Developed by David Norton and the speaker in 1990.
Addressed limitations of financial measures in companies' financial reports (income statement, balance sheet, statement of cash flows).
Financial reports are historical and work well with tangible and financial assets, but not with intangible assets.
Importance of Intangible Assets
By 1990, valuable assets included people, customer relationships, and innovation (intangible assets).
Accountants classify these as intangible as they cannot be directly measured financially.
Investments in intangible assets (e.g., training employees, improving processes, developing new products, creating customer loyalty) are often recorded as expenses.
These investments actually increase a company's value by enhancing future capabilities.
Measurement and Management
Belief: "If you don't measure something, you can't manage it."
Measurement of intangible assets is crucial for effective management.
Financial systems struggle to quantify the value of customers, innovation, processes, people, systems, and culture.
The balanced scorecard provides a framework to measure and manage these intangible assets.
Enables quantification of customer loyalty, innovativeness, quality of processes, and employee skills.
Framework of the Balanced Scorecard
Comprehensive and structured approach to measure important assets and capabilities.
Helps in managing and enhancing current and future capabilities by directing company spending more effectively.