (see the chart “How Rockwater Fulfills Customer Needs”):
How Rockwater Fulfills Customer Needs
- ; number of hours spent with prospects discussing new work
- ; tender success rate
- ; project performance effectiveness index, safety/loss control, rework
- . : length of project closeout cycle
The internal business measures emphasized a major shift in Rockwater’s thinking. Formerly, the company stressed performance for each functional department. The new focus emphasized measures that integrated key business processes. The development of a comprehensive and timely index of project performance effectiveness was viewed as a key core competency for the company. Rockwater felt that safety was also a major competitive factor. Internal studies had revealed that the indirect costs from an accident could be 5 to 50 times the direct costs. The scorecard included a safety index, derived from a comprehensive safety measurement system, that could identify and classify all undesired events with the potential for harm to people, property, or process.
The Rockwater team deliberated about the choice of metric for the identification stage. It recognized that hours spent with key prospects discussing new work was an input or process measure rather than an output measure. The management team wanted a metric that would clearly communicate to all members of the organization the importance of building relationships with and satisfying customers. The team believed that spending quality time with key customers was a prerequisite for influencing results. This input measure was deliberately chosen to educate employees about the importance of working closely to identify and satisfy customer needs.
Rockwater’s executives wanted a metric that would communicate the importance of building relationships with customers.
Innovation and Improvement:
The innovation and learning objectives are intended to drive improvement in financial, customer, and internal process performance. At Rockwater, such improvements came from product and service innovation that would create new sources of revenue and market expansion, as well as from continuous improvement in internal work processes. The first objective was measured by percent revenue from new services and the second objective by a continuous improvement index that represented the rate of improvement of several key operational measures, such as safety and rework. But in order to drive both product/service innovation and operational improvements, a supportive climate of empowered, motivated employees was believed necessary. A staff attitude survey and a metric for the number of employee suggestions measured whether or not such a climate was being created. Finally, revenue per employee measured the outcomes of employee commitment and training programs.
The balanced scorecard has helped Rockwater’s management emphasize a process view of operations, motivate its employees, and incorporate client feedback into its operations. It developed a consensus on the necessity of creating partnerships with key customers, the importance of order-of-magnitude reductions in safety-related incidents, and the need for improved management at every phase of multiyear projects. Chambers sees the scorecard as an invaluable tool to help his company ultimately achieve its mission: to be number one in the industry.
Apple Computer: Adjusting Long-Term Performance
Apple Computer developed a balanced scorecard to focus senior management on a strategy that would expand discussions beyond gross margin, return on equity, and market share. A small steering committee, intimately familiar with the deliberations and strategic thinking of Apple’s Executive Management Team, chose to concentrate on measurement categories within each of the four perspectives and to select multiple measurements within each category. For the financial perspective, Apple emphasized shareholder value; for the customer perspective, market share and customer satisfaction; for the internal process perspective, core competencies; and, finally, for the innovation and improvement perspective, employee attitudes. Apple’s management stressed these categories in the following order:
Historically, Apple had been a technology- and product-focused company that competed by designing better computers. Customer satisfaction metrics are just being introduced to orient employees toward becoming a customer-driven company. J.D. Power & Associates, a customer-survey company, now works for the computer industry. However, because it recognized that its customer base was not homogeneous, Apple felt that it had to go beyond J.D. Power & Associates and develop its own independent surveys in order to track its key market segments around the world.
Once a technology- and product-focused company, Apple has introduced measures that shift the emphasis toward customers.
Core Competencies:
Company executives wanted employees to be highly focused on a few key competencies: for example, user-friendly interfaces, powerful software architectures, and effective distribution systems. However, senior executives recognized that measuring performance along these competency dimensions could be difficult. As a result, the company is currently experimenting with obtaining quantitative measures of these hard-to-measure competencies.
Employee Commitment and Alignment:
Apple conducts a comprehensive employee survey in each of its organizations every two years; surveys of randomly selected employees are performed more frequently. The survey questions are concerned with how well employees understand the company’s strategy as well as whether or not they are asked to deliver results that are consistent with that strategy. The results of the survey are displayed in terms of both the actual level of employee responses and the overall trend of responses.
Market Share:
Achieving a critical threshold of market share was important to senior management not only for the obvious sales growth benefits but also to attract and retain software developers to Apple platforms.
Essential Background
The balanced scorecard: measures that drive performance, shareholder value:.
