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LEADING W
e thought we were making an advance in
performance measurement systems in
1992 when we introduced the Balanced
Scorccard. We quickly learned, however,
that measurement has consequences far beyond

CHANGE w i t h
reporting on the past. Measurement creates focus for
the future and communicates Important nie,s.sage.s to
all organizational units and employees. TJ take full
advantage of this power, companies integrate their
new measures into a mayia^ement system.
A successful Balanced Scorecard (BSC) program
should be a change project, not a "metrics" project.
Initially the focus is on mobilization and creating

The Balanced momentum to get the proce.ss launched. Executives

u.se the BSC to communicate a vision for perform-
ance that is dramatically better than the present. The
focus then shifts to governance, with emphasis on

Scorecard team-based approaches to deal with the transition to

a new performance mtKlel.
Gradually, a new system evolves, a stralc^ic nuui-
agcment system, which in.stitutionalizes the new cul-
r tural values and staictures. The executive team links
traditional processes - like compensation, butlgeling
and resource allocation - to a BSC that describes the
strategy. The management system wires eveiy part of
ihe organizati(tn to the strategy .scorecard.

Measurements to Coiiiiniinicatc Change

;essfui
should be a change project, not a "metrics'
project. The executive leadership that creates
the BSC becomes the guiding coalition for
driving change in the organization.
By Robert S. Kaplan and David P. Norton
Adapting an organizaiion's measurement system to
the change agenda is critical for achievement. Steve
Kerr, in a famous 1975 article entitled, "On the Folly
of Rewarding A. Whiif Hoping for B." described how
management espoused its desire for long-term
giowth but rewarded quarterly earnings perforiTumce.
Its not surprising that managers delivered quarterly
earnings performance, but did not invest for long-
term growth. Managers measured and evaluated hy
short-term financial measure.s will manage to those
measures and likely short-change new initiatives for
growth, customer-focus, innovation and employee
empowerment.
Executives who adopt the BSC for their new strate-
gies understand the need for a new measurement
framework and see it as a powerful tool for driving
change initiatives. The executive leadership that cr-
ales the BSC becomes the guiding coalition for driving
change in the organization. The process of building
the scorecard build.s both the team and its commit-
ment to the strategy. The scorecard makes the vision
and the strategy' operational. Words do not sufficiently
commimicate change initiatives, since the same words
mean different things to different people. It's when
word statements are translated into measures that
everyone in the leadership team understands clearly
what die vision and tlie strategy are a

