Beruflich Dokumente
Kultur Dokumente
Executive
Summary
KEY WORDS
Performance Evaluation
KEY WORDS
Balanced Scorecard
Privatization
Performance Measures
Indian Banking
Standard Costing
Efficiency
Management Accounting
Performance
There has been growing criticism of financial measures in performance evaluation system in postreform India as they are historic in nature and lack futuristic outlook. Their relevance in the
information age, when the companies are building internal assets and capabilities, is questioned.
The situation may worsen when the firm is compelled to pursue short-term goals at the cost of the
organizations long-term objectives.
Kaplan and Norton developed an innovative and multi-dimensional corporate performance scorecard known as the Balanced Scorecard. It compels the firm to align its performance measurement
and controls from the customers perspective, internal business processes, and learning and growth
perspectives and investigate their impact on the financial indicators. There are arguments that the
Balanced Scorecard should be unbalanced based on the strategy followed by the firm. The corporate experiences with the implementation of the Balanced Scorecard suggest mixed results. In
this article, the authors a) identify the extent of the usage of the Balanced Scorecard by corporate
India; b) explore whether Indian firms use all the four perspectives, namely, customer, financial,
internal business, and learning and growth in their performance scorecard; c) capture the management motivations for implementation of the Balanced Scorecard; d) identify the key performance
indicators in different perspectives of the performance scorecard; and e) evaluate the performance
of the Balanced Scorecard as a management tool.
The major findings of this study are as follows:
The Balanced Scorecard adoption rate is 45.28 per cent in corporate India which compares
favourably with 43.90 per cent in the US.
The financial perspective has been found to be the most important perspective followed by
customers perspective, shareholders perspective, internal business perspective, and
learning and growth perspective. The environmental, social, and employees perspectives
also figure in it.
The expense centre budgets, brand revenue/market share monitoring, profit centre, and
transfer pricing mechanism are the other performance management tools used by the Indian
companies.
Corporate India monitors the indicators as per ISO 14000 norms in the environmental and
social perspectives of the performance scorecard.
The difficulty in assigning weightage to the different perspectives and in establishing cause
and effect relationship among these perspectives has been found to be the most critical issue
in the implementation of the Balanced Scorecard in corporate India.
Most companies claimed that the implementation of the Balanced Scorecard has led to the
identification of cost reduction opportunities in their organizations which, in turn, has
resulted in improvement in the bottom line.
Insights from such an analysis can be useful to both management practitioners and management
accounting academics.
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PREVIOUS RESEARCH
Management by Objectives and Balanced
Scorecard
The management by objectives (MBO) philosophy of
Drucker (1955) and the Balanced Scorecard approach of
Kaplan and Norton (1992) are based on strategic measurements, goal congruence, and Theory Y of McGregor (1960) as a means to improve the firm performance (Hoffecker and Goldenberg, 1994; Newing, 1995;
Dinesh and Palmer, 1998). The Balanced Scorecard is
based on rational goal model and incorporates human
relations model. It is a motivation tool also since
employee compensation is linked with different key
performance indicators. The difference between the two
approaches is that while MBO is more open-ended, the
Balanced Scorecard is more explicit and focused as it
incorporates the perspectives of customers, shareholders, internal business processes, learning and growth
(Dinesh and Palmer, 1998).
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* See Pandey, I M (2005). The Balanced Scorecard: Myth and Reality, Vikalpa,
30(1), January-March, 51-66.
approach thrives to identify cause-and-effect relationship but the linkages established are mostly qualitative.
The process of selection and prioritization of the key
performance indicators in the Balanced Scorecard is not
systematic as it does not lend itself to sensitivity analysis
and scenario analysis.
Kaplan and Norton (2000) emphasized that employees understanding of strategy is critical to the success
of the Balanced Scorecard. A better understanding of the
firm strategy by the employees would lead to the right
choice of strategically linked performance measures for
guiding their decisions and actions. They are reluctant
to link employees compensation with the Balanced Scorecard until the firms are certain about the right choice
of measures in their performance scorecard based on
their experience with it for several months (Colabro,
2001).
Meyer (2002) argued against the Balanced Scorecard
on the ground that it makes non-financial performance
indicators difficult to measure. The financial measures
dominate as far as employee compensation is concerned.
According to Meyer, it did not provide guidance on how
to combine the dissimilar measures into an overall
appraisal of performance. He suggested activity-based
customer profitability analysis approach as an alternative.
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RESEARCH METHODOLOGY
Research Design
We conducted a nationwide questionnaire-based survey
to capture the issues in the design and applications of
the performance scorecard. The universe of companies
selected for this study consisted of the bt-500 private
sector companies and 75 most valuable PSUs which is
a fair representation of corporate India. The subsidiaries
of multinational corporations (MNCs) form a major constituent of the Indian corporate sector. Based on value
judgment, four such companies from the automobile,
engineering, and software sectors were included in the
sample.
