Book Review

The Balanced Scorecard

By Robert Kaplan and David Norton

Reviewed by Steve Buchwald, CIRM

This month's book review is on an extremely important book entitled "The Balanced Scorecard," written by Robert Kaplan and David Norton. It can be ordered from APICS using catalog # 03625. The reason this book is so important is because it shows how to systemically translate strategy into action. If you've been reading my book reviews over the last few years, you will see that there is a trend in my analysis. I believe that a company can't begin to transform itself into a better more efficient enterprise until it undergoes a rigorous analysis of who it is, where it is going, and where it should be going. "The Balanced Scorecard" starts with that same assumption.

In doing this analysis a company will be better able to form its strategy and then create a performance measurement system around that strategy that everyone will understand and support. The authors have created more than a measurement system. They have combined the ideas of Steve Covey, Michael Hammer, Peter Senge, Eli Goldratt, Robin Cooper, as well as their own and many others, to create a management system.

The authors demonstrate how senior managers in diverse industries are using the Balanced Scorecard both to guide current performance and to target future performance. They show how to use measures in four perspectives-financial, customer, internal business processes, and learning and growth-to align individual, organizational, and cross departmental initiatives. However, let me emphasize again that the authors believe that in order to align initiatives and drive behavior toward the same ends that the organization must start with a realistic objective and strategy. They say this early, often, and in many different ways throughout this book. Examples are shown below:

Altogether, the Balanced Scorecard translates vision and strategy into objectives and measures across a balanced set of perspectives. The scorecard includes measures of desired outcomes as well as processes that will drive the desired outcomes for the future.

Our experience is that the best "Balanced Scorecards" are more than a collection of critical indictors of key success factors. The multiple measures on a properly constructed Balanced Scorecard should consist of a linked series of objectives and measures that are both consistent and mutually reinforcing

Managers in several organizations have noted that when they were evaluated solely on short-term financial performance, they often found it difficult to sustain investments to enhance the capability of their people, systems, and organizational processes.

The scorecard creates a holistic model of the strategy that allows all employees to see how they contribute to organizational success. Without such linkage, individuals and departments can optimize their local performance but not contribute to achieving strategic objectives.

The Balanced Scorecard replaces the "budget only manage the bottom line to pump up short-term earnings" style that permeates all too many companies with a management system that provides a framework for companies to invest in the long term, in customers, in employees, in new product development, and in systems. Because of the multi perspective nature of the scorecard it is not altogether unheard of to have as many as 25 strategically linked measures or more. For a business as usual view this will seem like too many measures but the authors address this issue on page 162 in a section comparing strategic and diagnostic measures.

The book is full of stories of how companies have applied the process to dramatically change the way they measure and manage their business. At the same time, it is it is a complete book, addressing the positives as well as the negatives. For example, the process is not an easy one and will take a great deal of rigor and dedication. The authors addressed this in a section entitled Some Cautions: it's not as simple as it seems, beginning on page 284. In addition, the authors reveal how to use the Balanced Scorecard as a robust learning system for testing, gaining feedback on, and updating the organization's strategy. The book ends with an appendix that walks through the steps that managers in any company can use to build their own Balanced Scorecard.