When Is A Balanced Scorecard A Balanced Scorecard

International Journal of Productivity and Performance Management
When is a balanced scorecard a balanced scorecard?

Marvin Soderberg, Suresh Kalagnanam, Norman T. Sheehan, Ganesh Vaidyanathan,
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Marvin Soderberg, Suresh Kalagnanam, Norman T. Sheehan, Ganesh Vaidyanathan, (2011) "When is
a balanced scorecard a balanced scorecard?", International Journal of Productivity and Performance
Management, Vol. 60 Issue: 7, pp.688-708, doi: 10.1108/17410401111167780
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IJPPM
60,7 When is a balanced scorecard a
balanced scorecard?
Marvin Soderberg
688 Alberta Union of Public Employees, Edmonton, Canada, and
Suresh Kalagnanam, Norman T. Sheehan and
Received August 2010 Ganesh Vaidyanathan
Revised December 2010
Accepted January 2011 Edwards School of Business, University of Saskatchewan, Saskatoon, Canada
Abstract
Purpose The Balanced Scorecard (BSC) is widely applied as a performance measurement and
strategy implementation tool by organizations. Research has revealed that the term balanced
scorecard may be understood differently by managers both within as well as across organizations
implying that the performance measurement systems implemented in organizations may not be
similar to the construct envisioned by Kaplan and Norton. Using Kaplan and Nortons Balanced
Scorecard construct as a basis, the paper aims to develop and test a five-level taxonomy to classify
firms performance measurement systems.
Design/methodology/approach A Balanced Scorecard taxonomy is validated using a large
sample of professional accountants working in Canadian organizations.
Findings The five-level taxonomy is used to categorize the performance measurement systems of
149 organizations. It is found that 111 organizations (74.5 percent) performance measurement systems
met the criteria to be classified as a Basic Level 1 BSC, while 61 (40.9 percent) organizations have
structurally complete Level 3 BSCs, and 36 (24.2 percent) organizations have fully developed Level 5
BSCs. The paper also discusses differences between Level 1 and Level 5 BSC organizations.
Research limitations/implications While many researchers assume that organizations
performance measurement systems are similar in implementation level and use, the paper demonstrates
that organizations are at different levels of BSC implementation and use, a factor that should be taken into
consideration when designing empirical studies to test the efficacy of Kaplan and Nortons BSC.
Practical implications The five-level BSC taxonomy scheme provides managers working with
Kaplan and Nortons BSC with a tool to plan their implementation steps and then benchmark their
progress towards implementing a fully developed Level 5 BSC.
Originality/value In developing and empirically validating a BSC taxonomy, the paper builds on
and extends previous research on BSC implementation and its potential implications.
Keywords Performance measurement (quality), Balance scorecard, BSC taxonomy, Control systems
Paper type Research paper
When properly designed, performance measurement systems communicate desired

results, enhance motivation, and provide feedback on past performance (Neely, 2004). After
surveying several popular performance measurement systems, Paranjape et al. (2006, p. 5)
The authors would like to thank the journals reviewers for their insightful comments plus
International Journal of Productivity reviewers and seminar participants at the 2007 American Accounting Association Annual
and Performance Management
Vol. 60 No. 7, 2011 Meeting and The Performance Measurement Association Conference for their feedback. They
pp. 688-708 would also like to thank Margaret Shackell, Brooke Dobni, and Glen Kobussen for their helpful
q Emerald Group Publishing Limited
1741-0401
comments. They owe a special debt of gratitude to Bill Langdon and CMA Canada for their help
DOI 10.1108/17410401111167780 administering the survey.
write that the BSC is the most popular, least criticized and widely implemented. Given its When is a BSC
widespread acceptance and use by practitioners, the BSC is well-entrenched in the a BSC?
management accounting teaching literature (Eldenberg and Wolcott, 2005; Hilton et al.,
2007; Merchant and Van der Stede, 2007; Anthony and Govindarajan, 2007; Horngren et al.,
2010) and frequently researched by academics (e.g. Chan and Ho, 2000; Hoque and James,
2000; Lipe and Salterio, 2000; Malina and Selto, 2001; Ittner and Larcker, 2003; Banker et al.,
2004; Othman, 2008; Wiersma, 2009; Greiling, 2010). 689
Kaplan and Nortons (1996, 2001) BSC construct is a management tool that, when
correctly understood and properly implemented:
.
clearly communicates the organizations strategy to its employees;
.
allows employees to see how they contribute to the organizations strategic goals
by translating these goals into specific, measurable activities;
.
increases employees motivation by attaching well thought-out objectives and
targets to performance measures and then pays incentives when reached;
.
enhances employees learning and accountability by measuring and providing
feedback on their actions; and
.
enables managers to monitor and update their organizations strategies as their
environments change.
In short, Kaplan and Norton (1996, 2001) designed the BSC to harness the multiple
benefits of performance measurement in order to aid organizations in implementing
their strategies. Whether the BSC, in fact, leads organizations to realize the benefits
outlined above is an empirical question. A logical precondition for research seeking to
ascertain whether organizations implementing the BSC have realized these benefits is
that the construct is consistent with that proposed by its originators. Is there
consistency among the organizations that have implemented the BSC? This empirical
question is the impetus for our research.
The question is prompted by the fact that despite the widespread literature on the
BSC, there is little agreement regarding what a Balanced Scorecard is. Lawrie and
Cobbold (2004) report that the most frequent question posed on a performance
measurement discussion board was What is a Balanced Scorecard?. As an example
of confusion among practitioners, a CMA Canada study (CMA Canada, 1999) found
that the term balanced scorecard may be understood differently by managers across
organizations or even those in the same organization. Lawrie and Cobbold (2004) note
that while Kaplan and Norton (1996, 2001) were effective in motivating managers to
adopt a Balanced Scorecard and describing how to use it, they were not helpful with
respect to operationalizing the BSC. Marr (2005) agrees with this statement, noting that
organizations have different interpretations of what a BSC is, while Franco-Santos et al.
(2007) argue that there is a lack of consensus among both managers and researchers on
what constitutes a BSC. The implication is that the transformation from concept to tool
is non-trivial and challenging for practitioners and researchers alike.
Why should managers lack of agreement of what is a BSC concern researchers?
Researchers studying the BSCs efficacy across firms are vulnerable to a potential
confound if they do not control for differences in implementation and use across firms.
Franco-Santos et al. (2007) argue that this potential confound is retarding progress in the
field of performance measurement as it limits the comparability and generalizability of
IJPPM research studies. This paper seeks to establish the existence of this confound by
60,7 empirically demonstrating that there are differences in firms BSC implementation and
use. Awareness of these differences should help researchers control for these in future
BSC studies and thereby enhance progress in the field of performance measurement.
Why should practitioners care if managers have differing conceptions of a BSC?
Bourne (2008) and Pforsich (2006) argue that one reason firms are not getting the full
690 value from their BSCs is that they are not implemented and used properly, which is
largely due to the difficulty managers have in properly operationalizing Kaplan and
Nortons BSC. The aforementioned CMA Canada study (CMA Canada, 1999) reported
that many managers believe that any performance measurement system that includes
both financial and non-financial measures, reported across multiple dimensions, is a
BSC. More recently, Bourne (2008) noted that due to the newness of the field of
performance measurement some firms devised their BSCs by simply taking their
existing key performance indicators and then divided these into four perspectives. The
existence of such disparate understandings of the BSC among managers points to the
need for a taxonomy of Kaplan and Nortons BSC construct. Such a BSC taxonomy
would provide managers a common language, which they can use to ascertain where
their organization is relative to Kaplan and Nortons BSC construct, and what they still
need to do to reach full implementation of a Kaplan and Norton BSC.
This study develops a five-level taxonomy that operationalizes Kaplan and Nortons
BSC construct and then applies this BSC taxonomy to a large sample of Canadian
firms. There have been cross-sectional studies of BSC usage in Austria, Switzerland,
Germany (Speckbacher et al. 2003), Norway (Stemsrudhagen, 2004), and the USA
(Marr, 2005), but to our knowledge there has not been a similar study of BSC usage in a
broad cross-section of Canadian firms. While the Canadian context is similar to the
American context, there are subtle differences between the countries (Boys et al., 2005)
that may impact the implementation and use of the BSC, including differing laws and
regulations, such as labor and tax laws that impact compensations systems, differing
financial reporting standards which impact the amount and type of financial data
collected, managers attitudes towards governmental intervention in the economy, and
a higher level of social support systems.
The rest of the paper is organized as follows: The next section of the paper
operationalizes the unique attributes of Kaplan and Nortons Balanced Scorecard into a
taxonomy and introduces the studys research questions. The paper then discusses the
research methods, presents the results, and concludes with a discussion of the studys
findings.
Operationalizing the Balanced Scorecard

