Information & Management 50 (2013) 553–561

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Information & Management

journal homepage: www.elsevier.com/locate/im

Case studies in research

Using balanced scorecards for the evaluation of

‘‘Software-as-a-service’’
Sangjae Lee a, Sung Bum Park b,*, Gyoo Gun Lim c
a
School of Business Administration, Sejong University, Republic of Korea
b
National Information Society Agency, Republic of Korea
c
School of Business, Hanyang University, Republic of Korea

A R T I C L E I N F O A B S T R A C T

Article history: To overcome the problem of limited resources, increasing numbers of small- and medium-sized
Received 17 August 2012 companies (SMEs) are adopting ‘‘Software-as-a-service’’ (Saas) as an efficient tool for IS implementation.
Received in revised form 24 January 2013 The balanced scorecard (BSC) has been adopted by SMEs to evaluate Saas via four measures: learning and
Accepted 11 July 2013
growth, internal business processes, customer performance, and financial performance. The survey
Available online 1 August 2013
results for 101 Software-as-a-service adopters indicate that learning and growth, internal business
processes, and customer performance are causally related to financial performance. The results show
Keywords:
that these four key elements for Saas success are interrelated, supporting the core premise of the BSC.
Software-as-a-service (Saas)
Balanced scorecard (BSC)
ß 2013 Elsevier B.V. All rights reserved.
Causal relationships

1. Introduction
IS maintenance costs comprise a major portion (70%) of the
total IS implementation costs. Companies choose to invest their
resources and manpower in their core capability to provide
products or services. The demand for IT outsourcing and the
Software-as-a-service (Saas) model, which integrates network,
hardware, and software, is increasing as IT sophistication itself
increases [31].
Saas can be defined as applications and computer-based
services delivered and managed from a remote center to multiple
customers via the Internet or a VPN. Saas shares common themes
with On-Demand Service [27]. There is a growing use of other
related and advanced platform services, such as cloud computing,
infrastructure-as-a-service (Iaas) and platform-as-a-service (Paas),
representing a large pool of usable resources, such as hardware and
software, that are easily accessible via the Internet [11]. It is
estimated that by 2013, the cloud market will have reached $8.1
billion [3]. Industry leaders predict that revenues from cloud
computing enterprises will grow to $160 billion. Experts describe
cloud computing as ‘‘an emerging IT development, deployment
and delivery model, enabling real-time delivery of products,
services and solutions over the Internet’’ [16].
* Corresponding author.
E-mail addresses: sangjae@sejong.ac.kr (S. Lee), parksb@nia.or.kr (S.B. Park),
gglim@hanyang.ac.kr (G.G. Lim).
These attempts at ‘‘utility computing’’ are taking off due to the
availability of sufficient bandwidth for such services. Broadband
communication has become cheap and plentiful enough for
utilities to deliver computing services with the speed and
reliability that businesses previously enjoyed from their local
machines. Typical Iaas offerings include Amazon’s Elastic Compute
Cloud (EC2) and Simple Storage Service (S3), Joyent’s Accelerator,
and Rackspace’s Mosso. The possible reasons for adopting cloud
computing include (1) avoiding capital expenditure in hardware,
software, and IT support and (2) using the flexibility and scalability
of IT resources. The major issues of cloud computing include
integrity of services and data, confidentiality of corporate data, and
reliability perceptions, to name a few [5,8].
The Saas provider acts as a mediator, mediating services
between independent software vendors (ISVs). Saas customers do
not possess, manage or maintain the applications, but only use
them as final products by accessing services with IT support. While
Saas is advantageous in that it reduces the repair costs of
application-based construction and maintenance, the risk of data
leakage becomes a major disadvantage because application servers
are constructed by outside companies.
Saas is one type of ASP (application service provider service).
After being introduced between 1998 and 1999, the ASP service
market increased rapidly from 2000 to 2001 due to excessive
expectations and ASP service provider mergers and acquisitions
(M&A). While the number of customers and the market size are
continuously growing, the growth rate is plateauing. As the ASP
market worsens, it is essential to improve ASP planning and
management, as it is now harder for many ASP providers to survive

