The Balanced Scorecard: Evolution To Long-Term Performance

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The Balanced Scorecard: Evolution to Long-Term Performance
A thesis submitted in partial fulfillment o f the

requirements for the degree o f Master o f
Business Administration
by
Michael T Zanini
Dr S G Kerr/Thesis Advisor
August, 2003
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UNIVERSITY
OF NEVADA THE GRADUATE SCHOOL
RENO
We recommend that the thesis

prepared under our supervision by
M IC H A E L T. ZANINI
entitled
T H E B A L A N C E D SC O R E C A R D : E V O L U T IO N T O
L O N G -T E R M P E R F O R M A N C E
be accepted in partial fulfillment o f the

requirements for the degree of
M A S T E R O F B U S IN E S S A D M I N I S T R A T I O N
Stephen G . K err, P h .D ., A d v i s o r
/ ■ Lynn. Bible, Ph.D . .Committee Member
■' Yvonne F.. S tcdham , Ph.D . .Committee Member
iX yv
M ark w. N ich o ls. P h.D . .Graduate School Representative
^ ,/ L _____________
Marsha H. Read, Ph. D., Associate Dean, Graduate School
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ABSTRA CT
The Balanced Scorecard was introduced over ten years ago by Robert S Kaplan and
David P Norton with significant fanfare and excitement This study traced the evolution
o f the initial Balanced Scorecard Model into its current form and investigated its ability
to generate improved long-term performance The results o f the study showed that the
Balanced Scorecard concept is widely accepted worldwide as a strategic performance
management tool but is not as widely adopted as has been reported Study results also
showed that adoption o f the Balanced Scorecard does not necessarily guarantee improved
long-term perform ance M anagers are therefore advised to carefully evaluate the
likelihood o f achieving benefits from the implementation o f the Balanced Scorecard into
their organizations until the parameters needed to ensure long-term performance
im provem ents are more fully understood
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ACKNOW LEDGEMENT
The author would like to thank everyone who committed th eir tim e and support to the
com pletion o f this thesis. In particular, the author w ould like to thank Stephen K err for
his guidance and mentoring and Lynn Bible and Yvonne Stedham for their time and
valuable insight into the content o f this thesis.

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TABLE OF CONTENTS
ABSTRACT i
ACKNOW LEDGEM ENT ii
TABLE OF CONTENTS iii
LIST OF TABLES vi
LIST OF FIGURES vii
CHAPTER 1: THE BALANCED SCORECARD: EVOLUTION TO

LONG-TERM PERFORM ANCE 1
SIGNIFICANCE OF THE STUDY 2
RESEARCH QUESTIONS 4
Question 1: The Evolution o f the Balanced Scorecard 4
Question 2: Consulting Firms Promotion o f the Balanced
Scorecard 6
Question 3: Linking the Balanced Scorecard to Performance
M easures 8
Question 4: The Balanced Scorecard and Long-Term
Performance M easures 10
CHAPTER 2: THE EVOLUTION OF THE BALANCED SCORECARD 12

BALANCED SCORECARD - THE INCEPTION 12
BALANCED SCORECARD - THE DEVELOPM ENT 14
BALANCED SCORECARD - TODAY 19
Balanced Scorecard Criticism 24
BALANCED SCORECARD - THE FUTURE 26
Balanced Scorecard Software 26
The Balanced Scorecard and External Reporting 27
The Balanced Scorecard and the Budgeting Process 28
The Balanced Scorecard Collaborative 31
THE BALANCED SCORECARD EVOLUTION - SUM M ARY 32
CHAPTER 3: CONSULTING FIRMS PROMOTION OF THE BALANCED

SCORECARD 33
METHODOLOGY 34
RESEARCH SUM MARY 35
RESULTS 38
Accenture 38
Deloitte Touche Tohm atsu 41
Ernst & Young 43
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TABLE OF CONTENTS continued
KPMG 45
PricewaterhouseCoopers 48
A T. Kearney 51
Bain & Company 53
Booz Allen Hamilton 55
The Boston Consulting Group 58
McKinsey & Company 60
The M onitor G roup 63
CONCLUSION 65
CHAPTER 4: PERFORMANCE INCENTIVES AND THE BALANCED

SCORECARD 67
PERFORM ANCE INCENTIVES 68
Reward Systems 68
Intrinsic versus Extrinsic Rewards 72
PAY FOR PERFORM ANCE 75
Organization Wide Systems 76
Profit Sharing 76
Gain Sharing 77
Employee Stock Ownership Plans 77
Team Incentives 78
Individual Incentives 78
Executives/CEO 79
Front Line Employees 79
PERFORMANCE INCENTIVES AND STRATEGIC
PERFORM ANCE M EASUREM ENT SYSTEMS 80
Link Between Strategy and Em ployee Perform ance 80
LINKING PERFORM ANCE INCENTIVES AND REW ARDS
TO THE BALANCED SCORECARD 86
Mobil North American M arketing and Refining 89
Hilton Hotels 92
Texaco Refinery and M arketing 94
CIGNA Property and Casualty 95
Ingersoll-Rand 97
Performance Incentives and the Balanced Scorecard in Europe 99
Executives/GEO Perform ance Incentive Systems 100
THE FUTURE OF PERFORMANCE INCENTIVES 103
CONCLUSIONS 104
CHAPTER 5: THE BALANCED SCORECARD AND LONG-TERM

PERFORM ANCE 106
RESEARCH DISCUSSION 107

V
TABLE OF CONTENTS continued
M ETHODOLOGY 110
Time Horizon and Long-Term Performance C riteria Selection
Process 110
Balanced Scorecard Adopter Com panies 115
CASE STUDIES 119
Case 1: Hilton Hotels 119
Case 1: Results 122
Case 2: W endy's International 124
Case 2: Results 125
C ase 3. Dofasco 127
Case 3: Results 130
CASE DISCUSSION 132
CHAPTER 6: FINDINGS, CONCLUSIONS AND RECO M M EN D A TIO NS 134

FINDINGS 136
C hapter 2: The Evolution o f the Balanced Scorecard 136
C hapter 3: Consulting Firms Promotion o f the Balanced
Scorecard 141
C hapter 4: Performance Incentives and the Balanced Scorecard 145
C hapter 5: The Balanced Scorecard and Long-Term
Performance 147
CONCLUSIONS 150
RECOM M ENDATIONS AND DISCUSSION 156
MAIN RESEARCH QUESTION SUMMARY 159
CHAPTER 7: REFERENCES 160

LIST OF TABLES
Table 1 General M anagem ent Consultants M arket Share 2001
Table 2: Consulting Firms Strategic Performance M easurem ent

Offering Summary

LIST OF FIGURES
Figure 1: Defining the Cause-and-EfTect Relationships o f the Strategy
Figure 2: Lodging Comparison - % Retum from Flilton's BSC

Implementation 1996
Figure 3: R estaurant Comparison - 0/oRetum from W endy’s BSC

Implementation 1999
Figure 4: M aterials Comparison - % Retum from D ofasco’s BSC

Implementation 1996

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C H A P T E R 1: T H E BALANCED S C O R E C A R D - EV O L U T IO N T O
LO N G -T ER M P E R F O R M A N C E
The Balanced Scorecard (BSC) is one o f the 75 most influential ideas o f the twentieth
century according to Harvard Business Review (Niven. 2002) Accolades such as this
abound for this management tool. As a student o f management, it is essential to
understand and valuate the use o f the concept o f the BSC in order to determine its
effectiveness as a management practice
The Balanced Scorecard is a strategic performance measurement system that was
developed by Robert S Kaplan and David P Norton The tool was developed to guide
organizations to achieve breakthrough results by embedding strategy at the heart o f the
organization The concept, developed over ten years ago, was significantly different than
any existing perform ance measurement system and generated considerable excitem ent
A variety o f applications and variations o f the Balanced Scorecard have emerged over the
last ten years. This study is an investigation into the evolution o f the Balanced Scorecard,
who and how it is being promoted today, how it is being used to link employee
perform ance to organizational strategy, and how successful have the companies been who
have adopted the Scorecard as a performance measurement and strategy implementation
tool in the long-term
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S IG N IF IC A N C E O F T H E STUDY
The concept o f the Balanced Scorecard was introduced in the early 1990s with
considerable excitement and promised to change the way performance measurement was
conducted and how companies were managed. Ten years have passed since its
introduction and this study summarizes the evolution o f the Scorecard, categorizes its
penetration into mainstream performance management, discusses its progression into
incentive pay systems and documents the degree o f successfulness o f the implementation
o f the Balanced Scorecard to achieve long-term performance
Much has been written about the Balanced Scorecard and its penetration into mainstream
perform ance measurement and management systems It is important to understand and
validate the concept o f the Balanced Scorecard in order to determine its usefulness A
strong indication o f its validity is determined by analyzing its use and the form o f its use
by the major consultancies M anagement consultant companies and the large accounting
firm consultancies are hired by organizations to provide new age solutions that
fundamentally enhance the competitiveness o f their clients If they are using and
prom oting a balanced measures approach, than a good indication o f its acceptance as a
successful strategic perform ance measurement tool is determined.
Engaging the hearts and minds o f all employees in an organization and aligning their
goals with that o f the organization is a hot topic in organizational management
Developing a set o f perform ance measures that drives a company's vision and strategy to

the front-lines so that each employee can see how his/her work contributes to
organizational goals could be a powerful motivational tool to align all the interests o f an
organization's stakeholders If this balanced set o f measures has been tied to financial
incentives for employees throughout an organization effectively, an organization's long
term perform ance could improve significantly Many articles have been written lately
discussing the misalignment o f CEO compensation and company success due to the use
o f options as a long-term performance incentive If CEO s' bonuses were based on a
balanced set o f measures and not solely on stock price, this misalignm ent could
potentially be corrected
In addition to its utilization by consultancies as a litmus test o f successful
implementation, what does an unbiased research study conclude as to the long-term
success o f Balanced Scorecard adopters0 Companies and their executives are often
criticized for their feverish obsession with achieving short-term earnings at any cost The
result o f this obsession is most often the curtailment o f programs and strategic initiatives
that could have generated improved future performance. If com panies adopted a balanced
set o f financial and non-financial measures, does their long-term perform ance im prove0
Does the Balanced Scorecard give companies the necessary strategic focus that gives
them a com petitive advantage to achieve exceptional long-term perform ance0 This study
has explored the impact o f the Balanced Scorecard on this age-old m anagement problem
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R E S E A R C H Q U E S T IO N S
The purpose o f this study is therefore to explore to w hat extent the Balanced Scorecard
has evolved into a strategic performance management system that is worthy o f the
worldwide attention it has received and to determine if it can deliver superior long-term
perform ance In an effort to explore the research question, it has been divided into four
specific questions In chapter two, the evolution o f the BSC since its inception is
summarized The study explored the second specific research question in chapter three,
which concerned the impact o f the BSC on major management consultancies In chapter
four, an understanding o f the association between incentive pay systems and the
Scorecard was investigated The fourth specific research question was explored in chapter
five and it analyzed the long-term successfulness o f com panies who implemented the
BSC Lastly, chapter six summarized the findings o f this study and provided a set o f
recom m endations for future research on the concept o f the BSC
Question 1: The Evolution o f the Balanced Scorecard
Since its introduction in 1992, how has the Balanced Scorecard evolved and how are
Kaplan and N orton promoting it today9 The concept o f the Balanced Scorecard was first
introduced by Kaplan and Norton (1992) in the article. The Balanced Scorecard -
M easures that Drive Performance. The Balanced Scorecard was developed solely as a
perform ance m easurem ent tool to be used to capture the value-creating activities from an
organization's intangible assets: innovative products and services, customer loyalty and

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relationships, and employee skills and motivation Kaplan and Norton contended that
these assets could not be adequately valued through traditional financial measurements
alone As the authors gained experience through the implementation o f the Scorecard in
over 200 various organizations (http://www bscol.com. November 10, 2002), they
determined that it had evolved into an effective tool for organizations to implement and
direct their strategies throughout their organizations.
This chapter o f the study traced the evolution o f the Balanced Scorecard from its
inception through the development o f the BSC by exploring the published papers and
books by Kaplan and Norton. Several criticisms o f the Scorecard were identified and
explored before the chapter was concluded with an analysis o f the potential future
direction o f the concept The future course o f the BSC was charted through the various
adaptations that have been proposed by Kaplan and Norton, as well as those that have
been implem ented by various adopters o f the Balanced Scorecard
The literature review o f the evolution o f the Balanced Scorecard focused primarily on the
w ritings o f Kaplan and Norton. These included their four papers published through the
Harvard Business Review, The Balanced Scorecard-Measures that Drive Performance
(1992), Putting the Balanced Scorecard to Work (1993), Using the Balanced Scorecard
as a Strategic Management System (1996) and Having Trouble with your Strategy 9 Then
M ap It (2000) As well, Kaplan and Norton's tw o books on the subject. The Balanced
Scorecard: Translating Strategy into Action ( 1996) and The Strategy-Focused
Organization: How Balanced Scorecard Companies Translate Strategy into Action

6
(2001) were extensively utilized. The writings o f Kaplan and Norton provided
information on the structure and strategy o f the BSC itself Furthermore, comments from
Kaplan and Norton from secondary sources (Calabro, 2001) and (http://www bscol.com.
December 10, 2002) were also used to report on the evolution o f the Scorecard The
secondary sources provided some insight into Kaplan and N orton’s personal thoughts on
the evolution o f the BSC Additional sources o f insight into the Balanced Scorecard were
gleaned from other writings on the Balanced Scorecard, namely Olve, Nils-Goran and
Roy (1999) and Niven (2002) These sources provided in-depth third party analysis o f the
BSC in regards to structure, strategy and performance
Question 2 Consulting Firms Promotion o f the Balanced Scorecard
The evident intense excitement and concern in the management literature about the
Balanced Scorecard led to the developm ent o f the second question What are the major
consultancy firms promoting in regards to strategic performance measurement and the
BSC9 Have they evolved significantly different uses or forms o f the BSC concept9
Kaplan and Norton have been promoting the use o f the Balanced Scorecard for the last
decade as a new and concise perform ance measurement and strategic im plementation tool
for today's organizations. The Balanced Scorecard Collaborative was designed for its
promotion and is the only authorized organization to deliver products and services based
on the Kaplan and Norton Balanced Scorecard methodology (http://www bscol.com.
November 12, 2002). According to the Balanced Scorecard Collaborative, thousands o f
organizations worldwide have adopted the BSC with the vast majority achieving

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exceptional results. With such accolades to the credit o f the Balanced Scorecard, one is
forced to question why every professional services firm hasn't jum ped onboard and
promoted its use
M anagement consulting firms exist to provide organizations with breakthrough business
solutions The BSC has been proclaimed to have achieved exceptional results Therefore,
what have the major consultancy firms been promoting in regards to strategic
performance measurement9 Are they using the Balanced Scorecard in its original Kaplan
and Norton form9 Have they superficially renamed the concept9 Are they promoting
similar balanced financial and non-financial performance m easurem ent programs or other
value management strategies9 An understanding o f the degree o f promotion o f the
Balanced Scorecard concept provided evidence o f the level o f acceptance it has achieved
in today's organizations
The promotion o f the Balanced Scorecard by the major consultancies involved an Internet
search through each company's website, through the writings and publications o f
members of the companies, and through some personal communications. These sources
supplied insight into the services offered by these companies for their clients in relation
to strategic performance measurement. They also serv ed the purpose o f presenting
commentary on the criticisms and support o f the BSC

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Question 3: Linking the Balanced Scorecard to Performance Incentives
Has the linking o f performance incentives and financial com pensation to the BSC been
successful in all levels o f organizations9 The alignment o f the entire organization to
achieving the strategic objectives o f the firm by focusing on the drivers o f perform ance is
a major theme o f the Balanced Scorecard The drivers o f future perform ance are the
metrics from the perspectives that focus on the continual learning o f the organization,
internal processes and custom er-driven metrics The measures for these drivers are
seldom the traditional financial measures.
Drilling down to find measures that are immediately tangible to all em ployees and giving
them evidence o f how he/she contributes to the achievement o f organizational goals is a
strong motivational tool Furthermore, linking these strategic m easures to an incentive or
bonus system can be a powerful motivator
Similarly, the CEO and executives o f organizations frequently receive large option
packages intended to align their financial interests to the long-term interests o f the
company. Are these incentives an effective tool or would an incentive package tied to a
series o f Balanced Scorecard measures be more effective at achieving long-term
company perform ance9 Roberts (2002) quotes Jan Koors, vice president o f Pearl M eyer
& Partners Inc., New York, a consulting firm who believes it will, "balance that
[increasing shareholder value] with making sure executives fo cu s on the internal
financials and long-term operational performance o f the company, not ju st on how the

9
stock price is doing. " Based on this, it was determined that an exploration on how
financial incentives linked to BSC metrics could focus executives on achieving long-term
perform ance would be valuable To aid in the understanding o f the potential effectiveness
o f this linkage. V room 's expectancy theory was applied as a framework for the analysis
The use o f performance incentive systems at all levels o f an organization was first
explored The analysis was then carried to the use o f performance incentives and the
BSC Expectancy theory was utilized throughout the investigation as a guide for the
justification o f the motivational effect o f the performance incentive system. Various
Balanced Scorecard adopters were examined individually to determine both the use o f
performance incentive systems and their effectiveness
The exploration o f performance incentives and the Balanced Scorecard involved a
considerable number o f literary sources that included Cascio (2003), Gibson, Ivancevich
and Donnelly (2000), and the writings o f Kaplan and Norton. This literature served as
background research into performance incentives and theories o f motivation Information
concerning the specific Balanced Scorecard companies cited in this section developed
from personal communication with each individual company as well as information
provided by the Balanced Scorecard Collaborative (http://ww w .bscol.com . February 10,
2003) These sources provided an understanding o f the level or degree o f performance
incentives used by companies, their link to the BSC and their financial perform ance

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Question 4: The Balanced Scorecard and Long-term Performance
By using the BSC to refocus companies on achieving long-term performance versus short
-term growth, are companies that have adopted the BSC more successful in the long run9
The Balanced Scorecard, through its use o f financial and non-financial metrics, forces
companies to focus the organization on improving measures that drive long-term
perform ance Traditional financial measures report on the consequences o f past actions
and are lagging indicators Kaplan and Norton contend that the exclusive reliance on
financial measures promotes short-term behavior at the expense o f long-term value and
perform ance W hat an organization does today may not have an impact on financial
results until the day after tomorrow, so how do companies that focus on doing the right
things today that drive tom orrow 's performance actually perform in the long-term'? The
Balanced Scorecard forces companies to focus on the drivers that are the leading
indicators o f long-term perform ance Kaplan and Norton, in their articles, books and
website describe many successful implementations o f the Balanced Scorecard The
ability o f companies that adopt a set o f balanced and strategic performance measures to
perform better in the long-term was investigated
The analysis performed in the long-term performance o f Balanced Scorecard adopters
relied heavily on Internet based research. This research provided current information
regarding the use o f the BSC by organizations It also resulted in the developm ent and
analysis o f case study financial information. The background literature discussion
focused primarily on the w riting o f M ark Frigo in Strategic Finance (May, August,

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September. 2002) This assisted in the development and understanding o f the link
between perform ance incentives and non-financial perform ance measures, strategy and
the BSC
The Balanced Scorecard research questions are therefore timely and important Chapter
two addresses the first specific research question which concerns the evolution o f the
Balanced Scorecard

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C H A P T E R 2: T H E EV O LU TIO N O F T H E BALANCED
SC O R E C A R D
The Balanced Scorecard was invented over 10 years ago At that time there was
considerable frustration with the exclusive use o f financial measures as a means o f
evaluating perform ance measurement Robert Kaplan and David Norton created the
Balanced Scorecard to address those concerns Anecdotal evidence suggests that the
Balanced Scorecard is now widely accepted and employed by organizations in every
segm ent o f the economy and around the world This chapter outlines the evolution o f the
Balanced Scorecard through the eyes o f Kaplan and Norton as evidenced from their
writings The chapter concludes with a review o f the current BSC research and critiques
as the concept has grown beyond the control o f Kaplan and Norton
B A L A N C E D S C O R E C A R D - T H E IN C E P T IO N
In 1990, the Nolan Norton Institute, the research arm o f KPMG, sponsored a one-year
m ulti-com pany study on the future o f performance measurement David Norton, CEO o f
Nolan Norton, was the study leader and Robert Kaplan served as an academic consultant
The dozen com panies that formed the original study group believed that the exclusive
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reliance on financial performance metrics alone was causing their com panies to do the
wrong things The study explored new methods o f performance measurement
Kaplan, Norton and the representatives from the dozen companies met bimonthly
throughout 1990 to develop a new performance measurement model They began by
analyzing case studies involving innovative performance m easurement systems The
ideas investigated included: shareholder value, productivity and quality measurements,
new com pensation plans and a "Corporate Scorecard" that was presented in an Analog
Devices case study (Kaplan and Norton, 1996)
The group settled on the scorecard as the most promising system and set out to refine the
concept into the Balanced Scorecard. It was made up o f four perspectives - financial,
customer, internal, and innovation and learning. The performance measurement
Scorecard struck a balance between leading and lagging indicators, short- and long-term
objectives, and between external and internal performance perspectives.
Several o f the companies in the group built prototype Balanced Scorecards at pilot sites
in their organizations and reported their findings back to the group In December o f 1990
at the conclusion o f the study, the group documented the feasibility o f the new
perform ance measurement system
Kaplan and N orton summarized the results from the study in their 1992 Harvard Business
Review (HBR) article. The Balanced Scorecard-Measures that Drive Performance. The

