From the July 1998 issue of Entrepreneur

For Court Coursey, tracking revenue isn't the only way he keeps score in his company. When the Atlanta entrepreneur sits down for quarterly meetings with the directors of Certifiedemail.com, his 10-employee electronic document delivery business, each person gets a one-page scorecard that shows how the year-old company is doing in such areas as gaining new customers, cutting costs and building corporate value.

"It's a good way to get a grasp on the company and how it's performing," Coursey says of the scorecard system. Other businesspeople seem to agree, making scorecarding one of the hot new management tools of the '90s.

Large corporations, including Shell Oil and Advanced Micro Devices, have used brief summaries of key financial and other business information as a management tool for more than 10 years. The concept gained wider attention in 1992 through a series of Harvard Business Review articles by Harvard leadership development professor Robert Kaplan and management consultant David Norton.

In 1996, Kaplan and Norton wrote The Balanced Scorecard (Harvard Business School Press). Since then, the idea has taken on a life of its own, says Norton. Today, companies such as Mobil Oil, agricultural and industrial chemical and equipment producer FMC Corp. and engineering service provider Brown & Root rely on scorecards to manage their empires. With all this support, the concept may just become one of the most influential management innovations of the decade.


Mark Henricks is an Austin, Texas, writer specializing in business topics.

First Score

Norton says the scorecard concept was originally intended to help managers balance short- and long-term goals. "The problem most management groups have is that the pressure of being profitable makes them focus on the short term and all the management tools at their disposal also focus on that short term," Norton says.

Scorecards aim to bridge that gap by helping to translate long-term strategy into short-term actions. They can also help entrepreneurs in several other ways. First, they help clarify strategic goals. "The thing I like about them is they force you to set priorities," says John Warner, president of Capital Insights, a Greenville, South Carolina, venture capital firm that requires the companies it backs to use scorecards. "You have to say `Here's what's important. Here are the eight things we're going to track that are going to make a difference in this business.' "

Scorecards help communicate those objectives to other managers and employees. By creating standard methods of measuring such nebulous concepts as customer satisfaction, managers from different departments, who may have different ways of looking at things, can understand what others are talking about.

Scorecards also provide rapid, easily digestible feedback about how managers are doing, which allows them to modify their direction. This makes scorecarding more than a measuring device, say Kaplan and Norton--it turns it into a management tool.

Getting Started

Scorecarding starts with selecting company goals, then translating those goals into specific, concrete measures. For instance, a company with a goal of making on-time deliveries might set a measurable, specific objective of having 95 percent of its deliveries arrive within 24 hours of the agreed-upon time.

As for deciding what to measure, there are two schools of thought. One says to score only financial achievements such as sales increases; the other says to include nonfinancial matters such as customer satisfaction.

Norton and Kaplan suggest a balanced approach that scores four areas. Financial scores cover such things as revenue growth and profitability. Customer scores include rankings for market share, customer acquisition and other similar matters. Learning and growth scores aim to help manage employee turnover, productivity and the like. Finally, an internal business process score is concerned with product development, innovation and so on.

But before you apply these categories to your company, keep in mind that no company's scorecard will be exactly like another's. That's because the areas that are scored should be determined by a company's specific markets, strengths and strategies.

Know The Score

Although scorecards were developed for use in large corporations, they offer the same benefits to entrepreneurs. "We've used the approach with companies of all sizes," Norton says. In fact, he says entrepreneurs benefit more than large companies do from balancing long- and short-term goals, because managers at small firms tend to focus even more on short-term financial performance.

But scorecards may not be beneficial to very small firms. Although Warner insists that the companies he invests in use scorecards to communicate goals and performance, Capital Insights doesn't use them internally. "That may sound hypocritical," Warner says, "but there are only three of us and we talk all the time."

Good data is vital to successful scorekeeping. "You need to make sure your information is valid," emphasizes Curtis Carlson, group vice president for Walker Information, an Indianapolis firm that conducts customer and employee satisfaction surveys for companies that use scorecards.

And the difference between good and bad information may be subtle. For instance, Carlson says it isn't enough to ask customers if they're happy with your company. You need to pose questions that give insight into customers' needs and motivations, rather than only measuring the strength of the relationships. "If you mistake scorecard information for insight," Carlson warns, "you can make decisions that [take your company] in the wrong direction."

Scorecards are tools that help communicate an entrepreneurial vision to all levels of an organization. And it's important they be used that way, from the top down, rather than allowing lower-level employees to decide what to measure, how to measure it and what the data means.

What's It Cost?

To make sure your scorecard reflects your company's strategy, design it with the help of your most senior employees, Norton says. Take some time over a period of several months to discuss your strategy. Come up with ways to measure performance of that strategy. Then devise a way to let everybody know how the company's doing on a regular basis.

Over time, every employee in your company should begin to make decisions that will move your business closer to achieving your goals, as measured on the scorecard. "The simple act of looking at [the scorecards] will change behavior," Norton says.

It's working at Certifiedemail.com. One of Coursey's chief concerns is controlling costs, and he recounts an instance when a wasteful practice came to his attention through a scorecard data-collection effort. "It showed me a way to save money," Coursey says. "And it was something I may not have seen without this feedback."

While it can save money, scorecarding involves some cash outlays as well. Executive time can be a big cost. Gathering data is another. Certifiedemail.com devotes half of one person's time to scorecarding. And surveys like the ones Walker Information does can cost $4,000 and up.

But knowing the score is worth it--and then some, say scorecarding fans. "Some people think it's a waste of time, energy and money for a small company, but I don't think so," says Coursey. "It keeps you in tune with what's going on."

Next Step

The Harvard Business School Press Web site (http://www.hbsp.harvard.edu) includes numerous case studies and other learning tools about scorecards.

The International Quality & Productivity Center in Berkeley, California, puts on seminars relating to scorecarding. Visit http://www.iqpc.com for more information.

Contact Sources

Capital Insights, (864) 242-6832, Jwarner@capitalinsights.com

Certifiedemail.com, http://www.certifiedemail.com

Walker Information, (800) 231-4904, info@walkernet.com