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Balanced Score Card (BSC) Advantages and Disadvantages

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Abstract

The study reports an evidence of the efficiency and usefulness of the Balanced Score Card (BSC) as a management control and communication strategy. This paper firstly examines the available literature on management control and communication which has identified elements of strategic control and effective communication. Secondly, this study presents a model of control and communication significant to the Balanced Score Card. Thirdly, the study further investigates archival and practical interviews data to represent the utilization and also evaluates the effectiveness of control and communication of the Balanced Score Card.

The study incorporates data collected from the various departments of a large, international manufacturing company. Data is collected from Indian administrators, managers and the Balanced Score Card designers whose divisions are the purpose of Balanced Score Card. The study congregates evidences in respect to the challenges encountered by many and as in this case even by a large, well financed multinational corporation associated with the implementation and designing the Balanced Score Card. These results may be broadly suitable to other companies planning to adopt or adopting the Balanced Score Card as a management and strategic control tool.

The data points out that this particular Balanced Score Card, as applied and designed, is definitely an effective tool for managing corporate strategy. Obtained results also illustrate stress and divergence amongst the top and the middle level management concerning the suitability of certain aspects of the Balanced Score Card as an evaluation, communication and control mechanism. Certain aspects include conformation of laid-back relations amongst successful management control, positive effects, motivation and strategic alignment of the Balanced Score Card. These positive effects include the changes in development and implementation of both the customer focused services and the Balanced Score Card. In contrary, unsuccessful management control and communication originate conflicts and acts as a source of poor motivation in respect of the use of Balanced Score Card as an assessment device.

Data Availability:

All the data gathered for this research is regulated and supplied under a strict non-disclosure agreement, which necessitates the researcher to safeguard the company’s proprietary information and identity.

Introduction

The available academic and professional strategy literature asserts that numerous multi-nationals have discovered time-honoured performance measures (e.g., profits, return on investment, and ex post costs) to be inadequate strategies for judgmental action in today’s speedily changing, super-competitive environment. Solitary dependence on present, financial performance measures does not perhaps mirror the significance of present resource verdicts for upcoming financial performance (e.g., Dearden, 1969).

However, several years ago, some organisations identified the significance of non-financial performance measures (e.g., General Electric during 1950’s), budding global competition and the mounting up of the TQM movement has broadened the appeal for non-financial measures of performance. Authors have piled up, both the academic and professional literature with suggestions to believe more on non-financial performance measures for both evaluating and managing organisations since the 1980’s (Berliner and Brimson 1988; Dixon et al. 1990; Johnson and Kaplan 1987; Nanni et al. 1988; Rappaport 1999).

Along with the normative arguments, empirical research studies can also help in establishing the effectiveness and roles of non-financial measures of performance. Numerous studies have attempted to relate some specific non-financial performance measures to the financial performance (Ittner and Larcker 1998a; Behn and Riley 1999; Foster and Gupta 1999; Banker et al. 2000).1 Results of numerous human resources literature illustrates that, it’s the systems of non-financial performance measures that seems to be comparatively more reliable determinant of firm’s performance than the individual measures themselves. (Huselid 1995; Huselid et al. 1997; Becker and Huselid 1998). The purpose of this research is to study the impact and process of administering an organisation using the non-financial measures of

1 The ever rising body of research study which has examined empirical associations amongst the financial and the non-financial performance measures in a variety of industries and firms also includes Foster and Gupta (1990, 1999), Banker et al. (1993), Barth and McNichols (1994), Banker et al. (1995), Amir and Lev (1996), Banker et al.(1996), Ittner and Larcker (1997, 1998a), Perera et al. (1997), Behn and Riley (1999), Banker et al. (2000), Ghosh and Lusch (2000), Hughes (2000).

These research studies repeatedly found significant associations the financial and non-financial measures of performance, although research studies of the effects of performance of including the non-financial measures in the compensation plans are comparatively less steady and consistent. Given the growing empirical and extensive theoretical support, it is not at-all astonishing that several companies report that they are switching to non-financial, forward-looking information for both evaluating present performance as well as for guiding decisions (Ittner and Larcker, 1998b). Performance, particularly in the context of Balanced Scorecard (BSC), a comprehensive structure of performance measurement system.

The Balanced Score Card, popularized by Kaplan and Norton (1992, 1993, 1996a, 1996b, 1996c) and also accepted extensively across the globe, has been presented as a better and superior blend of financial and the non-financial measures of performance. 2 Balanced Score Card is projected to direct strategy growth, execution and communication because it clearly focuses on the financial as well as the non-financial measures of performance. Moreover, a well designed Balanced Score Card could also provide some unfailing feedback for performance evaluation and management control.

Atkinson et al. (1997) regarded Balanced Score Card as one of the most momentous developments in the field of management accounting, justifiably attaining a strong research attention. Silk (1998) assessed that approximately 60 percent of the U.S. Fortune 500 companies are experimenting or have by now implemented a Balanced Score Card. Despite its elevated profile, astonishingly very little academic research has actually focused on either the outcomes or the claims of the Balanced Score Card (Ittner and Larcker 1998b).

An expected question that arise is: does the Balanced Score Card’s use, content, implementation or format have recognizable effects on either the outcomes or the business decisions that could not be achieved with existing ways, in combination or alone? In the very first study of its category, Lipe and Salterio(2000) identified effects in decision making connected with the format of the Balanced Score Card. The layout of the performance measures in four associated groups appears to communicate decision-related information to subjects presenting a laboratory assessment task. Most of the other previous and current studies, however, are comparatively uncritical explanations of Balanced Score Card adoptions.

