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China Economic Review 30 (2014) 115
Contents lists available at ScienceDirect
China Economic Review
Performance outcomes of balanced scorecard application in

hospital administration in China
Zhijun LIN a,, Zengbiao YU b, Liqun ZHANG c
a
Capital University of Economics and Business, Beijing & Hong Kong Baptist University, Hong Kong, China
b
School of Economics and Management, Tsinghua University, Beijing, China
c
National Institute of Accounting, Beijing, China
a r t i c l e i n f o a b s t r a c t
Article history: This study investigates current status of balanced scorecard (BSC) application and its impact on
Received 3 January 2013 hospital performance in China. A nationwide survey indicates that a large portion of Chinese
Received in revised form 7 May 2014 public hospitals have adopted BSC in hospital administration at present. By applying univariate
Accepted 7 May 2014
and regression data analyses, we find BSC application contributes to the improvement of
Available online 21 May 2014
organizational and personal performance and such a contributing effect increases with the
extent (level) of BSC application. In addition, we find the positive impact of BSC application on
JEL classification: hospital performance is affected by the factors of operational scope/scale, technological quality
I18
(rating) and comprehensiveness of medical resources equipped by the hospitals. Our study
L30
findings should enrich the extant literature with empirical evidence on the benefits of BSC
M41
application in the health care industry and provide the Chinese experience that can be a
Keywords:
reference for expanding BSC application in hospital administration or other non-profit
Balanced scorecard
organizations in other countries, the developing countries in particular.
Performance measurement
Strategy management 2014 Elsevier Inc. All rights reserved.
Chinese management accounting
Hospital performance
1 . Introduction
Balanced scorecard (BSC), as a management innovation integrating financial and non-financial performance measures in light
of organizational strategy, has been widely adopted by various organizations since the early 1990s. After the introduction and
promotion by Kaplan and Norton (1992, 1996) and many other advocates, BSC has evolved from a strategic performance
evaluation system to an effective tool of strategy transformation and implementation, and has become increasingly popular in
management practice. According to some studies, more than 80% of the top 1000 corporations in the world have adopted BSC, and
BSC adoption has expanded in more and more countries over the last decade (Ayvaz & Pehlivanl, 2011; Banker, Chang, & Pizzini,
2004; Burnet, Henle, & Widener, 2009; Chenhall, 2005; Grafton, Lillis, & Widener, 2010; Hall, 2008; Hoque & James, 2000; Ittner,
Larcker, & Meyer, 2003; Malina, Norreklit, & Selto, 2007; Malina & Selto, 2001; Morard, Stancu, & Jeannette, 2013). Beyond the
business world, BSC has also been successfully adopted by non-profit organizations in government, health care, education and
charities in recent years, although some modifications of the BSC design are applied (Bouland, Fink, & Fontanesi, 2011; Chabg,
2007; Chan & Ho, 2010; Hart, Rampersad, Lopez, & Petroski, 2009; Kollberg & Elg, 2011; Koumpouros, 2013; Niven, 2002; Pink,
McKillop, Preyra, Montgomery, & Baker, 2001).
Corresponding author at: School of Business Hong Kong Baptist University Kowloon Tong, Kowloon, Hong Kong. Tel.: +852 3411 7537; fax: +852 3411 5581.
E-mail address: linzj@hkbu.edu.hk (Z. LIN).
http://dx.doi.org/10.1016/j.chieco.2014.05.003
1043-951X/ 2014 Elsevier Inc. All rights reserved.
2 Z. LIN et al. / China Economic Review 30 (2014) 115
Research on BSC grows rapidly in pace with the expansion of BSC application in practice. Many researchers agree that BSC
application will generate a series of benefits such as facilitating an organization to implement strategy in light of fulfilling its
strategic objectives and achieving favorable operating outcomes. However, empirical findings on BSC application outcomes or
benefits are mixed as some studies question the real effects of BSC on organizational performance (Banker et al., 2004; Lipe &
Salterio, 2002; Mooraj, Oyon, & Hostettler, 1999; Norreklit, 2000). Besides many case analyses on BSC application by different
organizations, direct study on the association of BSC application with organizational performance is rare in the extant
literature. Therefore the evidence on BSC contributions to organizational performance (including how and how much) is
relatively less convincing at present, even BSC benefits have been generally conceptualized by many advocates (Atkinson,
Balakrishnan, Booth, Cote, & Grout, 1997; Burney & Swanson, 2010; Davis & Albright, 2004; Geuser, Mooraj, & Oyon, 2009;
Humphreys & Trotman, 2011; Ittner, Larckera, & Randallb, 2003; Norreklit, 2003; Speckbacher, Bischof, & Pfreiffer, 2003;
Wong, Guo, Li, & Yang, 2007).
This study investigates the outcomes of BSC application in public hospitals contextual to the existing health care
administration systems in China. Unlike many other developed countries, China has some unique characteristics in its economic
and social structures as well as its public administration systems. Subject to a long period of highly centralized economic
administrations, the health care system is mainly in the state-owned and government-run mode. Due to insufficient government
fiscal appropriations, most public hospitals are short of medical resources and suffer from low medical service quality. There is a
severe shortage of medical resources to satisfy the rapidly growing demand for, and supply of, health care services. Due to
generally poor operating efficiency of healthcare institutions, a tense relationship between patients and medical service providers
exists (Chen, Yamauchi, Kato, Nishimura, & Ito, 2006; Eggleston & Yip, 2004). The Chinese government has to launch health care
administration system reforms in order to overcome the operating inefficiency problems of medical service providers in recent
years. Thus BSC has been gradually adopted by hospital administrators across the country. We therefore conduct a nationwide
study on BSC application in hospital administration in China, particularly on the positive outcomes of BSC application from two
perspectives, i.e., the contributions of BSC application to organizational performance (direct outcomes) and to individual staff
satisfaction (personal/psychological performance) with the performance evaluation based on BSC application (indirect outcomes)
in Chinese public hospitals.
Through a large scale survey, we first find that a large portion of public hospitals in China, especially the relatively large ones,
have adopted BSC in their administration systems. Both univariate and multivariate data analyses indicate that BSC application
has a significant and positive impact on organizational performance and individual satisfaction in Chinese public hospitals. We
also find that, in terms of varied statuses or levels of BSC application, the sample hospitals with higher level of BSC application
have a more significant improvement in both organizational performance and individual satisfaction. In particular, there is a
stronger impact for hospitals with the utilization of more performance measures or indicators in their BSC matrixes, greater
weight of non-financial performance measures in the determination of incentive rewards, and better integration (e.g.,
comprehensiveness) of BSC application with management control mechanisms.
Our study should contribute to the literature in several ways. First, we have empirically examined the outcomes of hospital
performance in respect of BSC application in hospital administration in China. Our study results reveal that BSC application can
significantly improve organizational performance because BSC helps translate organizational strategy or strategic objectives into
operational and measurable performance indicators in terms of the cause-and-effect relationships among non-financial and
financial performance measures. Thus BSC application produces goal congruence and synergetic effects for cooperation among
different medical service departments and practitioners and achieves desirable organizational performance for the public
hospitals in China. Our findings confirm that BSC application is positively associated with organizational performance and help to
substantiate BSC contributions to strategic performance in general.
Also our study directly tests the impact of BSC application on personal/psychological performance of medical service
practitioners in terms of their satisfaction with the new performance evaluation based on BSC matrixes. We find that there is a
positive association between BSC application and individual satisfaction with BSC performance evaluation in Chinese public
hospitals, and such an association is stronger when the extent (level) of BSC application increases. The improvement in
personal satisfaction should enhance the morale, commitment, and work initiative of individual practitioners, thus contribute
to the improvement of organizational performance in the public hospitals. Since evidence on the effect of BSC application
on personal performance is rare in the extant literature, our study findings should fill in the gap in this dimension of BSC
studies.
In addition, we develop a few constructs to be the proxy for varied statuses or scenarios of BSC application and for organizational