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article generated a considerable amount o f excitement and a new generation o f
perform ance measurement was bom. The Balanced Scorecard has been so
enthusiastically received and effectively used, that in 1997 the Harvard Business Review
labeled it one o f the 75 most influential ideas o f the twentieth century (Niven, 2002)
BALANCED SCORECARD - THE DEVELOPM ENT
Following the birth o f the BSC in their first Harvard Business Review article, the concept
was revised and improved by Kaplan and Norton as they obtained more and more
experience with it The evolution from strictly a perform ance measurement tool to a
strategic perform ance management system can be followed through their next three HBR
articles and their first book on the subject The graduation to a strategic perform ance
m anagement system was facilitated by the placement o f strategy at the heart o f the
perform ance measurement process.
The enthusiastic em brace that the first HBR article received led to several organizations
becom ing the early-adopters o f the Balanced Scorecard and the concept was further
refined. The new measurem ent system w as used to communicate and change
organizational strategies away from the historic, short-term financial only focus to a
value-added, custom er intensive strategy. The first connection between perform ance
m etrics and strategy was forged. Kaplan and Norton's (1993) second Balanced Scorecard

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article, Putting the Balanced Scorecard to Work, stressed the importance o f this
connection.
The move from a perform ance measurement tool to a strategic perform ance management
system continued with the introduction o f Kaplan and N orton’s (1996) third HBR article,
I istng the Balanced Scorecard as a Strategic Management System Further work with
senior executives o f several organizations led to experiences with the BSC that
dem onstrated that metrics spread across the four perspectives could effectively drive a
single strategy They believed attention to all perspectives would lead to improved future
financial perform ance The Scorecard began to be used as the rallying framework for core
managerial processes such as resoursource allocation, budgeting and planning, goal setting
and em ployee learning The use o f the BSC with these processes clearly identifies the
evolution o f the Scorecard away from a simple perform ance m easurem ent tool
The use o f the Balanced Scorecard as a strategic perform ance measurement system was
summarized in Kaplan and N orton’s first book on the subject in 1996, The Balanced
Scorecard: Translating Strategy into Action. The book sold over 250,000 copies and was
translated into 12 languages (The Strategy-Focused Organisation. 2002) The book
summarized the learning achieved on the concept to date and included instructions on
how it should be implemented. The BSC continued to gain prom inence with
organizations around the world Richard E Cavanaugh, President o f The Conference
Board and co-author o f The Winning Performance applauded the book (Kaplan and
Norton, 1996), "Kaplan and Norton's pioneering Balanced Scorecard is required

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reading fo r those who seek to measure and manage successful business strategy'. A
landmark in the art o f management. " It was in this book that the BSC creators
elaborated on their popular jet cockpit instrument gauge metaphor - running an
organization with only financial metrics alone is like flying an airplane with only one
instrument
During the industrial age, companies competed through economies o f scale and product
scope. Those that were successful, effectively used technology to transform physical
assets into products However, today is the information age and com panies can no longer
expect to be successful solely by being able to use technology effectively and by
skillfully managing financial assets and liabilities To be successful in the information
age, organizations are required to be able to exploit their intangible assets even more than
their physical assets Custom er loyalty and relationships, niche marketing ability,
innovative and custom ized products and services, efficient operating processes,
motivated and skillful employees, customized databases and information technology are
all examples o f these intangible assets Kaplan and Norton contend that traditional
financial perform ance measurements are not adequate to valuate today's companies
These assets are more critical to success than traditional physical and tangible assets and
as such Kaplan and Norton offer the Balanced Scorecard as a means to do just that
Financial measures are lagging indicators that provide inform ation on past performance
and give little insight into long-term success. These measures are not adequate guides for
information age com panies that create future value through unique custom er

17
relationships, efficient internal processes and through the learning and grow th o f the
organization The Balanced Scorecard combines financial measures of past perform ance
with these drivers o f future performance
Leading indicators provide necessary information concerning the organization's current
performance on key aspects that are likely to drive future perform ance For instance, if
product quality is a key indicator o f sales and revenue, than ensuring continuous
improvement in product quality is likely to drive sales and perform ance
Only with these balanced set o f measures encom passing financial, customer, internal and
learning and grow th perspectives, like the entire set o f gauges in a cockpit, can
management properly lead an information age company The authors describe how
choosing the correct metrics that are tied to an organization's strategy can lead to the
effective use o f the BSC as a strategic perform ance m easurement system.
In 2000, Kaplan and Norton wrote their fourth HBR article. Having Trouble with Your
Strategy? Then Map It. This article specifically chronicled how strategy can be explicitly
linked to the perspectives o f the Balanced Scorecard. During their studies on the early
adopter Balanced Scorecard companies, Kaplan and Norton realized more and more that
the Balanced Scorecard was much more than a standalone perform ance measurem ent
tool. It was a complete framework for implementing and executing strategy. In order to
effectively implement strategy throughout an organization, it must be dissected down to
the set o f perform ance m etrics that drive performance. These drivers o f perform ance are

the metrics that make up the BSC from each o f the customer, internal and learning and
growth perspectives. In order to determine which metrics ultimately drive strategy, a
series o f cause-and-effect relationships must first be developed from strategic objectives
The illustration o f all these relationships and linkages are what Kaplan and Norton call
Strategy Maps
In their article, Kaplan and Norton walk the reader through a case study o f Mobil North
American M arketing and Refining that discusses how their cause-and-effect relationships
developed into their strategy map Targeting consumers who were willing to pay price
prem ium s for gas if the stations were fast, friendly and had outstanding convenience
stores was a large part o f their strategy This strategic objective was broken down into a
series o f perform ance metrics from the financial perspective through to the learning and
grow th perspective, all o f which had a cause-and-effect relationship with one another In
this way, successful achievem ent o f the strategic objective w ould be driven by the
achievem ent o f the financial metrics, which would in turn be driven by the achievem ent
o f the custom er perform ance measures, internal process perform ance metrics and the
learning and grow th measures
The developm ent o f the Balanced Scorecard through the analysis o f Kaplan and N orton's
four HBR articles and their 1996 book documents the evolution o f the Scorecard from a
standalone perform ance measurement tool to a strategic perform ance management
system. Kaplan and N orton’s second book in 2001 discusses the final stage in the BSC
evolution - the m ove to an all-encom passing strategic m anagem ent and control system

19
BALANCED SCORECARD - TODAY
After almost ten years since its unveiling, Kaplan and Norton have studied and
researched more than 200 companies that have implemented the Balanced Scorecard The
authors summarized their findings in their BSC sequel. The Strategy-Focused
Organization (Kaplan and Norton, 2001). The Balanced Scorecard has been successfully
adopted in all types o f organizations including both large and small manufacturing and
service, public and private, growth and mature, and profit and non-profit organizations
This has spurred a significant cottage industry devoted to developm ent o f Scorecards
Kaplan and Norton contend that successful execution o f strategy is a rarity in today's
organizations. An early 1980's survey o f management consultants reported that over 90° o
o f effectively form ulated strategies were poorly executed (Kiechel, 1982). A 1999
Fortune article concluded that even with good strategies an estim ated 70% o f companies
fail due to bad execution (Charan & Colvin, 1999) Kaplan and Norton (2001) report in
their second book that 70-90% o f strategies fail, not because they are poor strategies but
because they w ere poorly executed In their analysis o f the early adopters o f the BSC,
they came to a realization The BSC companies that were using the card to align their
business and service units, teams and individuals around strategic goals were more
effective at im plem enting new strategies and achieved positive returns within one to two
years These pioneering companies were using the Balanced Scorecard as the focal point
for all key m anagement processes, from planning and budgeting to reporting and resource
allocation.

20
The authors admit that what began as a theory that exclusive reliance on financial
m easures in a management system was not a proper guidance system, had turned into
something much more Indeed, the Balanced Scorecard is still a performance
m easurem ent system but they came to the conclusion that the measurement system had to
not only include the correct type o f metrics, but also had to be used to measure the right
things. The right things, they contend, are measures that are derived from the
organization's vision and strategy. The BSC is not simply a performance m easurem ent
tool but a guiding light for managing strategy
The selected measures on the BSC are used by organizational leaders to com m unicate
information about the performance drivers that will enable the organization to achieve its
strategic goals The organization's strategy can easily be described by looking at the
m easures used on the Scorecard and the cause-and-effect linkages that tie those m easures
back to the strategy Kaplan and Norton have broken down the performance m easures
into four distinct perspectives: financial, customer, internal processes, and learning and
growth. Figure 1 is an illustration o f the four perspectives and how cause-and-effect
linkages can be created to align the organization to strategy
Strategic objectives are linked via cause-and-effect linkages down through each o f the
four perspectives. In this way, the drivers o f strategic performance can be identified and
focused on by the organization. The original BSC perspective framework depicted vision
and strategy in the middle o f the four perspectives Figure 1 illustrates the evolution o f

21
the framework. It highlights the importance Kaplan and Norton place on the links and
relationships between the individual metrics and individual perspectives
The authors insist that all measures on the Scorecard should have a strong cause-and-
effect relationship that clearly defines the organizational strategy In the custom er
perspective, the chosen measures should define the offering by explaining who the target
custom ers are and what the value proposition is in serving them For example, is the
organization competing based on product attributes (quality or price), innovation
(technical leadership) or custom er relationship (customized service)0 The custom er
proposition should become obvious by the perspective metrics being used. Some o f these
metrics include: customer satisfaction, customer loyalty, market share, custom er
acquisition rates, and annual sales per customer
Each custom er value proposition will require the efficient operation o f different internal
processes. The internal process perspective should include measures that track the
progress o f processes that are essential to achieving strategic objectives In many cases,
m easures here will be lead indicators for the customer perspective measures. By focusing
on internal measures based on strategy, instead o f minor improvements in existing
activities, entirely new processes might be identified and measured. Supply chain
measurem ents, product development, manufacturing efficiencies or product delivery
m easurem ents could all be the performance drivers in this perspective.

22
Figure 1: Defining the Cause-and-EfTect Relationships o f the Strategy
Vision and Strategy
[1
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Learning & Growth Perspective

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Source: Kaplan, R.S. and Norton, D P. (2001). The Strategy -Focused Organization.
Boston: Harvard Business School Press

23
The learning and growth perspective is the foundation o f employee skills and information
systems that drive improvements and successes in the other perspectives M easures in
this perspective are often the most difficult to develop as they encompass an area that is
perhaps the most intangible - intellectual ability As such, it has often been ignored or left
to the Human Resources department to manage Kaplan and Norton suggest that learning
and growth are just as important or perhaps more important for strategic success than the
other perspectives Learning and growth performance measurements might include
training hours, leadership development, employee satisfaction, lost time accidents and
employee productivity
Financial measures are an integral part o f the Balanced Scorecard The metrics chosen for
this perspective are typically lagging indicators that report on past performance Some
indication o f past performance is necessary to guide strategy and help in the future
execution o f strategy The measures in this perspective are the counterweight o f the non-
financial, leading performance drivers Traditional financial measures, linked to the
organization's strategy are found here. Net income, revenue, return on net assets, return
on equity, share price and cash flow are examples o f financial measures
The Balanced Scorecard through its use o f balanced performance measurements and the
cause-and-effect linkages to strategy is used as a strategic management system. The
Scorecard, through the process o f its developm ent and implementation, effectively
ensures a shared understanding o f the organization’s strategy by breaking the high-level
vision and mission into objectives, measures, targets and initiatives in each o f the four

24
perspectives that are actionable by all employees in the organization The BSC is
cascaded through the organization until each employee has implicit knowledge o f how
his/her performance affects the individual Scorecard measures This ultim ately can drive
the achievement o f strategic objectives, and assuming the strategy was chosen well,
organizational success
Balanced Scorecard Criticism
W hile the vast majority o f BSC criticism has been positive, some critics have argued that
the four perspectives are limiting, that it is too inwardly focused and that there are too
many measures for organizational leaders to effectively manage.
KPM G's performance measurem ent white paper. Achieving Measurable Performance
Improvement in a Changing World (2001), outlines several drawbacks to Kaplan and
Norton's Balanced Scorecard. The first is the contention that the four perspectives -
financial, internal process, custom er, and learning and growth are too limiting The
criticism is that there is a lack o f consideration in the existing perspectives for knowledge
creation processes and intellectual capital Some organizations that have adopted the BSC
add a fifth, "human resource perspective" to help the company focus on the perform ance
drivers that originate from human capital. However, the Kaplan and Norton model has
the attractiveness o f com pactness and the advantage o f focusing on a limited num ber o f
strategic issues.

25
A nother strong criticism o f the BSC (KPMG, 2001) is that other than the customer
perspective, there is little focus on the external environment Not keeping a strong eye on
m arket changes, competition and outside forces could result in the organization being
unprepared to deal with unexpected changes in the environment The white paper goes on
to state that the Balanced Scorecard can only be used for internal purposes, that external
benchm arking is difficult and that the BSC results in limited attention being paid to the
external environment
Interestingly enough, contrary to the criticisms describing a lack o f perspectives, there are
those who feel that the many m easures that make up all four perspectives are too many
for managers to handle Michael Jensen (2001), the Managing D irector o f The M onitor
G roup's Organizational Strategy Practice and the Jesse Isidor Straus Professor o f
Business Administration Emeritus o f the Harvard Business School, vehemently argues
this point, "Balanced Scorecard theory is flaw ed because it presents managers with a
scorecard which gives no score—that is, no single-valued measure o f how they have
perform ed." The BSC strategic management system, through its use o f multiple
perspectives and sometimes up to 25 metrics, forces managers to maximize in more than
one dim ension at a time with little guidance as to how to make tradeoffs between the
measures.

26
B A LA N CED SC O R E C A R D - T H E FUTURE
The Balanced Scorecard has evolved from performance measurement reporting tool to a
complete strategic management system in 10 short years Has the BSC found its niche or
is it going to significantly evolve even more in the future0 This section o f the chapter
outlines some areas o f potential change for the BSC in the future. It discusses BSC
software and the use o f the Scorecard in external reporting, the budgeting process and the
role o f the Balanced Scorecard Collaborative
Balanced Scorecard Software
Balanced Scorecard adopters in the early 1990's used only basic spreadsheet-based paper
reports to communicate and maintain Scorecard data. As more and more organizations
adopted the Scorecard with more and more complex uses, software manufacturers began
to add technology to the process Software can now be customized and automated to
collect, summarize and display data as it pertains to the BSC measures As a result, the
Balanced Scorecard can be displayed electronically on a company intranet or on display
m onitors for all em ployees to see in real time. Color-coded warning alarms can show at a
quick glance when measures are out o f set ranges or targets. Scorecard pages can be
custom ized for departments, groups or individuals to help keep track o f the most
important measures The market has become increasingly com petitive as more and more
com panies from large enterprise resource planning (ERP) vendors to small niche
com panies strive for a share o f this emerging market. M ore and more organizations are

27
planning to invest in perform ance management technology in the near future A recent
study reported by Niven (2002). found that over 50% o f com panies are planning
perform ance measurement technology changes in the next 12 to 18 months
The Balanced Scorecard and External Reporting
Uses o f the Balanced Scorecard also seem to be expanding. Some com panies have
investigated, and others have tried using the Balanced Scorecard as an external reporting
tool Skandia, a Swedish insurance company, and user o f the Balanced Scorecard,
publishes a supplem ent to their annual report that discusses the fiscal year in Balanced
Scorecard terms The company contends that in the future the current supplem ent could
become the principal report, replacing the traditional annual reporting format SJ (Statens
Jam vagar), the operator providing transportation o f the Swedish State Railway has
followed the lead o f Skandia and also issued a supplement to its annual report entitled
Renewal and Development at SJ - What the Balance Sheet Does Not Tell You (Olve. Roy,
and W etter, 1999).
The recent Enron and W orldCom scandals have made the public more aware o f the ease
with which the current traditional accounting formats can be m anipulated. M anagers can
manipulate strict financial measures in the short-term by taking actions that betray long
term strategic choices. Com panies like Skandia and SJ propose the use o f the BSC to
effectively and accurately report true performance. The non-fmancial m easures on the
BSC can act as moderating variables that indicate if the financial results are coming about
R e p r o d u c e d with p e r m i s s io n of t h e c o p y rig h t o w n e r . F u r th e r re p r o d u c tio n p roh ibite d w ith o u t p e r m is s io n .

28
in accordance with the strategic choices or by other means. For example, the commitment
to improve and grow custom er loyalty (a strategic objective) can be tracked by
monitoring some measure o f it via the BSC This measure can then be used to determine
if improved financial perform ance is resulting from im provem ent in this area or from
other short-term, non-strategic means
Therefore, it is conceivable that a move away from traditional reporting in favor o f more
in-depth non-financial disclosures, such as those from the Balanced Scorecard, could
become a reality in the future
The Balanced Scorecard and the Budgeting Process
The budgeting process that most companies follow today is quite similar to that
developed more than 80 years ago by early industrial com panies as a management control
system. Today's organizations are moving away from the com mand-and-control
managerial style to one o f organizational learning and em pow erm ent However, the
budgeting process with its focus on accounting measures has not significantly changed
since its original developm ent. The Balanced Scorecard has been proposed and is being
used by organizations to place strategy at the center o f the budgeting process.
M any organizations have a strategic planning group that focuses on developing long
range plans and business planners who independently develop operating and capital
plans This independence has resulted in over sixty percent o f organizations not having a

29
link between budgets and strategy (Kaplan and Norton, 2001) The command-and-control
budgeting process is often a top-down, centralized activity that is time-consuming,
involves significant amounts o f game playing between managers and departments, and
has little strategic focus
Rolling forecasts have often been proposed as a replacement for the traditional annual
budgeting process. Four or six quarter rolling forecasts that are updated quarterly are an
im provem ent in the budgetary process They are not as rigid as the annual process, they
provide some flexibility to capitalize on available opportunities, and they allow for a
response to environmental changes. Although an improvement over the annual budget, it
is still tim e consuming, frequently subject to game playing and does not tie the budget to
organizational strategy
According to Olve et al (1999) and Niven (2002), as a result o f their displeasure with the
budgeting process, some companies have banished the traditional annual budget model
altogether Volvo Car Corporation, Swedish bank Svenska Handelsbanken and SKF have
all done away with the budget model or are in the process o f doing so
Instead o f banishing the budget altogether, Kaplan and Norton, in their second book
argue that budgeting should be viewed as two related processes The operational budget
consists prim arily o f non-discretionary spending and expenses that are determined by the
volume and mix o f goods and services produced or delivered. The operational budget can
be dynam ic to allow for new opportunities and environmental changes. The second

30
process, which they refer to as the strategic budget, involves spending on new initiatives
and capabilities that enable future growth In this way discretionary spending is limited to
initiatives that drive future performance and is linked to the organization's strategy The
Balanced Scorecard is the tool by which decisions on this spending are based Kaplan and
Norton suggest that in order to manage both tactics and strategies, organizations need
both o f these processes that are linked by the Balanced Scorecard
Another approach is to use the Balanced Scorecard to develop budgets that use strategy at
the center o f the process Niven (2002) suggests a five step budgeting process in which
spending is geared towards achieving strategic objectives instead o f a simple tweaking o f
last year's numbers First, organizations intensely publicize their intention to use the BSC
to center the process. If a high-level Scorecard hasn't been developed, it should be done
Step three involves cascading the BSC down through the organization with each business
unit Scorecard focusing on the objectives and measures that drive high-level strategic
initiatives. They should also include targets, initiatives and the cost o f the initiatives
necessary to achieve success on the BSC metrics. Furthermore, typical budget line items
and operations expenses should also be included. According to the proponents o f this
process, this will force the organization to critically examine current operations and
determ ine how expenses are linked to strategic initiatives. In step four, results from
across the organization are compiled and analyzed to ensure balanced spending on
initiatives that drive strategy. The last step involves intense dialogue among senior
m anagem ent and executives to finalize the new budget

31
This approach is somewhat different from that proposed by Kaplan and Norton in that
only one budget encompassing operational and strategic initiatives is created However,
this budgeting process offers the advantages o f forcing everyone in the organization to be
constantly aware o f organizational strategy and the drivers o f long-term perform ance
Game playing, politics and numbers shuffling that are inherent in traditional budget
models could be minimized In lieu o f this, an organization is created that is fully in tune
with its strategy and is able to spend capital wisely on the drivers o f long-term
performance
The Balanced Scorecard Collaborative
Dr Kaplan and Dr Norton founded the Balanced Scorecard Collaborative (BSCol) in
February o f 1999 to "facilitate the worldwide aw areness, use, enhancement, and integrity
o f the Balanced Scorecard as a value-added management process (http: n u n , hscol. com,
November 10, 2002). " The organization provides support for Balanced Scorecard
education, training, research and development services. The Collaborative also publishes
a bimonthly new sletter Ihe Balanced Scorecard Report, hosts conferences, and runs the
BSC online website that provides information on Balanced Scorecard issues The website
also hosts The Balanced Scorecard Hall o f Fame , which recognizes aw ard-w inning
adopters o f the Balanced Scorecard. ABB Switzerland, City o f Charlotte, Dupont, Hilton,
and the UK M inistry o f Defense are all members o f the BSC Hall o f Fame

32
Dr Norton is the President and CEO o f the BSCol and Dr Kaplan is the Chairman The
Collaborative has global offices in North America, Europe, Asia Pacific and Australasia
THE BALANCED SCORECARD EVOLUTION - SUM M ARY
The Balanced Scorecard Collaborative claims that according to Bain & Company, the
BSC is em ployed at half o f the Global 1000 (http://www bscol com . Novem ber 10,
2002) It has also gained momentum around the globe In Europe, it is estim ated that
between 40 and 45 percent are Balanced Scorecard users According to Kaplan and
Norton in their interview reported by Calabro (2001). about 35% o f com panies in
Australia claim to be using a balanced scorecard
The history o f the Balanced Scorecard has been presented in this chapter from its
inception as a research study on performance measurement, to its evolution as a strategic
m anagem ent tool and finally to the worldwide attention it has garnered today
W ith such accolades to the credit o f the BSC, how do we determine if its success will
continue9 M anagem ent consulting firms exist to provide their clients with new age
professional services to assist them in reaching their goals The next chapter will explore
what the large general management consulting firms are promoting in regards to strategic
perform ance measurem ent and the Balanced Scorecard.