There are two unique sets of attributes of Kaplan and Nortons (1996, 2001) BSC:
(1) The first set relates to the structure of the scorecard, which describes the design
of the BSC. The paper describes three structural elements.
(2) The second set of attributes relates to BSC use, and describes how the scorecard
is intended to be used to manage the organization. The paper describes two use
elements.
Firms that have a BSC containing each of the three structural elements and the two use
elements are considered to have a fully developed BSC.
Structural attributes of the BSC When is a BSC
Kaplan and Nortons BSC has three key structural features: a BSC?
(1) its measures are derived from strategy;
(2) there is balance among measures; and
(3) the measures are causally linked.
Measures derived from strategy. Given that the primary purpose of the BSC is to help
691
implement strategy, Kaplan and Norton (1996, 2001) argue that its metrics must
measure those activities which lead to strategy implementation. This idea is consistent
with Nanni et al.s (1992) integrated performance measurement system wherein
strategy drives the selection of measures. Similarly, McNair et al. (1990) strategic
measurement system framework also emphasizes that the measures must have a
strategic focus. This leads us to posit that if the organizations performance measures
are not derived from its strategy, the organizations performance measurement system
cannot be called a Balanced Scorecard. Consequently, the direct relationship between

strategy and performance measures is a minimum requirement for an organizations
performance measurement system to be classified as a BSC organization.
Organizations not meeting this criterion are labeled as non-BSC organizations. Since
establishing a connection between strategy and the performance measures is a
precursor for any subsequent variants of BSC implementation, we classify
organizations with a BSC with this attribute as a Level 1 BSC organization.
Balance among measures. The second element of structure is balance in terms of
the number of perspectives of performance, and the number and type of measures in
each perspective, (e.g. each perspective should have a similar number of indicators and
there should be a balance between driver and outcome indicators, and financial and
non-financial measures) (Kaplan and Norton, 1996)[1]. Hayes (1977) and Kaplan (1982)
have argued that an over-reliance on traditional financial measures promotes a myopic
view of organizational performance. The noted shortcomings of financial measurement
myopia later prompted scholars and practitioners to argue for reporting non-financial
measures (e.g. Young and Selto, 1991; Feltham and Xie, 1994). In response to calls for
measuring multiple dimensions of performance (e.g. McNair et al., 1990; Fitzgerald
et al., 1991; Nanni et al., 1992), Kaplan and Norton (1996) introduced three additional
perspectives of performance beyond the financial dimension:
(1) learning and growth;
(2) internal business processes; and
(3) customer.
Together, these four dimensions encourage organizations to clearly communicate the

