QuickStudy: Balanced Scorecard

When US West Inc. in Denver recently undertook an e-commerce initiative, the company put the Balanced Scorecard model to work, says Rod Mack, the company's general manager of software development. Based on the theory that for every action there's an equal and opposite reaction, the model helps companies determine what impact a potential change will have on the rest of the organization, looking at it from four perspectives: finance, customers, internal processes, and innovation and learning for employees.

For US West's 4,500-person information technology department, that meant getting the associated computer systems Y2K-compliant in the internal processes category, implementing an IT career structure in the employee learning category and meeting overall budget commitments in the financial category.

Business Beyond Finances

Some organizations like US West are beginning to accept Balanced Scorecard analysis for assessing roll outs of new technology. Instead of focusing solely on a company's financial goal, the model requires decision-makers to consider the impact of strategic decisions on staff, customers and the organization's function.

"In the past, a lot of these might have been the same goals, but it's easier to organize your thoughts around this. We even used Balanced Scorecard as the framework for all our 2000 planning," Mack says. The regional Bell operating company has been using Balanced Scorecard for the past year and a half to gauge successful project implementations, he says.

The Balanced Scorecard concept was created by Robert Kaplan and David Norton, who coined the term in a 1992 Harvard Business Review article (see "Balanced Scorecard's Origins"). Many Fortune 500 companies use it to assess the full impact of their corporate strategies, ferreting out any unintended consequences to their workforces, their customers or their bottom lines that could occur when they alter a production process, for example.

"When companies look at setting strategies and goals, they classically fall into setting financial objectives: increasing revenue or return on assets. But Balanced Scorecard says that's looking in the rearview mirror," says Ken Rau, director of the information risk management practice at KPMG Peat Marwick LLP. He uses the methodology to advise companies on how to avoid negative consequences when implementing strategies.