- Essential tools for management accountants
Balanced Scorecard Case Study
What is it?
The Balanced Scorecard concept, popularised by Robert S Kaplan and David P Norton, is a performance management tool that encompasses the financial measures of an organisation and key non-financial measures relating to customers or clients, internal processes, and organisational learning and growth needs. It places these into a concise ‘scorecard’ that can be used to monitor performance.
Early implementations of the Balanced Scorecard tended to focus on including a balance of measures in the four domains or perspectives rather than on execution of strategy, but over time it has become a widely used strategic management tool. The Balanced Scorecard process attempts to identify important links between financial performance and the underlying customer, internal processes and organisational metrics. This creates a mechanism for translating the strategic vision into concrete actions necessary to achieve success.
This characteristic of the Balanced Scorecard places strategy at the core of management. When implemented properly, it can be used to align measures, actions and rewards to create a proper focus on the execution of strategic initiatives and achievement of strategic objectives, rather than a sole focus on the annual budget.
The widespread adoption of the Balanced Scorecard is due in part to its flexibility. Many companies have implemented their own variations to suit their strategic purposes. The Tesco ‘Steering Wheel’, for example, includes five perspectives, capturing their commitment to the community in addition to their financial, customer, operations and people aspects.
The Balanced Scorecard has also been successfully adapted for use by not-for-profit and public sector organisations. While the top line financial objectives of for-profit organisations are replaced by mission-related objectives, the process of identifying relevant stakeholder, internal process and resource measures serves much the same purpose.
The Balanced Scorecard
What benefits does the Balanced Scorecard provide?
The Balance Scorecard provides a means to clarify, articulate and communicate strategy. It is a shorthand way of putting all key measures into a ‘dashboard’ that can be used to monitor results. By including non-financial measures, it can be used to show how the non-financial aspects of performance, such as customer satisfaction, drive financial performance.
The Balanced Scorecard is a useful tool for motivating employees and focusing their attention on factors that are deemed to be critical to long-term performance rather than simply short-term financial results.
Questions to consider when implementing a Balanced Scorecard
- Do we have sufficient buy-in from top management?
- Are we willing to engage in a more participatory strategy and performance management process?
- Are we committed to the organisational change effort necessary for successful implementation?
- To what extent will our current management information systems be able to support implementation? What are the costs and benefits of making these changes?
- What are we already doing that we can incorporate into our scorecard? What do we need to modify or stop doing?
- Are we prepared to focus our reporting around the scorecard
Related and similar practices
- Strategy mapping
- Developing non-financial key performance indicators
- Performance management
Chartered Global Management Accountant
CGMA is the most widely held management accounting designation in the world with more than 137,000 designees. It was established in 2012 by the AICPA and CIMA to recognise a unique group of management accountants who have reached the highest benchmark of quality and competence. The CGMA designation is built on extensive global research to maintain the highest relevance with employers and develop the competencies most in demand. CGMA designation holders qualify through rigorous education, exam and experience requirements.
Association of International Certified Professional Accountants All rights reserved. This website has been developed by the AICPA and CIMA and is subject to license agreements between the AICPA, CIMA and the Association of International Certified Professional Accountants.
Balanced Scorecard Case Studies and Examples
The Balanced Scorecard is one of the most popular frameworks for strategy execution . Here you will find Balanced Scorecard case studies with examples of KPIs for different business domains.
Check out 31 examples of real Balanced Scorecard projects with strategy maps, KPIs, business goals, and BI dashboards.
Find free video tutorials and text guides that will help you to get started with your strategy scorecard.
Download ready-to-use templates or use the self-service wizard to generate your own template.
31 Balanced Scorecard Case Studies and Examples
Sign-up with a free plan for immediate access to all scorecard templates.
Sales and Marketing
Getting Started Tutorials
Get your scorecard started by learning the best practice experience.
Balanced Scorecard Step by Step
Learn how to create your own maps or check out live examples of the Balanced Scorecard below.
Four Perspectives of the Balanced Scorecard Framework
The perspectives of the Balanced Scorecard help to establish a cause-and-effect logic for the strategy map. Learn how to properly map business goals into the Finance, Customer, Internal Processes, and Learning and Growth perspectives.
Why these four perspectives? What do we map inside? How to come up with the relevant goals? Part 1 >
The difference between perspectives. Examples of the goals and indicators for each perspective. Part 2 >
Advantages and Disadvantages of the Balanced Scorecard Framework
Any business framework has its area of recommended application, its advantages and drawbacks. Check out the details of the analysis .
Balanced Scorecard Audit Checklist – 12 Control Points
Use the checklist below to audit your Balanced Scorecard, find possible problems, and fix them during the early stages before they result in bigger issues.
We divided possible situations into the green , yellow , and red zones so that you can quickly learn if your Balanced Scorecard is at risk and how to fix it. Continue to the Balanced Scorecard checklist .
Balanced Scorecard in Practice
As a part of free strategic planning course we discussed how to describe a strategy using Balanced Scorecard framework and its key components – strategy map, business goals, KPIs, and initiatives. Find below a complete video of the Lesson 6:
Templates for Balanced Scorecard
Powerpoint and pdf templates for balanced scorecard.
We have designed some templates for Balanced Scorecard. These templates make it easy to represent KPIs and BSC perspectives visually.
Updated: 15 templates in PDF and PNG added!
Ready-to-use templates for Balanced Scorecard save you time; you don’t need to hire a professional designer – you already have what you need for a quick start.
PDF Template for Strategy Map
Do you plan to brainstorm your strategy? We recommend you have a look at this print-friendly template for a strategy map.
That’s the template that we use on live events to start the discussion around strategy. The template is available in several languages and has proven to be effective for strategy discussion.
Automate Your Scorecards
Your time is too valuable to spend it on routine design tasks. Even with the best templates, the Balanced Scorecard task will consume a lot of your energy. Join business professionals who use BSC Designer for their strategy scorecards:
- Free plan for small projects
- Beautiful strategy maps
- Full Toolkit for the KPIs
- Free product video tutorials
Looking for something more?
Review the sections of this article once again.
The BSC Designer team will be happy to assist you.
CEO | Trainer | Author
BSC Designer is a Balanced Scorecard software that is helping companies to better formulate their strategies and make the process of strategy execution more tangible with KPIs.
4 thoughts on “Balanced Scorecard Case Studies and Examples”
Hello, Thanks for this great article, but i can’t find the file with templates in order to download it.
Can you help me please?
Have a good day
It depends on what template you are looking for, here are the options: 1. A template in BSC Designer software (recommended if you plan to automate your scorecard with a software) – to get it look at the links below examples – normally one link goes to the online template and another to the article. 2. Graphical templates (in PowerPoint and PDF formats) – http://www.bscdesigner.com/bsc-templates-32J4B0C.zip 3. Strategy map template: https://bscdesigner.com/strategy-map-template.htm
I need help building a scorecard for a returns and credit group and also my order management team. Can someone help me with this
It’s hard to give any recommendation without knowing the details. You can give it a try to Strategy wizard – https://bscdesigner.com/strategy-map-wizard.htm – that will guide you thought out the process by asking some questions.
Comments are closed.
Balanced Scorecard Examples & Success Stories
What organizations are successfully using balanced scorecard.
Increasingly, as balanced scorecard (BSC) concepts become more refined, we have had more inquiries asking for examples of organizations that have implemented the BSC, how the BSC applies to a particular business sector, what metrics are appropriate for different sectors, etc. This page provides a database of working balanced scorecard examples that our research has located.
By 2004 about 57% of global companies were working with the balanced scorecard (according to Bain ). Much of the information in the commercial sector is proprietary, because it relates to the strategies of specific companies. Public-sector (government) organizations are usually not concerned with proprietary information, but also they may not have a mandate (or much funding) to post their management information on web sites.
Sample One-Page Balanced Scorecard Strategic Plan for Government
Click here to download (PDF Format)
Sample One-Page Balanced Scorecard Strategic Plan for Not for Profit
Sample One-Page Balanced Scorecard Strategic Plan for Business (for profit)
Mecklenburg county, nc.
At the time, they had no way of predicting the long-term impact of this decision but the system he implemented led to break-through performance toward achieving the County’s vision and the framework is, to this day, in use at Mecklenburg County. It is an integral part of how the County is managed and has become a model for other municipal governments around the country.
The National Marrow Donor Program®/Be The Match Registry®
Veolia Water North America
Federal Ministry of Health–Ethiopia
This case study primarily focuses on the recalibration of the FMOH scorecard in 2009-2010, the cascade work performed in 2011-2013, and the break-through improvements that the Ethiopian Health Sector achieved as a result of improved strategic direction and alignment using The Institute Wa y . In fact, it has been such a success that the Prime Minster of Ethiopia has now mandated that all Ministries in Ethiopia adopt the balanced scorecard as a strategic planning and performance management methodology.
Tolko Industries Ltd.
Kenya Red Cross
Douglas County, Colorado
The Douglas County Government shares their “eat the elephant one bite at time” approach for how they strategically aligned their organization from the top floor to the first floor.
U.S. Army Medical Department (AMEDD)
The following link will take you to our compilation of data on organizations that have reported at least a partial adoption of the balanced scorecard:
Adopters of the balanced scorecard (in alphabetical order of organization name)
Balanced Scorecard Examples
Below we offer links to some files and publications that will show you what the documents and results of balanced scorecards look like. Although these all differ in format and details, they serve to illustrate the visual effectiveness of the balanced scorecard approach to strategic management. (Note: these documents are the products of their respective organizations, not the Balanced Scorecard Institute).
Oak Knoll Academy – A primer on development of a management strategy for a fictitious private school. A strategy map for the school is also available.
Vinfen Corporation – A private, non-profit human services organization based in Cambridge, MA. They recently published a scorecard and a newsletter that provides details about their strategic plan and performance measures.
Defense Finance and Accounting Service (DFAS) – Example of a balanced scorecard-based strategic plan for this world-class financial organization, and some additional information about how it was developed (Nov. 2001).
Federal Aviation Administration Logistics Center – A highly customer-focused organization with a balanced scorecard-based strategic plan. Their original plan is a rather large (37 MB) file, so we have removed the graphics and here we provide the text content only, in order to reduce the file size.
Department of Energy Federal Procurement System – One of the early Federal Government adopters of the balanced scorecard. Continues to lead by example with this FY2003 Performance Assessment.
Department of Energy Federal Personal Property Management Program – Example of a balanced scorecard for a major government program.
Government Strategy Map Example – Example of a generic strategy map for a government organization on the Federal, State or local level.
Regional Airline – A strategy map, with objectives, performance measures and initiatives in the balanced scorecard framework.
Credit Card Company – A generic example of a possible strategy map for an innovative credit card company.
If you would like to share your balanced scorecard plans and/or results with the world contact us! .
Contact us to find out how we can help your organization focus on strategy and improve performance..
Real world, real business, real solutions.
The best case studies to help you put the balanced scorecard into practice, the balanced scorecard is one of the most widely implemented business strategy tools globally. there’s nothing like a case study example to gain inspiration and get a feel for exactly how this works in a corporate environment..
To save you time, Fact3 have sourced a handful of great examples from experienced organisations to help you get started. We’ve included some written examples, as well as some alternative examples of one pagers you can take inspiration from when writing your own. We’ve also included some sample outputs to give you an idea of the type of end results businesses have experienced.
To caveat, most documented examples of balanced scorecard usage are from large global organisations. Some of these are just a really interesting read and may not be totally applicable to smaller organisations, but you’ll find tips and tricks along the way that you can scale and implement according to your business environment.
How Apple uses the balanced scorecard to dominate their competition
Tesco’s adaptation of the balanced scorecard method to drive its strategy and operations
How Philips focus on their employees to stay ahead of the competition, and how the balanced scorecard has helped them do that
Using the balanced scorecard in public sector organisations - How Homeland Security take learnings from the private sector and adapt them
Combining the balanced scorecard with performance related pay for maximum results
The Emirates National Oil Company: Results achieved from implementing a balanced scorecard approach
Balanced scorecard visual example, Balanced Scorecard Example Intrafocus 2016 https://www.intrafocus.com/2016/06/balanced-scorecard-example/
R.S Kaplan and D.P. Norton, “Using the balanced scorecard as a strategic management system”, Harvard Business Review Jan-Feb 1996
- Submission of manuscripts
- About the journal
- Editorial Board
- Instructions to authors
- Text (English)
- Texto (Portuguese)
- Download PDF (English)
- Download PDF (Portuguese)
Adaptation of the Balanced Scorecard: Case Study in a Fuel Distribution Company
This study aims to analyze and explain the adaptation of the balanced scorecard (BSC), through the theoretical model by Ansari, Fiss and Zajac (2010), in a fuel distribution company (nicknamed Oil Company), which is characterized in this article as a late adopter. By doing so, we place the adaptation process at the heart of our research on the diffusion of management accounting practices. The results showed that the BSC adopted in the Oil Company is compatible with other technologies observed in the organization. Regarding the cultural aspect, there was low adaptation of the practice to the organizational culture; however, no political misfits were observed. Due to this low cultural fit between the BSC and the Oil Company, in the latter the BSC has high fidelity and low extension in relation to the model observed in the extant literature. The article builds on the theoretical and empirical evidence that a specific adaptation pattern depends on the fit between the technical, cultural, and political characteristics of the practice implemented and the characteristics of the company. This is a distinctive aspect of our study, as it seeks to explain variations in the organizational practices by analyzing their consistency with the needs, objectives, and structure of the adopting company, especially considering the cultural and political aspects involved in the adaptation process.
