The Balanced Scorecard: A review of research drawn from the public and private sectors

Zahirul Hoque

Centre for Public Sector Governance, Accountability and Performance and School of Accounting, La Trobe

University, Melbourne, Australia

A keynote speech at the New Zealand Management Accounting Conference, Wellington, 17 November 2011

The Balanced Scorecard

“The balanced scorecard is among the

most significant developments in

management accounting and thus,

deserves intense research attention”.

(Atkinson, Balakrishnan, Booth, Cote,

Grout, Mali, Roberts, Uliana and Wu

(1997, p. 94).

Balanced scorecard has been receiving

increasing attention in the literature since

its emergence in 1992.

Table 1: Developments of the balanced scorecard concept

Publication Year Differentiation between Publications

1992 (article) An introduction of BSC as a foundation for development

BSC is superior performance measurement that uses both financial and

non-financial measures

Identify four perspectives: Financial; Customer; Internal Business

Perspective; and Innovation and Learning

1993 (article) BSC is not only a measurement exercise, also a management system to

motivate breakthrough improvement

Measures on BSC have to be specifically designed to fit firm’s mission,

strategy, technology and culture

1996 (Book) BSC has evolved from measurement system to strategic management

system

Reclassify Internal Business Perspective and Innovation and Learning

Shifting Innovation to Internal Business Processes and adding Growth

element to Learning and Growth

Measures (Financial; Customer; Internal Business Processes; and Learning

and Growth) are linked to each other in a causal relationship model

2001 (article) Performance management to strategic performance management system

Develop Strategy Map as a framework for organizing strategic objectives

that is categorized into four perspectives

Develop Principles of a Strategy-Focused Organization to help

organizations align key management processes and system to the strategy

BSC compatible with TQM, ABC and Shareholder Value Management

Outline

• Literature review

• Aims of the paper

• Review framework

• Review findings

• Lesson learned

• Gaps and future studies

• Conclusions

Literature review

• A literature review is the process of

searching the existing literature

– a) to ascertain what has been published on

the researcher’s chosen research topic,

– b) how previous research has been

conducted, and

– c) how this impacts on the researcher’s own

research problem

Aims of the paper

To tabulate, review, synthesize and

critically discuss prior studies in the

balanced scorecard in the period 1992-

2011;

To assess whether the balanced

scorecard is still relevant in the 21st

century’s new world to meet the changing

needs of organizational managers; and

To identify knowledge gaps and to discuss

future research opportunities.

Review framework

Approaches

Exploratory search – using Google Scholar

with a broad term of the subject topic

Targeted leading scholarly journals search

Issues

Manual search vs. electronic search

Academic outlets vs. professional outlets

Categorisation of publications

Topic(s) / issue(s)

Research setting(s)

Theory/theories used

Methods employed

Data analysis technique(s)

Results

Target data sources

• 27 leading accounting journals

• 47 leading business and

management journals

• Non-journal WWW publications

Table 2

Frequency distribution of articles published on the balanced scorecard by

accounting journals (1992-2011)

Journal 1992-1996 1997-2001 2002-2006 2007-2011 Total

AAAJ 0 0 1 1 2

AOS 0 0 5 4 9

A & F 0 0 0 0 0

ABR 0 0 0 0 0

TAR 0 1 3 1 5

BAR 0 0 2 1 3

BRIA 0 0 2 2 4

CAR 0 0 0 1 1

JAE 0 0 0 0 0

JAR 0 0 0 2 2

JMAR 0 2 0 2 4

ABACUS 0 0 0 2 2

AH 0 2 0 0 2

ADIAC 0 0 0 3 3

CPA 0 0 6 3 9

FAM 0 1 6 10 17

IIAE 0 3 0 1 4

JAAF 0 0 0 0 0

JA&PP 0 0 0 1 1

JAEd 0 3 2 3 8

JBFA 0 0 0 0 0

MAR 0 4 9 9 22

RAS 0 0 0 0 0

EAR 0 0 0 5 5

IJA 0 0 0 0 0

QRAM 0 0 1 2 3

JAOC 0 0 1 7 8

Total 0 16 38 60 114

Table 3: Frequency distribution of articles on BSC published in accounting

journals by topics (area) (1992-2011)

