Reducing conflict in balanced scorecard evaluations

Recent studies [Ittner, C., & Larcker, D. (2003). Coming up short on nonfinancial performance measurement. Harvard Business Review(November) 88–95; Ittner, C., Larcker, D., & Randall, T. (2003b). Performance implications of strategic performance measurement in financial services firms. Accounting, Organizations and Society, 28, 715–741] provide evidence of companies’ tendency to overlook the validity of the causal links between driver and outcome measures of the balanced scorecard (BSC), and to ignore the underlying strategically-linked causal business models. It is posited that this propensity leads to conflict between top management and divisional managers because of the failure of the former to evaluate and consider strategy effectiveness in performance evaluation. The present study hypothesizes that individuals in the top-manager role do not take into account strategy effectiveness unless they are explicitly required to do so. In contrast, individuals in the store-manager role automatically consider the quality of strategy without being prompted to do so. A study using 63 evening MBA students provides support for the hypotheses. The results have implications for the study of evaluation biases in BSC as well as in other performance measurement systems, and for devising means to mitigate them.     

The judgmental effects of strategy maps in balanced scorecard performance evaluations

We examine whether supplemental information displays affect decisions made using a common strategic performance measurement system, the balanced scorecard. A distinguishing feature of the balanced scorecard (BSC) is the number and diversity of its metrics. To effectively formulate a decision from such a complex information set, managers must view these measures within their strategic context ( [Kaplan and Norton, 1993] and [Kaplan and Norton, 1996] ). However, academic studies indicate that problems in communication and comprehension of the strategic logic underlying the scorecard hinder its implementation and use ( [Lipe and Salterio, 2000] , [Malina and Selto, 2001] , [Ittner et al., 2003a] and [Ittner et al., 2003b] ). We investigate whether a supplemental information display, in the form of a strategy map, results in performance evaluation judgments consistent with the recognition of relations between performance metrics and strategy. Strategy maps are causal diagrams depicting temporally-separate and non-linear relations between scorecard performance measures and overriding strategic objectives. As predicted, we find that performance evaluation decisions are more consistent with the achievement of strategic objectives when participants are provided with strategy maps.     

The balance on the balanced scorecard a critical analysis of some of its assumptions

In recent years academic scholars have given increasing attention to the importance of strategic measurement systems including both non-financial and financial measures. One of the approaches adopted is that of the balanced scorecard. It is distinct from other strategic measurement systems in that it is more than an ad hoc collection of financial and non-financial measures. It contains outcome measures and the performance drivers of outcomes, linked together in cause-and-effect relationships, and thus aims to be a feed-forward control system. Furthermore, the balanced scorecard is intended not only as a strategic measurement system but also as a strategic control system which can align departmental and personal goals to overall strategy. This paper first examines the extent to which there is a cause-and-effect relationship among the four areas of measurement suggested (the financial, customer, internal-business-process and learning and growth perspectives). The paper then examines whether the balanced scorecard can link strategy to operational metrics which managers can understand and influence. Finally, it discusses and suggests some improvements to the balanced scorecard.     

Joint selection of balanced scorecard targets and weights in a collaborative setting

Information asymmetries may create problems in developing both the balanced scorecard (BSC) targets and weights. In practice, the process of assigning weights to performance measures can be challenging in terms of reaching a consensus between top management and divisional managers. In this research, we address the issues of target and weight selection using a collaborative decision-making model. Most of the previous research related to performance measurement has assumed self-interested agents. When weights are assigned subjectively, there is evidence in the literature of common-measure bias leading to BSC disagreement (conflict). We contribute to the literature by considering actor preferences in a novel approach that permits the parties jointly to determine optimal (or approximately optimal) BSC targets and weights.     

