History of the Balanced Scorecard
In 1990, the Nolan Norton Institute, the research arm of KPMG, sponsored a one-year multi company study, “Measuring Performance in the Organization of the Future.” The study was motivated by a belief that existing performance measurement approaches, primarily relying on financial accounting measures, were becoming obsolete.
The study participants believed that reliance on summary financial-performance measures were hindering organizations’ abilities to create future economic value. David Norton, CEO of Nolan Norton, served as the study leader and Robert Kaplan as an academic consultant. Representatives from a dozen companies-manufacturing and service, heavy industry and high-tech met bimonthly throughout 1990 to develop a new performance-measurement model.
A mid-sized semiconductor company called Analog Devices was used as a case study. The company was using a newly created “Corporate Scorecard” that contained, in addition to several traditional financial measures, performance measures relating to customer delivery times, quality and cycle times of manufacturing processes, and effectiveness of new product developments.
Art Schneiderman, then vice president of quality improvement and productivity at Analog Devices, came to one meeting to share his company’s experiences with the scorecard. A variety of other ideas were presented during the first half of the study, including shareholder value, productivity and quality measurements, and new compensation plans, but the participants soon focused on the multidimensional scorecard as offering the most promise for their needs. The group discussions led to an expansion of the scorecard to what was labelled a “Balanced Scorecard,” organized around four distinct perspectives-financial, customer, internal, and innovation and learning.
The name reflected the balance provided between short- and long-term objectives, between financial and non financial measures, between lagging and leading indicators, and between external and internal performance perspectives. Several participants experimented with building prototype Balanced Scorecards at pilot sites in their companies. They reported back to the study group on the acceptance, the barriers, and the opportunities of the Balanced Scorecard.
The conclusion of the study, in December 1990, documented the feasibility and the benefits from such a balanced measurement system. The findings of the study group were summarized in an article, “The Balanced Scorecard-Measures That Drive Performance,” Harvard Business Review (January-February 1992).