33
C H A P T E R 3: C O N SU LTIN G FIR M S P R O M O T IO N O F T H E
BALANCED SC O R E C A R D
Kaplan and Norton have been promoting the use o f the Balanced Scorecard for the last
decade as a new and concise performance measurement and strategic managem ent
implementation tool for today's organizational climate. The last section reported that in
many o f the major centers around the world over half o f the largest organizations were
using the Balanced Scorecard. This is certainly a testament to its successfulness and
penetration into today’s business world.
Another indicator that can be used to assess the success o f Balanced Scorecard
acceptance is if management and business consulting firms actively prom ote the BSC or
if they prom ote their own version o f the same BSC concepts to their clients M anagement
consulting firms exist to provide organizations with intelligent professional services, or
according to The Boston Consulting Group (http://www.bcg.com. Decem ber 10. 2002),
"to help the world's best organizations make decisive improvements in their direction and
performance by sparking breakthrough ideas fo r clients , the business world, and society
at large " Hence, if the BSC or the main tenets o f the BSC were prom oted by these
organizations, then a potential indicator o f BSC success would be revealed.

34
M ETH O DO LO G Y
W ebsite and publication searches were the predominant sources o f research for this
study This search included firm websites, firm online journals and newsletters, and
publications. An in-depth website search o f each o f the firms and a recent firm
publication search was conducted predominantly during the time period o f Novem ber and
December 2002 As such, the positions and offerings o f the firms presented in this paper
are a result o f available information during this time period In some circumstances,
websites change and information is added and/or deleted as changes to organizations
takes place In other circumstances, even though organizational and environmental
changes are occurring, websites are not immediately updated. Many o f the accounting
firms researched in this paper went through some fundamental changes as their
consulting arm s were spun o ff from their core assurance practice The information
presented on these firms represents that o f the parent accounting firm and may not
necessarily correlate to the new consulting firms created from the original organizations.
A sam ple o f consulting firms was chosen to represent the market. The consulting side o f
the former big five accounting firms and the leading general m anagem ent consulting
com panies w ere investigated to determine their stance on the Balanced Scorecard. The
leading general m anagem ent consulting companies were chosen according to the 2001
general m anagem ent consulting market share as reported in the July 8, 2002 issue o f
Business Week (Byrne, M uller and Zellner, 2002) Table 1 was reproduced from the
article.

35
Table 1: General M anagement Consultants M arket Share 2001 (Byrne, M uller and
Zellner, 2002)
Firm Fiscal 2001 Change from 2000 Market Share

Revenues (0/o) Among M ajor Firms
(SBillions) (%)
M cKinsey 34 _2 40 6
Booz, Allen & 16 4 19 1
Hamilton
A T Kearney 12 -7 14 4
Boston Consulting 11 -5 12 5
G roup
Bain 08 1 97
M onitor 0.3 9 36
As a result, the following 1 1 firms were identified and examined: Accenture. Deloitte
Touche Tohmatsu, Ernst and Young, KPMG. PricewaterhouseCoopers, A T Kearney,
Bain & Company, Booz Allen Hamilton, The Boston Consulting Group. McKinsey &
Company, and The M onitor Group
RESEARCH SUM M ARY
All eleven com panies stressed the importance o f including both financial and non-
financial m etrics into their clients' performance measurement systems. Similarly, they all
agreed that somehow an organization's strategy should be tied to their measurement
systems. This is where the agreement amongst the firms ends At this point, the group o f
eleven is split along the accounting firm consulting and general management consulting
firm line.

36
Table 2 is a detailed summary o f the views o f the 11 firms in regards to strategic
perform ance management and the Balanced Scorecard
All five o f the accounting firm consultants Accenture, Deloitte Touche Tohmatsu, Ernst
and Young, KPMG, and PricewaterhouseCoopers have dem onstrated that they have or
discuss how they can advise clients on Balanced Scorecard implementation Based on the
study, Ernst and Young and PricewaterhouseCoopers actively prom ote the Balanced
Scorecard as a strategic performance measurement system as defined by Kaplan and
Norton Accenture, Deloitte Touche Tohmatsu, and KPMG provide services and promote
offerings that parallel the Balanced Scorecard as defined by Kaplan and Norton very
closely, but in most cases do not use the Balanced Scorecard name Please see the
strategic perform ance measurement offering row in Table 2 for a brief description o f each
firm's specific offering or the Results subsection below for a more in-depth discussion on
each firm
The general management consulting firms do not offer, nor have they described the
prom otion o f the Balanced Scorecard in any publication found by the researcher
A T Kearney, Bain and Company, and Booz Allen Hamilton all seem to have strategic
perform ance measurement tool offerings that are similar to the Balanced Scorecard as
defined by Kaplan and Norton Many o f the tenets o f the Balanced Scorecard were
evidenced in their service offering. Booz Allen Hamilton publications revealed that they
are critical o f many aspects o f the Balanced Scorecard while their offering includes many
o f the same ideas. A T Kearney’s Integrated Strategic

r*
m Table II: Consulting Firms Strategic Performance Measurement Offering Summary
Boston Consulting G ro u p
Pnccw atcrshouscC oopcrs
McKinsey & C o m p an y
Booz Allen H am ilton
The Monitor G ro u p
Bain & C o m p an y
Deloitte T o u ch e
Ernst & Y o u n g
A ccen tu re
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
T o h m a tsu
K PM G
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Financial and Non-
Yes Y es Yes Yes Yes Yes Yes Yes Yes Yes Yes
Financiai M etrics
Performance
M easures Tied to Yes Y es Yes Yes Yes Yes Yes Yes Yes Yes Yes
Strategy
Ability to Do BSC in
Yes Y es Yes Yes Yes No No No No No No
Certain Applications
BSC V iewed
Yes Y es Yes Yes Y es Yes Y es No No Yes No
Favorably
Actively Prom ote
No No Yes No Yes No No No No No No
BSC by Name
O ffenng Very
Yes Y es No Yes No Yes Yes Yes No No No
Similar to BSC
Strategic - IISC in *k n te r p n s t - H SC us - ca n d o
- HSC as
- /n re g m n v / - c n tic i/e ■am: - highh - support
cerium /Vr/nrnumc*’ d e fin e d bv list S lm te % k /Vtfrwrnuncf IISC o ile rs new curt onured b o lan ced
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K uplnn and \ le a f 1 - S t r a f t ’K tc - p erfo rm a n ce fin an cial
M easurem ent - f-JtiXUtnv K ap lan and includes pcrf««nruncc
- financial N orton o ile rs B a itd m e asu res an d non-
l\n h b ( \ir j N orton financial and system* that
l-M terpriu'
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which 1 urope
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arc b u ilt tin financial, C en ter Rc* huvc. in teg rated jtcrfrtmufKx • measure em p lo y ees. co m p an ies
client customer, Marict. m e asu res mctnc* drivers «»f cu sto m ers c a n 't focus
strategv and internal and I*nvc«. and "drilled performance
tie d to und on m o re
pestle financial A ntn'’ fnwn
le v value strntcgv including fin an cial th a n one
pmpcvtnc* pcrfrtfmaixe *trateg>
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operational and
and learning t ’uitom ontc*
!M
38
M easures and Booz Allen H am ilton’s Strategic Based Transformation are exam ples o f
the sim ilar approaches to strategic perform ance measurement. Each firm 's subsection
elaborates on these similarities
Information on McKinsey & Company and The M onitor Group's capabilities in regards
to strategic perform ance measurement was lacking McKinsey & Company, through
various publications did appear to look favorably on the BSC while the M onitor Group
did not The Boston Consulting Group simply does not promote BSC concepts nor do
they discuss it favourably
Overall, with the exception o f The Boston Consulting Group, McKinsey & Company,
and The M onitor Group, all eleven o f the consulting firms investigated either prom oted
the Balanced Scorecard as a performance measurement and management system, had
offerings that were very similar or included many o f the Balanced Scorecard philosophies
that their offerings’ could be considered similar
RESULTS
A ccenture
A ccenture is a management consulting and technology services company that is
com m itted to delivering innovation to their clients while helping them create tangible
R e p r o d u c e d with p e r m i s s io n of t h e co p y rig h t o w n er. F u r th e r re p r o d u c tio n p ro hibited w ith o u t p e r m is s io n .

39
value and realize their visions The company employs 75,000 people in 47 countries and
had SI I 6 billion US in revenues during fiscal 2002 (http://www accenture.com /xd/
x d.asp9it-enweb& xd=aboutus\com panv\co.com pany.xm l. December 5, 2002)
A ccenture is a promoter o f balanced financial and non-financial perform ance metrics in
addition to the Balanced Scorecard in certain business areas The consultant describes the
im portance o f developing a performance management system that is built on a company's
strategy and that the metrics used focus the entire organization on the key drivers o f
value In A ccenture’s (2001) Point o f View article entitled, .4 Holistic Approach to
Creating Sustainable Shareholder Value, the company states that the drivers o f value will
be com binations o f both tangible and intangible asset classes that lead to areas o f
com petitive advantage and strategic leadership The article goes on to state that no single
all-encom passing metric will be sufficient, but that a series o f metrics or tools should be
used Furthermore, to create sustainable shareholder value an organization must focus on
creating the capability to improve itself in critical areas o f value creation by aligning
strategy, m anagement processes, perform ance measures and rewards to the drivers o f
shareholder value
In their Finance and Performance M anagement Practice, Accenture assists their clients in
targeting value creation opportunities, inventing effective performance reporting and
perform ance management capabilities, and focusing the entire organization on optimizing
value creation.

40
In addition to these sen/ice offerings, Accenture also promotes the balanced scorecard
concept in many specific organizational areas including: strategic alliances, procurement
and IT The consulting company is a strong advocator o f using the balanced scorecard
concept to measure alliance performance Strategic alliances are agreem ents between
com panies in which each commits resources to achieve a common set o f objectives
Firms can form these alliances with customers, suppliers or competitors. Accenture
believes that numerous performance metrics are used to provide, "...a balanced
combination o f perspectives: financial and strategic measures , short-term and long-term
measures, and measures that monitored processes and end results" (Accenture, 1999) In
this way both members o f the alliance can focus on the drivers o f perform ance for both
organizations Organizations that use the balanced scorecard in alliances are the "Alliance
Partner o f Choice" (Gordon, Moeller and Palmer, 2001) according to Accenture
Similar to creating balanced scorecards for strategic alliances. Accenture also prom otes
the BSC for use within organizations between services like IT and functional
departm ents Vital qualitative and quantitative factors, including client satisfaction, value
created, and service time metrics are developed and used to measure IT perform ance
Procurem ent performance leaders also use Balanced Scorecards to assist business unit's
focus on priorities, promote desired behavior and drive performance. The Point o f View
article, What M akes a Procurement Performance Leader? (Okin and Pfau, 2001)
includes a sample procurement balanced scorecard which includes a series o f metrics

41
from the customer, financial, internal business processes and learning and growth
perspectives
A ccenture promotes many o f the concepts that make the Balanced Scorecard successful
They prom ote strategic perform ance management systems that included balanced
financial and non-financial perform ance metrics that are built on the company's strategy
and are based on the key drivers o f value Although they do not appear to prom ote
Balanced Scorecards as developed by Kaplan and Norton, they do suggest it be used in
certain business areas and offer their assistance in its development.
Deloitte Touche Tohmatsu
Deloitte Touche Tohmatsu (Deloitte) is a professional services firm that delivers
assurance and advisory, consulting, and tax services through its worldwide member
firms. Deloitte produced revenues o f $12 5 billion US in the 2002 fiscal year and has
over 100,000 employees in 140 countries Deloitte Consulting (soon to be Braxton), the
consulting arm o f Deloitte Touche Tohm atsu produced an estimated $5.9 billion US in
the 2002 fiscal year and has over 32,000 consultants around the world
( http://www.deloitte.com . December 6, 2002).
Deloitte supports the use o f balanced perform ance metrics to help organizations focus on
actions that deliver immediate results and improves long-term grow th and com petitive
positioning Although they do not typically support the latest business school analytical

42
methodologies, they do provide balanced scorecard development services
(http://www.deloitte com. December 6, 2002) Deloitte's Decision Analytics services
include the design and implementation o f four analytic applications One such application
is named Enterprise Performance Management, which includes balanced scorecard
developm ent and shareholder value-based management (Deloitte & Touche, 2002)
In addition to their ability to provide balanced scorecard development, they also provide
tw o additional analytical performance measurement systems for their clients. Deloitte
partnered with Lawson Software to develop the Lawson Enterprise Analytics fo r Retail
which collects system information, analyzes it, and presents the key perform ance
indicators and balanced scorecard metrics
In their white paper, CEO Porta! (Silvers and Rusnak, 2001), Deloitte describes the CFO
Portal as a gateway to their analytic platform, which is an integration o f business analysis
toolpack. The Executive Dashboard channel o f the software displays organizational
perform ance metrics including strategic objectives and targets. The four perspectives on
this Executive Dashboard include financial measures, customer measures, internal
measures and people measures. The people perspective includes such m easures as
em ployee satisfaction, training plans and goal accomplishment rate.
D eloitte Touche Tohmatsu promotes the use o f the balanced scorecard as a perform ance
m easurem ent system. Their Enterprise Performance Management and Executive
Dashboard display o f the CEO Portal both offer metrics under the financial, customer.

43
internal and people measures which is very similar to the Kaplan and Norton perspectives
and measures The offerings include financial and non-financial measures and are based
on strategic objectives Although they promote the ability to create balanced scorecards,
they are not defined as Kaplan and N orton’s BSCs
Ernst & Young
Ernst & Young (EY) is a global provider o f professional services with over 1 10,000
employees in 130 countries and had revenues o f US$10 1 billion in fiscal year 2002
(http://www ev com/global/content nsf/lntem ational/About EY. December 7, 2002) In
addition to their core assurance practice they also offer business advisory services
Cap Gemini Ernst and Young is Ernst & Young's consulting arm that was spun o ff by the
company in 1999 Cap Gemini has 56,000 employees in more than 30 countries and had
2001 revenues o f $8.7 billion USD (http://www.ceev com /about/. December 7, 2002)
The strategic performance management services description below is that o f Ernst &
Young and not Cap Gemini Ernst & Young
On the global front, EY is a strong supporter o f the Kaplan and Norton Balanced
Scorecard. In particular, Ernst and Young Sweden has embraced the concept and has
promoted its use extensively They have developed a Nordic Balanced Scorecard Center
(http://www ev com/global/content.nsfrSweden/Balanced Scorecard. December 7, 2002).
where Balanced Scorecards are defined as, "...an efficient and essential control fo r

44
tomorrow's companies." According to the EY Sweden website, they have developed 600
Scorecards and 11,000 companies have attended their conferences and seminars They
have carried out Balanced Scorecard Academies in Helsinki, Munich, Paris and London,
in addition to the 50 such academies carried out in Sweden. They have certified over 700
university/college students in BSC techniques and EY professionals have taught these
concepts at many o f these institutions.
Ernst and Young has also developed BSC software and has distributed more than 300
issues to date In their tight embrace o f the concept, they have written a book on their
experiences and knowledge o f the topic entitled. An Eye-opener fo r Speedy Mouse or The
Balanced Scorecard in Practice (English) which has sold more than 7,000 copies
(http.//w ww ,ev com/global/content.nsf/Swedert/Balanced Scorecard. December 7, 2002)
The cartoon film with the same name as their book can be accessed via their Swedish
website (http://ww w ev com/global/content.nsf/Sweden/Librarv Speedy M ouse) and it
defines the Balanced Scorecard offering by Ernst and Young Mr. Balanced Scorecard.
as the BSC cartoon expert is aptly named in the movie, defines the BSC as a tool that
m otivates all company em ployees by creating a common understanding across the entire
organization. A vision for long-term success defines where the company aspires to be and
then strategic objectives are developed for the employee, innovation and developm ent,
internal process, custom er and financial perspectives Strategic objectives, critical success
factors and finally individual m easures are created to guide the organization tow ards
achievem ent o f the strategic objectives.

In addition to its Nordic Balanced Scorecard Center, Ernst and Young promote the BSC
in many o f its other European and Asian websites including Hungary, Czech Republic
and Singapore
Ernst and Young is a strong, global promoter o f the Balanced Scorecard as defined by
Kaplan and Norton Their Nordic Balanced Scorecard Center, European and Asian
websites shows positive support for the BSC around the world However, the Balanced
Scorecard strategic perform ance measurement and management system does not seem to
be promoted very heavily in North America as is evidenced bv the lack o f information
and service offerings on their N oah American webpages
KPMG
KPMG member firms are global providers o f assurance, legal, tax, and financial advisory
services. In 2002, KPMG achieved revenues o f US $10 7 billion on the strength o f nearly
100.000 employees in 150 countries (http://www.kpm g.com /about/statistics.asp.
December 8, 2002).
In O ctober o f 2002, KPMG Consulting became BearingPoint Inc. The company has
16.000 employees in 39 countries (http://www.bearingpoint.com /about us/index html.
Decem ber 8, 2002). The strategic performance management services description below is
that o f KPM G and not BearingPoint

46
KPM G's strategic perform ance measurement platform includes balanced financial and
non-financial perform ance metrics They promote the use o f critical success factors, key
perform ance indicators (KPIs) and offer the ability to create balanced scorecards The
consultant's interest in this area commissioned a series o f white papers on the topic,
which provides insight into KPMG's views on strategic perform ance measurement
In the United States, KPMG's Business Measurement Process (BM P) is a methodology
for delivering audits that focus on the client's business and processes (http://
www kpmg. ca/m icrosite/enterprise/english/. December 8, 2002) In addition to traditional
audit services the consultant works closely with the client to understand their business
strategies This understanding is then used to determine what they key strategies are for
their client, and how they should be measured Considering both financial and non-
financial information, KPM G develops measures that analyze the client’s key issues,
business processes, critical success factors and KPIs
KPMG Enterprise 7U, a division o f KPMG LLP in Canada provides services to
organizations including providing advice on how to measure performance. Similar to
BMP, Enterprise7X1 stresses the importance o f developing KPIs that are connected to the
business strategy and can measure processes and activities rather than simply financial
results. Once the critical success factors (key strategies) o f a business have been
identified, then KPIs are established to measure the progress KPMG Enterpriseni
(http://ww w .kpm g.ca/enterprise/English/, December 8, 2002) stresses this point.

