A balanced scorecard is a strategy performance management tool – a well-structured report used to keep track of the execution of activities by staff and to monitor the consequences arising from these actions.
111-399: The term 'balanced scorecard' primarily refers to a performance management report used by a management team, and typically focused on managing the implementation of a strategy or operational activities. In a 2020 survey 88% of respondents reported using the balanced scorecard for strategy implementation management, and 63% for operational management. Although less common, the balanced scorecard
222-404: A feedback loop to monitor execution and to inform the next round of planning. Michael Porter identifies three principles underlying strategy: Corporate strategy involves answering a key question from a portfolio perspective: "What business should we be in?" Business strategy involves answering the question: "How shall we compete in this business?" Alternatively, corporate strategy
333-568: A 1954 book The Practice of Management writing: "... the first responsibility of top management is to ask the question 'what is our business?' and to make sure it is carefully studied and correctly answered." He wrote that the answer was determined by the customer. He recommended eight areas where objectives should be set, such as market standing, innovation, productivity, physical and financial resources, worker performance and attitude, profitability, manager performance and development, and public responsibility. In 1957, Philip Selznick initially used
444-465: A Destination Statement or equivalent (e.g. the results-based management method proposed by the UN in 2002) represent a tangibly different design approach to those that went before and so have been proposed as representing a "third generation" design method for balanced scorecards. Design methods for balanced scorecards continue to evolve and adapt to reflect the deficiencies in the currently used methods, and
555-416: A company must only choose one of the three or risk that the business would waste precious resources. Porter's generic strategies detail the interaction between cost minimization strategies, product differentiation strategies, and market focus strategies. Porter described an industry as having multiple segments that can be targeted by a firm. The breadth of its targeting refers to the competitive scope of
666-402: A framework for analyzing the profitability of industries and how those profits are divided among the participants in 1980. In five forces analysis he identified the forces that shape the industry structure or environment. The framework involves the bargaining power of buyers and suppliers, the threat of new entrants, the availability of substitute products, and the competitive rivalry of firms in
777-436: A long-term coordinated strategy was necessary to give a company structure, direction and focus. He says it concisely, "structure follows strategy." Chandler wrote that: " Strategy is the determination of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals ." Igor Ansoff built on Chandler's work by adding concepts and inventing
888-466: A lower level) the use of individual reporters is problematic. Where these conditions apply, organizations use balanced scorecard reporting software to automate the production and distribution of these reports. Strategy implementation Strategy implementation is the activities within a workplace or organisation designed to manage the activities associated with the delivery of a strategic plan. There are several definitions, most of which relate to
999-432: A measure whether it be an action plan with milestones or a metric (Owen, 1982). These small number of high-level measures with associated targets will track the implementation activities being undertaken and their consequences . Monitoring these measures will help the organisation members in controlling that the strategy is being implemented successfully and if not in making them take decisions that will allow them to achieve
1110-611: A search for sources of competitive advantage. By the 1960s, the capstone business policy course at the Harvard Business School included the concept of matching the distinctive competence of a company (its internal strengths and weaknesses) with its environment (external opportunities and threats) in the context of its objectives. This framework came to be known by the acronym SWOT and was "a major step forward in bringing explicitly competitive thinking to bear on questions of strategy". Kenneth R. Andrews helped popularize
1221-460: A sense of direction and pace setting for the implementation effort (Reid, 1989) The pace of the strategy implementation can affect its success: Monitoring or evaluation should begin early on in order to cut an errant strategy before losses or negative impacts become too costly or damaging. As mentioned in the Strategy translation, each short-term operating objectives needs to be associated with
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#17327727251571332-448: A series of strategic decisions about how the organization will compete. Formulation ends with a series of goals or objectives and measures for the organization to pursue. Environmental analysis includes the: Strategic decisions are based on insight from the environmental assessment and are responses to strategic questions about how the organization will compete, such as: The answers to these and many other strategic questions result in
1443-402: A set of "strategic objectives" plotted on a "strategic linkage model" or " strategy map ". With this modified approach, the strategic objectives are distributed across the four measurement perspectives, so as to "connect the dots" to form a visual presentation of strategy and measures. In this modified version of balanced scorecard design, managers select a few strategic objectives within each of
1554-490: A shift from the production focus to market focus. The prevailing concept in strategy up to the 1950s was to create a product of high technical quality. If you created a product that worked well and was durable, it was assumed you would have no difficulty profiting. This was called the production orientation . Henry Ford famously said of the Model T car: "Any customer can have a car painted any color that he wants, so long as it
