Balanced Scorecard Design and Performance Impacts: Some ...

JAMAR Vol. 6 · Number 2 · 2008that if establishing significant correlationsbetween measures and causal chains wasimmediately obvious and easy then the needfor strategy or even management isdiminished. They argue that establishingassociations between outcomes and inputsthat are assumed to have the greatest impacton these outcomes is what developing causeand effect is about; and in manyorganisations these relationships can bediscovered and attuned through a process oflearning and experimentation over time (seealso Tuomela, 2005).Empirical research is also somewhatunclear on the benefits of using the causeand effect characteristic in BSC design.Malina and Selto (2001), Malmi (2001) andIttner, et.al. (2003) all found very littleapplication of the cause and effect principlein the companies they considered, and assuch were only suggestive in theirdiscussions of the usefulness of cause andeffect logic.Davis and Albright (2004), in their study ofbank branches, found that the organisationalunits that used the BSC had better financialperformance that those that had notimplemented the BSC. Notably, the BSCimplementing units had designed them withcause and effect logic, although this doesnot allow isolation of the effects of causeand effect logic itself. Malina and Selto(2004) anecdotally observed the existenceof logic and finality in the perceptions ofmanagers in their case study, yet observedlittle evidence of causality when measuringthe relationship between metrics containedin the BSC of their case organisation.Bryant, et.al. (2004) also examined the ideaof causality between financial and nonfinancialperformance measures. While theywere able to provide some empiricalevidence of associations, the data used wasfrom external sources and hence proxied,rather than directly measured, elements ofthe BSC.Furthermore, associations between financialand non-financial measures may existwithout cause and effect logic beingpurposefully implemented into BSCdesign.Although both the empirical andtheoretical evidence surrounding theusefulness and applicability of cause andeffect logic is inconclusive, from apragmatic perspective the notion remainsappealing. Given the normative assertionsof Kaplan and Norton concerning itseffectiveness and centrality to the BSC as adistinctive strategic management system,the ex ante expectation is that BSCs that aredesigned with causal links betweenmeasures or between measures andperspectives will enable greaterperformance outcomes. This is formallystated as the following proposition:P1: Organisations that have cause andeffect relationships between measures intheir BSC will gain more benefits fromtheir BSC than those without cause andeffect relationships in their BSC.Compensation Link to BSC Non-Financial MeasuresKaplan and Norton (1996b, 2001b) arguethat attaching incentives to measures is apotentially powerful mechanism to align theefforts of individuals to the achievement oforganisational strategy, and to create a morebalanced focus between short and long termobjectives. They also suggest that astrategically linked scorecard with acompensation element included in thedesign will create the sense that theachievement of strategy is everyone’sresponsibility, motivating individuals toconsciously consider the relationshipsbetween their activities and strategicoutcomes.The BSC research literature to date haspresented limited evidence on the benefitsof incorporating reward and compensationinto BSC design. Malmi (2001) found 13 ofthe 17 organisations he interviewed hadincentives attached to their BSC, althoughhe did not provide any evidence on whetherimpacted BSC effectiveness. Speckbacher,et.al (2003) also examined the extent towhich incentives were linked to the BSC.Out of 38 organisations, 27 had incentivestied to the BSC, however the extent towhich this impacted either benefits of theBSC or organisational performance is notconsidered.20