strategic objectives they want to achieve and how they plan to achieve them. This
explicit linkage between the desired results and the processes needed to achieve these
results is reflected in the third element of structure, causal linkages between
perspectives.
Measures are causally linked. The third element of structure pertains to the
linkages between the different measures within each performance dimension as well as
across the four performance dimensions. According to Kaplan and Norton (1996, 2001),
measures should be linked together in a series of driver (leading indicators) and
IJPPM outcome (lagging indicators) relationships, which ultimately culminate in the financial
60,7 dimension. These cause and effect linkages describe how the organization will create
value for its shareholders and stakeholders as reflected in the firms strategy map
(Kaplan and Norton, 2001). Not all measures have to be linked to measures in other
dimensions; however, at least one measure in each dimension must be linked to a
measure in another dimension. Empirical evidence suggests that organizations that
692 have causally linked measures are more successful than those that do not (c.f. Malina
and Selto, 2001; Ittner and Larcker, 2003).
In the context of our development of the taxonomy, we envision that an
organizations progress from a Level 1 BSC (i.e. its measures are linked to strategy), to
the next level will depend on whether its performance measurement system contains at
least one of the two structural attributes:
(1) balance; and
(2) causal linkages.
Those Level 1 BSC organizations whose measurement systems only include the
attribute of balance are classified as Level 2a BSC organizations, while those Level 1
BSC organizations whose measurement systems only include the attribute of causal
linkages are classified as Level 2b BSC organizations. Ideally, an organization would
like its performance measurement system to have both balance and causal linkages
attributes. Organizations with BSCs containing both attributes balance and causal
linkages attributes are classified as Level 3 BSC organizations these organizations
are considered as having structurally complete BSCs. Our decision to define Levels 2a
and 2b separately from Level 3 was due to the fact the literature on implementation of
the BSC in organizations does not provide unambiguous guidance on the issue of
whether balance and causal linkage are independent concepts. Consequently, we have
chosen to leave it as an empirical question to verify or refute the assumption.
Use attributes of the BSC

Kaplan and Norton (1996) state that the BSC should be the foundation for every
organizations management system. They argue the BSC should be used as a device for
gathering feedback on the firms progress, enhancing organizational learning,
communicating the firms strategy, and motivating its employees. In order to achieve
these goals, Kaplan and Norton (1996, 2001) propose that there are two use elements
that a firms BSC must possess:
(1) double-loop learning, and
(2) tie-in to compensation.
Double-loop learning. Double-loop learning (Argyris, 1991) is at the heart of a dynamic

process that updates the organizations strategy as its external environment changes.
Double-loop learning, which is similar to Simons (1995)interactive control lever, is the
process of questioning the assumptions underlying the organizations strategy, as
reflected in the linkages and measures of the BSC, when the organizations actual
results differ from the expected results. If its performance is lower than expected, the
organizations managers should consider if they should revise the organizations
strategy and/or revise its scorecard. Level 4a in our BSC taxonomy represents the
double-loop learning element of the scorecard.
Tie-in to compensation. Tying compensation to the BSC increases employees When is a BSC
awareness of the activities they need to execute in order to implement the a BSC?
organizations strategy and enhances their motivation to complete them effectively
(Otley, 2003). Kaplan and Norton (1996) state that tying compensation to the BSC is an
important implementation step as once compensation is tied to achieving the BSCs
objectives, the BSC is more likely to be the cornerstone of the performance
management system. Given that Kaplan and Norton do not recommend using the BSC 693
as part of the compensation system until the BSC has been fully tested, tying the BSC
to compensation is a strong indication of the BSCs maturity and importance. Level 4b
in our BSC taxonomy represents the tie-in to compensation element of the scorecard.
Organizations that use their performance measurement systems to enhance
learning, update their strategy, and link employees compensation to their
measurement systems are classified as Level 5 BSC organizations. We consider
Level 5 BSC organizations as having fully developed BSCs their performance
measurement systems are structurally complete and are used appropriately to steer the
organization towards the fulfillment of their strategic plans.
The BSC taxonomy can be summarized as follows (see Figure 1); each level denotes
a progressively more complete implementation of the BSC by an organization:
.
Level 1 BSC performance measures are derived from the organizations strategy;
.
Level 2a BSC Level 1 plus the attribute of balance;
.
Level 2b BSC Level 1 plus the attribute of causal linkages;
.
Level 3 BSC Level 1 plus the attributes of both balance and causal linkages;
.
Level 4a BSC Level 3 plus the attribute of double-loop learning;
.
Level 4b BSC Level 3 plus the attribute of linkage to compensation; and
.
Level 5 BSC Level 3 plus the attributes of double-loop learning and linkage to
compensation.
Figure 1.
BSC classification scheme
IJPPM Research questions
60,7 There are two research questions that we investigate in our study. First, we ask What
attributes of a Kaplan and Norton BSC are present in organizations performance
measurement systems?. This question speaks to the previously noted disparity in the
understanding of the BSC concept by managers in various organizations. Using
the five-level classification scheme to classify organizations that have implemented the
694 BSC, we are able to provide a description of the nature of the BSC implementation in
our sample of organizations. The act of classifying the firms participating in our
research enables us to examine the characteristics of the organizations at each level of
BSC implementation as well as the differences between organizations across various
levels of BSC implementation. Thus our second research question asks, What are the
characteristics of organizations that have adopted BSCs of a particular level and how
do these organizations differ when compared to organizations with different levels of
BSC adoption?.
Relationship of this study to prior research

