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.     

The effects of task outcome feedback and broad domain evaluation experience on the use of unique scorecard measures

Prior research has found that division evaluators using balanced scorecards in a performance evaluation process relied almost solely on common measures and virtually ignored unique measures. Other studies have found certain situations in which measures that are unique to a particular division are not completely ignored. However, no study has addressed whether outcome feedback over a period of time can motivate evaluators to rely more on unique measures that are predictive of future financial results. Our study involving executives with varying levels of prior evaluation experience examines two factors that may lead to increased use of unique measures: task outcome feedback and broad domain evaluation experience. Results provide evidence of increased reliance on unique measures after multiple periods as evaluators receive outcome feedback showing the predictive value of these unique measures. Further, results indicate that unique measures are used more over time when the prior evaluation experience of the participants is relatively high.     

The influence of strategy map communications and individual differences on multidimensional performance evaluations

Multidimensional performance evaluation systems such as the Balanced Scorecard (BSC) were developed to overcome the documented tendency of managers to focus almost exclusively on short-term financial performance measures while disregarding or de-emphasising other short-term and/or long-term non-financial performance measures. Evidence suggests, however, that implementation of many of these systems has not achieved desired outcomes. Cogent communication of a corporation's goals and management's strategy to achieve those goals can be expected to influence employee ‘buy-in’ and the subsequent use or resistance to multidimensional performance measures. In this study we examine the role of strategy maps in communicating goals and strategy. We also examine individual differences (tolerance of ambiguity and functional background) that we believe also influence individuals to be more (or less) receptive to the guidance of strategy maps. An experiment was conducted with 165 experienced professionals enrolled in MBA programmes in Spain and the US. Our experimental results indicate that a strategy map reflecting integrated dependencies can de-bias evaluations of certain groups of individuals, who have high tolerance for ambiguity and have a financial work background. Implications and suggestions for future research are also provided.     

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.     

Transformation in the defence sector: The critical role of performance measurement

This paper presents a longitudinal case study of strategic transformation in a complex organisation – Her Majesty's Naval Base (Clyde). The research identifies nine Critical Success Factors from the change management literature and analyses their position in driving the transformation. Findings suggest that many of the success factors suggested by the literature were not present during the transformation. However the presence of a robust performance management system within the organisation resulted in significant progress towards the strategic goals despite the absence of other factors. This paper demonstrates how strategic change can be accomplished by the use of more operational toolsets such as performance management systems.     

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.     

Challenges to Implementing Strategic Performance Measurement Systems in Multi‐Objective Organizations: The Case of a Large Local Government Authority

A case study of the implementation of the balanced scorecard in a large local government authority is reported. Based on interview data, the factors that were perceived by senior managers to be important to the success or failure of the implementation are analysed. It is determined that scorecard measures were not effectively cascaded down to lower levels of the organization. Various inter‐related problems of leadership, training, feedback, employee empowerment and weak incentive schemes combined to cause communication difficulties which prevented the cascading problem from being effectively addressed.     

The measurement of turnaround management strategies in local authorities

The use of turnaround management strategies (TMS) in the public context is beginning to be researched, however adjusted measurement tools are still needed. This article describes the construction and validation of a new scale for measuring TMS in local authorities.     

Choice and change of measures in performance measurement models

This paper uses management control, resource-based, systems-based and contingency-based strategy theories to describe a large U.S. manufacturing company's efforts to improve profitability by designing and using a performance measurement model (PMM). This PMM includes multiple performance measures relevant to its distribution channel for products, repair parts and maintenance services. The PMM is intended to reflect the company's understanding of performance relations among strategic resources, operational capabilities, and desired financial outcomes. The PMM also reflects its intended distribution strategy, the types of performance necessary to achieve that strategy by its distributors, and its desired financial outcomes. Furthermore, the company uses the model to evaluate its North American distributors and intends to use these evaluations as a partial basis for annual and long-term rewards. Thus, the PMM embodies the measurable portion of the firm's management control system of its distribution channel.The study addresses four research questions: (1) Are measure attributes important considerations for performance measure choice? (2) Does the importance of attributes differ according to firm strategy? (3) Does the importance of attributes for design and use differ according to firm strategy? (4) Does a company trade-off some individual attributes for others? The questions are investigated using qualitative and quantitative analyses of archival documents and interviews with top managers and distributors. Principal findings are that measure attributes are important considerations for choice and change of performance measures, design attributes are more important than use attributes, the importance of attributes does not appear to differ according to strategy, and some individual attributes are traded-off for other attributes.     

