Performance measurement (balance score card, financial measures, non-financial measures, divisional versus corporate)

ABSTRACT

This study aims at understanding the process of elaborating and selecting performance measures in the framework of the balanced scorecard (BSC). Previous studies in the now well-investigated effect that decision makers tend to give a much higher weight to common measures compared to unique measures (Banker et al, 2004; Lipe and Salterio, 2000) did not explore differences between perspectives in terms of commonality of measures used for performance evaluation purposes. We will explain why there are common measures in all perspectives and which their shared characteristics are. Based on a simulation with graduate students, we argue that common measures are found in every BSC’s perspective but with a significant degree of difference. Financial measures are by far the most common ones, internal process measures are the least common ones with customer and learning ranging somewhere in between. Our study implies that the idea of standardization beyond financial measures is based on three performance measures characteristics: 1) reliance on data already available, 2) easy benchmarking, and 3) possibility of being audited by third parties. We advanced implications for managers and for future research on the information generated in the BSC.

1. INTRODUCTION.

This paper has been motivated by the evidence of some limitations of the balanced scorecard (Lipe and Salterio, 2000; Banker et al., 2004). These authors examine the judgmental effects of the balanced scorecard (BSC) and found that when evaluating the performance of different strategic business units (SBU), superiors tend to focus on common measures of the BSC of the units. Therefore, the BSC would fail in multidivisional firms since while using this model, senior managers will