Keywords balanced scorecard; adaptation; diffusion; variation; management accounting
O objetivo deste estudo é analisar e explicar a adaptação do balanced scorecard (BSC), a partir do modelo teórico de Ansari, Fiss and Zajac (2010), em uma distribuidora de combustível (cognominada Companhia Petrolífera), que se caracteriza neste artigo como empresa adotante seguidora. Assim, coloca-se no centro das discussões sobre a difusão de práticas de contabilidade gerencial o processo de adaptação. Os resultados evidenciaram que o BSC adotado na Companhia Petrolífera é compatível com outras tecnologias presentes na organização. No que diz respeito ao aspecto cultural, houve baixo ajuste da prática à cultura organizacional, ao passo que a análise do aspecto político não evidenciou desajustes. Em decorrência desse baixo ajuste cultural entre o BSC e a Companhia Petrolífera, nesta o BSC apresenta alta fidelidade e baixa extensão em relação ao modelo observado na literatura sobre o tema. O artigo segue as evidências teóricas e empíricas de que um padrão específico de adaptação dependerá do ajuste entre as características técnica, cultural e política da prática implementada e as características da empresa. Esse é um aspecto distintivo de nosso estudo, pois busca explicar as variações das práticas organizacionais analisando sua consistência com as necessidades, os objetivos e a estrutura da empresa adotante, considerando especialmente os aspectos culturais e políticos envolvidos no processo de adaptação.
Palavras-chave balanced scorecard; adaptação; difusão; variação; contabilidade gerencial
The literature on the diffusion of managerial practices in the organizations is characterized by two ways of explaining the adaptation process, the first derived from the economic literature based on the rational actor model. According to this model, the entities adopting new managerial practices are addressed as actors that make rational decisions in pursuit of efficiency of outcomes. This line of research is prevalent in the literature on the diffusion of innovations ( Rogers, 1995 Rogers, E. M. (1995). Diffusion of innovations. New York: The Free Press. ), focusing on the assumption that the adoption of a new managerial practice results in an economic benefit to the organization.
The second way to explain the adaptation process of a managerial practice consists in a line of research based on sociological models that, as opposed to the rational model, supports the argument that the organizations undergo social pressures from the environment they operate in, thus they adopt certain managerial practices eager to maintain the reputation in accordance with the others. Among the sociological perspectives that help explaining this reputational pressure, the fad and fashion ( Abrahamson, 1991 Abrahamson, E. (1991). Managerial fads and fashions: the diffusion and rejection of innovations. The Academy of Management Review, 16(3), 586-612. , 1996 Abrahamson, E. (1996). Management fashions. The Academy of Management Review, 21(3), 254-285. ) and the institutional perspectives stand out as the most popular ( Sturdy, 2004 Sturdy, A. (2004). The adoption of management ideas and practices: theoretical perspectives and possibilities. Management Learning, 35(2), 155-179. ).
The literature based on the fad and fashion perspective starts from the assumption that the adoption of a managerial practice is a result of the pressure that the organization undergoes to imitate the others, rather than a rational choice, as advocated by the model based on the economic theory. Moreover, such a perspective emphasizes the active role of fashion-setters, such as consulting firms operating in the diffusion process.
The institutional perspective establishes that organizations working in the same environment have isomorphic characteristics that lead them to the dilemma of implementing a managerial tool that, in practice, is not used on a daily basis. This kind of situation arises from the social expectations that generate the so-called institutional isomorphism ( Boxenbaum & Jonsson, 2008 Boxenbaum, E. & Jonsson, S. (2008). Isomorphism, diffusion and decoupling. In R. Greenwood , R. Suddaby, C. Oliver , & K. Sahlin-Anderson (Ed.), Handbook of organizational institutionalism (pp. 78-98). New York: Sage. ). When the adaptation process of new managerial practices stems from institutional pressures that contradict the rational rationale of seeking the internal efficiency required to maximize outcomes, it was noticed that organizations mimetically adopting these new practices claim to use them, but in fact they are not observed in daily business ( Boxenbaum & Jonsson, 2008 Boxenbaum, E. & Jonsson, S. (2008). Isomorphism, diffusion and decoupling. In R. Greenwood , R. Suddaby, C. Oliver , & K. Sahlin-Anderson (Ed.), Handbook of organizational institutionalism (pp. 78-98). New York: Sage. ).
The rational actor model and the sociological perspective help understanding how the practices are disseminated in the organizations. However, studies tend to use these two perspectives as antagonistic, i.e. one to the detriment of the other: the rational model typically emphasizes the issues of technique and efficiency by adopting the new practice, while the sociological perspective emphasizes the cultural and social aspect of its adoption. According to Kennedy and Fiss (2009) Kennedy, M. T. & Fiss, P. C. (2009). Institutionalization, framing, and the logic of TQM adoption and implementation decisions among U.S. hospitals. Academy of Management Journal, 52: 897-918. , these two perspectives are not dichotomous, i.e. the socio-technical motivations are less disjointed than the literature on diffusion has shown, something which means that the two perspectives are complementary and, therefore, capable of explaining the diffusion of managerial practices from various viewpoints.
Generally, studies in managerial accounting emphasize the diffusion of managerial innovations, as a process through which an innovation is conveyed and disseminated, focusing the study on the interorganizational level, in order to analyze and explain specifically how organizations implement or fail to implement a certain managerial practice ( Ax & Bjornenak, 2007 Ax, C. & Bjornenak, T. (2007). Management accounting innovations: origins and diffusion. In T. Hopper , R. W. Scapens, & Northcott, D. (Ed.), Issues in management accounting (pp. 357-376). Harlow: Financial Times Prentice Hall, p. 458. ).
As a consequence, the same literature does not investigate comprehensively adaptations, misfits, and contradictions that occur during and after the adoption of these managerial tools. This classic model to study diffusion is based on the assumption that the practice is unchangeable and organizations are passive, and the only option is accepting or rejecting the new practice ( Burkert & Lueg, 2013 Burkert, M. & Lueg, R. (2013). Differences in the sophistication of value-based management: the role of top executives. Management Accounting Research, 24(1), 3-22. , Fiss & Zajac, 2004 Fiss, P. C. & Zajac, E. J. (2004). The diffusion of ideas over contested terrain: the (non)adoption of a shareholder value orientation among German firms. Administrative Science Quarterly, 49(4), 501-534. ). This assumption hinders the diffusion model, since managerial accounting practices cannot be adopted by companies as immutable solutions (' off-the-shelf ' solutions ) ( Ansari, Fiss, & Zajac, 2010 Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. ).
In this research, it is suggested that the adaptation of a managerial accounting practice in the organization's context is more likely to be the rule than the exception during the implementation process, because few companies (if any) leave the diffusion process without changes.
In this article, we regard as a limitation of research on the adaptation of management accounting practices the absence in the accounting literature of a conceptual framework capable of grasping and explaining the possible adaptation patterns of accounting practices during the diffusion process. We use, herein, the framework developed by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. to study the variation of organizational practices during the diffusion process. The adoption of this framework seeks to clarify and investigate in a more robust way how managerial accounting practices vary when diffusing from the interorganizational environment to the intraorganizational environment.
The main argument of the framework developed by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. is that a specific adaptation pattern depends on the fit between the characteristics of the practice implemented and the characteristics of the company that is implementing it. This is a distinctive aspect of this model, given that few researchers have attempted to explain variation in organizational practices through the analysis of the consistency of its characteristics with the needs, objectives, and structure of the adopting company.
Gondo and Amis (2013, p. 3) Gondo, M. B. & Amis, J. M. (2013). Variations in practice adoption: the roles of conscious reflection and discourse. Academy of Management Review, 38(2), 229-247. call upon the organizational researchers to conduct studies on variation in the adaptation process of managerial practices. We used the existing research in the area of diffusion and adaptation of managerial practices and, specifically, the framework proposed by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. in order to fill this theoretical gap and provide new contributions to research in management accounting practices.
In the face of the identification of the gap in the literature regarding the adaptation of managerial accounting practices, this study has the following research question: How do the characteristics inherent to the balanced scorecard (BSC) and to the case study company influenced the adaptation process of the BSC in the case company?
Thus, this study focuses on the case of the adaptation of the BSC in a fuel distributor (liquid, solid, and gaseous), nicknamed, for confidentiality purposes, Oil Company, whose geoeconomic area of operation comprises Northern and Northeastern Brazil. The adoption of the BSC in the Oil Company relied on the support of an organizational consulting firm, responsible for the implementation of the Performance Improvement Program (PIP) - acronym used in this article for confidentiality purposes -, with a methodology that combined theory and practice to develop strategic planning.
This article is divided into 6 sections, namely: 1) introduction; 2) adaptation of managerial practices; 3) balanced scorecard; 4) research method; 5) results; and 6) conclusions.
2. ADAPTATION OF MANAGERIAL PRACTICES BASED ON A DIFFUSION THEORETICAL MODEL
The concept of adaptation of managerial practices used in this study was extracted from Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. , whose theoretical model supports a proper adjustment between the characteristics of the practice (innovation) and the characteristics of the adopting company. Thus, the authors tried to explain the internal variations through the analysis of the consistency between the characteristics of the practice and the needs, objectives, and structure of the adopting company.
The theoretical model by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. is based on the dimensions fidelity and extensiveness. The dimension fidelity is related to the degree to which a widespread practice resembles or deviates from the characteristics of its original version, e.g. whether the adaptation is real or detached from the prototypical version. The dimension extensiveness, in turn, evaluates whether the degree to which the practice is implemented is higher or lower than the original version. This way of understanding is based on studies suggesting that the organizations implement versions with higher or lower extension. Extensiveness, therefore, indicates to what extent the adaptation of innovation represents the efforts for an unrestricted application.
According to Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. , there is a pattern of full and true adaptation when a practice is implemented in order to preserve its characteristics of high fidelity and extension, i.e. faithful to its first version and comprehensive. The pattern tailored adaptation occurs when the practice has a higher extension level, while its fidelity is lower, i.e. the organization uses its resources to implement a more extended version of the practice and, at the same time, better suited to its reality, resulting in a less faithful version to the previous one. In turn, the pattern distant adaptation occurs by combining the low levels of fidelity and extensiveness, because, while it is less similar to the original version, it has been implemented to a lesser extent. Finally, Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. suggest that the pattern low-dosage adaptation occurs when there is a low extensiveness level, but a high fidelity level. This adaptation pattern indicates that the practice is more in line with its prototypical version, but there is a shy effort to implement it in terms of scope within the organization ( Figure 1 ).
The concept of fit outlined in the theoretical model by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. takes into account the factors influencing organizational practices, among which three forms of fit that affect the adoption processes are highlighted: technical, cultural, and political fit. For technical fit we mean the degree to which the characteristics of an innovation are compatible with the technologies used by the organizations.
The organizational level factors affecting the technical adjustment include both the technological basis and the capacity of absorption and recognition of the value of an innovation, in addition to the capacity of applying it as originally conceived. According to Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. , usually the innovators experience a lack of technical adjustment between the characteristics of the managerial practice and the organization, thus they tend to implement versions closer to the original one, since they have a limited capacity to reduce misfit. So, the lack of technical fit suggests a pattern of low adaptation between the early adopters and customized adaptation between the later adopters.
Uncertainties about the practice that innovators experience, as well as the lack of technical fit, cause the contrast between the dimensions fidelity and extensiveness. Thus, the more faithful to its original prototype, the less extended the adoption of a practice, as a consequence, the lower the adaptation pattern, something which is translated into a lower extension. Based on this discussion, Ansari et al. (2010, p. 77) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. have two propositions:
Proposition 1: when adopters experience low technical fit between the practice and the organization, early adopters will implement higher-fidelity versions whereas later adopters will implement lower-fidelity versions of the practice; and Proposition 2: when adopters experience low technical fit between the practice and the organization, early adopters will implement less extensive versions whereas later adopters will implement more extensive versions of the practice.
When managerial innovation is compatible with the values, culture, and beliefs practiced by the organization, it is claimed there was a cultural fit. Innovations do not spread in a cultural vacuum, on the contrary, when imported by an organization, they are faced with defined actors and roles, institutionalized and legitimized behaviors. This initial misfit may constitute an obstacle to the diffusion process. According to Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. , little attention has been paid to cultural fit in studies on the diffusion of managerial innovations.
Innovators in a practice do not suffer compliance pressures, they enjoy more freedom to try it, define it, and adapt it so that it fits their organizational characteristics. However, at the end of the diffusion process, when there are already established models, compliance pressures increase and hinder the capacity of followers to adapt and reduce misfit.
It is possible that followers implement the managerial practice in a ceremonial and symbolic way, in order to show compliance with the external environment, however, in daily business, it is not used. These late adopters are more likely to implement versions with lower extension.
Innovators are able to reduce misfit because they are more likely to implement managerial innovation more broadly, in the face of suffering less compliance pressure during the initial stage, because at this stage there is a reduced need for obtaining benefits. Followers, in turn, given the compliance pressures are less involved in the practical redefinition process, accepting its original version, even if misfit impacts the adoption. In this way of understanding, the last ones to implement the managerial practice, i.e. followers, do not enjoy such freedom to adjust it, since they are pressured to adopt versions similar to the original, something which provides the diffusion process with little variation. Thus, Ansari et al. (2010, p. 79) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. have two propositions:
Proposition 3: when adopters experience low cultural fit between the characteristics of the practice and the organization, early adopters will implement lower-fidelity versions whereas later adopters will implement higher-fidelity versions of the practice; and Proposition 4: when adopters experience low cultural fit between the characteristics of the practice and the organization, early adopters will implement more extensive versions whereas later adopters will implement less extensive versions of the practice.
