Homepage
Our
Products
How
to Order
Feedback
This Page May be copied and distributed with attribution.
The Journal of Management Consulting, to run in 1997
by Robert S. Kaplan and David P. Norton
(Harvard Business School Press, Boston, MA; 1996) $29.95
Reviewed by John D. Trudel CMC
The central metaphor of this book is of a passenger visiting the cockpit of an airliner and finding it contains only a single instrument. The pilot explains that on this flight he is working on airspeed. He says that on previous flights he has worked on altitude and has gotten pretty good at it. So with fuel consumption and other indicators of performance.
Fortunately no such airplanes or pilots exist. Pilots need and use a full range of gauges. We would not fly in an airplane with only one gauge. Similarly, we should beware of corporations that use only one measure of performance. Many businesses have been wounded or killed by putting too much emphasis on short-term financial performance, or any other single measure. CEOs with tender nicknames like "Chainsaw Al" come to mind.
Traditionally, accounting has been the primary way to measure business operations. Kaplan and Norton argue here (and previously in three important articles for Harvard Business Review) that the traditional financial information alone does not suffice in an environment where relationships, alliances, knowledge, capabilities, and other intangible variables increasingly determine the success of an enterprise. A more balanced scorecard is needed -- one that accounts in financial and non-financial terms for customer knowledge, internal business processes, intellectual assets, learning and growth, as well as overall profits, and increases in net worth and shareholder value.
This kind of scorecard is not just a way to measure performance, they say; it is also a management system to help organizations become more driven by long-term mission and less driven by short-term profits.
Well, that is hard to ignore. Indeed, anything that helps us move from one-dimensional financial measures to a broader view, from today's fixation with the manipulation of this quarter's financial statements towards developing real competitive advantage, is welcome. Process re-engineering consultants will cherish this book, and probably share Michael Hammer's view that it is a "landmark achievement." Maybe it is; maybe not.
The idea is good. However, working through the detail presented by the authors, it seems to me that the financial perspective still dominates. It reads too much like an accountant's approach to innovation and strategy.
In chapter four, for example, there is a treatment of the vital importance of seeing things from the customer's perspective and measuring how well we do that. There is a discussion of market segmentation and share, customer retention, acquisition, satisfaction, and profitability) product and service attributes; and other "market elements" we are told to measure. But, in the end, the authors still pay highest homage to profits. Others might well argue that delivering real value to customers should be first -- that if we do that well, profits will inevitably follow.
This brings to mind the Dilbert cartoon where the boss notes that 20% of the customers cause 80% of the costs. He proposes cutting off the customers and eliminating the costs. Dilbert asks: "You mean the ones who actually use our products"? "Yes," Says the boss.
We can easily see the madness when it is put that way It is not so easy to see if the professor (Kaplan, at Harvard Business School) and management consultant (Norton, president of Renaissance Solutions) writing here are making the same error in their thinking. There are firms who have prospered by making seemingly unreasonable investments in unhappy and demanding customers, and made enthusiastic allies out of them in the process. If nothing else, we are provoked to wonder anew whether business is about profits or customers.
Likewise, the section on new products proposes the apparently reasonable suggestion that new products generate a higher margin than the mature products they replace. But this can be lethal: Thus did IBM cling to mainframes, DEC to mini-computers, Apple to the Mac, and Tektronix to analog oscilloscopes. All missed explosive new markets.
A more balanced scorecard for business is a superb idea. This book is a step forward in that it gets us thinking about that and how to do it. As with business process reengineering, it is a fad that will appeal to many, and its implementation will produce some benefits. But finally it will leave us wanting, for it is essentially neither big enough nor balanced enough to give us the handle we really need to grasp or manage the complexities of doing business in these turbulent times.
Homepage
Our
Products
How
to Order
Feedback
© Copyright