Shareholder value is included as a performance indicator, even though this measure is a result—not a driver—of performance. The measure is included to offset the previous emphasis on gross margin and sales growth, measures that ignored the investments required today to generate growth for tomorrow. In contrast, the shareholder value metric quantifies the impact of proposed investments for business creation and development. The majority of Apple’s business is organized on a functional basis—sales, product design, and worldwide manufacturing and operations—so shareholder value can be calculated only for the entire company instead of at a decentralized level. The measure, however, helps senior managers in each major organizational unit assess the impact of their activities on the entire company’s valuation and evaluate new business ventures.
While these five performance indicators have only recently been developed, they have helped Apple’s senior managers focus their strategy in a number of ways. First of all, the balanced scorecard at Apple serves primarily as a planning device, instead of as a control device. To put it another way, Apple uses the measures to adjust the “long wave” of corporate performance, not to drive operating changes. Moreover, the metrics at Apple, with the exception of shareholder value, can be driven both horizontally and vertically into each functional organization. Considered vertically, each individual measure can be broken down into its component parts in order to evaluate how each part contributes to the functioning of the whole. Thought of horizontally, the measures can identify how, for example, design and manufacturing contribute to an area such as customer satisfaction. In addition, Apple has found that its balanced scorecard has helped develop a language of measurable outputs for how to launch and leverage programs.
Apple uses the scorecard as a device to plan long-term performance, not as a device to drive operating changes.
The five performance indicators at Apple are benchmarked against best-in-class organizations. Today they are used to build business plans and are incorporated into senior executives’ compensation plans.
Advanced Micro Devices: Consolidating Strategic Information
Advanced Micro Devices (AMD), a semiconductor company, executed a quick and easy transition to a balanced scorecard. It already had a clearly defined mission, strategy statement, and shared understanding among senior executives about its competitive niche. It also had many performance measures from many different sources and information systems. The balanced scorecard consolidated and focused these diverse measures into a quarterly briefing book that contained seven sections: financial measures; customer-based measures, such as on-time delivery, lead time, and performance-to-schedule; measures of critical business processes in wafer fabrication, assembly and test, new product development, process technology development (e.g., submicron etching precision), and, finally, measures for corporate quality. In addition, organizational learning was measured by imposing targeted rates of improvements for key operating parameters, such as cycle time and yields by process.
At present, AMD sees its scorecard as a systematic repository for strategic information that facilitates long-term trend analysis for planning and performance evaluation.
Driving the Process of Change
The experiences of these companies and others reveal that the balanced scorecard is most successful when it is used to drive the process of change. Rockwater, for instance, came into existence after the merger of two different organizations. Employees came from different cultures, spoke different languages, and had different operating experiences and backgrounds. The balanced scorecard helped the company focus on what it had to do well in order to become the industry leader.
Similarly, Joseph De Feo, chief executive of Service Businesses, one of the three operating divisions of Barclays Bank, had to transform what had been a captive, internal supplier of services into a global competitor. The scorecard highlighted areas where, despite apparent consensus on strategy, there still was considerable disagreement about how to make the strategy operational. With the help of the scorecard, the division eventually achieved consensus concerning the highest priority areas for achievement and improvement and identified additional areas that needed attention, such as quality and productivity. De Feo assessed the impact of the scorecard, saying, “It helped us to drive major change, to become more market oriented, throughout our organization. It provided a shared understanding of our goals and what it took to achieve them.”
Analog Devices, a semiconductor company, served as the prototype for the balanced scorecard and now uses it each year to update the targets and goals for division managers. Jerry Fishman, president of Analog, said, “At the beginning, the scorecard drove significant and considerable change. It still does when we focus attention on particular areas, such as the gross margins on new products. But its main impact today is to help sustain programs that our people have been working on for years.” Recently, the company has been attempting to integrate the scorecard metrics with hoshin planning, a procedure that concentrates an entire company on achieving one or two key objectives each year. Analog’s hoshin objectives have included customer service and new product development, for which measures already exist on the company’s scorecard.
But the scorecard isn’t always the impetus for such dramatic change. For example, AMD’s scorecard has yet to have a significant impact because company management didn’t use it to drive the change process. Before turning to the scorecard, senior managers had already formulated and gained consensus for the company’s mission, strategy, and key performance measures. AMD competes in a single industry segment. The top 12 managers are intimately familiar with the markets, engineering, technology, and other key levers in this segment. The summary and aggregate information in the scorecard were neither new nor surprising to them. And managers of decentralized production units also already had a significant amount of information about their own operations. The scorecard did enable them to see the breadth and totality of company operations, enhancing their ability to become better managers for the entire company. But, on balance, the scorecard could only encapsulate knowledge that managers in general had already learned.