1665-408: A small number of financial and non-financial measures and attaching targets to them, so that when they are reviewed it is possible to determine whether current performance 'meets expectations'. By alerting managers to areas where performance deviates from expectations, they can be encouraged to focus their attention on these areas, and hopefully as a result trigger improved performance within the part of
1776-446: A strategy (e.g. Hrebiniak and Joyce, 1984; Reed and Buckley, 1988; Wheelen and Hunger, 1992 ). Strategy implementation requires the following activities to be undertaken: The purpose of articulating the strategy is to translate the strategy into a form where managers and stakeholders agree consensually on what needs to be achieved The strategy articulation will describe the strategic outcomes to be achieved, preferably expressed in
1887-472: A valuable product or service for the market. These include functions such as inbound logistics, operations, outbound logistics, marketing and sales, and service, supported by systems and technology infrastructure. By aligning the various activities in its value chain with the organization's strategy in a coherent way, a firm can achieve a competitive advantage. Porter also wrote that strategy is an internally consistent configuration of activities that differentiates
1998-445: A variety of factors, such as the learning curve , substitution of labor for capital (automation), and technological sophistication. Author Walter Kiechel wrote that it reflected several insights, including: Kiechel wrote in 2010: "The experience curve was, simply, the most important concept in launching the strategy revolution...with the experience curve, the strategy revolution began to insinuate an acute awareness of competition into
2109-536: A vocabulary. He developed a grid that compared strategies for market penetration, product development, market development and horizontal and vertical integration and diversification. He felt that management could use the grid to systematically prepare for the future. In his 1965 classic Corporate Strategy , he developed gap analysis to clarify the gap between the current reality and the goals and to develop what he called "gap reducing actions". Ansoff wrote that strategic management had three parts: strategic planning ;
2220-429: A whole, non-profit organizations, and schools. The balanced scorecard has been widely adopted, and consistently has been found to be the most popular performance management framework in a widely respected annual survey (e.g. see results from 2003 and 2013). Theorists have argued from the earliest days of discussion of balanced scorecard usage that much of the benefit of it comes from the design process itself. Indeed, it
2331-463: A wider range of organizational types) and more effective (as design methods have evolved to make them easier to design, and use). Since the balanced scorecard was popularized in the early 1990s, a large number of alternatives to the original 'four box' balanced scorecard promoted by Kaplan and Norton in their various articles and books have emerged. Most have very limited application, and are typically proposed either by academics as vehicles for expanding
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#17327727251572442-415: Is also linked to quality management tools and activities. Although there are clear areas of cross-over and association, the two sets of tools are complementary rather than duplicative. The balanced scorecard is also used to support the payments of incentives, even though it was not designed for this purpose and is not particularly suited to it. Design of a balanced scorecard is about the identification of
2553-418: Is also used by individuals to track personal performance; only 17% of respondents in the survey reported using balanced scorecards in this way. However it is clear from the same survey that a larger proportion (about 30%) use corporate balanced scorecard elements to inform personal goal setting and incentive calculations. The critical characteristics that define a balanced scorecard are: The balanced scorecard
2664-525: Is also used in relation to marketing , where the variable "importance" is related to buyers' perception of important attributes of a product: for attributes which might be considered important to buyers, both their perceived importance and their performance are assessed. The concept of the corporation as a portfolio of business units, with each plotted graphically based on its market share (a measure of its competitive position relative to its peers) and industry growth rate (a measure of industry attractiveness),
2775-439: Is argued that many failures in the early days of the balanced scorecard could be attributed to this problem, in that early balanced scorecards were often designed remotely by consultants – it is suggested that because they were not being involved in the design the managers who were intended to use the device did not trust its design (e.g. it measured the wrong things and used inappropriate targets) and so failed to engage with and use
2886-454: Is black." Management theorist Peter F Drucker wrote in 1954 that it was the customer who defined what business the organization was in. In 1960 Theodore Levitt argued that instead of producing products then trying to sell them to the customer, businesses should start with the customer, find out what they wanted, and then produce it for them. The fallacy of the production orientation was also referred to as marketing myopia in an article of
2997-481: Is normative. It consists of the schools of informal design and conception, the formal planning, and analytical positioning. The second group, consisting of six schools, is more concerned with how strategic management is actually done, rather than prescribing optimal plans or positions. The six schools are entrepreneurial, visionary, cognitive, learning/adaptive/emergent, negotiation, corporate culture and business environment. The third and final group consists of one school,
3108-451: Is now recognised as a "First Generation" balanced scorecard design. In 1990, Schneiderman participated in an unrelated research study led by Robert S. Kaplan in conjunction with US management consultancy Nolan-Norton, and during this study described his work on performance measurement. Subsequently, Kaplan and David P. Norton included anonymous details of this balanced scorecard design in a 1992 article. Although Kaplan and Norton's article
