Balanced Scorecard and Other Performance Measurement Tools

The Balanced Scorecard

An integrated perspective is a today regarded as the standard approach for measuring performance, especially since the introduction and wide usage of the Balanced Scorecard. Kaplan and Norton (1992) stated that the integrated approach emphasizes the need to use measurements that are process-oriented while cutting across functional areas. This perspective further recognizes the need for a balanced set of measures, which incorporate a combination of financial and non-financial aspects and provides a complete picture of the organization (Kaplan, 2009). The Balanced Scorecard (BSC) helps organizations to develop a better system for performance measurement compared to depending on financial measures alone (Voelpel, Leibold and Eckhoff, 2006). In this regard, BSC accomplishes three functions: it acts as a measurement system, facilitates strategic management, and serves as a communication tool (Hansen and Schaltegger, 2016). Furthermore, the BSC model looks at companies based on the perspectives of finance, customers, internal processes, and growth, all of which must be balanced (Olve, Roy and Wetter, 2001). Here, balancing refers to achieving equality between financial and non-financial aspects, inputs and outputs, short and long-term goals, and internal and external performance indicators.

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The Performance Measurement Matrix

Introduced by Keegan, Eiler and Jones (1989), the Performance Measurement Matrix (PMM) integrates different dimensions of performance. The strength of this model lies in the ability to accommodate a mix of internal, external, financial, and non-financial business aspects (Ravelomanantsoa, Ducq and Vallespir, 2018). However, PMM is not as packaged as the BSC (Striteska and Spickova, 2012). Furthermore, it lacks the potential to make explicit the relationship between the dimensions of business performance. On the contrary, this is arguably the main strength of Kaplan and Norton’s (1992) BSC. On the other hand, PMM has features that make it prominent. It is built upon the assumption that performance measures exist in two basic forms within an organization (Salloum, 2011). The first category produces such results as competitiveness and financial performance, while the second includes measures focusing on factors affecting such outcomes as innovation, quality, and flexibility.

The Pyramid of Organizational Development

BSC is virtually unique in every company, considering that it is tailored to meet specific needs. This makes it nearly impossible to achieve a cross-sectional assessment of performance (Leung, Lam and Cao, 2006). On the contrary, the Pyramid can assess performance across organizations using generic scales in the early stages of organizational development (Euske and Malina, 2005). Flamholtz and Hua (2002), for example, measured the growth of companies using six questions only. However, as companies move past the initial stages of growth, they begin to adopt competitive advantage as part of the unique culture (Euske and Malina, 2005). In this case, cross-sectional assessment tends to be less feasible. This means that the Pyramid is only effective in the early growth stages, which diminishes its potential usefulness in favor of BSC.

The Integrated Performance Measurement System Reference Model (IPMSRM)

IPMSRM offers a framework for designing and auditing performance measurement systems. Unlike BSC, IPMSRM uses tools within the performance index (PI) definition to check the coherence of performance management systems (Carneiro-da-Cunha, Hourneaux and Corrêa, 2016). In this regard, the model contains standard PIs, descriptions of business processes, and the functionality of software used to verify the integrity of measurement systems. Furthermore, IPMSRM integrates normative planning, policy deployment, and benchmarking, aspects that cannot be realized with the BSC (Ahmed, 2017). These features render the model sophisticated and complex in its application compared to BSC, which makes it essential for contexts requiring more advanced knowledge of PMS. The validity of IPMSRM, therefore, remains undetermined because its value and practical application are yet to be empirically tested.

References

Ahmed, O. (2017) ‘Integrated performance measurement system’, Science, Business, Society, 2(3), pp. 125-128. Web.

Carneiro-da-Cunha, J.A., Hourneaux, F. and Corrêa, H. L. (2016) ‘Evolution and chronology of the organizational performance measurement field’, International Journal of Business Performance Management, 17(2), pp. 223-240. Web.

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Euske, K.J. and Malina, M.A. (2005) ‘The pyramid of organizational development as a performance measurement model’, Advances in Management Accounting, 14, pp. 167-175. Web.

Flamholtz, E. and Hua, W. (2002) ‘Strategic organizational development and the bottom line:: further empirical evidence’, European Management Journal, 20(1), pp. 72-81. Web.

Hansen, E.G. and Schaltegger, S. (2016) ‘The sustainability balanced scorecard: a systematic review of architectures’, Journal of Business Ethics, 133(2), pp. 193-221. Web.

Kaplan, R.S. (2009) ‘Conceptual foundations of the balanced scorecard’, Handbooks of management accounting research, 3, pp. 1253-1269. Web.

Kaplan, R.S. and Norton, D.P. (1992) ‘The Balanced Scorecard – measures that drive performance, Harvard Business Review, 70(1), pp. 71-79.

Keegan, D.P., Eiler, R.G. and Jones, C.R. (1989) ‘Are your performance measures obsolete?’, Strategic Finance, 70(12), p. 45.

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Leung, L.C., Lam, K.C. and Cao, D. (2006) ‘Implementing the balanced scorecard using the analytic hierarchy process and the analytic network process, Journal of the Operational Research Society, 57(6), pp. 682-691. Web.

Olve, N.G., Roy, J. and Wetter, M. (2001) Performance drivers: a practical guide to using the balanced scorecard. New York: J. Wiley.

Ravelomanantsoa, M.S., Ducq, Y. and Vallespir, B. (2018) ‘A state of the art and comparison of approaches for performance measurement systems definition and design’, International Journal of Production Research, pp. 1–21. Web.

Salloum, M. (2011) Towards dynamic performance measurement systems: a framework for manufacturing organizations. Doctoral dissertation. Mälardalen University.

Striteska, M. and Spickova, M. (2012) ‘Review and comparison of performance measurement systems, Journal of Organizational Management Studies, 2012(1), pp. 1-13. Web.

Voelpel, S.C., Leibold, M. and Eckhoff, R.A. (2006) ‘The tyranny of the balanced scorecard in the innovation economy, Journal of Intellectual Capital, 7(1), pp. 43-60. Web.

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