Kaplan and Norton (1996b) debates that the Balanced Score Card is not principally an evaluation process, but it is a communication and strategic planning device to (1) explain links amongst leading and lagging measures of non-financial and financial performance and (2) offer some strategic assistance to the divisional managers. The Balanced Score Card asserts to describe the necessary steps for reaching financial success; for example, investment in some particular types of knowledge to improve the processes. If these links are valid replications of a company’s economic opportunities and productive and administrative

2 An identical approach for merging the numerous performance measures, the tableau de bord, has been implemented by certain French organisations for numerous years (Epstein and Manzoni 1997).

processes, then the Balanced Score Card symbolizes and can also communicate the company’s working strategy. Moreover, communicating these links effectively throughout the company can be decisive to implementing that strategy fruitfully (Tucker et al. 1996; West and Meyer 1997). Some organisations may possibly also use non-financial measures as a basis of performance measurement. On the other hand, they might judicially use the financial performance measures for the purpose of evaluation or they can also enhance the performance by using the Balanced Score Card as a vade mecum to financial success (e.g., Rappaport 1999).

The present research is aimed at investigating the management-control and communication attributes and the efficacy of a successful, large, multi-national company’s Balanced Score Card model. The research comprises of qualitative and archival data gathered through interviews with the managers, Balanced Score Card designers, and users to (1) measure the observed attributes of the Balanced Score Card as both a control and strategic communication device and (2) find confirmation of the Balanced Score Card’s evaluation impacts. The present research does not test as to if the company’s Balanced Score Card is a statistically suitable model of the company’s performance and activities. This attribute of the Balanced Score Card shall be tested in succeeding research (Malina 2001).

The company commenced using the Balanced Score Card to enhance its strategy. The Balanced Score Card has largely affected the view point and the action of users, both adversely and beneficially. When all segments of the Balanced Score Card are effectively communicated and well designed (as per the criteria mentioned in the study), the Balanced Score Card appears to persuade and inspire the lower-level managers to correspond their activities to the company’s strategy. Additionally, as per managers beliefs these changes result in enhanced sub-unit performance.

In spite of this, there is also a consistent confirmation that the weaknesses in strategic communication and the flaws and imperfections of the Balanced Score Card design have affected the relationships amongst some middle and top level managers adversely. The stress survives because the Balanced Score Card design aggravated strong differences amongst their views of upcoming future opportunities. Gaps and weaknesses in communication generate unwillingness and mistrust to change. While certain specific shortcomings and flaws could be exceptionally unique to the company studied, these results appear to reflect largely on the issues of the Balanced Score Card uses and its design.

The second section of this research study builds up a research question on the basis of reviewing the literature on communication standing by the features of effectual communication of strategy. The third section then builds up another research question with a synopsis of the attributes of management control tools that successfully control strategy. The fourth section later illustrates the company’s Balanced Score Card and the research site. Then the fifth section discusses about the practices used to analyze and obtain the qualitative and archival interview data.

This part also displays a theoretical model for describing the effectiveness of the Balanced Score Card. The following sixth section then derives an empirical model for the effectiveness of the Balanced Score Card and also addresses the raised research questions. Lastly, the final section of this study encapsulates the conclusions and also offers certain suggestion for future research.

Literature Review

The Balanced Score Card and Communication of the Strategy

Kaplan and Norton (1996 c) states that, “by articulating the outcomes the organization desires as well as the drivers of those outcomes (by using the Balanced Score Card), senior executive can channel the energies, the abilities, and the specific knowledge held by people throughout the organisation towards achieving the business’s long-term goals.” Therefore, Kaplan and Norton (1996 c) claims that not merely just the Balanced Score Card exemplifies or helps to create organizational knowledge and strategy, however even the Balanced Score Card itself effectively communicates knowledge and strategy.

Merchant (1989) contends that failure in communication is one of the main reasons for poor organizational performance. Because neither the organization’s strategy nor its knowledge succeeds or exists apart from its chief human actors, the capability to communicate effectively may itself be a basis of competitive benefit (Amit and Shoemaker 1990; Grant 1991; Schulze 1992; Daft and Lewin 1993; Tucker et al. 1996). If the Balanced Score Card does articulate the organizations strategy and knowledge in a better manner, then it could act as a foundation of competitive advantage, at-least until all other competitors implement it equally well. However, the organisational communiqué literature recognizes an intricate set of features that influence the effectiveness or quality of communication in the organisations.

Based upon a review of the present literature, an organisations communication system or device could be characterized with the elements of its (1) exchange and creation of knowledge, (2) support of the organisational culture, and (3) messages and processes. These communication characteristics have been briefly reviewed below:

  • Exchange and Creation of Knowledge

Knowledge, which could be a tactic or an objective, is the foundation of strategy implementation and formulation.3 Thus, an effectual system of communication holds up an organisations strategy by fostering both tactic and objective knowledge. An effective system

3 Objective knowledge is expressible and observable in the normal language – outcomes and production processes, for instance. However, unspoken language is understood and known but it is not easy to convey in language – an individual’s insights or experiences, for instance. This subsection draws greatly from Tucker et al. (1996).

of communication exchanges the objectives (observable) of knowledge amongst the most important individuals so that everyone is aware of the organisations present status. Organisations construct objective knowledge from the integration and development of the new knowledge by individual experts. Objective knowledge generally derives itself from the sharing and refining of the individuals tactic knowledge, which is recognized but not yet usable or articulated by the organisation.

Thus, a system of effective communication enables and encourages the individuals to share their experiences and also gathers those shared experiences. This may best possibly be accomplished by frequent and intense sharing, and might also be by dialogue rather than a one-dimensional reporting. Perhaps significantly for the effectiveness of the Balanced Score Card, de Haas and Kleingeld (1999) further debates that participating in the design of the performance measurement system is an essential element of an effective communication of strategy.