3219-438: Is significantly different in approach to the methods originally proposed, and so can be thought of as representing the "2nd generation" of design approach adopted for the balanced scorecard since its introduction. In the late 1990s, the design approach had evolved yet again. One problem with the "second generation" design approach described above was that the plotting of causal links amongst twenty or so medium-term strategic goals
3330-409: Is strategic management of a corporation (a particular legal structure of a business); business strategy is the strategic management of a business . Management theory and practice often make a distinction between strategic management and operational management , where operational management is concerned primarily with improving efficiency and controlling costs within the boundaries set by
3441-430: Is striving and the means (policies) by which it is seeking to get there." He continued that: "The essence of formulating competitive strategy is relating a company to its environment." Some complexity theorists define strategy as the unfolding of the internal and external aspects of the organization that results in actions in a socio-economic context. Michael D. Watkins claimed in 2007 that if mission/goals answer
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3552-450: Is the incorporation of Destination Statements. Other key components are strategic objectives, strategic linkage model and perspectives, measures and initiatives. In 1997, Kurtzman found that 64 percent of the companies questioned were measuring performance from a number of perspectives in a similar way to the balanced scorecard. Balanced scorecards have been implemented by government agencies, military units, business units and corporations as
3663-479: Is the method by which this 'most relevant' information is determined (i.e., the design processes used to select the content) that most differentiates the various versions of the tool in circulation. The balanced scorecard indirectly also provides a useful insight into an organization's strategy – by requiring general strategic statements (e.g. mission, vision) to be precipitated into more specific/tangible forms. The first versions of Kaplan and Norton's interpretation of
3774-585: Is to assign responsibilities (Owen, 1982) across the organisations members, not only as to engage them but also to monitor and control that each of the operating objectives is being taken care of. Therefore, to achieve strategic objectives, the short-term operating objectives need to be measurable. Performance appraisal and measurement of strategic progress simply cannot function without the existence of these critical metrics or measurable performance criteria. Progress measurement points or ‘milestones’ should be established (Owen, 1982). In addition, goal setting provides
3885-407: Is to make sure that people understand what is they need to do and why. In other words, the business strategy must be translated into a set of clear short-term operating objectives (activities and outcomes) in order to execute the strategy. Key issues, elements, and needs of strategy must be translated into objectives, action plans, and “scorecards” and this translation is an integral and vital part of
3996-427: The experience curve . Companies that pursued the highest market share position to achieve cost advantages fit under Porter's cost leadership generic strategy, but the concept of choice regarding differentiation and focus represented a new perspective. Porter's 1985 description of the value chain refers to the chain of activities (processes or collections of processes) that an organization performs in order to deliver
4107-419: The 'lack of a control' issue common to any study of organizational change – what the organization would have achieved if the change had not been made isn't known, so it is difficult to attribute changes observed over time to a single intervention (such as introducing a balanced scorecard). However, such studies as have been done have typically found Balanced Scorecard to be useful. Consideration has been given to
4218-485: The 'what' question, or if vision answers the 'why' questions, then strategy provides answers to the 'how' question of business management. The strategic management discipline originated in the 1950s and 1960s. Among the numerous early contributors, the most influential were Peter Drucker , Philip Selznick , Alfred Chandler, Igor Ansoff , and Bruce Henderson. The discipline draws from earlier thinking and texts on ' strategy ' dating back thousands of years. Prior to 1960,
4329-516: The 1950s and the work of French process engineers (who created the tableau de bord – literally, a "dashboard" of performance measures) in the early part of the 20th century. The tool also draws strongly on the ideas of the 'resource based view of the firm' proposed by Edith Penrose . None of these influences is explicitly linked to in the original descriptions of balanced scorecard by Schneiderman, Maisel, or Kaplan & Norton. Kaplan and Norton's first book remains their most popular. The book reflects
4440-642: The ACME (Articulate, Communicate, Monitor and Engage) framework. can be practical and useful to successfully implement a strategy. Strategy implementations obstacles have long been studied (e.g.: Kotter and Schlesinger, 1979; Alexander, 1985). Several studies have identified a number of different implementation obstacles. These obstacles can be grouped into several categories, including leadership, time available, communication and perceptions, reluctance to change, behavioural diagnosis, peoples' skills, participation, organisational culture and climate, structure, magnitude of
4551-525: The Corporate Level 2014 In 1980, Porter defined the two types of competitive advantage an organization can achieve relative to its rivals: lower cost or differentiation . This advantage derives from attribute(s) that allow an organization to outperform its competition, such as superior market position, skills, or resources. In Porter's view, strategic management should be concerned with building and sustaining competitive advantage. Porter developed
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4662-583: The Performance Driver model of Olve, Roy & Wetter (first published in Swedish, 1997; English translation, 1999,) constitute the 2nd Generation of Balanced Scorecard designs; and designs that augment the strategy map / strategic linkage model with a separate document describing the long-term outcomes sought from the strategy (the "destination statement" idea) comprise the 3rd generation balanced scorecard design. Variants that feature adaptations of
