Third, the scorecard facilitates the strategy
review that is essential to strategic learning. Traditionally,
companies use the monthly or quarterly
meetings between corporate and division
executives to analyze the most recent period’s
financial results. Discussions focus on past performance
and on explanations of why financial
objectives were not achieved. The balanced
scorecard, with its specification of the causal relationships
between performance drivers and
objectives, allows corporate and business unit
executives to use their periodic review sessions
to evaluate the validity of the unit’s strategy
and the quality of its execution. If the unit’s employees
and managers have delivered on the
performance drivers (retraining of employees,
availability of information systems, and new financial
products and services, for instance),
then their failure to achieve the expected outcomes
(higher sales to targeted customers, for
example) signals that the theory underlying the
strategy may not be valid. The disappointing
sales figures are an early warning.
Managers should take such disconfirming evidence
seriously and reconsider their shared
conclusions about market conditions, customer
value propositions, competitors’ behavior, and
internal capabilities. The result of such a review
may be a decision to reaffirm their belief in the
current strategy but to adjust the quantitative
relationship among the strategic measures on
the balanced scorecard. But they also might
conclude that the unit needs a different strategy
(an example of double-loop learning) in light of
new knowledge about market conditions and
internal capabilities. In any case, the scorecard
will have stimulated key executives to learn
about the viability of their strategy. This capacity
for enabling organizational learning at the
executive level—strategic learning—is what distinguishes
the balanced scorecard, making it invaluable
for those who wish to create a strategic
management system.