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Lipe, M. G. and S. Salterio. 2002. A note on the judgmental effects of the balanced scorecard's information organization. Accounting, Organizations and Society 27(6): 531-540.

Summary by Rosalyn Mansour
Ph.D. Program in Accounting
University of South Florida, Spring 2004

Balanced Scorecard Main Page | Performance Measures Main Page

The balanced scorecard is a strategic tool that assists management by measuring organizational performance. There are a great number of actual measurements, which can cause managers to experience information overload in trying to understand what they all mean and how they are related to one another. Therefore, the BSC’s organization around the 4 categories (financial, customer relations, internal business processes, and learning & growth) helps ameliorate this problem because it points out related measures by having them categorized together.

Prior research suggests that, if correlated performance measures are not grouped together or otherwise indicated as being related, managers will not discount the weight they place on these measures when making a judgment. In other words “judgmental discounting for information redundancy does not occur unless the judge is alerted to the presence of such relations (p. 533).” This would mean that judgment would differ between managers receiving a categorized list of the balance scorecard measures and those that received an unorganized list. However, the authors say that the pattern of performance matters:

1. “judgments are likely to be moderated when multiple above-target (or below-target) measures are contained in a single BSC category but,

2. judgments are unlikely to be affected when multiple above-target (or below target) measures are distributed throughout the BSC categories (p. 533).”

To test these theories, experiment 1 was conducted on 78 MBA students who were provided case materials where they were to assume the role of a senior executive. Participants were asked to evaluate two managers and their strategies over two divisions of a company and then rate the managers’ performance on a Liker-scale of 0 to 100 (from worst to best). Each participant was given a set of performance measures, an explanation of how the measures were calculated, and a corresponding target measure. The organization of the performance measures (categorized vs. not categorized) was manipulated between subjects, as was the presentation order (first vs. second) of the two divisions. There was also one within subjects manipulation (division was above or below customer relations targets). Otherwise, the performance measures were exactly the same, except for 4 customer relation measures. The dependent variable was respondents’ ratings of management performance.

The following is the ANOVA table for experiment 1 presented on page 536.

ANOVA Results For Experiment One - Manager Evaluations
Variable df SS MS F P
Between Ss
Organization 1 41.25 41.25 0.14 .071
Order 1 4.10 4.10 0.01 0.91
Organ.xOrder 1 0.52 0.52 0.00 0.97
Error 74 22,567.86 304.97
Within Ss
Division 1 13,917.31 13,917.31 97.14 0.00
Div.xOrganization 1 817.27 817.27 5.70 0.02
Div.xOrder 1 1513.64 1513.64 10.57 0.00
Div.xOrgan.xOrder 1 344.02 344.02 2.40 0.13
Error 74 10,601.94 143.27

The authors state that this shows “information’s organization affects the relative evaluations of the managers for this pattern of performance results where particularly positive/negative performance is concentrated in one BSC category (p. 537).” A supplemental analysis was performed on a memo that each subject completed justifying his/her evaluation. For those that received no categorization of the performance measures, they mentioned 22.6 individual performance measures and the group that received the BSC categorization identified an average of 18.7.

Experiment 2 was a repeated measures experiment where a group of graduate managerial accounting students were used to basically repeat experiment one, except with regard to the actual performance measures provided. Instead of having the 4 customer relations measures vary between divisions, these measures were changed so that they related to other BSC categories as well. Results were similar to experiment 1, except that “with this pattern of performance results (i.e. with the above/below-target measures distributed across BSC categories), the BSC format did not affect the evaluations of the managers” and furthermore that “dependent on the pattern of performance results, organizing measures into the BSC can affect managerial judgments (p. 538).”


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