Behavioral effects of fairness in performance measurement and evaluation systems: Empirical evidence from France

The measurement and evaluation of employee performance are crucial aspects of the management accounting system because of their effects on employee motivation. It is therefore important for management accountants to understand how such effects occur. Fairness may be a key explanatory factor. This study proposes that the effects of the fairness of employee performance measurement and evaluation procedures on employee job satisfaction and organizational commitment are indirect. The results, based on a sample of 60 French managers, support these expectations. For the relationship between procedural fairness and job satisfaction, the effects are indirect through trust and fairness of outcomes. For the relationship between procedural fairness and organizational commitment, the effects are indirect through fairness of outcome, trust and job satisfaction. The results also indicate that affective effects through trust and satisfaction are substantially stronger than that through fairness of outcome. Fair performance evaluation procedures therefore do more than the mere provision of equitable outcomes among French managers.     

The effects of incentive subjectivity and strategy communication on knowledge-sharing and extra-role behaviours

This study examines the effects of performance measurement system design on employees’ willingness to share knowledge and their general tendency to pursue extra-role behaviours. Two key design issues are examined, namely, incentive scheme subjectivity and communicating the value of human-based intangible assets through a strategy map. Using a controlled experiment we found that employees are more willing to share knowledge with a co-worker (even if it means diverting resources away from incentivised areas) under a subjective weighting scheme than a formula-based scheme. In addition, we found an interaction effect where the communication of the strategic value of human-based intangible assets increases employees’ general tendency to pursue extra-role behaviours under a subjective weighting scheme, but decreases this tendency under a formula-based scheme. Our study contributes to the performance management literature and has implications for practice by providing empirical evidence demonstrating how the design of performance measurement systems can motivate discretionary behaviours in relation to performance areas that are not recognised by the formal incentive scheme.     

The relative influence of competitive intensity and business strategy on the relationship between financial leverage and performance

This study empirically investigates the effects of competitive intensity and business strategy on the relationship between financial leverage and the performance of firms. Based on a sample of US manufacturing firms, this study confirms the hypothesis that the cost of debt is higher for product differentiation firms than cost leadership firms. Furthermore, the results indicate that competitive intensity has a negative effect on the leverage-performance relationship, suggesting that competition acts as a substitute for debt in limiting manager's opportunistic behavior. These findings reinforce the need to consider moderating factors such as strategic choice and the environment in which a firm operates when investigating the effects of leverage on performance.     

On the short-term persistence of mutual fund performance in Europe

In this article, we examine the short-term persistence in mutual fund performance in the main European markets between January 1990 and December 2022. The mutual fund industry in Europe has experienced significant growth in recent years as a consequence of the integration of its markets. However, the European mutual fund industry is still an unexplored area of research with only a small number of significant studies compared to the US industry. Using a sample of daily survivorship bias-free data on the five most important European mutual fund countries, which includes 2734 mutual funds across all countries, we find statistically significant persistence in the post-ranking quarter across different performance models for all countries. This evidence is present across all deciles including the top-decile and bottom-decile mutual funds. Further, we also extend our analysis to high inflation periods.     

The use of performance measurement systems in the public sector: Effects on performance

We study the use of performance measurement systems in the public sector. We hypothesize that the way in which these systems are being used affects organizational performance, and that these performance effects depend on contractibility. Contractibility encompasses clarity of goals, the ability to select undistorted performance metrics, and the degree to which managers know and control the transformation process. We expect that public sector organizations that use their performance measurement systems in ways that match the characteristics of their activities outperform those that fail to achieve such fit. We test our hypotheses using survey data from 101 public sector organizations. Our findings indicate that contractibility moderates the relationship between the incentive-oriented use of the performance measurement system and performance. Using the performance measurement system for incentive purposes negatively influences organizational performance, but this effect is less severe when contractibility is high. We also find that an exploratory use of the performance measurement system tends to enhance performance; this positive effect is independent of the level of contractibility. The effectiveness of the introduction of performance measurement systems in public sector organizations thus depends both on contractibility and on how the system is being used by managers. These findings have important implications, both for practice and for public policy.     

The effects of tolerance for ambiguity and uncertainty on the appropriateness of accounting performance measures

This article examines how task uncertainty, environmental uncertainty and tolerance for ambiguity (TFA) affect managerial opinions about the appropriateness of accounting performance measures (APM). Based on accounting and psychology literature, this study argues that task uncertainty and environmental uncertainty differ in their direct effects on the appropriateness of APM, and furthermore that the relationship between uncertainty and the appropriateness of APM is moderated by managers' TFA. Hypotheses are developed, and tested with data from a survey study among 250 managers in eleven organizations, using partial least squares (PLS). Overall, the results show that the two types of uncertainty have opposite effects on managers' opinions about the appropriateness of APM, and that these effects are moderated by TFA, which confirms expectations. No direct effect of TFA on the appropriateness of APM was found. Overall, these findings provide an explanation of the inconsistencies in the extant behavioural management accounting literature that has addressed the appropriateness of APM under uncertainty.     

