The Balanced Scorecard - Harvard Business Review

Summary

The 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.