4773-455: The argument for achieving higher market share and economies of scale . Porter wrote in 1980 that companies have to make choices about their scope and the type of competitive advantage they seek to achieve, whether lower cost or differentiation. The idea of strategy targeting particular industries and customers (i.e., competitive positions) with a differentiated offering was a departure from the experience-curve influenced strategy paradigm, which
4884-934: The balanced scorecard asserted that relevance should derive from the corporate strategy , and proposed design methods that focused on choosing measures and targets associated with the main activities required to implement the strategy. As the initial audience for this were the readers of the Harvard Business Review , the proposal was translated into a form that made sense to a typical reader of that journal – managers of US commercial businesses. Accordingly, initial designs were encouraged to measure three categories of non-financial measure in addition to financial outputs – those of "customer," "internal business processes" and "learning and growth." These categories were not so relevant to public sector or non-profit organizations, or units within complex organizations (which might have high degrees of internal specialization), and much of
4995-483: The balanced scorecard concept, and so the paper refers to these distinct types as "generations". Broadly, the original 'measures in four boxes' type design (as initially proposed by Kaplan & Norton) constitutes the 1st generation balanced scorecard design; balanced scorecard designs that include a 'strategy map' or 'strategic linkage model' (e.g. the Performance Prism, later Kaplan & Norton designs, and
5106-536: The business. Porter defined two types of competitive advantage : lower cost or differentiation relative to its rivals. Achieving competitive advantage results from a firm's ability to cope with the five forces better than its rivals. Porter wrote: "[A]chieving competitive advantage requires a firm to make a choice...about the type of competitive advantage it seeks to attain and the scope within which it will attain it." He also wrote: "The two basic types of competitive advantage [differentiation and lower cost] combined with
5217-496: The choice of data is consistent with the ability of the observer to intervene. Organizations have used systems consisting of a mix of financial and non-financial measures to track progress for quite some time. One such system, the Analog Devices Balanced Scorecard, was created by Art Schneiderman in 1987 at Analog Devices , a mid-sized semi-conductor company. Schneiderman's design was similar to what
5328-597: The concept of "parenting advantage" to be applied at the corporate level, as a parallel to the concept of "competitive advantage" applied at the business level. Parent companies, they argued, should aim to "add more value" to their portfolio of businesses than rivals. If they succeed, they have a parenting advantage. The right level of diversification depends, therefore, on the ability of the parent company to add value in comparison to others. Different parent companies with different skills should expect to have different portfolios. See Corporate Level Strategy 1995 and Strategy for
5439-399: The configuration or transformation school, a hybrid of the other schools organized into stages, organizational life cycles, or "episodes". Michael Porter defined strategy in 1980 as the "...broad formula for how a business is going to compete, what its goals should be, and what policies will be needed to carry out those goals" and the "...combination of the ends (goals) for which the firm
5550-452: The corporate consciousness." Prior to the 1960s, the word competition rarely appeared in the most prominent management literature; U.S. companies then faced considerably less competition and did not focus on performance relative to peers. Further, the experience curve provided a basis for the retail sale of business ideas, helping drive the management consulting industry. Completion of an importance-performance matrix forms "a crucial stage in
5661-442: The day-to-day operations of the business is often referred to as "operations management" or specific terms for key departments or functions, such as "logistics management" or " marketing management ," which take over once strategic management decisions are implemented. Strategy has been practiced whenever an advantage was gained by planning the sequence and timing of the deployment of resources while simultaneously taking into account
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#17327727251575772-440: The device itself (e.g. Abernethy et al.). The characteristic feature of the balanced scorecard and its derivatives is the presentation of a mixture of financial and non-financial measures each compared to a 'target' value within a single concise report. The report is not meant to be a replacement for traditional financial or operational reports but a succinct summary that captures the information most relevant to those reading it. It
5883-493: The devices. Academic criticism of the balanced scorecard can be broken into three distinct (but overlapping) areas of concern. In response to these concerns there have been many studies seeking to provide (retrospective) academic underpinnings for the Balanced Scorecard concept, and to provide case study and validation information for the various design generations. There are relatively few reliable assessments of
5994-477: The dialogue beyond the financial bottom line – e.g. Brignall (2002) or consultants as an attempt at differentiation to promote sales of books and / or consultancy (e.g. Neely et al. (2002), Bourne (2002), Niven (2002)). Many of the structural variations proposed are broadly similar, and a research paper published in 2004 attempted to identify a pattern in these alternatives – noting three distinct types of variation. The variations appeared to be part of an evolution of
6105-491: The earliest incarnations of balanced scorecards – effectively restating the concept as described in the second Harvard Business Review article. Their second book, The Strategy Focused Organization , echoed work by others (particularly a book published the year before by Olve et al. in Scandinavia) on the value of visually documenting the links between measures by proposing the "Strategic Linkage Model" or strategy map . As