Although there is considerable research on the balanced scorecard, to our knowledge
only two studies have attempted to empirically study the extent to which an
organizations BSC conforms to the specifications of the Kaplan and Norton construct.
Firstly, Stemsrudhagen (2004) surveyed 83 Norwegian organizations to explore the
degree to which their performance measurement systems include the structural
properties of Kaplan and Nortons BSC. The study also investigated whether the
properties of the performance measurement systems in BSC companies were different
from the properties found in non-BSC organizations. To determine BSC usage,
respondents were asked to specify whether they had any knowledge of BSCs (yes or
no), and whether they were using a BSC (yes or no). The respondents were also asked
to what extent each measure (35 measures provided in a list) was used to manage their
organization. Stemsrudhagen (2004) reported that the performance measurement
systems included many of the measures found in Balanced Scorecards, irrespective of
whether the companies had implemented a BSC. While Stemsrudhagens study added
to our knowledge of the BSC, one potential weakness of Stemsrudhagens study is that
it asked respondents themselves to classify whether their organizations had a BSC.
The studys BSC taxonomy was driven by binary responses to two questions, which
may help to explain the finding that BSC and non-BSC organizations share many
performance measures. This study overcomes this weakness by using a variety of
survey questions to discern what level of BSC an organization is using.
The second study, to which our research closely resembles, is Speckbacher et al.s
(2003) survey of German, Swiss and Austrian publicly-traded firms usage of the
Balanced Scorecard. Similarly to our study, they classify Balanced Scorecards into
three different levels of implementation (Speckbacher et al., 2003, p. 363):
.
Type I BSC: A specific multidimensional framework for strategic performance
measurement that combines financial and nonfinancial measures.
.
Type II BSC: A Type I BSC that additionally describes strategy by using
cause-and-effect relationships.
.
Type III BSC: A Type II BSC that also implements strategy by defining
objectives, action plans, results and connecting incentives with BSC.
They found that 39 percent of the organizations surveyed had at least started to When is a BSC
implement a BSC system. They also found almost all of the organizations in their study a BSC?
used three of the four Kaplan and Norton Balanced Scorecard perspectives
i.e. financial, customer and internal business. They also found that a high proportion of
organizations using a BSC reported the following as expected benefits of using the
scorecard:
. improved alignment of strategic objectives with strategy; 695
. stronger consideration of non-financial drivers of performance;
. developing a consistent system of objectives in the company;
. supporting the shareholder value-based management system; and
. improved company results in the long-term (Speckbacher et al., 2003, p. 377)
Although our study is similar to that of Speckbacher et al.s (2003) study in that both of
our studies develop and apply a BSC taxonomy to categorize organizations that have
implemented BSCs, the studies differ with respect to their classification schemes. Our
studys taxonomy differs from the typology employed in the Speckbacher et al. (2003)
study in three ways: Firstly, we do not believe Speckbacher et al.s Type I BSC captures
the essence of Kaplan and Nortons BSC. Speckbacher et al.s (2003, p. 363) Type I BSC
emphasizes the mix of financial and non-financial measures an attribute that this
study labeled balance, whereas we define our Level 1 BSC as a performance
measurement system that derives its measures from strategy. We believe that our
definition of a Level 1 BSC is superior as it is the link to strategy that is the defining
feature of Kaplan and Nortons (1996, 2001) Balanced Scorecard. In addition, the
Speckbacher et al. Type I BSC includes both our Level 1 and Level 2a classifications.
This leads to a second key difference; our studys BSC taxonomy is a richer
operationalization of Kaplan and Nortons BSC. For example, the Level 2a classification
operationalizes balance as more than just financial and non-financial measures; it also
includes outcome and driver measures.
The Type II BSC of the Speckbacher et al. (2003) study introduces cause and effect
relationships to enrich the BSC implementation, which appears to be similar to our
Level 2b BSC. Our BSC taxonomy views balance and causal linkages as being
independent of one another, whereas Speckbacher et al.s scheme indicates a sequential
progression from balance (in terms of financial and non-financial measures) to causal
linkages. Their Type II BSC is equivalent to our Level 3 BSC. Finally, the Type III BSC
in the Speckbacher et al. study, which focuses on the use of the BSC for implementation
of strategy, resembles our Level 5 BSC. Notably, however, it differs from our Level 5
BSC in one important way; the concept of double-loop learning is absent from their
classification scheme.
Research methodology
This research uses descriptive research methods for which a large survey is considered
the most appropriate data gathering methodology (Babbie, 1990). We developed a
web-based survey consisting of seven sections. In the first four sections of the survey
participants were asked to respond to questions about the structural and use attributes
of performance measurement system, which allows us to classify organizations as
non-BSC and Level 1 through five BSC organizations. Specific questions (summarized
IJPPM in Figure 2) were used as gate(s) to assist in classifying the responding organizations.
60,7 The fifth section of the survey invited participants to self-report their organizations
performance along five dimensions:
(1) customer satisfaction;
(2) product/service quality;
696 (3) return on equity (ROE);
(4) sales margin; and
(5) market share.
Sections six and seven of the survey sought the organizations demographics as well as
optional respondent information. A multi-step process was used to develop the survey
including pre-testing it at different stages, which allowed us to develop a survey that
was clear and easily understood by respondents.
CMA Canada, the second largest professional accounting body in Canada,

