Emerald Group Publishing Limited
Contemporary issues on the balance scorecard
Article Type: Guest editorial From: Journal of Accounting & Organizational Change, Volume 10, Issue 4
Over the past two and a half decades, the balanced scorecard [BSC] (Kaplan and Norton, 1992, 1996a, 1996b, 2000, 2001a, 2001b, 2004) has become a well-established feature of management accounting research and practice. Its popularity among researchers is confirmed by the submission of more than 30 papers for this special issue. The contributions of the accepted papers relate to the generalisation of the BSC framework, the assumption of a cause-and-effect relationship and the organisational impact of BSC measurement.
Since its emergence, the content of the BSC framework has developed in several ways. In the first version (Kaplan and Norton, 1992), the BSC model was introduced as a measurement package combining financial and non-financial measurements within the following four areas of measurements: financial, customer, internal process and innovation and learning. In the study by Kaplan and Norton (1996a, 1996b), the four areas of measurement were linked together through cause-and-effect relationships. In the study by Kaplan and Norton (2004), the term “strategic map” was introduced referring to the construction of diagrams depicting some successive chains of “causal-relationships” leading to long-term financial success. Also in 2004, the measurement package was developed into a comprehensive management control framework. Measures were deployed hierarchically top-down from the strategic to the operational level and rewards were linked to performance.
Consistent with Kaplan and Norton’s change in the framework, Speckbacker et al. (2003) suggest that organisations may apply different types of BSC implementation. The basic version of a BSC is the combination of financial and non-financial measurements that usually are clustered into the four measurement areas advocated by Kaplan and Norton. The medium level of BSC adds to the minimum requirements the chains of “causal-relationships” between the areas of measurement. The full version requires that the BSC measurement framework integrates with the control and reward systems.
BSC implementation can also vary among organisations due to different interpretations of the BSC. Drawing on some questionable arguments and concepts, the BSC is open to interpretation, intuition and emotions (Nørreklit, 2003). As a result, the readers’ subjective interpretations of the text determine how they understand it. Managers will have wide scope for their interpretation of the concepts and theories of the BSC. The openness implies in one way that it is easy to spread and implement the BSC notion. On the other hand, however, it implies that its exposition provides poor guidelines for practice. The success of the balanced scorecard, therefore, depends on the users’ abilities to make good judgments.
The uncertainty of the content of the balanced scorecard is not only a challenge for practitioners but also for researchers. As the framework changes in space and time, it is puzzling to make research on its practical implementation and implications. Knowledge accumulation requires that the attributes of the measurement objects – the types of balanced scorecards – and their contexts are properly and comprehensively defined (Pike and Roos, 2007). On top of that, measurement proxies should correspond to the definitions of the balanced scorecards. As an ideal, the proxies should make up a complete and distinctive aggregated meaning of the complexity of the balanced scorecards being used.
The study of Albertsen and Lueg (2014)supports the challenges of doing empirical research on the BSC. Analysing the empirical studies of the BSC, they found that only 30 out of 117 studies had a research design that was comprehensive enough to capture the full notion of the BSC. Moreover, within these studies, there is diversity in focus on specific attributes and in the definitions of the attributes. They also find numerous and potentially significant differences between the BSCs in the organisations studied. They conclude that the empirical studies provide a thin foundation for generalising about the BSC framework as advocated by Kaplan and Norton.
However, their literature review points to limits in unfolding the full BSC in practice. For example, only few organisations seem to follow the instructions of linking compensation to all areas of measurements. The empirical findings suggest that financial measures govern above non-financial measures. Also, the study points to the inherent cause-and-effect relationships being based on assumptions and feelings. Difficulties relating to the assumptions of causal-relationships and of the impact of measures are supported by some of the other articles in this special issue. Some of these results will be further discussed below.
Assumption of cause-and-effect relationships
The management control approach embedded in BSC involves the assumption that operating causal-relationships is pre-existing and waiting to be discovered by the top management and that the hierarchical top-down implementation of the assumed causal relationships system is considered unproblematic (Nørreklit, 2000; Nørreklit et al., 2012). However, that is a mistake. Cause-and-effect relations are not given by mechanical laws similarly to natural science but are the result of social constructs in business. Business is based on “construct causality” (Nørreklit et al., 2012). Companies run successfully through the construction of multiple sets of construct causalities. These are based on a mixture of features of nature and human constructions related to the complicated process of organising. According to pragmatic constructivism, the necessary and sufficient conditions for constructing an endeavour that causally effects the desired outcome, are an integration of the following four dimensions involved in the endeavour:
1. a factual observational basis;
2. a set of possibilities that are integrated with the facts, i.e. factual possibilities and not speculative ones;
3. values and goals that express the subjective values that motivate people involved and are within the range of the factual possibilities; and
4. communication must convey this integrated structure of facts, possibilities and values to the people involved (Nørreklit et al., 2012).
The special issue documents that construct causalities are worked upon locally. In particular, two articles studying balanced scorecards in two different banks placed in two different countries document the construction of construct causalities in local operations. Seal and Ye (2014) state that the BSC model has a constitutive nature for decentralised actors to work with it. Dialogue was used to make linkages between measurements at various hierarchical levels. The employees accepted the BSC as a measurement system, but did not subscribe to the idea of a natural law form of causal relationship. The local actors were not reacting mechanically but searching actively to find methods to reach the objectives. (Seal and Ye, 2014).
