Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
The title of this article is somewhat misleading because it mainly reveals a controversy related to what type of measurement system a company should use. According to Kurtzman, there is a raging controversy between two schools of thought. He refers to these schools as the balance people and the numbers people.
|The Balance People||The Numbers People|
|The corporate scorecard should be balanced including nonfinancial soft stuff like employee satisfaction.||The balanced scorecard confuses the issue. Measurements should be purely financial.|
The balance people promote the use of corporate, or balanced scorecards. Kurtzman uses Analog Devices as an example. Analog's scorecard includes a number of nonfinancial measures such as rate of on-time deliveries, product development cycle times, and number of new products. It links these measurements to financial indicators such as the percentage of sales due to new-product introductions and gross margins on new products.
Kurtzman uses Shell Oil as an example in the numbers people category. Shell's business model is based on a matrix with four financial measurements as indicated below.
|Shell's Business Model|
|Revenue Growth||Intrinsic Business Value (i.e., Company's Market value)|
Shell management's view is that a balanced group of measurements with a number of soft categories confuses the issue. Their view is that you have to measure the value each activity contributes to the company in financial terms.
Although there are no details in this article in terms of how these companies actually use their chosen measurements, the article does provide another dimension to the controversial issues related to measurements in management and accounting.
Bacidore, J. M., J. A. Boquist, T. T. Milbourn and A. V. Thakor. 1997. The search for the best financial performance measure. Financial Analysts Journal (May/June): 11-20. (Summary).
Ittner, C. D. and D. F. Larcker. 1998. Innovations in performance measurement: Trends and research implications. Journal of Management Accounting Research (10): 205-238. (Summary).
Ittner, C. D. and D. F. Larcker. 2003. Coming up short on nonfinancial performance measurement. Harvard Business Review (November): 88-95. (Summary).
Jalbert, T. and S. P. Landry. 2003. Which performance measurement is best for your company? Management Accounting Quarterly (Spring): 32-41. (Discussion of EVA, tracking stock and balanced scorecard). (Summary).
Kaplan, R. and D. Norton. 1992. The balanced scorecard - Measures that drive performance. Harvard Business Review (Jan-Feb): 71-79. (Summary).
Kaplan, R. S. and D. P. Norton. 1993. Putting the balanced scorecard to work. Harvard Business Review (September-October): 134-147. Includes a scorecard for Rockwater, a global engineering and construction company. (Summary).
Martin, J. R. Not dated. Balanced scorecard concepts. Management And Accounting Web. https://maaw.info/BalScoreSum.htm
Norreklit, H. 2003. The balanced scorecard: What is the score? A rhetorical analysis of the balanced scorecard. Accounting, Organizations and Society 28(6): 591-619. (Summary).
Reilly, G. P. and R. R. Reilly. 2000. Using a measure network to understand and deliver value. Journal of Cost Management (November/December): 5-14. (Summary). (These authors discuss some limitations and problems associated with the balanced scorecard, and recommend a measure network as the solution).
Schonberger, R. J. 2008. Lean performance management (Metrics don't add up). Cost Management (January/February): 5-10. (Note: Schonberger criticizes the KPI or scorecard approach from the lean enterprise perspective. Summary).
Stivers, B. P., T. J. Covin, N. G. Hall and S. W. Smalt. 1998. How nonfinancial performance measures are used. Management Accounting (February): 44, 46-49. (Summary).
Tatikonda, L. U. and R. J. Tatikonda. 1998. We need dynamic performance measures. Management Accounting (September): 49-53. (Summary).