Implicit racial prejudice against African-Americans in balanced scorecard performance evaluations

A dominant theme in critical accounting theory concerns the relation between human identities and accounting discourse and practices. Though this theme has strong antecedents in Marxist-inspired critique of ideology, research into this theme has employed diverse approaches; among them, genealogical studies (e.g., Miller and O’Leary, 1987), deconstructive studies (e.g., Shearer and Arrington, 1993), psychoanalytic studies (Roberts, 1991, Roberts, 2009) and critical-rational studies (e.g., Power and Laughlin, 1996). We offer a different approach grounded in social-cognitive concerns with how implicit attitudes about race influence evaluation of others. We report on the results of an empirical, lab-based study of balanced scorecard evaluations and bonus allocations where race is a treatment effect and where the well-established tenets of Implicit Association Testing (IAT) are used to reveal that there are, indeed, propensities to unwillingly let racial prejudice intervene into our accounting-based evaluations of others. That intervention influences identity in ways that are morally unacceptable, degrading to black workers, and loaded with potential for negative material consequences for workers (e.g., less compensation due to racially determined and irrational performance evaluations). The paper illustrates one area of research in which methodologies adapted from conventional empirical, statistical approaches can enhance the emancipatory potential of critical accounting research.     

An experiential approach to learning about the balanced scorecard

The balanced scorecard (BSC) is an integrated strategic performance management framework that helps organizations translate strategic objectives into relevant performance measures. This paper offers guidelines for implementing an experiential approach to learning about the BSC through the study of “real-world” organizations. This approach emphasizes hands-on experience with the team-based, cross-functional, and strategic aspects of management accounting designed to address several educational objectives, including: understanding organizational strategy and critical success factors; gaining insight into how to measure performance; and developing oral presentation and team-building skills. Specific examples of classroom materials to facilitate implementation of this approach in management accounting courses at both graduate and undergraduate levels are also offered.     

The impact of strategy communications, incentives and national culture on balanced scorecard implementation

Professionals are challenged daily with difficult decisions. Capital budgeting decisions are one type of difficult decision, especially in firms that embrace a Balanced Scorecard management philosophy. In these firms, the decision maker frequently must choose among multiple options on the basis of multiple criteria with no one option dominating across all criteria. Not only must the decision maker evaluate each option on each criteria, the decision maker also must weigh the relative importance of each criteria when making a final judgment. When faced with difficult decisions, decision makers will resort to various coping behaviors, such as decision avoidance or delay, status quo bias, deferral to others' preferences, or reliance on decision aids. In a Balanced Scorecard environment, one important type of decision aid is the strategy map. The ambiguity introduced by multiple options and multiple criteria also creates a condition in which the subjective biases of the decision-maker can easily manifest in the absence or despite decision aids. Among those potential biases are self-interests and national culture. In this study we examine the effects on capital budgeting decisions of two common types of strategy maps as well as incentive effects and national culture. An objective of Balanced Scorecard management practices is to overcome a common North American fixation on short-term financial outcomes. Recent research submits that an appropriate strategy map will facilitate that end by overcoming certain other cognitive limitations (such as fixation on common metrics). Our inquiry will examine whether biases related to self-interests and national culture persist in the presence of two common strategy maps. A behavioral experiment was conducted in which 140 MBA students from Spain and the U.S. with average work experience of 10 years participated. Findings were that significant fixation on short-term financial outcomes persists in the presence of one common strategy map, but not in the presence of an alternate common strategy map, and that incentive and national culture biases persist in the presence of both. In addition, all three experimental variables exhibited significance and equivalent influence, although prior research has only addressed the influence of incentives.     

The American balanced scorecard versus the French tableau de bord: the ideological dimension

Much attention is currently given to strategic measurement systems, the balanced scorecard being by far the most highly profiled among them. The balanced scorecard has not, however, received a particularly warm welcome in France, where the tableau de bord has been used for at least 50 years. This paper investigates the ideological assumptions of the two methods, the aim being to explain the differences between them and investigate the extent to which the ideological assumptions are coherent with the local ideologies of American and French society, respectively. The paper concludes that the main differences between the balanced scorecard and the tableau de bord may be explained in terms of ideological assumptions, which means that, to a large extent, these management tools are coherent with the local ideologies in the countries of origin. In addition, this analysis provides some insight into the more general question of the transferability of management methods and the appropriateness of globalising management theories.     

The impact of the corporate balanced scorecard on corporate control—A research note

The paper explores the adoption of the corporate balanced scorecard (CBSC) and its impact on corporate control of business units. Following interviews with senior corporate managers in 15 of Sweden's largest multinational companies, 8 were found to adopt CBSC. However, CBSC had little impact on control at the corporate level. Corporate control was financially focused in all the companies: mainly financial measures were important, standards were only set for financial measures and rewards were largely based on financial performance measures. Top management's need for simplicity and comparability internally, and capital market pressures motivated the financial focus.     

