List of Abbreviations
Chapter 3: Chapter 3: Exploring the Concept and Practices of the BSC: A Literature Review
3.6 The associated effects of using the BSC system
With regards to benefits that can arise upon implementation of the BSC, Johnsen (2001) enumerated three: first, the BSC is a versatile tool for developing,
76
discussing and selecting the most relevant decision-taking and performance indicators in complex organisations such as political bodies. Second, the BSC provides a practical approach to judge the basic premise in information economics: the benefit of information should exceed its cost. Third, it educates busy stakeholders, managers and employees in management control in complex organisations. In terms of the associated effects of the BSC, the present study categorises the effects into several areas: organisational performance, strategy clarity, managerial, efficiency and effectiveness.
3.6.1 Effects on organisational performance
The existing literature reveals that there are several researchers who studied the effects conferred by the application of the BSC, especially in organisational performance (OP). For instance, the Hoque and James (2000) took samples from 66 Australian companies. They concluded that BSC implementation is positively correlated with company performance, but that the connection does not depend significantly on organisation size, product life cycle, or market position. Davis and Albright (2004), who examined BSC implementation using a quasi-experimental study in a banking organisation in the USA, reported that bank branches in the BSC group outperformed the non-BSC branches on a common composite financial measure. Another example is a study by de Geuser et al. (2009), which was based on survey data collected from 76 business units in Switzerland, the UK, Germany, Austria, France and the Netherlands. The authors concluded that the BSC’s contribution depends to a large extent on three principles of Kaplan and Norton’s SFO model: a better translation of the strategy into operational terms; the fact that strategizing becomes a continuous process; and the alignment of various processes, services, competencies and units of an organisation. Considering the three abovementioned examples of BSC research, there is reason to believe that there is a close relationship between the way in which the BSC is implemented and its associated performance effects (Madsen and Stenheim 2015).
77
Not all research reported positive effects of the BSC on OP. For instance, a study by Ittner et al. (2003), which involved 140 financial services companies in USA using survey method, concluded that the BSC process, economic value measurement, and causal business modelling are associated with higher measurement system satisfaction but exhibit almost no association with economic performance. In their article, they did not provide information about the level of BSC implementation in the responding companies. This information is, however, important as it may be that the measures the companies used were not accurate (Malina and Selto 2001); in addition, it is possible that the responding companies did not use the BSC as strategy for communication and implementation (Papalexandris et al. 2004). This should be clear, because the effectiveness and benefit of BSC implementation is highly dependent on the content of the implementation process that is used (Kaplan and Norton 1996b; Braam and Nijsen 2004; Papalexandris et al. 2005).
As has been illustrated in the analyses of the studies mentioned her e, the empirical evidence regarding the relationship between BSC implementation and associated organisational effects has been dominated by studies on BSC practice in private sector organisations. To the best of the researcher’s knowledge, similar studies in public-sector organisational settings have not yet been made available.
3.6.2 Effects on strategy clarity
With regards to benefit of the BSC concept for an organisation’s strategy clarity, Kaplan and Norton (1996a,b; 2001a,b,c) claimed that the BSC clearly communicates the organisation’s strategy to its employees and, when correctly understood and properly implemented, allows employees to see how they contribute to the organisation’s strategic goals by translating these goals into specific, measurable activities. In a similar vein, Greatbanks and Tapp (2007) reported that implementation of the BSC system within their case organisation enabled employees to clearly appreciate their role and focus on delivering
78
performance-related measures that supported organisational strategy. As such, clarity of role appears to have a positive influence on the achievement of the organisation’s business plan and excellence goals regarding the delivery of customer service.
Another supporting result emerged from the work of Hladchenko (2015), who used a comparative analysis of the BSC in four institutions of higher education in Germany and Austria to argue that the BSC provides a systemic view of institutional strategy in those institutions. Hladchenko concluded that the BSC makes it easier for the staff in each faculty to understand the strategic goals of the university and that it helps the staff to understand their role in process of the implementation of the university’s overall strategy. Furthermore, the author explained that the formation of the BSC framework at different levels of the university allowed the employees to clearly understand the strategic goals and the objectives that they should be pursuing in their everyday professional activities.
Cheng and Humpreys (2012), who conducted a study in an experimental laboratory, likewise asserted that the BSC framework has broader implications for organisational decision making. By clearly articulating an organisation’s strategy to managers, the strategy map allows managers to form a more useful cognitive representation through which external informational items can be interpreted and incorporated in strategic judgments.
3.6.3 Managerial effects
Kaplan and Norton (1996b) claimed that, when the BSC is correctly implemented, its adoption enables managers to monitor and update their organisations’
strategies as their environments change. The usage of BSC has also shown varied results in terms of managerial perspective. For instance, an explorative study by Werner and Xu (2012) found that the BSC helps enterprise leaders manage their operations and execute their strategies. Similar results stemmed from a study by Hoque and Adams (2011). The authors suggested the presence of a positive association between BSC implementation and managers’ perceptions of the
79
benefits of the BSC system. Another similar study, that of Burney and Swanson (2010), reported that the inclusion of non-financial measures in some BSC categories is positively related to managers' job satisfaction and may therefore encourage a long-term focus on decision making.
3.6.4 Effects on efficiency and effectiveness
Several studies on BSC practice in the public-sector have reported an associated effect between the BSC and efficiency and effectiveness. For example, Hoque and Adams (2011), after analysing data from 51 government departments in Australia, found indications that government departments perceived the BSC performance measures as enhancing their programs’ efficiency and effectiveness. Similarly, Woods and Grubnic (2008), at the conclusion of their study of the BSC in Hertfordshire, affirmed that the BSC system had helped turn the focus to outcomes rather than outputs as indicators of operational effectiveness.