Balanced Score Card Review

The Balanced Scorecard-Measures that Drive Performance

Robert S. Caplan and David P. Norton

Introduction

In the January-February 1992 Issue of the Harvard Business Review, Robert Caplan and David Norton revealed the results of a years’ worth of research using 12 companies at the leading edge of performance as the test subjects. The theory behind the initial research was to see what company’s were currently using as key performance measurements (KPI’s) and identify flaws in that thinking. The business mindset at the time was based primarily on financial performance. Caplan and Norton theorized that with only a rear looking measurement strategy, business decision makers were not getting the full picture. What was needed was a more balanced overview of a company’s performance.

Traditional management decisions centered on return-on-investment and earnings-per-share have value in the information that they provide, yet do not provide real time status or forward looking projections to allow for long term goal decisions. The purpose of a Balanced Scorecard was to narrow the focus of the information gathered and ultimately measured to provide senior management with up to date information on critical measurements of business performance. The narrowed focus drills down the information to only what is important in making current and foreword looking projections and plans. The challenge was to identify which KPI’s to use in making the Balanced Score Card.

Summary

There are many factors that have an effect on the success of a business regardless of product or underlying industry. One of the main objectives of management is to review performance in the quest to improve upon successes and fix or eliminate underperformance. The aim of the Balanced Score card is not to suggest that companies have not been performing these functions but instead clear up the background noise. Benchmarking and performance matrix’s have always existed in a managers tool box, yet Kaplan and...