The interplay of different levers of control

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This paper examines the use of a new performance measurement system called 3K Scorecard with regard to the interaction with four levers of control (Simons, 1995a, 1995b) at one case company. It is shown that the new performance measurement system can have implications of a belief and boundary system and be used both diagnostically and interactively. It also studies the differences between financial measures and non-financial measures and particularly discusses how the interactive control systems were used in the company. Furthermore, the author argues that there are two main differences in the actual use of the new performance measurement system when comparing to the previous literature (Langfield-Smith, 1997; Abernethy and Brownell, 1999; Vaivio, 2001; Bisbe and Otley, 2004).

Since the introduction of strategic performance measurement systems like Balance Scorecard (Kaplan and Norton, 1992, 1993, 1996a, 1996b), the relationship between strategy and management accounting systems has become controversial. This has been due to several strategic uncertainties to the implementation of such systems (Kasurinen, 1999, 2002). However, critical analysis of these systems is relatively limited (Ittner and Larcker, 1998; Wenisch, 2004; Chnhall, 2003; Luft and Shields, 2003) since it is impossible to test whether the company using the new performance system is better than the non-users (Kasanen et al., 1993).

This paper uses Simon's (1995a, 1995b) strategic control framework as a guide for research which relates to the use of performance measurement systems, and it focuses on an interactive use of 3K Scorecard for strategic learning purposes which challenges the opinions of previous researchers that performance measures only use for diagnostic control purposes (Kaplan and Norton, 1996a, 2001; cf. Simons, 1999). The framework is based on four control systems: belief systems, boundary systems, diagnostic control systems and interactive control systems, and they work together for different objectives to satisfy different needs. Additionally, Tuomela (2005) uses Otley's (1999) classification to analyze the case findings.

This case study are investigated in the context of a case company, "FinABB" which was a subsidiary of ABB and are assumed to be researched on the basis of the cooperation between the researcher and representatives of the case organization from March 1996 to December 2000. The new strategic measurement system '3K Scorecard' developed by the researcher was adopted at the case firm at the beginning of 1999 and aimed to communicate customer focus and enhance strategic control at the case organization.

However, the focus which ABB promoted has been changed from customer focus to shareholder value (Goodpaster, 1991; Ogden and Watson, 1999) and the profit growth seemed to be the final objective for the company. This information was based on the official strategy documents and interviews made by the researcher. The characteristics of a differentiation strategy in the case company were evident but it had not undermined the project which was rejected by Kasurinen (2002). However, it was difficult to define a specific strategy by using strategic typologies because of the uncertainties existing in the real world (Kasurinen, 1999).

By using the 3K Scorecard interactively through formal group and informal team meetings, the case company continuously discussed the content of strategy rather than the outcomes provided by the documents and underlying cause-and-effect relationships which would make the strategy more visible. They assumed two relationships: first was the improvements in the internal effectiveness would increase the sales of the new products; second, the Fin ABB delivery reliability was determined by the suppliers' delivery reliability. And the two results of these relationships of improved delivery reliability and customer satisfaction would lead to a growth in their profits. Therefore the new performance measurement system was possible to evaluate the validity of the assumptions of the relationships (Kaplan and Norton, 2000, 2001). However, this finding was in contrast to the common idea which set up the cause-and-effect relationships before implementing the new measures in these systems (as Balanced Scorecard). And this advantage of interactive control system was mainly reflected in identifying the strategic progress through the 3K Scorecard's contribution to the learning of the strategy and also taking concrete action to change the levers of control within continuously changing environment for the year 2000.

In addition, he found that in this case there was no direct connection between the new performance measurement systems and the bonus systems which would normally incur in the Balanced Scorecard and he gave us three main reasons. First, the idea to develop and use the 3K Scorecard was just for the Fin ABB to help them to improve their management and not from top-down. Second, it just focused on the learning and there was no point in connecting the bonus systems with the use of 3K Scorecard. Finally, because of the not very specific measures and target levels, it should not connect the performance measurement systems with the reward systems.

However, even though the new performance systems can be used interactively to solve the problems within the organizations, there are some other problems are possible to occur. First, the visibility of actions improved by the non-financial performance measures increasing amount of information being disclosed may result in the resistance to change, especially for the Domestic Sales Manager. However, this finding was in contrast with Argris (1990) who claimed that performance measurement systems should be used to improve learning in order to avoid threats. Furthermore, using the new performance measurement systems, managers were required to spend more time to collect some of the data as a main way of communication and learning. Nevertheless, it increased business controllers' workload at Fin ABB realized this point through the need to remind and instruct managers to prepare 3K Scorecard reports. In addition, the number and length of meetings increased as the interactive control systems.

Conclusions from this case study need to be explained with caution because there has several not only benefits but challenges while using the 3K Scorecard based on the levers of control and therefore there is a need to do further research to find out the better solution to solve the rest problems related to the using strategic performance systems.

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