Political fit occurs when the interests and agendas of adopters are compatible with the implicit or explicit normative characteristics of the adopted practice. In view of the growing number of adopters, controlling the application of the managerial practice becomes less viable, something which allows followers to adapt it by reducing misfit with the organization. Unlike innovators, who adopt the managerial practice similar to the original version.
Increasing maturation makes the application mechanisms less stringent, something which provides followers with greater opportunities to implement less extended versions of the practice. Unlike innovators, who adopt the managerial practice in a more extended version. Taking this into account, Ansari et al. (2010, p. 81) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. have two propositions:
Proposition 5: when adopters experience low political fit between the characteristics of the practice and the organization, early adopters will implement higher-fidelity versions whereas later adopters will implement lower-fidelity versions of the practice; and Proposition 6: when adopters experience low political fit between the characteristics of the practice and the organization, early adopters will implement more extensive versions whereas later adopters will implement less extensive versions of the practice.
It is worth highlighting that the theoretical model by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. suggests that technical, cultural, and political misfit show up as different analytical ways, as aspects and mechanisms of the implementation and dissemination process, and that each of these characteristics can take on different importance levels in the adaptation process. Although the authors acknowledge that these three forms of fit are not completely independent when arising and developing, they argue that it is important to address these three categories independently, for obtaining greater analytical clarity and better prediction capacity ( Ansari et al., 2010 Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. ). This view creates a primary assumption that there will be higher misfit between the technical, cultural, and political categories. This higher misfit that the adopter suffers during the diffusion process makes the implementation of an unmodified practice more costly for the company and, therefore, it is more likely that the result of this process is adaptation (modification) of the practice or occasional abandonment of it ( Ansari et al., 2010 Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. ).
3. THE BALANCED SCORECARD
In this article, we explain the variation in the way how the BSC is adapted in an organization by analyzing the two adaptation dimensions (fidelity and extensiveness) when compared to the prototypical form of the BSC. We considered, herein, the original version of the BSC published by Kaplan and Norton (1997 Kaplan, R. S. & Norton, D. P. (1997). A estratégia em ação: balanced scorecard (4a ed.). Rio de Janeiro: Campus. ).
This literature provides a generic BSC comprising four main features: (i) a system that combines financial and non-financial performance measures; (ii) a system that is structured into four perspectives: financial, customer, internal processes, and learning and growth (BSC taxonomy); (iii) a system based on the relationships of cause and effect between the measures that link the four perspectives; and (iv) a system that focuses on the strategy communication and implementation. We suggest, in this article, that fidelity in the way how the BSC is adapted in an organization may be assessed having the four prototypical BSC characteristics as a basis.
Regarding the dimension extensiveness of adaptation, it is suggested that it may be assessed by the degree to which the four BSC characteristics are implemented in the organization. A high extension adaptation means a comprehensive implementation of BSC practices in the organization, while a low extension adaptation means a less comprehensive implementation of BSC practices in the organization. Specifically, it is suggested that a low extension adaptation leads to BSC type I (see below), while a high extension adaptation leads to BSC type II or III.
Authors like Speckbacher, Bischof and Pfeiffer (2003) Speckbacher, G., Bischof, J. & Pfeiffer, T. (2003). A descriptive analysis on the implementation of balanced scorecards in German-speaking countries. Management Accounting Research, 14(4), 361-388. and Lee and Yang (2011) Lee, C. & Yang, H. (2011). Organization structure, competition and performance measurement systems and their joint effects on performance. Management Accounting Research, 22(2), 84-104. have classified the BSC into three different types:
Type I: this is the initial stage of the BSC in an organization, combining financial and non-financial measures, covering the four perspectives (financial, customer, internal processes, learning and growth). This BSC type is used to assess organizational performance, and it may establish indicators that show a cause and effect relationship; Type II: in addition to considering the financial and non-financial measures, it describes the strategy and the measures that use the cause and effect relationships. In this BSC type, achieving strategic objectives is rewarded in terms of values for meeting the financial and non-financial goals; and Type III: this is the last stage of the BSC, when it reaches the maturation stage. It is characterized by a system that focuses on strategy, including a performance measurement system based on rewards, establishing a cause and effect relationship between measures.
3.1 Technical, Cultural, and Political Characteristics of the BSC
The BSC underwent strong influence of the U.S. literature on business management, something partly justified by its origin linked to the studies developed by Robert S. Kaplan and David Norton in the 1990s, in Harvard. Kaplan and Norton (2010) Kaplan, R. S. & Norton, D. P. (2010). Conceptual foundations of the balanced scorecard (Working Paper). Boston, MA: Harvard Business School. , in their review of the conceptual bases of the BSC, highlighted the influence of U.S. writers such as Michael Porter, Peter Drucker, and Robert Anthony. The ideology that prevails in the BSC is quite consistent with the managerial style adopted in U.S. organizations, since it keeps a link between superiors and subordinates based on individuality and meritocracy ( Bourguignon, Malleret, & Norreklit, 2004 Bourguignon, A., Malleret, V. & Norreklit, H. (2004). The American balanced scorecard versus the French tableau de bord: the ideological dimension. Management Accounting Research, 15(2), 107-134. ; Norreklit, Norreklit, & Melander, 2006 Norreklit, H., Norreklit, L. & Melander, P. (2006). US 'fair contract' based performance management models in a Danish environment. Financial Accountability and Management, 22(3), 213-234. ).
According to Wanderley, Cullen and Tsamenyi (2013) Wanderley, C.A., Cullen, J., Tsamenyi, M. (2013). Diffusion and variations in management accounting practices: the balanced scorecard adaptation. In Annals of the 9th International Management Control Research Conference. Nyeronde, Netherlands. , the BSC has the following technical characteristics: step by step phased processes; interconnection with other management tools; and strong support from the information technology (IT) systems ( Table 1 ). The studies by Robert S. Kaplan and David Norton on the BSC over 20 years followed a normative approach, with prevalence of a step by step implementation. So, in these studies, the BSC has a general organization following five steps: change mobilization through executive leadership; strategy translation; strategy alignment with the organization; employee motivation in the execution of daily work; and governance to make strategy a continuous process ( Kaplan & Norton, 2001 Kaplan, R. S. & Norton, D. P. (2001). The strategy-focused organization: how balanced scorecard companies thrive in the new business environment. Boston, MA: Harvard Business School Press. , 2010 Kaplan, R. S. & Norton, D. P. (2010). Conceptual foundations of the balanced scorecard (Working Paper). Boston, MA: Harvard Business School. ).
Regarding the cultural characteristics of the BSC, three aspects are highlighted: the BSC as a planning and controlling management system, which encompasses both short-term financial measures and long-term non-financial measures ( Kaplan & Norton, 2010 Kaplan, R. S. & Norton, D. P. (2010). Conceptual foundations of the balanced scorecard (Working Paper). Boston, MA: Harvard Business School. ); management performance aligned with the primal strategic objectives of the organization; and long-term focus on maximizing shareholder value.
Wanderley et al. (2013) Wanderley, C.A., Cullen, J., Tsamenyi, M. (2013). Diffusion and variations in management accounting practices: the balanced scorecard adaptation. In Annals of the 9th International Management Control Research Conference. Nyeronde, Netherlands. identified the three main political characteristics of the BSC. First, the BSC adopts an apolitical attitude ( Modell, 2012 Modell, S. (2012). The politics of the balanced scorecard. Journal of Accounting and Organizational Change, 8(4), 475-489. ). The BSC is presented as politically neutral in its domination exercise by the company's top management, preventing managers to ask about the legitimacy of the strategy proposed or the power that senior administration exerts on managers. Second, the BSC regards managers as outcome-maximizing neutral agents. This assumption is based on neoclassical economic theory, which differs from the sociological view that emphasizes that managers do not seek only maximizing their utility function, but they are influenced by the cultural, political, and social aspects ( Norreklit et al., 2006 Norreklit, H., Norreklit, L. & Melander, P. (2006). US 'fair contract' based performance management models in a Danish environment. Financial Accountability and Management, 22(3), 213-234. ).
In the BSC design, the main task in the management process is obtaining the balance of all aspects linked to company performance to ensure the organization's survival in the long run ( Modell, 2012 Modell, S. (2012). The politics of the balanced scorecard. Journal of Accounting and Organizational Change, 8(4), 475-489. ). Third, the BSC is a hierarchical and top-down system ( Norreklit & Mitchell, 2007 Norreklit, H. & Mitchell, F. (2007). The balanced scorecard. In T. Hopper, R. W. Scapens, & D. Northcott (Ed.), Issues in management accounting (3a ed., pp. 175-196). Harlow: Financial Times Prentice Hall . , Norreklit, 2000 Norreklit, H. (2000). The balance on the balanced scorecard a critical analysis of some of its assumptions. Management Accounting Research, 11(1), 65-88. , Wong-On-Wing, Guo, Li, & Yang, 2007 Wong-On-Wing, B., Guo, L., Li, W. & Yang, D. (2007). Reducing conflict in balanced scorecard evaluations. Accounting, Organizations and Society, 32(4), 363-377. ).
The implementation of the BSC is materialized by means of a top-down process, in which the strategic priorities formulated by senior managers are communicated downwards in the organization across the organizational hierarchy. Managers at lower levels and employees are described as aspects that need to be reconciled with the strategic objectives formulated by means of training and ongoing feedback ( Modell, 2009 Modell, S. (2009). Bundling management control innovations: a field study of organisational experimenting with total quality management and the balanced scorecard. Accounting, Auditing and Accountability Journal, 22(1), 59-90. , Modell, 2012 Modell, S. (2012). The politics of the balanced scorecard. Journal of Accounting and Organizational Change, 8(4), 475-489. , Norreklit, Norreklit, Mitchell, & Bjornenak, 2012 Norreklit, H., Norreklit, L., Mitchell, F. & Bjornenak, T. (2012). The rise of the balanced scorecard! Relevance regained? Journal of Accounting and Organizational Change, 8(4), 490-510. ).
4. RESEARCH METHOD AND THE CASE STUDY COMPANY
This section introduces and explains the research method adopted, and it also explains the study by highlighting the case company (Oil Company).
4.1 Research Method
This article is characterized as a qualitative research developed by means of a single case study, in order to grasp and explain the adaptation of the BSC through the theoretical model by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. in a fuel distributor. The study investigates the implementation of the BSC in a fuel distributor in Northern and Northeastern Brazil. This context provides a rich empirical material for our research, because it presents a context of major changes in the technical, political, and cultural aspects of the organization, in line with the professionalization process of the company. Also, the company of the case study has adopted the BSC, something which enabled our analysis by using the theoretical model by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. .
In this study, the theoretical propositions by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. were not used for testing or confirming. Propositions were used to inform our discussion, not in order to validate them for statistical generalization purposes. We used the central idea of the study by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. , i.e. the adaptation process is influenced by technical, cultural, and political misfit between the characteristics of the adopting company and the managerial practice adopted.
For collecting data, we used interviews and documentary analysis. The interviews were scheduled by e-mail, according to the convenience and availability of each respondent. However, we sought informants who participated in implementation process of the BSC in the company of the case study and/or managers who are the main users of the BSC. In total, 12 semi-structured interviews were conducted (with 11 people interviewed, since the controller was interviewed twice - interviews I1 and I12), according to the line of research reflected in the protocol, not only with the managers participating in the Strategic Planning Council, but with all those who could provide information on cultural, technical, and political factors of the organization, as shown in Table 2 . Due to geographical reasons, 2 interviews were conducted through online voice and video communication.
Most respondents have completed a graduate course and work for at least three years in the company. Respondents' graduation fields are varied: 3 are graduated in Accounting, 5 in Administration, 2 in Engineering, and 1 in IT Management. The average interview duration was 43 minutes, totaling 8 hours and 38 minutes of recorded audio.
A basic interview guide was used in a flexible and differential manner, according to respondents' positions. Each time it became clear that important issues were not addressed, there were changes in the guide, while if a subject showed to be irrelevant, it was discarded, with the possibility of being resumed later. The auxiliary resources were a voice recorder and a book of notes.
Documentary analysis consisted in gathering as much information as possible about the company of the case study. Therefore, meeting minutes were analyzed, in addition to internal records, news clippings published in the media about the company, and for each analysis notes were made for preparing the research report, in order to ensure that the analyses are documented so that other researchers can examine the way of getting the outcomes.
The next step was extracting the meaning of data, by comparing the results found to the literature to prepare the conclusion. To do this, the specific context of the Oil Company was analyzed through the theoretical model by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. , in order to explain the process to adopt the BSC and possible technical, cultural, and political fit derived from the implementation.
According to Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. , the practices adopted in organizations may be analyzed through technical, cultural, and political characteristics. So, this study analyzes the characteristics of the BSC and the characteristics of the company. The characteristics of the BSC were assimilated from the analysis by Kaplan and Norton (1997) Kaplan, R. S. & Norton, D. P. (1997). A estratégia em ação: balanced scorecard (4a ed.). Rio de Janeiro: Campus. and the seminal studies on the theme, we sought to grasp the characteristics of the BSC as conceived and prescribed by the authors and they were later on compared to the characteristics of the model adopted by the Oil Company, in order to show which were the adjustments made and whether they could be grasped and explained by means of the theoretical framework proposed by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. . However, specifically, the aspects suggested by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. were analyzed to determine the compatibility between the characteristics of the BSC and the characteristics of the company of the case study ( Table 3 ).