0378-7206/$ – see front matter ß 2013 Elsevier B.V. All rights reserved.
http://dx.doi.org/10.1016/j.im.2013.07.006
554 S. Lee et al. / Information & Management 50 (2013) 553–561
[10]. For ASP services to be successful, system and service qualities
must be well prepared [32]. In small- and medium-sized
companies (SMEs), both ASP service and information quality are
significant factors in enhancing user satisfaction, trust, and the
intention to use [38]. ASPs are said to have achieved considerable
success with big businesses, but their success has been less notable
with SME markets [1]. For example, lack of ASP customization
options and concerns about financial stability, service reliability,
and functional capability flexibility are problems for SMEs. For
these reasons, SMEs are less likely to adopt ASP services than large
companies, making it necessary to develop empirical studies to
examine how specialized measures may be applied to SMEs.
Outcome assessment in the traditional field of business
administration places excessive emphasis on financial perfor-
mance measures [49]. Because it is impossible to assess an
organization in a competitive environment based merely on
financial performance, it is necessary to measure Saas performance
by using the balanced scorecard (BSC) approach, which balances
leading and lagging indicators, as well as by using financial and
non-financial measures [29]. To provide a balanced approach to the
measurement of organizational performance, including sub-areas,
such as knowledge management (KM), business processes, and
financial performance, BSC measures four categories: learning
and growth, internal business processes, customer performance,
and financial performance. Small companies develop multiple
scoreboards, each tailored to the strategy and goals of a specific
subunit. To survive in today’s global and volatile business
environment, SMEs are using newer management systems, such
as BSCs, to clarify their vision and strategy and to translate them
into action [35].
BSCs also include a financial perspective because such a
perspective can easily summarize previous financial activities
and yield predictable economic outcomes. The financial perspec-
tive indicates whether a strategic operation contributed to net
profit improvement. The customer category assesses the extent to
which the target market was captured. The internal business
processes category focuses on core processes aimed at customer
satisfaction and at financial objective achievement. The learning
and growth category assesses the construction of necessary long-
term growth and improvement infrastructure [30].
BSCs have been used to measure the performance of a wide
variety of businesses. For instance [71], demonstrated the
application of BSCs at an institutional level in a collaborative
effort to develop a performance measurement framework for the
Food Research Institute (FRI). Withanachchi et al. [65] applied BSCs
to evaluate an organizational development program (TQM) that
was implemented at a tertiary-care public hospital. Moreo et al.
[46] suggested that BSCs could be used by managers to quantify the
environmental and financial impact of a company and to help
environmental quality to stakeholders, including hospitality
owners and stockholders. Smandek et al. [55] developed and
implemented a BSC system for IP management to optimize
licensing income generation, cut costs, and keep inventors’
motivations high. Homburg et al. [24] tested and applied BSCs
to marketing performance management to show the comprehen-
sive relationship between a marketing performance measurement
system and firm performance as conditional on marketing
alignment and market-based knowledge. Taylor and Baines [60]
applied BSCs to evaluate the performance management of higher
education in terms of the formation, monitoring, and evaluation of
strategy and policy, as well as issues of motivation.
While BSCs have been applied in various contexts, empirical
studies on the application of BSCs to specific IT services, such as
Saas, are lacking. Further, while SMEs have difficulty rationalizing
their operational practices and strategic processes, there is a dearth
of comprehensive performance management system applications
by SMEs [18]. Despite the wide scope of BSC application as a
decision-supporting instrument, cause-and-effect relationships
and time-delayed elements between measures are still elusive
[47]. While causal relationships among the four BSC measure-
ments are the core focus of BSC, empirical studies (via the testing of
causal relationships among categories) examining how well BSCs
can be applied are almost nonexistent. This study intends to fill this
gap. This study suggests some measures to evaluate Saas and tests
these measures using data collected from companies that have
adopted Saas. The discussion and implications are included in the
study.
2. Theoretical background
2.1. ASP service evaluation models
The criteria considered for ASP service selection are credibility,
appropriateness, and efficiency, which further includes ‘‘prior
experience,’’ ‘‘ASP service expectation,’’ ‘‘perceived provider
performance,’’ and ‘‘expectation-disconfirmation.’’
Kern et al. [31] suggested six propositions based on resource
dependency theory, resource-based theory, transaction cost
theory, and agency theory. These propositions are as follows: (1)
the use of an ASP service is a strategic decision to supplement
necessary parts of IS; (2) ASP customer service depends heavily on
the ASP service; (3) ASP service generally has a lower cost; (4) ASP
service prices increase over time; (5) SMEs are more interested in
ASP service than are large businesses; and (6) the suitability of an
ASP service is determined by the capability of the customer and the
variety of the ASP service. Kern et al. articulated specific
characteristics derived from the relationship between ASP service
providers and their customers.
This framework for measuring the SME benefits and risks of
Internet-based applications is designed for companies that do not
have any specific team or methodology for measuring proposed IT
outsourcing. Currie [10] suggested five categories for measuring
the risk and benefit of applications provided by an ASP service,
including delivery and enablement, integration, management and
operation, business transformation, and customer/vendor rela-
tionship. This framework provides a difference in viewpoint
between ASPs and their customers regarding key performance
indicators (KPIs) of ASP services. Susarla et al. [58] suggested that
perceived provider performance has a positive impact on user
satisfaction with an ASP. Further expectations about ASP services
have a significant influence on any performance evaluation of ASPs.
Leam and Lee [37] proposed items for auditing and verifying the
reliability of ASP service through a survey of 35 Korean companies.
By using categories, including network, data center, application,
and security and customer support, Leam and Lee evaluated three
ASP vendors in Korea. Leam and Lee derived the ASP life cycle and
auditing items based on the evaluation results. The items for
auditing ASPs were classified by function and performance into 12
items, and the relative importance of those 12 items was
investigated. The items for auditing an ASP focus on assessing
usefulness, extensibility, and application usability. Zviran et al.
[72] suggested that perceived usefulness is one of the factors
affecting user satisfaction with enterprise resource planning (ERP)
systems, which are typical examples of ASP services.
Kim et al. [33] identified three characteristics of ASPs that affect