  • Support of Values, Beliefs and Culture

As per the traditional sight of an effective organisational communication, it supports individual interests and the organisational culture by focusing on certain desired patterns of beliefs, shared values, and behaviour. Effectual communication exhibits that the organisation accomplishes its promises and that group or individual rewards are predicted based upon their actions (Goodman 1998; Tucker et al. 1996). Communiqué by leaders which steadily articulates shared values, beliefs and goals (Goodman 1998; Tucker et al. 1996) is also efficient in directing behaviour and reinforcing culture. Moreover, effectual communication ought to encourage behaviour coherent with organisational values, beliefs and goals (Goodman 1998).

Kaplan and Norton (2000), the proponents of the Balanced Score Card, debates that it can also be a tool of strategic and cultural change. Coherent with Kotter’s (1995) study of change processes, the Balanced Score Card could facilitate change by effectively communicating and creating a convincing realistic vision of and also a method for attaining change.

  • Communication Messages and Processes

Individuals make use of and rely on communication only if its messages and processes are observed as trustworthy and understandable. Other features of effectual organisational communication procedures are reliability, predictability, completeness, and routineness (Tucker et al. 1996; Goodman 1998; Barker and Camarata 1998). Besides this, communication is also more successful if it applies well defined terms and concise messages (Goodman 1998). Moreover, effectual communications system prevents misrepresentation of performance or repression of truth.

There should be no equivocation concerning the differences between “looking good” and truthfulness or coherence with winning. An effective system of communication and its operators will be indignant of “spin, deniability, and truth by assertion” (Goodman 1998). As a result, organisational communication shall be effectual if the messages and processes are a valid and convincing representation of the performance.

In a nutshell, effectual organisational communication strategies should hold the recognizable attributes of:

  • Knowledge sharing – including participation and dialogue
  • Support and assistance of organisational culture – changing or existing
  • Valid messages - trustworthy, understandable and reliable

The organisational communication literature foresees that a Balanced Score Card, which comprises of these above mentioned attributes, shall create positive organisational outcomes, positive motivation, and strategic alignment. The foremost research area shall be:

Question 1: Is the Balanced Score Card an (in) effective device for communication, creating (negative) positive organisational outcomes, (in) effective motivation, and (non) alignment?

The Balanced Score Card and The Management Control of The Strategy

general condemnation of managing the organisations on the basis of financial performance measures is that these measures persuade the managers to make short-run, myopic decisions. The financial measures incline to emphasise on the present impacts of the decisions, lacking an obvious link between long run strategy and the short run actions (current criticisms include Luft and Shields [1999], McKenizie and Schilling [1998]). Moreover, the traditional financial performance measures could work in opposition to the knowledge based strategies by considering the enrichment of resources like human capital, which might be crucial to implementing a strategy, such as current expenses (e.g., Johnson 1992).

Dixon et al (1990) debates that the time-honoured financial measures, by dispensing costs of many developments, as well work opposing to the strategies based on reduction of manufacturing time, flexibility and quality. For numerous lower level employees, most of the financial measures of performance are excessively comprehensive and also very far isolated from their actions to offer helpful feedback or guidance on their decisions.

They may need certain measures that relate more accurately and directly to the outcomes that they can persuade. (McKenize and Schilling 1998). A numerous studies have found proof that the financial, traditional performance measures are utmost helpful in conditions of low complexity and relative uncertainty; and not in the conditions faced by many trans-national organisations today (e.g., Abernethy and Brownwell 1997; Govindarajan and Gupta 1985; Govindarajan 1984; Gordon and Naranyan 1984).

Lynch and Cross (1995) debates that all set performance measures should motivate the behaviour contributing to constant improvement and development in certain vital areas of competition, such as productivity, flexibility, and customer satisfaction. Therefore, they should replicate a cause and effect amongst strategic outcomes and operational behaviour (Keegan et al. 1989; Ittner and Larcker 1998a).4 Moreover, as and how an organisation recognizes new strategic goals, it shall also comprehend a requirement for new measures of performance to persuade and supervise its new actions (Dixon et al. 1990).

4 Contemplation of the time lags might be really important for illustrating these cause and effect relationships (e.g., Norreklit 2000, Banker et al. 2000).

Hence, organisations optimally and perhaps sensibly might implement a varied set of measures of performance to demonstrate the diversity of management efforts and decisions (e.g., Ittner and Larcker 1998b; Feltham and Xie 1994; Banker and Datar 1989; Homstrom 1979). The empirical evidences in support of these propositions is narrow and limited but growing.5

The Case of Management Control For The Balanced Score Card

Kaplan and Norton (1996 b) had organized various measures of performance into the Balanced Score Card, which is itself a admissible expression in most of the Western business management models.6 Indeed, the Balanced Score Card might have diffused extensively throughout the globe on the power of its internal logic and intuition. Kaplan and Norton (1996b) asserts that the Balanced Score Card offers two noteworthy improvements over the traditional non financial or even the financial performance measures.

Firstly, the Balanced Score Card discovers four associated fields of activity that might be crucial to almost all organisations and also to all levels inside the organisation:

  • Increasing financial success
  • Providing Customer value
  • Improving the effectiveness of internal processes
  • Investing in growth and learning capabilities

Following the rationale of the Balanced Score Card and disregarding the cost benefit considerations, almost every organisation can implement measures in all the four areas to persuade and supervise actions suitable to organisational strategy. An appropriately constructed Balanced Score Card in its utmost basic use, can offer a complete picture of the status of an organisation, similar to a vehicle’s dashboard showing temperature, oil pressure, fuel levels, speed, engine RPM and coolant.

5 For instance, Banker et al. Offers empirical support with the help of widespread time series data in a service firm for the relations amongst lagging financial performance and principal non-financial measures. Moreover, they employ an event-learning method to locate beneficial performance results from incorporating these non-financial measures in the management performance assessments.