In the case concerned, in order to lead the BSC to be regarded as having high fidelity to the model by Kaplan and Norton (1997) Kaplan, R. S. & Norton, D. P. (1997). A estratégia em ação: balanced scorecard (4a ed.). Rio de Janeiro: Campus. , four key characteristics were considered: (i) if the system combines financial and non-financial measures; (ii) if it is divided into four perspectives: financial, customer, internal processes, learning and growth; (iii) if it has as a based the cause and effect relationships between the measures that link the four perspectives; and (iv) if it is a system that focuses on the strategy communication and implementation. Low fidelity, in turn, was represented by the absence of these four characteristics and the presence of many customizations.
To characterize the practice concerned as extensive or not, the four characteristics of the BSC mentioned above were also taken into account. Thus, in a highly extensive adaptation, all perspectives of the BSC were adopted in order to establish a cause and effect relationship between performance measures, as well as to have a reward system linked to the achievement of goals; in turn, in a lowly extensive adaptation, the implementation had not taken place comprehensively in the organization. Thus, we used the typology proposed by Speckbacher et al. (2003) Speckbacher, G., Bischof, J. & Pfeiffer, T. (2003). A descriptive analysis on the implementation of balanced scorecards in German-speaking countries. Management Accounting Research, 14(4), 361-388. and Lee and Yang (2011) Lee, C. & Yang, H. (2011). Organization structure, competition and performance measurement systems and their joint effects on performance. Management Accounting Research, 22(2), 84-104. (shown in section 3) to assess the extent of the implementation of the BSC, where the BSC types II and III have high extension and the BSC type I is regarded as having a low extension.
4.2 The Case Study Company
The company analyzed in this study is a limited company (ltd.), operating for 17 years in the sector of trade and distribution of liquid, solid, and gaseous fuels, in Northern and Northeastern Brazil, with more than 170 gas stations spread over 100 northeastern municipalities. In this study, for confidentiality purposes, we decided to nickname it the Oil Company. It has a storage area in the ports of Suape (Pernambuco), Cabedelo (Paraíba), and Guamaré (Rio Grande do Norte); 10% of the fuel traded in Suape is provided by the Oil Company and the State of Pernambuco represents 10% of the national fuel consumption.
The Oil Company operates as a holding that consists of five companies, which together account for annual revenue around R$ 1.5 billion reais. Although its revenue allows regarding it as a large-sized company, according to the classification of the Brazilian National Bank for Economic and Social Development (BNDES), it maintains family ownership control.
Five companies make up the group called, herein, the Oil Company, two from the fuel distribution sector, the main business of the group, with two distributors, one in northeastern and another one in northern Brazil. The other three companies are businesses that support the distribution activity: a supply card administrator, a river terminal in the North region and a multinational Petroleum coke trader.
Its staff has doubled in just over two years. In 2012, there were already 371 people, compared to 176 in 2010. The group has invested in personnel management, as well as in qualification and undergraduate and graduate courses for its employees.
Currently, the group's board of directors consists of five directors: commercial and operational board, finance and planning board, administrative board, new businesses board, and institutional relations board.
In the past two years, the company has undergone a process of reshaping its management, by adopting the Performance Improvement Program (PIP), which has reflected on cultural change.
Although the Oil Company is in its first generation and focuses its founders on senior board positions, it already undergoes the professionalization phase, typical of the third generation, with the arrival of new managers and directors who are not family members. The company's financial manager stresses that the organization is undergoing an organizational structuring process:
We had no mission, vision, and values, nor a strategic map drawn; today, we have them. Our organizational chart was very fragile; today, we have a much better defined organizational chart. Today, we are restructuring our plan for jobs and wages. I think those were the major change milestones. (Respondent 3)
According to the chief executive officer's son, in the past, one of the main characteristics of the group was informality. There was an organizational culture strongly focused on trust and reliability in the results delivered by the employees.
The length of time working in the company was more than enough to ensure that the employee fulfilled her/his tasks and duties. With the changes taking place in the company's management for about two years, all activities have been described, measured, and assessed.
The big challenge to professionalize management in the Oil Company has been making the transposition from the theoretical realm to the daily practice of employees, in addition to engaging people and providing them with skills and knowledge on result-driven management. Respondent 10 comments on this difficulty:
[...] the greatest difficulty is this transition from theory to practice, because in theory things are very simple, the strategy is defined, processes are drawn up, indicators to measure processes are created; I think the big work that has been done is related to involving all the people in the company in the project, providing everyone with the skills and knowledge on what is result-driven management and what is strategic planning, what is budget, flowchart, organizational chart, leading people to grasp all the processes.
This section deals with the results obtained from the case study of the implementation and adaptation of the BSC in the Oil Company, in order to identify and explain how technical, cultural, and political adjustment or maladjustment influenced the adaptation of the BSC in this company.
5.1 Technical, Cultural, and Political Characteristics Prevailing in the Oil Company
In the case study company, the main technical characteristic identified was the use of various managerial tools, ranging from those that help monitoring strategic planning to report preparation ( Table 4 ).
Currently, the organization has an enterprise resource planning (ERP) system. According to Hicks (1997) Hicks, D. A. (1997). The manager's guide to supply chain and logistics problem solving tools and techniques. IIE Solutions, 29(10), 24-29. , ERP is a software that facilitates the flow of information between all areas in a company, such as: logistics, finance, and human resources. The ERP system Mega has recently undergone a reimplementation process for interconnecting all the group's units. Although all companies were operating under the same ERP, due to an implementation error, they had many disconnected processes in the system, because each unit had a plan of accounts, a directory of products and customers different from the others. So, if an employee was transferred to another company in the group, she/he would not know how to use the system.
In addition to the ERP, the Oil Company has a business intelligence (BI) tool, the Qlikview. The latter had its beginnings in the business, in order to obtain the dynamic display of operations. This BI type has a kind of pivot table in the software Microsoft Excel, which allows the users to see at any time, with crossings by region, period, viewing, the customer's shopping mix by region. In this regard, Respondent 10 highlights:
[...] it started from the commercial and today our big 'case' is the BI screen for financial outcome... we open, close positions, crossing them with the previous month.
By adopting the BSC, the consulting firm provided a management software to help monitoring the strategic and operational indicators. Respondent 5 talks of the functionality of this software for the company:
[...] in this tool we monitor the performance of all areas, both operationally and strategically. In the operational, we control the sectors and in the strategic the four perspectives of the BSC, finance, customers and markets, processes and people. So, we map from the strategic to the operational.
The Oil Company is a company operating in the competitive market, hence it has sought efficiency in processes in order to maximize the outcomes delivered to the owners. The cultural characteristics that predominate are those of a family organization that has been undergoing a professionalization process, by hiring a specialized management team with higher education and graduate education in various areas, although the directors are members of the two families who hold capital. The analysis of the political aspect revealed that management in the Oil Company still has an autocratic and top-down style.
In the case of the implementation of the BSC, the decision was directly linked to strategic planning council, i.e. the BSC was implemented by following a top-down approach. This means that managers at lower levels had no participation in the decision-making process. In addition, in the Oil Company there is a prevalence of characteristics of an autocratic management, where decisions are centralized in the family's strategic core.
5.2 Reasons for Adopting the Balanced Scorecard
Although the reason for the choice is not coated with a forceful justification associated with a search for efficiency, or with a particular characteristic of the practice, people came to the understanding that the entity nicknamed the Consulting Firm herein had a strong influence on the adoption of the BSC, as this is a tool included in the PIP. In many cases, organizations adopt the BSC as a fad, only to legitimize management in face of the organizational field they operate in. Respondent 9 explains this situation:
There are many organizations that implement the balanced scorecard as a fad. Many organizations deploy it to show the brand of the Consulting Firm linked to their management. But they do not believe that such an implementation helps improving outcomes. They do this to provide the organization with legitimacy, and not because they believe this will bring good results.
In the interviews, it became clear that the idea was to make a major organizational restructuring in the company, however, people did not know exactly what should be done first: redefining the structure, planning or preparing the budget. Initiatives have emerged to define mission and ideology, but there was some internal difficulty on how to put it down on paper. The Consulting Firm emerged in this context. Respondent 1 explains this moment in the company:
That was when the Consulting Firm emerged, which is a business institution that is ahead of the pack. That was when this program came, the PIP, which is neither a consulting nor an academy... so, it ended up combining in a very positive way. So, why the BSC? Because this is the tool they use to define, monitor, and control strategic planning.
According to Abrahamson (1996) Abrahamson, E. (1996). Management fashions. The Academy of Management Review, 21(3), 254-285. , fads are cultural products created to be sold by their followers; this author also argues that consultants use a compelling rhetoric, bringing managerial novelties to convince contracting managers.
In the case of the Oil Company, the BSC constituted such a managerial novelty, introduced by the Consulting Firm as the system that helps monitoring the organization's strategy. Respondent 10 comments:
It arose from the need to find a tool that helped viewing the results... so, at that time the Consulting Firm came, and the balanced scorecard was the tool they used and we liked the tool. Are there other methods, other tools? Yes, there are. But at that time we had none.
In the study, external pressure for compliance did not become clear, although the Oil Company should meet requirements of the Brazilian National Petroleum Agency (ANP). The fact is that the BSC, as it was found out, has been encouraged by one of the agents of change participating in the strategic planning council who, throughout his professional experience, had contact with the said tool. Moreover, this is the tool that the Consulting Firm usually adopts when providing the organizations with consulting services.
5.3 The Balanced Scorecard Adaptation
The BSC implemented in the Oil Company was analyzed through the prototypical version available in the literature, in order to determine similarities and differences that could indicate a possible adaptation of this managerial tool.
Analyzing the characteristics of the version adopted in the company of the case study revealed compatibility with BSC type I, because, at the time it was assessed, it had been implemented for just 6 months, therefore it was at an early stage in the organization; moreover, the perspectives used (financial, customer, internal processes, learning and growth) are the same that Kaplan and Norton (1997) Kaplan, R. S. & Norton, D. P. (1997). A estratégia em ação: balanced scorecard (4a ed.). Rio de Janeiro: Campus. uttered in the 1 st article published in the Harvard Business Review (HBR); therefore, the BSC of the Oil Company is closer to an organizational performance measurement system, a concept used in 1 st generation of this tool, although some managers claim it is a system to monitor the strategy.
The passage from the BSC to the intraorganizational environment showed little customization, something which means it has been implemented in the organization as originally reported in the literature, with little attention to the issues of internal variety in the diffusion of the practice. As this study aimed to analyze change in management accounting through the synonyms redefinition, adaptation, customization, and modification of the BSC, we came to the understanding that the adoption of the BSC did not result in profound changes in the Oil Company.
The analysis of the dimensions fidelity and extensiveness, which were used to grasp the adequacy of the technical, cultural, and political perspectives, showed that the practice diffused proves to be true when compared to the prototypical version, as well as that the extension of the BSC in the organization was low, something which led us to believe there was a minimal effort to unrestricted application, with customization and adjustment to the organization's reality.
The BSC was implemented through the performance indicators that already existed in the company and they were similar to those observed in the literature and used by many organizations. However, there was a small adaptation, with the preparation of indicators to measure the operational routine, named as routine management (ROMAN), based on Campos (2013) Campos, V. F. (2013). Gerenciamento da rotina do trabalho do dia a dia (9a ed.). Nova Lima, MG: Falconi. .
The technical adaptation of the BSC took into account the organization's procedures. In this regard, the operational indicators that existed in the Oil Company were turned into strategic indicators. Respondent 5 explains this process:
[...] we created a balanced scorecard called ROMAN, which is routine management, where we map each area. So, each sector has its own indicators... these operational indicators do not mix with the strategic ones.
When comparing the characteristics of the BSC and the Oil Company, the version adopted had technical compatibility to the other technologies observed in the organization and high fidelity to the model developed by Kaplan and Norton (1997) Kaplan, R. S. & Norton, D. P. (1997). A estratégia em ação: balanced scorecard (4a ed.). Rio de Janeiro: Campus. . However, in the cultural aspect there was misfit between the characteristics of the BSC and the organization, because it is a family business that did not have strategic planning in its agenda. Respondent 1 comments on this misfit:
[...] the company is in its adolescence... everyone who works here is very good, but there was not such a culture of putting things down on paper, i.e. operating a [ Plan, Do, Check, and Act ] PDCA. It was executed, there was no room for planning that comes from people's minds.
In this regard, our results were similar to those provided by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. . The authors point out that, when a follower adopting company suffers a cultural misfit, the tendency is that a version with high fidelity and low extensiveness is implemented. Cultural misfit occurred because, before strategic planning, there was in the organization a prevalence of relationships based on friendly ties typical of a family environment ( Aggelogiannopoulos, Drosinos, & Athanasopoulos, 2007 Aggelogiannopoulos, D., Drosinos, E. H. & Athanasopoulos, P. (2007). Implementation of a quality management system (QMS) according to the ISO 9000 family in a Greek small-sized winery: a case study. Food Control, 18(9), 1077-1085. ) and the adoption of the BSC has brought along a rather professional culture, by measuring the result delivered by managers. This caused greater pressure on the organizational actors to change their attitudes and practices. Respondent 10 highlights:
[...] organizational culture had to be adapted to the group's wish for professionalization. So, today, people work here with a greater focus on outcomes... there are people who are adapting better... there are people who are going through the motions.
Before, there was no planning, control, and monitoring of the implementation of the strategy, because people thought that individuals had outstanding knowledge acquired over the years in the organization and, therefore, they did not need to be assessed. With the BSC, everything tends to be measured, assessed, described, something which requires managers to change their behavior in relation to the planning process and the organizational strategy assessment. Respondent 1 comments on this behavioral issue:
[...] sometimes, ignorance is good. Generally, we have been finding a different way to work, and this stretches the comfort zone, but in a positive way. Before, we executed, now, we have to think if things are connecting to the strategy. So, there is a discomfort in this regard that is very positiv e.
