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Kaplan-Norton, Part I (pdf)

Kaplan-Norton, Part I (pdf) - 2001 American Accounting...

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COMMENTARY Transforming the Balanced Scorecard from Performance Measurement to Strategic Management: Part I Robert S. Kaplan and David P. Norton Robert S. Kaplan is a Professor at Harvard University and David P. Norton is founder and president of the Balanced Scorecard Collabo- rative in Lincoln, Massachusetts. Several years ago we introduced the Balanced Scorecard (Kaplan and Norton 1992). We began with the premise that an exclusive reliance on financial measures in a man- agement system is insufficient. Financial measures are lag indicators that report on the outcomes from past actions. Exclusive reliance on financial indicators could promote behavior that sacrifices long-term value creation for short-term performance (Porter 1992; AICPA 1994). The Balanced Scorecard approach retains measures of financial performance—the lagging outcome indicators—but supplements these with measures on the drivers, the lead indicators, of future financial performance. THE BALANCED SCORECARD EMERGES The limitations of managing solely with financial measures, however, have been known for decades. 1 What is different now? Why has the Balanced Scorecard concept been so widely adopted by manufacturing and service companies, nonprofit organiza- tions, and government entities around the world since its introduction in 1992? First, previous systems that incorporated nonfinancial measurements used ad hoc collections of such measures, more like checklists of measures for managers to keep track of and improve than a comprehensive system of linked measurements. The Bal- anced Scorecard emphasizes the linkage of measurement to strategy (Kaplan and Norton 1993) and the cause-and-effect linkages that describe the hypotheses of the strategy (Kaplan and Norton 1996b). The tighter connection between the measurement system and strategy elevates the role for nonfinancial measures from an operational checklist to a comprehensive system for strategy implementation (Kaplan and Norton 1996a). Second, the Balanced Scorecard reflects the changing nature of technology and competitive advantage in the latter decades of the 20th century. In the industrial-age competition of the 19th and much of the 20th centuries, companies achieved competi- tive advantage from their investment in and management of tangible assets such as This article is adapted from R. S. Kaplan and D. P. Norton (2001a, 2000). © 2001 American Accounting Association Accounting Horizons Vol. 15 No. 1 March 2001 pp. 87–104 1 For example, General Electric attempted a system of nonfinancial measurements in the 1950s (Green- wood 1974), and the French developed the Tableaux de Bord decades ago (Lebas 1994; Epstein and Manzoni 1998).
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88 Accounting Horizons/March 2001 inventory, property, plant, and equipment (Chandler 1990). In an economy dominated by tangible assets, financial measurements were adequate to record investments on companies’ balance sheets. Income statements could also capture the expenses associ- ated with the use of these tangible assets to produce revenues and profits. But by the
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