47
"While financial measurements can he useful as management informal ton, they

tend to represent a residual o f all the activities in a company. Non-financial
measures o f time, activity, inventory, etc., are often more difficult to obtain, hut
they can connect much more strongly with Critical Success Factors in the
business strategy. They often make better KPIs because they actually drive the
financial results."
According to KPMG, the KPIs should come from the following areas: resource
perform ance (human resource skills, information management), process performance
(cost, quality, cycle time), and market performance (customer retention, customer
satisfaction) in addition to financial perform ance Enterprise1^ also establishes itself as
having the ability to design, structure and implement a balanced scorecard based on the
key business areas o f financial performance, customer service, knowledge management
and human resources
KPM G has produced a couple o f white papers on the topic o f performance measurement
In Beyond the Numbers: How Leading Organizations are Linking I 'a!ues with I cilue to
Gain Competitive Advantage (2000) and Achieving Measurable Performance
Improvement in a Changing World (2 001), KPMG professionals stress the importance o f
including non-financial indicators as part o f strategic perform ance measurement Non-
financial indicators are often the lead indicators that drive future perform ance The papers
establish the Balanced Scorecard as defined by Kaplan and Norton as a viable and
effective tool for achieving balanced, strategic perform ance measurement.
KPM G has the ability to develop balanced scorecards for their clients but they prefer to
offer their custom ized measurement systems, which have many o f the same qualities o f a

48
BSC KPM G's Business Measurement Process and KPMG Enterprise7X1 develop
m easures from both financial and non-fmancial areas that are connected to strategy and
originate from four perspectives that are very similar to Kaplan and Norton's financial,
custom er, internal and learning and growth perspectives
Pricew aterhouseC oopers
Pricew aterhouseC oopers (PwC) is a global audit, assurance and business advisory service
com pany that also offers tax, business process outsourcing and corporate finance and
recovery services In fiscal year 2002, PwC (excluding consulting services) had revenues
o f $13 6 billion, operated in 142 countries and had over 125,000 employees worldwide
(http://w w w .pw c com /gx/eng/about/press-rm /fact html. December 9, 2002)
PwC Consulting, with 2002 fiscal year revenues o f $5 1 billion and 30.000 employees
was acquired by IBM and merged with their Business Innovation Services unit to becom e
IBM Business Consulting Services in O ctober o f 2002. The new unit has a combined
60,000 em ployees in 160 countries and is now the world's largest consulting services
organization (http://www .pw c com /extweb/ncpressrelease nsfrDoclD/
F A 7F F 1562E F 2281B85256C070046A 89A . December 9, 2002)
Pricew aterhouseC oopers places a strong emphasis on value m anagem ent and the use o f
the Balanced Scorecard as an im provem ent tool in perform ance measurement and
strategic management. PwC recognizes the importance o f financial and non-fmancial

49
inform ation and the role they play in generating and reporting information to stakeholders
(h ttp .//w w w .pw c.com/Extweb/Servi ce. nsf/docid/
015130A8529BBB3C85256A7AQ0462BAC. December 9, 2002), "market reaction to
unanticipated performance variations (whether m financial or non-fmancial terms), or
simply to the lack o f quality value-relevant information being made available, act as a
real drain on shareholder value. "
Having and communicating a value management strategy is vital for organizations
according to PwC The consultant promotes another approach to performance
measurem ent and corporate reporting entitled l'alueReportingn ' It provides a clearer
picture o f vital non-fmancial value drivers such as market opportunities, risks, strategy
and intangible assets as supplemental information to traditional financial reporting
PwC's Global Risk M anagement Solutions w orks with their clients to manage risk and
organizational value at the tactical and strategic level. Under their Infrastructure
Blueprint Design service they advise clients on the design o f systems, policies,
infrastructure and control frameworks to execute dynamic value management processes
(h ttp ://w w w .pwc. com/Extweb/service, nsf/docid/
A 10 C 7 13333CEBEC08526A7A004B3568. December 9, 2002). This design also includes
perform ance management frameworks and internal value accounting procedures such as
KPIs and balanced scorecards

50
Excelsiorn ' is a PricewaterhouseCoopers (UK) service offered to members which
provides advice and knowledge on the "most widely used and effective improvement and
measurement tools, including the EEQM Excellence Model, Investors in People and
Balanced Scorecard (http: www.excelsior.pwcglobal.com tools improvement, asp.
December 9, 2002). " The balanced scorecard as defined on the Excelsiorn ' w ebsite refers
to and parallels the Kaplan and Norton model closely The financial, customer, internal
processes and learning and growth perspective m easures are identified for clients and
linked to the organization’s vision and strategy
A nother example o f PwC’s Balanced Scorecard promotion as defined by Kaplan and
Norton is its teaching o f courses in Europe on BSC implementation by senior
m anagem ent consultants o f the Financial and Cost M anagement Department
The Balanced Scorecard strategic performance measurem ent and management system
does not seem to be promoted very heavily in North America by
PricewaterhouseCoopers. However, one PwC publication promoted Balanced
Scorecarding as a means o f evaluating the perform ance o f corporate law departm ents'
dual m andate to add value while providing legal work to their corporate client. A ccording
to the report (Kelly, 1999),
"this dual mandate required a balanced approach to measurement which takes

short and long-term considerations into account... [and/ ...necessitates the
utilization o f an evaluation mechanism that encompasses qualitative and
quantitative measures that capture future considerations and not ju st past
perform ance."
R e p r o d u c e d with p e r m i s s io n of t h e cop y rig h t o w n e r. F u r th e r re p ro d u c tio n p roh ibited w ith o u t p e r m is s io n .

51
Pricew aterhouseCoopers appears to be a strong prom oter o f the Balanced Scorecard as
defined by Kaplan and Norton In particular in the United Kingdom and in Europe, PwC
offers their services to develop BSC for their clients In North America, it does not
appear that PwC promotes the BSC as heavily but have promoted its use as a tool in
certain areas
A T Keamev
A T Kearney is a global management consulting company that assists their clients to
achieve and sustain competitive advantage In 1926. A T Kearney's predecessor
company was established Since then the company has grown to over 5,000 em ployees in
more than 60 cities and 35 countries Since 1995, A T Kearney has been a w holly owned
subsidiary o f EDS, a global technology services company (http //w w w .atkeam ev com/
m ain.taf?p= 1.1.1. December 10, 2002). Business Week (Byrne et al, 2002) reported A T
Kearney's 2001 fiscal year revenues at $1 2 billion US which represented a market share
o f 14 4%
The consulting company appears to be a strong supporter o f perform ance m easurem ent
system s that use more than just traditional accounting measures to gauge perform ance.
A T. Kearney also instituted a balanced scorecard into an IT services organization.
In their publication, Executive Agenda (Howard, Hitchcock, and Dumarest, 2001), A T
Kearney reports that standard accounting measures are not reliable, nor diverse enough to

52
measure progress o f businesses that are constantly affected by external forces. Based on
Howard et a l's research in the area o f performance management, they have outlined
seven characteristics o f effective performance measurement systems:
1) Link performance measures to strategy and value creation
2) Use the process to shape agreement about strategy and key indicators.
3) Translate strategy into actions
4) Establish clear accountability
5) Track goals by measuring non-financials
6) Take forward-looking data to external stakeholders including boards and analysts
7) Anticipate and address cultural resistance
These seven characteristics outline A T Kearney's promotion o f linking perform ance
measures to strategy, using both financial and non-fmancial measures, holding people
and the organization accountable for the measures and spreading the measures throughout
the organization. In addition to these characteristics, the consulting com pany advocates
sharing the measurement system with external stakeholders and incorporating m easures
that are outward looking (external to company)
Although not specifically identified in their website, A T Kearney’s Graem e Deans,
states that A T. Kearney's strategic performance measurement offering is entitled
Integrated Strategic Measurement (ISM ) (personal communication, January 22, 2003)
The service aligns short and long-term strategic objectives with day-to-day operations by

53
using cascading measures that link strategic objectives with value creation A T Kearney
employs tools to assist in understanding the organization's value drivers and causal
relationships The ISM offering creates a balanced, value-driven and integrated
measurem ent and management system It includes both financial and non-financial
perform ance measures, and it helps translate an organization's direction, intent and
strategy into organizational structure and the deployment o f people and assets
A T Kearney does not specifically prom ote the Balanced Scorecard as defined by Kaplan
and Norton. Their strategic perform ance measurement offering uses many BSC concepts
such as the balanced financial and non-fmancial metrics that are tied to organizational
strategy and the cause-and-effect linkages between strategy and individual m easures
Bain & Company
Bain & Company (Bain) is a management consulting firm that converts their clients'
strategy and action into economic performance. Bain was founded in 1973 and has grown
to 2800 professionals in 20 countries (h ttp ://www bai n .com /bainw eb/about/overview asp.
D ecem ber 11, 2002). They had revenues o f $800 million in 2001, which gave them a
9.7% market share in the general managem ent consulting industry according to Business
Week (B yrne et al, 2001).
Darrell Rigby, Director o f Global Strategy at Bain states that they do not prom ote the
Balanced Scorecard (personal communication, December 12, 2002). However, they do
R e p r o d u c e d with p e r m i s s io n of t h e co p y rig h t o w n e r. F u r th e r re p r o d u c tio n pro hibited w ith o u t p e r m is s io n .

54
prom ote the use o f both financial and non-financial performance measurements to focus
their clients' organizations on the objectives that are the drivers o f long-term
perform ance These Key Performance Metrics are derived or "drilled down" from overall
strategic objectives and could relate to the financial, customer, internal process or
learning and growth perspectives. They prom ote the use o f simple and clear metrics that
reinforce the implementation o f the strategies that Bain develops. The perform ance
metrics are highly customized and are unique to each individual client Typically they
create and track a few important metrics that are critical to their client's strategy rather
than many complicated ones
Bain often im plem ents a Performance Dashboard as an integrated performance
m easurem ent monitoring system (http://www bain com/bainweb/expertise/
expertise capability asp9capabilitv id=39&sub capability id=45. December 11, 2002)
Frequently the Dashboard is installed to track the progress o f a new strategy or change
program. The indicators or metrics on the Dashboard measure achievements on both key
strategic initiatives and value creation.
In a client success example from their website (http://www.bain.com. December 11,
2002), Bain describes how they created a Performance Dashboard that was tied to a
value-creating strategy. They first identified key success factors through a strategic
review, defined KPIs, set targets, created consistency checks, developed reporting
instruments, reviewed processes and then provided implementation support Dashboard
indicators were then selected to monitor both value creation and achievem ents on key

55
strategic imperatives. The Dashboard itself was centered on the key strategic priorities
with four sets o f indicators ranging from financial indicators to operational, commercial
and finally development indicators
Bain and Company does not promote the Balanced Scorecard as defined by Kaplan and
N orton Their strategic performance measurement systems including the Performance
Dashboard center around key strategic initiatives that drive the strategies that Bain
develops The indicators or measures required to m onitor and track the key strategic
initiatives are often both financial and non-fmancial in nature Although the labels
attached to the perspectives often differ from the BSC, B ain's offering uses financial and
non-financial measures based on strategic objectives that creates value for their clients"
and drives performance
Booz Allen Hamilton
Booz Allen Hamilton (BAH) is a global management consulting firm which has been
providing strategy and technology services to their clients for over 80 years The
com pany has more than 12,000 employees in over 100 offices worldwide
(http://w w w .booz.co m/bahng/SilverDemo9PID=Hom e.htm l& disType=HTM L& contTvpe
=TA BLE& N G PgID =about. December 12, 2002). In FY 2001, the company achieved
revenues o f $1.6 billion US and had a general management consulting market share o f
19 1% according to Business Week (Byrne et a!, 2001).

56
Booz Allen Hamilton does not actively prom ote the Balanced Scorecard. However, they
are strong promoters o f many o f the concepts that make the BSC successful BAH
prom otes organizational linkages, balancing short-term and long-term business
objectives, and measuring and acting on financial, operational, and custom er satisfaction
data.
Under Organizational Effectiveness in the BAH website (http.//www booz.com .
Decem ber 12, 2002), the consultant discusses how underperforming organizations are
often the result o f the various parts o f an organization not interacting properly to execute
their strategy BAH develops models to assist organizations to create linkages among
organizational parts to help the organization "...measure, inform and motivate them to
work together effectively to execute the firm 's strategy. "
A ccording to BAH, in order to succeed companies must continue to accelerate strategic
innovation, attract and retain effective employees while still delivering quarterly
performance. In order to balance these objectives, organizations must strive for long-term
achievem ent while maintaining short-term business objectives
Booz Allen Hamilton's (2002) Strategy-Based Transformation process involves four key
initiatives:
1) Develop a strategy that drives the industry agenda, is innovative, and is unique
2) Provide greater value for customers through business processes and IT

57
3) Attract customers for rapid revenue and earnings growth as well as allow ing suppliers
and alliance partners to achieve returns.
4) An innovative learning organization that attracts talented leaders
Furthermore, their Think-Do-Improve approach involves finding the principal drivers o f
perform ance as well as frequently assessing financial performance, operational
perform ance, custom er satisfaction and the developm ent o f key alliances
BA H ’s Strategy ■Business Magazine website contains several articles that discuss the
Balanced Scorecard. The majority o f the articles discuss the BSC in favorable terms but
none discuss it implicitly as a BAH strategic performance measurement tool. Arthur
Schneiderm an's article. Time to Unbalance Your Scorecard (2001), depicts the BSC as a
"more nuanced, more strategically useful , view o f performance /in lieu offinancial
measures alone/. " However, the article goes on to criticize most BSC im plem enters for
having too many metrics. The author suggests that two or three critical m etrics for
strategy execution are sufficient.
Sigvald Harryson (2002), a principal in Booz Allen Hamilton's Zurich office, w rites in
Strategy+Business,
" The Balanced Scorecard (BSC) is often proposed as the perfect solution to all
problems. Mapping and translating important strategic objectives into individual
goals and putting these on a scorecard fo r clarity and follow-up certainly has
some merit, but the BSC needs to be both well balanced between short-term and
long-term objectives and intelligently applied to drive desired behaviors like
knowledge sharing and entrepreneurship. "

Booz Allen Hamilton does not promote the Balanced Scorecard as defined by Kaplan and
Norton and in fact criticizes the tool in their publications However, their Strategy -Based
Transformation and Think-Do-Improve offerings involve many o f the same perspectives,
principles and concepts as is promoted by Kaplan and Norton's Balanced Scorecard
The Boston Consulting Group
The Boston Consulting Group (BCG) is an international strategy and general
m anagem ent consulting firm that helps their clients create and sustain com petitive
advantage BCG was founded in 1963 and today employs approximately 2800
consultants in over 50 offices around the world (http://www.bcg.com /this is bcg/
beg history. December 13. 2002) According to a Byrne et al (2001), the consultant had
revenues o f $1 1 billion US in fiscal 2001, which represented a general m anagem ent
consulting market share o f 12.5%.
BCG is not a promoter o f the Balanced Scorecard concept o f strategic perform ance
m anagem ent as defined by Kaplan and Norton. Instead, they are strong prom oters o f
value m anagem ent systems and the development o f non-tangible asset valuations The
BCG article. Sales Force Effectiveness: It's Not About Playing, It's About Winning
(Rhodes, Are, and Holley, 2002) discusses the developm ent o f appropriate metrics for
m onitoring an organization's sales force. The authors wrote, "Too many institutions also
chase a balanced-scorecard approach. These are easy to game, expensive to measure,
and tend to lead to average performance."

59
Barber, Strack, and Villis (2000), state that today's leading indicator o f organizational
success revolves around the ability to find, retain, and develop the best customers,
employees, and suppliers. As business shifts from a manufacturing to a service based
industry, people and not capital are playing a more vital role in determining success
The article (2000) was written by BCG consultants Ulrich Villis, Rainer Strack and
BCG's Zurich office senior vice president and head o f the firm's Organization practice,
Felix Barber The authors don't like the BSC as a performance measurement tool,
"Experiments with balanced scorecards and valuing intellectual capita! exhibit

other shortcomings. Those supplements to traditional financial reports provide a
multitude o f performance indicators, some o f them quite complex (such as the
correlation between employee motivation and customer satisfaction). But they
don’t answer the basic questions. "
Instead, they propose using the same traditional metrics used in capital-intensive
businesses (balance sheets, earnings, and growth) to measure performance in the areas o f
custom ers, employees, and suppliers to drive future value.
In order to value, control, and enhance today's non-tangible assets (customers,
em ployees, suppliers) BCG has created a detailed set o f metrics that it calls The Rea!
Asset Value Enhancer (RAVE), a registered trademark o f BCG (http //w w w beg com.
D ecem ber 13, 2002). In order to gauge organizational performance, BCG uses traditional
m etrics that include:
1) Profit-and-loss statement

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2) Balance sheet (active, passive, asset register)
3) Investment plan
4) Competitive benchmarks
5) Shareholder value indicators
The Rea! Asset Value Enhancer focuses new metrics and rewards from the supplier,
custom er and employee perspective instead o f the capital investment perspective The
employee and customer metrics are named Workonomics(R) and Custonomics(R).
respectively Workonomics(R) attempts to guide management and answ er the same
questions about employee performance that traditional measurement and control systems
answ er about capital performance (Barber and Zimmermann, 2001)
The Boston Consulting Group does not promote the Balanced Scorecard and as is shown
in several o f their publications is indeed an opponent to it The Real Asset Value
Enhancer, although bearing similar characteristics to the Balanced Scorecard, is different
in the approach, development and actual metrics used.
M cKinsev & Company
M cKinsey & Company (M cKinsey) is a management consulting firm dedicated to
assisting com panies improve their strategies, organizations and operations It was
founded over 75 years ago and is a global company with 82 offices in 44 countries
(http://w w w mckinsev.com/firm/. December 14, 2002). In 2001, M cKinsey led the

61
general management consulting market with revenues o f $3 4 billion US and had a 40 6° o
market share (Byrne et al, 2001). According to McKinsey, they serve 100 o f the top 150
global companies
McKinsey is a strong supporter o f using balanced financial and non-fm ancial metrics in
performance management systems However, they do not feel that value-based
management (VBM). economic value added (EVA), cash flow return on investment
(CFROI) nor the Balanced Scorecard are the most effective perform ance m easures or
performance management tools In their McKinsey Quarterly article, Koller and Peacock
(2002) summarize their viewpoint on these measures, "...these ideas are goad, and
largely common sense, hut not one o f them is perfect. And certainly none o f them is a
magic bullet that would make improving a company's performance easy. "
Although indicating that the BSC is not the most effective perform ance management tool,
they do admit it has value In another McKinsey Quarterly article, Lowell, Silverman and
Taliento (2001), stress the importance o f performance measurem ent system s that focus on
outcomes and perform ance drivers and not only on the processes. The article identifies
the balanced scorecard as one such tool, "The balanced scorecard, which incorporates
financial, customer, internal and growth results, is one useful tool. "
M cKinsey prom otes the idea that the best performance m anagem ent approach should be
one that is highly tailored to individual companies and revolves around what drives value
for that company. By developing measurement and planning system s around the drivers

62
o f value creation, the company can ensure that management is focused on the correct
measures regardless o f the perspective (financial, customer, internal, learning and
growth) through which they originate They agree that the perform ance measures from
the four perspectives should be the value drivers behind long-term financial perform ance
These types o f measures are important, "to avoid decisions that may improve value
temporarily hut destroy it in the long run (Koller and Peacock, 2002) The best
performance measurement system is one that integrates the financial and non-financial
measures that are leading indicators, which can easily be understood by top management
and line management Companies should have only one simple perform ance
m easurement system which includes capital budgeting and incentive compensation that is
created through intense dialogue within the management team including business unit
managers and corporate managers
McKinsey and Company discuss the Balanced Scorecard in a predominantly favorable
light however based on their website and recent publications they do not appear to
promote it. These same sources o f information do not provide much evidence as to what
McKinsey does offer in regards to strategic perform ance measurement other than to state
that they support highly customized systems that focus on the drivers o f long-term
performance.

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The M onitor Group
The M onitor Group (M onitor) is a family o f professional serv ices firms that provides
products and services that enhance the competitiveness o f their clients. Although
primarily a strategy consulting firm. M onitor has expanded its services to include
management and organizational development along with a host o f other services from
marketing strategy to corporate finance The M onitor Group is made up o f several
companies that share the same ownership, management philosophy and assets The
M onitor Action Company is the largest and oldest o f the Group having been founded in
1983 The M onitor Action Company has roughly 800 consultants (http://
www m onitor com/cgibin/iowa/about/ companies htm l^record-?. December 15, 2002)
Byrne et al (2001) reports Monitor's 2001 revenues as S300 million US, which gave them
a general m anagem ent market share o f approximately 3 6%
M onitor is not a supporter o f the Balance Scorecard as a strategic performance
management system. Michael Jensen is M anaging Director o f the M onitor Group's
Organizational Strategy Practice. He is also the Jesse Isidor Straus Professor o f Business
Administration Em eritus o f the Harvard Business School In his article, Value
Maximization, Stakeholder Theory, And the Corporate Objective Function (2001), Jensen
clearly outlines M onitor’s position on the Balanced Scorecard and strategic perform ance
measurement. The Balanced Scorecard is a valuable process for management to
determine the strategic value drivers o f an organization but it also forces managers to
maximize in more than one dimension at a time w ith no tradeoff guidance. As a result, no

64
conclusive decisions can be made Jensen agrees with Kaplan and Norton on the premise
that financial m easures o f performance are not sufficient to engender effective
m anagement decisions He also agrees that the BSC is a useful analytical tool to help
m anagers understand and manage value creation in their organization. However, this is
where the agreem ent with BSC concepts terminates.
Michael Jensen forcefully defends his position that the Balanced Scorecard is not an
effective perform ance measurement system due to its multiple and balanced measures
approach. Jensen (2001) contends, "... the Balanced Scorecard wilt lead to confusion,
conflict, inefficiency, and lack o f focus. " This will happen as a result o f operating
m anagers having to guess between what the tradeoffs between the multiple m easures o f
the BSC are If a mutually exclusive decision between a custom er metric and an internal
process metric arises, what dictates which measure is more valuable9 If this requires a
management judgem ent call, conflict could arise between line management and
headquarter m anagers who often have different assessment o f the tradeoffs
Instead, Jensen argues that a single measure or score that can be maximized by all
members o f an organization is the logical organizational perform ance measurement
system. The appropriate measure is the change in the market value o f all claims on the
firm, that is value creation. In order to track or use an ongoing measure o f value creation,
the author recom m ends Economic Value Added (EVA) at the organizational level At the
business unit or individual level, a more meaningful metric (but still only one) must be
determined and maximized

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Based solely on the opinions o f Michael Jensen, who is the Managing Director in charge
o f O rganizational Strategy, Monitor definitely does not support the use o f the Balanced
Scorecard as a strategic performance measurement system. Other than Jensen's insistence
that one single measure or score is a better approach to performance measurement, little
information was available from their website o r accessible publications on the topic
C O N C LU SIO N S
It is im portant to understand and validate the concept o f the Balanced Scorecard in order
to determine its usefulness A strong indication o f its validity can be determined by
analyzing its use and the form o f its use by the m ajor consulting firms M anagement
consultant companies and the large accounting firms are hired by organizations to
provide new age solutions that fundamentally enhance the competitiveness o f their
clients. If they are using and promoting a balanced measures approach than a good
indication o f its acceptance as a successful strategic performance measurement tool is
determined.
Tw o o f the accounting firms actively promote the Balanced Scorecard as defined by
Kaplan and Norton. All five o f the former big five accounting firms advertise their ability
to im plem ent a balanced scorecard for their clients. Eight out o f the eleven consulting
firms studied in this paper have service offerings that are identical, very close or quite
sim ilar to the Balanced Scorecard. Tv/o o f the three consultancies that do not appear to

66
have similar offerings to the BSC. provided little public information regarding what their
strategic perform ance management offering actually was. As a result, the analysis
provides valuable insight into the degree o f BSC acceptance In general, the consulting
firms see the Scorecard as a viable and effective strategic performance management tool

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C H A P T E R 4: P E R F O R M A N C E INCENTIV ES AND T H E
BALANCED S C O R E C A R D
Soliciting the best performance o f all employees in an organization and solidifying their
com m itm ent to the success o f the organization is a key challenge for today's
organizations. The alignment o f the entire organization to its strategic objectives appears
to be an obvious necessity The application o f theory is needed to make sense o f how to
ensure employees will put forth their best effort to the mutual success o f the organization
and the individual Expectancy theory o f motivation is one such approach that assists
managers in understanding the potential successful ness o f this linkage The Balanced
Scorecard could be used effectively to align organizations to the achievem ent o f strategic
objectives through the use o f performance incentive systems
Has the linking o f performance incentives and financial compensation to the BSC been
successful in all levels o f organizations9 The investigation o f this specific research
question begins by exploring the various extrinsic reward systems that are based on
perform ance. Expectancy theory is introduced and utilized as a guiding fram ework for
the understanding o f the effectiveness o f the linkage between perform ance incentives and
the Balanced Scorecard. In addition, the chapter explores the past perform ance o f
C EO /executive perform ance incentive plans and offers the BSC as an effective substitute
based on the application o f theory. A series o f organizations are examined in the
R e p r o d u c e d with p e r m i s s io n of t h e co p y rig h t o w n e r. F u r th e r re p r o d u c tio n proh ibited w ith o u t p e r m is s io n .

