The Balanced Scorecard - Harvard Business Review

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19 Oct 201402:41

Summary

TLDRThe transcript discusses the importance of long-term strategic planning in business, emphasizing that financial metrics alone can be limiting. It introduces the Balanced Scorecard, a management tool developed by Harvard Business School Professor Robert S. Kaplan and consultant David P. Norton. This tool assesses a company's health through four perspectives: financial, customer, internal, and learning and growth. A semiconductor company's case study illustrates how setting goals and metrics for each perspective can lead to innovation, improved customer satisfaction, and ultimately, better shareholder returns, highlighting the significance of the Balanced Scorecard's order in driving long-term success.

Takeaways

🤔 The critical question for managers is understanding how today's decisions will impact the business tomorrow.
📈 Traditional financial metrics might emphasize short-term gains, which could be detrimental to long-term success.
📊 The Balanced Scorecard, developed by Robert S. Kaplan and David P. Norton, offers a more holistic approach to business management.
💹 The Balanced Scorecard includes four perspectives: financial, customer, internal, and learning and growth.
💼 The financial perspective assesses whether the company is meeting shareholder expectations.
👥 The customer perspective measures customer satisfaction and the company's ability to deliver desired products and services.
🏭 The internal perspective evaluates the company's operational efficiency and effectiveness in meeting customer needs.
💡 The learning and growth perspective focuses on the company's capacity for innovation and continuous improvement.
🔍 An early adopter of the Balanced Scorecard, a semiconductor company, used it to set and measure goals across all four perspectives.
📈 For the semiconductor company, focusing on learning and innovation improved competencies, processes, customer satisfaction, and shareholder returns.
🔑 The order of the Balanced Scorecard matters, as it reveals the drivers of long-term success when used correctly.

Q & A

What is the key question a manager should ask to ensure the success of their business tomorrow?
-The key question a manager should ask is how the decisions made today will affect their business tomorrow.
Why do financial metrics alone not provide a complete picture for long-term business success?
-Financial metrics can overemphasize short-term gains and do not fully account for the factors necessary for long-term success.
Who developed the Balanced Scorecard and what was its purpose?
-The Balanced Scorecard was developed by Harvard Business School Professor Robert S. Kaplan and consultant David P. Norton to provide a more balanced view of a company's health beyond just financial metrics.
How many perspectives does the Balanced Scorecard use to measure a company's health?
-The Balanced Scorecard uses four perspectives to measure a company's health.
What are the four perspectives used in the Balanced Scorecard?
-The four perspectives are the financial perspective, customer perspective, internal perspective, and learning and growth perspective.
What are the financial goals of a company according to the Balanced Scorecard?
-The financial goals of a company are to survive, succeed, and prosper, as measured by cash flow, quarterly sales growth, market share, and return on investment.
How does a company measure its success in terms of customer perspective?
-A company measures its success in the customer perspective by looking at the percentage of sales from new products, on-time delivery rates, and popularity with key customers.
What are the internal goals of a company as per the Balanced Scorecard?
-Internal goals of a company include excellent manufacturing, producing new designs, and introducing new products, with operational measures developed for each goal.
What does the learning and growth perspective focus on in the context of the Balanced Scorecard?
-The learning and growth perspective focuses on developing new products rather than improving existing ones, which leads to better competencies and processes, boosting customer satisfaction and shareholder returns.
Why is the order of the Balanced Scorecard important for a company?
-The order of the Balanced Scorecard matters because it reveals the real drivers of long-term success, showing how improvements in learning and innovation can lead to better customer satisfaction and ultimately better shareholder returns.
Can you provide an example of a company that has successfully implemented the Balanced Scorecard?
-An example of a company that has successfully implemented the Balanced Scorecard is a semiconductor company that focused on developing innovative tailored products, getting them to market faster, and becoming a supplier of choice.

Outlines

00:00

📈 The Balanced Scorecard Approach

This paragraph introduces the concept of the Balanced Scorecard, a strategic planning and management tool developed by Robert S. Kaplan and David P. Norton. It emphasizes the importance of looking beyond financial metrics to include customer, internal, and learning and growth perspectives for long-term business success. The scorecard is designed to help managers make decisions that will positively impact the company's future by considering a more holistic view of performance.

