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Performance Management Reference Materials

The Balanced Scorecard

by Robert S. Kaplan and David P. Norton; Harvard Business School Press, 1996

In his opening speech at the global conference on reinventing government, Vice President Al Gore stated that "If we want our government to be accountable for every taxpayer's dime, then we need a workforce that will be held accountable for real results." Under the Vice President's leadership, the National Partnership for Reinventing Government (NPR) has endorsed a results oriented approach towards performance management that rewards managers based on balanced performance measures, including strategic plan goals, customer satisfaction rates, and the results of employee surveys. Two of the gurus in the balanced performance measurement field are Robert Kaplan and David Norton. Their book, The Balanced Scorecard, complements and reinforces what the Vice President and NPR are trying to achieve in creating a more results-oriented Government.

The Balanced Scorecard offers a systematic and comprehensive road map for organizations to follow in translating their mission statements into a coherent set of performance measures. These measures are not used simply to control behavior, but rather "to articulate the strategy of the business, to communicate the strategy of the business, and to help align individual, organizational, and cross-departmental initiatives to achieve a common goal." Kaplan and Norton organize these Balanced Scorecard performance measures into four different perspectives: financial, customer, internal business process, and learning and growth.

Financial measures are the traditional measurement tool used by the private sector. The risk of relying exclusively on these measures is that they don't always provide an accurate picture of an organization's direction and can lead organizations to seek short-term fixes rather than long-term growth. According to Kaplan and Norton, financial objectives alone are an insufficient measure for Government agencies as well. Agencies that measure success by their ability to keep spending within budgeted amounts can neglect to measure their performance in terms of meeting constituent needs. While financial objectives "should serve as the focus for the objectives and measures in all the other scorecard perspectives" in the private sector, they should "rarely be the primary objective" for Governmental organizations. Business strategy financial "drivers" which should be measured include revenue growth and mix, cost reduction/productivity improvement, and asset use/investment strategy.

Kaplan and Norton argue that the customer perspective should be the driving scorecard measure for Governmental enterprises. "Success for Government and not-for-profit organizations should be measured by how effectively and efficiently they meet the need of their constituencies. Tangible objectives must be defined for customers and constituencies." In order to create the customer perspective, managers begin by defining their agency's different market or customer segments and then select the objectives and measures for these segments. The five customer measures identified as generic across all types of organizations are market share, customer retention, customer acquisition, customer satisfaction, and customer profitability. An organization's mission statement and strategy should be translated into the specific customer based objectives and then communicated throughout the organization.

The third perspective of Kaplan and Norton's balanced scorecard, the internal business process perspective, begins with managers determining which processes are most critical for their organization to achieve its customer and financial objectives. From these processes new objectives and measures are derived for the internal business process perspective. The authors claim that unlike conventional performance measurement systems, which focus on monitoring and improving existing business processes, the scorecard approach "will usually identify entirely new processes at which an organization must excel to meet customer and financial objectives." The processes making up the internal business process chain are the innovations process, the operations process, and the service follow up process.

Learning and growth, the fourth balanced scorecard perspective, provides the infrastructure for organizations to achieve their stretch goals identified by the previous perspectives. "Objectives in the learning and growth perspective are the drivers for achieving excellent outcomes in the first three perspectives." Gaps between the financial, customer and internal business process objectives and the organization's existing capabilities to achieve these objectives lead to the need to invest in the three categories of the learning and growth scorecard. These are employee capabilities, information systems capabilities, and motivation, empowerment, and alignment. By investing in these areas agencies will be in a better position to ensure that their long-term mission and objectives are achieved.

Organizations should use three mechanisms to align their strategy and balanced scorecard into objectives that will influence individual and team priorities: communication/education programs, goal setting programs, and reward system linkages. Communication should be viewed as an internal marketing campaign directed at achieving long-term strategic alignment. Individual and group goals and objectives should drive the achievement of scorecard objectives and measures. While Kaplan and Norton express caution about the difficulty of linking balanced scorecard measures to formal compensation schemes, they believe that "Alignment and accountability will clearly be enhanced when individual contributions to achieving scorecard objectives are linked to recognition, promotion and compensation programs." Following these programs will help managers achieve their agencies' balanced scorecard and in turn its short-term financial and long-term strategic objectives.

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