6 The advocates of EVA® or economic value added, also assert improvements over the traditional financial performance measures, but that is also a synopsis of the financial measure, even though the one that rectifies for the claimed financial reporting faults and errors. EVA® do not integrate the non-financial, complementary performance measures.

Therefore, the Balanced Score Card could encourage positive and constructive organisational outcomes like improvements and developments in all the four areas of organisational activity, which comprises of administrative activities and the Balanced Score Card itself. Evaluating this first level of usefulness and effectiveness is the major objective of this study. Moreover, the Balanced Score Card also seeks to connect these measures into one model so as to accurately replicate the cause and effect relationship amongst the individual measures and the categories.

Employing the automobile correspondence, the Balanced Score Card encourages a change in the car’s performance (e.g., speed) specified a designed increase in the engine RPM and fuel consumption (and maybe other factors). A model like this may back-up operational decisions, provide trustworthy feedback for performance evaluation and learning, and make forecasts of results given environmental conditions and the decisions.7

The Role of The Balanced Score Card for Performance Measurement and Strategy Implementation

The proponents of the Balanced Score Card emphasise its alliance of the critical measures with the links and the strategy of the measures to the valued outcomes. Additionally, the literature on management control recognizes other features of the control systems that might be crucial for the successful operation and implementation of the strategy and shall apply to the Balanced Score Card.8 To be efficient and effective, Balanced Score Card measures ought to be verifiable, objective, and accurate.

7 Whereas the primary claim for value of the various performance measures would create few debates beyond the considerations of benefit and costs, the secondary claim is a rigorous and bold hypothesis. A potentially testable and literal explanation of the balanced score card is that, it explains lagging, leading, or contemporaneous relations amongst the performance measures. For instance, improvements in growth and learning like reduced time of cycle (e.g., Luft and Shields 1999). Similarly, progress in the in-house processes will predictably result in an enhanced customer value (e.g., market share and satisfaction).

Lastly, progress in the customer value shall lead to some predictable increment in the financial success (e.g., profits). Generating such a coherent and comprehensive model is an inspirational objective which is similar to imitating the business model of the company itself. Achieving such an experiential result shall not establish any causality amongst the balanced score card elements because (1) factors absent from this model might be correlated alongwith both effects and causes, (2) the causes of earnings might not be generalizable further beyond the context of a particular firm (Norreklit 2000), and (3) few of the proposed measures might not be self-governing and independent.

8 Unless otherwise mentioned, this particular section draws from the summaries in Merchant (1989, Chapter 2) and Simon (2000, Chapter 11).

If not, the measures shall be manipulated and will not be able to replicate the performance, or even the managers could in good belief attain good quality measured performance but in-turn cause harm to the organisation. Even if the managers can attain high measured performance by fraud, cheating or any other method, then the system shall lose its required motivational effect and credibility rapidly.

Moreover, the combination of Balanced Score Card measures should entirely illustrate the organisations crucial performance variables; instead it should be restricted in number so as to maintain the measurement system administratively and cognitively simple. A comprehensive set of measures of performance shall accurately replicate the difficulty of the organisations tasks and responsibilities, but a lot of measures might be costly, confusing, and distracting to administer. Nevertheless, Lipe and Salterio (2000) failed to find confirmation of any information overload from the various measures used in their experimental study of the Balanced Score Card.

Optimistic motivational impact persuades managers to put forth effort for achieving the organisational goals. While enlightening but not manageable the performance measures might be essential, optimistic motivation demands that in some way or the other few of the Balanced Score Card measures should replicate manager’s conduct and actions. For instance, relative performance assessment (e.g., across alike business units), which is capable of identifying “influenceable” however, not absolutely controllable results, can be an essential constituent of the Balanced Score Card (e.g., Antle and Demski 1988), but it shall not be adequate by itself. Widespread goal setting researchers validate that the performance should be correlated to demanding but achievable targets (e.g., Locke and Laltham 1990).

Without such unequivocal Balanced Score Card targets, the performance would likely be comparatively lower than what could be realistically achieved. Finally to fabricate the goal commitments, the Balanced Score Card shall be linked to well understood and prompt penalties and rewards. Rewards which are ambiguous, uncertain, or delayed shall be unsuccessful motivational devices.

Consequently, even if an organisation’s Balanced Score Card replicates its crucial performance variables and the links to valued and appreciated outcomes, it might be unproductive and disastrous as a successful management control tool if it lacks the other attributes. For instance, Ittner et al (2000) asserts that bias in a bank’s Balanced Score Card escorted it to both the bank’s deterioration to its interim financial measures of performance and little advantageous impact. To recapitulate, an effective and successful management control device, which is competent to promote required organisational results, shall have the subsequent, apparent management control elements to, firstly, achieve strategic alignment:

  • A complete but economical combination of the measures of crucial performance variables, correlated with strategy;
  • Crucial performance measures just casually correlated to valued organisational results; and
  • Successful and effective – accurate, purpose, and confirmable – measures of performance, which seems to be associated to effectual communication.

Secondly, to further encourage positive motivation, an efficient management control tool should have the attributes of:

  • Measures of performance reflecting the managers influenceable actions or/and controllable actions, e.g., measured by relative or/and absolute performance;
  • Appropriate standards or performance targets that are demanding but attainable; and
  • Performance measures which are associated to meaningful and significant rewards.

The Management control theory forecasts that, if the Balanced Score Card contains these attributes, then it becomes probable that the Balanced Score Card shall encourage positive outcomes and motivation and strategic alignment as well. Consequently, the secondary research area/question which complements the first is:

Question 2: Is the Balanced Score Card an (in) effective device for management control, creating (negative) positive organisational outcomes, (in) effective motivation, and (non) alignment?