The scorecard enables managers to see the breadth and totality of company operations.
At Advanced Micro Devices, the scorecard only encapsulated knowledge that managers had already learned.
AMD’s limited success with the balanced scorecard demonstrates that the scorecard has its greatest impact when used to drive a change process. Some companies link compensation of senior executives to achieving stretch targets for the scorecard measures. Most are attempting to translate the scorecard into operational measures that become the focus for improvement activities in local units. The scorecard is not just a measurement system; it is a management system to motivate breakthrough competitive performance.
The Scorecard’s Impact on External Reporting
Several managers have asked whether or not the balanced scorecard is applicable to external reporting. If the scorecard is indeed a driver of long-term performance, shouldn’t this information be relevant to the investment community?
In fact, the scorecard does not translate easily to the investment community. A scorecard makes sense primarily for business units and divisions with a well-defined strategy. Most companies have several divisions, each with its own mission and strategy, whose scorecards cannot be aggregated into an overall corporate scorecard. And if the scorecard does indeed provide a transparent vision into a unit’s strategy, then the information, even the measures being used, might be highly sensitive data that could reveal much of value to competitors. But most important, as a relatively recent innovation, the scorecard would benefit from several years of experimentation within companies before it becomes a systematic part of reporting to external constituencies.
Even if the scorecard itself were better suited to external reporting, at present the financial community itself shows little interest in making the change from financial to strategic reporting. One company president has found the outside financial community leery of the principles that ground the scorecard: “We use the scorecard more with our customers than with our investors. The financial community is skeptical about long-term indicators and occasionally tells us about some empirical evidence of a negative correlation between stock prices and attention to total quality and internal processes.”
However, the investment community has begun to focus on some key metrics of new product performance. Could this be an early sign of a shift to strategic thinking?
Implementing the Balanced Scorecard at FMC Corporation: An Interview with Larry D. Brady
FMC Corporation is one of the most diversified companies in the United States, producing more than 300 product lines in 21 divisions organized into 5 business segments: industrial chemicals, performance chemicals, precious metals, defense systems, and machinery and equipment. Based in Chicago, FMC has worldwide revenues in excess of $4 billion.
Since 1984, the company has realized annual returns-on-investment of greater than 15%. Coupled with a major recapitalization in 1986, these returns resulted in an increasing shareholder value that significantly exceeded industrial averages. In 1992, the company completed a strategic review to determine the best future course to maximize shareholder value. As a result of that review, FMC adopted a growth strategy to complement its strong operating performance. This strategy required a greater external focus and appreciation of operating trade-offs.
To help make the shift, the company decided to use the balanced scorecard. In this interview conducted by Robert S. Kaplan, Larry D. Brady, executive vice president of FMC, talks about the company’s experience implementing the scorecard.
Robert S. Kaplan: What’s the status of the balanced scorecard at FMC?
Larry D. Brady: Although we are just completing the pilot phase of implementation, I think that the balanced scorecard is likely to become the cornerstone of the management system at FMC. It enables us to translate business unit strategies into a measurement system that meshes with our entire system of management.
For instance, one manager reported that while his division had measured many operating variables in the past, now, because of the scorecard, it had chosen 12 parameters as the key to its strategy implementation. Seven of these strategic variables were entirely new measurements for the division. The manager interpreted this finding as verifying what many other managers were reporting: the scorecard improved the understanding and consistency of strategy implementation. Another manager reported that, unlike monthly financial statements or even his strategic plan, if a rival were to see his scorecard, he would lose his competitive edge.
It’s rare to get that much enthusiasm among divisional managers for a corporate initiative. What led you and them to the balanced scorecard?
FMC had a clearly defined mission: to become our customers’ most valued supplier. We had initiated many of the popular improvement programs: total quality, managing by objectives, organizational effectiveness, building a high-performance organization. But these efforts had not been effective. Every time we promoted a new program, people in each division would sit back and ask, “How is that supposed to fit in with the six other things we’re supposed to be doing?’’
Corporate staff groups were perceived by operating managers as pushing their pet programs on divisions. The diversity of initiatives, each with its own slogan, created confusion and mixed signals about where to concentrate and how the various programs interrelated. At the end of the day, with all these new initiatives, we were still asking division managers to deliver consistent short-term financial performance.
“The diversity of initiatives, each with its own slogan, created confusion and mixed signals.”
What kinds of measures were you using?
