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On Balance

Almost 10 years after developing the balanced scorecard, authors Robert Kaplan and David Norton share what they've learned.

In some cases, time and cost of implementation have been a deterrent to using the scorecard. Is the cycle time getting shorter? Is it getting any cheaper?

Kaplan: There are two aspects. One is, what does it cost to get one up and running, and how long does it take? The second is, what about the ongoing maintenance of the system? In terms of building the system, I think we’ve accelerated it, and the templates help that. In addition, the tools that will soon be available on our Web site will help people implement systems at [a] lower cost and faster [speed].

But there is a front-end expense. I don’t know how you’d quantify internal time versus external consultants and systems. Maybe it is measured in hundreds of thousands of dollars but not millions. [At the same time,] you’re getting billions of dollars of value creation. And if a CFO only thinks, “Can the organization afford $300,000 for a new measurement system?” he’s viewing it only as a measurement system. He’s not saying, “How much am I willing to pay to get the organization aligned to implement this strategy?”

Have you actually done any studies on the impact of the balanced scorecard on stock price/shareholder value?

Kaplan: A lot of the applications were done in divisions, not in the entire corporation. We talk about Mobil, but that was really a division. It was a big division, $20 billion, but maybe only 20 percent of the company.

Norton: When Cigna started this, however, they had negative shareholder value. The parent company was trying to sell it and had no takers. They introduced a new strategy; introduced the new scorecard. Five years later, they were sold for $3 billion. That’s [creating] shareholder value. Saachi & Saachi introduced the scorecard to try to create better segmentation in the way their branch offices were approaching the market. They introduced the scorecard, I believe, in 1997. Shareholder value at that time was $500 million. They were just acquired about six months ago, for $2.5 billion.

Does the balanced scorecard work in the New Economy, with its shorter cycle times and increased volatility?

Norton: If you’re a pharmaceutical company and it takes 10 years to bring a product to market, the scorecard will describe the steps you have to take to do that. If you’re a dot-com and it takes you 90 days to bring a new product to market, the scorecard will describe that. The major difference in the New Economy with the scorecard is the rate at which you learn, the rate at which things change.

Kaplan: You have to be very skilled in rapidly updating the scorecard in the New Economy, because as things change, you have the managerial challenge of getting the 100 or 500 people in your organization all aligned to the new direction. The scorecard turns out to be probably the most powerful tool these companies could have [to communicate] the new shared understanding. For it to work, however, it can’t take six months to update. Candidly, though, I don’t think the companies have recognized that if you want to be a very flexible, fast-moving organization, you need a mechanism to bring everybody along.

In 1997, the Harvard Business Review designated the balanced scorecard as one of the most important business developments of the previous 75 years. How do you think it will fare over the next 75?

Norton: I hope I’m here to answer that.

Kaplan: At least come back in the next 25 years, and we’ll see how we’re doing a third of the way through.

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