and personal performance (satisfaction) in the context of hospital administration. These constructs of interest, with satisfactory
degree of reliability and validity, enable us to run quantitative (both univariate and regression) analyses of the association of BSC
application with organizational and individual performance. Although they are designed for the context of hospital administration,
the underlying principles should be applicable to studies on the outcomes of BSC application in other types of organization.
Furthermore our study will assist readers to understand the role that BSC application has played in hospital administration in the
public hospitals in China, and the Chinese experience could be a pertinent reference for similar studies in other countries, the
developing countries in particular.
The rest of this paper is organized as below. Section 2 describes the study background such as relevant literature review and
characteristics of current health care and hospital administration systems in China. Section 3 outlines the study method, sample
and variables, and hypotheses. Section 4 presents the empirical results from both univariate and regression analyses and the brief
discussion and conclusion in Section 5 end the paper.
Z. LIN et al. / China Economic Review 30 (2014) 115 3
2 . Study background
Kaplan and Norton (1996, 2001) contend that BSC has a function of transforming organizational strategy into operating
activities whether BSC is applied as a strategic performance evaluation mechanism or as a strategy management system, thus
it will have a direct and positive impact on organizational performance. Within a BSC system, organizational strategy can be
transformed into operational objectives, actions and measures or indicators in terms of four perspectives (e.g., financial,
customer, internal process, and learning and growth). Thus BSC helps to strike a balance between financial and non-financial
performance measures, and build up causal links between the leading and lagging performance measures, the short-term and
long-term performance measures, and the internal and external performance measures. As a result, desirable performance
outcomes can be generated through BSC application (Abernethy & Lillis, 2001; Bryant, Jones, & Widener, 2004; Burnet et al.,
2009; Chenhall, 2005; Cohen, Holder-Webb, Nath, & Wood, 2012; Grafton et al., 2010; Hall, 2008; Kaplan & Norton, 1996,
2001; Lipe & Salterio, 2000; Morard et al., 2013; Said, HassabElnaby, & Wier, 2003; Taylor, 2010; Van der Stede, Chow, & Lin,
2006).
Several prior studies confirm BSC application can positively contribute to organizational performance (e.g., better operating
efficiency and effectiveness). For instance, Hoque and James (2000) find a positive relationship between BSC application and firm
performance through a survey of 66 manufacturing firms in Australia, and such a relationship is more sensitive to large firms or
firms with greater growth potential (e.g., more new products). Inamdar and Kaplan (2002) report that responders in their study
agree that benefits of BSC application are far over the expectation as 52% of the responders agree that BSC application can improve
the competitiveness of their organizations, 79% believe it can improve financial position and 64% feel it can improve the driving
indicators of organizational performance. Van der Stede et al. (2006) report that the use of multi-perspective performance
measurement system of BSC, especially that which includes objective and subjective non-financial performance measures, will
have been credited to higher performance. Later, Geuser et al. (2009), using a unique cause-and-effect scheme to assess BSC
application by 76 business units, confirm that BSC application has improved the integration of management processes and
empowered employees' initiative, therefore BSC does create value for the organizations.
Kaplan and Norton (2001) explicitly argue that BSC can be applied to non-profit organizations although some modifications
may be needed for its measuring perspectives and performance indicators. For a non-profit organization, the ultimate operating
objective is not for financial outcome but to achieve its designated mission and social impact. Therefore both the financial and
customer perspectives are important as they will directly affect the performance of a non-profit organization (Kaplan & Norton,
2008). Besides, BSC application is similar in both business and non-profit organizations. Such a viewpoint has been accepted by
other researchers (Chabg, 2007; Holmes, Pineres, & Kiel, 2006; Kasurinen, 2002; Niven, 2002), and stimulated successful BSC
application in non-profit organizations across countries. For instance, Kaplan and Norton (2001) report the successful case of
Duck Children's Hospital in the USA as BSC application has significantly improved its operating efficiency and effectiveness.
Several other studies have also documented BSC contributions to hospital performance in other countries (Chan & Ho, 2010; Gurd
& Gao, 2008; Inamdar & Kaplan, 2002; Kollberg & Elg, 2011; Koumpouros, 2013; Walker & Dunn, 2006; Woodward, Manuel, &
Goel, 2004; Zelman, Pink, & Matthias, 2003).
Ittner, Larcker, and Meyer (2003) argue that the success and benefits of BSC rely upon how the BSC is applied. BSC, as an
innovative management tool focusing on strategy formation and implementation, should be a centerpiece of the entire
management control system within an organization (Kaplan & Norton, 2001). Thus BSC is an integrative management system to
develop and execute strategy, to create strategic alignment for other management functions (Kaplan & Wisner, 2009). Based on
agency theory and behavior science theory, Kren (1997) suggests that the outcomes of management control system operation
should be evaluated in light of actual performance driven by the system, while the application outcomes should include both
organizational performance and individual behavior (personal performance), because personal performance has a direct impact
on organizational performance (Kaplan & Wisner, 2009; Liden, Wayne, & Sparrowe, 2000; Marr & Schiuma, 2003; Penney &
Spector, 2005; Spector, 1997).
Anthony and Govindarajan (2004) specify that a management control system includes the components of planning, execution,
measurement and feedback, and incentives. Through these administration components employees are directed or motivated to
achieve operational objectives of the organization while reaching their personal objectives at the same time (Neely, 2005). Since
BSC has been evolved from a strategic performance evaluation system to an innovative strategy management system, it should be
integrated with management control system to incorporate six elements such as objective setting, planning and budgeting,
resource allocation, incentives, strategic feedback, and learning (Kaplan & Norton, 2001, 2006). Therefore the desirable outcomes
of BSC application can be traced to planning, communication, action and control, and incentive mechanisms as well (Cardinaels &
van Veen-Dirks, 2010; Malina et al., 2007; Malmi, 2001; Morard et al., 2013; Wiersma, 2009).
Speckbacher et al. (2003) contend BSC application is at varied extent/scale by organizations at different development phrases
and better outcomes should be achieved as the application scale/level increases. A determinant of effective BSC application is
relating to how an organization has transformed its strategy into measureable performance (both organizational and personal)
and connected the performance to appropriate incentive mechanisms (Banker, Potter, & Srinivasan, 2000; Burney & Widener,
2007). Kaplan and Norton (2001) point out that an organizational incentive system should be tied to BSC performance sooner or
later following BSC application. Only if the incentives or rewards are offered based on BSC performance can BSC serve as an
effective strategy management system (HassabElnaby, Said, & Wier, 2005; Malmi, 2001; Van Veen-Dirks, 2010). Evaluation of the
actual outcomes of BSC application in light of incentive mechanisms is a very important issue for BSC studies although there is a
general lack of empirical evidence on this regard.
In China, most health care institutions are directly owned and run by the government. Public hospitals rely upon, to varied
extent, fiscal appropriations by governments at different levels1. Subject to the constraints of long-time highly centralized
economic administration systems, most hospitals are directly funded and run by governmental administrative authorities. Due to
insufficient governmental funding support, medical service resources are tight for most public hospitals. Medical practitioners are
not only insufficient but also less trained. Both medical service quality and hospital operating efficiency are low, far behind the
demands for health care services in the country. On the other hand, hospital administration has long been relying mainly on
administrative means while performance evaluation is based on a few financial measures such as the costs (expenses) and
revenues (fees) of medical services provided, which cannot fully reflect a hospital's overall performance. In addition, subject to
frequent policy changes and interventions of public health administration authorities of the government, most hospitals in China
do not have a clear mission and strategy. The lack of specified operating objectives and the constraint of outmoded hospital