6 4 FINANCIAL EXECUTIVE September 2001

 Bul strategy cannot he imple-
mcnifd hy the senior lecrship
team aione. Implementation retiiiire.s
I he active contributions of everyone
in the organization. For the new
.strategy lo triiiiiiph. it has to move
from the boardroom to the buck
room and lo the front lines of daily
operations and customers.
Those who adopt the Balanced
Scorecard have strategies that
include a .strong growtli component.
They don't want to increase profits
simply by cutting costs, downsizing
and eliminating unprofitable busi-
ness units; cost and productivity
improvements typically deliver only
the sliort-ierni component of the
strategy. The executives also wish to
improve profitability king-term
through expanding revenues.
It's not hard to build a business
plan on a spreadsheet to meet speci-
fied growth objectives; the hard pan
is identifying how the assumed
growth rate will be achieved. The
BSC helps an organization specify in
detail the critical elements for its
growth strategies: targeted customers
for profitable growth; the value
prpositions that lead customers to
do more business and at higher mar-
gins with the company; innovation
in products, services and processes;
and investments in people and sys-
tems to enhance processes and
tieliver differentiated value proposi-
tions for growth.
Building Executive Teams
The dynamics of the executive lead-
ership team frequently determines
whether the BSC can be siistainetl st)
that the strategy can be executed as
planned. Most executive teams con-
sist of functional specialists, each
with intense specialist knowledge,
who have surprisingly little aware-
ness of how other functions w<5rk.
To ensure success, organizations
must transform their collections of
ftiiutional speciali.st.s into cross func-
tiijnal, problem-solving teams.
At Mobi! North American Market-
ing & liefining, now pait of Exxon-
Mobil Corp.. the finance and the
operations tiisciplines dominated the
executive team. Brian Baker, then
Mobil NAM&R's CEO, remarked: "We
were a company with a lot of engi-
neers analytical people and
pretty introspective. We hatln t
looked outside the business at the
custmer, and we hadn t understood
the importance of the customer."
As the senior managers tried to
become consumer-driven and sell
products other than petroleum, they
had to elevate the marketing execu-
tive s role. Five years later, every
executive understood the nuances of
the market segments, how Mobil dif-
ferentiated itself and the drivers of
consumer behavior. The cultural
transformation occurred by putting
the customer on the agenda and get-
ting an intelligent spokesman to help
bring the rest of the team along.
The creation of the shared vision
Lind strategy is an effective way to
build an executive leadership team
from a collection of functional and
individual business unit heads. And,
the framework of the BSC provides a
structured way for the team to work
together with a tremendous cratic. top-d(jwn company with peo-
amount of cross-fertilization taking
place as each element of die strategy
becomes translated into the score-
card format.
Strategic issues surrounding cus-
J BSC focuses the
management meeting
agenda on strategic
issues, teamwork and
learning. Traditionally,
management meetings
focused only on financial
measures and tactics.
tomer segments, operations, cost of
capital, information technology- anti
human resources become the shared
issues of the executive team; histori-
cally, each of tliL'Sf issues has been
considered the domain of a single
functional executive.
The BSC strategic management
system works best when ils used to
communicate vision and strategy,
not to control the actions of subordi-
nates. This use is paradoxical to
those who think that measurement is
a control tool, not a communication
tool. Excellent leaders recognize that
the biggest challenge they face in
implementing change and new
strategies is getting alignment
throughout the organization.
Cigna Property & Casualty s then-
CEO Gerry Isom expressed this
dilemma: "How do you get 6,000
people's minds aligned to the strate-
gy? How do you get the functions
people are performing aligned with
the businesses they were .supporting?
The BSC lecame my key communi-
cation vehicle for reporting, plan-
ning and budgeting processes. It
shifted us from a bureaucratic, auto-
ple working within organizational
silos, to one that was streamlined
and participatory, had top-down and
bottom-up commimication and [one!
with people that worked across
organizational boimdaries."
From Tactics to Strategy
Strategy-focu.setl organizations use a
new kind of reporting and feedback
process. The BSC focuses the man-
agement meeting agenda on strate-
gic issues, teamwork and learning.
Traditionally, management meetings
focused only on financial measures
and tactics. The BSC expands this
process by having the meetings
report and discuss all the measures
relevant to the strategy plus the ini-
tiatives designed to Improve meas-
ured performance. This agenda
focuses attention on the strategy and
klenlitles the management and orga-
nizational actions required to get
September 2001 FINANCIAL EXECUTtVE 6 5
performanLc back (in track, or tti
adapt the strategy to changing
oppoiiLinitie.s iind threats
Yet the proiocols lor many man-