Unobservable transfer price exceeds marginal cost when the manager is evaluated using a balanced scorecard

This study investigates the optimal level of transfer prices chosen by managers in a divisionalized firm when they are evaluated based on a balanced scorecard. A unique assumption of our model is that transfer prices are unobservable to a competing firm's managers. In contrast to the findings in several studies that examine strategic transfer pricing, this research shows that a manager who is evaluated using a balanced scorecard chooses a transfer price that exceeds marginal cost given a market competitor in a specific economic environment. This result is caused mainly by our model's assumption that a manager considers the competitor's profit in his/her in decision-making when the objective is to maximize long-term profit. This study makes a significant contribution to the strategic transfer pricing literature by showing that even if the transfer price is unobservable to rivals, the optimal transfer price exceeds marginal cost when the final product market is characterized by price competition, something not shown in previous analytical accounting research.     

20 years of studies on the balanced scorecard: Trends,accomplishments, gaps and opportunities for future research

Robert Kaplan and David Norton introduced the Balanced Scorecard in their 1992 Harvard Business Review article. 2012 marks 20 years since that article. This anniversary has motivated me to review the state of research on the balanced scorecard, to highlight gaps in that research and to outline some ideas for further research. To this end, I reviewed 114 articles published in 25 accounting journals and 67 articles in business and management journals in the period 1992–2011. The findings of this literature review are presented in three parts. First, the reviewed articles are categorised by topics, research settings, theories, research method, and primary data analysis techniques. Second, the contributions of research to the field and the lessons learned from these studies are discussed. Third, knowledge gaps in existing balanced scorecard research are identified, leading to consideration of several ideas for future research. The last section offers my final remarks.     

Government consumption smoothing in a balanced budget regime

I investigate government consumption smoothing (sensitivity) under a balanced budget rule in Swedish municipalities. In general, I find Swedish municipalities to be highly consumption sensitive. Municipalities consume 87.6 % out of predicted current revenues in the time period leading up to the implementation of the balanced budget rule, and they consume 76.3 % out of predicted current revenue in the time period following the implementation. Fiscally weak municipalities are found to be more consumption sensitive than fiscally strong municipalities. Very weak municipalities have become more consumption sensitive compared with very strong municipalities since the implementation of the balanced budget rule. Thus, I find indicative evidence that both credit market constraints and formal budget rules such as balanced budget rules increase municipal consumption sensitivity.     

The balanced scorecard--measures that drive performance

Frustrated by the inadequacies of traditional performance measurement systems, some managers have abandoned financial measures like return on equity and earnings per share. "Make operational improvements and the numbers will follow," the argument goes. But managers do not want to choose between financial and operational measures. Executives want a balanced presentation of measures that allow them to view the company from several perspectives simultaneously. During a year-long research project with 12 companies at the leading edge of performance measurement, the authors developed a "balanced scorecard," a new performance measurement system that gives top managers a fast but comprehensive view of the business. The balanced scorecard includes financial measures that tell the results of actions already taken. And it complements those financial measures with three sets of operational measures having to do with customer satisfaction, internal processes, and the organization's ability to learn and improve--the activities that drive future financial performance. Managers can create a balanced scorecard by translating their company's strategy and mission statements into specific goals and measures. To create the part of the scorecard that focuses on the customer perspective, for example, executives at Electronic Circuits Inc. established general goals for customer performance: get standard products to market sooner, improve customers' time-to-market, become customers' supplier of choice through partnerships, and develop innovative products tailored to customer needs. Managers translated these elements of strategy into four specific goals and identified a measure for each.     

Balanced scorecard implementation in an Italian local government organization

This article explains how action research was used to analyse the implementation of the balanced scorecard (BSC) model to meet the legislative requirements of strategic control reporting in Italian local government. The BSC model was modified for local government and was used for political action, non-financial measures, budget allocations, and to meet legislative requirements. This article offers some important lessons for policy-makers and practitioners about adopting and implementing a BSC model.     

