The Balanced Scorecard:

Judgmental effects of information

organization and diversity
Marlys Gascho Lipe
Rath Chair in Accounting
University of Oklahoma
Price College of Business
Norman, OK 73019
email: MLipe@ou.edu

Steven Salterio
Associate Professor of
Accounting
University of Waterloo
School of Accountancy
Waterloo, Ontario, Canada N2L
3G1
sesalterio@uwaterloo.ca

Group 7
Dika Dwi Bayu
420
Anik Puji Handayani
447
Yosefa Maria J H
445

Objective of research
In this study researcher explore whether and
how the BSC affects judgments given common
human information processing characteristics
and limitations.
Specifically, researcher investigate the
judgmental effects of the BSCs (1) information
organization, (2) inclusion of nonfinancial
measures, and (3) inclusion of measures that
are unique to a particular business unit versus
those that are common to multiple units.

Research problem
Is the evaluations using the balanced scorecard
format will differ from evaluations based on the
same measures without the scorecard format?
Are nonfinancial measures in the balanced
scorecard will affect performance evaluations?
Are performance evaluations using
the
balanced scorecard will be more affected by
common measures than by unique measures?

Research contribution
This research contribute to help
reduce bias in judging the
performance of managers. Whether
assessment on the common, and
unique measures, also of the financial
and non-financial measures.

Teoritical review
The balanced scorecard
In the interests of brevity, only three important aspects of the scorecard
will be described here: the measures included, the strategic use of the
scorecard, and the tie to performance evaluation and compensation.
Kaplan and Norton (1993, 1996a) view the scorecard as a strategic
management tool that should explicate the drivers of performance, as
well as provide measures of performance.
The BSC can provide early benefits to the organization due to the
process of determining the causal drivers of a units success during
construction of the scorecard (Kaplan and Norton 1996b, 148).
Kaplan and Norton (1996b, 217-223) suggest there is a problem with
continuing to tie compensation and evaluation to traditional measures
while asking subordinates to focus on the scorecard measures.

Judgment and decision making

research

Information organization

Research on learning and memory indicates that

schematically organized information is recalled
better than information without this organization
(Frederick 1991;Rabinowitz and Mandler 1983)

Availability of nonfinancial measures

Nonfinancial
performance
measures
added
explanatory
power
to
financial
performance
measures in explaining differences in bank
managers performance evaluations [Larcker and
Common
and unique measures
Meyer (1998)]
when two alternatives have a common attribute
along with unique attributes, the common one is
weighted more in judgments about the alternatives
[MacPhillamy (1974)]

Hypotesis
H1: Evaluations using the balanced scorecarad format
will differ from evaluations based on the same
measures without the scorecard format (organization
hypotesis)
H2: Nonfinancial measures in the balanced scorecard
will affect performance evaluations (nonfinancial
measures hypothesis)
H3: Performance evaluations using the balanced
scorecard will be more affected by common measures
than by unique measures
(common measures
hypothesis)

Method and resuld

Participants are presented with a case
where they are asked to take the role of
a senior executive of WCS Incorporated.
The participants is then asked to
evaluated the performance of each of
the two unit managers on a scale with
seven descriptive labels and numerical
endpoints of 0 and 100

 After providing the manager evaluations,

the participants complete a questionnare.
In experiment one the two divisions
described are RadWear and PlusWear.
Experiment two also includes RadWear, a
different
second
divisions
is
used
(WorkWear).
Experiment one provides evidence related
to H1 and H2. Experiment two is designed
to test H3.

Experiment one
In experiment one we focused on
whether the BSC format makes a
difference in divisional manager
performance
evaluation
(H1).
Evidence related to the impact of
nonfinancial measures (H2) is also
provided by having performance on
nonfinancial measures differ across
two divisions within a firm.