the satisfaction of ASP customers: stability, IT infrastructure, and
service flexibility. Kim and Kim [32] suggested five characteristics
of ASPs that affect ASP customer satisfaction: credibility, system
currency, security, acceptability, and system support. Susarla et al.
[59] used prior literature in transaction cost economics (TCE) to
posit that the contract design for an ASP service should consider
such factors as uncertainty in specifying service requirements,
 S. Lee et al. / Information & Management 50 (2013) 553–561
interdependence between the ASP application and the IT systems
in the client organization, and the need for specific investments to
address transaction costs that result due to contractual incom-
pleteness and opportunism. Schwarz et al. [53] suggested 10
attributes that firms consider when deciding on the outsourcing of
applications and indicated that the three most significant drivers of
an IT application service choice were cost, risk, and vendor
capability. Yao et al. [70] suggested that firms who specialize in
providing software applications to other firms over the Internet
should be evaluated in terms of measures, such as the possibility of
using an ASP service, software customization requirements,
financial stability, and exit strategies.
However, these measures are limited, as they are based only on
the BSC customer’s perspective. Other BSC perspectives should also
be added to Saas evaluation measures.
2.2. The balanced scorecard
The need for a comprehensive performance measurement,
including knowledge components, has motivated the development
of the balanced scorecard (BSC). The BSC attempts to integrate all
interests of key stakeholders, such as shareholders, customers, and
employees, on a scoreboard [30].
Recent studies have been conducted on BSC application in
various fields, including the fields of organizational and IS
performance evaluation. Lee et al. [39] proposed an approach
based on the fuzzy analytic hierarchy process (FAHP) and balanced
scorecard (BSC) processes for evaluating an IT department in the
Taiwanese manufacturing industry. The results offered guidance
for Taiwanese IT departments in the manufacturing industry
regarding strategies for improving department performance.
Huang [25] suggested the use of an analytic hierarchy process
(AHP) to prioritize the measures and strategies of a BSC framework.
This was done with the intention of developing an intelligent BSC
planning and management decision support system for strategic
planning. Wu et al. [69] suggested a Fuzzy Multiple Criteria
Decision Making (FMCDM) approach for banking performance
evaluation based the four perspectives of BSCs. Wu et al.
summarized performance indexes to fit the banks to construct a
hierarchical framework of performance evaluation; Asosheh et al.
[2] adopted an integrated use of the balanced scorecard (BSC) and
data envelopment analysis (DEA), and proposed a new approach to
IT project selection. This approach used BSCs as a comprehensive
framework for defining IT project evaluation criteria and adopted
DEA as a nonparametric technique for ranking IT projects. Velcu
[63] tested the interrelations between strategic alignment,
management of ERP implementations, process changes, and the
business performance of companies implementing ERP, and their
study was based on a balanced scorecard approach to analyzing
business performance. Kunz and Schaaf [36] suggested an expert
system for health care management for the formalization of BSC
evaluation. They provided a general definition of an indicator
system for each BSC category for clinical application.
BSCs will be able to represent and deliver strategies according
to each business, rather than offering the simple combination of
financial and non-financial indicators sorted by individual
categories. The strategy of BSC organization is represented by
performance connected through causal relationships and ongoing
performance indicators. In general, final performance indicators, or
‘‘lagging indicators,’’ are represented by improved financial
performance, which is the ultimate goal of the strategy.
Meanwhile, ongoing performance indicators, or ‘‘leading indica-
tors,’’ inform all organization members of what will be performed
in learning and business processes [30]. Because a strategy is the
hypothetical representation of cause and effect regarding the
capability of an organization to correspond to market changes to
555
achieve a goal, such a strategic causal relationship can form a set of
causes and effects. Thus, the result (lagging indicator), focused on
each business’ strategy, may be appropriately connected to the
performance cause (leading indicator), allowing all indicators in
each BSC category to be related to the financial goal.
3. Research model
Despite the wide scope of BSC application as a decision-
supporting instrument, few empirical studies on the application of
BSC to specific IT services such as Saas have been conducted
(Fig. 1). Further, it is necessary to support SMEs with specialized
performance measurement systems such as BSCs. As a way to
accomplish these research objectives, this paper examines causal
effects in each BSC category to determine how well BSCs can be
applied to Saas. BSC proponents expect that companies who
continuously improve their capabilities (e.g., by implementing
advanced workplace practices, monitored via innovation and
learning) should achieve better performance for their customers.
All such efforts should lead to improved financial performance. Sim
and Koh [54] positively verified a causal relationship between
several individual performance indicators among the four BSC
categories through relationship and regression analysis. They used
data obtained from 83 electronics companies in the U.S. BSC can be
used as a tool to align business processes with new strategies,
moving away from cost reduction and toward growth opportu-
nities based on more customized, value-adding products and
services. Wu [68] used a multiple criteria analysis tool to
determine causal relationships between key performance indica-
tors for each BSC perspective to create a visualized strategy map
with logical links to improve banking performance.
If cause-and-effect relationships are not adequately reflected on
a balanced scorecard, the scorecard will not translate to a
company’s vision and strategy. Sohn et al. [56] posited that a
BSC’s merit is that it seeks a balance between financial and non-
financial measures, categorized into financial, customer, and
internal business processes, and innovation and learning factors.
Firms using IS must determine which specific BSC measures to
focus on and which to ignore. However, relatively few studies have
been carried out on the specific weights of each BSC perspective.
Northcott and Taulapapa [48] indicate the need for improved
theorization on several issues that present particular challenges for
BSC practice in the public sector: BSC measure modification,
measure design that captures important qualitative outcomes,
‘‘customer’’ suggestion and achievement of a genuine multi-
stakeholder approach, and mapping BSC causality relationships.
In an era of global economic competition, organizations should
be creative in learning. Organizational capability for learning and
creating knowledge is the cornerstone for operating businesses.
Many researchers in the field of knowledge management (KM)
have emphasized the role of learning in knowledge management
systems (KMS) based on the interrelatedness of learning and
knowledge. Organizational knowledge is defined as the improve-
ment of actions through knowledge acquisition. Organizational
Learning and
Growth H2
Customer’s Financial
