The Balanced Scorecard: Translating Strategy Into Action (24 page)

A simple example clarifies this point. Many aspects of our bodily functions must perform within fairly narrow operating parameters if we are to survive. If our body temperature departs from a normal 1–2° window (away from 98.6°F or 37°C), or our blood pressure drops too low or escalates too high, we have a serious problem. In such circumstances, all our energies (and those of skilled professionals) are mobilized to restore these parameters to their normal levels. But we don’t devote enormous energy to optimizing our body temperature and blood pressure. Being able to control our body temperature to within 0.01 of the optimum will not be one of the strategic success factors that will determine whether we become a chief executive of a company, a senior partner in an international consulting firm, or a tenured full professor at a major university. Other factors are more decisive in determining whether we achieve our unique personal and professional objectives. Are body temperature and blood pressure important? Absolutely. Should these measurements fall outside certain control limits, we have a signal about a major problem that we must attend to and solve immediately. But while such measurements are necessary, they are not sufficient for the achievement of our long-run goals.

Similarly, corporations should have hundreds, perhaps thousands, of measures that they can monitor to ensure that they are functioning as expected, and to signal when corrective action must be taken. But these are not the drivers of competitive success. Such measures capture the necessary “hygiene factors” that enable the company to operate. These measures should be monitored diagnostically, with deviations from expectations noted rapidly; in effect, management by exception.

The Balanced Scorecard is not a replacement for an organization’s day-to-day measurement system. The scorecard measures are chosen to direct the attention of managers and employees to those factors expected to lead to competitive breakthroughs for an organization.

Even the best objectives and measures can be achieved in bad ways. The Balanced Scorecard guards against some of the myopic suboptimization that occurs when only a single measure, especially a financial one, is used to motivate and evaluate business unit performance. But suboptimization is not unique to financial measures. For example, many companies use, in their customer perspective, the on-time delivery performance for targeted customers. On-time delivery has become an especially valued attribute by companies, especially manufacturers operating under a just-in-time discipline, where little inventory is held to buffer unreliable deliveries. Yet if too much pressure is placed on a single customer metric like OTD, managers could soon develop dysfunctional methods to achieve excellent OTD. For example, manufacturers can build a substantial inventory of all likely requested items so that almost any request could be filled by shipments from finished-goods inventory. For such companies, the OTD measure might be excellent but large amounts of capital would be tied up in inventory, storage, and handling facilities, and the company would run a high risk of obsolescence and spoilage. This is a very expensive way to achieve high OTD levels.

Consider, as another example, an excellent performance measure for the innovation cycle of the internal-business-process perspective: the time-to-market measure for new products and services. Business units hope to improve their time-to-market by improving the management of their new-product introduction process, and by learning to produce the finished product with fewer design cycles, for example. But, lacking fundamental improvement in new-product introduction processes, and under the discipline of adhering to a demanding time-to-market performance measure, managers can release new products that are only incrementally different from existing products. They have achieved their performance target, but at the expense of fundamental innovation that has placed a competitive strength at risk.