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conclusion o f the chapter in an effort to dem onstrate the successful application o f
perform ance incentives and the BSC at all levels o f the organization
PER FO RM A N C E INCENTIVES
Reward Systems
Perform ance incentive systems are designed to reward employees for their contributions
to organizational objectives The rewards can be intrinsic or extrinsic in nature Pay for
perform ance incentive programs can be organization-wide, team oriented or individual
oriented This chapter subsection provides an introduction into the realm o f performance
incentive com pensation systems to assist in the understanding o f the application o f
perform ance incentive theory.
In exchange for employee contributions, an organization offers a reward system that can
include anything that an employee values and that the organization is willing to provide
Individual reward programs are typically designed for four reasons:
1) To attract high quality individuals to the organization.
2) To maintain the commitment o f existing employees
3) To retain knowledgeable and valuable employees.
4) To m otivate employees to put forth their greatest effort

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The degree to which the organization succeeds in these endeavors depends to a large
extent on whether individuals are satisfied with the rewards that are offered Based on
behavioral science literature, Edward Lawler has summarized five conclusions as
reported by Gibson, Ivancevich and Donnelly (2000):
1) Reward satisfaction is a function o f how much is received and how much the
individual believes should be received.
2) Satisfaction is determined by comparisons with what happens to others
3) Intrinsic and extrinsic rewards both influence satisfaction
4) Individuals desire and value different rewards
5) Extrinsic rewards are often satisfying because they yield other rewards
The link between rewards, employee satisfaction and perform ance has been the subject o f
countless studies and numerous motivational theories. The relationship is difficult to
quantify because it varies widely among individuals and groups as a result o f diversity
Furthermore, it is dynamic because people and the environm ent are constantly changing
W hat an individual values today might not be what he/she values tom orrow One o f the
more accepted motivational theories is expectancy theory developed by V ictor Vroom
(1964).
M otivational theories are classified as either content or process theories (G ibson et al.,
2000). Content theories focus on individual needs or the factors within the individual that
directs, sustains or stops behavior M aslow’s, H erzberg’s, and M cClelland s theories are
content theories. Process theories analyze how motivation happens and are primarily

70
external to the individual Equity theory, path-goal, and expectancy theory are process
theories. O f these models o f motivation, expectancy theory is the only one that explicitly
integrates individual needs into a process theory As a result, expectancy is an integrative
and comprehensive theory o f motivation.
Although an in-depth discussion o f Vroom's theory is outside the scope o f this paper, his
theory is helpful in understanding the effect o f perform ance incentive system s on
employee motivation. Expectancy theory involves both the attractiveness o f outcomes or
rewards and the expected probability that performance will lead to reward
Stated in expectancy theory terminology, expectancy refers to the perceived probability
that a particular behavior (effort) will lead to a particular outcome (level o f perform ance)
Instrumentality is the perception that a certain level o f performance will lead to a certain
(second-level) outcom e The importance o f the second-level outcome depends on the
needs o f the individual and this is termed valence. A simple graphic o f this relationship is
shown below.
Effort Performance Outcom e valciKC
In other words, expectancy theory o f motivation states that in any given situation an
individual is presented with a set o f first-level outcomes that are related to second-level
outcomes. The individual will exert effort to achieve the first-level state based on the
depth o f his/her desire to achieve second-level outcom es The attractiveness, or valence.

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o f a first-level outcom e is determined by the total valence o f all possible second-level
outcomes
Also critical to the selection o f the first-level state, is the perception o f the relationship
between the first and second-levels In addition to the attractiveness o f the second-level
outcomes, there must be a decision made on the expected probability that the effort to
achieve first-level results will produce second-level outcom es If the individual values the
second-level outcom es, but knows that achievement o f the first-level state does not
guarantee second-level reward, why do it'7
For example, how does a student determine if it is worth the intense effort to achieve high
course grades0 The student will look at what second-level outcom es result from
achieving the high grades and then determine if they are attractive enough and likely to
result, before deciding to exert the high level o f effort needed to achieve those grades
The second-level outcom es could involve obtaining a high-paying initial post-college job
or the personal satisfaction o f achieving good grades. The student will analyze the
attractiveness o f these outcomes, determine if it is worth the effort to achieve them and
decide if the link betw een perform ance (high grades) and reward (high-paying initial job)
is likely to occur
In an em ploym ent environment, first-level outcomes result from job perform ance and
could include absenteeism, level o f productivity and quality o f productivity Second-level
outcom es are the rewards or punishments that are likely to be granted as a result o f the
R e p r o d u c e d with p e r m i s s io n of th e co p y rig h t o w n er. F u r th e r r e p r o d u c tio n prohibited w ith o u t p e r m is s io n .

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achievem ent o f the first-level state. These could include dismissal, group rejection,
promotion, high self-esteem, individual recognition and merit pay increase or incentive
pay
In order to effectively use the principles o f expectancy theory an organization must
ensure that employees can achieve the perform ance goals or targets that are set for them
This holds for individual, group or organization-wide settings. W ithout the perception
that goals can be achieved, the motivational influence o f second-level rewards cannot be
realized Second, there will be little motivation to improve/sustain perform ance if the
employees do not value the second-level outcomes Lastly, there must be a link between
perform ance goals and second-level outcomes There must be a clear understanding that
achievem ent o f perform ance goals results in preferred outcomes for the individual, group
or organization
A firm understanding o f the concepts o f expectancy theory can assist organizations in the
developm ent and execution o f their performance incentive systems.
Intrinsic versus Extrinsic Rewards
Reward systems are frequently classified into two broad categories, intrinsic and
extrinsic. Intrinsic rewards are defined as those that are internal to the job such as
responsibility, achievement, and fulfillment Conversely, extrinsic rew ards are external to
the job and include financial compensation, promotion and fringe benefits.

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Expectancy theory postulates that the extent to which intrinsic or extrinsic rewards result
in high perform ance depends entirely on how employees perceive the relationship
between perform ance and reward and how much the employee values the rewards Much
debate exists over which set o f rewards is the most effective at motivating perform ance
There are several arguments against the use o f extrinsic motivation It can be argued that
extrinsic motivation is not satisfying in the long-term, extrinsic rewards offered in an
intrinsic environment have a negative effect on motivation and extrinsic motivation
negatively effects innovation and creativity
M ost pundits suggest that people exert effort on the job as a result o f the fulfillment and
the sense o f pride that it creates They offer that extrinsic motivators only work in the
short-term and that in the long run it doesn't satisfy employees. Certainly, pride in one’s
work is very motivating and rewarding, however pride does not pay one's bills
In addition, there is debate as to whether the addition o f extrinsic rewards to individuals
who are intrinsically motivated can actually decrease motivation. Gibson et al. (2000)
report that a review o f literature by Boone and Cummings, discovered that only 14 o f 24
studies supported the theory that extrinsic rewards reduce intrinsic motivation. 14 o f 24 is
not a convincing statistic. Expectancy theory states that the individual will place different
value on each type o f reward according to individual preference and will adjust
perform ance based on perception o f achieving each outcome.

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A nother argument against the use o f extrinsic motivation is that it hampers innovation
and creativity in organizations It is difficult to set up performance incentives for such
things as R&D and exploration As a result, rewards are linked to daily accounting
functions rather than functions that are directly aimed at long-term growth. The authors
o f the McKinsey Quarterly article. Has Pay fo r Performance Had its D ay? (Day, Mang,
Richter, and Roberts, 2002) argue that an organization that has a strong culture based on
innovation, and as such is intrinsically motivated, will be much more successful than an
organization that uses extrinsic motivation for innovation and growth functions Little
evidence exists to support this claim. Further, this is a matter o f opinion and
organizations exist that are innovative and yet still use extrinsic rewards to obtain
superior performance from their employees.
Despite the many arguments against the use o f extrinsic motivators, their use over the last
several years has been extensive and indeed is increasing. Pay for perform ance is one
type o f extrinsic reward that is becoming more and more common in today's
organizations. Incentive pay as a second-level outcome for effective perform ance is a
powerful motivator. Incentive pay is high valence for individuals and as expectancy
theory proposes, linked to performance measures it can engender high motivation
R e p r o d u c e d with p e r m i s s io n of t h e co p y rig h t o w n er. F u r th e r re p r o d u c tio n pro hibited w ith o u t p e r m is s io n .

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PAY FOR PERFORMANCE
Organizational reward systems have steadily been moving away from policies o f salary
entitlement where seniority or inflation are the driving forces behind pay increases These
reward systems are not linked to performance and as a result are a very poor motivational
influence Salary entitlement offers a poor connection between first and second-level
outcomes. Instead, pay and reward systems based on organizational, team or employee
contributions and competencies that focus on ever improving results are becoming more
and more popular
Pay for performance has6Was been the mantra for the last few years Today's perform ance is
what counts and tomorrow's performance targets will be even higher. Compensation
systems based on variable pay depending on performance is a major trend in today's
business atm osphere According to an article in CFO Magazine (Caplan, 2001), a Hewitt
Associates survey found that 78% o f the 856 companies polled in 2000 offered some type
o f variable pay which is up from 70% the previous year and drastically up from the 47%
in 1990.
These variable pay systems make sense for the company, if business takes off, more pay
goes to the workers. The link between first and second-level outcomes is strong. If
business remains stagnant, the company isn't saddled with the high fixed cost o f labor
Bain & Company's 2001 M anagement Tools and Techniques survey (Rigby, 2001)
included 451 companies in 22 countries around the world. The survey showed that pay

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for perform ance received the highest satisfaction rate for achieving financial results
among the 25 tools on the survey
O rganization Wide Systems
O rganization wide incentive systems typically take the form o f three broad systems:
profit sharing, gain sharing or employee stock-ownership plans One o f the keys to
m otivation according to expectancy theory is that a strong link or a strong perception o f a
link, between performance and reward must exist This link is not very strong in the
following three organization wide perform ance incentive systems
Profit Sharing
Profit sharing is one o f the most common forms o f organization wide incentive systems
in the United States Employees receive a financial bonus that is normally based on some
percentage o f the company's profits over a certain time period Employees often find it
difficult to relate or directly influence an organization or business unit's profitability,
therefore the link between performance and reward, or first and second-level outcome, is
weak

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Gain Sharing
Gain sharing involves the distribution o f financial rewards as a result o f improvements in
productivity, which were initiated by employee suggestions These programs can only
work in organizations that have a culture built on a strong philosophy o f cooperation The
system is based on a measure o f productivity as opposed to a global profitability and as
such employees have at least a weak link between perform ance and reward Some
com panies have enjoyed success with the system, however, in the 50 years since it was
introduced, just as many firms have abandoned it as have adopted it (Cascio, 2003)
Employee Stock Ownership Plans
The objective o f employee stock ownership plans (ESOPs) is to motivate employee
perform ance by increasing employee involvement in the firm In 1993, about 10,000 U S
firms shared ownership with 10 million employees This figure was only an 1 1% increase
from 1988 which is a small increase compared to the 66% from the previous five year
period (Bernstein, 1996) In addition to the employee involvement objective, ESO Ps also
offer tax incentives and are a source of cheap capital for the company
W hen employee stock ownership plans are instituted for the good o f employees ( not for
tax breaks or capital reasons), when there is good communication and m anagem ent gives
em ployees decision-m aking authority, ESOPs are effective at increasing perform ance
Cascio reports that under these circum stances employee-owned firms have been 150

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percent as profitable and have generated twice the productivity growth (2003) However.
ESO P's are not frequently instituted for the good o f the employees Furthermore, the
connection between performance and reward is also extremely weak in this type o f
incentive system
Team Incentives
Team incentives provide rewards to groups o f em ployees o f various sizes to help
influence group performance Each team mem ber receives a bonus based on the output o f
the team. As many jobs involve coordination am ong groups o f people, this type o f
incentive plan can be successful Unlike organization wide systems, employees o f groups
or team s have a better line o f sight between perform ance and reward According to
expectancy theory, performance goals for the team must seem attainable by mem bers in
order for motivational forces to be effective. Com petition between teams, team members
who don't contribute as much as others (free-riders), and the inability o f w orkers to see
their contribution to the team effort are disadvantages o f this system. However, team
unity and cohesiveness as the group w orks tow ards common goals often brings teams
together and heightens their perform ance
Individual Incentives
Incentive aw ards have becom e extremely popular over the past decade. A recent survey
by Federal Reserve regional banks and reported in Cascio (2003) determined that some

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form o f variable pay incentives to non-executive employees was being executed in over
90 percent o f companies
Incentive awards are effective because there is a direct link between employee
perform ance and reward. The bridge between first and second-level outcomes is made
explicit In order to be effective, incentive systems have to be simple, measurable and the
link between performance and reward must be clearly communicated Merit-pay systems
or once a year performance increases in base pay are not as effective because the direct
link between performance and pay, first and second-level outcome, is often not clear
Executives/CEO
Incentives have been part o f executive pay systems for a long time Executives are
typically rewarded based on a base salary, annual (short-term) incentives and long-term
incentives. Base salary is typically the centerpiece o f executive compensation because it
is usually the index for other benefits. Short and long-term incentives are frequently
defined as a percentage o f base salary. Stock options are also frequently used as long
term perform ance incentives for executives
Front Line Employees
Front line employee incentive programs are not as prevalent as other reward systems A
normal work standard is specified and then performance above this standard is rewarded

with incentive systems The standard and above standard perform ance levels have to be
carefully developed so as to make them realistic Incentive programs for common
employees allow for a very clear line o f sight between performance and rew ard
PERFORM ANCE INCENTIVES AND STRATEGIC PERFORMANCE
M EA SUR EM EN T SYSTEMS
The link between perform ance incentives, the performance measurement system and an
organization's strategy, could be an integral aspect o f achieving superior long-term
perform ance Non-financial performance measures and strategy maps can be used to
create an effective line o f sight between em ployee's day-to-day activities and
perform ance measures In this chapter o f the study, the importance o f this linkage is
supported by observations from practitioners and through the lens o f the expectancy
model.
Link Between Strategy and Employee Performance
For an organization to effectively execute its strategy, its employees - all o f its employees
must understand, accept and play a role in carrying out their part for an organization to
achieve its strategic objectives. Em ployees directly involved in production and service
delivery are expected to contribute to quality and continuous improvement initiatives
Knowledge w orkers involved in administration, customer relations, marketing and
R e p r o d u c e d with p e r m i s s io n of t h e co p y rig h t o w n e r. F u r th e r re p r o d u c tio n prohib ited w ith o u t p e r m is s io n .

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engineering are expected to understand and contribute to strategic initiatives and
objectives The need for all w orkers in an organization from top to bottom to understand
and contribute to the execution o f strategy is vital for organizations to succeed in the
long-term.
Olve, Roy and W etter (1999), agree that organizational alignm ent to strategy is critical,
"Of course a company's vision and its strategic aims are vital to its future
survival, but unless they are communicated to all levels o f the organization, it will
be difficult to bring about the changes which are desired and required fo r the
company to stay competitive. "
Olve et a l , go on to discuss how employees can only contribute to strategic initiatives if
the employee is shown tangible evidence o f how what he/she does directly influences the
achievem ent o f those initiatives or goals A key concept in V room 's expectancy theory is
that goals must be seen as attainable even before an employee considers second-level
outcomes. Furthermore, the link must be made to the em ployees day-to-day activities for
it to be effective Em ployees must have a solid understanding o f the organizations'
strategic objectives and their relationship to those objectives, in order for them to
contribute to their execution
O rganizations today must gam er the hearts and minds o f all their em ployees in order to
elevate their interests and their commitment to achieving the objectives or mission o f the
organization This com m itm ent, in conjunction with the understanding o f how their
efforts contribute to the organization is the key challenge faced by today's organizations

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Front-line managers and personnel must be motivated to make decisions based on
strategic objectives Aggarwal (2001) agrees,
"Aligning shareholder, managerial, and operating personnel interests is a

nontrivial problem that becomes more critical at lower levels o f the hierarchy.
Lower-level personnel generally fin d it harder than upper-level managers to
relate to overall corporate profitability goals, but often have better information
about business opportunities and related decisions. ”
How are strategic objectives made tangible and clear to all the em ployees o f an
organization'7 One o f the most powerful attributes o f the Balanced Scorecard is that it can
help all levels o f an organization understand strategy By creating a strategy map from
high level strategic objectives down to the drivers o f performance, a link is created
between understandable financial and non-fmancial measures and strategic objectives
These balanced metrics can then be cascaded down from corporate or business unit to
departments, groups and individuals By tying these Scorecards and metrics together
from the front-line workers all the way to head office, an effective line o f sight is created
This line o f sight enables all workers to see how their everyday work can be linked to
Balanced Scorecard measures, which are the performance drivers o f strategic initiatives
This line o f sight connection between strategy and em ployee’s understanding is created
by strategy maps but facilitated through the use o f non-fmancial perform ance measures.
The Balanced Scorecard metrics consist o f both financial and non-fmancial measures that
are tied to the organization's strategy The use o f traditional financial measures in
performance management systems was discussed earlier. They are faulted for being
backward-looking, relatively easy to manipulate and for being ineffective at valuing

83
intangible assets which are making up more o f today's organizations In addition, a
natural extension o f these arguments is that they often make inefficient measures o f
performance, especially to front-line workers whose impact on the bottom line is far
removed. Non-fmancial or non-accounting measures should be used in pay for
performance systems because the line o f sight between these metrics and front-line
employees is much more tangible than broad based financial numbers Ittner and Larcker
(2002) discuss W ruck and Jensen, and Brancato’s argument concerning the importance o f
non-financial measures,
’'Although financial measures such as costs, profits, or accounting returns have

traditionally play ed a major role in compensation contracts, many believe that
nonfinancial measures such as defect rates, cycle time, and productivity, which
tend to he more disaggregate and task-specific than financial measures, are better
at signaling the actions workers can take to improve overall performance and at
isolating the contribution o f particular workers or activities. "
The Balanced Scorecard is an effective tool for aligning organizations with their strategy
through the use o f non-financial metrics.
Kaplan and Norton (2001) give an example o f what happens when the line o f sight
between strategic objectives and front-line employees is illuminated. W hen Mobil
NAM &R first developed their strategy tree down to very specific internal processes and
brought it to the field, it received a very positive reception. Todd D'Attoma, the project
leader at Mobil NAM &R, described a typical meeting:
"...we walked them through the tree, we talked about the alignment o f objectives
and strategies and about cross-functional relationships, which the tree allows you
to do. A n d then we asked them, " where do you fit on the tree7" They were
generally excited to fin d how their job f i t into our overall strategies and
objectives. They went up to the tree, pointed to their box, saw what they affected.