The interviews showed that the adoption of the BSC was more difficult because decisions are made in a centralized way. According to Bernhoeft and Gallo (2003) Bernhoeft, R. & Gallo, M. (2003). Governança na empresa familiar: gestão, poder, sucessão (4a ed.). Rio de Janeiro: Elsevier. , management decentralization takes place for the purpose of delegating activities to hired management staff, either known to the family or not. Respondent 7 explains this decision-making centralization:
[...] a family company still has a very strong centralized structure, if you say it does not exist you are completely utopian... but, over the last year with the Consulting Firm, resorting to this know-how of studying, the trend is that there is decentralization... the family business in Brazil and in northeastern of Brazil, unfortunately, is too centralist.
The leader plays a central role in the changes that occur in the organization. According to Segrè (2009) Segrè, G. (2009). The family business. Technology Review, 112(2), 5. , the leader, by holding power for many years, shapes the culture according to his preference and style. Thus, new employees entering the organization assimilate how the organizational culture works. According to the consultant who participated in the implementation of the BSC in the company of the case study:
[...] the leader is the one who leads the organization anywhere. If leaders do not embrace the cause of implementing the balanced scorecard, the more you have people who want to, they will have much trouble. This is true either for a family business or a multinational company.
The analysis of the political aspect did not show misfit between the characteristics of the BSC and the organization. There were no political misfit, because the adoption of the BSC was decided by the owners of the organization according to the guidelines of the strategic planning council, i.e. through a top-down approach, but there was no unanimity, since some directors do not believe the BSC, as noticed:
[...] in the Oil Company there are directors who strongly believe in the BSC and some who still remain as Saint Thomas, they have to see to believe. It is logical when the outcome is seen [...] after all, no one implements anything just to say it is there, people want to improve results... they will start to advocate it.
The Oil Company's management style retains autocratic features. Managers have an assisted autonomy: although in the last three years there has been an effort to professionalize management, by hiring professionals experienced in the market, preparing the business budget for the companies in the group, hiring the Consulting Firm to prepare the strategic panel and adopt the BSC, those who make a decision and give the last word are the owners.
Overall, we may say that the BSC deployed in the Oil Company suffered few adjustments, with high fidelity and extension restricted to the model available in the literature, where the variation that stands out is using indicators to manage the operational routine.
This study aimed to analyze and explain the adaptation of the BSC in the Oil Company, according to the model by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. , where the adaptation was grasped by means of the analysis of the fit (technical, cultural, and political) between the characteristics of the practice implemented (BSC) to the characteristics of the adopting company.
The results show that, overall, the BSC still remains similar to the prototypical model observed in the literature, with low customization. It has been mimic from the literature, but in fact it does not work as a system to monitor the strategy, but rather as an isolated set of metrics related to a performance measurement system.
The first aspect noticed is that there was not a clear motivation to justify the choice of the BSC as a strategic planning tool, and the implementation is a result of hiring the management Consulting Firm, whose methodology is the PIP.
One aspect that may be related to the adoption of the BSC is the fad and fashion of management practices, because many consulting firms often sell them as management solutions. Abrahamson (1996) Abrahamson, E. (1996). Management fashions. The Academy of Management Review, 21(3), 254-285. also argues that consultants use a compelling rhetoric, bringing managerial novelties to convince contracting managers. In the case concerned, the consulting firm often works with the BSC.
The BSC is not institutionalized in the Oil Company, yet. What reinforces the assertion is the fact that processes have not been mapped, and there were not profound changes in rules and routines, something which would be common in an organization after the implementation of this tool. In all the interviews, there was a prevalence of the discourse that the company is undergoing a process of change, but the way how the BSC has helped management did not become clear.
Some resistance to the BSC was observed among directors, because they had a culture of analyzing results through financial statements. So, the change in focus to accounting ruled by the managerial information brought a certain discredit to some board members, who, due to their experience in the market and the ownership of capital, are reluctant to use information extracted from the BSC.
The Oil Company is characterized as a follower adopting entity that, when suffering a misfit between the cultural characteristics of the BSC and those of the organization, showed a similar and less extended version. Culturally, the adoption of the BSC underwent an impact, because the organization had to professionalize management and this could be noticed in the search for process efficiency. As the organization experienced cultural misfit, the trend observed was a low adaptation pattern along with high fidelity.
Cultural divergence occurred because the organization retains the innate characteristics of a family business, something which ends up hindering the adoption of a rather technical and formal management. In response to this divergence, people sought to adopt the practice similar to the prototypical version. In turn, the political aspect of the BSC did not reveal misfit to the organization's characteristics. There was no political misfit because the BSC is characterized as a top-down system, while in the Oil Company it was deployed according to the guidelines of the strategic planning council, i.e. by using a top-down approach.
The version of the BSC adopted remained similar to its prototypical version, since it combines financial and non-financial measures; it is structured into four perspectives: financial, customer, internal processes, learning and growth; it is based on the cause and effect relationships; and it is a system that focuses on communication and strategy implementation.
The BSC has been deployed to a restricted extent, since the only variation in the model by Kaplan and Norton (1997) Kaplan, R. S. & Norton, D. P. (1997). A estratégia em ação: balanced scorecard (4a ed.). Rio de Janeiro: Campus. occurred through the adoption of operational indicators to manage the operational routine. Moreover, not all sectors underwent changes, because some areas, such as logistics, had not created their strategic indicators by the time of the interviews, something which makes impossible the full operation of the BSC and hinders measuring the outcome in the area.
This article contributes to the literature on the BSC, since it adopts a new way of explaining the adaptation of the BSC at the intraorganizational level. Qu, Cooper and Ezzamel (2010) Qu, S. Q., Cooper, D. J. & Ezzamel, M. (2010). Creating and popularising a global management accounting idea: the case of the balanced scorecard. Research Executive Summary Series, 6(13), 1-5. found that one of the reasons why the BSC has been successful in the practical environment is the fact that users can adapt it according to their needs. The current view is that the BSC is a generic concept, which may be customized by users ( Tayler, 2010 Tayler, W. B. (2010). The balanced scorecard as a strategy-evaluation tool: the effects of implementation involvement and a causal-chain focus. The Accounting Review, 85(3), 1095-1117. ). It might be argued that this ability to adapt and customize the BSC is the main reason for its success and popularity among companies ( Cooper, Ezzamel, & Qu, 2011 Cooper, D. J., Ezzamel, M. & Qu, S. Q. (2011). Popularizing a management accounting idea: the case of the balanced scorecard (SSRN Working Paper). ). However, our results suggest that the BSC may remain quite similar to its prototypical version, even when propagators of the BSC in the company identify the need to change in order to better fit the organization. There was this adaptation pattern in the context of cultural misfit between the organization and the BSC. Exploring this cultural misfit can be a fruitful avenue for further research, because there is a critical knowledge gap about what happens to the BSC during and after its adoption and which factors can affect the adaptation process.
As a theoretical contribution of the study, the application of the model by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. to the analysis of the BSC adaptation process in a Brazilian fuel distributor stands out. Misfit was found between the company's cultural characteristics and the characteristics of the BSC and, in response to this misfit, it was implemented in the distributor similarly and to the same extent that the prototypical version, although we have noticed that it is not institutionalized in the organization's routines, yet.
In this article, we challenged the two traditional research lines concerning diffusion: rational and social, because it is argued that the adaptation process (or not) of a practice may be related to a complex process of inter-relationships between the characteristics of the practice and the characteristics of the organization, specifically the technical, political, and cultural aspects. Therefore, the attributes of the practice during the diffusion process are subject to negotiation and change during the diffusion process. As a result, the organizational players regard as something complex performing rational calculations of costs vs. benefits and impacts of adopting a practice while its meaning and understanding are still being created.
This article deals with the adaptation as a key part of the literature on diffusion of managerial accounting practices. It suggests the need for further research on this topic, because very little is known about what happens in the organizations during the diffusion process of a new practice at the intraorganizational level ( Suddaby, 2010 Suddaby, R. (2010). Challenges for institutional theory. Journal of Management Inquiry, 19(1), 14-20. , Gondo & Amis, 2013 Gondo, M. B. & Amis, J. M. (2013). Variations in practice adoption: the roles of conscious reflection and discourse. Academy of Management Review, 38(2), 229-247. ). Thus, it is believed that the theoretical model proposed by Ansari et al. (2010) Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92. may contribute to fill this gap. We suggest the adoption of this theoretical model as a basis for further studies on the process of adapting an external practice in an organization, for a better understanding of the technological, cultural, and political aspects involved in a managerial accounting practice.
- Abrahamson, E. (1991). Managerial fads and fashions: the diffusion and rejection of innovations. The Academy of Management Review, 16(3), 586-612.
- Abrahamson, E. (1996). Management fashions. The Academy of Management Review, 21(3), 254-285.
- Aggelogiannopoulos, D., Drosinos, E. H. & Athanasopoulos, P. (2007). Implementation of a quality management system (QMS) according to the ISO 9000 family in a Greek small-sized winery: a case study. Food Control, 18(9), 1077-1085.
- Ansari, S. M., Fiss, P. C. & Zajac, E. J. (2010). Made to fit: how practices vary as they diffuse. Academy of Management Review, 35(1), 67-92.
- Ax, C. & Bjornenak, T. (2007). Management accounting innovations: origins and diffusion. In T. Hopper , R. W. Scapens, & Northcott, D. (Ed.), Issues in management accounting (pp. 357-376). Harlow: Financial Times Prentice Hall, p. 458.
- Bernhoeft, R. & Gallo, M. (2003). Governança na empresa familiar: gestão, poder, sucessão (4a ed.). Rio de Janeiro: Elsevier.
- Bourguignon, A., Malleret, V. & Norreklit, H. (2004). The American balanced scorecard versus the French tableau de bord: the ideological dimension. Management Accounting Research, 15(2), 107-134.
- Boxenbaum, E. & Jonsson, S. (2008). Isomorphism, diffusion and decoupling. In R. Greenwood , R. Suddaby, C. Oliver , & K. Sahlin-Anderson (Ed.), Handbook of organizational institutionalism (pp. 78-98). New York: Sage.
- Burkert, M. & Lueg, R. (2013). Differences in the sophistication of value-based management: the role of top executives. Management Accounting Research, 24(1), 3-22.
- Campos, V. F. (2013). Gerenciamento da rotina do trabalho do dia a dia (9a ed.). Nova Lima, MG: Falconi.
- Cooper, D. J., Ezzamel, M. & Qu, S. Q. (2011). Popularizing a management accounting idea: the case of the balanced scorecard (SSRN Working Paper).
- Fiss, P. C. & Zajac, E. J. (2004). The diffusion of ideas over contested terrain: the (non)adoption of a shareholder value orientation among German firms. Administrative Science Quarterly, 49(4), 501-534.
- Gondo, M. B. & Amis, J. M. (2013). Variations in practice adoption: the roles of conscious reflection and discourse. Academy of Management Review, 38(2), 229-247.
- Hicks, D. A. (1997). The manager's guide to supply chain and logistics problem solving tools and techniques. IIE Solutions, 29(10), 24-29.
- Kaplan, R. S. & Norton, D. P. (1997). A estratégia em ação: balanced scorecard (4a ed.). Rio de Janeiro: Campus.
- Kaplan, R. S. & Norton, D. P. (2001). The strategy-focused organization: how balanced scorecard companies thrive in the new business environment. Boston, MA: Harvard Business School Press.
- Kaplan, R. S. & Norton, D. P. (2010). Conceptual foundations of the balanced scorecard (Working Paper). Boston, MA: Harvard Business School.
- Kennedy, M. T. & Fiss, P. C. (2009). Institutionalization, framing, and the logic of TQM adoption and implementation decisions among U.S. hospitals. Academy of Management Journal, 52: 897-918.
- Lee, C. & Yang, H. (2011). Organization structure, competition and performance measurement systems and their joint effects on performance. Management Accounting Research, 22(2), 84-104.
- Modell, S. (2009). Bundling management control innovations: a field study of organisational experimenting with total quality management and the balanced scorecard. Accounting, Auditing and Accountability Journal, 22(1), 59-90.
- Modell, S. (2012). The politics of the balanced scorecard. Journal of Accounting and Organizational Change, 8(4), 475-489.
- Norreklit, H. (2000). The balance on the balanced scorecard a critical analysis of some of its assumptions. Management Accounting Research, 11(1), 65-88.
- Norreklit, H. & Mitchell, F. (2007). The balanced scorecard. In T. Hopper, R. W. Scapens, & D. Northcott (Ed.), Issues in management accounting (3a ed., pp. 175-196). Harlow: Financial Times Prentice Hall .
- Norreklit, H., Norreklit, L. & Melander, P. (2006). US 'fair contract' based performance management models in a Danish environment. Financial Accountability and Management, 22(3), 213-234.
- Norreklit, H., Norreklit, L., Mitchell, F. & Bjornenak, T. (2012). The rise of the balanced scorecard! Relevance regained? Journal of Accounting and Organizational Change, 8(4), 490-510.
- Qu, S. Q., Cooper, D. J. & Ezzamel, M. (2010). Creating and popularising a global management accounting idea: the case of the balanced scorecard. Research Executive Summary Series, 6(13), 1-5.
- Rogers, E. M. (1995). Diffusion of innovations. New York: The Free Press.
- Segrè, G. (2009). The family business. Technology Review, 112(2), 5.
