Understanding Balanced Scorecards

Hi, I'm Jay Gulick, I'm director of BNET.com, and today, I'm going to talk about balanced scorecards. A balanced scorecard is a performance management and measurement system that was created by two really smart guys: Robert Kaplan who was a professor of accountancy at Harvard Business School, and David Norton. And really, balanced scorecard concerns itself with the very fundemental part of business which is strategy. What Kaplan and Norton said was that companies for a long time looked at strategy in a very one-dimensional way. This was something that was one time, per year, and involved a very small group of decision-makers and it looked primarily at the financial metrix of a company. And they said that's fine for companies that were in the industrial age, things were'nt moving as fast, you can look at your assets and say this is what our future value is going to be. But what they said was for companies that were innovating in an economy that's growing as rapidly as ours has been over the last fifteen years, you need to look at things from a more balanced standpoint.

So I'm going to draw a little scale here. It's got four dimensions that Kaplan and Norton talked about. One was the financial, one was customers, another one was the internal business processes of your company, and the final one was L and G, or learning and growth. So essentially the financial perspective was "what are we doing as a company from a profitability and growth standpoint as viewed by our shareholders?" From a customer standpoint, "how do we add value or differentiate our products or services in the marketplace?" Internal business processes, these are the things that as a company we excel at, whether it be a manufacturing process, or rolling out new products. And then finally learning and growth or L and G. What do we do as a company to foster a climate that enables people to be innovative, and create new value for our customers?

What's interesting about balanced scorecard is, it was rolled out in 1992, I think the last data that I saw is that more than half of the Fortune 1000 was using balanced scorecard. It's become clear organizing and a performance and a metric system for many corporations, and it's more relevant today than when it was rolled out in 1992.