6216-429: The early literature on balanced scorecard focused on suggestions of alternative 'perspectives' that might have more relevance to these groups (e.g. Butler et al. (1997), Ahn (2001), Elefalke (2001), Brignall (2002), Irwin (2002), Radnor et al. (2003)). Modern balanced scorecards have evolved since the initial ideas proposed in the late 1980s and early 1990s and are significantly improved – being both more flexible (to suit
6327-431: The early literature on balanced scorecard focused on suggestions of alternative 'perspectives' that might have more relevance to these groups(e.g. Butler et al. (1997), Ahn (2001), Elefalke (2001), Brignall (2002), Irwin (2002), Flamholtz (2003), Radnor et al. (2003)). These suggestions were notably triggered by a recognition that different but equivalent headings would yield alternative sets of measures, and this represents
6438-504: The effect of organization size on balanced scorecard effectiveness: The balanced scorecard by definition is not a complex thing – typically no more than about 20 measures spread across a mix of financial and non-financial topics, and easily reported manually (on paper, or using simple office software). The processes of collecting, reporting, and distributing balanced scorecard information can be labor-intensive and prone to procedural problems (for example, getting all relevant people to return
6549-481: The effectiveness of the approaches embodied in the balanced scorecard, but some studies demonstrate a link between the use of balanced scorecards and better decision making or improved financial performance of companies. Broadcast surveys of usage have difficulties in this respect, due to the wide variations in definition of 'what a balanced scorecard is' (making it hard to work out in a survey if you are comparing like with like). Single organization case studies suffer from
6660-504: The execution process. Developing this set of clear objectives, that relates logically to the strategy and how the organisation plans to compete, is an important aspect of an effective implementation process (Owen, 1982). Having a concrete, detailed and comprehensive implementation plan can have a positive influence on the level of success of an implementation effort. In addition it helps identify what will be required in terms of resources, capabilities and time. Part of this strategy translation
6771-423: The field of management , strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization 's managers on behalf of stakeholders, based on consideration of resources and an assessment of the internal and external environments in which the organization operates. Strategic management provides overall direction to an enterprise and involves specifying
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#17327727251576882-480: The form of quantitative or qualitative goals. This strategy articulation can, for example, be expressed in the form of a Destination Statement. Validating the strategy is an essential part of the implementation (see also Heide et al., 2002; Kotter, 1995; Hambrick, 1981). This validation can be both internal to the organisation or external. In addition, when implementing a strategy, the human aspect also needs to be considered. And an implementation can be done only if
6993-522: The formulation of operations strategy", and may be considered a "simple, yet useful, method for simultaneously considering both the importance and performance dimensions when evaluating or defining strategy". Notes on this subject from the Department of Engineering at the University of Cambridge suggest that a binary matrix may be used "but may be found too crude", and nine point scales on both
7104-499: The framework via a 1963 conference and it remains commonly used in practice. The experience curve was developed by the Boston Consulting Group in 1966. It reflects a hypothesis that total per unit costs decline systematically by as much as 15–25% every time cumulative production (i.e., "experience") doubles. It has been empirically confirmed by some firms at various points in their history. Costs decline due to
7215-440: The importance and performance axes are recommended. An importance scale could be labelled from "the main thrust of competitiveness" to "never considered by customers and never likely to do so", and performance can be segmented into "better than", "the same as", and "worse than" the company's competitors. The highest urgency would than be directed to the most important areas where performance is poorer than competitors. The technique
7326-448: The industry. These forces affect the organization's ability to raise its prices as well as the costs of inputs (such as raw materials) for its processes. The five forces framework helps describe how a firm can use these forces to obtain a sustainable competitive advantage , either lower cost or differentiation. Companies can maximize their profitability by competing in industries with favorable structure. Competitors can take steps to grow
7437-418: The information it provides. Although less common, these early-style balanced scorecards are still designed and used today. In short, first generation balanced scorecards are hard to design in a way that builds confidence that they are well designed. Because of this, many are abandoned soon after completion. In the mid-1990s, an improved design method emerged. In the new method, measures are selected based on
7548-486: The information required by the required date). The simplest mechanism to use is to delegate these activities to an individual, and many balanced scorecards are reported via ad hoc methods based around email, phone calls and office software. In more complex organizations, where there are multiple balanced scorecards to report and/or a need for co-ordination of results between balanced scorecards (for example, if one level of reports relies on information collected and reported at
7659-512: The issue of the appropriate level of diversification . In 1987, he argued that corporate strategy involves two questions: 1) What business should the corporation be in? and 2) How should the corporate office manage its business units? He mentioned four concepts of corporate strategy each of which suggest a certain type of portfolio and a certain role for the corporate office; the latter three can be used together: Building on Porter's ideas, Michael Goold, Andrew Campbell and Marcus Alexander developed
