Introduction 27that will make judgment unnecessary. But the attempt to replace judgment by formula is always irrational;
all that can be done is to make judgment possible by narrowing its range and available alternatives, giving
it clear focus, a sound foundation in facts and reliable measurements of the effects and validity of actions
and decisions. And this, by the very nature of business enterprise, requires multiple objectives.
Companies may pursue objectives like market standing, innovation, productivity, profitability, worker
performance and attitude, public responsibility simultaneously. Pursuing multiple objectives is like serving
many masters; nobody will be served consistently. Worse, the wrong master might be served at the wrong
time. What good is innovation if customers do not attach value to it? There are several examples in the past
where innovation was not translated into profits because customers were unwilling to buy the product either
because they didn’t like it or the product was way ahead of its times.^3 Productivity is a comparative idea and
not an absolute idea. If the improvement in productivity is less than the increase in productivity of competition,
the company will be worse off. How is worker attitude measured? What good is right attitude if a product is
no good? Customer delight, employee satisfaction, maintaining good relationship with bankers and suppliers
are all-important. But they are not ends in themselves. Winning the award (Malcolm Baldridge National
Quality Award from the National Institute of Standards and Technology, US) and incurring an economic loss
in the process, is hardly a good idea.^4
Do Firms Pursue Multiple Objectives?
In a survey of management views on alternative objectives, Porwal^5 found in his sample that in 67 percent
companies—with high profitability—the first preference is given to the objective of maximizing percent ROI
and, in 33 percent companies, the first preference is given to the objective of maximizing aggregate earnings.
His study suggests that firms indeed try to maximize multiple objectives. Similar results have been obtained
in the United States (US).
The ‘Balanced Scorecard’^6 popularized by Kaplan and Norton recognizes the fact that executives do not
focus on one set of measures as no single measure can provide a clear performance target or focus attention
on the critical areas of business. The balanced scorecard allows managers to look at their business from the
perspective of customers, shareholders, and employees. A typical balanced scorecard (Exhibit 1.2) considers
goals and measures from various perspectives and tries to bring all the elements of the business together in
a single management report. The trouble with this scorecard is that it is not balanced, in the sense that it does
not tell us how the measures on the scorecard are to be weighted. Meaning, it does not specify the trade-
off among the measures. Further, it fails to provide a link between performance measurement and incentive
system.
(^3) Real Value launched Vacuumisers in the mid-1990s: the product bombed although it was very effective in its claim
(to keep food fresh). What Real Value failed to consider, then, was that Indians prefer freshly prepared food, and would not be
comfortable with the idea of storing it even in specialty containers.
(^4) General Motors apparently spent millions of dollars on the Saturn car project, winning the (US) National Quality Award.
But, while customers loved the car, the stock price stagnated.
(^5) Porwal, L S. Capital Budgeting Practices in India, Sultan Chand and Sons, New Delhi.
(^6) Kaplan, Robert S and David P Norton (1992). ‘The Balanced Scorecard—Measures that drive performance’, Harvard
Business Review, Jan–Feb.; Kaplan and Norton (1993). ‘Putting the balanced scorecard to work’, Harvard Business Review,
Sep–Oct.