We developed the draft questionnaire based on the
review of literature and circulated it to a group of
prominent academicians and chief financial officers
(CFOs) for feedback as a part of the pilot study. Based
on their suggestions, we revised the questionnaire. The
final questionnaire on performance scorecard contained
seven questions with 106 sub-parts. The survey asked
the CFOs to respond on a Likert scale of 0 to 5 (where
0 means not used, 1 means unimportant, and 5 means
most important).
Response
We sent the questionnaire to the CFOs of 579 companies
in batches during the week from October 30, 2002 to
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Data
The financial statistics of the respondent companies were
collected from the Centre for Monitoring Indian Economys PROWESS database. The industry composition
of the sample is given in Table 1. The respondent firms
range from medium (46.51% of the sample companies
have sales less than or equal to Rs. 5 billion; 51.72% have
market capitalization less than or equal to Rs. 5 billion
and 41.86% have total assets less than or equal to Rs. 5
billion) to large (16.28% of the sample companies have
sales greater than Rs. 25 billion; 20.69 have market
capitalization greater than Rs. 25 billion; and 18.60%
have total assets greater than Rs. 25 billion).
* This response rate is low as compared to Malmis (2000) 22.5% in a survey
mailed to 570 Finnish companies and Joshis (2001) 24.4% in a survey mailed
to 246 CMIE list of 500 Indian companies but much higher as compared to
Rigbys (2001) only 1.8% in a survey mailed to North American executives.
Sample Sample
Size Proportion
13.21
11.32
7.55
7.55
7.55
7.54
5.66
5.66
5.66
3.77
3.77
1.89
1.89
1.89
15.09
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SURVEY FINDINGS
Standard Costing
The standard costing technique has been widely used
by corporate India as a part of performance management. Approximately 77.36 per cent of the 53 respondents under study have used it vis--vis 53 per cent in the
Business Today (1999) survey of 113 large-sized companies. The Indian practice is in agreement with that of
Table 2: Sectoral Classification of the Sample based on
ABCM Adoption
N = 24
Manufacturing sector
Service sector
Total
ABCM User
Firms
Non-ABCM
User Firms
Total
12
7
19
4
1
5
16
8
24
17
17
Most Important/
Important (%)
Aggregate
Manufacturing
Sector
Mean Score
Service
Sector
Non-BSC
User
BSC
User
65.20
3.52
3.46
3.73
3.45
3.61
46.10
2.77
2.44
4.00***
2.45
3.17
36.50
2.60
2.49
3.00
2.21
3.09*
34.60
2.46
2.49
2.36
2.28
2.70
20.90
2.13
2.20
1.91
1.97
2.35
*
Significant at 10% level.
*** Significant at 1% level.
Most Important/
Important (%)
Aggregate
Manufacturing
Sector
Mean Score
Service
Sector
Non-ABCM ABCM
User
User
50.00
2.54
2.56
2.50
2.80
2.47
45.80
2.75
2.75
2.75
2.40
2.84
45.80
2.79
2.75
2.88
3.00
2.74
41.60
41.60
2.54
2.79
2.31
2.63
3.00
3.13
3.40
2.60
2.32
2.84
33.30
2.29
1.75
3.38*
2.80
2.16
Most Important/
Important (%)
Aggregate
Manufacturing
Sector
Mean Score
Service
Sector
87.50
66.60
62.50
54.20
54.20
41.70
41.60
29.20
15.00
4.29
3.67
3.72
3.25
3.04
2.33
2.63
2.13
1.83
4.19
3.58
3.38
3.06
3.00
2.88
2.38
2.00
1.88
4.50
3.88
2.75
3.63
3.13
1.25*
3.13
2.38
1.75
Financial perspective
Customers perspective
Shareholders perspective
Internal business perspective
Learning and growth perspective
Environmental and social perspective
Employees perspective
Competitive perspective
Suppliers perspective
Non-ABCM ABCM
User
User
4.40
3.60
4.60
3.20
3.60
3.80
4.40
4.00
3.80
4.26
3.68
2.79***
3.26
2.89
1.95***
2.16***
1.63
1.32***
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18
Most Important/
Important(%)
Aggregate
Mean Score
Manufacturing
Sector
Service
Sector
83.40
83.30
66.70
58.30
3.88
3.79
3.29
2.79
4.00
3.94
3.19
2.875
3.63
3.50
3.50
2.625
45.90
41.70
37.50
2.46
2.33
2.33
2.38
2.75
2.38
2.63
1.50
2.25
Most Important/
Important(%)
Aggregate
Mean Score
Manufacturing
Sector
Service
Sector
75.00
41.70
37.50
37.50
37.50
33.30
25.00
20.90
16.70
16.60
3.50
2.25
2.13
2.08
2.04
1.88
1.71
1.25
1.21
1.21
3.75
2.56
2.31
2.31
1.94
2.06
2.13
1.44
1.31
0.94
3.00
1.63
1.75
1.63
2.25
1.50
0.88
0.88
1.00
1.75
Unit cost
Number of defects per million
Cycle time
Wastage and scrap as a percentage of sales
Distribution reach
New product introduction interval
Number of training hours
Stock-out percentage
Percentage of components outsourced
Ratio of number of skilled employees to total employees
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usage. The other important measures are firm cost vis-vis industry average, new product development, and
number of brands vis--vis total brands in the market as
reported in Table 6h.