Also, Francioli and Cinquini (2014) reveal that “cause-and-effect relationships” were designed and managed locally. Overall, it was recognised in a bank that strategic linkages are blurred and uncertain. Prescribed assumptions about cause-and-effect relationships are rejected by the actors. The strategic linkages between measures are established based on the actors’ personal assumptions, perceptions and desires of what the routes are to reach their objectives. The actors seem to set off with ideas of a finality relationship and, subsequently, in interaction with others, they work on finding ways to create construct causality. Interactive communication shaped and developed linkages between individuals and departments. Also, they find that the BSC measures were constitutive for action. Thus, the BSC shaped a climate of control involving focus on the objectives formulated in the BSC.
In summary, these two papers reveal that organisational managers do not subscribe to the assumption of a form of natural law causality. Local managers are working on creating functioning activities in interaction with others, i.e. the aim to establish construct causalities. The BSC measures and interactive communication shape their work on the establishment of construct causalities.
Impact of BSC measurements
From the perspective of pragmatic constructivism, an important dimension of a performance measurement system is to manage and observe the strength of the integration of facts, possibilities, values and communication in an endeavour, i.e. the strength of the established construct causality. As we live in a society where companies are evaluated based on financial performance, financial performance is an important aspect of establishing construct causality.
The two papers of Seal and Ye (2014), and Francioli and Cinquini (2014) show that “what gets measured gets done”. However, it is well known that apparent good results can be the result of gaming (Merchant and Van der Stede, 2007) Accordingly, there is a need to reflect upon how BSC measurements can influence the actors’ construction of construct causalities. This is the focus of Jakobsen and Lueg (2014).
They show how the inherent design of the BSC management control framework violates the controllability principles non-intentionally. The top-management formulation of the way of creating construct causality with the exclusion of the local manager can shape a context that creates difficulties for the middle manager to identify possibilities and use these as local situational means to develop construct causality. Thereby, the autonomy of the middle manager is diminished and controllability is breached. The local managers cannot control the subject of control ex-post and ex-ante they are held accountable for actions that they cannot control.
The study of Albertsen and Lueg (2014) highlights that financial measures govern above non-financial. The paper by Schauß et al. (2014) supports this view. They examine BSC users’ functional fixation, i.e. the users’ tendency not to adapt their judgment process due to changes within the BSC. More specifically, the article shows that the individual BSC users exhibit cognitive constraints and judgmental biases in their use of BSC measurements for decision-making. These findings show that BSC users, despite being told the importance of all BSC measures, based their judgments more on financial than on non-financial measures. These findings challenge the assumption of, “what gets measured gets done”. However, since financial performance is the condition for organisational sustainability, it could be sensible to make financial measures govern for non-financial measures (Nørreklit, 2000).
In summary, the papers reveal that the BSC measures shape human actions. Nevertheless, they show mixed results as regards the specific influence that the measures have on human action.
Conclusion and discussion
On the basis of the contributions published in this special issue, we can conclude that the empirical studies of the BSC make a modest foundation for generalising about the framework. We explain this by the fact that the attributes of the BSC framework are weakly defined and the understanding of the concept is flexible. However, the special issue reveals that organisational managers do not subscribe to the assumption of a form of natural law causality. In interaction with each other, the local managers are working on establishing multiple sets of construct causalities. The BSC measures shape the managers’ work on the establishment of construct causalities. However, the studies indicate uncertainty about the specific impact on action. It is uncertain whether the measures initiate gaming or stronger construct causality.
We suggest more research in the performance management of construct causalities. For example more insight is needed in how companies organise and manage the establishment of single and multiple sets of construct causalities. Finally, more insight is needed to manage and observe the strength of the established construct causality.
Falconer Mitchell and Hanne Nørreklit
Albertsen, O.A. and Lueg, R. (2014), “The balanced scorecard’s missing link to compensation: a literature review and an agenda for future research”, Journal of Accounting and Organizational Change, Vol. 10 No. 4, pp. 431-465.
Francioli, F. and Cinquini, L. (2014), “Exploring the blurred nature of strategic linkages across the BSC: the relevance of ‘loose’ causal relationships”, Journal of Accounting and Organizational Change, Vol. 10 No. 4, pp. 486-415.
Jakobsen, M. and Lueg, R. (2014), “Balanced scorecard and controllability at the level of middle managers – the case of unintended breaches”, Journal of Accounting and Organizational Change, Vol. 10 No. 4, pp. 516-539.
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Pike, S. and Roos, G. (2007), “The validity of measurement frameworks: measurement theory”, in Neely, A. (Ed), Business Performance Measurement: Unifying Theory and Integrating Practice, Cambridge University Press, Cambridge.
Schauß, J., Hirsch, B. and Sohn, M. (2014), “Functional fixation and the balanced scorecard: adaption of BSC users′ judgment processes”, Journal of Accounting and Organizational Change, Vol. 10 No. 4, pp. 540-566.
Seal, W. and Ye, L. (2014), “The balanced scorecard and the construction of a management control discourse”, Journal of Accounting and Organizational Change, Vol. 10 No. 4, pp. 466-485.
Speckbacker, G., Bischof, J. and Pfeiffer, T. (2003), “A descriptive analysis on the implementation of balanced scorecards in German-speaking countries”, available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1027060