Performance H4
H1 Performance
H3
Internal Business
Process
Fig. 1. Research model – causal relationship among Saas measures.
556 S. Lee et al. / Information & Management 50 (2013) 553–561
learning occurs when individuals and subunits acquire knowledge
after understanding the possibility of organizational change.
Organizational learning improves the potential capability for
effective actions of organizations and individuals through im-
proved business processes and customer service.
In KM, organizational learning is established across entire
organizational hierarchies when the skills and knowledge acquired
by individuals are internalized into organizational entities.
Organizations become efficient and skillful initiators of change
by creating, acquiring, and transferring knowledge. Organizational
improvement is determined by learning processes that require the
addition or change of mental models. Organizations can create
knowledge continuously from inquiry into understanding of new
environments [13].
Improvement in customer service depends on the effectiveness
of situational behaviors in their contingencies. Under the rapid,
innovative, and discontinuous change of environments, the
assumptions lying beneath work practices stored in a knowledge
repository should be continuously improved for better customer
service. Thus, organizations that do not engage in creative learning
through KM increase entropy, which ultimately leads to failure in
customer service. Top management’s view of the business
environment should be adjusted in a timely manner according
to changes in environments. Successful customer service compa-
nies have better and more rapid creative learning. Mason [43]
indicated that one crucial measure, besides financial performance,
is learning, which is necessary in assessing the extent to which
organizations acquire new knowledge to maintain competitive-
ness. Pfeffer [51] showed that organizational perception can
determine organizational performance and that creative learning
can result in innovation and dramatic performance improvement.
This section examines the effects of learning and growth on
customer service improvement for Saas performance. The learning
and growth of companies is a fundamental force driving customer
service performance and customer relationship management. For
example, better staff skills will reduce the frequency of bugs in an
application. An application with fewer bugs will be more likely to
meet end-user expectations. This, in turn, will enhance the support
of customer service processes. Nonfinancial indicators, such as the
customer satisfaction index and customer loyalty, are prerequi-
sites and pre-conditional indicators for financial indicators [4,26].
Customer performance has been proven to be a decisive factor in
financial performance, as learning and growth affect financial
performance through customer performance. For instance, using
data from multinational corporations, Gonzalez-Padron et al. [21]
used BSCs to assess how organizational learning affects actions
relating to global marketing strategy and subsequent financial
performance.
Thus, organizational change based on learning is a crucial factor
for improved organizational process and customer service. Top
management’s ability to understand and learn in uncertain and
competitive environments is important for business processes and
customer service. Top management interprets information on
behalf of organizations, and the creative learning of top manage-
ment likely affects the creative learning of organizations. Thus,
organizations should acquire knowledge of business environments
and perform learning processes faster than competitors to
maintain good business and customer relations. This increases
the demand for efficient processes based on KM tools and new
infrastructure capability [6].
Hypothesis H1. Learning and growth positively affect internal
business processes in the client’s organization after Saas is offered.
Hypothesis H2. Learning and growth positively affect the custo-
mer’s performance after Saas is offered.
In addition, how the effect of internal business processes on
both customer and financial performance, as well as customer
performance, affect financial performance can be investigated. The
goals of internal business processes in the BSC model are to
innovate and improve the process of identifying and satisfying
customer demand, as well as to provide excellent customer
management service afterward. Customers can then recognize that
the service company provides the best customer value, and thus
customer satisfaction increases. The customer’s performance
facilitates market share and customer profitability in the target
market, allowing financial goals to be achieved.
Previous studies have suggested that customer and financial
performance BSC measures are causally interrelated. For instance,
Ittner and Larcker [26] studied the relationship between customer
satisfaction and financial performance by using various data sorted
by company, business, and customer. As a result, the measured
value of customer satisfaction had a significant impact on future
financial performance. Behn and Riley [4] demonstrated, in their
research, the announcement that customer satisfaction had an
effect on American airline companies’ future financial perfor-
mance, i.e., that non-financial indicators function as leading
indicators of quarterly financial performance.
The ultimate aim of many balanced IS scorecards is to support IS
management, such that the overall financial outcomes of the
enterprise are improved [42]. This study suggests, based on this
premise, that balanced IS scorecards should improve financial
performance. To realize financial performance, customer perfor-
mance should be improved. The determinants for customer
performance are, in turn, internal business processes, and learning
and growth [14]. Gonzalez-Padron et al. [21] confirmed that
customer performance affects financial performance. Learning and
growth facilitate internal business processes. These facts lead to
the following hypotheses:
Hypothesis H3. Internal business processes positively affect cus-
tomer performance after Saas is offered.
Hypothesis H4. Customer performance positively affects financial
performance after Saas is offered.
4. Research method
4.1. Measurement of variables
Most of the variables in the model are measured by items
written in the form of a statement with which the respondent is to
agree or disagree on a 7-point Likert-type scale. The latent
variables and measurement items used in this study are shown in
Table 1. The measurement items were measured by partially
revising the leading and lagging indicators suggested in the BSC
model. The research variables consisted of four measures,
including learning and growth, internal business processes,
customer performance, and financial performance.
The measures are based on and adapted from previous studies
on intellectual capital or BSCs, such as [7,14,22,42,44,40,50,57],
and so on.
The measure of learning and growth represents the extent to
which using Saas continued employee learning and development,
as well as knowledge sharing, to make efficient use of business
resources. Saas and knowledge sharing can promote learning and
development in an organization. Internal business processes
indicate the extent to which value is brought to the customer
via efficient use of business resources. Customer performance
indicates the extent to which the customer market and service are
improved. Financial performance indicates return on investment
and created shareholder value.
 S. Lee et al. / Information & Management 50 (2013) 553–561 557

