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27 From Skewing Performance to How do customers see the organization? Balancing Competing Objectives What must the organization excel at? How can the organization continue to improve and create A common shortcoming described in private-sector per- value? formance measurement literature related to skewing of How does the organization fare financially? behavior or "suboptimization." This refers to organizational performance focusing inordinately upon achieving narrow, The Balanced Scorecard attempts to assemble in a single measured activities to the detriment of other important report the disparate and often competing values that must be organizational goals. For instance, an unbalanced focus upon addressed. Inherent in the Balanced Scorecard is the recogni- product cost could lead to fatal lack of product quality, which tion that judgments must be made by executives. Although dooms the business. Or a unit can be measured for timeliness metrics provide insight, ultimately judgments are made to of a process, but not the cost or quality of the process. Orga- balance issues such as cost versus quality, profitability versus nizations also frequently measured performance of individ- social obligations, and between customer satisfaction and ual divisions, or "silos," which can cause a disincentive for available resources. See Figure 2.1. the divisions to devote resources to collaborating with other This new generation of performance measurement as divisions. If the performance measurement incentives did not reflected in the Balanced Scorecard does not abandon the reward cross-divisional collaboration, then such collabora- earlier four types of measures that Drucker had written tion was less likely to be achieved. about. Foundational measures are still used to measure basic Thus, in 1992, evolved the Balance Scorecard.8 The score financial and performance outputs. Operational measures includes at least four categories of measures, which reflect the still allow managers versus completeness or profitability versus customer satisfaction. to drill The scorecard down into was developed to areas that don't meet address tension between important the type of considerations, trade-off analysis such as cost ver- and balancing customer of competing needs. values that organizations frequently confront. sus quality or timeliness versus completeness or profitability Competency or benchmarking measures are used in the The Balanced Scorecard also was proposed because managers complained of being swamped with too versus customer satisfaction. The scorecard was developed to "Innovating and Learning Perspective." Finally, the Resource many measures. A proliferation of measures left executives data rich and information poor. The Balanced address the type of trade-off analysis and balancing of com- Allocation measures still are inherent within all four sectors Scorecard was created to answer four basic questions: peting values that organizations frequently confront. as measures to help make intelligent investment decisions. The Balanced Scorecard How also do wascustomers proposed see the organization? because man- What the Balance Scorecard evolution has done is to: agers complained of being What must the swamped organization with too many excel at? mea- How can the organization continue to improve and create value? sures. A proliferation of measures left executives data rich Sharpen measures into a "critical few"; How does the organization fare financially? and information poor. The Balanced Scorecard was created Acknowledge the need for artful trade-offs to achieve opti- The Balanced Scorecard attempts to assemble in a single report the disparate and often competing values to answer four basic questions: mum overall performance; which must be addressed. Inherent in the Balanced Scorecard is the recognition that judgments must be made by executives. Although metrics provide insight, ultimately judgments are made to balance issues such as cost versus quality, profitability versus social obligations and between customer satisfaction and available resources. See Figure 2.1. Financial Perspective Goals Measures Customer Perspective Business Operations Goals Measures Goals Measures Innovation and Learning Goals Measures Figure Figure2.1. A Balanced 2.1. Scorecard. A Balanced Scorecard. This new generation of Performance Measurement as reflected in the Balanced Scorecard does not abandon the earlier four types of measures that Drucker had written about. Foundational measures are still used to measure basic financial and performance outputs. Operational measures still allow managers to drill down into areas that don't meet customer needs. Competency or benchmarking measures are used in the "Innovating and Learning Perspective." Finally,