The Balanced Scorecard: Judgmental Effects of Common and Unique Performance Measures

Abstract

The balanced scorecard is a new tool that complements traditional measures of business unit performance. The scorecard contains a diverse set of performance measures, including financial performance, customer relations, internal business processes, and learning and growth. Advocates of the balanced scorecard suggest that each unit in the organization should develop and use its own scorecard, choosing measures that capture the unit's business strategy. Our study examines judgmental effects of the balanced scorecard—specifically, how balanced scorecards that include some measures common to multiple units and other measures that are unique to a particular unit affect superiors' evaluations of that unit's performance. Our test shows that only the common measures affect the superiors' evaluations. We discuss the implications of this result for research and practice.

A system dynamics‐based simulation experiment for testing mental model and performance effects of using the balanced scorecard

“…Similar to other accounting studies (e.g., Maiga and Jacobs, 2003;Hendricks et al, 2004;Braam and Nijssen, 2004), we found no evidence that the use of BSC as a performance measurement system enables managers to learn more effectively about the business system and improve its performance. Consistent with Lipe and Salterio (2000), this research also suggests that, due to cognitive limitations, managers may not appreciate the significance of non-financial and leading measures, thereby sidestepping the cause-and-effect logic chain and reducing the potential benefits of using the BSC. BSC usage only leads to higher performance if managers understand the cause-and-effect relations that link drivers with future financial performance.…”

“…There exist studies in the field of management accounting research that identify problems and limitations associated with the BSC approach. The inadequate definition and utilization of the performance indicators have been highlighted as a main drawback of the BSC system (Lingle and Schiemann, 1996;Stivers et al, 1998;Ittner and Larcker, 1998;Lipe and Salterio, 2000;Malmi, 2001;Speckbacher et al, 2003). Those studies show in general terms that the measures and perspectives in use are fairly independent, and do not always mirror the recommended cause-and-effect logic of the BSC approach.…”

“…Braam and Nijssen (2004) found that BSC use that complements company strategy leads to higher performance, while the performance effect of measurement-focused BSC use was significantly negative. Lipe and Salterio (2000) carried out an experiment to examine the judgmental effects of BSC in a business unit and found that evaluators frequently place greater or exclusive emphasis on common measures and tend to under-weight the influence of unique measures. Common measures tend to be lagging and financial, while unique measures are more often leading and non-financial (Kaplan and Norton, 1996a).…”

Choice and change of measures in performance measurement models

“…2 Recent management control research addresses specific factors that might explain firms' choices of performance measures to achieve and maintain strategic advantages. Laboratory experiments (e.g., Libby et al, 2002;Lipe & Salterio, 2000;Luft & Shields, 2001, 2002a and surveys of management control practice (e.g., Cavaluzzo & Ittner, 2002;Ittner & Larcker, 1998) have identified attributes of performance measures that are…”

Development of a questionnaire for assessing work unit performance

“…This finding was repeated in a recent controlled study involving MBA students who evaluated two divisions of a clothing firm by means of the Balanced Scorecard. Experimental participants evaluated performance solely on the common measures (Lipe & Salterio, 2000). In view of this finding, emphasis on evaluation of both common and unique behavioural variables was stimulated by increasing understanding of non-traditional measures.…”