Table 1
Research variables.

Latent variables Measurement items Sources

Learning and Growth (LG)
The work process is processed extensively through Saas (LG1). Roos and Roos [52]
Extensive knowledge sharing within the organization exists after Saas is adopted (LG2). Epstein and Manzoni [14]
Extensive knowledge sharing with other organizations (trading partners) Kaplan and Norton [29,30]
exists after Saas is adopted (LG3). Harvey and Lusch [22]
Lipe and Salterio [40]
Kim et al. [33]

Internal Business The customer order processing time is greatly reduced after Saas is adopted (IP1). Martinsons et al. [42]

Process Performance (IP) The customer request time limit is strictly followed after Saas is adopted (IP2). Olve et al. [49]
Kim et al. [33]

Customer Performance (CP)
Customer service is greatly improved after Saas is adopted (CP1). Hoffecker and Goldenberg [23]
The company experiences a great annual average increase in its customer market (CP2). Butler et al. [7]
Frigo et al. [17]
Epstein and Manzoni [14]
Harvey and Lusch [22]
Martinsons et al. [42]
Petty and Guthrie [50]
Lipe and Salterio [40]
Stewart [57]

Financial Performance (FP)
The ordering cost is greatly reduced after Saas is adopted (FP1). Hoffecker and Goldenberg [23]
The company’s revenue is greatly increased every year after Saas is adopted (FP2). Butler et al. [7]
Johnson [28]
Epstein and Manzoni [14]
Harvey and Lusch [22]
Kaplan and Norton [29,30]
Lipe and Salterio [40]
Mendoza and Zrihen [45]