7770-437: The key dimensions considered (industry attractiveness and competitive position) remain central to strategy. In response to the evident problems of "over diversification", C. K. Prahalad and Gary Hamel suggested that companies should build portfolios of businesses around shared technical or operating competencies, and should develop structures and processes to enhance their core competencies . Michael Porter also addressed
7881-697: The main elements of strategic management theory where consensus generally existed as of the 1970s, writing that strategic management: Chaffee further wrote that research up to that point covered three models of strategy, which were not mutually exclusive: The progress of strategy since 1960 can be charted by a variety of frameworks and concepts introduced by management consultants and academics. These reflect an increased focus on cost, competition and customers. These "3 Cs" were illuminated by much more robust empirical analysis at ever-more granular levels of detail, as industries and organizations were disaggregated into business units, activities, processes, and individuals in
7992-403: The major design challenge faced with this type of balanced scorecard design: justifying the choice of measures made. "Of all the measures you could have chosen, why did you choose these?" These issues contribute to dis-satisfaction with early balanced scorecard designs, since if users are not confident that the measures within the balanced scorecard are well chosen, they will have less confidence in
8103-468: The management of the implementation of strategy, it is important to remember that the balanced scorecard itself has no role in the formation of strategy. In fact, balanced scorecards can co-exist with strategic planning systems and other tools. The first generation of balanced scorecard designs used a "four perspective" approach to identify what measures to use to track the implementation of strategy. The original four "perspectives" proposed were: The idea
8214-407: The management resulting in a better implementation performance. Implementation evaluation can have a positive influence on future implementation performance, increasing engagement using past successes or based on lessons learned. Strategic implementation is often associated with performance management . Tools such as balanced scorecard and its derivatives such as the performance measurement , or
8325-463: The most urgently required change initiatives. This kind of validation overlaps with strategy communication activities (see below). Sometimes, especially in non-commercial organisations, it is also necessary to confirm strategic goals with external stakeholders (Hambrick and Cannella, 1989; and Nielsen, 1983): in commercial organisations it is common for the achievement of financial outcomes to be used to guide strategic choices, but this does not diminish
8436-424: The need for validation with other key stakeholders (e.g. regulators, key customers etc.). To be usable, a strategy needs to be translated into a set of actionable operational steps. The concrete and clear strategic objectives should be translated into operational implementation sub-objectives (Reid, 1989), be linked to departmental and individual goals (Kaplan, 1995), and be measurable (Reid, 1989). An essential part
8547-478: The opportunities and threats in the business environment. Alfred Chandler recognized the importance of coordinating management activity under an all-encompassing strategy. Interactions between functions were typically handled by managers who relayed information back and forth between departments. Chandler stressed the importance of taking a long-term perspective when looking to the future. In his 1962 ground breaking work Strategy and Structure , Chandler showed that
8658-399: The organisational members are engaged. Validation of the strategy is needed from within the organisation - in particular from members of the organisation with implementation responsibilities. Organisational members must be aware of and support the strategic goals of the firm (Kotter and Schlesinger, 1979). Without this knowledge of the strategy, organisational members will not be able to place
8769-513: The organization they lead. The original thinking behind a balanced scorecard was for it to be focused on information relating to the implementation of a strategy, and over time there has been a blurring of the boundaries between conventional strategic planning and control activities and those required to design a balanced scorecard. This is illustrated by the four steps required to design a balanced scorecard included in Kaplan & Norton's writing on
8880-404: The organization's objectives , developing policies and plans to achieve those objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision-making in the context of complex environments and competitive dynamics. Strategic management is not static in nature; the models can include
8991-431: The organization's strategy . Strategy is defined as "the determination of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals." Strategies are established to set direction, focus effort, define or clarify the organization, and provide consistency or guidance in response to the environment. Strategic management involves
9102-462: The organization's Mission or Vision Statement). This reference point was called a Destination Statement . It was quickly realized that if a Destination Statement was created at the beginning of the design process then it became easier to select the appropriate strategic activity and outcome objectives which if achieved would deliver it. Measures and targets could then be selected to track the achievement of these objectives. Design methods that incorporate
9213-615: The organization's strategy and a series of specific short-term and long-term goals or objectives and related measures. The second major process of strategic management is implementation , which involves decisions regarding how the organization's resources (i.e., people, process and IT systems) will be aligned and mobilized towards the objectives. Implementation results in how the organization's resources are structured (such as by product or service or geography), leadership arrangements, communication, incentives, and monitoring mechanisms to track progress towards objectives, among others. Running