The FMC corporate executive team, like most corporate offices, reviews the financial performance of each operating division monthly. As a highly diversified company that redeploys assets from mature cash generators to divisions with significant growth opportunities, the return-on-capital-employed (ROCE) measure was especially important for us. We were one of the few companies to inflation-adjust our internal financial measures so that we could get a more accurate picture of a division’s economic profitability.
At year-end, we rewarded division managers who delivered predictable financial performance. We had run the company tightly for the past 20 years and had been successful. But it was becoming less clear where future growth would come from and where the company should look for breakthroughs into new areas. We had become a high return-on-investment company but had less potential for further growth. It was also not at all clear from our financial reports what progress we were making in implementing long-term initiatives. Questions from the corporate office about spending versus budget also reinforced a focus on the short-term and on internal operations.
But the problem went even deeper than that. Think about it. What is the value added of a corporate office that concentrates on making division managers accountable for financial results that can be added up across divisions? We combine a business that’s doing well with a business that’s doing poorly and have a total business that performs at an average level. Why not split the company up into independent companies and let the market reallocate capital? If we were going to create value by managing a group of diversified companies, we had to understand and provide strategic focus to their operations. We had to be sure that each division had a strategy that would give it sustainable competitive advantage. In addition, we had to be able to assess, through measurement of their operations, whether or not the divisions were meeting their strategic objectives.
If you’re going to ask a division or the corporation to change its strategy, you had better change the system of measurement to be consistent with the new strategy.
“If you’re going to ask a division or the corporation to change its strategy, you had better change the system of measurement.”
How did the balanced scorecard emerge as the remedy to the limitations of measuring only short-term financial results?
In early 1992, we assembled a task force to integrate our various corporate initiatives. We wanted to understand what had to be done differently to achieve dramatic improvements in overall organizational effectiveness. We acknowledged that the company may have become too short-term and too internally focused in its business measures. Defining what should replace the financial focus was more difficult. We wanted managers to sustain their search for continuous improvement, but we also wanted them to identify the opportunities for breakthrough performance.
When divisions missed financial targets, the reasons were generally not internal. Typically, division management had inaccurately estimated market demands or had failed to forecast competitive reactions. A new measurement system was needed to lead operating managers beyond achieving internal goals to searching for competitive breakthroughs in the global marketplace. The system would have to focus on measures of customer service, market position, and new products that could generate long-term value for the business. We used the scorecard as the focal point for the discussion. It forced division managers to answer these questions: How do we become our customers’ most valued supplier? How do we become more externally focused? What is my division’s competitive advantage? What is its competitive vulnerability?
How did you launch the scorecard effort at FMC?
We decided to try a pilot program. We selected six division managers to develop prototype scorecards for their operations. Each division had to perform a strategic analysis to identify its sources of competitive advantage. The 15 to 20 measures in the balanced scorecard had to be organization-specific and had to communicate clearly what short-term measures of operating performance were consistent with a long-term trajectory of strategic success.
Were the six division managers free to develop their own scorecard?
We definitely wanted the division managers to perform their own strategic analysis and to develop their own measures. That was an essential part of creating a consensus between senior and divisional management on operating objectives. Senior management did, however, place some conditions on the outcomes.
First of all, we wanted the measures to be objective and quantifiable. Division managers were to be just as accountable for improving scorecard measures as they had been for using monthly financial reviews. Second, we wanted output measures not process-oriented measures. Many of the improvement programs under way were emphasizing time, quality, and cost measurements. Focusing on T-Q-C measurements, however, encourages managers to seek narrow process improvements instead of breakthrough output targets. Focusing on achieving outputs forces division managers to understand their industry and strategy and help them to quantify strategic success through specific output targets.
Could you illustrate the distinction between process measures and output measures?
You have to understand your industry well to develop the connection between process improvements and outputs achieved. Take three divisional examples of cycle-time measurement, a common process measure.
For much of our defense business, no premium is earned for early delivery. And the contracts allow for reimbursement of inventory holding costs. Therefore, attempts to reduce inventory or cycle times in this business produce no benefit for which the customer is willing to pay. The only benefits from cycle time or inventory reduction occur when reduction in factory-floor complexity leads to real reductions in product cost. The output performance targets must be real cash savings, not reduced inventory levels or cycle times.
Mastering the Management System
In contrast, significant lead-time reductions could be achieved for our packaging machinery business. This improvement led to lower inventory and an option to access an additional 35% of the market. In this case, the cycle-time improvements could be tied to specific targets for increased sales and market share. It wasn’t linear, but output seemed to improve each time we improved throughput times.
