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Lipe, M. and S. Salterio. 2000. The balanced scorecard: Judgmental effects of common and unique performance measures. The Accounting Review (July): 283-298.

Summary by Eileen Z. Taylor
Ph.D. Program in Accounting
University of South Florida, Spring 2004

Balanced Scorecard Main Page | Performance Measures Main Page

This study examines whether there is a “common information bias” present in the analysis of balanced scorecard measures. Kaplan and Norton designed the balanced scorecard (BSC) as a way to articulate a company’s strategy by identifying non-financial performance measures and their effect on financial performance. Proper implementation of a BSC should result not only in identification of critical non-financial performance measures, but should also identify the links between them and final accounting numbers. Successful implementation requires that managers focus on the non-financial or qualitative issues as these are leading indicators of financial performance. Unfortunately, traditional performance measures are primarily financial; thus, managers may tend to use them to the exclusion of non-financial measures. In addition, financial measures are common to most divisions, whereas non-financial performance measures are unique to their respective divisions. This may cause managers to focus on the “common measures”, namely financial measures, when evaluating divisions.

The authors undertake an experiment to test whether this common information bias exists within a BSC context. They find that managers do, in fact, rely on common measures when evaluating division performance. This reliance results in a suboptimal implementation of the BSC, as it discounts non-financial performance measures.

Implementation of the BSC

Lipe and Salterio give a short history of the BSC approach. Primarily, BSC implementation includes four major steps:

Clarifying and translating business strategy

Communicating and linking

Planning and target setting

Strategic feedback and learning

Upper management’s role is to clarify and translate the business strategy. However, it is the job of each division, as part of communicating and linking, to arrive at critical scorecard measures that will best link their division to the corporate strategy.

The scorecard consists of four categories: financial, customer, internal process, and learning and growth. Since each division will reach strategic goals in different ways, the BSC measures are unique to each division. For example, a sales division may choose customer satisfaction measures, while a manufacturing division may measure success by improving quality.

Although measures within the last three categories differ by division; financial performance measures are often common among divisions. Items such as net profit and return on sales can be found in multiple divisions.

The Use of Common and Unique Information

Lipe and Salterio discuss the theory of common information bias as it relates to using the BSC for evaluative purposes. Cognitive research has shown that individuals weight common information more heavily than unique information when making choices as well as making judgments. The authors hypothesize that this bias will negatively affect the intended use of the BSC approach by causing individuals to discount the unique measures identified by each division. They propose that this effect will hold even when divisions are evaluated individually, rather than comparatively.

Research Method

An experiment is performed using 58 MBA student participants. A 2 X 2 between subjects with a 2 level within subjects experiment was designed. The two independent variables are patterns of performance for (1) common measures and (2) unique measures. The within subjects independent variable is the division evaluated (all subjects evaluated two division managers).

Subjects were given balanced scorecards for two divisions of a clothing company. They were also given the individual strategy for each division, as well as targets for each BSC item. The pattern of unique and common measures was manipulated. Results show that individuals evaluated divisions more positively when common measures were positive. There was no similar effect noted when unique measures were positive. This supports the authors’ hypothesis that common measures are weighted heavier than unique measures.


This study provides evidence that despite the BSC focus on unique, non-financial, division-specific performance measures, individuals still evaluate performance based on common, financial measures. Such a bias results in a suboptimal implementation of the BSC approach. Future research should examine ways to mitigate this bias. At the very least, managers who implement the BSC should be aware of this bias.


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