How to gain balance
Companies are yearning for better ways to decide strategy. Roger Trapp treads the path to the wider perspective
Thursday 12 June 1997
Certainly, the approach did encourage organisations to move away from an obsession with such measures as earnings per share and to recognise that such factors as customer service and quality - far from being drains on the finances - could actually enhance profitability. Even accountants acknowledged that there was more to corporate life than finance, and it became accepted that relying excessively on the various financial measures told management only what had happened; it gave no indication of what was coming up, something, after all, that it might hope to influence. It was therefore, in the words of one proponent of the balanced scorecard, "like driving while just looking in the rear-view mirror".
David Norton, who created the balanced scorecard with Robert Kaplan, accounting professor at Harvard Business School, uses another transport metaphor to get across the message. The approach most companies have taken to setting targets and measuring performance is about as inspiring of trust as if the pilot of a jumbo jet announced to passengers that his chief focus during the flight would be to fly at 300mph. Other things, such as fuel consumption and altitude, would be given scant attention.
But having spent the first years coming to terms with what Mr Norton, president of Renaissance Solutions, an international strategy consultancy, and Professor Kaplan call the measurement gap, companies are turning their attention to the two men's other finding: that there was a corporate strategy gap.
Improvement initiatives have a high failure rate, they argue, because, though senior executives often launch such programmes with fine-sounding words, the strategies are often not broken down into measures with which the employees who will have to implement them can identify.
Mr Norton and Professor Kaplan - who have set out their thinking in a book called The Balanced Scorecard, published by Harvard Business School Press, do not claim that they are offering insights into formulating strategy, just help with understanding and checking what has to be done throughout an organisation to ensure that the strategy works. The idea is that the scorecard brings together the various standpoints from which a business can be assessed; the financial, of course, but also the customer's, the human resources in terms of the quality and commitment of the employees and the future perspective, in that it can measure how effectively a company learns, adapts and grows.
Refreshingly, Mr Norton does not claim that the methodology is a "silver bullet" that does away with the need for other approaches. In fact, he claims that it can lead to problems because of companies' "inadequacy of measurement". It is an old adage that what gets measured gets done. Equally, what is easy to measure gets measured - hence the traditional love affair with the financials, since the numbers are easier to come by than, for example, assessments of customer satisfaction.
However, he and his colleagues still claim that following their approach can produce "dramatic results". Research indicates that about 60 per cent of US companies have tried it, and the number of adherents in Europe is growing. Among them are BT, BP Chemicals, the insurance group Skandia, the document company Xerox and the Spanish railway company Renfe.
The realisation that in the late 20th century knowledge is more important than tangible assets, the growing power of pressure groups and the increasing influence of - in one form or another - the concepts of stakeholding and an inclusive approach, are all combining to present business with perhaps its greatest challenge to the ways in which it conducts itself since the Industrial Revolution. Moreover, such trends can be seen as manifestations of the same sort of thinking that lies behind the scorecard. Certainly growing interest in the idea - demonstrated by the fact that Business Intelligence is next week holding a follow-up conference to one addressed by Mr Norton earlier this year - suggests that European companies are falling into line with their US counterparts.
Mr Norton believes that the power of the concept lies in its ability to find the focus of its strategy. Insisting that it can be applied to any large organisations, he says that it helps deal with complexity, "and that's the enemy of the corporation".
Some might find some of the statements in the book - such as that the balanced scorecard "provides managers with the instrumentation they need to navigate to future competitive success" and "translates an organisation's mission and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system" - a little Star Trekish in their "to boldly go" claims. But those looking for ways of responding better to the fast-changing business world could just find Mr Norton and Professor Kaplan - and their scales - of use
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