administration practices have not only resulted in poor operating outcomes but also exacerbated the mismatch of the demand
and supply of medical service in the country. As a result, most public hospitals fell behind the growing demands for medical
services while the tension in the relationship between patients and medical service practitioners aggravated (Eggleston & Yip,
2004; Zhao, Li, & Zhu, 2007).
In pace with the progress of large scale economic reforms, the Chinese government has also launched the reforms of health
care administration systems. In particular, the State Council issued Opinion on Further Reforms of Health Care Administration
Systems on April 6, 2009, which requires all health care and medical service organizations establish long-term mechanisms to
align their responsibilities and performance. This policy regulation mandates health care providers must improve medical service
quality and operating efficiency in order to better fulfill the government's public health policy and satisfy patients' demands. The
government public health administrative authorities have introduced competition mechanisms to promote operating efficiency
of medical service institutions. A goal of the reforms is to highlight the importance of performance evaluation in medical service
institutions, in order to induce them to strengthen internal administration and control and set up performance evaluation and
incentive systems based on service quality and responsibility performance, thus to establish long-term mechanisms to ensure
equitable medical services and better operating effectiveness for medical service institutions. Therefore the government's public
health administrative authorities paid increasing attention to the positive BSC roles in strategic performance management, and
introduced BSC philosophy and measures in hospital administration in China. An increasing number of public hospitals have
adopted BSC for strategic performance management in recent years with remarkable benefits observed (Gao, Dou, & Jian, 2007;
Mao, Zhang, & Xing, 2008; Wang, Yang, & Hu, 2008; Xiu & Zhao, 2009; Yu, 2011). Nonetheless there is no empirical study on the
outcomes of BSC application in hospital administration with a nationwide sample.
Under the existing public health administration framework in China, a hierarchical system for hospital administration is in
place. All hospitals are classified by two categories: General hospitals that provide comprehensive medical services and
Specialized hospitals that offer medical services in specialized areas such as children's hospitals, traditional Chinese medicine
hospitals, ophthalmology hospitals, gynecology hospitals, tumor hospitals, etc. In general, the General hospitals have more
medical resources with comprehensive facilities and they are relatively large in operating scope/scale compared to their
counterparts. The Chinese government has also set an accreditation (grading) system for all hospitals in terms of their operating
scope/scale, hospital size, technological quality and medical resources equipped with: Level I (primary) hospitals (with less than
100 patient beds) provide primary health care services and are normally the community hospitals under the jurisdiction of lower
level government authorities; Level II (secondary) hospitals (separated by IIA, IIB, and IIC subcategories), with 100 to 500 patient
beds, provide health care or medical services within specific municipalities; and Level III (tertiary) hospitals (separated by IIIPlus,
IIIA, IIIB and IIIC subcategories), with more than 500 patient beds, provide cross-region medical services. Usually Level III hospitals
are not only larger in operating scope and scale with more medical resources, but also have better societal recognition and greater
market (patient) demands. Thus they can charge relatively higher fees for medical services provided. In addition, Chinese
hospitals are classified by their affiliation with medical schools at universities. Under the administrative systems, the affiliated
hospitals can rely on, or utilize relatively more abundant teaching and research resources of the medical schools at universities so
they will normally have more sophisticated medical equipments and advanced technological facilities, comparing to
non-affiliated hospitals. It can be expected that various types of hospitals in China are subject to different administrative
regulations and have varied responsibilities and privileges in offering health care and medical services in the country.
3 . Study method, sample and variables
3.1 . Research framework and hypotheses
This study focuses on the outcomes of BSC application in public hospitals in China and assesses the contributions of BSC
application to hospital performance (both organizational and personal). Since BSC is an integrated strategic management system,
we particularly evaluate the outcomes of BSC application in Chinese public hospitals in respect to setting BSC performance
1
Public hospitals in China receive government scal appropriations or grants at varied extent, as greater portion of government funding is provided to
relatively small-size public hospitals because large-size comprehensive public hospitals have greater market demands and can generate more revenues or fees
income for the medical services provided. According to government statistics, about 810% of the total revenues of the large public hospitals (e.g., Level III or
tertiary hospitals) are from government appropriations at present.
measures, implementing a BSC system, and connecting incentives to BSC performance. Exhibit 1 outlines the research framework
of this study.
The outcomes of BSC application are directly determined by its actual implementation (Chenhall, 2005; Ittner, Larckera, &
Randallb, 2003; Speckbacher et al., 2003). Following literature review, we classify BSC implementation by four different levels
(scenarios) of BSC application. For the first level (BSC1), the criterion is whether or not a BSC has been adopted, conditional to the
BSC should have four performance perspectives with at least one performance measure in each perspective based on the
framework introduced by Kaplan and Norton (1996, 2001). This classification is consistent with Hoque and James (2000) and
Malmi (2001), and we apply it to distinguish BSC adopter and non-adopter in assessing the difference in hospital performance of
our sample. For hospitals with BSC application (the adopters) we follow Speckbacher et al. (2003) and Geuser et al. (2009) to
further classify BSC application into three levels (scenarios) by the following criteria:
1) the ratio of the number of performance measures (indicators) being used over the total number of performance measures
(indicators) for the standard/benchmark BSC with four perspectives (BSC2), with an assumption that a greater ratio indicates
the greater extent of BSC application;
2) the degree of connecting BSC performance measures (non-financial in particular) to incentives or rewards (BSC3). Many
researchers argue that there is a risk of BSC dysfunction if BSC performance is not tied to incentive system (Dikolli & Sedatole,
2007; Kaplan & Norton, 2001). We define the incentive rewards in a broad sense, including performance bonus, promotion in
professional ranks or positions, and reward of vocational training opportunities, etc. BSC3, being measured as the usage of
non-financial performance measures in the determination of total incentive rewards, represents the relative importance
(weight) of non-financial performance measures (indicators) in determining the incentive rewards;
3) the comprehensiveness of BSC application in management control system within an organization (BSC4), which indicates
whether BSC has been integrated with the functions of setting operating objectives, planning and budgeting, resource
allocation, control and strategic feedback, incentives and learning (Kaplan & Norton, 2006, 2008). More comprehensive BSC
adoption will result in better BSC application outcomes.
Following the logic of our study framework, we specifically evaluate the outcomes (i.e., hospital performance) of BSC
application at varied levels or scenarios. Consistent with Kren (1997) and Penney and Spector (2005), we define the performance
outcomes embracing organization performance (direct outcomes) and personal/individual performance (indirect outcomes).
Personal performance, like psychological performance, is further specified as personal satisfaction with the organizational
performance evaluation system (Ittner, Larckera, & Randallb, 2003). Under the traditional compensation and incentive programs
in Chinese hospitals, performance income or bonus of medical service practitioners is only tied to a few financial performance
indicators (revenues/fees or cost control) of their working units (medical service departments). Such kind of incentive system
induces benefit-battle or rent-seeking behaviors. Those medical service departments with greater revenue/fee-generating
capability (e.g., surgery, medical inspection or operation, and pharmacy) can have better performance income than other
departments that lack significant fee-generating capacity (such as pediatrics and traditional Chinese medicine departments).
Thus inequality in the distribution of performance bonus income exists among medical service departments, which causes
tension in departmental and personal relations and negatively affects the morale and work initiative of medical service
Exhibit 1. Study framework of BSC application and its outcomes.

