The Balanced Scorecard – Measures that Drive Performance
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Executives know that a company's measurement systems strongly affect employee behavior. But the traditional financial performance measures that worked for the industrial era are out of sync with the skills organizations are trying to master. Frustrated by these inadequacies, some managers have abandoned financial measures like return on equity and earnings per share. "Make operational improvements, and the numbers will follow," the argument goes. But managers want a balanced presentation of measures that allow them to view the company from several perspectives at once. In this classic article from January 1992, authors Robert Kaplan and David Norton propose an innovative solution. During a year-long research project with 12 companies at the leading edge of performance management, the authors developed a "Balanced Scorecard," a new performance measurement system that gives top managers a fast but comprehensive view of their business. The Balanced Scorecard includes financial measures that tell the results of actions already taken. And it complements those financial measures with three sets of operational measures related to customer satisfaction, internal processes, and the organization's ability to learn and improve--the activities that drive future financial performance. The Balanced Scorecard helps managers look at their businesses from four essential perspectives and answer some important questions: How do customers see us? What must we excel at? Can we continue to improve and create value? How do we appear to shareholders? By looking at all of these parameters, managers can determine whether improvements in one area have come at the expense of another. Armed with that knowledge, the authors say, executives can glean a complete picture of where the company stands--and where it's headed.