Academic journal article Academy of Accounting and Financial Studies Journal

Manager Behavior in a Balanced Scorecard Environment: Effects of Goal Setting, Perception of Fairness, Rewards, and Feedback

Academic journal article Academy of Accounting and Financial Studies Journal

Manager Behavior in a Balanced Scorecard Environment: Effects of Goal Setting, Perception of Fairness, Rewards, and Feedback

Article excerpt

INTRODUCTION

There has been a continuing body of research that attempt to evaluate the effectiveness of the balanced scorecard (BSC) as a tool for both strategic management and performance evaluation in organizations (see Banker et al. 2004; Davis and Albright 2004; DeNisi and Pritchard 2006; Kaplan and Norton 1992, 1996a, 1996b, 2000; Leidtka et al. 2008; Luft, 2004; Malina and Selto 2001; Webb, 2004). Despite the assumed significance of BSC and the prevalence of its multiple performance measures observed in practice, much of the extant academic literature has relied upon the dichotomization of BSC measures into financial versus non-financial for the investigation of BSC use. This approach has generated mixed results (Ittner & Larcker, 1998, 2001, 2003). In an earlier study, Ittner and Larcker (1998) observe that the use of BSCs and their performance consequences appear to be affected by organizational strategies and the structural and environmental factors confronting the organization. Therefore they call for research that provides evidence on the factors affecting the adoption of various non-financial measures. Furthermore, Ittner and Larcker (2001) indicate that prior studies on non-financial measures ignore the interaction between different non-financial measures, and that this limitation could result in misleading inferences if the non-financial measures are highly correlated. Similarly, DeNisi and Pritchard (2006) report the result of a survey which indicates that only one in ten employees in the survey believe that their firm's BSC appraisal system influence their performance. Contrary to the opinions referred to above, Davis and Albright (2004); Feltham and Xie (1994); Gersbach (1998); Kaplan and Norton (2000, 2007); Malina and Selto (2001); all argue that BSC and the use of strategic management systems provide employees with improved communication of strategic objectives, alignment of managerial actions with strategic priorities, increased motivation, fairness in strategic process, feedback and learning, and a link to rewards system that change behavior, and improve performance.

At the macro level, it has been demonstrated that differences between organizations (e.g. organizational structure) do affect employee attitudes and responses (Caldwell, Chatman and O'Reilly, 1990). In terms of individual processes and systems, there is extensive literature on goal setting, on performance appraisal, feedback, perception of fairness, and on incentives (Bouillon et al., 2006; Locke and Latham 2002) that also link these attributes to changes in behavior. Specifically, our study will address the question regarding the extent to which the various attributes of BSC - goal setting, perception of fairness, feedback, and linkage to reward systems, - work together to achieve desired behavioral outcomes at the individual level in a BSC environment. The thesis of this paper is based on the proposition that the effects of these attributes on managers' behavior taken together may explain the inconsistent results from prior research.

Following evidence from the psychology and organizational behavior studies that link performance management to changes in individual behavior (Bouillon et al., 2006; Locke and Latham 2002), this paper reviews the body of literature that deals with some key attributes of BSC, and to consider their relationships with behavior at the individual level. Thus, this study provides a review of relevant literature pertaining to the effects of goal setting, perception of fairness, linkages to reward systems and feedback (as attributes of BSC) on employee motivation, commitment, and job satisfaction. Furthermore, this study will use principles and theories taken from psychology and organizational behavior research in analyzing these relationships and developing a theoretical model.

Based on our review, we contend that a greater understanding of the factors that influence individual behavior in a BSC environment can help to predict (and eventually influence) the quality and consistency of performance outcomes. …

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