2.1.3 Conceptual Foundations of BSC
The BSC, of course, was not original for advocating that nonfinancial measures be used to motivate, measure, and evaluate company performance. In the 1950s, a General Electric corporate staff group conducted a project to develop performance measures for GE’s decentralized business units (Lewis, 1955).
The project team recommended that divisional performance be measured by one financial and seven nonfinancial metrics.
1. Profitability (measured by residual income)
2. Market share
3. Productivity
4. Product leadership
5. Public responsibility
6. Personnel development
7. Employee attitudes
8. Balance between short-range and long-range objectives
The roots of BSC are embodied in those eight objectives. Unfortunately, …show more content…
Among those trials was Peter Drucker’s introduction to the concept of “Management by Objectives”. However, this concept became a somewhat bureaucratic exercise based on local goal-setting that was operational and tactical, and rarely informed by business-level strategies and objectives. Companies were lacking a clear way of describing and communicating top-level strategy in a way that middle managers and frontline employees could understand and internalize.
In the mid-1960s, Robert Anthony proposed a comprehensive framework for planning and control systems. Anthony identified three different types of systems: strategic planning, management control, and operational control. However, the primary management system for most companies, until the 1990s, used financial information almost exclusively and relied heavily on budgets to maintain focus on short-term …show more content…
Howell et al. (1987), Berliner and Brimson (1991), Kaplan (1990). Some authors went further when they urged that internal reporting of financial information to managers and employees, especially those tasked with improving operations by continuous improvement of quality, process yields, and process cycle times, be abolished. Essentially, those authors argued that companies should focus on improving quality, reducing cycle times, and improving companies’ responsiveness to customers’ demands. Doing these activities well, they believed, would lead naturally to improved financial
The BSC, of course, was not original for advocating that nonfinancial measures be used to motivate, measure, and evaluate company performance. In the 1950s, a General Electric corporate staff group conducted a project to develop performance measures for GE’s decentralized business units (Lewis, 1955).
The project team recommended that divisional performance be measured by one financial and seven nonfinancial metrics.
1. Profitability (measured by residual income)
2. Market share
3. Productivity
4. Product leadership
5. Public responsibility
6. Personnel development
7. Employee attitudes
8. Balance between short-range and long-range objectives
The roots of BSC are embodied in those eight objectives. Unfortunately, …show more content…
Among those trials was Peter Drucker’s introduction to the concept of “Management by Objectives”. However, this concept became a somewhat bureaucratic exercise based on local goal-setting that was operational and tactical, and rarely informed by business-level strategies and objectives. Companies were lacking a clear way of describing and communicating top-level strategy in a way that middle managers and frontline employees could understand and internalize.
In the mid-1960s, Robert Anthony proposed a comprehensive framework for planning and control systems. Anthony identified three different types of systems: strategic planning, management control, and operational control. However, the primary management system for most companies, until the 1990s, used financial information almost exclusively and relied heavily on budgets to maintain focus on short-term …show more content…
Howell et al. (1987), Berliner and Brimson (1991), Kaplan (1990). Some authors went further when they urged that internal reporting of financial information to managers and employees, especially those tasked with improving operations by continuous improvement of quality, process yields, and process cycle times, be abolished. Essentially, those authors argued that companies should focus on improving quality, reducing cycle times, and improving companies’ responsiveness to customers’ demands. Doing these activities well, they believed, would lead naturally to improved financial