practitioners and hampers cooperation across medical service departments. With the adoption of BSC, performance income is
linked simultaneously to multiple perspectives of performance such as medical service revenues or costs (financial), patients'
satisfaction and demands (customer), medical service quality and procedures (internal operating processes), and research and
training (learning and growth). This enhances the recognition or acceptance of equality in the distribution of performance
incentive incomes by medical service practitioners, which, in turn, will increase their satisfaction with the performance
evaluation and enhance their morale, commitment, and work initiative. This result is also a positive outcome of BSC application,
i.e., the psychological performance of individuals, even though it is an indirect performance to the hospitals. Many management
studies confirm that the increase of personal satisfaction of employees will eventually contribute to organizational performance
(Burney & Swanson, 2010; Hall, 2008; Lau & Tan, 2003; Libby, Salterio, & Webb, 2004; Liden et al., 2000; Penney & Spector, 2005;
Smith, Kendall, & Hulin, 1969; Spector, 1997). Therefore we set two hypotheses as below:
H1. BSC application can improve organizational performance of public hospitals in China.
H2. BSC application can increase medical service practitioners' satisfaction with performance evaluation in public hospitals in
China.
3.2 . Variables and data
We conduct a survey to collect data about BSC application, organizational performance and personal satisfaction with BSC
performance evaluation in public hospitals in China.2 Kaplan and Norton (2001) contend that effective BSC application should be
carried out at strategic business units within an organization. Our survey targets the responsible persons (department heads/
team leaders) and doctors (physicians and surgeons) working at the medical departments directly providing medical services in
the public hospitals. Our sample covers public hospitals across the country, including hospitals with different categories, grades
and affiliation nature under the existing health care administration systems in China.
The design of our survey instrument has referred to similar studies in the literature and incorporated the results of
consultation of medical practitioners in a few hospitals at Beijing. The questionnaire includes items regarding varied statuses
(scenarios) of BSC application and the outcomes of BSC application. For BSC1, respondents are asked to reply whether or not BSC
with performance measures in four perspectives has been adopted by their departments (Yes = 1, No = 0). BSC2 is the ratio
calculated with the responses in returned questionnaires indicating the number of performance measures being used over the
total number of performance measures in a standard/benchmark BSC,3 adopting the method used by Hoque and James (2000),
and we follow Van der Stede et al. (2006) that organizations with less extensive performance measurement systems will have
weaker performance. First, we identify the number of actual performance measures being used in each perspective of BSC from
the returned questionnaires and the largest number as the benchmark. We then calculate the usage ratio in terms of the
benchmark and further calculate the aggregated arithmetic mean of the used performance measures in the four perspectives with
the weighting of 25% for each perspective as the overall adoption ratio score for an individual sample hospital, assuming the
greater the score the more comprehensive BSC application. BSC3 is measured by determining the utilization of non-financial
performance measures in the perspectives of customers (patient's demands and satisfaction), internal processes (medical service
quality and operating procedures), and learning and growth (research and training) in the determination of total incentive
rewards. Since BSC4 measures the comprehensiveness of BSC application in terms of BSC's function as a strategic management
system, we design 10 items with a 5-point Likert scale to collect data and run factor analysis to obtain the construct of
comprehensiveness of BSC application for the sample hospitals.
There are many definitions and evaluation methods to determine organizational performance in management studies.
Mohaney, Jerdee, and Carroll (1965) initially developed a method of self-rating to measure organizational performance, which is
frequently applied by many studies (Bryant et al., 2004; Burnet et al., 2009; Frambach & Schillewaert, 2002; Gregson, 1990;
Griffith, Alexander, & Jelinek, 2002; Ittner, Larcker, & Meyer, 2003). Although this self-rating method may suffer from a potential
overstatement bias by the rating person, all respondents may have bias toward their own organizations. As a result, the potential
bias of self-rating can be alleviated across the sampled organizations (Liden et al., 2000; Smith et al., 1969).
Abernethy and Lillis (2001) define hospital performance with six elements, i.e., medical service costs, medical facilities and
reputation, medical service quality, training of undergraduate and postgraduate students, research output, and ability to obtain
resources, which are generally aligned with the basic principles underlying the standard BSC perspectives introduced by Kaplan
and Norton (1996). Therefore we design six items following Abernethy and Lillis (2001) to collect data regarding organizational
performance of public hospitals in China. Responders are required to rate the relative performance of their hospitals compared to
other hospitals with similar size and functions with a 5-point Likert scale measurement. Finally, for individual/personal
2
Data collection of this study is only a part of a large survey project we conducted to investigate BSC application by public hospitals in China.
3
Kaplan and Norton (1996, 2001) suggest that a BSC with the total number of 20 to 30 performance indicators is appropriate while fewer or more performance
measures/indicators will actually reduce the effectiveness of BSC usage. In this study we set 6 to 8 measures (indicators) for each of the four perspectives of BSC
matrix and identify the largest number of actual usage by the sample hospitals as the benchmark BSC.
performance, we adopt the method developed by Ittner, Larckera, and Randallb (2003) in assessing individual satisfaction with
three items in the questionnaire to collect data for constructing the overall measure of individual satisfaction variable.
Our survey was completed in early 2011. There were 10,443 public hospitals in China according to The China Statistics Yearbook
of Public Health and Medical Care 2011.4 However, most high-grade or comprehensive public hospitals locate mainly in large
municipal cities or well-developed coastal areas. We have to adopt a convenient sampling method with a balanced consideration
of the uneven distribution of public hospitals (both the number and grading nature) and regional economic development. A total
of 800 questionnaires were sent roughly proportionately to the public health administration authorities at the provincial level
across the country. We then made direct communication with officials at the public health administration authorities and the
administrators of the sample hospitals to ensure a satisfactory response rate. The purposes and requirements of our study are
explicitly specified or explained to obtain their understanding and support for this study. The survey instruments were
distributed by them (one questionnaire for a sample hospital) to respondents at the medical service departments in the hospitals
under their jurisdiction.5 Pre-addressed envelopes were included with the questionnaires so respondents could send them back
to us directly. Through two reminders by telephone and email follow-up, 640 questionnaires were returned with a response rate
of 80%. Deleting 47 returned questionnaires with incomplete answers, the usable questionnaires are 593 (74.2%). Observed by the
demographical data (i.e., age, education, job title, work experience, professional qualification, etc.) collected from the returned
questionnaires, 270 respondents are department heads and medical service team leaders while the remaining 323 are doctors
(physicians and surgeons), accounting for 46% and 54%, respectively, of the total sample. On average, the respondents have work
experience in their current positions for about 6 to 10 years and the majority of them are at or above middle age and holding
professional qualifications/ranks, so their responses can be seen as representative. We have run t-test for the earliest and the
latest 30 returned questionnaires and found no significant difference so the non-response bias is unlikely for our survey results.
In this study, the comprehensiveness of BSC application (BSC4), organizational performance (PERFORM) and individual
satisfaction (SATISFACTION) are the latent constructs derived from the returned questionnaires. They have been converted into
the constructs of interest through factor analysis with the results of their reliability and validity check listed in Table 1. As
indicated, these three constructs of interest (e.g., comprehensiveness of BSC application, organizational performance, and
individual satisfaction) all have Cronbach's N 0.85, implying the reliability of these constructs are acceptable. Their KMO values
are 0.80 and they are appropriate for factor analysis. With the principal component analysis, all factor loadings are N0.70, and
the square root of AVE is larger than the correlations between BSC4 and performance variables. Therefore our measurement
instrument for these three latent constructs has good convergent validity and discriminant validity, indicating our questionnaire
design is reliable. In addition, we run confirmatory factor analysis, following Modell (2005), for all three construct items and did
not find a dominant latent factor; hence the common method bias is immaterial in our study design although the predictor and
criterion constructs are derived from the same source.
3.3 . Analysis models
We apply both univariate and multivariate analyses to test the two hypotheses. First, between-group comparison and analysis is
conducted. We run t-test and Wilcoxon rank sum test over the mean difference for the between-group comparison. For the variable
of BSC1, the sample is split by BSC adopter and non-adopter based on the response data from returned questionnaires to run
statistical tests. BSC2, BSC3, and BSC4 are continuous variables and we partition the high degree and low degree application groups
with the quartiling method. Thus the sampled hospitals with their group mean less than or equal to the first quartile (1/4) is
defined as low degree of application group while hospitals in the fourth quartile, i.e., the quartiling value equal to or greater than the
third quartile group (3/4), as the high degree application group, conditional to the size is equal to or greater than 50 in each group.
We also develop two multiple regression models to analyze the impact of BSC application on hospital performance (both
organizational performance and individual satisfaction);