And in one of our agricultural machinery businesses, orders come within a narrow time window each year. The current build cycle is longer than the ordering window, so all units must be built to the sales forecast. This process of building to forecast leads to high inventory—more than twice the levels of our other businesses—and frequent overstocking and obsolescence of equipment. 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. With all the diversity in our business units, senior management really can’t have a detailed understanding of the relative impact of time and quality improvements on each unit. 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. About 95% of those companies that have tried benchmarking have spent a lot of money and have gotten very little in return. And the difference between benchmarking and the scorecard helps reinforce the difference between process measures and output measures. It’s a lot easier to benchmark a process than to benchmark an output. 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.
Were the division managers able to develop such output-oriented measures?
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.
Did you encounter any problems as you launched the six pilot projects?
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. One division manager described his own three-stage implementation process after receiving our directive to build a balanced scorecard: denial—hope it goes away; medicinal—it won’t go away, so let’s do it quickly and get it over with; ownership—let’s do it for ourselves.
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. I doubt that many companies can respond crisply to the question, “How does staff provide competitive advantage?’’ Yet we ask that question every day about our line operations. 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. Corporate development was in charge of strategy, and the controller’s office kept the historical records and budgeted and measured short-term 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. The other three perspectives make the division’s long-term strategic objectives measurable.
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. It’s the operating performance bridge that corporations have never had.
How often do you envision reviewing a division’s balanced scorecard?
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.
Isn’t it inconsistent to assess a division’s strategy on a monthly or quarterly basis? Doesn’t such a review emphasize short-term performance?
I see the scorecard as a strategic measurement system, not a measure of our strategy. And I think that’s an important distinction. The monthly or quarterly scorecard measures operations that have been configured to be consistent with our long-term strategy.
“I see the scorecard as a strategic measurement system, not a measure of our strategy.”
Here’s an example of the interaction between the short and the long term. 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. Of course, some measures, such as annual market share and innovation metrics, don’t lend themselves to monthly updates. For the most part, however, the measures are calculated monthly.
Any final thoughts on the scorecard?
I think that it’s important for companies not to approach the scorecard as the latest fad. 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. You hear about a good idea, several people on corporate staff work on it, probably with some expensive outside consultants, and you put in a system that’s a bit different from what existed before. Such systems are only incremental, and you don’t gain much additional value from them.
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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.
- Robert S. Kaplan is a senior fellow and the Marvin Bower Professor of Leadership Development, Emeritus, at Harvard Business School. His recent HBR articles include: Inclusive Growth: Profitable Strategies for Tackling Poverty and Inequality (with George Serafeim and Eduardo Tugendhat), How to Pay for Health Care: The Case for Bundled Payments (with Michael E. Porter), and Accounting for Climate Change (with Karthik Ramanna), which won the 2021 McKinsey Award.
- DN David P. Norton is a founder and director of the Palladium Group and is co-author of The Balanced Scorecard .
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Balanced Scorecard: Structure, Benefits, and Implementation Case Study
Introduction.
Business environments (internal and external) have been changing constantly especially in the 21 st century. The effects of these changes are being felt across various business sectors regardless of their size, location, and market or maturity level.
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Apparently, the 21 st century has brought forth many challenges and opportunities and industries are starting to examine new strategies to enable them overcome these challenges as they embrace new opportunities (Nørreklit 2000, p. 65).
The management team at Rainbow Lighting Ltd is in a quagmire because the company seems to be attracting numerous challenges amidst the changing business environment.
The company is experiencing numerous problems across the various departments, which are threatening the business performance. To begin with, the production department is operating under capacity owing to the short production hours.
In addition, the department lacks the necessary mechanism to ensure that their products adhere to quality and safety standards before they are released into the market as evidenced by the latest incident with Everlasting Halogen Spotlight (EHS) bulb.
The marketing and sales department is a lagging behind in its mandate and even the rare promotional activities are executed without proper market information.
For instance, an attempt by the marketers to position domestic market bulbs through packaging modification and subsequent price increment lead to a huge sales decline.
Furthermore, customer satisfaction survey indicated that domestic bulb consumers were unsatisfied with the product quality and pricing, while industrial consumers were not confident about product quality though prices were reasonable.
Moreover, wholesalers are complaining of late deliveries and most of them opt for supplies from competitors. Employee satisfaction survey revealed that employee motivation was at its lowest leading to high staff turnover and poor product quality.