administered the web-based survey on our behalf to a sample of 2,297 certified
management accountants (CMAs) who met three criteria:
(1) they were working in profit-seeking organizations employing at least 51 people;
(2) they held the title of Supervisor, Assistant Controller, Controller, Chief
Accountant, Treasurer, Chief Financial Officer, Consultant, Manager, General
Manager, Director, Executive, Vice-President, President, Principal, or Chief
Executive Officer; and
(3) they had their e-mail addresses registered on CMA Canadas member database.
Of the 2,297 e-mails sent on our behalf by CMA Canada, 79 of the e-mails were
undeliverable, leaving a sample size of 2,218.
An e-mail, along with a cover letter, was sent by CMA Canada to all eligible CMAs
asking individuals to respond to the web-based survey. Subsequent to this, CMA
Canada sent two reminder e-mails to all 2,218 potential respondents (as we had no
knowledge of the identities of the respondents). We received 152 complete survey
responses, but three responses were from not-for-profits, which left 149 useable
responses resulting in a 6.7 percent response rate.
The survey method poses some threats to the validity and generalizability of our
findings. For example, the low response rate raises the issue of non-response bias.
Unfortunately, given that we did not have access to the universe of respondents and
that the survey was administered by a third party, it was not possible to identify the
non-respondents, or to fully ascertain if there were multiple respondents from the same
firm. Fifty out the 152 respondents provided their contact information including the
name of the organization. Although one organization is featured twice in this list the
respondents are from different business units, one located in Central Canada and the
other located in Western Canada. We mitigated the risk that more than one individual
in the same organization (business unit) may complete the survey by requesting CMA
Canada only send a survey to the most senior ranked individual in that organization.
An analysis of the early and late respondent groups revealed no significant differences.
However, when compared to the survey population, the respondent group is
significantly different in the following ways. We found that our sample consisted of a
When is a BSC
a BSC?
697
Figure 2.
Alignment of survey
questions to the Balanced
Scorecard classification
scheme
IJPPM higher proportion of controllers (p # 0:001) and a lower portion of managers (p # 0:10)
60,7 and supervisors (p # 0:005). Moreover, the sample consisted of a higher proportion of
manufacturing organizations (p # 0:001).
Results
Research Question 1
698 To answer the first research question we used our five-level taxonomy to classify each of
the responding organizations. We classified 111 of the 149 organizations (74.5 percent) as
Level 1 BSC organizations they had a well-developed strategy and their performance
measurement systems were derived from their strategies. The remaining 38
organizations (25.5 percent) were classified as non-BSC organizations. We further
analyzed the 111 Level 1 BSC organizations with respect to the presence of other
structural and use attributes. Of the 111 Level 1 BSC organizations, only 16 (10.7
percent)[2] did not have any additional BSC elements in their performance measurement
systems, while the performance measurement systems of the remaining 95 organizations

(63.8 percent) contained attributes which allowed them to be classified as either BSC
Level 2a, 2b, 3, 4a, 4b, or 5 (see Figure 3 for a summary of the results).
We found that the performance measurement systems of 74 organizations (49.7
percent) contained elements of balance, while 82 (55.0 percent) had elements of causal
linkages. The performance measurement systems of 61 organizations (40.9 percent)
contained the elements of both balance and causal linkages. This means that 13 (74-61)
organizations are classified as Level 2a BSC organizations, meaning that the
performance measurement systems of these organizations are derived from strategy
and they contain only the attribute of balance. Twenty-one organizations (82-61) are
classified as Level 2b BSC organizations, meaning that the performance measurement
systems of these organizations are derived from strategy and they contain only the
attribute of causal linkages. The remaining 61 organizations have Level 3 BSCs; we
consider these as having structurally complete BSCs.
Of the 61 Level 3 organizations, 40 organizations (26.8 percent) contained elements
of double-loop learning, while 55 (36.9 percent) had elements of linking compensation
to the measurement system. The performance measurement systems of 36
Figure 3.
BSC classification results
organizations (24.2 percent) contained both double-loop learning and tie-in to When is a BSC
compensation. This means that four (40-36) organizations are classified as Level 4a a BSC?
BSC organizations, meaning that the performance measurement systems of these are
structurally complete and contain only the double-loop learning attribute of BSC use.
Nineteen (55-36) organizations are classified as Level 4b BSC organizations, meaning
that the performance measurement systems of these are structurally complete and
contain only the linkage to compensation attribute of BSC use. The 36 organizations 699
whose BSCs contained both use elements consequently are Level 5 Level 5 BSC
organizations with fully developed BSCs that exemplify the BSC construct as
developed by Kaplan and Norton.
Research Question 2
To answer Research Question 2, we examined differences between the 111 BSC and 38
non-BSC organizations, and between the BSC organizations classified at different
levels, along various performance measurement system factors: strategy, performance

measurement system implementation, budgeting, performance dimensions, goals of
the performance measurement system, and performance.
In examining the demographic data we found significant demographic differences
between the BSC and non-BSC organizations. We found that a significantly higher
proportion of large organizations (employing over 500 employees) were classified as BSC
organizations (p # 0:05). Using a different measure of size we found that a significantly
higher proportion of smaller organizations (sales below $250m) were classified as
non-BSC organizations (p # 0:05). Finally, we found that an equal proportion of both the
BSC and non-BSC organizations were evaluated as profit centers.
Percentages of responding firms undertaking certain management control and
performance measurement practices at differing levels of the BSC taxonomy are
presented in Table I. A test of proportions was used to assess statistical significance
(Johnson, 1984). According to the results presented in Table I, there are significant
differences between the responses from the BSC and non-BSC groups in terms of the
senior management involvement in BSC implementation; prevalence of inappropriate
performance measures in the management system and/or measures not linked in
cause-effect relationships; linkage of budgeting system with the performance
measurement system; perceived success of the performance measurement system;
perception of financial success relative to competition; and own perception of whether
the performance system was a BSC or not. We also find significant differences between
the responses from the Level 1 (basic) and Level 5 (advanced) BSC organizations along
some of the management control and performance measurement practices.
Although we did not formulate a priori hypotheses concerning how BSC
organizations would differ from non-BSC organizations in regard to each of the six
factors of comparison, the descriptive findings reported in Table I show a pattern that
ex post are entirely consistent with management practices and performance results one
would expect in organizations with a structured, well articulated performance
measurement system as compared to those lacking these attributes. Senior
management involvement is often critical in implementing complex systems
regardless of whether they deal with performance measurement, organizational
change, costing systems, or an information technology system. Our results show a
higher level of senior management involvement among the BSC organizations
60,7
700
Table I.
IJPPM
Proportion of
agree/strongly agree or
organizations responding
yes to each survey item