Learning and growth include the percentage of work processed

Table 2
through Saas, and knowledge sharing within an organization and
Profile of sample.
with other organizations (trading partners) after Saas is offered.
The category of internal business processes is composed of Number of Percentage
companies (%)
customer order processing time reduction, observance of customer
request time limits, and the improvement of customer service after Industry of the company
Saas is offered. Customer performance consists of the annual Manufacturing industry 22 22
Retail industry 19 19
average increase in the customer market, cost reduction in
Service industry 51 51
ordering, and revenue increase per year after Saas is offered. Others 8 8
Total 100 100
4.2. Data collection
Size of company (Number of employees) (mean = 79)
1–10 39 39
Five-hundred interviewees were selected randomly among 11–50 42 42
SMEs registered by the Small & Medium Business Administration More than 50 19 19
Total 100 100
in Korea. Data were collected using a structured questionnaire, in
Korean, through telephone and personal interviews with IT staff Years of Saas adoption (years) (mean = 3)
members who used Saas. The sample was composed of companies 1–2 43 43
3–4 38 38
that are diverse in terms of business area, corporate size, and so on.
More than 4 19 19
Among the 500 corporations, 101 corporations were included in Total 100 100
the final sample, after excluding missing values and incomplete
Percentage of Saas use in total processes (%) (mean = 45.2)
responses. IT corporations accounted for 51% (51 corporations) of
0–10 22 22
the 101 corporations that responded, while non-IT corporations 11–50 41 41
made up 49% (49 corporations) of the sample. The descriptive More than 50 37 37
statistics of the sample data are shown in Table 2. Organizations Total 100 100
within the sample had an average of 79 employees and had Monthly Saas usage fee (dollar) (mean = 85)
adopted Saas for an average of three years. The average percentage 0–10 41 41
of Saas use was 45.2%. The majority of applications using Saas were 11–30 20 20
31–100 24 24
core businesses (sales, production, purchasing, and logistics
More than 100 15 15
applications) (71%). Total 100 100

Applications using Saas

5. Results
Supporting applications (accounting, 36 36
personnel, and administration)
5.1. Assessment of measurement model Core business (sales, production, 71 71
purchasing, and logistics applications)
To ensure convergent and discriminant validity, exploratory Business-to-business applications 32 32
Total 100 100
factor analysis with Varimax rotation was performed to produce a
558 S. Lee et al. / Information & Management 50 (2013) 553–561

Table 3
Exploratory factor analysis.

Learning and Growth (LG) Internal Business Process Performance (IP) Customer’s Performance (CP) Financial Performance (FP)

LG1 0.814 0.383 0.372 0.346

LG2 0.929 0.651 0.683 0.462
LG3 0.851 0.014 0.013 0.037
IP1 0.674 0.954 0.711 0.557
IP2 0.752 0.966 0.85 0.593
C1 0.716 0.825 0.966 0.624
C2 0.701 0.754 0.965 0.674
F1 0.586 0.612 0.682 0.949
F2 0.384 0.505 0.571 0.927

The bold values are the largest factor loading in the low.

cross-loading matrix. The matrix shows a correlation between
latent variables and measurement items, suggesting that the
measurement items load highly on their theoretically assigned
latent variables, while not loading highly on other factors [19].
Table 3 shows the cross-loadings of individual items compared
across all latent variables. Each item is assigned highly to a
respective latent variable, thus ensuring convergent and discrimi-
nant validity.
Data analysis was performed using the partial least squares
(PLS) method. The use of PLS has increased in IS fields [9]. PLS, a
component-based structural equation modeling technique, is
similar to regression but simultaneously models paths among
variables. A large sample size is required, and standard distribution
is assumed for SEM. In contrast, PLS, introduced by Wold et al. [66],
focuses on maximizing the variance of dependent variables
explained by an independent variable. The PLS approach places
minimal restrictions on sample size and residual distribution. In
addition, a PLS algorithm allows each indicator to vary in how
much it contributes to the composite score of the latent variable
instead of assuming equal weights for all indicators of a scale.
Tobia [61] posited that PLS is useful in screening out negligible
factors affecting the dependent variable.
A reliability test was performed using Cronbach’s Alpha and
composite reliability (CR). Table 4 shows that there is no significant
defect in internal consistency. CR greater than 0.70 implies that a
construct retains both internal consistency and convergent validity
[64]. Table 4 additionally illustrates how each item contributes to
the total reliability of each construct. Tests were only conducted for
the construct variable ‘‘LG’’, which has more than three indicators.
To test validity, factor loading and average variance extracted
(AVE) were examined. AVE measures the variance percentage
captured via a construct by showing the variance sum ratio
Table 4 shows individual item factor loading and each latent
variable’s CR and AVE. All loadings are significant at a = 0.001.
Because the CRs of all eight-measurement items shown in Table 4
are higher than 0.70, all latent variables can be said to have
convergent validity. The factor loadings of all items exceed 0.70.
Therefore, the research variables have strong reliability and
validity.
Additionally, the AVE square root can be used to examine
discriminate validity. As suggested by Fornell and Larcker [15],
diagonal elements should be larger than the entries in correspond-
ing rows and columns. Table 5 indicates that the AVE square root of
a latent variable (the entry in the diagonal of Table 5) is larger than
the correlation of other latent variables. The correlations among all
constructs are well below 0.70, suggesting that all constructs are
distinct from one another.
5.2. Testing of research hypotheses
The structural model estimation and research hypotheses tests
were performed using the PLS method, as shown in Fig. 2 and
Table 6.
In the entire sample, three of four path coefficients are higher
than 0.5 (LG-IP: 0.746; IP-CP: 0.610; CP-FP: 0.672). All of the paths
in the research model are significant and positive. All four research
hypotheses are acceptable for the entire sample, as well as for the
non-IT corporation sample. This acceptability indicates that causal
Table 5
Correlations among latent variables. (The numbers in diagonals are the square root
of the average variance extracted.).
Latent variables LG IP CP FP

