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title: Harvard Business Review On

Measuring Corporate Performance
Harvard Business Review Paperback
Series
author:
publisher: Harvard Business School Press
isbn10 | asin: 0875848826
print isbn13: 9780875848822
ebook isbn13: 9780585118550
language: English
subject Industrial productivity--Measurement,
Industrial efficiency--Measurement,
Organizational effectiveness--
Measurement.
publication date: 1998
lcc: HD56.25.H373 1998eb
ddc: 338/.06
subject: Industrial productivity--Measurement,
Industrial efficiency--Measurement,
Organizational effectiveness--
Measurement.

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Contents

The Information Executives Truly Need 1

Peter F. Drucker
The Performance Measurement Manifesto 25
Robert G. Eccles
Tapping the Full Potential of ABC 47
Joseph A. Ness and Thomas G. Cucuzza
How High Is Your Return on Management? 73
Robert Simons and Antonio Dávila
How the Right Measures Help Teams Excel 99
Christopher Meyer
The Balanced Scorecard: Measures that Drive Performance 123
Robert S. Kaplan and David P. Norton
Putting the Balanced Scorecard to Work 147
Robert S. Kaplan and David P. Norton
Using the Balanced Scorecard as a Strategic Management System 183
Robert S. Kaplan and David P. Norton
About the Contributors 213
Index 217

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Harvard Business Review on Measuring

Corporate Performance

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Copyright 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998

President and Fellows of Harvard College
All rights reserved
Printed in the United States of America
02 01 00 99 5 4
All rights reserved. No part of this book may be reproduced, stored in
a retrieval system, or transmitted, in any form or by any means,
electronic, mechanical, photocopying, recording, otherwise without the
prior written permission of the copyright holder.
The Harvard Business Review articles in this collection are available
as individual reprints. Discounts apply to quantity purchases. For
information and ordering please contact Customer Service, Harvard
Business School Publishing, Boston, MA 02163. Telephone: (617)
496-1449, 8 A.M. to 6 P.M. Eastern Time, Monday through Friday.
Fax: (617) 496-1029, 24 hours a day. E-mail:
custserv@hbsp.harvard.edu.
Library of Congress Catalog Card Number
98-234095
The paper used in this publication meets the requirements of the
American National Standard for Permanence of Paper for Printed
Library Materials Z39.49-1984.

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The Information Executives Truly Need

Peter F. Drucker

Executive Summary
The ability to gather, arrange, and manipulate information with computers has given
business people new tools for managing. But data processing tools have done more
than simply enable executives to do the same tasks better. They have changed the very
concepts of what a business is and what managing means. To manage in the future,
executives will need an information system integrated with strategy, rather than
individual tools that so far have been used largely to record the past.

Many businesses have already shifted from traditional cost accounting to activity-
based costing, which records the cost of the total process of providing a product or
service. Activity-based costing integrates what were once several activitiesvalue
analysis, process analysis, quality management, and costinginto one

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THE HARVARD BUSINESS REVIEW

PAPERBACK SERIES
The series is designed to bring today's managers and professionals the
fundamental information they need to stay competitive in a fast-
moving world. From the preeminent thinkers whose work has defined
an entire field to the rising stars who will redefine the way we think
about business, here are the leading minds and landmark ideas that
have established the Harvard Business Review as required reading for
ambitious businesspeople in organizations around the globe.
Other books in the series:
Harvard Business Review on Change
Harvard Business Review on Knowledge Management
Harvard Business Review on Leadership
Harvard Business Review on Strategies for Growth

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Harvard Business Review on Measuring

Corporate Performance
A HARVARD BUSINESS REVIEW PAPERBACK

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analysis. By using it, service and knowledge-based businesses can get cost information
and yield control for the first time.

A company also must know the costs of its entire economic chain. It must work with
all the other businesses that contribute to the final product, which will require
compatible accounting systems and information sharing across companies. The shift
from cost-led pricing to price-led costing, in which the price the customer is willing to
pay determines allowable costs, will force companies into economic-chain costing.

The executive's tool kit has four kinds of diagnostic information: foundation
information, productivity information, competence information, and resource-
allocation information. The sources of the information are so diverse, and sifting
through and interpreting it for a specific business are so difficult, that even small
companies will need help from data specialists.

Ever since the first data processing tool emerged 30 or 40 years ago,
businesspeople have both overrated and underrated the importance of
information in the organization. Weand I include myselfoverrated the
possibilities to the point where we talked of computer-generated
"business models" that could make decisions and might even be able
to run much of the business. But we also grossly underrated the new
tools; we saw in them the means to do better what executives were
already doing to manage their organizations.
Nobody talks of business models making economic decisions
anymore. The greatest contribution of our

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data processing capacity so far has not even been to management. It

has been to operationsfor example, computer-assisted design or the
marvelous software that architects now use to solve structural
problems in the buildings they design.
Yet even as we both overestimated and underestimated the new tools,
we failed to realize that they would drastically change the tasks to be
tackled. Concepts and tools, history teaches again and again, are
mutually interdependent and interactive. One changes the other. That
is now happening to the concept we call a business and to the tools we
call information. The new tools enable usindeed, may force usto see
our businesses differently:
as generators of resources, that is, as organizations that can convert
business costs into yields;
as links in an economic chain, which managers need to understand as a
whole in order to manage their costs;
as society's organs for the creation of wealth; and
as both creatures and creators of a material environment, the area
outside the organization in which opportunities and results lie but in
which the threats to the success and the survival of every business also
originate.
This article deals with the tools executives require to generate the
information they need. And it deals with the concepts underlying those
tools. Some of the tools have been around for a long time, but rarely, if
ever, have they been focused on the task of managing a business.
Some have to be refashioned; in their present form they

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no longer work. For some tools that promise to be important in the

future, we have so far only the briefest specifications. The tools
themselves still have to be designed.
Even though we are just beginning to understand how to use
information as a tool, we can outline with high probability the major
parts of the information system executives need to manage their
businesses. So, in turn, can we begin to understand the concepts likely
to underlie the businesscall it the redesigned corporationthat
executives will have to manage tomorrow.

From Cost Accounting to Yield Control

We may have gone furthest in redesigning both business and
information in the most traditional of our information systems:
accounting. In fact, many businesses have already shifted from
traditional cost accounting to activity-based costing. Activity-based
costing represents both a different concept of the business process,
especially for manufacturers, and different ways of measuring.
Traditional cost accounting, first developed by General Motors 70
years ago, postulates that total manufacturing cost is the sum of the
costs of individual operations. Yet the cost that matters for
competitiveness and profitability is the cost of the total process, and
that is what the new activity-based costing records and makes
manageable. Its basic premise is that manufacturing is an integrated
process that starts when supplies, materials, and parts arrive at the
plant's loading dock and continues even after the finished product
reaches the end user. Service is still a cost of the product, and so is
installation, even if the customer pays.

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