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Under fair use guidelines (section 107) each student us authorized to make a single copy of reserve materials as long as the reproduction is not “ used for any purpose other than private study, scholarship, or research”.lular Building a scorecard can help managers link today’s! actions with tomorrow’s goals. | by Robert S, Kaplan and David P. Norton As companies around the world transform them- selves for competition that is based on informa- | tion, their ability to exploit intangible assets has be- come far more decisive than their ability to invest in and manage physical assets. Several years ago, irr recognition of this change, we introduced a con. [cept we called the balanced scorecard. The balanced scorecard supplemented traditional financial mea- sures with criteria that measured performance from three additional perspectives ~ those of cus- [) tomers, intermal business processes, and beaming and growth, (See the chart “Translating Vision ' Strategy: Four Perspectives.”| It therefore enabled ,, companies to track financial results while simulta | neously monitoring progress in building the capa- |) bilities and acquiring the intangible assets they | would need for future growth. The scorecard wasn’t [a replacement for financial measures; it was their complement. Recently, we have seen some companies move : beyond our early vision for the scorecard to dis- cover its value as the cornerstone of a new strategic |’ management system. Used this way, the scorecard _ addresses a scrious deficiency in traditional man- [| agement systems: their inability to link a compa- } | ny’s long-term strategy with its short-term actions, Most companies’ operational and management ' control systems are built around financial mea- sures and targets, which bear little relation to the i HARVARD BUSINESS REVIEW January-Febroary 1996 | Using the Balanced Scorecard as a Strategic Management System company's progress in achieving long-term strate tuic objectives. Thus the emphasis most éompanies place on short-term financial measures I¢aves a gap between the development of a strategy dnd its im plementation, ‘Managers using the balanced scorecard do not have to rely on short-term financial mbasures as the sole indicators of the company's performance. ‘The scorecard lets them introduce four hew man- agement processes that, separately and ir] combina tion, contsibure to linking long-term stéaegie ob jectives with short-term actions. (Seegthe chart "Managing Strategy: Four Processes.”| The first new process ~ translating tHe vision - helps managers build a consensus around the orga- nization’s vision and strategy. Despite the best in- tentions of those at the top, lofty statements about becoming “best in class,” “the number one supplier,” Robert S. Kaplan is the Arthur Lowes Dickinson Profes- sor of Accounting at the Harvard Business School in Boston, Massachusetts. David P. Norton is the founder and president of Renaissance Solutions, a consulting firma in Lincoln, Massachusetts. They are thé authors of “The Balanced Scorecard ~ Measures That Drive Perfor mance" (HBR January-February 1992) and “Putting the Balanced Scorecard to Work” (HBR September-October 1993). Kaplan and Norton have also written a book on the balanced scorecard to be published in September 1996 by the Harvard Business School Press, 8 ndere meena unineme deere eons uoneminaaatee ea meant ha | {"[rdnslating Vision and Strategy: Four Perspectives BALANCED SCORECARD < [Terma Business Procoss =] IYounly ou [Chace Ness las — ie |denilie lade, | leh bins | a or an “tmpowered organization” don’t translate easily ihto operational terms that provide useful guides th ation atthe local level For people to act fon the words in vision and strategy statements, those statements must be expressed as an inte- grated set of objectives and measures, agreed upon by all senior executives, that describe the long- term drivers of success The second process ~ communicating and link. jing lets managers communicate their strategy up | Lofty vision and strategy statements don’t translate easily into action at the local level. and down the organization and link it to depart- mental pnd individual objectives. Traditionally, de- | partmeyts are evaluated by their financial perfor- 76 mance, and individual incentives are tied to short- term financial goals. The scorecard gives managers } a way of ensuring that all levels of the organization understand the long-term strategy and that both de- partmental and individual objectives are aligned | with it ' The third process - business planning - enables | ‘companies to integrate their business and financial plans. Almost all organizations today are imple: mentinga variety of change programs, each with its | ‘own champions, gurus, and eonsul- | I tants, and each competing for senior executives’ time, energy, and te- sources. Managers find it difficult to integrate those diverse initiatives to achieve their strategic goals—a situa tion that leads to frequent disag- pointments with the programs’ re- | sults But when managers use the ambitious goals set for balanced scorecard mea- sures as the basis for allocating resources and set: ting priorities, they can undertake and coordinate HARVARD BUSINESS REVIEW January-February 1936 ‘only tho long-ters The f sives cor tegic lea cesses fc ments, ¢ budgetec ard att company three adi business evaluate mance. ° modify s None have stur mented 1 tention c system. | covered fF and thus processe {ing, bus gicinitia ly, those directed ing the s process ¢ well bey simply b performa For ex company Insuranci anced sc vision fo ing speci started tc lowed tk manager roduce a ganizatic the comy tem. The employee the whol tional we balanced ophy thai age the bu ‘Nation manage y over 305 represent HARVARD B