2. Background to the business balanced scorecard In 1992, Robert Kaplan and David Norton introduced the business community to the concept of a Business Balanced Scorecard, following a research project involving twelve successful American companies who required a broadly based ‘more measurement system, encompassing financial and non-financial objectives’. However, as Kaplan and Norton identified subsequently, what was actually developed through their work was not a measurement system but a total framework for strategic management of the business one that would yield real and – measurable financial and operational success when fully integrated within the business infrastructure and processes. The Balanced Scorecard system looks at business performance across four perspectives: Financial Growth, profitability and risk from the perspective of the – shareholders Customer Creating value and differentiation from the customer perspective – Internal Process Business processes that create customer and – shareholder satisfaction Learning and Innovation Organisational change, innovation and growth – The scorecard through the development of measures within each quadrant that are interlinked and aligned directly to the business strategy. These measures can then be cascaded throughout the business in order that everyone has a of sight’ ’line to the strategy, in how they are personally measured. As we can see below the four perspectives provide the focus of the measurement system with the company’s strategy at the heart of the process: An interesting innovation within the process is the use of measures that provide a future perspective on performance - indicators’ as opposed to the more ‘leading traditional look at performance through measures’ which focus on what has ‘lagging gone on before. Kaplan and Norton see the Scorecard as filling a void that exists in most management systems the lack of a systematic process to implement and obtain – feedback about strategy. Based on the realisation that gets measured gets ‘what done’, by establishing clear linkages between measurement of performance and company strategy, a much better chance of the strategy being successfully embedded was created. However, it is important that organisations don’t just focus on the measures but on the vision and strategy that drives the measures, and how this can be converted into actions to produce a successful implementation of the strategy. Kaplan and Norton identified five principles, built around the Balanced Scorecard system that allow companies to execute their strategies: Principle Definition
2. Background to the business balanced scorecard In 1992, Robert Kaplan and David Norton introduced the business community to the concept of a Business Balanced Scorecard, following a research project involving twelve successful American companies who required a ‘more broadly based measurement system, encompassing financial and non-financial objectives’. However, as Kaplan and Norton identified subsequently, what was actually developed through their work was not a measurement system but a total framework for strategic management of the business – one that would yield real and measurable financial and operational success when fully integrated within the business infrastructure and processes. The Balanced Scorecard system looks at business performance across four perspectives: Financial – Growth, profitability and risk from the perspective of the shareholders Customer – Creating value and differentiation from the customer perspective Internal Process – Business processes that create customer and shareholder satisfaction Learning and Innovation – Organisational change, innovation and growth The scorecard through the development of measures within each quadrant that are interlinked and aligned directly to the business strategy. These measures can then be cascaded throughout the business in order that everyone has a ’line of sight’ to the strategy, in how they are personally measured. As we can see below the four perspectives provide the focus of the measurement system with the company’s strategy at the heart of the process: An interesting innovation within the process is the use of measures that provide a future perspective on performance - ‘leading indicators’ as opposed to the more traditional look at performance through ‘lagging measures’ which focus on what has gone on before. Kaplan and Norton see the Scorecard as filling a void that exists in most management systems – the lack of a systematic process to implement and obtain feedback about strategy. Based on the realisation that ‘what gets measured gets done’, by establishing clear linkages between measurement of performance and company strategy, a much better chance of the strategy being successfully embedded was created. However, it is important that organisations don’t just focus on the measures but on the vision and strategy that drives the measures, and how this can be converted into actions to produce a successful implementation of the strategy. Kaplan and Norton identified five principles, built around the Balanced Scorecard system that allow companies to execute their strategies: Principle Definition