David Norton and I introduced the Balanced Scorecard in a Harvard Business. Review article (Kaplan & Norton, ). The article was based on a. Using the Balanced. Scorecard as a Strategic. Management System by Robert S. Kaplan and David P. Norton. •. Included with this full-text Harvard Business. Editor's Note: In , Robert S. Kaplan and David P. Norton's concept of the balanced scorecard revolutionized conventional thinking about performance.
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In a previous paper (Kaplan and Norton b), we described the role for strategy maps and Balanced Scorecards to develop performance objectives and . his/her agency's or department's system a balanced scorecard assessment The model chosen was developed by Drs. David Norton and Robert Kaplan—the . S. Kaplan and D. P. Norton, “The Balanced Scorecard: Measures That Drive .. Adapted from material developed by Robert S. Kaplan and David P. Norton.
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. 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.
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. 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.
Could this be an early sign of a shift to strategic thinking? Brady FMC Corporation is one of the most diversified companies in the United States, producing more than product lines in 21 divisions organized into 5 business segments: industrial chemicals, performance chemicals, precious metals, defense systems, and machinery and equipment.
Coupled with a major recapitalization in , these returns resulted in an increasing shareholder value that significantly exceeded industrial averages. In , 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. 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.
What led you and them to the balanced scorecard? 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.
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 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.
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? 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.
In early , 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. How do we become more externally focused? What is its competitive vulnerability? How did you launch the scorecard effort at FMC? Porter W. Chan Kim Renee Mauborgne. Is your company spending enormous time and energy on strategy development, with little to show for your efforts?
We've combed through hundreds of Harvard Spinal Cord Injury Ontario is a not-for-profit organization headquartered in Toronto that assists people with spinal cord injuries to achieve independence, Miller Andy Fleming Deborah Helsing.
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Two-thirds of executives say their organizations don't have the capabilities to support their strategy Simons Antonio Davila. Citibank has introduced a new, comprehensive performance-scorecard system. A regional president struggles with a tough decision: Drucker Clayton M.
Christensen Michael E. Porter Daniel Goleman. If you read nothing else, read these 10 articles from HBR's most influential authors: Hatten William J. Poorvu Howard H. Vogel Jr. This module reading explains how to construct a strategy map and build a balanced scorecard.
Using an internal value chain model, the module illustrates Narayanan Susan Kulp Dennis Campbell. Illustrates how nonfinancial performance measures can be used to manage a business and evaluate the success of a strategy.
Flaum Neel Bhatia.
This fictional short case sets up a hiring scenario that can be analyzed through the lens of the best practices found in "Note on Best Practices in Hiring" In a world of stiffening competition, business strategy is more crucial than ever. Yet most organizations struggle in this area--not with formulating The case series illustrates the role of performance measurement and analytics in translating TD-Canada Trust's service model of "comfortable banking" Narayanan Lisa Brem.
The pet and pet supply industry was one of the few bright lights in an otherwise dismal retail outlook in This case gives background pet retail The case introduces students to the concept of supplier management with scorecard and other performance measures and the concept of Total Cost of Ownership This case study explores the challenges of aligning middle management interests with company goals as a company navigates rapid growth in a dynamic industry Split from the original This collection highlights the most important ideas and concepts from Robert S.
Norton, authors of "The Balanced Scorecard," a revolutionary Popular Topics Change. See all topics.