Non All BSC organizations by level
BSC BSC 1 2a 2b 3 4a 4b 5
(n 38) (n 111) (n 16) (n 13) (n 21) (n 2) (n 4) (n 19) (n 36)
(i) Senior management involved in the implementation

of the performance measurement system 53 82 50 100 91 0 100 79 89
(ii) Inappropriate performance measures and/or
performance measures not linked in cause-effect
relationships 55 36 63 62 29 100 0 21 28
(iii) Budgeting system is linked to the performance
measurement system 45 74 63 62 76 50 50 84 81
(iv) Success of performance measurement system 37 76 63 69 71 0 50 74 94
(v) Below-average return on equity compared to
competitors 29 8 6 8 0 0 25 16 8
(vi) Performance measurement system a BSC (yes/no) 16 41 31 15 24 0 0 68 56
Notes: A test of proportions was used to compare the BSC and non-BSC groups; bolded numbers are statistically significant at p-values ranging from less
than 0.0001 to 0.004. The same test was performed to compare the Level 1 and Level 5 BSC organizations. Level 1, Performance measures derived from
strategy. Level 2a, Level 1 plus the attribute of balance. Level 2b, Level 1 plus the attribute of causal linkages. Level 3, Level 1 plus the attribute of both
balance and causal linkages. Level 4a, Level 3 plus the attribute of double-loop learning. Level 4b, Level 3 plus the attribute of linkage to compensation.
Level 5, Level 3 plus the attributes of double-loop learning and linkage to compensation. The italicized numbers are statistically significant at p-values
ranging from less than 0.002 to 0.02. All figures shown are percentages
compared to the non-BSC ones (p # 0:001)[3]. The second part of Table I in which we When is a BSC
present the percentage of organizations reporting senior management involvement by a BSC?
level of BSC implementation also indicates an increase in senior management
involvement corresponding with the presence of multiple attributes of Kaplan and
Nortons BSC. For example there is a marked difference between organizations at Level
1 and those at Level 5 (p # 0:005)[4].
On average, we found that 36 percent of the BSC organizations, versus 55 percent of 701
the non-BSC organizations, indicated that their performance measures were
inappropriate and/or performance measures were not linked in cause-effect
relationships; this difference was also statistically significant (p # 0:005). This
difference was significant when comparing Level 1 and Level 5 BSC organizations
(p # 0:05). Having appropriate measures, i.e. those that are aligned with the
organizations goals/strategies is important to ensure that organizations derive
maximum benefits from the implementation of a performance measurement system.
Similarly, having performance measures that are linked in cause-effect relationships is

also a critical element of a well developed BSC.
Budgeting has been, and still is, considered as an important component of an
organizations management control system, with many organizations spending
significant time and resources on this activity (Simons, 1987; Jensen, 2001). Kaplan and
Norton (2001, 2008) note that a companys budgeted process should ideally be closely
aligned to its BSC. Our results show that budgeting systems in BSC organizations are
more likely to be linked to the performance measurement system versus non-BSC
organizations (p # 0:001).
It is not reasonable to assume that higher level of senior management involvement,
lower proportion of inappropriate measures and/or measures not linked in cause-effect
relationships and a higher level of linkage between budgeting and performance
measurement system will likely lead to a perception that the performance
measurement system will lead to the organization achieving desirable outcomes. We
observed that a significantly higher proportion of BSC organizations positively rated
the success of their performance measurement system given the goals selected by them
( p # 0.001). One interpretation of this is that a BSC type performance measurement
system provides more relevant (and perhaps valuable) information with respect to the
organizations performance vis-a-vis its goals compared a non-BSC type performance
measurement system. We also found a significant difference between Level 1 and Level
5 BSC organizations along this aspect (p # 0:005).
Another interesting aspect of this study was to ask respondents to evaluate their
performance, against their competitors, along five measures:
(1) customer satisfaction;
(2) product/service quality;
(3) return on equity (ROE);
(4) sales margin; and
(5) market share.
The only significant difference we found pertained to the ROE measure. Only 8 percent
of the BSC organizations rated themselves as having a below average ROE when
compared to rivals, whereas 29 percent of the non-BSC organizations rated themselves as
IJPPM having a below average ROE. This difference is significant (p # 0:001); however,
60,7 readers must be careful when drawing conclusions from self-assessed performance data.
The lack of significant differences on the other dimensions of comparison might be due
to the construct validity problems. Customer satisfaction or product quality are difficult
to measure for organizations and use for comparing against competitors. Respondents
might have had this in mind when answering the questions on the survey. Sales margin
702 and market share are performance variables closely correlated in principle with customer
satisfaction and consequently it should not be a surprise that our data failed to identify
significant differences on these performance measures. Overall, we find some important
differences between BSC and non-BSC organizations, as well as between organizations
placed at the two extreme levels within the BSC taxonomy (Level 1 and Level 5).
Comparison with results in prior literature

