Academic journal article Management Accounting Quarterly

Experimental Balanced Scorecard Research: Implications for Practitioners

Academic journal article Management Accounting Quarterly

Experimental Balanced Scorecard Research: Implications for Practitioners

Article excerpt

The balanced scorecard (BSC) is heralded as one of the most significant recent developments in managerial accounting. It combines traditional measures of performance with leading indicators of future financial performance in a framework that links organizational strategy with operational measures. Gaining prominence as a performance-evaluation system, the BSC has evolved into a central organizing tool for developing and evaluating strategy. Key performance measures often fall into four categories or perspectives: financial, customer-related, internal business processes, and learning and growth.

The BSC's benefits are appealing, and, not surprisingly, companies worldwide have implemented this tool. Successful operation of the BSC, however, requires careful implementation and ongoing management because of its many measures and assumed strategic linkages. Research offers a unique perspective on the operation of the BSC for performance and strategy evaluations. Although researchers can isolate and measure variables of interest while holding all else equal, this is often not possible in real-world settings because of the many factors that affect the BSC on a daily basis.

This article describes BSC experiments, discusses insights from experiments that use the BSC to evaluate performance and strategy, and reports key findings that have managerial implications for using the BSC.


Well-designed BSCs feature tight linkages between performance measures and the business unit strategy. As such, one expects to see a variety of measures--some that all divisions use and some that uniquely portray the strategy of an individual unit. For example, key financial measures, such as return on sales or profit margin, may be common to all business units, and some measures may be unique to a particular unit given its strategy, such as sales per square foot or number of patents registered.

Because of their link to strategy, all measures in the BSC are important, and senior management must consider all measures to arrive at a complete evaluation of business units. Yet ensuring that all measures are given proper consideration is a tough job. One way to cope with the mental challenge of evaluating the 16 to 28 performance measures typically in BSCs is to focus on common measures and simply ignore measures unique to particular units--a strategy known as the common-measures bias.

Do managers succumb to this common-measures bias? Experiments are an ideal way to address this question because of the control researchers can exert in the research process. For example, researchers can manipulate common and unique performance measures in a BSC while holding everything else constant, and then they can observe any effect on performance-evaluation decisions. Differences in performance-evaluation decisions can arise because of manipulation of common or unique performance measures. This causality is the main advantage of experiments.

The first experiment I review is "The Balanced Scorecard: Judgmental Effects of Common and Unique Performance Measures" by Marlys Gascho Lipe and Steven Salterio. (1) It investigates the influence of the common-measures bias on performance evaluations using the BSC. This experiment established a standard design for a series of experiments examining cognitive biases in the use of the balanced scorecard. The researchers assigned participants the role of a senior manager and asked them to evaluate the performance of two divisions. Participants learned about the company's background, its vision, strategy, and the fact that it had recently implemented the BSC. Participants were given a balanced scorecard for each division that included performance measures, targets, and actual results. The BSCs contained the four categories of measures: financial, customer-related, internal business processes, and learning and growth. They also included some measures common to both divisions (e. …

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