The use of management accounting information by boards of directors to oversee strategy implementation

Past research has overlooked the specific informational needs and uses of management accounting information by boards of directors, which constitute a distinctive unit of analysis, focusing mainly on organizational actors within the boundaries of the firm. The aim of this study is to examine the use of management accounting information to oversee strategy implementation in the context of governance. Specifically, we intend to establish theoretical properties and propose a measurement model that captures the use of budget, financial and non-financial performance indicators by boards of directors to oversee the strategic plan. To develop the measurement instrument, conceptual specifications of constructs have been established based on a matrix approach that combines (i) the information conveyed by the three management accounting practices, along with (ii) two theoretical properties reflecting board activities, namely monitoring implementation of the strategic plan, and questioning of the strategic plan. The validity and reliability of the instrument have been evaluated and discussed using a rigorous multi-method integrated approach that includes a literature review, exploratory interviews, consultation of experts in management accounting and governance, and survey data collected from three samples of boards of directors.     

The effects of activity and geographic diversification on performance: Evidence from French financial institutions

Our paper studies the impact of activity and geographic diversification on financial institution's performance. These diversification strategies are complementary in generating performance and may provide important implications. Moreover, we investigate the interaction between these two strategies. Our dataset comprises 4532 years observations over the period of 2002 to 2012 and covers 412 French financial institutions. We find a negative relationship between diversification and performance. However, this relationship is significantly positive when institutions implement a dual diversification strategy. In this paper, we propose a classification of French financial institutions. For generalists’ banks and cooperative banks, we find similar results to those of the entire sample. Furthermore, for specialized financial institutions, the relationship is positive and significant. Our findings are robust to the potential endogeneity problem and to measures of diversification and performance.     

The performance of enhanced-return index funds: evidence from bootstrap analysis

We apply the bootstrap technique proposed by Kosowski et al. [J. Finance, 2006, 61, 2551–2595] in conjunction with Carhart's [J. Finance, 1997, 52, 57–82] unconditional and Ferson and Schadt's [J. Finance, 1996, 51, 425–461] conditional four-factor models of performance to examine whether the performances of enhanced-return index funds over the 1996 to 2007 period are based on luck or superior ‘enhancing’ skills. The advantages of using the bootstrap to rank fund performance are many. It eliminates the need to specify the exact shape of the distribution from which returns are drawn and does not require estimating correlations between portfolio returns. It also eliminates the need to explicitly control for potential ‘data snooping’ biases that arise from an ex-post sort. Our results show evidence of enhanced-return index funds with positive and significant alphas after controlling for luck and sampling variability. The results are robust to both stock-only and derivative-enhanced index funds, although the spread of cross-sectional alphas for derivative-enhanced funds is slightly more pronounced. The study also examines various sub-periods within the sample horizon.     

The moderating effects of hierarchy and control systems on the relationship between budgetary participation and performance

This study investigates the moderating effects that an organizational unit's hierarchical level and control systems have on the relationship between budgetary participation and performance. Using moderated regression analyses, we find a three-way interactive effect on performance between hierarchical levels, types of control systems, and budgetary participation. Further analyses reveal that at the high level of a hierarchy, budgetary participation has a positive relationship with performance and this relationship is stronger for organizational units that use output control than for those that use behavior control. By contrast, at the low level of a hierarchy, budgetary participation has a negative relationship with performance and this relationship is stronger for organizational units that use output control than for those that use behavior control.     

Style and performance of international socially responsible funds in Europe

This paper analyses the performance and investment styles of internationally oriented Socially Responsible Investment (SRI) funds, domiciled in eight European markets, in comparison with characteristics-matched conventional funds. To the best of our knowledge, this is the first multi-country study, focused on international SRI funds (investing in Global and in European equities), to combine the matched-pairs approach with the use of robust conditional multi-factor performance evaluation models, which allow for both time-varying alphas and betas and also control for home biases and spurious regression biases.In general, the results show that differences in the performance of international SRI funds and their conventional peers are not statistically significant. Regarding investment styles, SRI and conventional funds exhibit similar factor exposures in most cases. In addition, conventional benchmarks present a higher explaining power of SRI fund returns than SRI benchmarks. Our results also show significant differences in the investment styles of SRI funds according to whether they use “best-in-class” screening strategies or not. When compared to SRI funds that employ simple negative and/or positive screens, SRI “best-in-class” funds present significantly lower exposures to small caps and momentum strategies and significantly higher exposures to local stocks.