Conceptual Foundations of the Balanced Scorecard

Robert S. Kaplan

Chapter | Handbook of Management Accounting Research | 2008

Conceptual Foundations of the Balanced Scorecard

Abstract

David Norton and I introduced the Balanced Scorecard in a 1992 Harvard Business Review article. The article was based on a multi-company research project that studied performance measurement in companies whose intangible assets played a central role in value creation. Our interest in measurement for driving performance improvements arose from a belief articulated more than a century earlier by a prominent British scientist, Lord Kelvin:

I often say that when you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind.

If you can not measure it, you can not improve it.

Norton and I believed that measurement was as fundamental to managers as it was for scientists. If companies were to improve the management of their intangible assets, they had to integrate the measurement of intangible assets into their management systems.

After publication of the 1992 HBR article, several companies quickly adopted the Balanced Scorecard giving us deeper and broader insights into its power and potential. During the next 15 years, as it was adopted by thousands of private, public, and nonprofit enterprises around the world, we extended and broadened the concept into a management tool for describing, communicating and implementing strategy. In this chapter, I describe the roots and motivation for the original Balanced Scorecard article as well as the subsequent innovations that connected it to a larger management literature. The chapter uses the following structure for organizing the origin and subsequent development of the Balanced Scorecard:

1. Balanced Scorecard for Performance Measurement

2. Strategic Objectives and Strategy Maps

3. The Strategy Management System

4. Future Opportunities

Keywords: Balanced Scorecard; Management Systems; Measurement and Metrics; Performance Improvement; Strategy;

Format: Print

Citation:

Kaplan, Robert S. "Conceptual Foundations of the Balanced Scorecard." Chap. 1.03 in Handbook of Management Accounting Research. Vol. 3, edited by Christopher Chapman, Anthony Hopwood, and Michael Shields. Elsevier, 2008.

Leaders at six hospitals conducted a research study to assess and compare the health outcomes and costs of pediatric aerodigestive care. Four of the hospitals delivered care with an integrated practice unit (IPU) while two delivered care traditionally, with isolated specialists. The study used time-driven activity-based costing as a tool to measure and compare costs across the six sites. The results demonstrate that the four IPU sites improved clinical outcomes and had lower costs of care.

Value-based care models are becoming instrumental in structuring clinical care delivery in our healthcare climate. Our objective was to determine the value associated with implementation of a Family-Centered Care Coordination (FCCC) program for neonates undergoing tracheostomy.

Article | American Heart Journal

Are Cost Advantages from a Modern Indian Hospital Transferable to the United States?

R. S. Kaplan, F. Erhun, V.G. Narayanan, B. Mistry and K. Brayton, et al

We use time-driven activity-based costing to estimate the cost of personnel and space for an elective coronary artery bypass graft (CABG) surgery at two U.S. hospitals, Intermountain and Baylor Heart, and Narayana Health (NH), in India. All three hospitals use modern management methods to achieve excellent patient outcomes. We use variance analysis to remove the effect of differential prices paid for personnel and space at the three hospitals. NH, even at U.S. price levels, retains a cost advantage over the two U.S. hospitals by shifting tasks to less-credentialed and/or less-experienced personnel, supervised by highly-skilled personnel, a practice facilitated by NH’s high annual CABG volume. NH offsets some of its task downshifting cost savings by having lower-skilled employees spend more time counseling patients and their families for in-hospital and home recovery. NH’s cost-saving practices could be captured by U.S. hospitals by relaxing hospital and health professional licensing regulations, encouraging greater family participation in inpatient care, and performing complex surgeries in high-volume regional centers of excellence.

Keywords: Time-Driven Activity-Based Costing; Health Care and Treatment; Cost; Organizational Structure; Performance Efficiency; India; United States;

Citation:

Kaplan, R. S., F. Erhun, V.G. Narayanan, B. Mistry, and K. Brayton, et al. "Are Cost Advantages from a Modern Indian Hospital Transferable to the United States?" American Heart Journal 224 (June 2020): 148–155. View Details

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Conceptual Foundations of the Balanced Scorecard

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