PERFORMi i1;2;3;4 1 BSC i 2 CATEGORY DUMMY 3 GRADE DUMMY 4 AFFILIATION DUMMY 1

SATISFACTION i i1;2;3;4 1 BSC i 2 CATEGORY DUMMY 3 GRADE DUMMY 4 NAFFILIATION DUMMY 2
PERFORM and SATISFACTION are the proxy variables (derived from factor analysis) for organizational performance and individual
(psychological) performance respectively. BSCi, with i = 1, 2, 3, or 4, represents, respectively, the four different measures of BSC
application statuses (levels) being constructed. CATEGORY, GRADE and AFFILIATION are dummy variables indicating hospital category
4
At nationwide, the distribution is 3081, 6104, and 1258 for the Level I (primary), Level II (secondary) and Level III (tertiary) hospitals, respectively, among the
total of 10,443 public hospitals in 2010. The regional distribution is 3894 (1196, 2113, 585 for Levels I, II, III), 3513 (1113, 2041, and 359 for Levels I, II, III), and
3056 (772, 1950, and 314 for Levels I, II, and III) for the Eastern, Central and Western regions, respectively.
5
The sample hospitals were selected by ofcials at the provincial public health administration authorities and the respondents were determined by the
administrators in the sample hospitals. Judging by the returned questionnaires, a greater proportion of respondents were from large (i.e., Level III) or
comprehensive hospitals, perhaps, due to two reasons: 1) the convenience of questionnaire distribution by the provincial public health government ofcials as
they might prefer to distribute questionnaires to relatively large or high-grade hospitals under their jurisdiction; and 2) lower response rate from those survey
subjects at relatively small or lower grade hospitals due to their less exposure to research and training subject to less resource support in their hospitals. Thus
there may have a potential sample selection bias for public hospitals with different size and operating nature across the country.
Table 1
Definition and measurement of variables.
Variables Variable symbols Variable measurement and data sources
Status of BSC BSC1 =1 if performance measures in four perspectives are used, 0 otherwise
application BSC2 The ratio of performance measures to the total measures of a standard BSC, calculated with data obtain
from survey
BSC3 Weight of non-financial measures in the determination of incentive rewards, data obtained from survey
BSC4 Comprehensiveness of BSC application, a proxy variable derived from latent construct in survey data
through factor analysis
Organizational PERFORM An aggregated variable for organizational performance, derived from latent construct in survey data
performance through factor analysis
Individual satisfaction SATISFACTION An aggregated variable for individual satisfaction, derived from latent constructs in survey data
through factor analysis
Hospital category CATEGORY_DUMMY =1 if it is a General hospital; 0 otherwise
Hospital grade GRADE_DUMMY =1if it is a Level III hospital; 0 otherwise
Hospital affiliation NATURE_DUMMY =1 if it is affiliated with medical school of a university; 0 otherwise
Notes: 1) BSC1BSC4 represent varied application statuses of BSC application and they are derived from a nationwide survey conducted by this study; 2) PERFORM
and SATISFACTION are the latent constructs for hospital performance and individual satisfaction with the performance evaluation based on BSC, respectively,
derived from the survey results. The design of the survey instrument is in line with Abernethy and Lillis (2001), Ittner, Larckera, and Randallb (2003) and Kaplan
and Norton (2006, 2008); and 3) classification of hospitals is in accordance with The China Statistics Yearbook of Public Health and Medical Care 2011.
(1 = General hospital, 0 = Specialized hospital), grade (1 = Level III (tertiary) hospital, 0 otherwise) and affiliation nature (1 =
hospital affiliated with medical school at university, 0 otherwise) of the public hospitals under the existing health administration
systems in China. The definitions and measurements of all variables are presented in Table 2.
4 . Results
4.1. Descriptive statistics
Among the 593 usable returned questionnaires, 493 confirm that BSC with performance measures in four perspectives has
been adopted in their hospitals. Table 3 shows that, overall, the number of BSC adopter (BSC1) accounts for 83.1% of the total
Table 2
Reliability and validity check of the latent constructs.
Variables Mean Standard Factor

deviation loading
Panel A: Comprehensiveness of BSC application (BSC4)

KMO = 0.917; Eigenvalue = 6.350; Cronbach' = 0.936; AVE = 0.6351
1. There is complete documentation of my performance with the records of performance evaluation. 3.58 1.082 0.746
2. There is a balance of short-term and long-term performance in the performance evaluation. 3.52 1.005 0.764
3. Performance evaluation aligns the work of individual and department with the achievement of hospital goals. 3.58 1.054 0.806
4. Performance evaluation facilitates cooperation among individuals and departments in light of the hospital strategy. 3.56 1.080 0.821
5. Statistics are used to determine performance measures as the base of performance evaluation. 3.45 1.030 0.816
6. Targets/standards are set in advance of performance evaluation. 3.65 0.992 0.820
7. Specific arrangement with necessary resource is allocated to achieve key development goals. 3.64 0.969 0.775
8. There are regular analysis and adjustment of the weights of performance measures based on evaluation results. 3.52 1.045 0.849
9. Senior and middle-level managers regularly review the development plans of the hospital and departments 3.56 1.055 0.828
following performance evaluation.
10. Senior management supports the performance evaluation approach being currently used. 3.70 0.966 0.736
Panel B Organizational Performance (PERFORM)

1. Medical service costs and expenses 3.38 0.817 0.701
2. Medical techniques and service reputation 3.69 0.829 0.794
3. Quality of medical services 3.65 0.814 0.815
4. Training of undergraduate and postgraduate students 3.17 1.061 0.818
5. Research and output 3.07 1.056 0.812
6 Market share 3.28 0.948 0.797
Panel C Satisfaction with the performance evaluation (SATISFACTION)

1. Performance evaluation meets my expectation. 2.92 1.000 0.940
2. Performance evaluation is close to the desirable approach I expect. 2.95 1.018 0.952
3. I'm satisfied with the performance evaluation. 3.00 1.038 0.950
Note: All questions and mean scores are derived from nationwide survey results regarding the balance scorecard application status and outcomes in public
hospitals in China conducted by this study, as the survey instrument design has particularly followed Abernethy and Lillis (2001), Ittner, Larckera, and Randallb
(2003), and Kaplan & Norton, 2006, 2008.
Table 3
Status of BSC adoption by hospitals in China.
Classification Adoption of BSC in hospital administration Chi-square & p-value
Adoption Non-adoption
Type of hospital Number Percent Number Percent Number Percent
General hospitals 459 77.4% 390 85.0% 69 15.0% 2 = 4.856