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and traced how their jo b or position affected everything, eventually impacting

ROC/C. It was powerful fo r individuals to see that. "
For the employee, strategy and corporate goals are no longer some senior management
jargon but are concrete and understandable measures and objectives that he/she can
achieve to make an effective contribution to success The ability to make a contribution is
a powerful m otivator for people Making a difference is in itself a second-level outcom e
o f perform ing their jobs well. This outcome is not expected without strategy maps to
align the organization By using a Balanced Scorecard and cascading the measures, every
employee, regardless o f level o f job function, is given the opportunity to dem onstrate that
what they are doing is important to organizational success
Now that a line o f sight has been created between strategy and each employee, the next
step in achieving a high performing organization is to tie that link to com pensation As
explained by expectancy theory, pay for performance systems must be very specific as
the link between performance and reward must be clear to elicit exceptional perform ance
This three way link between strategy, the employees understanding o f strategy and the
com pensation system is vital if performance incentives are going to be used to drive an
organization forward. Evidence exists that demonstrates that a poor fit between strategy
and pay policy often results in inferior performance (Grossman and Hoskisson, 1998)
Towers Perrin, one o f the world's preeminent people managem ent consulting firms
confirms that leading companies use performance incentive system s that are tied to key

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organizational goals They suggest the following to develop a high performing
organization (Towers Perrin. 2002)
1) Talent metrics should be built into a company's scorecard including processes
that enable the measurement o f ROI on people investments in regards to business,
financial and custom er outcomes.
2) High-potential employees should be identified and rewards should be tailored
for top performers
3) Flexible reward packages should be tied to organizational goals and offered to
em ployees to suit their individual needs
4) Rewards should be clearly communicated to all employees and strategically
integrated into the culture o f the organization.
In addition to aligning the entire organization to strategy, the Balanced Scorecard can be
tied to pay for perform ance systems Brian Baker, Executive Vice President o f Mobil
NAM &R in 1998, shared his view o f tying the pay system to the BSC (Kaplan and
Norton, 2001), "Untilyou tie compensation to the scorecard, you don't have credibility.
When you tie it to compensation, they know you mean it. " Baker's comments illustrate the
im portance o f aligning the entire organization with strategy and then tying the
achievem ent o f organizational objectives to the compensation system.
The principles o f expectancy theory lend support to the effectiveness o f linking
perform ance incentives to the BSC. The line o f sight created between em ployee's day-to-
day activities and BSC measures ensures a high expectancy (probability that a particular

behavior will lead to a particular outcome) The non-financial measures o f the BSC
assists to facilitate a simple link between em ployees' efforts and the measurable outcome
The improvement in performance, leads to an improvement in the BSC measure This
first-level outcom e (performance) results in the achievement o f the second-level outcom e
(reward). If the extrinsic motivator (increased pay) has a high valence (attractiveness) for
the employee, he/she will strive to increase his/her effort to achieve performance on the
BSC metrics Furthermore, BSC metrics are derived from the organization's strategy,
therefore the improvement in the performance measures will lead to effective execution
o f strategy
To summarize, em ployee's day-to-day activities are mapped to non-fmancial measures,
which are developed for the purpose o f executing the organization's strategy
Improvement in performance o f these metrics drives the execution o f strategy Linking
the improved performance in these measures to reward through the use o f performance
incentives, motivates employees to achieve performance targets. As such, employees are
m otivated to achieve these targets, which in turn drives execution o f strategy.
LINKING PERFORMANCE INCENTIVES AND REWARDS TO THE
BALANCED SCORECARD
The link between performance incentives, the performance measurement system and
execution o f strategy has been demonstrated. The BSC adopters presented in this

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subsection used these linkages in various levels o f their organizations The current use o f
perform ance incentives at the CEO/executive level by non-BSC adopters is discussed and
the BSC is presented as a potential tool to assist organizations in successfully linking
CEO perform ance and rewards
Kaplan and Norton conducted a survey o f management practices related to performance
m easurem ent and performance management systems in the United Kingdom They
reported some o f the findings in their first book (Kaplan and Norton, 1996) 74 percent o f
the senior executives o f the respondents had their compensation linked to the
organization's annual goals but less than a third o f them had their compensation linked to
long-term strategy Interestingly, less than 10 percent o f middle managers and front-line
em ployees had incentive compensation linked to strategic objectives The incentive
system, if com panies even had them for middle to front-line employees, was solely based
on short-term financial measures
W hen Kaplan and Norton wrote their first book on the Balanced Scorecard, there were
only a few com panies that had adopted it and even fewer that had linked their
com pensation system to the measures on the Scorecard. Although they reported several
successful perform ance incentive systems tied to the Balanced Scorecard the practice was
still in its "embryonic stages." The linking o f perform ance (based on BSC measures) and
the incentive or reward system has progressed considerably since then.

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All types o f organizations have adopted the Balanced Scorecard and the vast majority o f
them have tied the measures on their Scorecards to their incentive systems. According to
G eoff Fenwick, Senior Vice-President o f the Balanced Scorecard Collaborative (personal
communication, February 12, 2003), they suggest that their clients wait one year before
tying their perform ance incentive systems to the Balanced Scorecard. This is
recommended to ensure that the measures on the Scorecard are absolutely correct for
driving strategic perform ance BSC adopters however, almost always insist that the
connection between BSC and reward be made immediately They recognize that the
extrinsic compensation system is a very powerful lever to extract employee dedication
and perform ance tow ards achieving success on the BSC measures Balanced Scorecard
adopters understand the leverage achieved through the adoption o f the principles o f
expectancy theory
BSC adopters have varied considerably in their approaches to tying performance
incentive systems to the Scorecard. Some have chosen to cascade the BSC all the way
dow n to the front-lines and created individual Scorecards for all employees, while others
have cascaded the Scorecard down to department or group levels but not all the way to
the individual level. Conversely, others have linked middle m anagement incentive
systems to the BSC but not senior management
However, despite the many variations in cascading and incentive-tying, two common
aspects can be extracted from this study First, all the organizations com m unicate the
R e p r o d u c e d with p e r m i s s io n of t h e cop y rig h t o w n e r. F u r th e r r e p ro d u c tio n prohibited w ith o u t p e rm is s io n .

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objectives and measures o f their BSC throughout the organization and second, they all
offer some sort o f performance incentive system tied to the BSC
The following sections include examples o f organizations that have tied their
performance incentive system to the Balanced Scorecard at various levels o f the
organization. Mobil NAM &R included all executives, middle management and all non-
unionized front-line employees. Hilton Hotels included corporate staff, individual
property managers and department heads Texaco M arketing & Refining involved even
their front-line employees in their incentive systems CIGNA Property and Causality tied
their incentive system to both individual and group performance Ingersoll-Rand included
their executive officers and all exempt (salary) em ployees at the managerial level
Mobil North American M arketing and Refining
Mobil NAM &R, a $ 15 billion per year division in 1992 (Kaplan and Norton, 2 0 0 1) was
one o f the major operating arms o f Mobil. In 1999, Mobil merged with Exxon to create
the ExxonM obil Corporation
Mobil believed that the alignment o f the entire organization down to the front-line was
necessary in order to achieve an organization that was focused on strategy. In order to do
this, they led a communication strategy to launch the BSC throughout the organization
Following the comm unication and linkage to personal objectives, Mobil reinforced the
strategy by making the critical link between the BSC and incentive compensation.

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Mobil used the BSC to communicate their strategic objectives to all employees The
Scorecard was the means by which the strategy developed at the top o f the organization
was translated into actionable and understandable items on the front-lines. The
organization wanted all employees to align their day-to-day activities with strategic and
organizational goals. A good example o f the effectiveness o f this alignment o f goals
stems from a phone call from a Mobil truck driver who had just finished delivering
gasol line to a service station (Kaplan and Norton, 2001),
"You had better get someone from region up to this station fast. I f a mystery
shopper showed up there, the station wouldflunk and our "delight the custom er”
score would be destroyed. The Mobil sign is broken, half the lights are out, the
restrooms are filthy, the convenience store is serving stale doughnuts and running
out o f stock, and the employees are yelling at the customers. This is not the new
M obil strategy' o f "fast, friendly service. ""
By com m unicating the high-level strategy to the front-line personnel and showing trust in
their employees, the organization was rewarded with a commitment to achieving the
strategic objectives. The people closest to the custom ers were able to help with strategy
im plem entation in new and innovative ways
The organization then instituted a three-tiered variable pay compensation program to link
perform ance to reward. The bonus program could pay up to 30 percent annual cash bonus
on top o f regular salary. The first component was a corporate component (10 percent)
based on M obil’s relative performance with its top seven com petitors in regards to ROCE
and earnings-per-share (EPS) financial measures. M obil's ranking in relation to its
com petitors determined how much o f the 10 percent was paid out. The second tier o f

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perform ance related to the effectiveness in achieving NAM &R divisional Scorecard
metrics. A zero to 6 percent bonus was paid depending on the achievement o f these
perform ance metrics. The last component (between zero and 14 percent) was based on
business unit BSC performance The targets for the bonus plan were such that poor
perform ance led to zero bonus pay, average perform ance led to a 10% bonus and high
perform ance led to the 30% bonus
Mobil did not have a variable compensation system that included metrics on the
individual level However, managers were allotted a fixed amount o f money to distribute
to individuals to adjust for perform ance not captured by the metrics in the variable pay
system.
Did the variable pay for performance system work? After the first year, employees
received a share o f $35 million in incentive awards for the previous year's perform ance
This equated to 17 percent o f annual pay, relating to above average perform ance for the
year (K aplan and Norton, 2001). Mobil N A M & R from 1993 to 1998 improved their
return on capital from 6% to 16%, they improved their competitive position (profitability)
from last in 1993, before the BSC and the incentive program, to first in 1995 through to
1998 Their operational quality measure, dealer quality measure, and perfect order
m easure continuously improved for four years (http://ww-w.bscol.com. February 5, 2002)
The beauty o f the program is such that because a large portion o f the bonus program is
tied to non-financial indicators, econom y-wide effects, industry effects and other un-

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influenceable factors are removed from the calculation Therefore, an above average
perform ance was a genuine above average performance
The alignm ent o f the entire organization to the BSC through the use o f strong
comm unication, linking to personal goals and tying strategic measures to the
com pensation systems was successful for Mobil NAM&R
Hilton Hotels
Hilton Hotels Corp. is an internationally recognized hospitality company The company
develops, manages or franchises more than 1,800 hotels, resorts and vacation ownership
properties Their hotel brands include: Hilton, Doubletree, Hampton Inn, Hampton Inn &
Suites, Embassy Suites, Harrison Conference Centers, Hilton Garden, Homewood Suites
by Hilton, and Conrad International (http://www hilton.com. February 6, 2003)
The company instituted a Balanced Scorecard and incentive compensation system based
on BSC m etrics in 1996. Atish Shaw, Hilton Public Relations (personal com munication,
February 12, 2003) stated that the incentive compensation system is predom inantly
awarded on an individual basis for property-specific metrics. Each hotel or property has a
set o f goals or objectives that are included on its Balanced Scorecard and are the value
drivers based on the strategic objectives o f the corporation. The incentive bonuses, merit-
based salary increases, and stock-option grants are awarded to employees from the

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corporate office to the department heads at each property but is not extended to the front
line em ployees The performance incentives are usually rewarded annually
Front-line team members are extremely cognizant o f the BSC measures and their
property's score on the metrics The entire organization is aligned to the objectives o f the
firm (H uckestein and D uboff 1999), "People at every level o f the organization, from the
president to front-line team members, blow what is expected o f them and how they are
doing. " Hilton's philosophy on performance measurement is that people should be
measured and evaluated based on goals over which they have control and authority to
improve
Furthermore, Hilton offers rewards that are achievable by front-line employees as
members o f the property team The company offers the Hilton Million $ Team Pride
Award, the Hilton Pride Innovation Award, and the Hilton Pride Awards for custom er
satisfaction. These awards are available to single properties and individuals for their
contribution tow ards value-creating ideas and the value-proposition measurem ents that
appear on their BSC. These are both monetary awards and recognition awards based on
clear m easurable performance criteria.
The corporate officers o f Hilton Hotels do not have their incentive compensation
packages tied directly to the Balanced Scorecard. They are rewarded based on
im provem ents in EPS (eamings-per-share). However, earnings is one o f the financial
m etrics on Hilton's Scorecard.
R e p r o d u c e d with p e r m i s s io n of t h e co p y rig h t o w n e r. F u r th e r r e p ro d u c tio n prohibited w ith o u t p e rm is s io n .

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The Balanced Scorecard and performance incentive system yielded im m ediate dividends
for the company. Smith Travel Research, reported in the article A Comprehensive
Approach to Delivering Value fo r Stakeholders (Huckestein and Duboff, 1999), that
Hilton's owned and managed hotels in the United States improved their RevPAR index
(index gauging the extent to which a hotel is capturing or exceeding its fair market share)
as compared to their com petitors Similarly, their franchised hotels, w hich were
previously operating below their fair market share, are now capturing more than their fair
share o f RevPAR. Hilton tracks custom er loyalty measures closely and the measures
include overall custom er satisfaction, their likelihood o f recom m ending Hilton hotels,
and their likelihood to return to a given hotel After implementation o f the BSC, their
custom er loyalty measures were the highest ever Furthermore, the article reported that a
m ajor syndicated research project conducted by J D Power and Associates, showed
Hilton decisively improving during the three years prior to the article's publishing in
1999
Texaco Refinery and M arketing
Texaco Refinery and M arketing, Inc. a division o f Texaco Inc instituted a perform ance
incentive program based on Balanced Scorecard metrics. In 2001, Texaco merged with
Chevron to form ChevronTexaco Corp
Texaco’s incentive program rewards Balanced Scorecard perform ance based on plantwide
results, w ork-group team results, and individual perform ance (Kaplan and Norton, 2001)

In contrast to many o f the other programs, awards are made frequently and are based on
monthly, quarterly, and annual performance Supervisors can recognize exceptional
individual perform ance immediately The Texaco program involved the distribution o f
Texaco Points that could be redeemed for merchandise, travel and retail awards but not
cash.
Did the explicit linkage between achievement o f strategic perform ance goals and second-
level outcome rewards work0 According to Kaplan and Norton (2001), the first year with
the new plan resulted in tw o plants setting new records for utilization for an increased
value o f $11 million, $18 million saved through expense reduction and an impressive
36% increase in safety The difference between the three-year average before, and the
three-year period after the program was initiated showed impressive business results
Utilization improved by 5 4%, expense per barrel decreased by $0 10, energy intensity
index improved by 4.1 points and the safety index improved by 2 5 points
CIGNA Property & Casualty
CIG NA 's Property and Casualty Insurance Division instituted a perform ance incentive
system based on their Balanced Scorecard.
After cascading the Balanced Scorecard down to the business unit level, CIGNA
developed a unique incentive system based both on individual and business unit
perform ance (Kaplan and Norton, 2001). All employees began the year with a certain

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amount o f "position shares" par valued at $10 each Depending on the individual's
perform ance during the year, he/she received more shares. The value o f the shares was
recalculated at the end o f the year when the business unit perform ance was analyzed
against Balanced Scorecard metrics The price for each employee's shares was equal to
that o f the corporate, division, or business unit depending on which Scorecard was most
relevant to the individual
The financial measures o f the BSC only received 40 percent o f the weight thus ensuring
balanced performance, which is vital for the insurance industry because financial
measures are typically highly lagging indicators Kaplan and Norton (2001), report that
the leadership team at CIGNA kept raising the performance targets and the employees
continued to innovate to earn the maximum score Furthermore, Gerry Isom President o f
CIGNA Property and Casualty Division, was quoted in the book as saying, "Incentive
compensation programs are all about reinforcing. I f your people do a really good job on
their BSC, I can't think o f a better way to reinforce their accomplishments than linking
them to an incentive program. For us, the linkage has been everything "
The perform ance turnaround after the implementation o f the Balanced Scorecard and the
perform ance incentive reward system was indeed impressive The division w ent from a
$275 million loss in 1993 to profitability in 2 years. Within 5 years it improved from the
last to the top quartile in their industry. In 1998, the Division was spun o ff for $3.45
billion (http://www.bscol.com. February 6, 2003).

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Ingersoll-Rand
Ingersoll-Rand Company Ltd is a global innovation and solutions provider o f security
and safety, climate control, industrial solutions and infrastructure equipment The
company began implementation o f the Balanced Scorecard in 2000 and it took effect in
2001 Their strategic management system consists o f the Strategy Map, the Balanced
Scorecard and the Performance M anagement System (Annual Report 2001)
The Performance M anagement System is the element o f the strategic managem ent system
that involves linking employee goals to the Balanced Scorecard metrics and then tying
the achievement o f those goals to the performance incentive system states Paul Dickard,
Director o f Public Relations, (personal communication. February 14, 2003) The
incentive system is a two-pronged weighting system with 50% marked for the
achievem ent o f corporate financial metrics and 50% for individual goals. The corporate
component is made up o f three primary financial metrics: Eamings-per-share (EPS), free
cash flow and return on invested capital (ROIC). The individual component is based on
specific objectives from the com pany's four Balanced Scorecard perspectives, which
include: financial performance, custom er excellence, process excellence and people
expertise The individual metrics are designed so that there is a direct line o f sight
between the objectives and the employee. That is, the employee can have a direct impact
on whether the objectives are reached or not.

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The perform ance incentive system based on the two-pronged system is applicable for all
executive officers and all exempt management. The use o f the Balanced Scorecard based
on the four perspectives to reward CEO and executive officer com pensation is designed
to ensure that the executives will achieve long-term strategic objectives by focusing on
the vaiue drivers o f long-term performance
O ther exempt staff are not directly included in the perform ance incentive system.
However, they are aware o f the Balanced Scorecard metrics and their successfulness in
assisting the organization achieve the strategic targets becomes the objective focus for
their merit-increases It also does not apply to Ingersoll-Rand's bargaining unit
em ployees
The financial rewards o f the incentive system are based on a sliding scale according to
salary The lowest salary bracket has a 2%-7% variable pay where the upper brackets can
be as high as 30% The incentives are awarded based on the level o f achievem ent o f the
stretch targets. They are awarded on an annual basis.
The perform ance incentive system has been implemented and executed successfully at
Ingersoll-Rand. Last year the company achieved 97% o f the 50% bonus available for the
corporate objectives despite a difficult economy. The company didn't quite meet their
ROIC target, but they met their EPS goal, and exceeded their free cash flow target
Furthermore, from a subjective standpoint the employees are much more aware o f the
drivers o f perform ance and they can now prioritize around actions that drive value for the

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company Paul Dickard states that they are aware o f their perform ance on these critical
objectives and are constantly setting stretch targets for future performance (personal
communication, February 14, 2003)
The impressive results achieved by Mobil NAM&R, Hilton Hotels, Texaco Refining &
Marketing, CIGNA Property & Casualty, and Ingersoll-Rand dem onstrate the
effectiveness o f pay for performance systems based on the BSC and facilitated by
expectancy theory The line o f sight created between achievable strategic performance
measures as first-level outcom es and financial rewards as second-level outcomes was
effectively demonstrated
Performance Incentives and the Balanced Scorecard in Europe
Performance incentive programs tied to the Balanced Scorecard have been successfully
implemented in many different forms and in many different organizations in North
America. Olve et al., (1999) similarly describe the perform ance incentive programs o f
many organizations in Europe. The vast majority o f the organizations described by Olve
et al, tie their performance incentive system down to the individual level. There are
considerable differences in how each program is structured but financial bonuses are paid
to individuals based on team level and individual level performance. Individual
perform ance incentives are based on BSC measures that include both financial and non-
financial metrics that are influenceable by the employee. The line o f sight between
perform ance and reward is clear for the employees Coca-Cola Beverages Sweden,

1 00
Xerox, NatW est Life, Halifax and British Airways Heathrow Airport Operations Division
all use perform ance metrics from some form o f the Balanced Scorecard cascaded down to
the individual level to reward performance.
Executives/CEO Performance Incentive Systems
Com pensation for executives is most often a three-pronged approach consisting o f salary,
variable cash bonuses for short-term perform ance and incentives for long-term
performance. Stock options are usually the incentive method designed to reward long
term perform ance
Stock options typically grant executives the right to buy the company’s stock sometime in
the future at a fixed price The price is usually the one on the day the options are granted
The premise is that the executives will work to increase the share price thereby increasing
the value o f their options while all the shareholders benefit from the increased value.
Conversely, executives won't benefit unless the shareholders do However, one o f the
major problem s with options is that executives will also benefit from a booming stock
market in which they had no part. The over exuberant market o f the late 1990s is a good
case in point; executives could do no w rong as share prices rose across the board.
In addition to being rewarded for a booming stock market, options also encourage CEO's
and executives to manage their stock price and not necessarily the company Some

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executives have so much potential value in the option plans that they become fixated on
stock price that they sacrifice other aspects o f the company.
Furtherm ore and perhaps most distressing, is that when stock price does suffer and the
option prices are out o f reach, the company will re-price the options or grant new ones for
the executives The link between perform ance and reward constantly gets altered and as
such, the reward seems to be fulfilled regardless o f perform ance
Electronic Business's article (Roberts, 2002) on the use o f options as a long-term
perform ance incentive illustrated the incongruence between performance and reward The
article discusses the performance o f JDS Uniphase Corp , o f San Jose. CA and the
subsequent rew ard o f their executives and CEO In the fiscal year ended June 30, 2001.
the com pany reduced its workforce by 55%, its losses grew more than 60 times, its
negative earnings per share (EPS) increased more than 40 times, its stock price dropped
by alm ost 90 percent, it hadn’t posted a profit since 1996 and it continued to operate in
the red in 2002. The reward for this perform ance - the top five executives received $473
million in total compensation in fiscal 2001 with CEO Jo zef Straus receiving $150 8
million. A ssuming the strategy and perform ance goals were not to perform this poorly,
there is a large gap between strategy, perform ance and compensation. This is certainly
not an isolated case, many similar examples exist.
CFO Magazine (Reason, 2002) reports the results from a cross-industry study o f 100
proxy statem ents by Clark and Bardes. The results found strong positive correlations

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between actual shares held by executives and five-year total shareholder return.
Conversely, the lowest performers were from companies whose executives held the most
options.
Beekun, Stedham and Young (1998) conclude from their research that outcom e-based
controls based on financial metrics places more risk on CEO ’s and this encourages them
to maintain risk-averse strategies that promise short-term gains The CEO is more likely
to avoid more risky activities that would be beneficial to the organization in the long-term
because o f the incentive link to short-term financial outcomes
CEOs are getting rich faster than anyone else in the organization. Drew Hambly, a senior
research analyst at the Investor Responsibility Center in W ashington, DC reports in
Electronic Business (Roberts, 2002) that in 1980, a CEO made about 40 times what the
average w orker made at his/her company In the late 1990s the gap had widened to 51 5
times the average worker paycheck.
Today's business mantra is engaging the hearts and minds o f all employees and aligning
the goals and objectives o f the entire organization towards a common vision. W hen
C E O s’ and executives’ compensation is so out o f sync with the rest o f the organization,
regardless o f performance, it is difficult to engender that kind o f trust. The expectancy o f
achieving the second-level outcome for every other employee in the organization is
reduced as a result.

