The Fatal Flaw In Balanced Scorecards

Last Updated Aug 20, 2007 8:54 PM EDT

Here's a great post from Harvard Business Online on what's wrong with how most companies implement balanced scorecards. Balanced scorecards measure a company's non-financial performance, which includes customer satisfaction, and its financial performance, such as sales. The problem is most companies don't know how to measure how their non-financial performance impacts their bottom line.

Tom Davenport from Harvard Business Online says more companies will work to figure out this relationship between non-financial measurements and financial measurements using what he calls "cause-and-effect reporting." He says some companies already have a good understanding of this relationship. Hilton Hotels, for example, found that a 5 percent increase in customer loyalty equals a 1.1 percent increase in sales the next year. Looks like it's time for more companies to revamp how they evaluate their businesses.