Specialized hospitals 134 22.6% 103 76.9% 31 23.1% P = 0.028
Total 593 100.0% 493 83.1% 100 16.9%
Grade of hospital
Level III hospitals 396 66.8% 341 86.1% 55 13.9% 2 = 7.523
Non-level III hospitals 197 33.2% 152 77.2% 45 22.8% P = 0.006
Total 593 100.0% 493 83.1% 100 16.9%
Nature of hospital
University affiliated 201 33.9% 177 88.1% 24 11.9% 2 = 5.257
Non-university affiliated 392 66.1% 316 80.6% 76 19.4% P = 0.022
Total 593 100.0% 493 83.1% 100 16.9%
Notes: 1) Data are based on 593 usable returned questionnaires from a nationwide distribution of 800 questionnaires conducted by this study; classification of
hospitals is in accordance with The China Statistics Yearbook of Public Health and Medical Care 2011; and 2) 2 and P-value are derived from the between-group
comparisons for adoption- vs. non-adoption subgroups of the responding hospitals.
sample. In general, the data suggests that BSC has been widely applied in hospital administration by Chinese public hospitals at
present6. Nevertheless the adoption rate varies with respect to the category, grade or affiliation nature of the public hospitals
under the existing public health administration systems in China (within a range of 77% to 88%), which is also presented in
Table 3. The differences in the between-group adoption rate comparisons are all significant at the 5% or 1% level. As indicated,
hospitals at larger operating scope/scale (e.g., the General hospitals), with higher grade (e.g., Level III hospitals) and hospitals
with better technological facilities and reputation (hospitals affiliated with medical schools at universities) are more eager to
adopt BSC than their counterparts.
Based on our specification of BSC application status, BSC2, BSC3 and BSC4 represent the ratio of performance measures being
used over the total performance measures of the standard/benchmark BSC, the weight of non-financial performance measures in
determination of total incentive rewards, and the comprehensiveness of BSC application in management control system,
respectively. They are derived only from the 493 returned questionnaires that confirm the adoption of BSC in their hospital
administration. Descriptive statistics for these BSC application status variables and the control variables are presented in Table 4.
The mean value for BSC2 is 0.681 (s.d. = 0.222). In our sample of BSC adoption by the public hospitals in China, the
performance measures utilized in their BSC have, on average, reached more than 60% of the total performance measures for a
standard/benchmark BSC as recommended by BSC advocators. But there is a wide gap in the number of performance measures
being used in BSC by the sample hospitals with a minimum of 25% up to the maximum of 100%. For the weight of non-financial
BSC performance measures in the determination of total incentive rewards (BSC3), the mean value is 2.616 (s.d. = 1.025) in the
5-point Likert scale, suggesting that about a half of the performance measures used in determining incentive rewards by the
sample hospitals are non-financial in nature. Regarding the comprehensiveness of BSC application (BSC4), the mean value is 3.576
out of 5 in the Likert scale, which indicates that respondents generally agree that BSC has been integrated with management
control functions of planning, resource allocation, control, feedback and incentives in their hospitals.
The mean values are 3.373 (s.d. = 0.730) and 2.957 (s.d. = 0.965), respectively, for the two constructs of organizational
performance (PERFORM) and individual performance (SATISFACTION), both support that the respondents have generally
recognized BSC's positive impact on hospital performance as the mean values are larger than the mid-point in the 5-point Likert
scale. Relatively speaking, the degree of acceptance of such an impact on hospital performance is higher for organizational
performance than for individual satisfaction.
4.2 . Univariate analysis
Table 5 illustrates the analysis of BSC application outcomes with respect to varied application statuses (levels). Panel A reveals
that the perceived/recognized organizational performance for BSC adopters is greater than the non-adopter group (MA = 3.373
vs. MN = 3.163) while the individual satisfaction score for BSC adopter group is also greater than the non-adopter group (MA =
2.957 vs. MN = 2.617). T-statistic and Wilcoxon statistic for test of the difference in the between-group means are both
significant at the 1% level.
Panel B presents the between-group comparison for the high- and low degrees of BSC utilization performance measures over
the total number of performance measures in a standard/benchmark BSC (BSC2). It is indicated that the mean values for the High
and Low groups with respect to perceived/recognized organizational performance are MH = 3.444 vs. ML = 3.239 while those
6
It is noted that our sample is not evenly distributed for the subsamples of General vs. Specialized hospitals, of Level III vs. Non-level III hospitals, and of
medical school afliated vs. non-afliated hospitals. Dominant portion of Level III (tertiary) and General hospitals in the sample may cause a limitation to the
representativeness of our sample.
Table 4
Descriptive statistics of main constructs (N = 493).
Variables Value range Minimum Median Maximum Mean Standard deviation
BSC application (BSC2) 01 0.2500 0.6872 1.0000 0.6814 0.2221

Organizational performance (PERFORM) 15 1.1700 3.3333 5.0000 3.3732 0.72981
Individual satisfaction (SATISFACTION) 15 1.0000 3.0000 5.0000 2.9567 0.96526
Note: BSC2 represents the ratio of performance measures to the total measures of a standard BSC; BSC3 is the weight of non-financial measures in the
determination of incentive rewards; BSC4 denotes the comprehensiveness of BSC application, a proxy variable derived from a latent construct in the survey data
through factor analysis; PERFORM denotes an aggregated variable for organizational performance, derived from a latent construct in the survey data through
factor analysis; SATISFACTION is an aggregated variable for individual satisfaction, derived from latent constructs in the survey data through factor analysis. All
data derive from the results of a nationwide survey regarding BSC application status and outcomes in public hospitals in China conducted by this study.
for individual satisfaction are MH = 3.095 vs. ML = 2.637, respectively. T-statistic and Wilcoxon statistic for test of the difference
in the between-group means are significant at the 5% level for organizational performance and the 1% level for individual
satisfaction.
Regarding the weight of non-financial performance measures over total performance measures used in determining incentive
rewards (BSC3), Panel C shows the between-group comparison results for the high- and low degrees of application groups. The
mean values for the High and Low groups with respect to perceived/recognized organizational performance are MH = 3.481 vs.
ML = 3.199 while those for individual satisfaction are MH = 3.164 vs. ML = 2.621, respectively. T-statistic and Wilcoxon statistic
for test of the difference in the between-group means are both significant at the 1% level.
Panel D presents the between-group comparison for the High and Low groups in respect to the comprehensiveness of BSC
application in management control system (BSC4). It shows that the mean values for the High and Low groups with respect to
perceived/recognized organizational performance are MH = 3.743 vs. ML = 3.012 while that for individual satisfaction are
MH = 3.409 vs. ML = 2.505, respectively. T-statistic and Wilcoxon statistic for test of the difference in the between-group means
are both at the 1% significance level.
The results of all these between-group comparisons clearly demonstrate that BSC application, the higher degree of utilization
or application in particular, can improve organizational performance and individual satisfaction in the public hospitals in China,
suggesting that our two hypotheses are supported.
Table 5
Univariate analysis of the outcomes of BSC application.
Organizational performance (PERFORM) Individual satisfaction (SATISFACTION)
Panel A BSC1 (N = 593)

No BSC adoption group (N = 100) 3.1633 2.6167
BSC adoption group (N = 493) 3.3732 2.9567
Between-group t-test 2.643 (0.008)*** 3.253 (0.001)***
Wilcoxon rank sum test 2.629 (0.009)*** 3.440 (0.001)***
Panel B BSC2 (N = 493)

