Updating the global scorecard
Used this way, the scorecard addresses a serious deficiency in traditional management systems: their inability to link a company’s long-term strategy with its short-term actions.
Most companies’ operational and management control systems are built around financial measures and targets, which bear little relation to the company’s progress in achieving long-term strategic objectives.
Some companies went a step further, however, and discovered the scorecard’s value as the cornerstone of a new strategic management system.
In this article from 1996, the authors describe how the balanced scorecard can address a serious deficiency in traditional management systems: the inability to link a company’s long-term strategy with its short-term financial goals.
The second process——lets managers communicate their strategy up and down the organization and link it to departmental and individual objectives.
Traditionally, departments are evaluated by their financial performance, and individual incentives are tied to short-term financial goals.
Managers find it difficult to integrate those diverse initiatives to achieve their strategic goals—a situation that leads to frequent disappointments with the programs’ results.The scorecard lets them introduce four new management processes that, separately and in combination, contribute to linking long-term strategic objectives with short-term actions.(See the exhibit “Managing Strategy: Four Processes.”) —helps managers build a consensus around the organization’s vision and strategy.After agreeing on performance measures for the four scorecard perspectives, companies identify the most influential “drivers” of the desired outcomes and then set milestones for gauging the progress they make with these drivers. Thus, at any point in the implementation, managers can know whether the strategy is working—and if not, why. By going beyond traditional measures of financial performance, the concept has given a generation of managers a better understanding of how their companies are really doing.By supplying a mechanism for strategic feedback and review, the balanced scorecard helps an organization foster a kind of learning often missing in companies: the ability to reflect on inferences and adjust theories about cause-and-effect relationships. These nonfinancial metrics are so valuable mainly because they predict future financial performance rather than simply report what’s already happened.