In light of our earlier discussion of the similarities and differences between the BSC
taxonomies of this study and that of Speckbacher et al. (2003) and Stemsrudhagen
(2004), we examine if the results of our study are substantively different from those two
studies. First, we applied the Speckbacher et al. (2003) classification scheme to our
survey data. Employing their three-level typology led us to classify 75 organizations
(50.3 percent) as BSC organizations; this number is much lower than the 111 (74.5
percent) according to our classification scheme. There are two main reasons for this
difference. First, our criteria for labeling an organizations performance measurement
system as a Balanced Scorecard is that the measures should be derived from strategy,
whereas Speckbacher et al.s criteria include the additional component of balance.
Second, in their study, the respondents self-classified themselves as BSC organizations,
whereas in our study, we labeled organizations as BSC or non-BSC based on their
responses to specific questions. However, if we were to use only those respondents that
self-classified themselves as BSC organizations, our numbers are very similar to theirs
(23 percent versus 24 percent). Interestingly, a higher proportion of their BSC
organizations are Type I, whereas ours are Type III. We present a comparative
summary of our results versus Speckbacher et al.s using their typology in Table II.
A critical difference between the two studies is the use of the term balanced
scorecard in the survey questionnaire. Speckbacher et al.s (2003) study explicitly used
the term balanced scorecard in the survey, which we did not. In order not to bias the
results, we positioned the following question near the end of the survey: Do you think
This study
Respondents who indicated
their performance
measurement system was a
Speckbacher et al. (2003) All respondents BSC
Percentage Percentage Percentage Percentage Percentage Percentage
of BSC of all of BSC of all of BSC of all
n users respondents n users respondents n users respondents
Type 1 21 50 12 14 19 9 2 6 1
Table II. Type 2 9 21 5 6 8 4 0 0 0
Comparative summary of Type 3 12 29 7 55 73 37 33 94 22
results 42 100 24 75 100 50 35 100 23
your performance measurement system is a balanced scorecard?. Finally, and more When is a BSC
importantly, respondents to Speckbacher et al.s survey self-identified themselves as a a BSC?
BSC organization, whereas this study used the respondents answers to several survey
questions in order to classify the level of implementation of their performance
measurement systems. Given these differences, we believe that our study is not a
replication of Speckbachers study, but rather it is an improved approach to reach a
shared research objective of better understanding what a BSC is. 703
One interesting result was the answer to the final question in the survey where we
asked respondents whether they believed that their organizations performance
measurement system was a balanced scorecard. As classified by the BSC taxonomy,
only 41 percent of the BSC organizations indicated they thought they had a BSC,
whereas 16 percent of the non-BSC organizations thought they had a BSC; this
difference is statistically significant (p # 0:01). Although 41 percent appears to be a
low number of organizations self-identifying as BSC organizations, it is comforting to
note that it is significantly higher compared to the non-BSC organizations. We suspect

that the difference is due to an awareness of best practice in the area of performance,
but lack of awareness of the term BSC. There are competing frameworks such as Nanni
et al.s (1992) integrated performance measurement system and Neely et al.s (2002)
performance prism, or even books which outline BSC-like measurement systems
without specifically mentioning the BSC.
Fifty-six percent of the Level 5 BSC organizations versus 31 percent of the Level 1
BSC organizations stated that they thought their performance measurement system
was a Balanced Scorecard; this difference is not statistically significant (p $ 0:10).
However, there is a strong linear correlation (r . 0:80) between BSC levels and
percentage of respondents stating that they thought their performance measurement
system was a BSC. This may be interpreted to suggest that mature BSC organizations
appear to understand the different attributes of Kaplan and Nortons Balanced
Scorecard and are consciously adopting them.
Stemsrudhagen (2004) compared the two contrasting views of performance
measurement systems of Malmi (2001) and Simons (1990). Malmi (2001) suggests that
for a measurement system to be a BSC, it needs to be have been implemented through a
planned, well-structured implementation process and cover all the elements outlined
by Kaplan and Norton. Whereas, Simons (1990) suggests that the performance
measurement systems should emerge through interactions between managers and
disparate sources of information employed by managers. The resulting systems may
have structures that are identical to those prescribed by the BSC, without the
organization actually designing a BSC. The results of this study suggest that both the
planned and emergent approaches to implementing a BSC are likely. It appears that as
organizations move up the BSC levels, many make a conscious decision to implement a
BSC, while almost as many do not (56 percent of the Level 5 BSC organizations said
that their performance measurement system was a BSC).
Conclusion
Kaplan and Norton (1996, 2001) argue that the Balanced Scorecard is not just another
performance measurement system, but rather it is a holistic strategic performance
measurement and management system a tool that management can use to assist the
organization in reaching its vision/mission and strategy. They argue that firms
IJPPM contemplating implementing a BSC require commitment from senior management and
60,7 that unless the firms performance measurement system is tied to its strategy, the
potential benefits of the BSC are unlikely to be realized. Further, organizations that fail
to link performance measures in cause and effect relationships, or have measurement
systems with a paucity of non-financial measures, are also likely to be unsuccessful.
While the performance measurement community awaits empirical findings that
704 support the presence of these benefits in the organizations that have implemented
advanced BSCs, there is an implicit assumption in many empirical studies that all
firms that have implemented a BSC, have done so in similar ways. Although there is
research showing there is no agreement as to what a BSC is, or when an organization
might be considered as a BSC organization, no research has sought to empirically
validate this assumption. Our research attempts to address this gap in the performance
measurement literature. We developed a taxonomy for describing organizations with
BSCs that do not fully conform Kaplan and Nortons BSC construct. The study then
posited two research questions aimed at describing:

