23 Jul 2008  Sharpening Your Skills

Balanced Scorecard in Action

Introduced by Harvard Business School professor Robert Kaplan and colleague David Norton, the Balanced Scorecard has been used by thousands of organizations to align business activities with the strategy.

 

Sharpening Your Skills dives into the HBS Working Knowledge archives to bring together articles on ways to improve your business skills.

Questions to be Answered

  • How does the Balanced Scorecard (BSC) improve corporate governance?
  • Does customer profitability increase using the BSC?
  • Can BSC measures reduce the gap between strategy and execution?
  • Does the BSC work in testing strategy?

How can the Balanced Scorecard improve corporate governance?

Working Paper: Improving Corporate Governance with the Balanced Scorecard

The authors review the key roles of corporate boards and recommend a Balanced Scorecard approach to help boards work smarter, not harder.

Key concepts include:

  • Reforms such as Sarbanes-Oxley have increased the amount of work that boards need to do. A Balanced Scorecard approach can help boards use their limited time effectively.
  • An enterprise strategy map and enterprise Balanced Scorecard should be the primary documents distributed to the board in advance of meetings.

Does customer profitability increase using the BSC?

A Balanced Scorecard Approach To Measure Customer Profitability

Happy customers are good, but profitable customers are much better. In this article, professor and Balanced Scorecard guru Robert S. Kaplan introduces BSC Customer Profitability Metrics. From Balanced Scorecard Report.

Key concepts include:

  • In their zeal to delight customers, some companies actually lose money with them by becoming customer-obsessed rather than customer-focused.
  • The BSC adds a metric that summarizes customer profitability.
  • The ability to measure profitability at the individual customer level allows companies to consider new customer profitability metrics such as "percentage of unprofitable customers."

Can BSC measures reduce the gap between strategy and execution?

The Office of Strategy Management

Many organizations suffer a disconnect between strategy formulation and its execution. The answer? HBS professor Robert S. Kaplan and colleague Andrew Pateman argue for the creation of a new corporate office.

Key concepts include:

  • There is a persistent gap between the strategic goals that organizations set for themselves and the results they achieve.
  • An office of strategy management is intended to close that gap. At the corporate level of an organization, it oversees all strategy-related activities—from formulation to execution. It is typically an outgrowth of a Balanced Scorecard program.
  • The purpose of an OSM is to unlock value by making strategy execution a distinct and recognized competency in an organization.

Does the BSC work in testing strategy?

Working Paper: Testing Strategy with Multiple Performance Measures Evidence from a Balanced Scorecard at Store24

To what extent do Balanced Scorecards provide useful information for testing and validating an organization's strategy? Analyzing Balanced Scorecard data from Store24—a privately held convenience store retailer in New England—this study investigates whether, when, and how information about problems with the firm's strategy was captured in the multiple performance measures of its Balanced Scorecard.

Key concepts include:

  • Store24's Balanced Scorecard contained useful and timely information for detecting problems in its strategy.
  • The results also suggest that Store24 executives eventually learned about problems with the strategy despite a lack of reliance on such formal analysis.
  • Analysis of the Balanced Scorecard could have yielded more timely information as well as more detail on why the strategy was not working as planned.
  • Multiple measures in a Balanced Scorecard might systematically be used to test how well different drivers of performance are working to achieve strategic objectives and superior financial performance.