Academic journal article Journal of Organizational Culture, Communications and Conflict

Comparing Apples to Apples: Insuring Consistency of Measurement with the Balanced Scorecard

Academic journal article Journal of Organizational Culture, Communications and Conflict

Comparing Apples to Apples: Insuring Consistency of Measurement with the Balanced Scorecard

Article excerpt

ABSTRACT

Performance evaluation is one of the most complex measurement issues in management accounting. Despite the assertion that measurement of the performance of the individual be divorced from measurement of performance of the business unit, complex interrelations make such a measure extremely difficult. The task of evaluation is further complicated by various questions and concerns about who should do the evaluating and questions regarding what should be evaluated-outcomes, behaviors, or competency levels. The combination results in an overwhelmingly complex set of measurement criteria. Balanced Scorecard (Kaplan & Norton, 1992) has introduced a systematic approach to the measure of qualitative dimensions for business performance, but actually producing an internally consistent quantified score that is suitable for comparisons between periods and between subjects continues to be extremely difficult. This paper illustrates the use of the Analytic Hierarchy Process (Saaty, 1994) as a mechanism for dealing with this highly complex scoring problem.

INTRODUCTION

Performance evaluation is perhaps the most complex measurement issue in management accounting. Despite the assertion that measurement of the performance of the individual be divorced from measurement of performance of the business unit, complex interrelations make such a measure extremely difficult. Add to this, an environment in which teams are increasingly common. Personnel performance evaluations should focus on individual contributions sufficiently to prevent social loafing, but not to an extent that ignores the synergistic properties that make groups work.

The task of evaluation is further complicated by various questions and concerns about who should do the evaluating-supervisors, peers, customers, or subordinates. Add to this questions regarding what should be evaluated-outcomes, behaviors, or competency levels. All these dimensions result in an amazingly complex performance evaluation milieu. Although the Balanced Scorecard, or BSC (Kaplan & Norton, 1992) has introduced a systematic approach to the measure of qualitative dimensions for performance, actually producing an internally consistent quantified score that is suitable for comparisons between periods and between subjects continues to be extremely difficult.

Fortunately, a mechanism for dealing with this type of highly complex scoring problem already exists in a decision science technique known as the Analytic Hierarchy Process or AHP (Saaty, 1994). AHP is a widely acclaimed multicriteria decision-making technique that allows analysts not only to grasp a problem of this magnitude but, by using a mathematically rigorous process, can also offer a measure of internal consistency (Saaty, 1996). The AHP has become one of the most popular aids to decision-making and has been popularized and made widely available through "Expert Choice" software (Expert Choice, Inc., 2000; Forman et al., 1983). This paper presents a format for using a Balanced Scorecard approach and AHP to produce an internally consistent, comprehensive measure of personnel performance.

The first question that must be addressed in development of an effective performance evaluation system is the question of its purpose. Evaluation systems are used to give employees useful feedback, coaching, and guidance to help them improve their performance and develop job related skills (Peiperl, 2001). Evaluations can be used as part of a formal goal setting system (Scott & Einstein, 2001). They can also be used for making staffing decisions such as which employees will receive raises, or conversely, they may provide legal documentation protecting an organization from suit in the event that an employee must be dismissed. Depending on how the evaluation system is designed, it will work better for some of these purposes than for others (Goldstein, 1998).

Increasingly, companies are using the Balanced Scorecard (BSC) as a mechanism to link the performance of individuals in the company to accomplishment of the strategic goals of the company (Kaplan & Norton, 1992). …

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