Consequently, the above problems have impacted negatively on the company’s financial performance leading to a reduction in operating profits and negative Return on Capital Employed.
Theory, aims and structure of the Balanced Scorecard
Following Rainbow Lighting Ltd poor performance, Eindnacht GmbH senior management has issued the management an ultimatum to turn around the company in the next two years or face dire consequences. During the management meeting, the managing director revealed that senior management advisor had recommended that they consider implementing the Balanced Scorecard concept into the company.
According to Figgie et al. (2002, p. 262), performance measurement has become a necessity because it enable managers to understand how a business is performing, and it also enables business to improve their performance.
Against this background, Robert Kaplan and David Norton developed the Balanced Scorecard in 1992 aimed at facilitating the performance measurement surveys within organizations (Nørreklit 2000, p. 67).
The theory behind the development of BSC was based on the fact that, following the implementation of a performance measurement system, an organization would be able to serve its customers, owners, employees, and stakeholders in a better way, thus leading to a promising financial performance (Figgie et al. 2002, p. 265).
Atkinson (2002, p. 1445) perceives BSC as a report card that provides business manages with information on the positive and negative aspects of their business. Moreover, Chia and Hoon (2000, p. 5) explain that a BSC aim is to enable organizations to plan, measure and control their performance based on a pre-defined strategy in order to achieve the desired results.
Traditionally, performance measurements have often focused on financial measures while ignoring the contribution of non-financial measures to the organizations performance.
On this note, the BSC model measures performance based on four different perspectives – a financial perspective (return on capital employed, economic value-added, operating income, etc) , an internal business process perspective (employee satisfaction, new product development ), a customer perspective (customer satisfaction, new customer acquisition, customer loyalty, customer profitability etc.), and a learning and growth perspective (skills improvement, IT system overhaul ) (Chia & Hoon 2000,p.2).
Accordingly, the BSC utilizes the various perspectives to achieve a balance between leading and lagging performance measures thereby the managers are able to grasp the negative and positive aspects of an organizations performance Atkinson (2002, p. 1445).
Literature review
Since its inception, the BSC system has gained tremendous popularity with most organizations adopting its tenets globally. Contrastingly, empirical evidence on the impact of BSC and performance systems in general is extremely rare (Atkinson 2006, p. 1442).
The latter author explains that a great number of extant literatures have tended to focus on exploring the shortcomings of traditional performance measurements systems as well as designing alternative measurement methods to overcome this drawbacks (Ahn 2001, p. 455).
As a result, whereas most researchers have carried out empirical studies on design and deployment of existing performance measurement systems, most have eschewed from investing the impact of these systems on the organizations (p. 456).
Benefits of BSC system
Chia and Hoon (2000) carried out a study on BSC procedures, BSC perspectives and implementation among major firms in Singapore. The results of this empirical study established that by adopting BSC systems, firms were able to clarify their vision and implement the necessary mechanisms to facilitate the practice of BSC performance measurement systems (p. 10).
Similarly, Hoque and James (2000) carried out an empirical study among 66 Australian manufacturing companies that had implemented BSC system.
The firms reported that organizational performance which was assessed based on ROI, capacity utilization, sales margin, customer satisfaction and product quality relative to competitors showed a positive improvement and the above parameters exhibited a positive causal-effect relationship (p.12).
Ahn (2001) research was designed as a case study of a strategic business unit which was carried out within a product supplier organization. The above study established that through the implementation of a BSC, firms were able to realize the targeted performance goals.
In addition, BSC was cited to be a comprehensive management tool that enabled the firm to achieve numerous management benefits such as successful strategic communication, effective planning and budgeting of firm’s strategic plans and improved company control (p. 458).
Olson and Slater (2002) administered over 200 questionnaires to senior managers in manufacturing and service firms to establish their recognition of BSC implementation. The respondents in this study affirmed that BSC implementation led to improved performance in financial, learning and growth, internal business process and to a greater extent the customer perspective (p. 15).
Similarly, Papalexandris et al. (2004) study also elicited similar results whereby the implementation of BSC in a Greek software firm had showed considerable progress of financial, customer, learning and growth and internal business perspectives (p. 363). This brief literature review indicates that BSC is a beneficial strategic management tool that enables firms to achieve their performance measurement goals.
It is important to note, BSC has been adopted in numerous business fields including e-business, small and medium size manufacturing firms, IT firms, airport management firms among others, thus the results of BSC benefits can be generalized across most industries (Papalexandris et al.2004, p. 394).