agement meetings are all too familiar.
AT&T Canalla s President IHill Catucci
said, 'People told you what they did
last month and what they were going
to do next month. It was show-and-
tell with no focus. Operational
reviews and discussions of tactical
issues dominate the typical meeting.
Little time is left for strategic issues."
Catucci scheduled a new mtinthly
Strategic Management meeting one
year in advance, making attendance
compulsory for himself and the eight
business unit heads. He added, "'How
you conduct the meeting, land] how
you react to the reported numbers, is
tremendously important. In the past,
the person reporting an unfavorable
number wa.s lonely and isolated.
Now, I want people to admit to
shortfalls and have everyone else
respond, 'How can we help?" This is
an entirely new management model
for the company. We're sharing infor-
mation and working together as a
team to improve operations and fix
problems. This monthly meeting has
become so interesting, people started
to ask me if ihey could attend. I
could sell tickets to it."
The HSC; is most effective when
it's part of a major change process in
an organization. Adt)pting the new
measurement and management .sys-
tem helps leaders communicate the
vision for change and empower busi-
ness units and employees to devise
new ways of doing their day-to-day
business to help the organization
accomplish its strategic objectives.
1
Robert S, Kaplan is a professor al
Tilt- Harvard Business School and
David R Nonon is Founder and Pres-
ident of iht Balanced StoreamJ Col-
abrati\'t;. Drs. Kaplan and Norton
are developers of the Balanced
Scorecarti and co-authors of Harvard
Hu.siness Re\'ieu' articles and books.
The Strateg}'-Fociise Organization:
How Balona'd Scorecard Companiei Thiiiv in
the A't'H' Business Environment (Har\'ard Busi-
ness School Pres.s, 2001),
6 6 FINANCIAL EXECUTIVE September 2001
Features Best Suited to the BSC
By George B. Moriarty
S
ince the Balanced Scorecard emerged. It has been much ballyhooed as
an evolutionary step in performance measurement. The question that
emerges is how this performance measurement can be linked to an
organiziuion's .strategic effoiis. Of equal importance is the que.stion of
how the organizations that employ the BSC regard its usefulness as a tool.
To find answers to these tw^o largely unre.searchecl questions, the FEI
Research Foundation commissioned a .study intended to icientify characteris-
tics of companies that could benefit from employing the measurement, as
well as to investigate scorecard practices that provide a competitive advan-
tage. The stutiy had four core objectives: to pre.sent factors that affect the sat-
isfaction of CFOs with their performance measures; to identif)' characteristics
of BSC users and non-users; to describe successful BSC user practices and
contrast them with practices of non users: and to examine the practices cjf
four leading firms in the development of their BSC.
Results of this .study enabled the research team to "put a face" on features
that foster the development of an effective BSC. These features include cul-
ture, nonfinancial information, linkage and implementation of the BSC,
effects on key constituents and change management and the BSC.
As Kiiplan and Norton discuss in the preceding article, the BSC also has
evolved into a mechanism that allt>ws financial executives to manage for
future growtli. This ability reaches well beyond traditional reporting prtx-e-
dures, which focus on ihe past. "The executive leadership that creates the
BSC becomes the guiding coalition for driving change in the organization"
write Kaplan and Norton. The results of FEI Research Foundation's study
.show, indeed, that is quite true in practice.
The executive report contains the results of a survey the research team
conducted, along with four case studies. There were 173 responses, whiili
formed the basis for the analysis in ihe project. Respondent companies hati
average assets of $6 billion, average annual sales of S3-7 billion, average
annual net income of $200 million and 23,340 employees. The research
team organized the results into three groups: satisfaction with performance
measures; characteristics of BSC users; and BSC Impact on organizatit)nal
practices.
The most interesting results empnate from the section on satisfaction with
performance measures, Of those respondents using the BSC, 55 percent
were satisfied, while 12 percent were not satisfied. This stands in contrast to
users of alt performance measurement systems; the survey discovered that
only 29 percent of all respondents were satisfied with their current measure-
ment system.
The following are excerpts from two of the case studies.
Mayo Clinic Rochester
The tinned Mayo Clinic in Rochester. Minn. (MCR, is a renowned cenler for
health-care knowledge and practice. The research team chose HCW because
of the high degree of technological complexity involved in its work as a
leading service organization.
MCH has long relied on its cultLire. which encourages team development
and anonymity as opposed to star power to develop its physicians into
team leaders. .VICR has u.sed a multiyear strategic plan to guide the physicians
and other employees since the mid-199s. AU levels of die oiganization partici-