- Speckbacher, G., Bischof, J. & Pfeiffer, T. (2003). A descriptive analysis on the implementation of balanced scorecards in German-speaking countries. Management Accounting Research, 14(4), 361-388.
- Sturdy, A. (2004). The adoption of management ideas and practices: theoretical perspectives and possibilities. Management Learning, 35(2), 155-179.
- Suddaby, R. (2010). Challenges for institutional theory. Journal of Management Inquiry, 19(1), 14-20.
- Tayler, W. B. (2010). The balanced scorecard as a strategy-evaluation tool: the effects of implementation involvement and a causal-chain focus. The Accounting Review, 85(3), 1095-1117.
- Wanderley, C.A., Cullen, J., Tsamenyi, M. (2013). Diffusion and variations in management accounting practices: the balanced scorecard adaptation. In Annals of the 9th International Management Control Research Conference. Nyeronde, Netherlands.
- Wong-On-Wing, B., Guo, L., Li, W. & Yang, D. (2007). Reducing conflict in balanced scorecard evaluations. Accounting, Organizations and Society, 32(4), 363-377.
- Publication in this collection 18 Aug 2016
- Date of issue Sep-Dec 2016
- Received 20 July 2015
- Accepted 27 May 2016
About the authors
Figures | tables.
- Figures (1)
Figure 1 Adaptation patterns - Source: Ansari et al. (2010, p. 72).
Table 1 Technical, cultural, and political characteristics of the balanced scorecard
- Source: Wanderley et al. (2013).
Table 2 Profile of respondents
- Source: Prepared by the authors.
Table 3 Basis for analyzing the compatibility practice vs. organization
- Source: Ansari et al. (2010, p. 76).
Table 4 Technical, cultural, and political characteristics of the Oil Company
How to cite, pdf version for download, related articles.
- Google Scholar
Versões e tradução automática
- Google Translator
- Microsoft Translator
- SUGGESTED TOPICS
- The Magazine
- Most Popular
- Managing Yourself
- Managing Teams
- Work-life Balance
- The Big Idea
- Data & Visuals
- Reading Lists
- Case Selections
- HBR Learning
- Topic Feeds
- Account Settings
- Email Preferences
Putting the Balanced Scorecard to Work
- Robert S. Kaplan
- David P. Norton
What do companies like Rockwater, Apple Computer, and Advanced Micro Devices have in common? They’re using the scorecard to measure performance and set strategy.
The Idea in Brief
What makes a balanced scorecard special? Four characteristics stand out:
1. It is a top-down reflection of the company’s mission and strategy. By contrast, the measures most companies track are bottom-up: deriving from local activities or ad hoc processes, they are often irrelevant to the overall strategy.
2. It is forward-looking. It addresses current and future success. Traditional financial measures describe how the company performed during the last reporting period—without indicating how managers can improve performance during the next.
3. It integrates external and internal measures. This helps managers see where they have made trade-offs between performance measures in the past, and helps ensure that future success on one measure does not come at the expense of another.
4. It helps you focus. Many companies track more measures than they can possibly use. But a balanced scorecard requires managers to reach agreement on only those measures that are most critical to the success of the company’s strategy. Fifteen to twenty distinct measures are usually enough, each measure custom-designed for the unit to which it applies.
The Idea in Practice
Linking measurements to strategy is the heart of a successful scorecard development process. The three key questions to ask here:
1. If we succeed with our vision and strategy, how will we look different
- to our shareholders and customers?
- in terms of our internal processes?
- in terms of our ability to innovate and grow?
2. What are the critical success factors in each of the four scorecard perspectives?
3. What are the key measurements that will tell us whether we’re addressing those success factors as planned?
The balanced scorecard also brings an organizational focus to the variety of local change programs under way in a company at any given time. As the benchmark against which all new projects are evaluated, the scorecard functions as more than just a measurement system. In the words of FMC Corp. executive Larry Brady, it becomes “the cornerstone of the way you run the business,” that is, “the core of the management system” itself. Example:
Rockwater, an underwater engineering and construction firm, crafted a five-pronged strategy: to provide services that surpassed customers’ expectations and needs; to achieve high levels of customer satisfaction; to make continuous improvements in safety, equipment reliability, responsiveness, and cost effectiveness; to recruit and retain high-quality employees; and to realize shareholder expectations. Using the balanced scorecard, Rockwater’s senior management translated this strategy into tangible goals and actions.
- The financial measures they chose included return-on-capital employed and cash flow, because shareholders had indicated a preference for short-term results.
- Customer measures focused on those clients most interested in a high value-added relationship.
- The company introduced new benchmarks that emphasized the integration of key internal processes. It also added a safety index as a means of controlling indirect costs associated with accidents.
- Learning and growth targets emphasized the percentage of revenue coming from new services and the rate of improvement of safety and rework measures.
Today’s managers recognize the impact that measures have on performance. But they rarely think of measurement as an essential part of their strategy. For example, executives may introduce new strategies and innovative operating processes intended to achieve breakthrough performance, then continue to use the same short-term financial indicators they have used for decades, measures like return-on-investment, sales growth, and operating income. These managers fail not only to introduce new measures to monitor new goals and processes but also to question whether or not their old measures are relevant to the new initiatives.
Effective measurement, however, must be an integral part of the management process. The balanced scorecard, first proposed in the January-February 1992 issue of HBR (“The Balanced Scorecard—Measures that Drive Performance”), provides executives with a comprehensive framework that translates a company’s strategic objectives into a coherent set of performance measures. Much more than a measurement exercise, the balanced scorecard is a management system that can motivate breakthrough improvements in such critical areas as product, process, customer, and market development.
The scorecard presents managers with four different perspectives from which to choose measures. It complements traditional financial indicators with measures of performance for customers, internal processes, and innovation and improvement activities. These measures differ from those traditionally used by companies in a few important ways:
Clearly, many companies already have myriad operational and physical measures for local activities. But these local measures are bottom-up and derived from ad hoc processes. The scorecard’s measures, on the other hand, are grounded in an organization’s strategic objectives and competitive demands. And, by requiring managers to select a limited number of critical indicators within each of the four perspectives, the scorecard helps focus this strategic vision.
In addition, while traditional financial measures report on what happened last period without indicating how managers can improve performance in the next, the scorecard functions as the cornerstone of a company’s current and future success.
Moreover, unlike conventional metrics, the information from the four perspectives provides balance between external measures like operating income and internal measures like new product development. This balanced set of measures both reveals the trade-offs that managers have already made among performance measures and encourages them to achieve their goals in the future without making trade-offs among key success factors.
Finally, many companies that are now attempting to implement local improvement programs such as process reengineering, total quality, and employee empowerment lack a sense of integration. The balanced scorecard can serve as the focal point for the organization’s efforts, defining and communicating priorities to managers, employees, investors, even customers. As a senior executive at one major company said, “Previously, the one-year budget was our primary management planning device. The balanced scorecard is now used as the language, the benchmark against which all new projects and businesses are evaluated.”
The balanced scorecard is not a template that can be applied to businesses in general or even industry-wide. Different market situations, product strategies, and competitive environments require different scorecards. Business units devise customized scorecards to fit their mission, strategy, technology, and culture. In fact, a critical test of a scorecard’s success is its transparency: from the 15 to 20 scorecard measures, an observer should be able to see through to the business unit’s competitive strategy. A few examples will illustrate how the scorecard uniquely combines management and measurement in different companies.
Building a Balanced Scorecard
Each organization is unique and so follows its own path for building a balanced scorecard. At Apple and AMD, for instance, a senior finance or business development executive, intimately familiar with the strategic thinking of the top management group, constructed the initial scorecard without extensive deliberations. At Rockwater, however, senior management had yet to define sharply the organization’s strategy, much less the key performance levers that drive and measure the strategy’s success.
Companies like Rockwater can follow a systematic development plan to create the balanced scorecard and encourage commitment to the scorecard among senior and mid-level managers. What follows is a typical project profile:
The organization must first define the business unit for which a top-level scorecard is appropriate. In general, a scorecard is appropriate for a business unit that has its own customers, distribution channels, production facilities, and financial performance measures.
2. Interviews: First Round
Each senior manager in the business unit—typically between 6 and 12 executives—receives background material on the balanced scorecard as well as internal documents that describe the company’s vision, mission, and strategy.
The balanced scorecard facilitator (either an outside consultant or the company executive who organizes the effort) conducts interviews of approximately 90 minutes each with the senior managers to obtain their input on the company’s strategic objectives and tentative proposals for balanced scorecard measures. The facilitator may also interview some principal shareholders to learn about their expectations for the business unit’s financial performance, as well as some key customers to learn about their performance expectations for top-ranked suppliers.
3. Executive Workshop: First Round
The top management team is brought together with the facilitator to undergo the process of developing the scorecard (see the chart “Begin by Linking Measurements to Strategy”). During the workshop, the group debates the proposed mission and strategy statements until a consensus is reached. The group then moves from the mission and strategy statement to answer the question, “If I succeed with my vision and strategy, how will my performance differ for shareholders; for customers; for internal business processes; for my ability to innovate, grow, and improve?”
Begin by Linking Measurements to Strategy
Videotapes of interviews with shareholder and customer representatives can be shown to provide an external perspective to the deliberations. After defining the key success factors, the group formulates a preliminary balanced scorecard containing operational measures for the strategic objectives. Frequently, the group proposes far more than four or five measures for each perspective. At this time, narrowing the choices is not critical, though straw votes can be taken to see whether or not some of the proposed measures are viewed as low priority by the group.
4. Interviews: Second Round
The facilitator reviews, consolidates, and documents the output from the executive workshop and interviews each senior executive about the tentative balanced scorecard. The facilitator also seeks opinions about issues involved in implementing the scorecard.
5. Executive Workshop: Second Round
A second workshop, involving the senior management team, their direct subordinates, and a larger number of middle managers, debates the organization’s vision, strategy statements, and the tentative scorecard. The participants, working in groups, comment on the proposed measures, link the various change programs under way to the measures, and start to develop an implementation plan. At the end of the workshop, participants are asked to formulate stretch objectives for each of the proposed measures, including targeted rates of improvement.
6. Executive Workshop: Third Round
The senior executive team meets to come to a final consensus on the vision, objectives, and measurements developed in the first two workshops; to develop stretch targets for each measure on the scorecard; and to identify preliminary action programs to achieve the targets. The team must agree on an implementation program, including communicating the scorecard to employees, integrating the scorecard into a management philosophy, and developing an information system to support the scorecard.
A newly formed team develops an implementation plan for the scorecard, including linking the measures to databases and information systems, communicating the balanced scorecard throughout the organization, and encouraging and facilitating the development of second-level metrics for decentralized units. As a result of this process, for instance, an entirely new executive information system that links top-level business unit metrics down through shop floor and site-specific operational measures could be developed.
8. Periodic Reviews
Each quarter or month, a blue book of information on the balanced scorecard measures is prepared for both top management review and discussion with managers of decentralized divisions and departments. The balanced scorecard metrics are revisited annually as part of the strategic planning, goal setting, and resource allocation processes.
Rockwater: Responding to a Changing Industry
Rockwater, a wholly owned subsidiary of Brown & Root/Halliburton, a global engineering and construction company, is a worldwide leader in underwater engineering and construction. Norman Chambers, hired as CEO in late 1989, knew that the industry’s competitive world had changed dramatically. “In the 1970s, we were a bunch of guys in wet suits diving off barges into the North Sea with burning torches,” Chambers said. But competition in the subsea contracting business had become keener in the 1980s, and many smaller companies left the industry. In addition, the focus of competition had shifted. Several leading oil companies wanted to develop long-term partnerships with their suppliers rather than choose suppliers based on low-price competition.
With his senior management team, Chambers developed a vision: “As our customers’ preferred provider, we shall be the industry leader in providing the highest standards of safety and quality to our clients.” He also developed a strategy to implement the vision. The five elements of that strategy were: services that surpass customers’ expectations and needs; high levels of customer satisfaction; continuous improvement of safety, equipment reliability, responsiveness, and cost effectiveness; high-quality employees; and realization of shareholder expectations. Those elements were in turn developed into strategic objectives (see the chart “Rockwater’s Strategic Objectives”). If, however, the strategic objectives were to create value for the company, they had to be translated into tangible goals and actions.
Rockwater’s Strategic Objectives
Rockwater’s strategic objectives had to be translated into tangible goals and actions.
Rockwater’s senior management team transformed its vision and strategy into the balanced scorecard’s four sets of performance measures (see the chart “Rockwater’s Balanced Scorecard”):
Rockwater’s Balanced Scorecard
The financial perspective included three measures of importance to the shareholder. Return-on-capital-employed and cash flow reflected preferences for short-term results, while forecast reliability signaled the corporate parent’s desire to reduce the historical uncertainty caused by unexpected variations in performance. Rockwater management added two financial measures. Project profitability provided focus on the project as the basic unit for planning and control, and sales backlog helped reduce uncertainty of performance.
Rockwater wanted to recognize the distinction between its two types of customers: Tier I customers, oil companies that wanted a high value-added relationship, and Tier II customers, those that chose suppliers solely on the basis of price. A price index, incorporating the best available intelligence on competitive position, was included to ensure that Rockwater could still retain Tier II customers’ business when required by competitive conditions.
By the Same Authors
Using the balanced scorecard as a strategic management system.
- Robert S. Kaplan and David P. Norton
The company’s strategy, however, was to emphasize value-based business. An independent organization conducted an annual survey to rank customers’ perceptions of Rockwater’s services compared to those of its competitors. In addition, Tier I customers were asked to supply monthly satisfaction and performance ratings. Rockwater executives felt that implementing these ratings gave them a direct tie to their customers and a level of market feedback unsurpassed in most industries. Finally, market share by key accounts provided objective evidence that improvements in customer satisfaction were being translated into tangible benefits.
