The-Balanced-Scorecard--Measures-That-Drive-Perfor

Thescoiecardtracksthekeyelementsofacompany'sstrategy-fiomcontinuousimprovementandpartnershipstotearnworkandglobalscale.TheBalancedScorecard-MeasuresThatDrivePerformancebyRobertS.KaplanandDavidP.Nortonwhatyoumeasureiswhatyouget.Seniorexecu-tivesunderstandthattheirorganization's,measure-mentsystemstronglyaffectsthebehaviorofman-agersandemployees.Executivesalsounderstandthattraditionalfinancialaccountingmeasureslikereturn-on-investmentandearnings-per-sharecangivemisleadingsignalsforcontinuousimprovementandinnovation-activitiestoday'scompetitiveenvi-Thebalancedscorecardislikethediaisir^ar^airpianecccipit:itgivesmanagersconnplexinfarnnationataglance.ronmentdemands.Thetraditionalfinancialperfor-mancemeasuresworkedwellfortheindustrialera,buttheyareoutofstepwiththeskillsandcompe-tenciescompaniesaretryingtomastertoday.Asmanagersandacademicresearchershavetriedtoremedytheinadequaciesofcurrentperformancemeasurementsystems,somehavefocusedonmak-ingfinancialmeasuresmorerelevant.Othershavesaid,Forgetthefinancialmeasures.Improveopera-tionalmeasureslikecycletimeanddefectrates,-thefinancialresultswillfollow.Butmanagersshouldnothavetochoosebetweenfinancialandopera-tionalmeasures.Inobservingandworkingwithmanycompanies,wehavefoundthatseniorexecu-tivesdonotrelyononesetofmeasurestotheexclu-sionoftheother.Theyrealizethatnosinglemea-surecanprovideaclearperforniancetargetorfocusattentiononthecriticalareasofthebusiness.Man-agerswantabalancedpresentationofbothfinancialandoperationalmeasures.Duringayear-longresearchprojectwith12com-/paniesattheleadingedgeofperformancemeasure-ment,wedevisedabalancedscorecard-asetofmeasuresthatgivestopmanagersafastbutcompre-hensiveviewofthebusiness.Thebalancedscore-cardincludesfinancialmeasuresthattelltheresultsofactionsalreadytaken.Anditcomplementsthefinancialmeasureswithoperationalmeasuresoncustomersatisfaction,internalprocesses,andtheorganization'sinnovationandiniprovementactivi-ties-operationalmeasuresthatarethedriversoffuturefinancialperformance.RobertS.KaplanistheArthurLowesDickinsonProfessorofAccountingattheHarvardBusinessSchool.DavidP.NortonispresidentofN()lan,NortonetCom-pany,Inc.,aMassachusetts-based\informationtechnol-ogyconsultingfirmhecofounded.HARVARDBUSINESSREVIEWJanuary-February199271BALANCEDSCORECARDThinkofthebalancedscorecardasthedialsandindicatorsinanairplanecockpit.Forthecomplextaskofnavigatingandflyinganairplane,pilotsneeddetailedinformationaboutmanyaspectsoftheflight.Theyneedinformationonfuel,airspeed,alti-tude,bearing,destination,andotherindicatorsthatsummarizethecurrentandpredictedenvironment.Relianceononeinstrumentcanbefatal.Similarly,thecomplexityofmanaginganorganizationtodayrequiresthatmanagersbeabletoviewperformanceinseveralareassimultaneously.Thebalancedscorecardallowsmanagerstolookatthebusinessfromfourimportantperspectives.(SeetheexhibitTheBalancedScorecardLinksPer-formanceMeasures.)Itprovidesanswerstofourbasicquestions:DHowdocustomersseeus?(customerperspective)nWhatmustweexcelat?(internalperspective)DCanwecontinuetoimproveandcreatevalue?(innovationandlearningperspective)DHowdowelooktoshareholders?(financialper-spective)Whilegivingseniormanagersinformationfromfourdifferentperspectives,thebalancedscorecardminimizesinformationoverloadbylimitingthenumberofmeasuresused.CompaniesrarelysufferTheBalancedScorecardLinksPerformanceMeasuresHowDoCustomersSeeUs?FinancialPerspectiveGOALSMEASURESHowDoWeLooktoShoreholders?WtiatMustWeExcelAt?CustomerPerspectiveGOALSMEASURESInternalBusinessPerspectiveGOALSMEASURESInnovationandLearningPerspectiveGOALSMEASURESCanWeContinuetoImproveandCreateValue?72HARVARDBUSINESSREVIEWJanuary-February1992fromhavingtoofewmeasures.Morecommonly,theykeepaddingnewmeasureswheneveranem-ployeeoraconsultantmakesaworthwhilesugges-tion.Onemanagerdescrihedtheproliferationofnewmeasuresathiscompanyasitskillanothertreeprogram.Thehalancedscorecardforcesman-agerstofocusonthehandfulofmeasuresthataremostcritical.Severalcompanieshavealreadyadoptedthehal-ancedscorecard.Theirearlyexperiencesusingthescorecardhavedemonstratedthatitmeetsseveralmanagerialneeds.First,thescorecardbringstogeth-er,inasinglemanagementreport,manyoftheseeminglydisparateelementsofacompany'scom-petitiveagenda:becomingcustomeroriented,short-eningresponsetime,improvingquality,emphasiz-ingteamwork,reducingnewproductlaunchtimes,andmanagingforthelongterm.Second,thescorecardguardsagainstsuboptimiza-tion.Byforcingseniormanagerstoconsideralltheimportantoperationalmeasurestogether,thebal-ancedscorecardletsthemseewhetherimprovementinoneareamayhavebeenachievedattheexpenseofanother.Eventhebestobjectivecanbeachievedbad-ly.Companiescanreducetimetomarket,forex-ample,intwoverydifferentways:byimprovingthemanagementofnewproductintroductionsorbyre-leasingonlyproductsthatareincrementallydiffer-entfromexistingproducts.Spendingonsetupscanbecuteitherbyreducingsetuptimesorbyincreas-ingbatchsizes.Similarly,productionoutputandfirst-passyieldscanrise,buttheincreasesmaybeduetoashiftintheproductmixtomorestandard,easy-to-producebutlower-mar