Education

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Theory In Action
The Balanced ScoreCard
Robert Kaplan and David Norton point out that a firm’s methods of
measuring performance will strongly influence whether and how the
firm pur- sues its strategic objectives. the “balanced score- card,” that
they argue can motivate breakthrough improvements in product,
process, customer, and market development. The Balanced ScoreCard
emphasizes four perspectives the firm should take in formulating goals
that target critical success factors and in defining measures:

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Theory In Action
The Balanced ScoreCard
1. Financial perspective. Goals might include such things as “meet shareholder’s
expectations” or “double our corporate value in seven years.” Measures might include
return on capital, net cash flow, and earnings growth.
2. Customer perspective. Goals might be to “improve customer loyalty,” “offer best-in-
class customer service,” or “increase customer satis- faction.” Measures might include
market share, percentage of repeat purchases, customer satis- faction surveys, and so
on.
3. Internal perspective. Goals might include such things as “reduce internal safety
incidents,” “build best-in-class franchise teams,” or “improve inventory Management.
4. Innovation and learning perspective. Goals might include such things as “accelerate
and improve new product development” or “improve employee skills.”

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Theory In Action
Kaplan and Norton acknowledge that the bal- anced scorecard model
often has to be adapted to fit different markets and businesses, but
many firms (including IBM, Philips Electronics, Apple, and Advanced
Micro Electronics) in many different indus- tries (including electronics,
petrochemicals, and health care) are finding the balanced scorecard
useful.b In fact, a 2002 survey by Bain & Company found that
approximately 50 percent of Fortune 1,000 compa- nies in the United
States and 40 percent in Europe use some version of the balanced
scorecard.

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Figure The Balanced
ScoreCard
Source: Reprinted by permission of
Harvard Business Review. Exhibit from
“Putting the Balanced Scorecard to
Work,” by R. Kaplan and D. Norton,
September–October 1993. Copyright ©
1993 by the Harvard Business School
Publishing Corporation; all rights
reserved.

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Summary Of
Chapter
The balanced scorecard is a measurement system that encourages the
firm to con- sider its goals from multiple perspectives (financial,
customer, business process, and innovation and learning), and
establish measures that correspond to each of those perspectives.