Subsequent explanation unfolds the information of a model which replicates the two stated research questions. This model, supported and based on the review of all literature, demonstrates that the Balanced Score Card’s communication characteristics and management control generate results by creating motivation (or not) and strategic alignment. This research also explains about the labour and efforts put in for collecting the data on an applied Balanced Score Card’s organisational communication attributes and management control, along with the facts confirming the Balanced Score Card’s effects on organisational outcomes, motivation, and strategic alignment.

It is audacious to judge the efficiency and the efficacy of the Balanced Score Card against the facts from a non experimental, single Balanced Score Card implementation. Though, a careful and detailed assessment of a crucial case could be generalizable to the theory and instructive (i.e., analytical generalisation, Yin [1994, 10-32]), which in this particular case is that the Balanced Score Card could be an effective management control and strategy communication device.

The Characteristics of Balanced Score Card and The Research Site

Synopsis of The Research Site

The research site is an Indian Economic Times 500 company having over 15000 employees and Rs. 6902 crore of post sales services and other electrical equipments. It is a part of the $3 billion US based group. In 1875, the company was regarded as the first to create the world’s very first “electricity-lit house”. Today, it is one of the largest private sector ventures in India. The company is considered as a well managed, long-standing company.

It has extensively diversified and is also affianced in marketing, manufacturing and designing cutting-edge innovation and technology of electrical products and services associated with distribution and transmission, power generation, other than executing the turnkey projects. The company is succeeding in the highly competitive foreign and domestic markets, categorized by the contest and challenge amongst very large, relatively few, international companies.

The company has lately implemented a quality-and-customer-driven strategy for improving its competitiveness, together with subsequently perceiving the need to inflate its performance management and the management control beyond the traditional, financial measures. The company commenced changing its system of performance measurement with a Balanced Score Card that shall spotlight on a very crucial and important division of the company.

Two and a half years prior to the commencement of this research, the company initiated its implementation and operation of a Distributor Balanced Score Card for its 37 Indian merchants, which were responsible for a huge share of the total amount of sales of the company. The company holds adequate resources to assign the Balanced Score Card responsibilities to the key personnel responsible for championing its continuous implementation and development. These members of staff were given a formal training for the Balanced Score Card and also used the services of an outside consultant for the purpose of training. The Distributors Balanced Score Card was imposed and developed centrally on the distribution network, alongwith a petite initial contribution from the distributors themselves.

Although the company has its clients all across the globe in over 60 countries covering all the 7 continents of the world, the company’s distributors in Asia holds the prime responsibility for the retail sales and service of the company’s products. The distributorships are planned by their geographical location and shall not trade the competing products of any other company. Even though, they are possessed autonomously, but the individuals possessing employment experience and knowledge in the company presently lead 35 of the 37 distributorships. All distributors function under contracts of three year on renewable terms with the company, which are established on the basis of expected and realised future performance.9

The author acquired access into this organisation because of a family relation with a human resource manager of the company and the author.10 In this research, the field based research is serendipitous, however the research site is attractive on objective grounds, a priori, and must have been a top level contender in a deliberate sampling approach.11

To recapitulate, the research site has an elongated history of extensive resources, effective and successful management control, and a pledge to correspond its strategy to the distributors. Moreover, near the beginning of the study researcher observed possible resistance and considerable tension to change amongst the groups affected by the Distributors Balanced Score Card, which, as Ahrens and Dent (1998) advice, generally compose for an occupying study. Therefore, the research site and its Distributors Balanced Score Card projects are perfect for a field based research on the Balanced Score Card.

9 Although this seems to be a new application of the balanced score card, crossing the usual boundaries of a firm, it appears reasonable to anticipate that the balanced score card can be used to communicate and control strategy with the “business associates” in addition to normal employees. This application of the balanced score card might become particularly essential as the firms progressively outsource more and more segments of the value chain.

10 Baxter and Chua (1998) presents a thoughtful paper on the realistic problems associated with conducting field based research study, the foremost of which is attaining admittance to the field sites. The means of admittance might also be a basis of threat to the external and internal validity of field based research (e.g., Atkinson and Shaffir 1998) and also bias. Although a few employees who were contacted by the researcher knew or the known relative of the researcher, the researcher had no other direct link or contact with that relative or her/his direct reports as a component of this research attempt.

However, it is not at-all deniable, that this enhanced researcher’s access, but still might have moderated whatever certain individuals revealed to the researcher. The researcher was unable to ascertain the magnitude or expected direction of any of the “sponsorship” bias, but since the researcher heard apparently unrestrained, considerable criticism of the company’s customs and traditions, it is not at-all felt that any of the realized bias was significant to suppress the criticism.

11 Miles and Huberman (1994) examined that the random sampling is usually an incompetent and ineffective approach for conducting qualitative research, mainly when the research study is driven by theory.

Synopsis of the Distributors Balanced Score Card

  • Purpose of the distributors balanced score card

In procession with its latest customer driven strategy, the company changed its distribution strategy recently from that of operational efficiency to that of managing long term customer associations. Until the Distributors Balanced Score Card, the company evaluated its formal distributor’s performance only on the basis of market share and financial performance. Company’s literature and its documents demonstrates that the Distributors Balanced Score Card was designed by the staff personnel’s, top-down not involving any support from the distributors, for communicating the company’s latest retail distribution policy to its existing distributors. The documents of this company stated the rationale of the Distributors Balanced Score Card as to:

  • Offer an objective combination of criteria’s, steady alongwith the company’s latest strategic initiatives, for measuring and guiding the total distributor’s performance; and
  • Highlight and emphasize on areas within the distributorships needing enhancement to improve the customer relations.

These reasons stand well within the extent of the use of the Balanced Score Card as envisaged by Kaplan and Norton. Nevertheless, administrators and the managers who designed and use the Distributors Balanced Score Card illustrates two supplementary objectives, which encompasses far reaching implications for the management of company’s distribution system:

  • The Distributors Balanced Score Card is applied for ranking and comparing distributorships and might also be applied for the purpose of performance based reimbursement; and
  • Distributors Balanced Score Card shall be employed as the starting and preparatory step for the purpose of three year process of reviewing contracts.