Years/Topics 1992-1996 1997-2001 2002-2006 2007-2011 Total

Balanced Scorecard

(BSC) (general)

0 3 3 2 8

Design/ attributes 0 3 8 9 20

Adoption /

Implementation

0 3 7 14 24

Causal effect 0 0 0 1 1

Effects / impact of the

BSC on people and other

stakeholders

0 0 1 3 4

Innovation / diffusion 0 0 1 2 3

Rise / fall / success /

failure

0 0 0 1 1

System outcomes (use /

effectiveness

0 2 2 7 11

Incentive plans /

compensation effects

0 0 0 3 3

Performance

measurement /evaluations

0 3 10 14 27

Review / critical analysis 0 2 6 4 12

Total 0 16 38 60 114

Table 4: Frequency distribution of articles on BSC published in accounting

journals by research settings (1992-2011)

Years/settings 1992-

1996

1997-

2001

2002-

2006

2007-

2011

Total

Manufacturing 0 2 3 7 12

Service (private

sector banking,

insurance, airline,

telecommunication

etc)

0 0 8 6 14

Marketing and

retailing

0 1 5 5 11

Largest / medium

sized firms in general

/ publicly traded

0 1 3 7 11

Hospitals / healthcare 0 1 0 5 6

Accounting firms 0 1 0 1 2

Central / local

government

0 1 1 8 10

Government

institutions / SOEs

0 0 4 5 9

Not-for-profit /

NGOs

0 2 0 0 2

None 0 7 13 13 33

Other 0 0 1 3 4

Total 0 16 38 60 114

Table 5: Frequency distribution of articles on BSC published in accounting

journals by theory (1992-2011)

Years/theories used 1992-

1996

1997-

2001

2002-

2006

2007-

2011

Total

Behavioral/Psychology 0 1 4 3 8

Contingency 0 2 2 3 7

Institutional theory 0 0 0 7 7

Critical (general) 0 0 1 0 1

Agency 0 0 0 3 3

Stakeholder theory 0 0 0 3 3

Actor-network 0 0 0 2 2

Cultural (national and

organizational)

0 0 0 1 1

Economics 0 0 4 5 9

Fad and Fashion 0 0 0 1 1

Supply side

perspective

0 1 1 0 2

Multiple theories 0 0 4 3 7

Historical 0 0 0 1 1

Constructivist

approach

0 0 1 0 1

Grounded theory 0 0 0 0 0

Other 0 1 6 11 18

None 0 11 15 17 43

Total 0 16 38 60 114

Table 6: Frequency distribution of articles on BSC published in accounting

journals by research methods used

Years/methods 1992-

1996

1997-

2001

2002-

2006

2007-

2011

Total

Survey 0 1 5 11 17

Case/Field study/

interviews

0 4 8 23 35

Behavioral

experimentation

0 1 6 10 17

Action research 0 0 0 1 1

Archival/Historic

al

0 0 1 4 5

Analytical 0 4 13 3 20

Multiple methods 0 1 1 4 6

None 0 5 4 4 13

Total 0 16 38 60 114

Table 7: Frequency distribution of articles on BSC published in accounting

journals by primary data analysis technique (1992-2011)

Years 1992-

1996

1997-

2001

2002-

2006

2007-

2011

Total

Qualitative:

Content analysis 0 0 1 1 2

Archival analysis 0 0 0 2 2

Interview quotes 0 4 8 22 34

Grounded

(thematic)

0 0 0 0 0

Participation

Observation

0 0 1 0 1

Quantitative:

Descriptive

statistics

/correlations

0 0 5 5 10

Multiple

regression/

ANOVA/MANOVA)

0 2 7 10 19

PLS/SEM / Path

analysis

0 0 2 2 4

Other 0 0 2 3 5

Mixed methods 0 1 1 3 5

None 0 9 11 12 32

Total 0 16 38 60 114

WWW based publications – claimed

benefits

Organizations benefiting from the

balanced scorecard from

performance improvement

Create customer-centric culture and

promote improved customer

relationships

Vital in competing in dynamic and

complex environment to correct

course to success

Claimed benefits – cont’d.