captured by the construct and the measurement variance. It is Learning and Growth (LG) 0.834
acceptable when an individual item factor loading is greater than Internal Business Process 0.734 0.960
Performance (IP)
0.70 and an AVE exceeds 0.50 [20].
Customer’s Performance (CP) 0.746 0.818 0.966
Financial Performance (FP) 0.526 0.6 0.672 0.960
Table 4
Reliability and validity of research variables.
LG1 LG2 LG3
Measurement items Loading Composite
Reliability (CR) 0.814** 0.852** 0.826**

Learning and Growth (LG)

LG1 0.8290 0.872 Learning and H2
LG2 0.8537 Growth 0.610**
H4
LG3 0.8175 0.672**
H1 Customer’s Financial
0.746** Performance
Internal Business Process Performance (IP) H3 Performance
IP1 0.9603 0.960 0.279*
IP2 0.9603 0.965** 0.950** 0.927**
0.956**
Internal Business
Customer’s Performance (CP) Process CP1 CP2 FP1 FP2
CP1 0.9659 0.965
CP2 0.9659 0.954**
0.966**

Financial Performance (FP)

IP1 IP2
FP1 0.9603 0.937
FP2 0.9603
Fig. 2. PLS analysis results for the entire sample. *p < 0.05, **p < 0.01.
 S. Lee et al. / Information & Management 50 (2013) 553–561
Table 6
Test of research hypotheses.
Research hypotheses
H1: Learning and Growth ! Internal Business Process Performance
H2: Learning and Growth ! Customer’s Performance
H3: Internal Business Process Performance ! Customer’s Performance
H4: Customer’s Performance ! financial performance
*
p < 0.05.
**
p < 0.01.
relationships exist among learning and growth, internal business
processes, customer performance, and financial performance. This
implies that for Saas customer companies, the financial category of
BSC measurement focuses on generating satisfactory return on
investment and creating shareholder value, while the three other
categories can be explained as determinants of financial success.
Customer performance represents value creation for customers
and is important in explaining how customers perceive their
performance. The important way to increase customer service and
market is to have massive numbers of employees servicing
customers, or have fewer employees who use time management
more efficiently and who are supported by excellent IT-based
processes. Creating value for customers only translates into
shareholder value if it is based on effective and efficient key
internal processes. Finally, the study results indicate that to ensure
that the Saas customer company will be appreciated by future
customers and will continue to make excellent use of its processes,
the organization and its employees must continue organizational
learning growth. The learning and growth category should thus
group indicators capturing the company’s performance through
the use of Saas with respect to learning based on information
sharing and innovation.
In IT corporations, learning and growth fail to affect customer
performance. In contrast, learning and growth significantly
influence customer performance in non-IT corporations. Therefore,
corporation type – IT vs. non-IT – moderates and affects the
relationship between learning and growth, and customer perfor-
mance. For non-IT companies, learning and growth are more
important for the improvement of customer service and market
than they are for IT companies. Knowledge sharing and Saas use are
considered natural and taken for granted by IT companies, as these
processes have a lesser influence on customer service and market.
For non-IT companies, there exists more opportunity for improve-
ment in customer service and market through learning based on
information sharing and use of Saas.
6. Implications
6.1. Implications for researchers
Despite rapid growth in the Saas market, no research has been
conducted on Saas measurement based on BSCs. This study provides
an empirical study on BSC application to Saas and shows the
application of comprehensive performance management systems
for SMEs, considering that SMEs have a hard time rationalizing their
operational practices and strategic processes. This study indicates
that significant causal relationships exist among BSC measures in
the Saas context, which strengthens the justification for BSC
application as a decision-supporting instrument, given that the
causal relationships among the four BSC measures are the focus of
BSC assessment. By showing these causal relationships, this paper
provides a rationale for SMEs to use BSCs to assess Saas.
This study extends previous studies on ASP success in that the
causal relationships among Saas financial performance determi-
nants are investigated. This study provides an assessment of
comprehensive performance management systems for SMEs of
559
Entire sample Sample of IT companies Sample of non-IT companies
** **
0.746 0.746 0.761**
0.279* 0.107 0.452**
0.610** 0.760** 0.467**
0.672** 0.576** 0.773**
specific IT services, such as Saas. Further, this study provides an
empirical basis for using BSC as a decision-supporting instrument
by illuminating cause-and-effect relationships and time-delay
elements among measures (these relationships are still elusive
[47]).
This study uses BSCs as a lens for suggesting four measures. The
intention was to determine the leading and lagging indicators. This
determination improves the understanding of leading and lagging
indicators of BSC categories based on the balance between
financial and non-financial analysis.
6.2. Implications for practitioners
SMEs, which comprise the majority of the firms in the study
sample, consider investment in enterprise applications to be costly
and tend to avoid taking efforts away from their main business
area. To focus on main business activities, SMEs are more likely to