(1) the BSC implementation landscape in terms of the classification scheme we
developed; and
(2) the distribution of the BSC firms along the five levels of our classification
scheme and the characteristics of those firms.
If firms were clustered at any particular level of BSC implementation, this would
inform future researchers regarding what may be expected with respect to the level of
BSC implementation in organizations. If the characteristics of the firms differed
depending on the level of BSC implementation, this too would be relevant to
researchers since testable hypotheses about the effect of the BSC on performance could
be localized at a given level of BSC implementation.
Based on our studys BSC taxonomy we found that 24.2 percent had fully developed
BSCs (Level 5), and an additional 16.8 percent had structurally complete BSCs with at
least one use attribute (Level 3 plus 4a and 4b). We found that senior management
involvement in the implementation process was higher in BSC firms; a smaller number
of BSC firms reported their performance measurement systems as being contaminated
with inappropriate measures and/or measures not linked in cause-effect relationships;
more BSC firms reported explicit links between traditional management controls
systems like the budget and the BSC; more BSC firms tended to view their performance
measurement systems as a success; and finally, fewer BSC firms tended to perceive
their ROE performance as inferior to their competitors. These results provide some
indirect support to the conclusion that BSC firms are more likely to experience the
benefits envisioned by Kaplan and Norton from adopting the BSC, since the
characteristics of comparison between the BSC and non-BSC firms are very likely
correlated with success. For example, it is difficult to contemplate how a firm can
achieve success in implementing strategy and monitor performance without the
attention and commitment of senior management. Nonetheless, we remind the reader to
interpret this finding with caution. Improved organizational performance is likely a
function of several factors; a performance measurement system aligned with the
organizations strategy may be just one of the factors (Bourne et al., 2005). Moreover,
there may be significant differences among the performance measurement systems of
sample firms; these differences might pertain to the actual performance metrics, the
nature of the incentives tied to performance, the length of time BSC has been in place in When is a BSC
the organization and the acceptance of the BSC within the organization. a BSC?
Our studys results reveals some clustering along the five levels of BSC
implementation, with about a third of the sample firms with a BSC reporting a Level 5
BSC implementation. When we examine the firms in each level it would seem that the
major differences are between Level 1 and Level 5 organizations. The most marked
difference being for the senior management involvement, inappropriate performance 705
measures and/or measures not linked in cause-effect relationships, and success of the
performance measurement system. These results seem to make sense. If organizations
wish to progress to higher levels of BSC implementation greater involvement of senior
management is needed; and as organizations strive to implement a BSC with all of the
nuances of the Kaplan and Norton construct, there is a greater requirement for the
organization to ensure that traditional control systems like the budget is made to
articulate with the BSC. The small sample sizes in each cell precluded us from carrying
out tests of significance for differences (except for the Level 1 and Level 5
organizations). This study points to the need for further research in the area of
investigating differences between organizations with lower level BSCs and those with
fully complete BSCs. Future studies may focus on BSC use in other countries and in
not-for-profit industries (c.f. Greiling, 2010).
The studys primary contribution for practitioners is its description of current
performance measurement system practices in Canadian organizations, which allows
managers to guide and gauge their organizations BSC implementation progress as
compared to the BSC taxonomy.
This study is not without its limitations. A sincere attempt was made to ensure that
the survey link was not sent to multiple professional accountants employed in a single
organization (business unit); nonetheless it is possible that more than one person in an
organization received and answered the survey. This could have occurred if the
individual had changed employers and not updated their member profile, or if the
person receiving the survey link forwarded it to one or more people in the organization.
If so, then each response cannot be considered to be an individual organization. The
anonymity of the survey meant that the possibility of more than one response from an
organization could not be verified.
A second limitation is that the low response rate may limit the generalizability of the
results. Added to this is the fact that our sample is somewhat biased in terms of the type
of respondents (e.g. higher proportion of controllers) and the industries (bias towards
manufacturing organizations). Nonetheless, the absolute number of responses is large
enough to provide results that offer some consistency and validation of the taxonomy. A
final potential limitation may be the lack of clarity of certain questions or specific terms
used in the questionnaire. We attempted to mitigate this by pre-testing the survey with
several academics and three professional accountants before finalizing it.
Notes
1. Kaplan and Norton (2001, p. 375) later reported that firms should typically have 25 measures
divided among the four perspectives: 22 percent in the financial perspective, 22 percent in the
customer perspective, 22 percent in the learning and growth perspective, and 36 percent in
the internal business process perspective.
2. All percentages are calculated based on the 149 responding firms.
IJPPM 3. We also found a greater presence of a cross-functional involvement in the BSC organizations
compared to the non-BSC organizations (not reported in Table I).
60,7
4. We compare only the Level 1 and Level 5 BSC organizations; Level 1 represents a basic BSC,
whereas Level 5 represents a fully developed BSC.
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About the authors

Marvin Soderberg, BComm, MSc, CMA, is a Human Resources Advisor with the Alberta Union
of Public Employees. He received his Bachelor of Commerce and Master of Science from the
Edwards School of Business, University of Saskatchewan. He previously has taught
management and financial accounting at various colleges in Canada.
Suresh Kalagnanam, PhD, CMA, CGA, is an Associate Professor at the Edwards School of
Business, University of Saskatchewan. He received his PhD in Business from the University of
Wisconsin-Madison. His teaching and research areas are management accounting, management
control and performance measurement. Suresh Kalagnanam is the corresponding author and can
be contacted at: kalagnanam@edwards.usask.ca
Norman T. Sheehan, BComm, MBA, PhD, CGA, CMA, is an Associate Professor at the
Edwards School of Business, University of Saskatchewan. He received his PhD in Strategy from
the BI Norwegian School of Management and Copenhagen Business School. He teaches, publishes
and advises in the areas of strategy formulation, strategy implementation/performance
measurement, and risk management.
Ganesh Vaidyanathan, PhD, CGA, CMA, is Head and Associate Professor at the Edwards
School of Business, University of Saskatchewan. He received his PhD in Management Sciences
from the University of Waterloo. His current interests are in business performance management,
internal control, and accounting information systems. He also has interests in finance and
strategic management. He has co-authored two textbooks in statistics and in management
accounting and has published several articles in scholarly journals, including Journal of
Applied Corporate Finance, Qualitative Research in Accounting and Management, and Issues in
Accounting Education.
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When Is A Balanced Scorecard A Balanced Scorecard

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International Journal of Productivity and Performance Management

When is a balanced scorecard a balanced scorecard?

References: this document contains references to 46 other documents.

When properly designed, performance measurement systems communicate desired

Operationalizing the Balanced Scorecard

cannot be called a Balanced Scorecard. Consequently, the direct relationship between

Together, these four dimensions encourage organizations to clearly communicate the

Use attributes of the BSC

Double-loop learning. Double-loop learning (Argyris, 1991) is at the heart of a dynamic

Relationship of this study to prior research

CMA Canada, the second largest professional accounting body in Canada,

systems, while the performance measurement systems of the remaining 95 organizations

levels, along various performance measurement system factors: strategy, performance

yes to each survey item

(i) Senior management involved in the implementation

Similarly, having performance measures that are linked in cause-effect relationships is

Comparison with results in prior literature

note that it is significantly higher compared to the non-BSC organizations. We suspect

posited two research questions aimed at describing:

strategic control tool, International Journal of Productivity and Performance

About the authors

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

1. Enrico Rhle, Valerie-Laura WagnerOrganizational Culture: An Additional Perspective to the Balanced

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