Revolutionary tool that motivates

staff to make organization’s

vision, mission and strategy to

happen,

Applicability of the balanced

scorecard in government and

non-profit organizations with

some adaptations to be made.

Negativity/pitfalls

Implementation issues – top

down approach

The integration issue of the

balanced scorecard and other

control systems such as budgets

balanced scorecard loses its

strategic focus and turns into

mere reporting

Negativity/pitfalls – cont’d.

• Too many KPIs,

• Measurement of wrong things,

• Unbalanced scorecards,

• Not driving action and change in

business needs,

Balanced scorecard in the public

sector: fact or fiction?

• The BSC system as a strategic

performance management system

• The BSC soon becomes a diagnostic

and not an interactive tool

• The BSC can create performance

management tensions (as well as

benefits) in its own right.

Balanced Scorecard Type Performance Dimensions in Australian government departments

BSC dimension

Little or no extent

Moderate extent

Large and very great extent

Mean Median

Outputs (quantity of services provided) (BSC_OUT)

6 (13.1%) 11 (23.9%) 29 (63.0%) 3.57 4.00

Cost/processes efficiency and quality measures (BSC_CEQ)

11 (23.9%)

13 (28.3%) 22 (47.8%) 3.26 3.00

Activity/process measures (BSC_ACT)

10 (22.2%)

13 (28.9%) 22 (48.9%) 3.22 3.00

Customer/community satisfaction measures (BSC_COMM)

14 (31.2%)

8 (17.8%) 23 (51.1%) 3.16 4.00

Outcomes measures (BSC_OUTC) 16 (34.8%)

12 (26.1%) 18 (39.2%) 3.06 3.00

Inputs - activities planned (BSC_INP)

17 (37.8%)

9 (20.0%) 19 (42.2%) 2.89 3.00

Employee learning and growth measures (BSC_ELG)

30 (65.2%)

9 (19.6%) 7 (15.2%) 2.20 2.00

Overall BSC adoption (BSC_ADOPT)

- - - 3.32 3.00

Balanced scorecard use in Australian government departments Decision making areas

Little or no extent

Moderate

extent

Large and very great

extent

Mean

Median

Panel A: Internal use

Measure program performance

10 (22.0%) 11 (24.4%) 24 (53.3%) 3.53 4.00

Manage an activity or program

11 (25.0%) 10 (22.7%) 23 (53.3%) 3.36 4.00

Budget formulation 14 (35.6%) 11 (24.4%) 18 (40.0%) 3.13 3.00

Taking actions based on results

17 (38.6%) 8 (18.2%) 19 (43.2%) 3.06 3.00

Strategic planning 17 (38.6%) 9 (20.5%) 18 (47.8%) 3.02 3.00

Punish or reward staff 36 (85.7%) 4 (9.5%) 2 (4.8%) 1.50 1.00

Overall internal use of BSC - - - 2.93 3.00

Panel B: External use

Satisfy legislative requirements (law, ordinance, policy, etc)

12 (26.1 %) 7 (15.2%) 27 (58.7 %) 3.46 4.00

Satisfy community expectations

19 (42.2 %) 14 (31.1 %) 12 (26.7 %) 2.80 3.00

Social responsibility goals 22 (50.0 %) 10 (22.7 %) 12 (27.3 %) 2.66 2.50

Environmental goals 30 (71.4 %) 8 (19.0 %) 4 (7.8 %) 1.97 2.00

Satisfy professional associations

31 (76.7%) 6 (14.0 %) 2 (4.8%) 1.77 1.00

Follow others 37 (88.1%) 5 (11.9 %) 0 (0.00%) 1.40 1.00

Balanced Scorecard Use in New Zealand

Research Question Research Findings

To what extent has the

BSC concept been

adopted as a

performance

management system in

New Zealand

government

departments and Crown

entities?

The proposition that organisations initially use the BSC as a

performance measurement tool and evolve to using the BSC as a

strategic management tool is not supported, as the case

organisations were not using the BSC for measurement.

In all case organisations BSCs were modified to reflect the unique

characteristics of the organisation.

None of the case organisations’ scorecards have strong causal

linkages or were supported by strategy maps.

Two of the case organisations’ BSCs closely fit the stakeholder

scorecard model whereas the third case organisation’s BSC is

closer to a key performance indicator (KPL) scorecard.