Limitations of BSC
Notwithstanding the numerous benefits associated with BSC measurements, various existing literatures have established great deficiencies associated with this concept. BSC has often been praised for its ability to capture causal-effect interrelations among the financial and non-financial elements and their effect on an organization’s performance.
However, Nørreklit (2000) claims that Kaplan and Norton did not discuss the causal relationships explicitly in their earlier publications (p. 70). In his criticism, Nørreklit (2000, p. 71) pointed out that the causal-effect relationship discussed by Kaplan and Norton does not take into account the aspect of time thus making the interrelations subjective than objective.
In addition, Nørreklit is doubtful about whether the causal interrelations between the various BSC perspectives are ever present in all business situations. For instance, Kaplan and Norton claimed that increased customer satisfaction and loyalty would translate to increased financial revenues.
However, Nørreklit (2000, pp.73-74) disagrees by expounding that such a connection is not always obvious especially in a situation whereby clients demand high quality but make insignificant purchases; thus the organizations end up generating little or not profit at all.
Secondly, BSC has been criticized for its inability to capture business external environment elements such as SWOT analysis, PEST analysis and Benchmarking which are considered vital to operation performance (Simons et al. 2002, p. 56).
Evidently, BSC only consider shareholders and clients, ignores the role of important interest groups such as competitors and their impact on business performance (p.57).
The latter author argues that the fact that BSC structure does not take into consideration important external environment elements is a great shortcoming because businesses do not operate in isolation of elements such as cooperation partners and suppliers (p.58).
On the same note, Kanji and Moura (2002) faulted the BSC top-down approach arguing that it is not ideal methodology mainly because hierarchical decision set-up does not encourage employee participation in decision making (p.20).
This perception can also be supported by Beardwell and Holden (2007), argument that firms that utilize hieratical decision making set-up are likely to experience employee motivational problems leading to reduced productivity (206).
Conditions for implementing BSC
Evidently, Kaplan and Norton have explicitly expounded on methodological execution of a BSC. Their description point out that effective implementation of BSC is only plausible in large companies due to the extensive demand for human resources.
Noticeably, Olson EM, Slater (2002) identifies this methodological demand as a grave shortcoming of BSC in that unstable organizations are unlikely to realize the perceived benefits of BSC (p. 12). However, Figgie et al. (2002) is of the opinion that since Kaplan and Norton did not describe the necessary conditions that organizations ought to fulfill prior to implementing BSC system, hence it must be universally applicable.
Nonetheless, BSC is mostly effective if implemented in organizations that operate in less volatile environments (p. 272). The latter author explains that organizations in highly volatile environment tend to alter their strategies frequently, thus they have to keep changing the BSC perspective measures.
This implies that the said companies are unable to ascertain the effects of BSC measures due the constraints of time. On this note, since Rainbow Lighting Ltd operates in a stable business environment, it is easier to conduct a performance measurement based on BSC perspectives.
Balanced Scorecard for Rainbow Lighting Ltd
From the case study, Rainbow Lighting Ltd senior management has insisted that the firm must record an 18% return on capital employed in the next two years. Consequently, in order to realize increased revenue and profit margins, the management must first focus on achieving high customer satisfaction levels.
Prior studies on customer satisfactions established a directed cause-effect relationship between customer satisfaction, customer loyalty and financial results. This existing literature indicated that whenever an organization cultivates good customer relationship with its clients, their sales are likely to increase leading to increase revenue and profits (Armstrong 2009, p. 122).
On the same note, both domestic and industrial customers are not confident about the quality of bulbs, thus improving product quality will reduce customer complains. Ahn (2001, p. 457) explains that reduced customer complains can be interpreted to mean that customers are satisfied with the product quality.
The relationship between customer satisfaction and customer loyalty has been studied widely, and studies results concur that customer satisfaction cultivates customer loyalty (Seal et al. 2009, p. 126).
In addition, satisfied customers’ acts as product referees through word of mouth advertising, in turn, market share for both domestic and industrial bulbs will expand leading to increased revenue and profit growth.
According to Porter et al. (2008, p. 186), most consumers are concerned about product quality. However, product quality seems to be a major setback at Rainbow Lighting Ltd. The recent survey indicated that both domestic and industrial consumers did not trust the effectiveness of the organization’s bulbs.
Low employee motivation level is partly to blame for the poor quality product and delays in process cycle. The learning and growth perspective in the designed BSC is concerned with improving employee satisfaction through training and open communication.
