LEADING CHANGE WITH THE BALANCED SCORECARD.

• Author: Kaplan, Robert S.

We thought we were making an advance in performance measurement systems in 1992 when we introduced the Balanced Scorecard. We quickly learned, however, that measurement has consequences far beyond reporting on the past. Measurement creates focus for the future and communicates important messages to all organizational units and employees. To take full advantage of this power, companies integrate their new measures into a management system.

A successful Balanced Scorecard (BSC) program should be a change project, not a "metrics" project. Initially the focus is on mobilization and creating momentum to get the process launched. Executives use the BSC to communicate a vision for performance that is dramatically better than the present. The focus then shifts to governance, with emphasis on team-based approaches to deal with the transition to a new performance model.

Gradually, a new system evolves, a strategic management system, which institutionalizes the new cultural values and structures. The executive team links traditional processes - like compensation, budgeting and resource allocation - to a BSC that describes the strategy. The management system wires every part of the organization to the strategy scorecard.

Measurements to Communicate Change

Adapting an organization's measurement system to the change agenda is critical for achievement. Steve Kerr, in a famous 1975 article entitled, "On the Folly of Rewarding A, While Hoping for B," described how management espoused its desire for long-term growth but rewarded quarterly earnings performance. It's not surprising that managers delivered quarterly earnings performance, but did not invest for long-term growth. Managers measured and evaluated by short-term financial measures will manage to those measures and likely short-change new initiatives for growth, customer-focus, innovation and employee empowerment.

Executives who adopt the BSG for their new strategies understand the need for a new measurement framework and see it as a powerful tool for driving change initiatives. The executive leadership that creates the BSC becomes the guiding coalition for driving change in the organization. The process of building the scorecard builds both the team and its commitment to the strategy. The scorecard makes the vision and the strategy operational. Words do not sufficiently communicate change initiatives, since the same words mean different things to different people. It's when word statements are...