Because the Distributors Balanced Score Card embraces numerous historically unevaluated areas of measuring performance, it symbolizes a spectacular change in formal relations, interactions, and communication amongst its distributors and the company. Principally, using the Distributors Balanced Score Card for the distributor’s compensation and for renewal of contracts created hesitation and insecurity regarding the effects of the Distributors Balanced Score Card performance at the same time also added momentous economic incentives.

  • Structure of the distributors balanced score card

The Distributors Balanced Score Card holds performance measures in all of the four Balanced Score Card perspectives together with another the corporate citizenship, which the company sensed was missing in Kaplan and Norton’s (1996 b) arrangement of the Balanced Score Card.12 Furthermore, the company has also arranged its Distributors Balanced Score Card measures in certain categories to replicate its own culture and priorities.

Although the distributors organized certain Distributors Balanced Score Card measures in “real-time”, the company’s staff disseminates, analyzes, and compiles the Distributors Balanced Score Card every quarter to the distributors and the top level management. One of the internal document (general Balanced Score Card categories revealed in brackets) of the company describes the Distributors Balanced Score Card as:

consist of measures which are classified into groups, that are aligned along with the company’s strategic goals: Competitive Advantage (internal processes and customer value), Growth and Profitability (financial success and internal processes), Investment in the Human Capital (growth and learning), and Corporate citizenship. Another fifth category was adjoined to include certain other measures significant to the distributor’s performance (domestic performance).

Every category comprises of certain specific measures with several specific criteria’s for suitability and acceptability. The outcomes for the measures in every category were to be weighed for determining an overall total score for each of the categories alongwith an overall total score for the distributorship as well.

A synopsis of all the weights and measures presently used in the Distributors Balanced Score Card are stated in Table 1. For the purpose of evaluating it along with the literature, these measures have been arranged into the standard Balanced Score Card categories, but even the company’s placement of these measures in its own categories has been noted.

Both the Distributors Balanced Score Card administrators and the distributors immediately recognized that the Distributors Balanced Score Card’s relative weights replicate the company’s outlook about some of the utmost important areas of performance.13

12 For the purpose of this research study, corporate citizenship has been considered as one of the dimensions of the balanced score card’s customer value.

13 Weights may replicate the strength of the casual associations in the statistically fixed balanced score card, however the statistical examination was not completed for the purpose of this research. It is an area of future research. Therefore, the weights imitated the management’s extent of belief concerning the quality and importance of every measure, as elucidated later.

Table 1

Distributors Balanced Score Card’s Approximate Weights and Measures

Traditional Balanced Distributor Balanced Score Card Measures Weights

Score Card Categories (Company Category)

Growth and learning Involvement in industry (HC)...................................1

Personal development plans and

Employee skill inventory (HC).............................1

Training (HC)............................................................2 4%

Efficient internal processes Adoption of best practices (CA)................................1

Management’s award of excellence............................3

Customer service, and problems

Solved in 5 hours (CA)................................5

Customer service, and problems

Diagnosed in 60 minutes (CA).....................6

Orders from Customers, First-time fill rate (CA).......2

Day’s outstanding sales (GP).....................................2

Inventory turnover (GP).............................................3

Utilization of service hours (GP)...............................3 41%

Building condition (Other..........................................4

Miscellaneous (Other)................................................3

Warranties (Other)......................................................7

Safety (CC).................................................................3

Customer value Customer satisfaction (CA)........................................4

Environmental remediation and assessment (CC)......3

New market share #2 (although no measured

but still available (CA)...............................................3 40%

Traditional share of the market #1

(easily tracked)..........................................................28

Financial Success Cash flow from the operations, % of sales (GP)........2

PBIT, % of sales (GP)...............................................3 15%

Sales growth (GP)....................................................10

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CA = Competitive advantage;

CC = Corporate citizenship;

HC = Investment in human capital; and

PG = Growth and profitability;

The distributors awareness of “why” come later on, if whatsoever, as would be observed. Moreover and with understanding and knowledge, the company modified the weights to replicate its learning and understanding about the measures possible manipulation, reliability, or impacts, mainly for a few of the softer measures, as Flamholtz (1979) forecasts. One of the chief designers of the Distributors Balanced Score Card stated:

Changes in the weights are basically a function of two essential things: 1) how convincing the figures we get are; 2) how significant we believe the things are....How do we determine outstanding individuals as the distributor? It is crucial; although how valid and authentic measure can we turn up with for it? Rigidity of the number absolutely influences the weights. Shall we position a heavier weighing on a certain thing in which you do not have confidence in, is then better than now? [12: 82 - 94]14

One other chief manager of the distribution channel as well elucidated:

Now-a-days, market share is the real driver and it stand for more than what the other things do. We have not moved any extra weighing there. It is comparatively more essential to replicate the feelings of the management squad. The distributors refute, tell me how are you ranking me, and I will do it even though if I do not like it. [13: 144 – 150]

The company’s primary version of the Distributors Balanced Score Card placed a sum total of 25 percent of weight-age on the Investments in the human capital (growth and learning area), but a year later that weight-age had been diminished to only 5 percent, principally since the management experienced that the statistics was unreliable. Similarly, the initial scorecard allocated a 10 percent weight-age on the corporate citizenship (customer value and internal processes areas), later on reduced to only 5 percent.

