Relevance assumed: a case study of balanced scorecard development using system dynamics

Abstract

The balanced scorecard (BSC) has become a popular concept for performance measurement. It focuses attention of management on only a few performance measures and bridges different functional areas as it includes both financial and non-financial measures. However, doubts frequently arise regarding the quality of the BSCs developed as well as the quality of the process in which this development takes place. This article describes a case study in which system dynamics (SD) modelling and simulation was used to overcome both kinds of problems. In a two-stage modelling process (qualitative causal loop diagramming followed by quantitative simulation), a BSC was developed for management of one organizational unit of a leading Dutch insurer. This research illustrates how, through their involvement in this development process, management came to understand that seemingly contradictory goals such as customer satisfaction, employee satisfaction and employee productivity were, in fact, better seen as mutually reinforcing. Also, analysis of the SD model showed how, contrary to ex ante management intuition, performance would first have to drop further before significant improvements could be realized. Finally, the quantitative modelling process also helped to evaluate several improvement initiatives that were under consideration at the time, proving some of them to have unclear benefits, others to be very promising indeed.

A system dynamics‐based simulation experiment for testing mental model and performance effects of using the balanced scorecard

“…Consequently, this research suggests that, due to cognitive limitations, managers may not appreciate the significance of non-financial and leading measures, thereby defying the cause-and-effect logic built into the BSC approach and potentially reducing the benefits of using the BSC. Akkermans and van Oorschot (2005) describe a case study where a two-stage modeling process (qualitative causal loop diagramming followed by quantitative simulation) was used to overcome certain problems associated with BSC implementation. This research suggests that qualitative causal loop diagramming helps managers in identifying key variables and their causal interrelations, and the use of system dynamics simulation modeling is essential in developing a better comprehension of business dynamics, such as time delays and accumulations in the key business processes.…”

The Balanced Scorecard and the Strategic Learning Process: A System Dynamics Modeling Approach

“…First, we would like to mention a few studies that already use system dynamics for performance management/measurement and BSC in an accounting setup. Akkermans and van Oorschot [84] show how time-lag and causal discussions from the BSC literature can be included into a system dynamics model. In close collaboration with a team from a company, Akkermans and van Oorschot [84] built a comprehensive BSC dynamic system model.…”

Causality analysis in business performance measurement system using system dynamics methodology

“…Complex systems are 'complex' because of the multiple feedback or interactions among the various components. It was suggested that the issues in identifying the right measures to be selected, should there enough or more and the impact of delays could be resolved by adopting simulation using SD methodology into BSC framework [21]. Principally, SD is defines as method of studying a complex problem by explaining the structure of interactions among all the compositions as well as the behavior.…”