To develop measures of internal processes, Rockwater executives defined the life cycle of a project from launch (when a customer need was recognized) to completion (when the customer need had been satisfied). Measures were formulated for each of the five business-process phases in this project cycle (see the chart “How Rockwater Fulfills Customer Needs”):
How Rockwater Fulfills Customer Needs
- ; number of hours spent with prospects discussing new work
- ; tender success rate
- ; project performance effectiveness index, safety/loss control, rework
- . : length of project closeout cycle
The internal business measures emphasized a major shift in Rockwater’s thinking. Formerly, the company stressed performance for each functional department. The new focus emphasized measures that integrated key business processes. The development of a comprehensive and timely index of project performance effectiveness was viewed as a key core competency for the company. Rockwater felt that safety was also a major competitive factor. Internal studies had revealed that the indirect costs from an accident could be 5 to 50 times the direct costs. The scorecard included a safety index, derived from a comprehensive safety measurement system, that could identify and classify all undesired events with the potential for harm to people, property, or process.
The Rockwater team deliberated about the choice of metric for the identification stage. It recognized that hours spent with key prospects discussing new work was an input or process measure rather than an output measure. The management team wanted a metric that would clearly communicate to all members of the organization the importance of building relationships with and satisfying customers. The team believed that spending quality time with key customers was a prerequisite for influencing results. This input measure was deliberately chosen to educate employees about the importance of working closely to identify and satisfy customer needs.
Rockwater’s executives wanted a metric that would communicate the importance of building relationships with customers.
Innovation and Improvement:
The innovation and learning objectives are intended to drive improvement in financial, customer, and internal process performance. At Rockwater, such improvements came from product and service innovation that would create new sources of revenue and market expansion, as well as from continuous improvement in internal work processes. The first objective was measured by percent revenue from new services and the second objective by a continuous improvement index that represented the rate of improvement of several key operational measures, such as safety and rework. But in order to drive both product/service innovation and operational improvements, a supportive climate of empowered, motivated employees was believed necessary. A staff attitude survey and a metric for the number of employee suggestions measured whether or not such a climate was being created. Finally, revenue per employee measured the outcomes of employee commitment and training programs.
The balanced scorecard has helped Rockwater’s management emphasize a process view of operations, motivate its employees, and incorporate client feedback into its operations. It developed a consensus on the necessity of creating partnerships with key customers, the importance of order-of-magnitude reductions in safety-related incidents, and the need for improved management at every phase of multiyear projects. Chambers sees the scorecard as an invaluable tool to help his company ultimately achieve its mission: to be number one in the industry.
Apple Computer: Adjusting Long-Term Performance
Apple Computer developed a balanced scorecard to focus senior management on a strategy that would expand discussions beyond gross margin, return on equity, and market share. A small steering committee, intimately familiar with the deliberations and strategic thinking of Apple’s Executive Management Team, chose to concentrate on measurement categories within each of the four perspectives and to select multiple measurements within each category. For the financial perspective, Apple emphasized shareholder value; for the customer perspective, market share and customer satisfaction; for the internal process perspective, core competencies; and, finally, for the innovation and improvement perspective, employee attitudes. Apple’s management stressed these categories in the following order:
Historically, Apple had been a technology- and product-focused company that competed by designing better computers. Customer satisfaction metrics are just being introduced to orient employees toward becoming a customer-driven company. J.D. Power & Associates, a customer-survey company, now works for the computer industry. However, because it recognized that its customer base was not homogeneous, Apple felt that it had to go beyond J.D. Power & Associates and develop its own independent surveys in order to track its key market segments around the world.
Once a technology- and product-focused company, Apple has introduced measures that shift the emphasis toward customers.
Company executives wanted employees to be highly focused on a few key competencies: for example, user-friendly interfaces, powerful software architectures, and effective distribution systems. However, senior executives recognized that measuring performance along these competency dimensions could be difficult. As a result, the company is currently experimenting with obtaining quantitative measures of these hard-to-measure competencies.
Employee Commitment and Alignment:
Apple conducts a comprehensive employee survey in each of its organizations every two years; surveys of randomly selected employees are performed more frequently. The survey questions are concerned with how well employees understand the company’s strategy as well as whether or not they are asked to deliver results that are consistent with that strategy. The results of the survey are displayed in terms of both the actual level of employee responses and the overall trend of responses.
Achieving a critical threshold of market share was important to senior management not only for the obvious sales growth benefits but also to attract and retain software developers to Apple platforms.
The balanced scorecard: measures that drive performance, shareholder value:.
Shareholder value is included as a performance indicator, even though this measure is a result—not a driver—of performance. The measure is included to offset the previous emphasis on gross margin and sales growth, measures that ignored the investments required today to generate growth for tomorrow. In contrast, the shareholder value metric quantifies the impact of proposed investments for business creation and development. The majority of Apple’s business is organized on a functional basis—sales, product design, and worldwide manufacturing and operations—so shareholder value can be calculated only for the entire company instead of at a decentralized level. The measure, however, helps senior managers in each major organizational unit assess the impact of their activities on the entire company’s valuation and evaluate new business ventures.
While these five performance indicators have only recently been developed, they have helped Apple’s senior managers focus their strategy in a number of ways. First of all, the balanced scorecard at Apple serves primarily as a planning device, instead of as a control device. To put it another way, Apple uses the measures to adjust the “long wave” of corporate performance, not to drive operating changes. Moreover, the metrics at Apple, with the exception of shareholder value, can be driven both horizontally and vertically into each functional organization. Considered vertically, each individual measure can be broken down into its component parts in order to evaluate how each part contributes to the functioning of the whole. Thought of horizontally, the measures can identify how, for example, design and manufacturing contribute to an area such as customer satisfaction. In addition, Apple has found that its balanced scorecard has helped develop a language of measurable outputs for how to launch and leverage programs.
Apple uses the scorecard as a device to plan long-term performance, not as a device to drive operating changes.
The five performance indicators at Apple are benchmarked against best-in-class organizations. Today they are used to build business plans and are incorporated into senior executives’ compensation plans.
Advanced Micro Devices: Consolidating Strategic Information
Advanced Micro Devices (AMD), a semiconductor company, executed a quick and easy transition to a balanced scorecard. It already had a clearly defined mission, strategy statement, and shared understanding among senior executives about its competitive niche. It also had many performance measures from many different sources and information systems. The balanced scorecard consolidated and focused these diverse measures into a quarterly briefing book that contained seven sections: financial measures; customer-based measures, such as on-time delivery, lead time, and performance-to-schedule; measures of critical business processes in wafer fabrication, assembly and test, new product development, process technology development (e.g., submicron etching precision), and, finally, measures for corporate quality. In addition, organizational learning was measured by imposing targeted rates of improvements for key operating parameters, such as cycle time and yields by process.
At present, AMD sees its scorecard as a systematic repository for strategic information that facilitates long-term trend analysis for planning and performance evaluation.
Driving the Process of Change
The experiences of these companies and others reveal that the balanced scorecard is most successful when it is used to drive the process of change. Rockwater, for instance, came into existence after the merger of two different organizations. Employees came from different cultures, spoke different languages, and had different operating experiences and backgrounds. The balanced scorecard helped the company focus on what it had to do well in order to become the industry leader.
Similarly, Joseph De Feo, chief executive of Service Businesses, one of the three operating divisions of Barclays Bank, had to transform what had been a captive, internal supplier of services into a global competitor. The scorecard highlighted areas where, despite apparent consensus on strategy, there still was considerable disagreement about how to make the strategy operational. With the help of the scorecard, the division eventually achieved consensus concerning the highest priority areas for achievement and improvement and identified additional areas that needed attention, such as quality and productivity. De Feo assessed the impact of the scorecard, saying, “It helped us to drive major change, to become more market oriented, throughout our organization. It provided a shared understanding of our goals and what it took to achieve them.”
Analog Devices, a semiconductor company, served as the prototype for the balanced scorecard and now uses it each year to update the targets and goals for division managers. Jerry Fishman, president of Analog, said, “At the beginning, the scorecard drove significant and considerable change. It still does when we focus attention on particular areas, such as the gross margins on new products. But its main impact today is to help sustain programs that our people have been working on for years.” Recently, the company has been attempting to integrate the scorecard metrics with hoshin planning, a procedure that concentrates an entire company on achieving one or two key objectives each year. Analog’s hoshin objectives have included customer service and new product development, for which measures already exist on the company’s scorecard.
But the scorecard isn’t always the impetus for such dramatic change. For example, AMD’s scorecard has yet to have a significant impact because company management didn’t use it to drive the change process. Before turning to the scorecard, senior managers had already formulated and gained consensus for the company’s mission, strategy, and key performance measures. AMD competes in a single industry segment. The top 12 managers are intimately familiar with the markets, engineering, technology, and other key levers in this segment. The summary and aggregate information in the scorecard were neither new nor surprising to them. And managers of decentralized production units also already had a significant amount of information about their own operations. The scorecard did enable them to see the breadth and totality of company operations, enhancing their ability to become better managers for the entire company. But, on balance, the scorecard could only encapsulate knowledge that managers in general had already learned.
The scorecard enables managers to see the breadth and totality of company operations.
At Advanced Micro Devices, the scorecard only encapsulated knowledge that managers had already learned.
AMD’s limited success with the balanced scorecard demonstrates that the scorecard has its greatest impact when used to drive a change process. Some companies link compensation of senior executives to achieving stretch targets for the scorecard measures. Most are attempting to translate the scorecard into operational measures that become the focus for improvement activities in local units. The scorecard is not just a measurement system; it is a management system to motivate breakthrough competitive performance.
The Scorecard’s Impact on External Reporting
Several managers have asked whether or not the balanced scorecard is applicable to external reporting. If the scorecard is indeed a driver of long-term performance, shouldn’t this information be relevant to the investment community?
In fact, the scorecard does not translate easily to the investment community. A scorecard makes sense primarily for business units and divisions with a well-defined strategy. Most companies have several divisions, each with its own mission and strategy, whose scorecards cannot be aggregated into an overall corporate scorecard. And if the scorecard does indeed provide a transparent vision into a unit’s strategy, then the information, even the measures being used, might be highly sensitive data that could reveal much of value to competitors. But most important, as a relatively recent innovation, the scorecard would benefit from several years of experimentation within companies before it becomes a systematic part of reporting to external constituencies.
Even if the scorecard itself were better suited to external reporting, at present the financial community itself shows little interest in making the change from financial to strategic reporting. One company president has found the outside financial community leery of the principles that ground the scorecard: “We use the scorecard more with our customers than with our investors. The financial community is skeptical about long-term indicators and occasionally tells us about some empirical evidence of a negative correlation between stock prices and attention to total quality and internal processes.”
However, the investment community has begun to focus on some key metrics of new product performance. Could this be an early sign of a shift to strategic thinking?
Implementing the Balanced Scorecard at FMC Corporation: An Interview with Larry D. Brady
FMC Corporation is one of the most diversified companies in the United States, producing more than 300 product lines in 21 divisions organized into 5 business segments: industrial chemicals, performance chemicals, precious metals, defense systems, and machinery and equipment. Based in Chicago, FMC has worldwide revenues in excess of $4 billion.
Since 1984, the company has realized annual returns-on-investment of greater than 15%. Coupled with a major recapitalization in 1986, these returns resulted in an increasing shareholder value that significantly exceeded industrial averages. In 1992, the company completed a strategic review to determine the best future course to maximize shareholder value. As a result of that review, FMC adopted a growth strategy to complement its strong operating performance. This strategy required a greater external focus and appreciation of operating trade-offs.
To help make the shift, the company decided to use the balanced scorecard. In this interview conducted by Robert S. Kaplan, Larry D. Brady, executive vice president of FMC, talks about the company’s experience implementing the scorecard.
Robert S. Kaplan: What’s the status of the balanced scorecard at FMC?
Larry D. Brady: Although we are just completing the pilot phase of implementation, I think that the balanced scorecard is likely to become the cornerstone of the management system at FMC. It enables us to translate business unit strategies into a measurement system that meshes with our entire system of management.
For instance, one manager reported that while his division had measured many operating variables in the past, now, because of the scorecard, it had chosen 12 parameters as the key to its strategy implementation. Seven of these strategic variables were entirely new measurements for the division. The manager interpreted this finding as verifying what many other managers were reporting: the scorecard improved the understanding and consistency of strategy implementation. Another manager reported that, unlike monthly financial statements or even his strategic plan, if a rival were to see his scorecard, he would lose his competitive edge.
It’s rare to get that much enthusiasm among divisional managers for a corporate initiative. What led you and them to the balanced scorecard?
FMC had a clearly defined mission: to become our customers’ most valued supplier. We had initiated many of the popular improvement programs: total quality, managing by objectives, organizational effectiveness, building a high-performance organization. But these efforts had not been effective. Every time we promoted a new program, people in each division would sit back and ask, “How is that supposed to fit in with the six other things we’re supposed to be doing?’’
Corporate staff groups were perceived by operating managers as pushing their pet programs on divisions. The diversity of initiatives, each with its own slogan, created confusion and mixed signals about where to concentrate and how the various programs interrelated. At the end of the day, with all these new initiatives, we were still asking division managers to deliver consistent short-term financial performance.
“The diversity of initiatives, each with its own slogan, created confusion and mixed signals.”
What kinds of measures were you using?
