Several years ago, the Balanced Scorecard was introduced. At the time, everyone thought that the Balanced Scorecard was about measurement, not about strategy. We began with the premise that an exclusive reliance on financial measures in a management system was causing organization to do the wrong things. Financial measures are lag indicators; they report on outcomes, the consequences of past actions. Exclusive reliance on financial indicators promoted short-term behavior that sacrificed long-term value creation for short-term performance. The Balanced Scorecard approach retained measures of financial performance, the lagging indicators, but supplemented them with measures on the drivers, the lead indicators of future financial performance.

But what were the appropriate measures of future performance? If financial measures were causing organizations to do the wrong things, what measures would prompt them to do the right things? The answer turned out to be obvious: Measure the strategy! Thus all of the objectives and measures on a Balanced Scorecard financial and non-financial should be derived from the organization's vision and strategy. Although the implications may not have been appreciated at that time, the Balanced Scorecard soon became a tool for managing strategy-a tool for dealing with the 90 percent failure rates.

Several of the first companies who adopted the Balanced Scorecard-Mobil Oil Corporation's North America Marketing and Refining Division, CIGNA Corporation's Property & Casualty Division, Chemical Retail Bank, and Brown & Root Energy Services' Rockwater Division were under performing; they were losing money and trailing the industry. Each organization had recently brought in a new management team to turn performance around. Each new management team introduced fundamentally new strategies in an effort to make their organizations more customer-driven. The strategies did not simply rely on cost reduction and downsizing; rather, they required repositioning the organization in its competitive market space. More important, the new strategies required that the entire organization adopt a new set of cultural values and priorities. In retrospect, the creators had been asked to introduce the Balanced Scorecard into worst-case scenarios.

The Balanced Scorecard made the difference. Each organization executed-strategies using the same physical and human resources that had previously produced failing performance. The strategies were executed with the same products, the same facilities, the same employees and the same customers. The difference was a new senior management team using the Balanced Scorecard to focus all organizational resources on a new strategy. The scorecard allowed these successful organizations to build a new kind of management system-one designed to manage strategy. This new management system had three distinct dimensions:

Strategy:
Make strategy the central organizational agenda. The Balanced Scorecard allowed organizations, for the first time, to describe and communicate their strategy in a way that could be understood and acted on.

Focus:
Create incredible focus. With the Balanced Scorecard as a "navigation" aide, every resource and activity in the organization was aligned to the strategy.

Organization:
Mobilize all employees to act in fundamentally different ways. The Balanced Scorecard provided the logic and architecture to establish new organization linkages across business units, shared services, and individual employees.

These organizations used the Balanced Scorecard to create Strategy-Focused Organizations. They beat the long odds against successful strategy execution.

Excerpted from the book
The Strategy-Focused Organization by Robert S.kaplan & David P.Norton
Published by Harward Business School Press

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