366 ENTREPRENEURSHIP
ENTREPRENEURIAL PERFORMANCE: THE BALANCED
SCORECARD
The great entrepreneurial organizations perform at very high levels. The question is “lev-
els of what?” Will it be levels of product innovation? Financial performance? Customer
service? Internal efficiency? The answer is that great entrepreneurial organizations oper-
ate at a high level on all of these dimensions. They do so in a balanced way, not empha-
sizing one over the other, because all of these dimensions work together to produce a
successful system. In the early days of a venture, the primary objectives are survival, prof-
itability, and growth. As a firm makes the transition to professional management, it
needs to become more sophisticated about measuring performance.
The balanced scorecard (BSC)is a systematic management process that generates
objectives, activities, and measurements for organizational performance.^70 It is a set of
measures that gives managers a fast but comprehensive view of their business. A good
balanced scorecard has 15 to 20 different measures derived from the four basic dimen-
sions of entrepreneurial performance:- Financial dimension (How do we look to our investors?)
- Customer dimension (How do we look to our customers?)
- Internal operating dimension (What do we excel at?)
- Innovation and learning dimension (Can we continue to improve and create value?)
Using these four dimensions to develop a set of criteria, entrepreneurs and the TMT
can translate the venture’s mission and strategy into a set of comprehensive operating
and performance measures. All of the dimensions are linked, as illustrated in Figure 9.2.
Because the entrepreneurial venture’s existence is characterized by change and
growth, these measures can be fine-tuned to reflect changing circumstances. When the
environment of the venture changes rapidly, old criteria can be discarded and new mea-
sures can be implemented.
This system helps the entrepreneur balance:- The long term versus the short term. Some of the criteria will capture a three-to-six-
month period of activity. Others will attempt to drive the organization to longer-
term goals, three to five years out. - Lagging indicators versus leading indicators. Some criteria measure what has
happened in the past, like financial performance or manufacturing productivity.
These are lagging indicators. Leading indicators relate to the future: Capital invest-
ment, training, new hires, and research intensity capture the venture’s current activ-
ities in anticipation of a future payoff. - External performance expectations versus internal performance expectations.
Some measures deal with how the company is managing its relations with the exter-
nal environment—e.g., customer or vendor relations. Other measures deal with
internal operations—e.g., manufacturing efficiency and employee skill acquisition. - Financial versus nonfinancial performance. The balance between these two is
critical. Too much emphasis on financial results can choke growth as the en-
trepreneur seeks to maximize short-run opportunities. Too much emphasis on non-