Low application group (N = 79) 3.2358 2.6371
High application group (N = 123) 3.4444 3.0949
Between-group t-test 2.322 (0.021)** 3.296 (0.001)***
Wilcoxon rank sum test 2.003 (0.045)** 3.160 (0.002)***
Panel C BSC3 (N = 493)

Panel D BSC4 (N = 493)

Notes: 1) BSC1 represents a sample hospital that has adopted the performance measures in BSC with four perspectives; BSC2 represents the ratio of performance
measures to the total measures of a standard BSC; BSC3 is the weight of non-financial measures in the determination of incentive rewards; BSC4 denotes
comprehensiveness of BSC application, a proxy variable derived from a latent construct in the survey data through factor analysis. All data derive from the results
of a nationwide survey regarding BSC application status and outcomes in public hospitals in China conducted by this study; 2) high- and low degrees of BSC
application subgroups are partitioned by quartiling method. Sampled hospitals with their group mean less than or equal to the first quartile is defined as low
degree of application group while hospitals in the fourth quartile as the high degree application group, and 3) ***, ** denote the significance level at 1%, 5%,
respectively.
4.3 . Regression analysis
Table 6 shows the Pearson/Spearman correlation coefficients for the relation of BSC application to hospital performance. BSC1
is indicated although it can be replaced by BSC2, BSC3, and BSC4, respectively, with the correlation coefficients are consistent in
nature. The correlation analysis results confirm that BSC application (regardless of varied application statuses or levels) is
positively related to both organizational performance and individual satisfaction in Chinese public hospitals at the 1% significance
level.
Table 7 reports the regression results of the association of BSC application with hospital performance. Models 14 present the
regression results as BSC1, BSC2, BSC3, or BSC4 is the test variable, respectively. No matter if the hospital performance is defined as
organizational performance or individual satisfaction, the coefficients for different BSC application statuses (or levels) are all
significantly positive (at the 1% significance level). These results again support our two hypotheses that BSC application can
significantly improve organizational performance and individual satisfaction in the public hospitals in China.
Table 7 also reveals that the dummy variable of hospital category (e.g., General hospitals vs. Specialized hospitals) does not
have a significant impact on hospital performance. However, high-grade hospitals (e.g., Level III hospitals) and hospitals affiliated
with medical schools in universities have positively impacted organizational performance at the significance levels of 5% or 1%,
respectively. This may be because high-grade (tertiary) hospitals and hospitals affiliated with medical schools in universities have
relatively more medical resources and sophisticated technological facilities as well as better reputation in the market. Therefore
they have greater patient demands and can also enjoy price premium for their medical services provided, which should have a
positive effect on their organizational performance in the perspectives of financial achievements, reputation, medical service
quality, market share, research and growth, under the existing public hospital administration systems in China.
5 . Conclusion and implications
With a nationwide sample we have studied BSC application and its outcomes (e.g., organizational performance and individual
satisfaction with BSC performance evaluation) in public hospitals in China. We find that, overall, 83.1% of the respondents confirm
that BSC with performance measures in four perspectives has been adopted in their hospitals. This result reveals that BSC, the
strategic performance evaluation system based on BSC in particular, has been applied at a fairly large extent in Chinese public
hospitals at present. Especially, the General hospitals, high-grade (tertiary) hospitals and those hospitals affiliated with medical
schools in universities have not only adopted BSC in hospital administration to a greater extent but also achieved better outcomes.
Our findings suggest that the Chinese public health authorities and public hospitals have now emphasized on the adoption of BSC
in setting up strategic performance evaluation systems. The results demonstrate that BSC application in Chinese public hospitals
could overcome short-term behaviors induced by financial performance measures, enhance medical practitioners' morale,
commitment and working initiative, and effectively improve organizational performance and increase individual satisfaction with
performance evaluation in the public hospitals in China. More specifically, we may draw a few conclusions as follows:
First, hospitals that have adopted BSC with performance measures in four perspectives (i.e., financial/operational, customers/
patients, service quality/operating procedures, and learning and growth) can achieve better organizational performance and
individual satisfaction, compared to the non-adopters. Therefore hospitals should also emphasize upon the performance measures
on customers (patients' demands and satisfaction), internal processes (service quality and operating procedures), and learning and
growth (research and training) instead of simply relying upon financial performance measures in hospital administration.
Second, hospitals that have utilized more performance measures in their BSC can outperform their counterparts that use less
performance measures in BSC application with respect to both organizational performance and individual satisfaction. An
explanation is that, when more performance measures are utilized, particularly more non-financial performance measures
mapped with organizational strategy are utilized, performance can be motivated and evaluated from multiple perspectives.
Especially, with the cause-and-effect links between leading and lagging factors embedded by a BSC matrix, effort can be
stimulated to promote goal congruence and cooperation among medical service departments and practitioners in light of hospital
strategy or operating goals. Therefore better organizational performance can be reached and medical service practitioners will
also be more satisfied with the performance evaluation in terms of multiple performance perspectives, instead of relying only
Table 6
Correlation coefficients for main constructs (N = 493).
Variables (1) (2) (3)
(1) BSC1 1 0.141*** 0.108***

(2) PERFORM 0.133*** 1 0.439***
(3) SATISFACTION 0.108*** 0.465*** 1
Notes: 1) BSC1 denotes a sample hospital has adopted the performance measures in BSC with four perspectives, PERFORM represents an aggregated variable for
organizational performance, derived from a latent construct in the survey data through factor analysis; SATISFACTION is an aggregated variable for individual
satisfaction, derived from latent constructs in the survey data through factor analysis. All data derive from the results of a nationwide survey regarding the
balance scorecard application status and outcomes in public hospitals in China conducted by this study; 2) numbers below diagonal are Pearson correlation
coefficients for the main constructs; numbers above diagonal are Spearman correlation coefficients, and 3) *** denotes significance at the 1% level.
Table 7
Regression analyses of the outcomes of BSC application.
Expected sign Organizational performance Individual satisfaction

(PERFORM) (SATISFACTION)
Variables Model Model Model Model Model Model Model Model

I II III IV I II III IV
Intercept 2.916*** 2.844*** 2.674*** 1.957*** 2.61*** 2.546*** 2.188*** 1.486***

