Working Essay

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Kaplan, R. S. and D. P. Norton. 1992. The balanced scorecard - Measures that drive performance. Harvard Business Review (January-February): 71-79.Summary by James R. Martin | I believe this was the first article on the "balanced scorecard". The purpose of the article is to describe the balanced scorecard concept that the authors developed based on a research project involving 12 companies. Kaplan and Norton begin by saying that "what you measure is what you get." The organization's measurement system affects the behavior of managers and employees. Traditional financial measurements (e.g., return on investment and earnings per share) can provide misleading signals. Some alternative measurements have been recommended based on non-financial performance indicators such as cycle time and defect rates. But many senior managers recognize that no single measurement can provide enough information about the critical areas of the business. Therefore, a balanced set of measurements is needed. The balanced scorecard is defined as a set of measurements that give top managers a fast, but comprehensive view of the business including operational measures on customer satisfaction and the organization's innovation and improvement activities, as well as financial measurements. Kaplan and Norton point out that the operational measures drive financial performance. The authors use navigating and flying an airplane to illustrate the concept. Pilots need information related to factors such as fuel levels, airspeed, altitude, bearing and destination. Concentrating on a single measurement could be fatal. Today's managers are in a similar situation. They need to view performance in several areas simultaneously. The balanced scorecard does this by providing information from four perspectives: customer, internal business, innovation and learning, and financial. The concept is illustrated in

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