Balanced performance measurement is an appealing concept, but in practice it is very difficult. Balanced measurement involves measuring both financial and non-financial performance. Often, non-financial performance is measured in several domains – for example the customer, internal processes, and learning and innovation. The problem posed by balanced measurement is not measuring non-financial performance alongside financial performance; as we saw in chapter 1, most firms do this routinely. The problem, rather, is finding the right non-financial measures and then using these measures in combination with financial measures to appraise and compensate performance.

A balanced set of measures will include non-financial measures that add information about the economic performance of the firm beyond what is contained in financial measures – in other words, non-financial measures that look ahead. But as we saw in chapter 1, finding non-financial measures that actually look ahead, as opposed to measures that plausibly look ahead, can be challenging. Finding a satisfactory way to combine ratings on several measures into an overall appraisal of performance is also challenging. It is easy to rate and rank, and hence appraise and compensate, performance based on a single measure. But it is difficult to combine ratings on several measures into an overall performance rating in a way that does not have pernicious effects.

As early as the 1970s, managers were skeptical that the performance of the firm could be captured by a single financial measure such as earnings per share.