(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
BSC1 [+] 0.135** 0.34***
(0.081) (0.001)
BSC2 [+] 0.423*** 0.782***
(0.003) (0.000)
BSC3 [+] 0.161*** 0.314***
(0.000) (0.000)
BSC4 [+] 0.325*** 0.438***
(0.000) (0.000)
CATEGORY_DUMMY 0.085 0.018 0.019 0.066 0.029 0.065 0.065 0.008
(0.224) (0.823) (0.809) (0.367) (0.764) (0.543) (0.529) (0.935)
GRADE_DUMMY 0.209*** 0.152** 0.217*** 0.134* 0.028 0.111 0.015 0.131
(0.002) (0.040) (0.003) (0.054) (0.759) (0.274) (0.882) (0.171)
AFFILIA_DUMMY 0.308*** 0.338*** 0.313*** 0.303*** 0.007 0.019 (0.851) 0.029 0.030
(0.000) (0.000) (0.000) (0.000) (0.935) (0.758) (0.744)
F-value 15.2*** 12.565*** 17.8*** 32.2*** 2.684** 4.039*** 15.122*** 19.646***
(0.000) (0.000) (0.000) (0.000) (0.031) (0.002) (0.000) (0.000)
2
Adjusted R 8.7% 8.6% 12.0% 20.2% 1.1% 2.6% 10.3% 13.2%
N 593 493 493 493 593 493 493 493
Notes:1) BSC1 represents a sample hospital that has adopted the performance measures in BSC with four perspectives; BSC2 is the ratio of performance measures
to the total measures of a standard BSC, calculated with data obtain from survey results; BSC3 is the weight of non-financial measures in the determination of
incentive rewards; BSC4 denotes the comprehensiveness of BSC application, a proxy variable derived from latent construct in survey data through factor analysis;
PERFORM denotes an aggregated variable for organizational performance, derived from latent construct in survey data through factor analysis; and SATISFACTION
is an aggregated variable for individual satisfaction, derived from latent constructs in survey data through factor analysis. All data derive from the results of a
nationwide survey regarding BSC application status and outcomes in public hospitals in China conducted by this study. 2) CATEGORY_DUMMY is a dummy that
equals 1 if a sample hospital is a General hospital, 0 otherwise; GRADE_DUMMY is a dummy that equals 1 if a sample hospital is a Level III (tertiary) hospital, 0
otherwise; and AFFILIA_DUMMY is a dummy that equals 1 if a sample hospital is affiliated with a medical school at a university, 0 otherwise. 3) Values in brackets
are p-value of t-test (2-tailed), while ***, **, and * denote significance at 1%, 5%, and 10% levels, respectively.
upon financial measures under the traditional performance evaluation systems in hospital administration. This finding implies
that it is necessary to employ more non-financial measures to improve organizational performance in public hospitals, which will
also increase individual satisfaction with the performance evaluation.
Third, the closer the linkage of non-financial performance measures to the incentive rewards, the better the organizational
performance and individual satisfaction. Apparently personal motivation is driven not only by financial performance measures
but also by non-financial measures. A key issue is that the determination of incentive rewards should embrace the evaluation of
non-financial performance. This will not only generate a fair and more complete performance evaluation but also promote the
equality in performance evaluation and increase staff satisfaction and morale, so that better organizational performance can be
achieved in the public hospitals.
Fourth, BSC should be applied as a strategy management control system beyond performance evaluation. Increase in the
comprehensiveness of BSC application in management control system can promote the efficiency and effectiveness of other
management control functions such as planning and budgeting, resource allocation, implementation, measurement and feedback,
and motivation, which will inevitably enhance organizational performance and individual satisfaction. To integrate BSC
application with management control in hospital administration can contribute to significant improvement for the performance
of public hospitals in China.
Our study results have multifold implications. This study provides empirical evidence on BSC application and its outcomes in
public hospitals in China and our findings should contribute to the improvement of hospital administration in general. In the
meantime there is an urgent need to standardize and upgrade BSC application in hospital administration, so BSC application can
more effectively improve organizational performance and practitioners' satisfaction in Chinese public hospitals. The Chinese
experience of BSC application in hospital administration can also serve as a valuable reference for other countries, the countries
with similar public health care administration systems or the developing countries in particular.
Although our study finds that BSC has been widely adopted in hospital administration in China, the BSC application remains at
the stage of strategic performance evaluation for many hospitals. As some BSC advocates argue, the most critical role of BSC is its
capacity of strategy formation and implementation (Banker et al., 2004; Chenhall, 2005; Geuser et al., 2009; Kaplan & Norton, 1996,
2006; Morard et al., 2013; Taylor, 2010). Therefore BSC application in hospital administration in China must be further expanded
into a system of strategy management. Additional to strategic performance evaluation, BSC should be used for strategy formation,
translation and implementation, goal congruence and organizational coordination, operational control and monitoring, feedback and
evaluation, and motivation and incentives. Thus each hospital should be transformed into a strategic operational center through BSC
application to fully realize the positive impact of BSC application on organizational and individual performance.
There are some limitations in this study. Constrained by research resource and operational difficulty of nationwide survey in
China, we had to apply convenient sampling instead of rigorous random sampling to collect data through the assistance of
provincial public health administration authorities for questionnaire distribution, so sample representativeness may be
somewhat compromised. Because we cannot control the actual distribution of questionnaires to various types of hospitals, there
might be a sample selection bias due to an un-proportional number of large or high-grade hospitals (e.g., Level III or General
hospitals) in our sample, which may limit the generalization of the study findings. In addition, we have to develop our constructs
of interest about the varied statuses or levels of BSC application and hospital performance (both organizational and individual
psychological performance) through latent constructs due to non-availability of applicable constructs in the literature. Thus the
reliability and validity of the constructs of interest used in this study, although satisfactory results of conventional checks are
obtained, could be increased with more rigorous study design and data analysis. Therefore the inference from our study findings
should be made with caution. Besides, this study has mainly empirically found that BSC application can improve both
organizational and personal performance in the Chinese public hospitals, but does not analyze the effect of other factors that may
also contribute to the performance improvement. In theory, the innovative management tool like BSC can enhance organizational
performance but organizations with better performance may also help to enhance the motivation and actual implementation of
innovative management techniques or tools. These issues are beyond the scope of this study but they are certainly worthy of
further exploration in future research.
In addition, our sample includes only the public hospitals directly run by government authorities in China. As we know, some
non-public hospitals, e.g. share-capital structured hospitals, private hospitals, joint-ventures or sole foreign-owned hospitals with
investment from overseas (including Taiwan, Hong Kong and Macau), have emerged in China in the course of rapid economic
diversification and the reforms of public health care administration systems in recent years. In many other countries, non-public
hospitals may even be the major providers of health care or medical services. There are substantial differences in funding sources,
operational goals, management style and incentive systems between public hospitals and non-public hospitals. Therefore BSC
application and its outcomes in non-public hospitals are another area worthy of future study in China and other countries in the
world.
Acknowledgment
The authors are grateful to the anonymous reviewers and journal editors for their insightful comments and suggestions to the
previous versions of this paper. Remaining errors are thus ours.
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China Economic Review 30 (2014) 115

Contents lists available at ScienceDirect

China Economic Review

Performance outcomes of balanced scorecard application in

3 . Study method, sample and variables

3.1 . Research framework and hypotheses

Exhibit 1. Study framework of BSC application and its outcomes.

3.2 . Variables and data

3.3 . Analysis models

Variables Variable symbols Variable measurement and data sources

4.1. Descriptive statistics

Variables Mean Standard Factor

Panel A: Comprehensiveness of BSC application (BSC4)

Panel B Organizational Performance (PERFORM)

Panel C Satisfaction with the performance evaluation (SATISFACTION)

Classification Adoption of BSC in hospital administration Chi-square & p-value

Type of hospital Number Percent Number Percent Number Percent

General hospitals 459 77.4% 390 85.0% 69 15.0% 2 = 4.856

4.2 . Univariate analysis

Variables Value range Minimum Median Maximum Mean Standard deviation

BSC application (BSC2) 01 0.2500 0.6872 1.0000 0.6814 0.2221

Organizational performance (PERFORM) Individual satisfaction (SATISFACTION)

Panel A BSC1 (N = 593)

Panel B BSC2 (N = 493)

Panel C BSC3 (N = 493)

Panel D BSC4 (N = 493)

4.3 . Regression analysis

5 . Conclusion and implications

Variables (1) (2) (3)

(1) BSC1 1 0.141*** 0.108***

Expected sign Organizational performance Individual satisfaction

Variables Model Model Model Model Model Model Model Model

Intercept 2.916*** 2.844*** 2.674*** 1.957*** 2.61*** 2.546*** 2.188*** 1.486***

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(1) BSC1 1 0.141* 0.108*

Intercept 2.916* 2.844* 2.674* 1.957* 2.61* 2.546* 2.188* 1.486*