How have New Zealand

government

departments and Grown

entities extended the

use of the BSC to a

Strategic management

system?

The scorecard is an important part of the strategy development

and implementation process and is correlated to the maturity of

the organisation’s strategy. The BSC provides a bridge between

an organisation’s strategy and the annual work program.

Managers and staff performance goals and compensation were

not consistently linked to BSC measures.

None of the case organisations explicitly integrated the BSC into

the strategic planning and budgeting processed, although the

organisation has made substantial progress towards this

objective.

None of the case organisations are using the scorecard to

enhance strategic feedback and learning.

How are New Zealand

government

departments and Crown

entities using BSC

measures as part of their

external reporting

obligations?

All case organisations were using the BSC to discharge

accountability requirements to external stakeholders although

accountability was narrowly defined in terms of the contractual

arrangements.

None of the case study organisations identified the capacity to

provide information on the government’s ownership interest as a

consideration that underpinned the development of the BSC.

While the BSC may have the capacity to strengthen relationships

with key stakeholders, no evidence of this potential was found.

John Griffiths (2003) Australian Journal of Public Administration

Emerged themes

It is not always about developing

targets, setting measures and

measuring the process in the short-

run

It is about developing long-term

success related performance

management indicators and

Understanding the outcome to

support the “organisational” needs

Emerged themes – cont’d

• Improved company results in the

long term

• Developing a clear strategy

allows a clear purpose to be

generated which the performance

can be assessed.

Relevance lost or relevance

found and sustained?

• Has the BSC lost its relevance

to practice in this 21st century

or has it found relevance and

sustained its position in the

extant field?

Mixed results

• Too general - it may not fit in the

organizational culture

• The four dimensions appear to

loosely connect to each other and

unable to provide clues on which

company-internal factors should be

developed.

Mixed results – cont’d

• It is difficult to identify the relative

importance of and the trade-offs

between the perspectives when

resolving the conflicts in the

setting of targets on different

perspectives and on the

measures of the perspectives.

Mixed results – cont’d

• Construction of the balanced

scorecard and the maintenance of

systems are laborious.

• There is not a causal but rather a

logical relationship among the areas

analyzed in the balanced scorecard.

• Balanced scorecard does not ensure

any organizational and environmental

rooting

What need knowing

Behavioural, cultural and socio-political

contexts

Institutional coercive isomorphism

Persuasive rhetoric or convincing theory

Actors’ role in the BSC network

Integrating with other MCS

Linking BSC dimensions with executive

compensation schemes

Institutional contexts and the BSC in

the public sector

• Trust in formal institutions and BSC

procedures

• The paternalist authority relations

• Resource dependency

• The extent of formal regulation of

markets

• The strengths of unions and other

interest stakeholders

Innovation diffusion of the BSC

• To address the proinnovation bias in

innovation diffusion research (using Abrahamson’s 1991 typology)

• Proinnovation bias emerges when an

innovation is assumed to benefit

organisations that it should be

diffused and should not be re-

invented or rejected by the social

system

Innovation attributes

• A broader understanding of how

innovation attributes (relative

advantage, compatibility, complexity,

observability, trialability) associate

with an organisation’s desire for

implementing the BSC (Roger, 1993).

Relational network and the BSC

• Who are the key actors (human and non-

human) in the network?

• How do they form and shape the

development of the BSC?

• Who supported the BSC practices and

who opposed them?

• What was the nature of relational networks

built?

Appreciative enquiry

• Shortage of positive stories in the

research literature about the working

of the balanced scorecard in

organizations.

• Using appreciative inquiry (Reed,

2007) develop a narrative focusing on

what works in the organization and

why.

Concluding remarks

• A good aspect of the balanced

scorecard is that it is a simple,

systematic, and easy-to-understand

approach for performance

management, review, and evaluation.

• It is also a convenient mechanism to

communicate strategy and strategic

objectives to all levels of management.

Concluding remarks – cont’d

• The success of the balanced scorecard

will depend on the clear identification of

non-financial and financial variables and

their accurate and objective measurement

and linking the performance to rewards

and penalties.

• The BSC should be used both as a

diagnostic and an interactive management

control system to ensure organisational

effectiveness.

Thank you for listening!