Dependent Measure
Our analyses focus on the relative evaluations of the
two managers
we expect that there will be a main effect for division,
showing that differential divisional performance on the
nonfinancial measures affects their managers relative
evaluations.
we expect an interaction of organization and division,
showing that information organization affects these
relative evaluations

Result
Within the NOFORM group, no differences were found for
subjects with the alphabetic versus the random order for any
of these questions (all p-values > 0.10).
The order of the presentation of divisions had no effects on
responses to the manipulation check questions (all p-values
> 0.10).
Although it was not related to the hypotheses, division order
did interact with division in affecting performance evaluations
(F=10.57, p<.002).
order is included in the statistical analysis but it is not
discussed further.

 indicates statistically significant

effects
for
division
(F=97.14,
p<.000) and the interaction of
division and organization (F=5.70,
p <.02).
RadWears manager is evaluated
higher than PlusWears and that the
scorecards organization affects the
relative evaluations of the two
divisional managers.

 The interaction of organization and division supports

H1, showing that informations organization affects
the relative evaluations of the managers.
These relative performance evaluations are different
when the performance measures are organized into
the BSC categories versus provided without this
organization.
participants with the four category organization of
measures evaluated RadWears manager 17.27
points higher than PlusWears while participants with
the NOFORM format evaluated RadWears manager
24.29 points higher than PlusWears.

 Hypothesis 2 predicts that nonfinancial measures included

in the BSC will affect manager evaluations.
Using only the subjects in the BSC condition of experiment
one, an ANOVA shows that the evaluations of the two
divisional managers are significantly different (F=26.15,
df=1,42, p=.00).
The BSC subjects provided mean (standard deviation)
evaluations for RadWear of 69.77 (14.21) and for PlusWear
of 52.50 (16.93).
Hypothesis 2 is predicated on the idea that the availability
of the nonfinancial measures leads to their use, since all
subjects in experiment one were presented with all
measures, divisional differences due to customer related
measures also had a significant impact in the overall
ANOVA (F=97.14, df=1,74, p=.00).
This overall judgmental effect of making nonfinancial
measures available is also consistent with H2, the
nonfinancial measures hypothesis

Experiment Two
In the second experiment, we concentrate on
the issue of common and unique measures.
Since the BSC requires that performance
measures be chosen to specifically address
the operations and concerns of each business
unit, it is likely that the measures chosen for
the units will include some items that are
common to all units and others that are
unique to each.

Dependent
Measure
As in experiment one, all subjects evaluated each manager
using the evaluation form and scale shown in Table 1
we want to determine whether relative performance on
common and unique measures affects the evaluations of
the managers
If common measures affect these evaluations, this will
results in an interaction of division and common measures.
If unique measures affect these relative evaluations, this
will result in an interaction of division and unique measures.

Result
A 2 x 2 x 2 repeated measures ANOVA was
performed to test H3.
The only statistically significant effect was
due to the interaction of common measures
and division (F=30.69, df=1,54, p < 0.01)
indicating that the pattern of performance
on common measures affected the
managers relative evaluations while the
pattern for unique measures did not.

 When common measures favored RadWear,

RadWears manager was evaluated 6.05
points higher than WorkWears manager.
When common measures favored WorkWear,
WorkWears manager was evaluated 7.17
points higher than RadWears manager.
When unique measures favored RadWear
(WorkWear), there was little difference in the
evaluations of the managers, a mean
difference of 0.64 (1.76).
The results corroborate judgment and decision
making researchs finding that common
measures dominate unique measures in their
judgmental effect.

limitations
Experimental participants were not
involved in the choice of measures to
be included in the BSC.
Participants were novices in the use
of BSC and did not necessarily have
business experience in the retail
sector from which we pulled much of
our case material.

conclusions
Manager evaluations were affected
by
nonfinancial
performance
measures included in the sorecard.
However, whether the use of the bsc
lesds to improved decision making is
still in the question.
Unique measures
attention in the
managers.

received little
evaluation of

Critical Review
ANOVA results which showed that the
evaluation of the two division
managers differ significantly (F =
26.15, df = 1.42, p = .00), not listed
in the table.