The role of a crisis in reshaping the role of accounting

Prior to 2001, international accounting standards (IAS) were insufficiently attractive to gain the support of US regulators. The potential role of IAS in the US gained prominence during a period of extreme financial reporting instability in 2001–2002. Emerging opinion increasingly upheld principles-based rather than rules-based accounting standards in the face of the financial reporting crisis. But to promote any active shift in the US position, an institutionally legitimate infrastructure for the international accounting standards setter had to be created. As this was taking shape, the globalisation of business activities grew with inter-organizational linkages and cross-national financial inter-dependencies and flows becoming increasingly complex. Given the extensively uncertain, uneven and constantly evolving nature of global business changes, the aptness of applying judgment in assessing financial performance and position rather than relying on the application of pre-defined rules continued to achieve wider acceptance. The argument is made in the paper that international financial reporting standards are today seen to fulfil a global risk mitigating role founded on a logic that had to first gain political and institutional legitimacy and that also had to be viewed as being responsive to perceived market imperatives.     

关于加强对跨境资本流动均衡管理的思考

随着季度金融数据的发布,国内再度引起了对热钱的热议。文章分析认为,由于任何开放经济都会面临跨境资本流动冲击,任何资本流动也部是逐利的,因此区分热钱、冷钱实际意义有限。同时,在很多情况下,套利是正常的财务运作,通常不应该一概加以限制。应对跨境资本流动的冲击,应从解决对外经济失衡人手,采取一揽子措施。     

The role of audit evidence in a strategic audit

This study examines how audit risk (the probability of false acceptance) and its components change when the auditor obtains audit evidence in an acceptance sampling model. Inherent risk and audit risk increase with audit evidence if the auditee has a sufficiently strong incentive for committing fraud. Detection risk always increases when audit evidence is introduced. If the auditor has a sufficiently strong incentive for avoiding false rejection, audit risk also increases with audit evidence. The analysis indicates that requiring auditors to obtain information is not effective in preventing material misstatements in at least some instances.     

The role of a large trader in a dynamic currency attack model

This paper studies the role of a large trader in a dynamic currency attack model based on Abreu and Brunnermeier (2003), who study stock market bubbles and crashes in a dynamic model with a continuum of rational small traders. We introduce a large trader into their model and apply it to currency attacks. In an attack against a fixed exchange rate regime with a gradually overvalued currency, traders lack common knowledge about the time when the overvaluation starts and need to coordinate to break a peg. Both the inability of traders to synchronize their attack and their incentive to time the collapse of the regime lead to the persistent overvaluation of the currency. We find that the presence of a large trader with perfect information induces small traders to attack sooner and leads to an accelerated collapse of the regime. But the presence of a large trader with noisy information may delay the collapse of the regime ex post. Moreover, a large trader with precise information tends to be at the rear of an attack. With noisy information, he could attack earlier or later than small traders. In both cases, the large trader affects market dynamics of the attack substantially.     

Mass producing intelligence for a rational world

We have developed a series of all-purpose computer decision models, collectively called CADA, which provide easy assistance in making more comprehensive and rational decisions. They are part of an emerging computer artificial intelligence revolution that may soon mass produce rational decision analysis for public mass consumption. The article first describes CADA and its logic, and some real-world applications. The second part, starting on page 41, is a [fascinating] list of possible consequences of being able to make rational decisions for capitalism and world equality through to advertising and sex lives.     

Creating dynamic tensions through a balanced use of management control systems

This paper explores how organisations balance controlling and enabling uses of management control systems (MCS), and how this balance facilitates the creation of dynamic tensions and unique organisational capabilities. By employing Simons’ (1995) levers of control framework in a case study setting, the paper investigates the challenges faced by senior managers when they use MCS simultaneously to direct and empower. The findings indicate a number of factors – internal consistency, logical progression, historical tendency, dominance, and suppression – that impact the capacity of organisations to balance different uses of MCS. The interactive lever of control also plays a significant role in achieving and sustaining a balance between controlling and enabling uses of MCS, and its impact on the other levers is seen to constitute a unique organisational capability in its own right. The findings from this study offer an elaboration of how dynamic tensions are created through managers’ attempts to balance controlling and enabling uses of MCS.