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With these gross inadequacies between perform ance and reward it is easy to come to the
conclusion that the prevalent performance incentive systems for executives is not
working effectively. The Balanced Scorecard with its focus on the drivers o f long-term
perform ance could be used to effectively tie executive compensation to strategic
performance
THE FUTURE OF PERFORMANCE INCENTIVES
G eoff Fenwick, Senior Vice President o f the BSCol, estim ated that about 10-15°o o f BSC
companies take their performance incentive systems to the front-line, while the majority
stop at middle management (personal communication, February 12, 2003). However, o f
the companies that do take it to the frontline, I00°b o f them have done it successfully
The use o f pay for performance systems continues to increase It is reasonable to predict
that more and more organizations, whether they use the BSC o r not will make more o f
their employees, even their front-line employees, accountable for their individual
perform ance by tying some o f their compensation to performance.
Executive com pensation is certainly a hot topic in business today The fallout from many
o f the accounting scandals in 2002 has forced the public and the government to look
more closely at executive compensation and how the use o f options is not a viable
method for aligning the interests o f CEOs and executives to the long-term perform ance o f
the organization. In particular, organizations' Board o f D irectors could start taking a

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much closer look at the Balanced Scorecard as a means o f supplemental reporting and for
use in developing long-term performance incentives for executives
CONCLUSIONS
Despite the many critics o f pay for perform ance and extrinsic motivational tools,
financial rewards for performance have steadily been gaining popularity Pay for
perform ance can be applied at the organizational level, at the team or group levels and at
the individual level
Expectancy theory states that the propensity for em ployees to be motivated to achieve
perform ance targets depends on the value that they place on the second-level outcom es
and w hether or not they perceive a strong linkage between the two The use o f the BSC
m etrics as perform ance targets has assisted many organizations in making this link
tangible and effective.
The Balanced Scorecard is a tool that can help organizations become high perform ers that
are centered on the long-term drivers o f performance. The alignment o f all em ployees in
an organization to strategic objectives is a key factor in successful organizations
Furthermore, this study through the application o f expectancy theory has provided
evidence that tying performance incentive system s to Scorecard metrics can be an
effective method for ensuring that employees are m otivated and committed to achieving

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perform ance targets that are based on strategic value drivers Performance incentive
systems were linked to the BSC and cascaded to all levels o f the organization from
executives to middle management and to front-line employees. CEOs and executive
officers can be held accountable for long-term perform ance by basing at least some o f
their financial rewards on achievement o f long-term strategic objectives as specified in a
Balanced Scorecard
Regardless o f the manner in which the incentive system is structured, the organizations
discussed in this paper have achieved improved perform ance The one commonality
am ongst these organizations is that they tied their perform ance incentive system to their
Balanced Scorecard metrics The use o f performance incentives and the BSC can
facilitate an organization's drive to achieve long-term performance Chapter five takes a
closer look at the successfulness o f BSC adopters at achieving superior long-term
perform ance

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C H A P T E R 5: T H E BALANCED S C O R E C A R D AND L O N G -T E R M
PE R FO R M A N C E
The Balanced Scorecard, as defined by Kaplan and Norton, proposes that in order for
organizations to be successful in the long-term, they must have an effective performance
management system that is linked to strategy and that focuses on the long-term drivers o f
perform ance Performance measurement systems are typically made up o f only financial
m easures that are lagging indicators o f performance. The Balanced Scorecard offers a
framework for the implementation and execution o f strategy that can drive long-term
perform ance In order to effectively implement and execute strategy, it must become an
integral part o f the organization’s perform ance measurement system Strategic objectives
and goals must be communicated throughout the organization and effective linkages must
be created to align the entire organization to strategy
By using the BSC to refocus companies on achieving long-term perform ance versus
short-term growth, are companies that have adopted the BSC more successful in the long
run? A collection o f reports and surveys have been published on the topic o f non-
financial metrics, strategic alignment and long-term performance. A discussion o f these
studies opens this chapter. This is followed by the methodology and results o f the
research conducted in this study on Balanced Scorecard adopters and whether or not they
achieve superior long-term success.

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RESEARCH DISCUSSION
There are four important aspects that make up performance m easurement and control
systems (Simons, 2000). The purpose o f measurement systems is to communicate
financial and non-financial information that influences decision-making. They represent
formal routines and procedures regarding the reporting o f performance This information
is used by managers and the organization to effectively perform business functions
Performance measurement and control systems are used to maintain or alter patterns o f
organizational activities in the future
Performance measurement is the avenue through which managers com m unicate and
execute strategy by focusing the organization on achieving financial and non-financial
targets that drive the future performance o f the organization. The importance o f
com m unicating strategy and the need for financial and non-financial metrics is evidenced
through the findings o f the IMA, Hewitt Associates, and Brookings Institution studies as
reported in a series o f articles in Strategic Finance by Mark Frigo. The use o f the BSC.
which includes these aspects as key concepts to drive long-term performance, is also
discussed.
An IMA survey (Frigo, Sep 2002) found that more than half the survey respondents
believed that the effective communication o f strategy was a missing elem ent in their
perform ance measures. Traditional performance measures such as increased revenue and
earnings per share are often the sole yardstick against which to measure perform ance for

108
organizations. These perform ance measures are ineffective at communicating strategy
Traditional metrics are almost all financial measures, which are lagging indicators that
report on past performance Birchfield (2002), in his article Keeping Score: 10 Dumb
Performance Measurements, states that reporting on measures o f the past is akin to
reporting on the incidence o f death from heart disease, whereas measuring the cholesterol
level (leading indicators) can assist in predicting what might happen in the future
Furthermore, Frigo (Sep 2002) discusses a Hewitt Associates study that identifies
evidence, which proves that companies that are highly aligned with traditional m etrics
tend to be the worst performers in regards to shareholder returns In order to effectively
drive a strategy, the performance measurement system must be based on the leading
indicators o f performance
Leading indicators are often made up o f non-financial measures. Non-financial measures
related to customer metrics, organizational learning and innovation, and effective internal
processes are often leading indicators that help to chart future performance. Intangible
assets are becoming a larger part o f organizations' value Frigo (M ay 2002) reports on a
recent Brookings Institution study that demonstrates that over 85% o f companies' assets
are intangible and include such things as information capital and human capital. The
IMA survey (Frigo, Sep 2002) reported that less than 10% o f respondents felt that their
perform ance measurement systems were effective for rating the perform ance o f
em ployees and information technology Despite being significant drivers o f value,
traditional perform ance measurement systems for these intangibles are ineffective.

10 9
Non-financial metrics can be used to measure the performance o f organizations'
intangible assets. Non-financial measures, linked to strategic drivers are often effective
predictors o f long-term performance M ore than 90% o f the respondents to the IMA
Survey said that non-financial measures should be used more extensively in their firm
because o f their effectiveness in driving financial performance by measuring and tracking
key strategic activities Non-financial measures represent the drivers o f financial
perform ance according to the respondents o f the survey (Frigo, Aug 2002)
The IMA Survey found distinct differences between Balanced Scorecard users and non
users (Frigo, May 2002). The effectiveness o f their current performance measurement
system s in communicating and supporting strategy was rated much higher in users o f the
BSC than non-users The Balanced Scorecard can be an effective tool for aligning an
organization to strategic objectives that drive long-term performance A study by The
Conference Board, Aligning Strategic Performance Measures and Results, as discussed
by Frigo (Aug 2002) found that, "companies whose stock prices outperform those o f their
competitors are likely to have a form al strategic performance measurement system ,
which is characterized as either a I 'B M or balanced scorecardframework. "
One o f the most important tenets o f the BSC is that it focuses companies on the drivers o f
long-term performance by aligning the entire organization to its strategy. N um erous
surveys have concluded that companies' that are aligned to strategy and use non-financial
indicators, as proposed by the BSC, are believed to achieve long-term success. The
R e p r o d u c e d with p e r m i s s io n of t h e cop y rig h t o w n e r. F u r th e r r e p r o d u c tio n prohib ited w ith o u t p e rm is s io n .

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rem ainder o f this section focuses on the methodology and findings o f a study, which
attempted to determine if BSC adopter companies are more successful in the long-term
M ETHODOLOGY
Time Horizon and Long-Term Performance Criteria Selection Process
A search o f studies on the long-term performance o f companies was conducted to
determ ine the most appropriate time horizon and perform ance metric to use as criteria for
this long-term performance study o f Balanced Scorecard adopters Prior studies
attempted to track long-term performance o f companies after significant changes were
made to the organizations The time horizons used in these studies were fairly consistent
between three to five years. The performance criteria used to establish long-term
perform ance was considerably more varied, but shareholder return was the dominant
metric used in most identified studies
The time horizon is the period o f time that elapsed between the implem entation or
occurrence o f a change in the company, and the time at which an analysis o f the
company's perform ance is undertaken. In regards to this study, the time horizon is
concerned with the number o f years after the Balanced Scorecard w as adopted at a
company and the time at which an analysis o f the perform ance o f the company during
those years was completed.

111
The vast majority o f the long-term performance studies analyzed used a time period o f
three years Megginson (2000), in his study o f the long-run return to investors in share
issue privatization, Lajoux (1998) in her study o f postm erger performance, and Tankel
and Carnell (1994). in their study o f long-term incentive plans all used three years as the
tim e horizon for long-term performance in at least one o f their data sets Furthermore,
K ohers' (2001) study on the long-term perform ance o f technology firm takeovers and
W u 's (2002) study on firms that choose global equity offerings used the three-year time
horizon for long-term performance There were some studies that used four, five and
even ten years However, the majority used three years as it was assumed that three years
was a suitable time period to allow for changes in the company to take effect and
perform ance as a result o f the change to be determined
For the purpose o f this study, it was determined that three years was a suitable lag time to
allow for changes brought about by the implementation o f the Balanced Scorecard to take
effect. For example, if the BSC was instituted in 1997 than the company's long-term
perform ance would be gauged by its performance in 2000 and beyond.
The metric used to gauge long-term performance in the researched studies was more
varied, but shareholder return was the metric used in the majority o f studies. Long-term
perform ance metrics used in the studies can be grouped into four different categories:
accounting metrics (earnings per share, net income, revenue growth), operational metrics
(batch time, cycle time, utilization), shareholder value and shareholder return.

112
Accounting metrics as a gauge o f long-term performance was not used for this study as a
result o f the ability o f management to legally affect certain performance numbers
Earnings can be orchestrated by timing expenditures, sales revenue and other transactions
to secure the desired results Large write-offs can be booked with considerable latitude
under accepted accounting practices Acquisitions offer a quick boost to earnings that is
often not sustainable or proves to be a bad fit for the organization. As a result, accounting
m etrics were deemed an unsuitable form o f long-term performance measurement
Operational metrics were used in studies that attempted to determine long-term
perform ance in very specific market segments and between very specific, closely
correlated companies o f a manufacturing nature For instance, a study o f the long-term
perform ance measures o f flexible manufacturing systems used number o f parts, cycle
time, batch size and utilization as the performance metrics (Vineyard, 1993) A
com parative study using such specific operational metrics would not be applicable across
a variety o f industries A more general and universally applicable measure o f long-term
perform ance was required for this study
Shareholder value, calculated by subtracting the cost o f capital from net operating profit
after tax (N OPA T) was also found to be inappropriate for this study. Companies that use
such value added strategies in their management systems would adversely affect the
com parison data in the study.

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Shareholder return measures were the predominant metrics used in long-term
perform ance studies and it was the selected metric for this study Lajoux (1998) reported
on a compilation o f studies in regards to long-term post merger perform ance The
compilation included two 1995 M ercer M anagement Consulting and Business Week
studies that used shareholder returns as the long-term performance metric It also
discussed a 1997 Journal o f Finance study by Loughran and Vijh, and a Kenneth W
Smith study for M ercer and Mitchell M adison that also both used returns to define
perform ance Furthermore. Kohers (2001) in Financial Management used stock return
data to determine if the high expectations regarding the future merits o f high-tech
takeovers actually comes to fruition in the long run Similarly. M egginson (2000), and
Wu (2002) use shareholder returns as the criteria for determining long-term perform ance
in their studies o f share issue privatization and global equity offerings, respectively In
addition, they each reference in their respective studies m a n y previous studies on their
subject that also used returns
The use o f shareholder return as the yardstick for determining long-term perform ance is
certainly not perfect. To begin with, the use o f one metric to gauge the perform ance o f a
company, even over the long-term is not ideal. The arguments for the use o f balanced
measures in a company's performance managem ent system could be used here. However,
since a single measure is needed for simplicity and comparison purposes, shareholder
return is the best compromise In addition, share price is subject to many market forces
beyond the control o f the company As such, the companies in the study were
benchmarked against others in their industry to determine if the BSC gave them a

1 14
com petitive advantage that allowed them to outperform their peers Therefore, the effect
o f the market economy as a whole should affect both the company and the other
companies in the index similarly, thus limiting its impact on the results
The study measures the performance o f companies in the long-term. M arket prices are
subject to the volatility o f the market in the short-term but are a more reliable indicator o f
perform ance in the long-term. Therefore, share price is a valid indicator o f long-term
perform ance
In order to facilitate a meaningful determination o f the successfulness o f com panies that
employ the Balanced Scorecard, three companies that share the same industry segment
index as each BSC adopter were selected The comparison com panies selected were not
necessarily direct competitors o f the BSC company, but they shared the same industry
segment and were similar in regards to 2002 revenues in as many cases as possible The
monthly percent returns for the comparison companies and the BSC company were
calculated by subtracting the baseline share price from each o f the monthly share prices
and dividing the difference by the baseline share price. The share prices were adjusted for
splits and dividend distributions This calculation was repeated for each month from the
baseline month back to 1993 and forward to January o f 2003. The baseline share price for
each selected industry segment analysis was chosen as January o f the year in which the
identified company adopted the Balanced Scorecard. This produced a series o f monthly
returns both before and after BSC implementation. These monthly returns were then
plotted for each o f the four companies in each segment and analyzed

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The study on long-term performance o f BSC companies uses three com parison
companies to gauge the successfulness o f the adoption o f the BSC based on shareholder
returns as the performance metric and three years as the time horizon
Balanced Scorecard Adopter Companies
Do Balanced Scorecard companies, with their focus on long-term perform ance
outperform others in their market segment in the long run0 In order to facilitate this
com parative study, it was necessary to select criteria in order to define which companies
could be used for the comparison. Four defining characteristics were chosen to screen
potential companies The first three characteristics were chosen prim arily to facilitate a
relatively simple comparison that is meaningful to a North American audience The
organization had to be a for-profit company and the Balanced Scorecard had to be
implemented corporation or organization-wide Stock price and subsequently shareholder
return data could not otherwise be determined. Thirdly, com panies would have to be
based in North America. This filter was used to attempt to obtain a concentrated cross-
section o f companies across North American industries Lastly, the organization had to
have been operating with the BSC for over three years. This criteria was used as a filter
for the selection process for Balanced Scorecard companies.
In order to identify BSC companies, an internet and literature search was conducted
followed by personal communication with the Balanced Scorecard Collaborative. An
internet search was carried out with the goal o f identifying BSC adopters that matched

116
the selected criteria through company websites, practitioner-oriented publications and
press releases A literature search was also performed to identify BSC adopters through
academic publications The final attempt to discover implementers was to contact the
Balanced Scorecard Collaborative Communication with Robert Kaplan (personal
communication. March 20, 2003) and Randy Russell, the Director o f Research at the
BSCol, (personal communication, March 20, 2003) resulted in no additional identified
companies as a result o f their inability to identify BSC adopters
The results o f this search to find companies that matched the study criteria were
unexpected The filters resulted in only a handful o f companies meeting the criteria for
the study There appears to be several explanations for this result First, there are not
many com panies that adopted the BSC over three years ago Companies do not
necessarily publish the use o f the BSC A considerable number o f BSC adopters are non
profit organizations As well, the BSC is mostly adopted at the business unit level only
Lastly, another potential explanation is that companies that have implemented the BSC
corporate wide have since been involved in mergers and acquisitions and are no longer
identified as BSC users.
It has been reported that the BSC has been adopted by 50% o f the Global 1000
com panies (http://www.bscol com /careers/. November 10, 2002). A large increase in the
num ber o f users could have been as a result o f recent adopters o f the Balanced Scorecard
The popularity o f the Balanced Scorecard appears to be growing and much o f this growth
has happened in the last few years. Speckbacher, Bischof and Pfeiffer (2002) in their

1 17
study o f BSC use in German-speaking countries found that the first contact with the BSC
concept for most companies was between 1996 and 1999. Furthermore, they found that a
large num ber o f com panies first introduced their Balanced Scorecards between 1998 and
2000 Although not a North American study, it does provide evidence that much BSC
implem entation has happened in the last several years The three-year time frame
disqualified many o f the identified BSC companies from being used in this study
Another explanation for the lack o f companies that met the criteria was that Balanced
Scorecard adopters might not publish their use o f the strategic perform ance managem ent
system. If press releases, studies or reports were not written on an individual com pany's
use o f the BSC, than the company would not have been identified as a BSC user Part o f
the study's research m ethod involved a conversation with Randy Russell, who confirm ed
that some com panies might not want to be identified as BSC users Unless they had
already done so, the BSC Collaborative could not identify adopters as a result o f
confidentiality concerns (personal communication. March 20, 2003) Furthermore. Dr
Kaplan in his response to a request to identify BSC adopters, stated that he did not have
this information, as BSC adopters do not request his permission to implement the
Balanced Scorecard (personal communication, March 16, 2003) The extent o f the use o f
the BSC does not appear to be readily known even to the inventors
A considerable num ber o f Balanced Scorecard adopters are non-profit organizations A
review o f the literature by several authors in addition to Kaplan and Norton resulted in a

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significant portion o f identified users being non-profit organizations including hospitals,
municipal governm ents, government branches and educational institutions
The single largest contributor to the lack o f companies passing the selection process was
that a large majority o f BSC adopters are at the business unit level or division level o f a
corporation The BSC is often first adopted by companies at the business unit level and
frequently does not advance from there. This is not to say that it was not successful at that
level, but only that it was not taken to the corporate level Indeed, in the opening pages o f
the Strategy -hocused Organization. Kaplan and Norton (2 0 0 1) identify three o f the four
early and most influential examples o f BSC adopters as division adopters and not
corporate wide users o f the BSC Furthermore, Speckbacher, B ischof and Pfeiffer (2002)
concluded that most firms employ BSCs only at the level o f the business unit because
high-level corporate scorecard measures do not provide useful information for the
company.
M any o f the early Balanced Scorecard adopters have since been involved in m ergers and
acquisitions and the subsequent organization did not continue to use the BSC or did not
adopt the BSC at the corporate level Randy Russell commented on this factor as an
explanation for the lack o f identifiable users o f the Balanced Scorecard at the corporate
level (personal communication, M arch 20, 2003) He cited examples such as Saatchi and
Saatchi w ho were users o f the BSC corporate wide until they w ere acquired by Publicis
G roupe S. A and the merger between Exxon and Mobil (Mobil was not corporate wide,
but it illustrates the point)

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These are all possible explanations for the limited group o f companies that were found to
meet the selection criteria. Although this was not the intended direction o f the study, the
finding is certainly worth reporting
CASE STUDIES
The handful o f com panies that survived the selection process totaled three Hilton Hotels,
W endy's International and Dofasco were the three companies identified that have used
the Balanced Scorecard for over three years, are based in North America, are for-profit
and adopted the BSC at the corporate level Although a study o f three companies is
hardly statistically significant, the analysis o f the companies and a subjective comparison
with three com panies in their respective industry segment indices was nonetheless
decided to have value even if they are isolated cases The three companies will be
examined individually and the full data set can be found in the Appendix.
Case 1: Hilton Hotels
Hilton Hotels, a hotel and hospitality company was introduced earlier in the paper The
com pany's stock is listed on the NYSE The company achieved revenue o f $3 85 billion
in fiscal year 2002 (http://www hilton.com. March 10, 2003). Hilton implemented the
BSC in 1996 The Balanced Scorecard plays a key role in Hilton's value chain The value
chain is the com pany's process that links long-term strategic objectives to short-term

120
tactics The company's vision and strategic plan are linked to the value drivers that are
ultimately manifested in Hilton's BSC (Huckestein and Duboff, 1999) The company's
BSC includes metrics from the financial, customer, business process, and innovation,
learning, and grow th perspectives. The value chain concept ensures that Hilton focuses
on their constituents or stakeholders customers, team members, owners and
shareholders, strategic partners and community. The Balanced Scorecard is one
com ponent o f the value chain link, which also includes value drivers, business strategy
and processes
H ilton’s BSC includes eight value drivers These eight metrics are Room RevPAR
(revenue per available room), RevPAR index (RevPA R versus com petitors in local
market), EBITDA, score from guest-comm ent-cards, custom er-satisfaction-tracking
study, team -m em ber survey (employees), mystery shopper, and standards com pliance
(brand standards). The four customer and em ployee non-fmancial metrics prom ote a
focus on the long-term performance o f the company. The RevPAR and EBITDA
m easures are m ore financially oriented and are lagging indicators The non-fmancial
custom er metrics are designed to promote the long-term performance o f the organization
However, they are primarily survey related, and along with the financial metrics, could be
subject to short-term managerial gam esmanship
As previously described in chapter four o f this paper, Hilton uses the BSC to
com m unicate its value drivers and strategic objectives to all its employees. To help
ensure a com m itm ent to the achievement o f BSC measures, the company utilizes a strong

121
incentive system that links performance to reward The Scorecard is used as a means o f
measuring and communicating performance, as well as translating the company's
strategic vision to daily operations
Hilton Hotels is one o f the components o f the Dow Jones Lodging index and to elicit a
comparison, three other component com panies were selected. These companies are not
necessarily direct competitors with Hilton but they would be subject to the same
economic environm ent as Hilton. The selected com panies were Starwood Hotels,
M arriott International and Prim Hospitality
Starw ood Hotels and Resorts Worldwide, Inc is a hotel and leisure company The
com pany owns, manages and franchises 743 hotels totaling approximately 224,000 rooms
(as o f December 31, 2001) It also operates and manages a number o f resorts. For fiscal
year 2002, the company had revenues o f $4 66 billion (http //biz yahoo com/p/h/hot html.
April 18, 2003)
M arriott International I n c , is an operator and franchiser o f hotels and related lodging
facilities. As o f January 3, 2003, the company operates o r franchises 2,557 lodging
properties with 463,429 rooms. The company's revenues w ere $8.44 billion in fiscal year
2002 (http://biz.vahoo.eom /p/m /m ar html. April 18, 2003).
Prim Hospitality Corp is an owner, manager and franchiser o f hotels. It has 245 hotels in
operation containing 31,426 rooms in 33 states as o f Decem ber 31, 2002

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(http ://biz.yahoo.com/p/p/pdq html. April 19, 2003) For fiscal year 2002, the company
had revenues o f $399 million.
Case 1: Results
The Balanced Scorecard was implemented at Hilton Hotels in 1996 Figure 2 shows the
monthly percent returns for Hilton, Starwood, Marriott and Prim Hospitality using their
respective January 1996 share prices as a baseline The shareholder returns for each o f
the four companies for the three years prior to 1996 show a close cluster o f performance
for all four companies. Performance for the companies rose from negative 40-50% to the
0% return baseline during January o f 1996. Their collective perform ance was relatively
similar After the 1996 baseline, the performance for each o f the companies changes
dramatically Prim Hospitality rose initially, was sustained for several years and in 2003
showed a negative percent return o f 15-20% Starwood percent return shot up to 200%
from 1996 to late 1997, and has demonstrated volatility in returns since then and
currently offers a 40-45% return from baseline. The significant increase in share price
and return at Starwood Hotels appears to be at least partly due to the company having
acquired several hotels and hotel chains including W estin and ITT beginning in 1997 and
as a result has grow n considerably in size M arriott steadily increased from 1996 before
taking a slight dip in 2002 and reached an approximate return o f 75-80% in 2003 Hilton
achieved 25% returns in 1997 before slipping to the negative and fluctuating between
minus 50% and 0% In 2003, Hilton demonstrated a negative 25 to 30% return from 1996
baseline values.

