- 17 Mar 2010
- Working Paper Summaries
Conceptual Foundations of the Balanced Scorecard
Overview — This article documents the precursors of the Balanced Scorecard (BSC) strategic performance management tool and describes the evolution of the BSC since its introduction in 1992 in the Harvard Business Review. During the last 15 years, the BSC has been adopted by thousands of private, public, and nonprofit enterprises around the world. HBS professor Robert S. Kaplan, who created the concept and tool with David Norton, explains the roots and motivation for their original article as well as subsequent innovations that connect it to a larger management literature. Key concepts include:
- The BSC was not original for advocating that nonfinancial measures be used to motivate, measure, and evaluate company performance. Early pioneers included General Electric, Nobel Economics Laureate, Professor Herb Simon, at the Carnegie Institute of Technology (later Carnegie-Mellon University), and management theorist Peter Drucker in his now-classic book, The Practice of Management in the 1950s.
- The BSC differs from stakeholder theory by embedding stakeholder interests within a strategy framework. It also extends the economics-based agency theory by offering the instrumentation to guide a multi-period shareholder value creation process.
- The BSC continues to grow and evolve. Future developments will, for example, formally embed enterprise risk management into the strategy execution framework.
David Norton and I introduced the Balanced Scorecard in a 1992 Harvard Business Review article (Kaplan & Norton, 1992). The article was based on a multi-company research project to study performance measurement in companies whose intangible assets played a central role in value creation (Nolan Norton Institute, 1991). Norton and I believed that if companies were to improve the management of their intangible assets, they had to integrate the measurement of intangible assets into their management systems. After publication of the 1992 HBR article, several companies quickly adopted the Balanced Scorecard giving us deeper and broader insights into its power and potential. During the next 15 years, as it was adopted by thousands of private, public, and nonprofit enterprises around the world, we extended and broadened the concept into a management tool for describing, communicating and implementing strategy. This paper describes the roots and motivation for the original Balanced Scorecard article as well as the subsequent innovations that connected it to a larger management literature. 36 pages.