9324-538: The overall profitability of the industry, or to take profit away from other parts of the industry structure. Porter modified Chandler's dictum about structure following strategy by introducing a second level of structure: while organizational structure follows strategy, it in turn follows industry structure. Porter wrote in 1980 that strategy target either cost leadership , differentiation , or focus. These are known as Porter's three generic strategies and can be applied to any size or form of business. Porter claimed that
9435-414: The particular needs of communities of interest (e.g. NGOs and government departments have found the third generation methods embedded in results-based management more useful than first or second generation design methods). Third generation balanced scorecards improved the utility of second generation of balanced scorecards, giving more relevance and functionality to strategic objectives. The major difference
9546-511: The perspectives, and then define the cause-effect chain among these objectives by drawing links between them to create a "strategic linkage model". A balanced scorecard of strategic performance measures is then derived directly by selecting one or two measures for each strategic objective. This type of approach provides greater contextual justification for the measures chosen, and is generally easier for managers to work through. This style of balanced scorecard has been commonly used since 1996 or so: it
9657-666: The probable capabilities and behavior of competition. Bruce Henderson In 1988, Henry Mintzberg described the many different definitions and perspectives on strategy reflected in both academic research and in practice. He examined the strategic process and concluded it was much more fluid and unpredictable than people had thought. Because of this, he could not point to one process that could be called strategic planning . Instead Mintzberg concludes that there are five types of strategies: In 1998, Mintzberg developed these five types of management strategy into 10 "schools of thought" and grouped them into three categories. The first group
9768-408: The process of managing activities associated with the delivery of a strategic plan such as the following: Other definitions concern the processes by which an organisation identifies and allocates the actions associated with the delivery of a strategic plan such as the following: The term first became well known following the publication in 1984 of "Strategy Implementation," a highly regarded book on
9879-436: The related concepts of strategic planning and strategic thinking . Strategic planning is analytical in nature and refers to formalized procedures to produce the data and analyses used as inputs for strategic thinking, which synthesizes the data resulting in the strategy. Strategic planning may also refer to control mechanisms used to implement the strategy once it is determined. In other words, strategic planning happens around
9990-423: The required actions are being carried out, and where these actions are not working as expected, to be able to change the actions as required (Amason 1996). For example, a best practice for strategy implementation monitoring and control is to meet regularly in structured and time-limited sessions (Allio, 2005). As mentioned previously, a slow implementation with small steps usually has a positive influence on engaging
10101-416: The same name by Levitt. Over time, the customer became the driving force behind all strategic business decisions. This marketing concept, in the decades since its introduction, has been reformulated and repackaged under names including market orientation, customer orientation, customer intimacy, customer focus, customer-driven and market focus. In 1985, Ellen Earle Chaffee summarized what she thought were
10212-426: The scope of activities for which a firm seeks to achieve them lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation and focus. The focus strategy has two variants, cost focus and differentiation focus." The concept of choice was a different perspective on strategy, as the 1970s paradigm was the pursuit of market share (size and scale) influenced by
10323-439: The skill of a firm in converting its plans into reality; and the skill of a firm in managing its own internal resistance to change. Bruce Henderson , founder of the Boston Consulting Group , wrote about the concept of the experience curve in 1968, following initial work begun in 1965. The experience curve refers to a hypothesis that unit production costs decline by 20–30% every time cumulative production doubles. This supported
10434-591: The strategic changes, coordination, resources, performance management and external events (Cândido and Santos, 2019). Some of the most frequently cited obstacles are: These obstacles can interact and may lead to other obstacles, which can prevent the strategy from being implemented successfully. The rate of implementation failure has been estimated in the range of 70 to 90 percent (e.g., Kiechel, 1982; Dion et al., 2007) but these rates of failure are likely overestimated since there are other much smaller estimates not so frequently cited. Corporate strategy In
10545-409: The strategic thinking or strategy making activity. Strategic management is often described as involving two major processes: formulation and implementation of strategy. While described sequentially below, in practice the two processes are iterative and each provides input for the other. Formulation of strategy involves analyzing the environment in which the organization operates, then making
10656-431: The strategy being implemented within a broader context and assess its importance. One way the communication can be done, is by cascading down the strategy into the organisation, where the strategic activities and outcomes are broken down into smaller set of change programmes and operational goals specific for each management teams, with the focus to achieve them in the near term - combining critical operational outcomes with
10767-458: The strategy. Strategy control , in turn, provides timely and valid feedback about organisational performance so that change and adaptation become a routine part of the implementation effort. Controls allow for the revision of execution-related factors if desired goals are not being met. To achieve that there needs to be an agreed mechanism of intervention to enable the management to efficiently and effectively engage with their organisation to ensure
