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.

In 2016 the newly appointed surgeon general of the Navy launched a value-based health care pilot project at Naval Hospital Jacksonville to explore whether multidisciplinary care teams (known as integrated practice units, or IPUs) and measurement of outcomes could improve the readiness of active duty personnel and lower the cost of delivering care to them, their dependents, and local retirees. This article describes the formation of the project’s leadership structure; the selection of four conditions to be treated (low back pain, osteoarthritis, diabetes, and high-risk pregnancy); the creation of the care team for each condition; outcomes and costs measured; and the near-term changes in outcomes during the twelve-month pilot period. Patient outcomes improved for three of the four conditions. We describe factors that contributed to the project’s success. After the pilot concluded, the Navy combined the back pain and osteoarthritis IPUs into a single musculoskeletal clinical unit and established a similar IPU at another naval hospital and its clinics. The diabetes IPU was continued, but the high-risk pregnancy IPU was not. We offer several observations on the elements that were key to the success of the project, explore challenges and opportunities, and suggest that the pilot described here could be taken to greater scale in the Military Health System and elsewhere.

In 2016, the Centers for Medicare & Medicaid Services (CMS) launched its first mandatory bundled payment program, the Comprehensive Care for Joint Replacement (CJR) model, by randomizing metropolitan statistical areas (MSAs) into the payment model. The paper analyzed Medicare costs for beneficiaries undergoing lower extremity joint replacement between April 1, 2016, through December 31, 2017. The introduction of the CJR was associated with reduced Medicare Part A spending ($582 per episode, a 2.5% savings) largely through lower post-acute spending in skilled nursing facilities. The CJR hospitals had no significant differences in hospital length of stay, readmissions, complications, 30- or 90-day mortality, volume of episodes, or patient characteristics relative to the non-CJR hospitals. We conclude that mandatory bundled payments may help to change clinicians’ and facilities’ behavior without harming quality.

Article | Accounting Horizons

Reverse the Curse of the Top-5

Robert S. Kaplan

The past 40 years has seen a large increase in the number of articles submitted to journals ranked in the top-5 of their discipline. This increase is the rational response, by faculty, to the overweighting of publications in these journals by university promotions and tenure committees. The ranking factors for academic journals, however, arose for a completely different purpose, to guide the journal acquisition decisions by budget-constrained university librarians. Using journal impact factors to infer the quality of faculty members’ publications incurs a high incidence of both Type 1 errors, when we conclude incorrectly that a paper published in a top-5 journal is a high-impact paper, and Type 2 errors, when we conclude that papers (and books) not published in top-5 journals have low impact. In addition, a third type of error gets introduced as faculty pursue the research they perceive is favored by editors of top-5 journals, at the potential expense of more innovative and relevant research, perceived to be unpublishable in a top-tier journal. Accounting scholarship, in particular, has underinvested in research about innovative practices or the emerging accounting issues faced by contemporary organizations (Kaplan, 2011), likely because such research is viewed as unpublishable in top-5 journals. This gap persists despite recent scholarship that has documented how important, fundamental ideas can emerge from “use-inspired” research (see Pasteur’s Quadrant (Stokes, 1997)). The paper concludes by suggesting reforms to overcome the dysfunctional fixation on publication in top-5 journals.

Keywords: Information Publishing; Journals and Magazines; Power and Influence; Research;

Citation:

Kaplan, Robert S. "Reverse the Curse of the Top-5." Accounting Horizons 33, no. 2 (June 2019): 17–24. View Details

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Conceptual Foundations of the Balanced Scorecard

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