Environmental and social perspective: Under this perspective, corporate India monitors the ISO 14000 norms
as is evident from Table 6i.
Market share
Growth in market share
Percentage of sales from new products
Percentage of sales from new customers
Raw material substitutes
Number of employee suggestions
Vendor development
Reduction in cycle time
Growth rate in knowledge assets
Most Important/
Important (%)
Aggregate
Mean Score
Manufacturing
Sector
Service
Sector
79.20
54.20
41.70
37.50
33.30
29.20
29.10
25.00
25.00
3.54
2.96
2.13
2.17
1.42
2.13
1.54
1.75
1.71
3.25
2.81
2.82
2.19
1.25
2.44
1.50
1.69
1.13
4.13
3.25
2.00
2.13
1.75
1.50
1.63
1.88
1.88*
Most Important/
Important (%)
Aggregate
Mean Score
Manufacturing
Sector
Service
Sector
62.50
62.50
50.00
50.00
37.50
20.80
3.50
3.13
2.50
2.54
2.38
1.38
3.25
3.25
2.75
2.56
2.38
1.13
4.00
2.88
2.00
2.50
2.38
1.88
Most Important/
Important (%)
Aggregate
Mean Score
Manufacturing
Sector
Service
Sector
58.30
25.00
25.00
16.70
8.40
2.75
1.67
1.42
0.96
0.75
2.69
1.63
1.63
1.00
0.63
2.88
1.75
1.00
0.88
1.00
Return on investment
Days working capital
Cash flow return on investment (CFROI)
EVA
Current ratio
Growth rate in tangible assets
EVA
Market value added (MVA)
Cash value added (CVA)
Dividend per share
Real asset value enhancer (RAVE)
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20
Most Important/
Important (%)
Aggregate
Mean Score
Manufacturing
Sector
37.50
1.79
2.13
Service
Sector
1.13
33.30
1.71
2.25
0.63**
29.10
1.63
2.125
0.625*
Fill rate
20.90
1.33
1.63
0.75
Number of suppliers
20.90
1.57
2.07
0.63*
20.90
1.42
1.50
1.25
20.80
1.33
1.69
0.63
20.80
1.29
1.625
0.625
16.60
1.13
1.44
0.50
Most Important/
Important (%)
Aggregate
Mean Score
Manufacturing
Sector
Service
Sector
50.00
2.58
2.75
2.25
50.00
2.46
2.38
2.62
Attrition rate
45.90
2.46
2.19
3.00
25.00
1.88
1.88
1.88
Most Important/
Important (%)
Aggregate
Mean Score
Manufacturing
Sector
Service
Sector
Market share
50.00
2.21
2.19
2.25
33.40
1.96
1.81
2.25
33.40
1.88
2.07
1.50
25.00
1.21
1.25
1.13
16.70
1.93
1.25
0.88
Most Important/
Important (%)
Aggregate
Mean Score
Manufacturing
Sector
Service
Sector
37.50
2.04
2.19
1.75
33.40
1.88
2.31
1.00
33.30
1.75
2.19
0.88
Eco-performance of products
29.20
1.54
1.81
1.00
Green procurement
29.20
1.67
1.81
1.38
25.00
1.46
1.81
0.75
20.80
1.33
1.69
0.63
16.70
1.13
1.50
0.38*
8.30
0.96
1.19
0.50
** Significant at 5% level.
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Percentage of Respondents
Who Agree
4.20
Validates partly
Validates substantially
CONCLUSIONS
8.30
54.20
Validates fully
4.20
Most Important/
Important (%)
Aggregate
Mean Score
Manufacturing
Sector
45.80
0.46
0.56
0.25
41.70
0.42
0.50
0.25
29.20
0.29
0.31
0.25
25.00
0.25
0.38
0.00***
25.00
0.25
0.31
1.25
12.50
0.13
0.19
0.00*
12.50
0.13
0.06
0.25
8.30
0.08
0.06
0.13
Service
Sector
22
22
Most Important/
Important(%)
Aggregate
60.90
45.90
45.80
41.70
37.50
37.50
29.30
29.20
25.00
20.80
16.70
16.70
2.78
2.13
2.08
1.92
1.83
1.96
1.58
1.50
1.54
1.33
1.04
0.92
3.38
3.38*
1.63
2.00
1.63
2.50
1.38
0.88
1.25
2.00
1.00
1.13
1.25
2.00
1.00
0.80
1.00
2.00
1.00
1.00
0.80
1.60
0.80
0.80
ABCM
User
3.11
2.16
2.37
2.21
2.05
1.95
1.74
1.63
1.74
1.26
1.11
0.95
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