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202 Part II • Descriptive Analytics

accounts, and promotion costs and return on marketing investment. The net result of
its efforts was a 12 percent increase in revenues in 1 year. Obviously, these operational
metrics were key drivers. However, as described in the following section, in many cases,
companies simply measure what is convenient with minimal consideration as to why the
data are being collected. The result is a significant waste of time, effort, and money.

performance Measurement system
There is a difference between a performance measurement system and a performance
management system. The latter encompasses the former. That is, any performance
management system has a performance measurement system, but not the other way
around. If you were to ask, most companies today would claim that they have a per-
formance measurement system but not necessarily a performance management system,
even though a performance measurement system has very little, if any, use without the
overarching structure of the performance management system.
The most popular performance measurement systems in use are some variant of
Kaplan and Norton’s balanced scorecard (BSC). Various surveys and benchmarking
studies indicate that anywhere from 50 to over 90 percent of all companies have imple-
mented some form of BSC at one time or another. Although there seems to be some
confusion about what constitutes “balance,” there is no doubt about the originators of
the BSC (Kaplan & Norton, 1996): “Central to the BSC methodology is a holistic vision of
a measurement system tied to the strategic direction of the organization. It is based on a
four-perspective view of the world, with financial measures supported by customer, inter-
nal, and learning and growth metrics.”
sectiOn 4.8 revieW QuestiOns

1. What is a performance management system? Why do we need one?
2. What are the most distinguishing features of KPIs?
3. List and briefly define four of the most commonly cited operational areas for KPIs.
4. What is a performance measurement system? How does it work?

4.9 BAlAnCeD sCoReCARDs

Probably the best-known and most widely used performance management system is
the balanced scorecard (BSC). Kaplan and Norton first articulated this methodology in
their Harvard Business Review article, “The Balanced Scorecard: Measures That Drive
Performance,” which appeared in 1992. A few years later, in 1996, these same authors
produced a groundbreaking book—The Balanced Scorecard: Translating Strategy into
Action—that documented how companies were using the BSC not only to supplement
their financial measures with nonfinancial measures, but also to communicate and imple-
ment their strategies. Over the past few years, BSC has become a generic term that is used
to represent virtually every type of scorecard application and implementation, regard-
less of whether it is balanced or strategic. In response to this bastardization of the term,
Kaplan and Norton released a new book in 2000, The Strategy-Focused Organization:
How Balanced Scorecard Companies Thrive in the New Business Environment. This book
was designed to reemphasize the strategic nature of the BSC methodology. This was
followed a few years later, in 2004, by Strategy Maps: Converting Intangible Assets into
Tangible Outcomes, which describes a detailed process for linking strategic objectives to
operational tactics and initiatives. Finally, their latest book, The Execution Premium, pub-
lished in 2008, focuses on the strategy gap—linking strategy formulation and planning
with operational execution.

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