The company reallocated the preliminary weight-age’s mainly to the conventional market share measures (a result of constructing customer relationships), which developed rapidly in importance from mere 13 percent to a comparatively massive 30 percent, to replicate the supreme significance building long-standing customer relationships which results in the form of market share. The research site has also added weight for swiftly solving and diagnosing problems of its customers (internal processes area), which developed from mere 3 percent to almost 10 percent in the level of

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14 The numbers in the brackets signifies the lines of the referenced text alongwith the interview number e.g., [12: 76 – 88] – interview 12, lines 76 – 88.

importance, to replicate the company’s principle concerning a necessary element for developing customer relationships. As will be demonstrated later, the weight-ages and the amendments in the weight-age influenced distributor’s perceptions for both the truly significant measures of importance as well as the “equilibrium” in the Distributors Balanced Score Card.

The administration did not regard the distributors to be associates in the procedure of developing the Distributors Balanced Score Card, which replicated the company’s conventional, top-down approach to supervision and management. A more participative, open approach to the use and development of the Distributors Balanced Score Card (one of the features of an effective communication) might have had an effect on the distributor’s approval of the Distributors Balanced Score Card’s and their consequent performance.

Moreover, the company never designed its Distributors Balanced Score Card explicitly to be a “strategy plan” as per Kaplan and Norton’s (2000) terminology,15 but allow the weights and measures to “converse for themselves” as the main indicators of performance. The ambiguous and top down character of communication may have obstructed the effectiveness and propinquity of the Distributors Balanced Score Card message. As discussed later, the distributors had a tough feeling on this, which could elucidate the adverse effects of the Distributors Balanced Score Card.

Figure 1 illustrates a quarterly Distributors Balanced Score Card, as reported to the management for numerous representative distributors. This balanced scorecard, which is set-up on the basis of numerical measures, is noteworthy for numerous reasons. Firstly, every distributor acquires its own individual report and also its relative, numerical ranking (e.g., 3rd out of 35). Secondly, every distributor’s internally benchmarked and quantified performance measure is marked and coloured in “green”(G) for “surpassing standard for satisfactoriness”, “yellow”(Y) for “meeting the standard for acceptability”, and “red”(R) for “failing to meet the standard for acceptability”.16 The total score is calculated in the last column by multiplying every measures appropriate weights with its numerical score. Additionally, all names of the distributors achieving “green” rankings are exhibited on the company’s intranet for everyone to glimpse.17

15 The distributors balanced score card pre-dated this particular technique and terminology, but still the notion of corresponding the “story of success” did existed.

16 The research site has created qualitative thresholds for every colour rating of every measure of the distributors balanced score card. The researcher is not at the authorization to reveal these thresholds.

17 In the figure 1, all names of the representative distributorship have been obscured and have also been ordered randomly. This figure does illustrate the real ratings of performance for particular distributorships.

Research Method

This research study examines its research questions with qualitative data collected from interviews acquired from the individuals straight-forwardly involved with the company’s Distributors Balanced Score Card. Hence, the proofs and evidences are perpetual in character and, whilst it idyllically replicates the “actuality” of the effect of the Distributors Balanced Score Card, it might also replicate the individual’s and researcher’s partiality in the means which are not simply noticeable. The research method of this study tried to mitigate the consequences of these anonymous biases. The method of research is illustrated below.18

Sampling

Because the Distributors Balanced Score Card symbolizes a spectacular transformation in the distribution strategy to managing the customer relationships from operational efficiency by the company’s distributors, the researcher required and got hold of direct comments from three managers, two Distributors Balanced Score Card Designers who were using it for evaluating the distributors, and also from fifteen of the 37 distributors.

Since the study is interested in all the aspect of the Distributors Balanced Score Card, the range of the distributor sample is restricted to those who constantly reported nearly complete or complete data. At the point of this research, these distributors had a complete ten quarter’s experience with this new Distributors Balanced Score Card. Although additional experience shall continue to improve and refine the understanding and perceptions, the sampled distributors stand for the most experienced distributors amongst all, available at the time of this research.

This selection shall bias the study, if some more experienced distributors who as well report more comprehensive data have methodically diverse perceptions in comparison with the

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18 Lillis (1999) comments that the “papers reporting the results of (qualitative) research studies disclose little detail regarding attributes of study design, analytical processes and methods actually used by researchers.” Since the system of this research paper is comparatively new in the context of accounting literature, considerable space has been devoted to this topic. Researcher acknowledges the computer-aided techniques of conducting qualitative investigation are contentious in their own field of sociology, anthropology and origin. The principal source of debate seems to be the relative emphasis placed on positive method elevated by insightful analysis vs. computer supposedly forfeited to the inflexibility of the method (e.g., Lee and Fielding 1996; Coffey et al. 1996), but this particular type of debate is recognizable in most of the sub-fields of management accounting as well. Also see Trochim (2000).

# Supplied by the distributors to the company (23% weight-age). Other things are prepared by the company from statistical and financial reports (77% weight-age).

other distributors. One more source of bias shall be the performance of the scorecard, which might influence the understanding and performance of the Distributors Balanced Score Card; the selected sample included fifteen distributors replicating overall green, yellow, and red ratings. Amongst the distributors reporting total and complete data, only five “red” and three “green” distributors were available, therefore the sample was filled up with seven “yellow” distributors. At the moment of the interviews, on the whole there were four green, 21 yellow and 12 red distributors.