Similarly, Seal (2011, p. 104) underscores a trained workforce brings extra benefits to an organization because it strengthens professionalism. Consequently, professionalism reduces process cycle times leading to improved process, improved on time delivery and only a few defects reach the consumer (p.106).
From the case study, the proportion of rejected bulbs has increased tremendously over the last three years. Thereby by increasing hours dedicated to in-house training per employee, the cost of wastage due to the high number of rejected bulbs will be greatly reducing, thus increasing to increased revenue and profit growth.
Existing literature on BSC indicates that performance measures are inter-linked on a causal-effect model such that changes in one aspect will bring changes to other aspects along the BSC strategy map (Atkinson2006, p. 1450).
For this reason, Rainbow Lighting ought to recognize that most of its problems are caused by low employee motivation, thus they management should begin its process overhaul by ensuring employee motivation is increased to the maximum possible level.
Hoque 2000 (p. 4) highlights that if firms are to achieve impressive financial results, they ought to provide value to their customers by improving their internal process to match consumer demands. Evidence from the case study indicate that innovation is almost dormant at Rainbow Lighting Ltd, thus the firm should align its internal process towards promoting R &D of new bulb designs.
Behavioral considerations for implementing a new management system
In order to align its current financial perspective strategy to the identified performance measures, Rainbow Lighting Ltd out to carry out some behavioral changes to facilitate the implementation of BSC system.
Having realized that learning and growth perspective is the core of BSC system, human resources management must implement the necessary mechanisms that would encourage employee participation in decision making. To begin with, although BSC advocates for a hierarchical decision making model, managers at Rainbow must encourage open communication between management and employees.
This will ensure that the identified problems are solved promptly. For instance, one of the customer perspective measure is to reduce customer complaints and to ensure an on-spot solution for the received complaints. This can only be achieved if proper communication channels are established to ensure timely intervention of customer complains.
In addition, constant communication of organizational goals as well as the results of performance measurements is vital to promote employee satisfaction. Evidently, employees’ morale is likely to be improved if management recognizes their important contribution towards the achievement of organization’s vision and strategy.
Besides the production bonus that is currently issued to top performers, Rainbow can encourage innovations by introducing a new bonus for innovative employees.
Obviously, the identified goals are not achievable without effective team participation. As evidenced above, performance measures in the BSC are interlinked in causal-effect relationship; therefore, teamwork is necessary to ensure that all departments and employees are aligned towards the achievement of desired financial goals.
Ahn H (2001) Applying the balanced scorecards concept: an experience report. Long Range Pla n, 3(44): 441-461.
Armstrong, M. 2009. Armstrong’s Handbook of Human Resource Management Practice (11th edn.). London: Kogan Page.
Atkinson, H. 2006. Strategy implementation: a role for the balanced scorecard?. Management Decision , 44(10):1441 – 1460.
Beardwell, I. & Holden, L. 2007. Human Resource Management (5th edn.), Torrington: Hall and Taylor
Chia A & Hoon HS (2000). Adopting and creating balanced scorecards in Singapore- based companies. Singap. Manage. Rev ., 22 (2):1-15.
Figgie, F. et al. 2002. The sustainability balanced scorecard – linking sustainability management to business strategy. Business Strategy and the Environment, 11(1): 269-284.
Hoque Z. 2000. Linking balanced scorecard measures to size and market factors: impact on organizational performance. J. Manage. Account. Res ., 12(1): 1-15.
Kanji, G.K. & Moura, P. S. 2002. Business Scorecard. Total Quality Management , 13(1):13-27.
Nørreklit, H. (2000). The balance on the balanced scorecard–a critical analysis of some of its assumptions. Management Accounting Research , 11 (1): 65-89.
Olson EM & Slater SF (2002). The balanced scorecard, competitive strategy, and performance. Bus. Horizons ., 45(3):11-16.
Papalexandris A, Loannou G & Prastacos GP. 2004. Implementing the balanced scorecard in Greece: a software firm’s experience. Long Range Plan , 37(4): 351-366.
Porter C, Bingham C. & Simmonds, D. 2008. Exploring Human Resource Management . Berkshire: McGraw Hill.
Seal, W. 2011. Management Accounting for Business Decisions . Berkshire: McGraw Hill
Seal W., Garrison, R & Noreen, E. 2009. Management Accounting (3rd edn.). Berkshire: McGraw Hill
Simons, R. Dávila A. & Kaplan, RS. 2000. Performance Measurement and Control Systems for Implementing Strategy . New York: Prentice Hall.
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