Balanced Scorecard
© 2001 American Accounting Association
Accounting Horizons
Vol. 15 No. 2
June 2001 pp. 147–160
COMMENTARY
Transforming the Balanced Scorecard from Performance Measurement to
Strategic Management: Part II
Robert S. Kaplan and David P. Norton
Robert S. Kaplan is a Professor at Harvard University and David P.
Norton is founder and president of the Balanced Scorecard Collaborative in Lincoln, Massachusetts.
In a previous paper (Kaplan and Norton 2001b), we described the role for strategy maps and Balanced Scorecards to develop performance objectives and measures linked to strategy. With this paper, we show how organizations use their scorecards to align key management processes and systems to the strategy. We also discuss the relationship of the Balanced Scorecard (BSC) to other financial and cost measurement initiatives, such as shareholder value metrics and activity-based costing, and quality programs. We conclude with suggestions about opportunities for additional research on measurement and management systems.
THE FIVE PRINCIPLES OF A STRATEGY-FOCUSED ORGANIZATION
When asked to describe how the Balanced Scorecard helped them achieve breakthrough performance, executives of adopting organizations continually referred to two words: alignment and focus (Kaplan and Norton 2001a, Chapter 1). Although each organization achieved strategic alignment and focus in different ways, at different paces and in different sequences, each eventually used a common set of five principles, which we refer to as the Principles of a Strategy-Focused Organization, portrayed in Figure 1.
Principle #1: Translate the Strategy to Operational Terms
Organizations translate their strategy into the logical architecture of a strategy map and Balanced Scorecard to specify in detail the critical elements for their growth strategies (Kaplan and Norton 2001b). These create a common and understandable point of reference for all organizational units and employees.
Principle
Accounting Horizons
Vol. 15 No. 2
June 2001 pp. 147–160
COMMENTARY
Transforming the Balanced Scorecard from Performance Measurement to
Strategic Management: Part II
Robert S. Kaplan and David P. Norton
Robert S. Kaplan is a Professor at Harvard University and David P.
Norton is founder and president of the Balanced Scorecard Collaborative in Lincoln, Massachusetts.
In a previous paper (Kaplan and Norton 2001b), we described the role for strategy maps and Balanced Scorecards to develop performance objectives and measures linked to strategy. With this paper, we show how organizations use their scorecards to align key management processes and systems to the strategy. We also discuss the relationship of the Balanced Scorecard (BSC) to other financial and cost measurement initiatives, such as shareholder value metrics and activity-based costing, and quality programs. We conclude with suggestions about opportunities for additional research on measurement and management systems.
THE FIVE PRINCIPLES OF A STRATEGY-FOCUSED ORGANIZATION
When asked to describe how the Balanced Scorecard helped them achieve breakthrough performance, executives of adopting organizations continually referred to two words: alignment and focus (Kaplan and Norton 2001a, Chapter 1). Although each organization achieved strategic alignment and focus in different ways, at different paces and in different sequences, each eventually used a common set of five principles, which we refer to as the Principles of a Strategy-Focused Organization, portrayed in Figure 1.
Principle #1: Translate the Strategy to Operational Terms
Organizations translate their strategy into the logical architecture of a strategy map and Balanced Scorecard to specify in detail the critical elements for their growth strategies (Kaplan and Norton 2001b). These create a common and understandable point of reference for all organizational units and employees.
Principle
References: Banker, R., G. Potter, and D. Srinivasan. 2000. An empirical investigation of an incentive plan that includes nonfinancial performance measures Drucker, P. 1954. The Practice of Management. New York, NY: HarperBusiness. Hamel, G. 2000. Leading the Revolution. Boston, MA: HBS Press. Ittner, C., and D. Larcker. 1998. Are nonfinancial measures leading indicators of financial performance? An analysis of customer satisfaction. Journal of Accounting Research: 1–35. Kaplan, R. S., and A. A. Atkinson. 1998. Advanced Management Accounting. Third edition. Upper Saddle River, NJ: Prentice Hall. ———, and R. Cooper. 1998. Cost & Effect: Using Integrated Cost Systems to Drive Profitability and Performance ———, and D. P. Norton. 2001a. The Strategy-Focused Organization. Boston, MA: Harvard Business School Press. ———, and ———. 2001b. Transforming the balanced scorecard from performance measurement to strategic management: Part I. Accounting Horizons (March): 87–104. Kotter, J. 1996. Leading Change. Boston, MA: HBS Press. Lipe, M., and S. Salterio. 2000. The balanced scorecard: Judgmental effects of common and unique performance measures Mercer, William M. & Co. 1999. Rewarding employees: Balanced scorecard fax-back survey results Mintzberg, H. 1987. Crafting strategy. Harvard Business Review (July-August). Myers, R. 1996. Metric wars. CFO Magazine (October). ———. 1997. Measure for measure. CFO Magazine (November). Simons, R. 1995. Levers of Control. Boston, MA: HBS Press. ———. 2000. Performance Measurement & Control Systems for Implementing Strategy. Upper Saddle River, NJ: Prentice Hall. Swain M., K. Krumwiede, and T. Eaton. 1999. Effects of balanced scorecard performance measures on decision process and decision quality. Working paper, Brigham Young University.