The collected sample of the distributors also replicated the geographic dispersion – three mid-western, four western, two north-eastern, three southern and three Indian. After analysing and studying the interviews, the researcher feel convinced that she has got hold of full range of response from the distributors. As the interviews progressed, responses started being duplicated. Whereas further few more “green” distributor interviews shall have been enviable, the researcher feels they might have been improbable to contribute and share additional insights.19

Data Collection

The researcher acquired archival information (quarterly Distributors Balanced Score Card and policy and background documents) from the managers governing Distributors Balanced Score Card. The entire interview data was acquired by means of telephone in the month of July 2009 then, the managers informed other managers, designers, and all 37 distributors the researcher was conducting this study and shall ring then for contribution about the Distributors Balanced Score Card. The interviews lasted ranging from 40 minutes up till 70 minutes, depending completely on the basis of how much the interviewee had to share. This research study implemented a semi-structured format for the interview and also guaranteed the respondents for secrecy and ambiguity.20

To circumvent the replies that might be artefacts of the interview procedure itself, the researcher did not intentionally enquired about the leading questions concerning management

19 The scheme of sampling may be partial due to the comparative under sampling of the “green” distributors. The comparative tone of comments, although, do not seem to be associated to the overall distributors balanced score card rating. There is no numerical or statistically important (α = 0.05) correlations amongst the distributors balanced score card scores or “ineffective” or “effective” comments. It do not seem that this sampling scheme is a basis of bias in the subjective responses.

20 Distributors asserted that they constantly told the company about whatever they thought, with no restraint, although many of them were not at-all sure that they were heard or not. This is also consistent alongwith this research study’s characterization of the top-down approach of management.

communication or control attributes of the Distributors Balanced Score Card or any other questions associated with the study’s research questions. Whereas, the research’s use of organisational communication and management control theories replicate a deductive approach towards research and definitely guide model building and later analysis, the researcher was not sure that, whether all the identified factors were appropriate and associated with the effectiveness and usefulness of the Distributors Balanced Score Card.

At this point, the researcher preferred to collect data more liberally and also allowed the respondents’ undirected, natural commentary and explanatory denial, support, or the extended theories.21 A significant advantage of this approach is that, the respondents shall recognize the factors that influence the effectiveness of the Distributors Balanced Score Card other than those predicted by the study’s presumption and theory.

Researcher asked the following open ended questions to each distributor:

  1. In your words, how will you describe the distributors balanced score card?
  2. What according to you is the objective of the balance score card?
  3. What are those nine measures, which the distributor’s are requires to report, actually measuring?
  4. What are those measures filled up by the company actually measuring?
  5. How does the measures reported by the distributors correlate to those of the company? (Follow up: Do changes in the distributor’s performance create any changes in the measures of the company’s?)
  6. Do the measures (company’s and distributors) assist or help you in any manner?
  7. Are there benefits, if any, from the implementation of the balanced score card itself? (Follow up: Other than the individual measures?)
  8. Do you any (other) comments or suggestions for improving the present balanced score card?

The researcher asked fundamentally similar questions to the administrators of the distributors balanced score card, but their interviews mostly tended to be comparatively more wide-ranging and open. To maintain within the available time, researcher usually did not question

21 An alternative approach, which is more objective and possibly more constrained, is to execute a telephone or written survey to obtain scaled replies for theoretically deriving the questions regarding certain definite characteristics of organisational communication or management control (e.g., Dillman 1978). This particular approach needs a more completely developed theory of the effectiveness of balanced score card than what the researcher believe was available and might limit the range of collected data. The results of this research can be used for developing a telephone or mail survey for the purpose of collecting cross-sectional data.

The administrators about the specific distributors balanced score card measures (questions 3 and 4). Therefore, the administrator and the distributor interviews are not straightforwardly comparable on all the questions. Since the administrators interviews are comparatively less focused on the distributors balanced score card measures, this research utilizes them for the purpose of background information. If not otherwise specified, the study that follow correspond to the distributors interviews only.

All the interviews were carried out using conference calls from the research site itself, conducted over a period of two and a half weeks, by the researcher asking all the initial and follow-up questions and also recording the comments on a laptop alongwith taking notes. Following every interview, the researcher confabulated instantly to finish the abbreviated remarks that could get complicated and hard to decode later. All interview records were copied unmitigated and archived in numerous locations.

The Coding Procedures

Two alternative procedures of coding are: (1) strict and fixed use of codes on the basis of theoretical conducts or (2) absolutely free coding, unrestricted by any preceding theory. Both these approaches hold their followers and adherent. Although, it is very unusual for researchers in the field of accounting to enter this field free from preceding theory or presumptions. Miles and Huberman (1994) debates that, when a theory directs an inquiry, it is realistic and efficient to start with a theoretical framework, and add “open” codes as the data proposes.

The outcome is a hybrid approach which allows empirical flexibility (or theory review) and acknowledges and recognizes theoretical guidance (or else bias). The research study utilized organisational communication and the management control literatures reviewed earlier as an analysis and coding guide, but amended the framework and its structure as the researcher analyzed the data. Therefore, this research study encloses elements of both testing and theory building.

The digital investigation process applies certain codes which replicate empirical or theoretical constructs to the available qualitative data – an intricate sophisticated means to generalize and annotate interview transcripts. The researcher preordained codes for the data collected by interviews to replicate the interview questions – question 1, 2, 4, 5, 6, 7, 8, and 12 were distributor supplied measures questions put up for question 3.22 Furthermore, researcher also generated codes that replicates effects of the distributors balanced score card (e.g., Improvements), quality of organisational communication (e.g., Two-way dialogue) and expected and likely management control issues (e.g., Comprehensive performance).

As examined previously, certain codes replicate additional concepts, disclosed in the coding procedure (e.g., the Weight of every measure in finding out the total distributors balanced score card scores). These codes were later applied to the data collected from interview data as demonstrated in Figure 2.23 The research didn’t use the software particularly to count for or search particular phrases or words. Selection of vocabulary has been arbitrary, and phrases or

22 The very first interview was started with only ten distributor supplied measures, but then it was promptly found to be more descriptive for splitting some into separate measures. All the sets of codes applied alongwith their definitions are elucidated in Appendix A.

23 The figure 2 includes certain examples of the code associations further described in Appendix B.

Figure 2

A sample of the Coded Interview Text

In this sample, the codes external demand, writing book, limiting the scope of research in the right-hand window corresponds to the text written in the left-hand window. By clicking on each of the codes on the right h


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