The Strategy-Focused Organization.

How balanced scorecard companies thrive in the new business environment

This book provides a vivid set of experiences that support a careful evaluation of the balanced scorecard's rich potential. It's a must read for any organization that wants to become strategy-focused, mobilizing its strategy into action.

Kaplan and Norton's first book, The Balanced Scorecard: Translating Strategy into Action extended their three Harvard Business Review articles introducing the balanced scorecard as a way for organizations (profit or not-for-profit, service-or product-based) to develop a performance measurement model linked to organization objectives. Their cause and effect perspective reflects the underlying premise of the balanced scorecard: organizations must recognize, measure, and manage the drivers of success to achieve their objectives. The Balanced Scorecard: Translating Strategy into Action is an indispensable reference for those that want to make their strategy real and actionable to their employees.

In this sequel, Kaplan and Norton document several success stories of companies initially described in their first book. They show how these and other organizations implemented the balanced scorecard to improve organizational performance. Based on studies of 10 balanced scorecard implementations, this book develops a set of five principles that Kaplan and Norton believe are common across the successful implementations of the balanced scorecard.

These principles require that senior management provide a visible and credible commitment to the balanced scorecard and that the organization translate strategy into terms that enable all employees -- down to the front lines and back offices -- to think about how to do their jobs differently and better to achieve organizational objectives. The organization structure and performance measurement system enables organizations to turn functional silos into value chains with internal fit and consistency of purpose (aligned with organization goals) to create, what Michael Porter has called, a sustainable competitive advantage. Kaplan and Norton argue that successful organizations align their performance measurement and management to strategy, which, in turn, makes strategy a part of everyday thinking on the job. It also supports making strategy a continuous process.

One excellent example of balanced scorecard implementation used in the book is that which occurred at Mobil North American Marketing and Refining. This example, which occupies an entire chapter, provides a vivid description of how Mobil used the balanced scorecard to accomplish a transformation in organizational culture from bureaucratic, functionally-oriented to market-driven, from command and control to highly decentralized, and from an organization without clear direction to one focused on particular customer segments. The Mobil story begins by identifying an organization that was suffering a serious cash hemorrhage. The usual panacea of cost-cutting offered only minor relief and management recognized the need for a new strategy. Mobil Oil used the balanced scorecard to implement, monitor, and evaluate this new strategy, and became the industry profit leader.

In The Strategy-Focused Organization, the balanced scorecard's four perspectives (financial, customer, internal process, and learning and growth) introduced in the first book are represented on a strategy map. The map brings the relationship between the four perspectives and key elements of strategy (the value proposition, which identifies the target customer's requirements, and the operational strategy, which identifies how the organization will deliver the value proposition) into clear focus. In effect, the strategy map decomposes the organization's primary objectives into customer, process, and learning and growth objectives in a way that is reminiscent of the way that the Dupont formula decomposed the return on investment metric into front-line operational measures. The strategy map describes the value chain that delivers the customers' requirements thereby providing all employees with a clear picture of how their jobs support the organization's pursuit of its objectives.

The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. By Robert S. Kaplan and David P. Norton. Harvard Business School Press, Boston, Massachusetts, 2001.

Anthony Atkinson ([e-mail]), CMA, FCMA, is a Society of Management Accountants of Ontario professor, School of Accountancy, at the University of Waterloo in Waterloo, Ontario.