On The Balanced Scorecard

I recently finished reading The Balanced Scorecard – Translating Strategy into Action – by Robert S. Kaplan and David P. Norton.

As the title indicates, this book introduces the concept of the Balanced Scorecard: “The Balanced Scorecard (BSC) provides managers with the instrumentation they need to navigate to future competitive success. Today, organizations are competing in complex environments so that an accurate understanding of their goals and the methods for attaining those goals is vital. The Balanced Scorecard translates an organization’s mission and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management systems. The Balanced Scorecard retains an emphasis on achieving financial objectives, but also includes the performance drivers of these financial objectives. The scorecard measures organizational performance across four balanced perspectives: financial, customers, internal business processes, and learning and growth. The BSC enables companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they need for future growth.”

The authors then go on to presenting each of the four perspectives in details and discuss how the Balanced Scorecard measures link to the strategy. In the subsequent section, the authors focus on how the Scorecard is used to manage business strategy. The framework presented revives the traditional thinking around strategy and how it is implemented in a very pragmatic manner – balancing both strategy and its associated execution. What I particularly enjoyed are the numerous case studies and examples presented that help anchor the concepts.

A classic must read in the area of Corporate Strategy!

Below are key excerpts from the book that I found particularly insightful:

1- “The Balanced Scorecard emphasizes that financial and nonfinancial measures must be part of the information system for employees at all levels of the organization.”

2- “As more and more companies work with the Balance Scorecard, they see how it can be used to:

-clarify and gain consensus about strategy,

-communicate strategy throughout the organization,

-align departmental and personal goalts to the strategy,

-link strategic objectives to long-term targets and annual budgets,

-identify and align strategic initiatives,

-perform periodic and systematic strategic review, and obtain feedback to learn about and improve strategy.”

3- “A strategy is a set of hypotheses about cause and effect. The measurement system should make the relationships (hypotheses) among objectives (and measures) in the various perspectives explicit that they can be managed and validated.”

4- “The financial objectives serve as the focus for the objectives and measures in all the other scorecard perspectives. Every measure selected should be part of a link of cause-and-effect relationships that culminate in improving financial performance.”

5- “The scorecard should tell the story of the strategy, starting with the long-run financial objectives, linking these to the sequence of actions that must be taken with financial processes, customers, internal processes, and finally employees and systems to deliver long-term economic performance.”

6- “In the internal-business process perspective, managers identify the critical processes at which they must excel if they are to meet the objectives of shareholders and of targeted customer segments…One recent development has  been to incorporate the innovation process as a vital component of the internal-business-process perspective.”

7- “While not the same as measurement, and not a long-term substitute for measurement, the text is a marker that serves many of the same objectives as a formal measurement system.”

8- “Balanced Scorecard of no more than two dozen measures can be sufficient for measuring their operations. They are, of course, correct in a narrow sense, but they fail to distinguish between diagnostic measures – those measures that monitor whether the business remains in control and can signal when unusual events are occurring that require immediate attention  – and strategic measures – those that define a strategy designed for competitive excellence.”

9- “The Balanced Scorecard is not a replacement for an organization’s day-to-day measurement system. The scorecard measures are chosen to drive the attention of managers and employees to those factors expected to lead to competitive breakthroughs for an organization.”

10- “The disconnect between strategy formulation and strategy implementation is caused by barriers erected by traditional management systems – the systems organizations use to:

-establish and communicate strategy and directions;

-allocate resources;

-define departmental, team, and individual goals and directions; and

-provide feedback.”

11- “The scorecard provides a common framework for organizing the planning process of corporate support departments. It enables these departments to understand the strategies of the entire corporation and the individual SBUs so that the support departments can develop and deliver better services that help the operating units and corporation achieve their strategic objectives.”

12- “Strategic planning and operational budgeting processes are too important to be treated as independent processes. Strategic planning must be linked to operational budgeting if action is to be tied to vision.”

13- “Mintzberg and Simons identify key aspects of this newer or emergent view of strategy:

-Strategies are incremental and emerge over time

-Intended strategies can be superseded

-Strategy formulation and implementation are intertwined

-Strategic ideas can arise throughout the organization

-A strategy is a process”

14- “…the measurement framework in the Balanced Scorecard should be deployed to develop a new management system. The distinction between a measurement and a management system is subtle but crucial. The measurement system should be only a means to achieve an even more important goal – a strategic management system that helps executives implement and gain feedback about their strategy.”

15- “Most companies introduce the scorecard to drive single pieces of the management process: Obtain clarity and consensus about strategy, achieve focus, leadership development, strategic intervention, educate the organization, set strategic targets, align programs and investments, build a feedback system.”


Omar Halabieh

The Balanced Scorecard

The Balanced Scorecard

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