Mindmap

Keywords

💡Managerial Decisions

Managerial decisions refer to the choices made by managers that can significantly impact a business's future. In the video, it is emphasized that these decisions should not only focus on short-term gains but also consider long-term sustainability and growth. The script highlights that managers often rely on financial metrics, which might overemphasize short-term outcomes, thus the need for a more balanced view.

💡Financial Metrics

Financial metrics are quantitative measures used to assess a company's financial performance. The video script mentions that these metrics can sometimes overemphasize the short term, which might not be indicative of long-term success. They include measures like cash flow, quarterly sales growth, market share, and return on investment, which are used by the semiconductor company in the example provided.

💡Balanced View

A balanced view in the context of the video refers to considering multiple perspectives beyond just financial metrics to make informed decisions. It is crucial for long-term success and involves looking at customer satisfaction, internal processes, and learning and growth opportunities. The video suggests that this approach leads to a more holistic understanding of a company's health.

💡Balanced Scorecard

The Balanced Scorecard is a strategic planning and management tool developed by Robert S. Kaplan and David P. Norton. It is mentioned in the video as a method to measure a company's health from four different perspectives. It is a way to translate an organization's vision and strategy into a comprehensive set of performance measures.

💡Financial Perspective

The financial perspective in the Balanced Scorecard focuses on how well a company is doing in terms of its shareholders. It includes goals like survival, success, and prosperity, and metrics such as cash flow and return on investment. The video uses the example of a semiconductor company that sets financial goals and measures them using these metrics.

💡Customer Perspective

The customer perspective within the Balanced Scorecard is about understanding how customers perceive the company's products and services. It involves goals like developing innovative products, improving time to market, and becoming a preferred supplier. The video script illustrates this with the semiconductor company's customer goals and how they measure success through metrics like on-time delivery rates.

💡Internal Perspective

The internal perspective of the Balanced Scorecard looks at the internal processes that are critical to customer satisfaction and operational efficiency. The video mentions goals such as excellent manufacturing, producing new designs, and introducing new products. The company in the script develops operational measures for each of these internal goals.

💡Learning and Growth Perspective

The learning and growth perspective is about a company's ability to continuously improve and create value. It is the foundation for achieving the objectives in the other three perspectives. The video script explains that the semiconductor company chose to focus on developing new products rather than improving existing ones, which led to better competencies and processes.

💡Innovation

Innovation in the video script is linked to the customer perspective and learning and growth perspective. It is about creating new products and services that meet customer needs and drive the company forward. The semiconductor company's goal to develop innovative tailored products is an example of innovation aimed at enhancing customer satisfaction and market competitiveness.

💡Competencies and Processes

Competencies and processes refer to the skills and systems that a company uses to operate effectively. In the video, it is mentioned that learning and innovation lead to better competencies and processes, which in turn boost customer satisfaction and shareholder returns. This highlights the importance of continuous improvement in business operations.

💡Long-term Success

Long-term success in the video is depicted as the ultimate goal of using the Balanced Scorecard correctly. It is about understanding that the order of the perspectives in the scorecard matters and that focusing on learning and growth can drive improvements in internal processes, customer satisfaction, and ultimately, financial performance.

Highlights

The importance of considering long-term effects in managerial decisions.

Financial metrics can overemphasize short-term outcomes.

Introduction of the Balanced Scorecard by Robert S. Kaplan and David P. Norton.

Four perspectives used by the Balanced Scorecard to measure company health.

The financial perspective as the first dimension of the Balanced Scorecard.

Customer perspective as the second dimension, focusing on product and service satisfaction.

Internal perspective as the third dimension, emphasizing operational efficiency.

Learning and growth perspective as the fourth dimension, crucial for continuous improvement.

The necessity of listing both goals and metrics for each perspective.

Case study of a semiconductor company as an early adopter of the Balanced Scorecard.

Financial goals of the semiconductor company included survival, success, and prosperity.

Customer goals focused on innovation, faster market delivery, and becoming a preferred supplier.

Internal goals prioritized manufacturing excellence and new product introductions.

Learning and growth goals centered on developing new products over improving existing ones.

The semiconductor company's discovery that learning and innovation improve competencies and processes.

Link between improved competencies, customer satisfaction, and shareholder returns.

The significance of the Balanced Scorecard's order in driving long-term success.