Rethinking Performance Measurement: Beyond the Balanced Scorecard

Rethinking Performance Measurement: Beyond the Balanced Scorecard

Rethinking Performance Measurement: Beyond the Balanced Scorecard

Rethinking Performance Measurement: Beyond the Balanced Scorecard

Synopsis

Performance measurement remains a vexing problem for business firms and other kinds of organizations. The "balanced scorecard", widely touted as a solution to problems of performance measurement and strategic planning, has no strong basis in theory. Moreover, implementation of the "balanced scorecard" may create many more problems than it solves. This text returns to the fundamentals by asking what is the performance of the firm, can this performance be measured, and what are reasonable second-best measures if the first-best measures we would like to have are not available.

Excerpt

Performance measurement is in an uproar. The collapse of the internet bubble, the bankruptcy of Enron, and the erosion of confidence in the accounting profession have placed the problem of measuring the performance of the firm – and of other kinds of organizations – squarely in the public arena. Enron's bankruptcy, in particular, is a watershed event. On the surface, it raises the issue of how a firm reporting pretax profits of $1.5 billion from the third quarter of 2000 through the third quarter of 2001 could file for bankruptcy the next quarter. The answers proffered so far are the expected: sharp if not fraudulent financial practices, cozy relationships with auditors and their consulting arms, even cozier relationships with Wall Street analysts, and directors so dazzled by Enron's growth and generous directors' fees that they failed to exercise proper fiduciary responsibility.

But there remains an underlying problem so daunting that to raise it is almost heretical: can we accurately measure the performance of firms like Enron or, for that matter, any firm? I raise this question because the answer is not clear. For decades we have accepted that the performance of non-profit organizations like hospitals and universities is difficult to gauge. To be sure, performance measures for hospitals and universities abound (mortality/morbidity/acceptance/graduation rates, patient/student satisfaction, professional reputation), but most are unsatisfactory because they are incomplete or susceptible to deliberate distortion or both.

Until recently, firms have been privileged because we have assumed that the profit motive simplifies the measurements of their performance. Perhaps it once did. But no longer. As the internet bubble, Enron, and the travail of the accounting profession have shown, metrics (e.g. pro forma earnings) and accounting practices (e.g. off-balance-sheet assets) now commonplace have obscured the performance of firms. But for managers simplicity has long since vanished. The appearance of the balanced scorecard ten years ago signaled how complicated – and . . .

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.