use Saas, as it can provide a viable alternative to costly in-house
information systems. The high use of Saas and the high percentage
of its use in core applications show that SMEs use Saas strategically
to fill a gap in IS resources and capabilities, given that Saas provides
a cost-efficient and rapid solution to these difficulties. Knowledge
acquisition on Saas was often informal and ad hoc, usually induced
by vendor hype rather than through a rigorous evaluation of
vendor capabilities. To address this problem, BSCs can provide a
template for evaluating the performance of application out-
sourcing.
The results of this study suggest that BSCs effectively assess four
causally interrelated measures, i.e., learning and growth, internal
business processes, customer performance, and financial perfor-
mance. To increase financial measures, customer performance
should be promoted. This, in turn, requires the enhancement of
learning and growth and internal business processes. Financial
measurement is the most lagging indicator and is effective in
summarizing previous financial activities into easily predictable
economic results. Customer performance assesses the extent to
which the target market is captured. To increase financial
measures, customer performance should be improved and
promoted.
To increase customer performance, employee learning and
internal business process efficiency should be improved. Internal
business processes are focused on customer satisfaction and
financial objective achievement. Learning and growth assess the
necessary infrastructure constructed for long-term growth and
improvement. In a knowledge economy society, learning knowl-
edge is the basis for creating new capital, and the purpose of
business is to create new knowledge. Thus, continuous learning
and experimentation are necessary to produce new ideas and
products; it is critical to stress the importance of an organizational
culture supportive of learning. The designers and developers of
KMS should focus on developing an integrated KM system that
facilitates knowledge acquisition and application, the two sub-
processes affecting creative organizational learning. KMS should
enhance both the efficiency of existing knowledge use by processing
information and the effectiveness of new knowledge creation [41].
This study reinforces arguments that KMS developers should
560 S. Lee et al. / Information & Management 50 (2013) 553–561
concentrate on both creation of new knowledge and the use of
existing knowledge.
7. Conclusion
Because it is impossible, in a competitive environment, to
assess an organization merely according to financial performance
measures, it is necessary to measure the performance of Saas by
using a BSC, which balances leading and lagging factors, and which
also considers financial and non-financial factors. This paper
examines the causal relationships among the four BSC categories
that explain the performance of Saas.
Some issues for future research exist. First, practical case
studies of corporations that have adopted BSC-based performance
monitoring systems are a promising avenue for study. This line of
research can practically prove that key performance measures of
learning and growth improve other measures, such as customer
performance and internal business processes, as time passes.
Second, in analyzing moderating effects, other moderating
variables, such as corporate strategy type, market positioning type,
and main service and product type, can be used. Further, it is
necessary to carry out future studies to validate the reason that key
measures of learning and growth do not affect customer
performance in IT corporations.
This study has some limitations. First, due to the insufficient
sample size, it is not possible to further sub-categorize the sample
to test moderating effects. More detailed categories must be
considered in terms of IT usage or sophistication, rather than just
two categories (i.e., IT corporations versus non-IT corporations), as
used in this study. Second, there could be missing or unconsidered
measurement items for learning and growth, internal business
processes, customer performance, and financial performance, even
though this study developed or adapted each item based on
previous literature. Each Saas-adopting corporation has its own
main business field and performance characteristics, and this can
also affect the response data.
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Sangjae Lee is a professor at the college of business
administration in Sejong University. He received PhD in
Management Information Systems from the Graduate
School of management, KAIST. His research interests
include decision support systems, electronic com-
merce, information systems controls, data mining,
and IS planning. He has published in such journals as
Decision Support Systems, Information & Management.
Sung Bum Park received a master degree in Manage-
ment Information and a Ph. D. degree in Management
Science from Korea Advanced Institute of Science and
Technology. He has been working as a senior researcher
for National Information Society Agency since then. His
current research interests include performance evalua-
tion of information system and digital content distri-
bution.
Gyoo Gun Lim is a professor of MIS at School of
Business, Hanyang University, Seoul, Korea. He received
PhD in Management Engineering from Korea Advanced
Institute of Science and Technology (KAIST) of Korea in
2001. His current research interests include Innovative
business model, e-business, IT service, and intelligent
systems.