Metrics
Balanced Scorecard

Economist writes about Robert Kaplan and the Balanced Scorecard approach to business metrics

Burgess COMMENTARY
My impression of the 'Balanced Scorecard' idea is that it is a tool that has the objective of improving the performance of the organization using the scorecard ... period. If you are the organization this is good for the health of the organization, but if you are the community, or the environment, you may or may not benefit from what the scorecard is measuring. There is a question of 'perspective' in metrics, and in the 'Balanced Scorecard' the perspective is that of the organization.

As I see it, some of the same issue is present in the concept of 'Shared Value' articulated by Michael Porter. The idea is that thinking in terms of 'Shared Value' results in better corporate performance, that is better outcomes for investors. The way of thinking about 'how to make a profit' is being changed, but the fundamental idea that corporate profit is the primary goal and other key metrics are merely a way of 'getting there'!

I think it is fair to say, that a market works and delivers an useful 'equilibrium' when several issues are in 'tension'. The modern markets have so much 'oligopoly' in the pursuit of corporate performance relative to the powerlessness of community performance and environmental performance. This is made worse by ideas like the use of GDP as a proxy for the health of the economy, and having essentially no measure of the use of resources (from the planet perspective) and damage to the environment.

A truly 'Balanced Scorecard' would be one that took the parameters of performance, and put them into all the segments of the economy and society, rather than just having the scorecardd
Peter Burgess

Balanced scorecard

Robert Kaplan seems to come up with one big idea per decade. In the 1980s it was activity-based costing; in the 1990s it was the balanced scorecard.

The idea was first set out in an article that Kaplan wrote in 1992 for Harvard Business Review, along with David Norton, president of a consulting firm. The article, entitled “The Balanced Scorecard—Measures that Drive Performance”, began with the principle that what you measure is what you get. Or, as the great 19th century English physicist Lord Kelvin put it: “If you cannot measure it, you cannot improve it.”

If you measure only financial performance, then you can hope only for improvement in financial performance. If you take a wider view, and measure things from other perspectives, then (and only then) do you stand a chance of achieving goals other than purely financial ones.

In particular, Kaplan and Norton suggested that companies should consider the following:

• • The customer's perspective. How does the customer see the organisation, and what should the organisation do to remain that customer's valued supplier?
• • The company's internal perspective. What are the internal processes that the company must improve if it is to achieve its objectives vis-à-vis customers, shareholders and others?
• • Innovation and improvement. How can the company continue to improve and to create value in the future? What should it be measuring to make this happen?

Kaplan and Norton saw the benefits of the balanced scorecard as follows:

• • It helps companies to focus on what needs to be done to create a “breakthrough performance”.
• • It acts as an integrating device for a variety of often disconnected corporate programmes, such as quality, re-engineering, process redesign and customer service.
• • It translates strategy into performance measures and targets.
• • It helps break down corporate-wide measures so that local managers and employees can see what they need to do to improve organisational effectiveness.
• • It provides a comprehensive view that overturns the traditional idea of the organisation as a collection of isolated, independent functions and departments.