10878-475: The structure of the balanced scorecard to suit better a particular viewpoint or agenda are numerous. Examples of the focus of such adaptations include the triple bottom line , decision support, public sector management, and health care management. The performance management elements of the UN's Results Based Management system have strong design and structural similarities to those used in the 3rd Generation Balanced Scorecard design approach. The balanced scorecard
10989-411: The subject in the late 1990s: These steps go beyond the simple task of identifying a small number of financial and non-financial measures, but illustrate the requirement for whatever design process is used to fit within broader thinking about how the resulting balanced scorecard will integrate with the wider business management process. Although it helps focus managers' attention on strategic issues and
11100-481: The term "distinctive competence" in referring to how the Navy was attempting to differentiate itself from the other services. He also formalized the idea of matching the organization's internal factors with external environmental circumstances. This core idea was developed further by Kenneth R. Andrews in 1963 into what we now call SWOT analysis , in which the strengths and weaknesses of the firm are assessed in light of
11211-400: The term "strategy" was primarily used regarding war and politics, not business. Many companies built strategic planning functions to develop and execute the formulation and implementation processes during the 1960s. Peter Drucker was a prolific management theorist and author of dozens of management books, with a career spanning five decades. He addressed fundamental strategic questions in
11322-545: The title of Kaplan and Norton's second book highlights, even by 2000 the focus of attention among thought-leaders was moving from the design of balanced scorecards themselves, towards the use of the balanced scorecard as a focal point within a more comprehensive strategic management system. Subsequent writing on the balanced scorecard by Kaplan & Norton has focused on its uses, rather than its design (e.g. The Execution Premium in 2008, "Intelligent Design of Inclusive Growth Strategies" in 2019); many others also continue to refine
11433-592: The topic by Lawrence G. Hrebiniak and William F. Joyce, and it is no surprise that definitions from that work appear in both of the lists given above. Strategy implementation thinking has strongly influenced writing and work on the related topic of Strategy execution - a term that has been used to associate strategy implementation with the Balanced Scorecard approach to strategic performance management . Most authors propose specific activities and systems that they think are necessary to effectively implement
11544-488: Was coined by Schneiderman, the roots of performance management as an activity run deep in management literature and practice. Management historians such as Alfred Chandler suggest the origins of performance management can be seen in the emergence of the complex organization – most notably during the 19th Century in the USA. Other influences may include the pioneering work of General Electric on performance measurement reporting in
11655-428: Was focused on larger scale and lower cost. Porter revised the strategy paradigm again in 1985, writing that superior performance of the processes and activities performed by organizations as part of their value chain is the foundation of competitive advantage, thereby outlining a process view of strategy. The direction of strategic research also paralleled a major paradigm shift in how companies competed, specifically
11766-451: Was followed by G.E. multi factoral model , developed by General Electric . Companies continued to diversify as conglomerates until the 1980s, when deregulation and a less restrictive antitrust environment led to the view that a portfolio of operating divisions in different industries was worth more as many independent companies, leading to the breakup of many conglomerates. While the popularity of portfolio theory has waxed and waned,
11877-438: Was initially proposed as a general purpose performance management system . Subsequently, it was promoted specifically as an approach to strategic performance management. The balanced scorecard has more recently become a key component of structured approaches to corporate strategic management. Two of the ideas that underpin modern balanced scorecard designs concern making it easier to select which data to observe, and ensuring that
11988-401: Was not the only paper on the topic published in early 1992, it was a popular success, and was quickly followed by a second in 1993. In 1996, the two authors published The Balanced Scorecard . These articles and the first book spread knowledge of the concept of balanced scorecards, leading to Kaplan and Norton being seen as the creators of the concept. While the "corporate scorecard" terminology
12099-458: Was still a relatively abstract activity. In practice it ignored the fact that opportunities to intervene to influence strategic goals are (and need to be) anchored in current and real management activity. Secondly, the need to "roll forward" and test the impact of these goals necessitated the reference to an additional design instrument: a statement of what "strategic success", or the "strategic end-state", looked like (which in turn would be related to
12210-600: Was summarized in the growth–share matrix developed by the Boston Consulting Group around 1970. By 1979, one study estimated that 45% of the Fortune 500 companies were using some variation of the matrix in their strategic planning. This framework helped companies decide where to invest their resources (i.e., in their high market share, high growth businesses) and which businesses to divest (i.e., low market share, low growth businesses.) The growth-share matrix
12321-522: Was that managers used these perspective headings to prompt the selection of a small number of measures that informed on that aspect of the organization's strategic performance. The perspective headings show that Kaplan and Norton were thinking about the needs of non-divisional commercial organizations in their initial design. These categories were not so relevant to public sector or non-profit organizations, or units within complex organizations (which might have high degrees of internal specialization), and much of
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