Communicating and Controlling Strategy: An Empirical Study of the Effectiveness of the Balanced Scorecard

Abstract

This paper reports evidence on the effectiveness of the Balanced Scorecard (BSC) as a strategy communication and management-control device. This study first reviews communication and management control literatures that identify attributes of effective communication and control of strategy. Second, the study offers a model of communication and control applicable to the BSC. The study then analyzes empirical interview and archival data to model the use and assess the communication and control effectiveness of the BSC. The study includes data from multiple divisions of a large, international manufacturing company. Data are from BSC designers, administrators, and North American managers whose divisions are objects of the BSC. The study accumulates evidence regarding the challenges of designing and implementing the BSC faced by even a large, well-funded company. These findings may be general-izable to other companies adopting or considering adopting the BSC as a strategic and management control device. Data indicate that this specific BSC, as designed and implemented, is an effective device for controlling corporate strategy. Results also indicate disagreement and tension between top and middle management regarding the appropriateness of specific aspects of the BSC as a communication, control, and evaluation mechanism. Specific results include evidence of causal relations between effective management control, motivation, strategic alignment, and beneficial effects of the BSC. These beneficial effects include changes in processes and improvements in both the BSC and customer-oriented services. In contrast, ineffective communication and management control cause poor motivation and conflict over the use of the BSC as an evaluation device.

Linking the Balanced Scorecard to Organizational Shareholders’ Expectations

“…Manufacturing plants that link their strategies to their performance measurement systems through the use of the BSC were able to improve their organizational performance (Sim and Koh, 2001). The BSC may also be a management control mechanism and a means for the improvement of organizational outcomes (Malina and Selto, 2001). However, this argument suggested that the very act of performance measurement reveals deficiencies, but it did not consider the cause and effect relationships among the perspectives.…”

“…The proposition that BSC measures are generalizable among all organizations or even within an industry is notably absent in the literature. Rather, the research posits that the measures are unique to an organization or even the sub-unit of an organization (Malina and Selto, 2001). Once the criteria within the four perspectives are determined, the data and data analysis methods by which performance will be measured must be clarified (Sink and Smith, 1999).…”

“…Chan (2001) study reviewed the BSC application of one company in Hong Kong. Malina and Selto (2001) considered a sub-unit of a manufacturing company. A case analysis of one company's BSC design phase reviewed the process that the organization followed to measure its intangible factors.…”

“…However, the strategic implications of internal and external performance measurement have not been demonstrated as reliable either for a sample within one industry or across industries (particularly, refer to (Figure 1 below, Hoque and James, 2000). Most of the analyses of the efficiency and applicability of the BSC have been unitary case analyses (Bukh et al, 2002;Chan, 2001;Chia and Loon, 2000;Denton and White, 2002;Hagood et al, 2002;Lonnqvist, 2003;Malina and Selto, 2001;Youngblood and Collins, 2003). The original 1992 design of the BSC was the result of a case analysis of a dozen companies (Kaplan and Norton 2001).…”

Balanced Scorecard and Learning Organization: Case Study

“…A grande vantagem do BSC passa a ser uma clara explicitação da estratégia empresarial (o que queremos, como e porquê), que facilita a sua compreensão numa dimensão mais operacional ou tácita (MALINA; SELTO, 2001). Aqui estão implícitas outras características das organizações de aprendizagem: clarificação da sua missão e objetivos, feedback.…”