The FMC corporate executive team, like most corporate offices, reviews the financial performance of each operating division monthly. As a highly diversified company that redeploys assets from mature cash generators to divisions with significant growth opportunities, the return-on-capital-employed (ROCE) measure was especially important for us. We were one of the few companies to inflation-adjust our internal financial measures so that we could get a more accurate picture of a division’s economic profitability.
At year-end, we rewarded division managers who delivered predictable financial performance. We had run the company tightly for the past 20 years and had been successful. But it was becoming less clear where future growth would come from and where the company should look for breakthroughs into new areas. We had become a high return-on-investment company but had less potential for further growth. It was also not at all clear from our financial reports what progress we were making in implementing long-term initiatives. Questions from the corporate office about spending versus budget also reinforced a focus on the short-term and on internal operations.
But the problem went even deeper than that. Think about it. What is the value added of a corporate office that concentrates on making division managers accountable for financial results that can be added up across divisions? We combine a business that’s doing well with a business that’s doing poorly and have a total business that performs at an average level. Why not split the company up into independent companies and let the market reallocate capital? If we were going to create value by managing a group of diversified companies, we had to understand and provide strategic focus to their operations. We had to be sure that each division had a strategy that would give it sustainable competitive advantage. In addition, we had to be able to assess, through measurement of their operations, whether or not the divisions were meeting their strategic objectives.
If you’re going to ask a division or the corporation to change its strategy, you had better change the system of measurement to be consistent with the new strategy.
“If you’re going to ask a division or the corporation to change its strategy, you had better change the system of measurement.”
How did the balanced scorecard emerge as the remedy to the limitations of measuring only short-term financial results?
In early 1992, we assembled a task force to integrate our various corporate initiatives. We wanted to understand what had to be done differently to achieve dramatic improvements in overall organizational effectiveness. We acknowledged that the company may have become too short-term and too internally focused in its business measures. Defining what should replace the financial focus was more difficult. We wanted managers to sustain their search for continuous improvement, but we also wanted them to identify the opportunities for breakthrough performance.
When divisions missed financial targets, the reasons were generally not internal. Typically, division management had inaccurately estimated market demands or had failed to forecast competitive reactions. A new measurement system was needed to lead operating managers beyond achieving internal goals to searching for competitive breakthroughs in the global marketplace. The system would have to focus on measures of customer service, market position, and new products that could generate long-term value for the business. We used the scorecard as the focal point for the discussion. It forced division managers to answer these questions: How do we become our customers’ most valued supplier? How do we become more externally focused? What is my division’s competitive advantage? What is its competitive vulnerability?
How did you launch the scorecard effort at FMC?
We decided to try a pilot program. We selected six division managers to develop prototype scorecards for their operations. Each division had to perform a strategic analysis to identify its sources of competitive advantage. The 15 to 20 measures in the balanced scorecard had to be organization-specific and had to communicate clearly what short-term measures of operating performance were consistent with a long-term trajectory of strategic success.
Were the six division managers free to develop their own scorecard?
We definitely wanted the division managers to perform their own strategic analysis and to develop their own measures. That was an essential part of creating a consensus between senior and divisional management on operating objectives. Senior management did, however, place some conditions on the outcomes.
First of all, we wanted the measures to be objective and quantifiable. Division managers were to be just as accountable for improving scorecard measures as they had been for using monthly financial reviews. Second, we wanted output measures not process-oriented measures. Many of the improvement programs under way were emphasizing time, quality, and cost measurements. Focusing on T-Q-C measurements, however, encourages managers to seek narrow process improvements instead of breakthrough output targets. Focusing on achieving outputs forces division managers to understand their industry and strategy and help them to quantify strategic success through specific output targets.
Could you illustrate the distinction between process measures and output measures?
You have to understand your industry well to develop the connection between process improvements and outputs achieved. Take three divisional examples of cycle-time measurement, a common process measure.
For much of our defense business, no premium is earned for early delivery. And the contracts allow for reimbursement of inventory holding costs. Therefore, attempts to reduce inventory or cycle times in this business produce no benefit for which the customer is willing to pay. The only benefits from cycle time or inventory reduction occur when reduction in factory-floor complexity leads to real reductions in product cost. The output performance targets must be real cash savings, not reduced inventory levels or cycle times.
Mastering the Management System
In contrast, significant lead-time reductions could be achieved for our packaging machinery business. This improvement led to lower inventory and an option to access an additional 35% of the market. In this case, the cycle-time improvements could be tied to specific targets for increased sales and market share. It wasn’t linear, but output seemed to improve each time we improved throughput times.
And in one of our agricultural machinery businesses, orders come within a narrow time window each year. The current build cycle is longer than the ordering window, so all units must be built to the sales forecast. This process of building to forecast leads to high inventory—more than twice the levels of our other businesses—and frequent overstocking and obsolescence of equipment. Incremental reductions in lead time do little to change the economics of this operation. But if the build cycle time could be reduced to less than the six-week ordering time window for part or all of the build schedule, then a breakthrough occurs. The division can shift to a build-to-order schedule and eliminate the excess inventory caused by building to forecasts. In this case, the benefit from cycle-time reductions is a step-function that comes only when the cycle time drops below a critical level.
So here we have three businesses, three different processes, all of which could have elaborate systems for measuring quality, cost, and time but would feel the impact of improvements in radically different ways. With all the diversity in our business units, senior management really can’t have a detailed understanding of the relative impact of time and quality improvements on each unit. All of our senior managers, however, understand output targets, particularly when they are displayed with historical trends and future targets.
Benchmarking has become popular with a lot of companies. Does it tie in to the balanced scorecard measurements?
Unfortunately, benchmarking is one of those initially good ideas that has turned into a fad. About 95% of those companies that have tried benchmarking have spent a lot of money and have gotten very little in return. And the difference between benchmarking and the scorecard helps reinforce the difference between process measures and output measures. It’s a lot easier to benchmark a process than to benchmark an output. With the scorecard, we ask each division manager to go outside their organization and determine the approaches that will allow achievement of their long-term output targets. Each of our output measures has an associated long-term target. We have been deliberately vague on specifying when the target is to be accomplished. We want to stimulate a thought process about how to do things differently to achieve the target rather than how to do existing things better. The activity of searching externally for how others have accomplished these breakthrough achievements is called target verification not benchmarking.
Were the division managers able to develop such output-oriented measures?
Well, the division managers did encounter some obstacles. Because of the emphasis on output measures and the previous focus on operations and financial measures, the customer and innovation perspectives proved the most difficult. These were also the two areas where the balanced scorecard process was most helpful in refining and understanding our existing strategies.
But the initial problem was that the management teams ran afoul of both conditions: the measures they proposed tended to be nonquantifiable and input- rather than output-oriented. Several divisions wanted to conduct customer surveys and provide an index of the results. We judged a single index to be of little value and opted instead for harder measures such as price premiums over competitors.
We did conclude, however, that the full customer survey was an excellent vehicle for promoting external focus and, therefore, decided to use survey results to kick-off discussion at our annual operating reviews.
Did you encounter any problems as you launched the six pilot projects?
At first, several divisional managers were less than enthusiastic about the additional freedom they were being given from headquarters. They knew that the heightened visibility and transparency of the scorecard took away the internal trade-offs they had gained experience in making. They initially interpreted the increase in visibility of divisional performance as just the latest attempt by corporate staff to meddle in their internal business processes.
To offset this concern, we designed targets around long-term objectives. We still closely examine the monthly and quarterly statistics, but these statistics now relate to progress in achieving long-term objectives and justify the proper balance between short-term and long-term performance.
We also wanted to transfer quickly the focus from a measurement system to achieving performance results. A measurement orientation reinforces concerns about control and a short-term focus. By emphasizing targets rather than measurements, we could demonstrate our purpose to achieve breakthrough performance.
But the process was not easy. One division manager described his own three-stage implementation process after receiving our directive to build a balanced scorecard: denial—hope it goes away; medicinal—it won’t go away, so let’s do it quickly and get it over with; ownership—let’s do it for ourselves.
In the end, we were successful. We now have six converts who are helping us to spread the message throughout the organization.
I understand that you have started to apply the scorecard not just to operating units but to staff groups as well.
Applying the scorecard approach to staff groups has been even more eye-opening than our initial work with the six operating divisions. We have done very little to define our strategy for corporate staff utilization. I doubt that many companies can respond crisply to the question, “How does staff provide competitive advantage?’’ Yet we ask that question every day about our line operations. We have just started to ask our staff departments to explain to us whether they are offering low cost or differentiated services. If they are offering neither, we should probably outsource the function. This area is loaded with real potential for organizational development and improved strategic capability.
My conversations with financial people in organizations reveal some concern about the expanded responsibilities implied by developing and maintaining a balanced scorecard. How does the role of the controller change as a company shifts its primary measurement system from a purely financial one to the balanced scorecard?
Historically, we have had two corporate departments involved in overseeing business unit performance. Corporate development was in charge of strategy, and the controller’s office kept the historical records and budgeted and measured short-term performance. Strategists came up with five- and ten-year plans, controllers one-year budgets and near-term forecasts. Little interplay occurred between the two groups. But the scorecard now bridges the two. The financial perspective builds on the traditional function performed by controllers. The other three perspectives make the division’s long-term strategic objectives measurable.
In our old environment, division managers tried to balance short-term profits with long-term growth, while they were receiving different signals depending on whether or not they were reviewing strategic plans or budgets. This structure did not make the balancing of short-term profits and long-term growth an easy trade-off, and, frankly, it let senior management off the hook when it came to sharing responsibility for making the trade-offs.
Perhaps the corporate controller should take responsibility for all measurement and goal setting, including the systems required to implement these processes. The new corporate controller could be an outstanding system administrator, knowledgeable about the various trade-offs and balances, and skillful in reporting and presenting them. This role does not eliminate the need for strategic planning. It just makes the two systems more compatible. The scorecard can serve to motivate and evaluate performance. But I see its primary value as its ability to join together what had been strong but separated capabilities in strategy development and financial control. It’s the operating performance bridge that corporations have never had.
How often do you envision reviewing a division’s balanced scorecard?
I think we will ask group managers to review a monthly submission from each of their divisions, but the senior corporate team will probably review scorecards quarterly on a rotating basis so that we can review up to seven or eight division scorecards each month.
Isn’t it inconsistent to assess a division’s strategy on a monthly or quarterly basis? Doesn’t such a review emphasize short-term performance?
I see the scorecard as a strategic measurement system, not a measure of our strategy. And I think that’s an important distinction. The monthly or quarterly scorecard measures operations that have been configured to be consistent with our long-term strategy.
“I see the scorecard as a strategic measurement system, not a measure of our strategy.”
Here’s an example of the interaction between the short and the long term. We have pushed division managers to choose measures that will require them to create change, for example, penetration of key markets in which we are not currently represented. We can measure that penetration monthly and get valuable short-term information about the ultimate success of our long-term strategy. Of course, some measures, such as annual market share and innovation metrics, don’t lend themselves to monthly updates. For the most part, however, the measures are calculated monthly.
Any final thoughts on the scorecard?
I think that it’s important for companies not to approach the scorecard as the latest fad. I sense that a number of companies are turning to scorecards in the same way they turned to total quality management, high-performance organization, and so on. You hear about a good idea, several people on corporate staff work on it, probably with some expensive outside consultants, and you put in a system that’s a bit different from what existed before. Such systems are only incremental, and you don’t gain much additional value from them.
This article also appears in:
HBR’s 10 Must Reads The Essentials
It gets worse if you think of the scorecard as a new measurement system that eventually requires hundreds and thousands of measurements and a big, expensive executive information system. These companies lose sight of the essence of the scorecard: its focus, its simplicity, and its vision. The real benefit comes from making the scorecard the cornerstone of the way you run the business. It should be the core of the management system, not the measurement system. Senior managers alone will determine whether the scorecard becomes a mere record-keeping exercise or the lever to streamline and focus strategy that can lead to breakthrough performance.
- Robert S. Kaplan is a senior fellow and the Marvin Bower Professor of Leadership Development, Emeritus, at Harvard Business School. His recent HBR articles include: Inclusive Growth: Profitable Strategies for Tackling Poverty and Inequality (with George Serafeim and Eduardo Tugendhat), How to Pay for Health Care: The Case for Bundled Payments (with Michael E. Porter), and Accounting for Climate Change (with Karthik Ramanna), which won the 2021 McKinsey Award.
- DN David P. Norton is a founder and director of the Palladium Group and is co-author of The Balanced Scorecard .
Review this Case Study featuring an implementation of The Balanced Scorecard. The Balanced Scorecard concept, popularised by Robert S Kaplan
This paper presents a teaching case study on the balanced scorecard (BSC) for a plumbing firm. The case requires participants to apply BSC principles by
Balanced Scorecard case studies with examples of KPIs for different business domains. +Example of Digital Transformation and Cybersecurity Strategy.
This case study primarily focuses on the recalibration of the FMOH scorecard in 2009-2010, the cascade work performed in 2011-2013, and the break-through
This video presents basic theoretical concepts of the Balance Scorecard strategy, brought up by professors Robert Kaplan and David Norton.
In July of that year, County Manager Jones made a commitment to Managing for Results. Page 3. Mecklenburg County Case Study. ©2009 Balanced Scorecard Institute.
The balanced scorecard is one of the most widely implemented business strategy tools globally. There's nothing like a case study example to
ABSTRACT. This study aims to analyze and explain the adaptation of the balanced scorecard (BSC), through the theoretical model by.
The survey questions are concerned with how well employees understand the company's strategy as well as whether or not they are asked to deliver results that
The balanced scorecard framework - A case study of patient and employee satisfaction: What happens when it does not work as planned? Health Care Management