1 23
The perform ance o f the four companies in this analysis o f the lodging industry was
relatively similar during the period o f 1993 to 1996 Since the implementation o f the
Balanced Scorecard at Hilton in 1996, the company's performance has lagged behind the
comparison com panies in this study During 1997, all four companies dem onstrated
handsome returns with Hilton showing approximately 25% returns which was the lowest
o f the four companies In 2003, the three com parison companies outperformed Hilton as
they achieved a negative percent return o f 25 to 30%, while Prim Hospitality, Starw ood
and M arriott showed negative 15-20%, positive 40-45% and positive 75-80%) returns
respectively Based on this analysis, the BSC is not assisting Hilton to achieve above
average long-term performance
Figure 2: Lodging Comparison - %>Retum from H ilton's BSC Implementation 1996
200 %
150%
100% Irf[ Jf
E * / \ . * y
a
g 50%
S?
0 % ------
J a r -9 3 In-96 Ju l-9 7 lun 03
-5 0 %
- 100 %
Date
— HLT HOT ~ * - MAR — PDQ

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Case 2: W endy's International
W endy's International is one o f the world's largest restaurant operating and franchising
companies with more than 8,800 restaurants The com pany achieved $9 4 billion in 2002
system wide sales The company includes W endy's Old Fashioned Hamburgers. Tim
Hortons, Baha Fresh M exican Grill, Cafe Express and Pasta Pomodoro businesses
(http://www w endys-invest.com . April 10, 2003) W endy's International is listed on the
NYSE
W endy's Balanced Scorecard is incorporated into their strategic plan and is
communicated throughout the organization to align its various divisions with strategy
(http://www wendys com, April 10, 2003) One o f the key functions o f the BSC for
W endy’s is that it assists in driving their strategy dow n to the front lines Their Scorecard
consists o fb o th financial and non-financial m easures W endy's BSC m easures include
employee retention, restaurant evaluations, custom er satisfaction m easures and financial
metrics like total revenue growth. A significant portion o f these measures are leading
indicators o f long-term performance The financial m easures report on past perform ance
and can lead to a short-term focus
W endy's is a com ponent o f the Dow Jones Restaurant index. This segment is
considerably more diverse than the lodging segment as it includes all restaurants from
full service to casual dining to fast food and specialty restaurants. The comparison
com panies selected in this category were done prim arily on the basis o f similarity to

125
W endy's as a fast food, semi-casual dining company Relatively similar annual revenue
was a secondary characteristic The companies chosen for comparison were M cDonald's,
Jack in the Box. and Applebee's
M cD onald's Corporation operates in the foodservice industry and is prim arily a quick
serve restaurant business. The company has restaurants in 119 countries worldwide and
2002 revenues were $15 41 billion (http://biz yahoo com/p/M /MCD htm l. April 19,
2003)
Jack in the Box Inc owns, operates and franchises quick-service ham burger restaurants
1,862 restaurants were owned or franchised by the company as o f September 29. 2002
Fiscal year 2002 revenues were $1 99 billion (http://biz.yahoo com/p/J/JBX htm l. April
19, 2003)
Applebee's International, Inc develops, operates and franchises 1,496 casual dining
restaurants as o f December 29, 2002. The company's revenue for fiscal year 2002 was
$826.8 million (http://biz.vahoo.eom/p/A/APPB.htm l. April 19, 2003).
Case 2: Results
The Balanced Scorecard was implemented at W endy's in 1999 (http://ww w bscol com /
invoke.cfm /invoke.cfm ?id=A D 46C535-8D 89-4D D A -BlEFA E82415BD D D B& pf=
3D 5398S9-A 914-11D4-A 8C000508BD C96C1&dd=displav n e w s a rtic le d e ta il. April

126
10, 2003) and January of that year was selected as the baseline for the study o f this
industry Figure 3 illustrates the results o f this case study All four companies
dem onstrated a negative return o f between 50% and 70% in 1993 Applebee's
dem onstrated the best performance from the period o f 1993 to 1999 followed by
W endy's, M cDonald’s and Jack in the Box Applebee's performance was considerably
more volatile than the other three companies Applebee's sharp increase in share price
during 2001 can be partly attributed to its continued impressive growth in num ber o f
restaurants and sales in addition to its stock buyback during the year
(http://m edia.corporateir net/media files/NSD/APPB/ reports/appb arOl pdf. April 20.
2003) Following the 1999 baseline date, Applebee's demonstrated remarkable
perform ance increasing their percent return to 160% in January o f 2003 This was
followed by W endy's at 30%. Jack in the Box at minus 25 to 30% and M cDonald's at
negative 55% to 60%
The overall trend o f the four companies showed a consistency o f perform ance both
before and after the period o f BSC implementation at Wendy's in 1999 A pplebee's led
the four com panies in performance both before and after 1999, demonstrating a
significantly higher return in 2003 than the other companies. M cDonald’s and Jack in the
Box under performed Wendy’s both before and after 1999 Wendy's was second among
these com ponents o f the Dow Jones Restaurant index prior to Balanced Scorecard
im plem entation and retained their position in the three years following the
im plem entation. The use o f the BSC by W endy's did not lead to improved long-term
perform ance by Wendy's according to the comparison performed in this analysis

127
Figure 3: Restaurant Comparison - %Return from W endy’s BSC Implementation 1999
200 %
150%
100 %
50%
J a r -93 ln-99
-50%
- 100 %
Date
—♦ — W EN — J BX APPB MCD
Case 3 Dofasco
D ofasco is a Canadian based North American steel producer with facilities in Canada, the
United States and M exico The company produces high quality flat rolled and tubular
sheets in addition to laser-welded blanks. Dofasco's wide range o f products are sold to
custom ers in the automotive, appliance, construction, manufacturing, pipe and tube,
packaging, energy and steel distribution industries Dofasco's revenue in 2002 was $3 58
billion (CDN) and the company's stock is listed on the Toronto Stock Exchange (TSX)
(http://w w w .dofasco com . April 15, 2003).

12 8
Dofasco uses the Balanced Scorecard as a performance measurement management tool in
conjunction with their strategic planning and management system. According to Bill
Gair, Public Relations, the company develops business plans and budgets based on
environmental analysis and strategic assumptions (personal comm unication, April 10,
2003) Once annual business plans have been developed, the Balanced Scorecard is used
in conjunction with the corporate goals and objectives from the business plan as a means
for senior management to measure performance and identify changes that must be made
in order to meet BSC targets Corporate goals and objectives in addition to some o f the
BSC perform ance indicators are shared to ail employees in the organization. The
company feels that not all BSC measures are influenceable by all em ployees and as a
result are not shared The goals and performance targets that have a direct line o f sight to
em ployees are set as performance drivers Many o f these perform ance drivers are tied to
a variable pay system that awards hourly employees 10% o f pay if targets are met and up
to an additional 10% if targets are exceeded A similar variable pay system for senior
m anagem ent includes up to 50% o f an employee's compensation.
Dofasco has a Balanced Scorecard that incorporates customer, investor, workforce and
internal management perspectives. These perspectives include perform ance indicators
that are measures based on various stakeholders' view o f the com pany These indicators
are measures o f how the company is viewed through the lens o f the customers,
community, suppliers, employees and shareholders/investors

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D ofasco’s BSC metrics include many leading indicator, non-financial measures From the
employee perspective the company measures the safety perform ance o f its employees A
safe and healthy w orkforce is one that is motivated and profitable The company monitors
its perform ance through the eyes o f its customers by measuring how successful they are
at meeting their delivery promises and the quality o f their products. These measures from
the workforce and custom er perspective o f the BSC promote a focus on the long-term
perform ance o f the organization These measures provide little information on short-term
perform ance and are based on the com pany's strategy o f sustainability
The company is a component o f the S&P 500/TSX Canadian M aterials Index The index
is a collection o f resource based Canadian companies Although not direct competitors,
the companies in the index face many o f the same economic, political and social factors
Similarity o f industry and annual revenues were used as the selection criteria for this
industry comparison. The selected companies were Stelco, Inco and Noranda
Stelco Inc. produces and markets rolled steel products, which includes coal, scrap, iron
ore, hot rolled, cold rolled, plate, wire and rod steel products fhttp://www stelco com.
April 20, 2003). The company had revenues o f $2.78 billion (CDN) in fiscal year 2002
(http://biz-vahoo.eom /p/S/STEA.TO.htm l. April 20, 2003).
Inco Limited is a mining, processing and producer o f primary nickel, copper, and cobalt
in addition to precious metals such as gold, silver, rhodium, platinum and palladium

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(http://www.inco.com . April 20, 2003) Revenues were $3 3 billion (CDN) in fiscal year
2002 (http://biz.vahoo.eom /p/N/N TO html. April 20, 2003)
Noranda Inc. is an integrated mining and metals company that is involved with the
acquisition, exploration, and developm ent o f metal and mineral properties. It also
produces finished metal and mineral products and is an important recvcler o f copper,
nickel and precious metals Noranda reported revenues o f $6 11 billion (CD N ) in fiscal
year 2002 (http://ww w tsx com . April 20, 2003)
Case 3 Results
In 1996, the Balanced Scorecard was implemented at Dofasco January o f 1996, was
selected as the baseline for this segment analysis Case 3 results are depicted in Figure 4.
In 1993, Dofasco, Inco and Noranda were dem onstrating returns o f approximately
negative 30 to 40% Stelco showed a return o f negative 75% to 80% during that same
time From 1994 through to 1996, the companies' perform ance resulted in the following
decreasing order o f perform ance ranking o f Stelco, Dofasco, Noranda and Inco
respectively Stelco benefited from increased production and high demand for steel
products, which played an important role in the increased valuation o f the com pany in
1997 (http://m edia.corporate-ir net/media files/TO R/STE.TO/reports/ar97 pdf. April 20.
2003). The period from the baseline date to the end o f 2000. predominantly showed
positive returns for Stelco and Dofasco, while Noranda and Inco continued to display
negative returns. In the remaining two years from 2001 to 2003, only Dofasco showed a

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positive return, finishing with 45 to 50% shareholder return The other three companies
all showed negative returns during this same period
Prior to the implementation o f the Balanced Scorecard at Dofasco in 1996, the company
was generally outperformed by Stelco and performed similarly to Noranda based on this
analysis. Following the implementation o f the BSC, Dofasco consistently generated
positive returns unlike Inco and Noranda who were mired in negative returns and Stelco
who initially outperformed Dofasco before dropping to negative returns during the last
two years o f this study Since the implementation o f the Balanced Scorecard in 1996,
Dofasco has outperformed the other three companies in the S&P 500/TSX Canadian
M aterials index
Figure 4: M aterials Comparison - % Retum from D ofasco’s BSC Im plem entation 1996
150%
100%
c 50%
9
Jar I-96 May-00
-50% f
- 100 %
Date
— DOF — S TEa N —H— NRD

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CASE DISCUSSION
Performance measurement is used by managers to com m unicate and execute strategy and
to assist in making decisions to maintain or alter patterns o f organizational activities in
the future The importance o f effectively communicating and executing strategy through
the use o f non-financial performance measures was evidenced through a variety o f
studies on strategic perform ance measurement. The BSC was proposed in these studies as
an effective strategic perform ance measurement system. The investigation performed in
this study revealed only a handful o f companies that fit the criteria o f this study Three
years was selected as the time horizon and shareholder returns as the performance metric
to evaluate three com panies that adopted the BSC The results o f the study illustrated that
the Balanced Scorecard does not necessarily generate improved long-term performance
The comparison com panies used ir. the case analyses were selected from the same
industry segment as the BSC adopting company. In all three cases, the companies chosen
were not necessarily direct competitors o f the BSC company, but were selected based on
two characteristics. First, the companies selected were the closest in similarity to the
industry or market segment o f the BSC company As a secondary criterion, the
companies nearest in size as defined by annual revenue, were selected
As a result o f these criteria, the comparison companies were not direct com petitors o f the
Balanced Scorecard adopter company but they were similar enough to share the same
economic and environm ental influences. Furthermore, the comparison com panies varied

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widely in their size as defined by annual revenue. It can be argued whether or not the
large variation in company size truly impacts the results. For the purpose o f this study, it
is not believed that larger companies have significant com petitive advantages in the
industry segm ents analyzed However, the potential impact o f this variable should be
considered in the analysis and application o f the results
The concluding chapter discusses the findings o f this chapter in more detail Furthermore,
it also traces the findings o f this entire study from the evolution o f the BSC to its effect
on the long-term performance o f its adopters

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C H A P T E R 6: FINDINGS, C O N C L U SIO N S, AND
R E C O M M E N D A T IO N S
Kaplan and Norton introduced the Balanced Scorecard over ten years ago with
considerable fanfare and excitement It promised an effective means o f measuring the
perform ance o f organizations by focusing on the intangible assets o f organizations, which
are the leading drivers o f long-term perform ance The overall purpose o f this study was
to examine how the BSC has evolved in the ten years since its inception and how it has
fared in the generation o f improved long-term perform ance This study explored that
question by focusing on four specific research questions relating to the Balanced
Scorecard
The first question was, "how has the BSC evolved and how are Kaplan and Norton
prom oting it today?” Kaplan and Norton have revised their concept o f the Balanced
Scorecard since its original introduction as a result o f the experience gained with the
concept through the extended use o f the BSC by the original adopting organizations
C riticism s and additional uses for the BSC are all indications o f the progression and
evolution o f the concept
The second question investigated in this study was, "w hat are the major consultancy
firms prom oting in regards to strategic perform ance measurement and the Balanced

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Scorecard9” M anagement consulting firms seek to provide their clients with the newest
and best tools to assist them to achieve higher levels o f success Management consulting
firms are on the forefront o f promotion o f new management strategies and tools Are they
promoting the BSC. the concept o f balanced financial and non-financial measures or
other strategic performance measurement tools9 If they are promoting the Balanced
Scorecard as defined by Kaplan and Norton or the concepts o f the BSC, then a strong
indication o f its acceptance is determined
The third question was, "has the linking o f performance incentives and financial
compensation to the Balanced Scorecard been successful in all levels o f organizations9”
The alignm ent o f the entire organization to achieving the strategic objectives o f the firm
by focusing all employees on the drivers o f performance is a major theme o f the BSC
With expectancy theory as a guiding framework, the linkage between the BSC and
perform ance incentives throughout all levels o f organizations was explored
Lastly, the fourth question asked, "by using the BSC to refocus companies on achieving
long-term performance versus short-term growth, are companies that have adopted the
BSC more successful in the long run9” The BSC has been reported to have achieved wide
scale acceptance and implementation around the world. The Scorecard focuses the entire
organization on the strategic objectives that are the leading indicators o f perform ance and
as such is expected to help companies achieve long-term success.

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The concluding chapter paints the picture o f the Balanced Scorecard from evolution to
long-term performance The findings o f each research question are presented by chapter
These findings were then dissected and analyzed to produce a series o f conclusions about
the BSC that summarizes the knowledge gained on the strategic performance
measurement system A number o f recommendations for further investigation based on
the major findings o f this study are discussed Finally, a summary o f the study presents
the generalized results o f the exploration o f the main research question as a conclusion to
the chapter
FINDINGS
Many significant findings are drawn from the results o f each specific research question,
which assists in the understanding o f the evolution o f the BSC, and it’s ability to deliver
superior long-term performance
Chapter 2: The Evolution o f the Balanced Scorecard
The evolution o f the Balanced Scorecard was described from its inception through to its
use today. The changes in the Scorecard concept give an indication o f the direction that
the tool is likely to travel in the future. The findings in this chapter encompass the
evolution of the BSC from a standalone perform ance measurement tool to a strategic
m anagement system and the importance o f the developm ent o f strategy maps. The

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findings also present the human resource perspective, the conflict with opposing
perspectives, and the potential use o f the BSC for budgeting and external reporting
1. Strategic perform ance management system : The Balanced Scorecard evolved from
strictly a perform ance measurement tool to a strategic performance management system
The original intention o f the BSC concept was to move organizations away from
m easurem ent systems that were based on historic and short-term financial focus, to a
m easurem ent system that was based on the leading indicators o f performance, the non-
financial metrics Through the experiences o f the early adopters o f the BSC, it became
obvious that the Scorecard was much more than a perform ance measurement tool
The focus o f Kaplan and Norton’s first paper on the BSC (1992) was on the developm ent
o f the four perspectives o f the BSC, which included both financial and non-financial
metrics This perform ance measurement tool assisted organizations to focus on both the
leading and lagging indicators o f performance. Kaplan and N orton's second book on the
concept (2001) incorporated the earlier perform ance measurement tool into a strategic
m anagem ent system by illustrating the effect o f putting strategy at the heart o f the
perform ance measurement system. From the first article to the second book, the
Scorecard becam e a system for executing an organization ’s strategy instead o f simply
reporting on perform ance
2. Strategy m aps: The development o f strategy maps was a key step in the evolution o f
the Balanced Scorecard. Measures on the Balanced Scorecard were tied to metrics that

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were effectively linked to the organization's strategic objectives These measures were
then drilled down to every level o f the organization and a line-of-sight linkage was
created between strategy and simple performance measures that could be affected by all
the em ployees in the organization. The strategy map was bom and the link between
strategy, perform ance management and the Balanced Scorecard was formed. The strategy
map was then used as a communication tool to help align the organization to strategy
The strategy map developed at Mobil NAM&R and reported by Kaplan and Norton
(2000), effectively described how strategy maps could be incorporated into an
organization to drive strategy The metrics selected from each o f the four perspectives
were selected to draw cause-and-effect linkages These linkages were used to
com m unicate and align the organization to the strategic objectives and drive the
execution o f strategy
3 Human resource perspective: The BSC, as outlined by Kaplan and Norton, is made up
o f the financial, customer, internal process and learning and growth perspectives Some
critics contend that there is a lack o f focus on one o f the key drivers o f perform ance - the
human resource or people perspective Kaplan and Norton contend that the learning and
grow th perspective encompasses this element but the knowledge management and human
resource purists contend that this is not enough. A dedicated set o f metrics should be
included in the Scorecard to encompass these aspects o f the organization. The Balanced
Scorecard has not evolved to include more o f a focus on the human resource perspective

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4. Difficulty optimizing opposing perspectives: Critics claim that the Balanced Scorecard
forces managers to focus on too many perspectives and measures with little instruction on
how to balance the often-competing measures. Managers cannot be expected to optim ize
in more than one direction
The BSC incorporates performance measures into four perspectives Typical Scorecards
contain several measures from each perspective. Measures from different perspectives
require the organization to optimize on several different fronts all at once These
measures could be mutually exclusive, meaning that optimization in one measure could
com pete directly with performance in another measure A simple example illustrates this
point A Scorecard could include a customer satisfaction measure and an earnings grow th
financial measure. In order to improve customer satisfaction, the organization might have
to improve its service, which increases costs An increase in costs directly impacts the
earnings metric negatively The BSC does not provide a definitive resolution to this
impasse and managers are forced to attempt to optimize in both directions, which could
lead to ineffective decision-making.
5. External reporting: Some pioneering companies have extended the use o f the BSC to
include external reporting. M anagers do have the ability to manipulate financial m easures
in the short-term at the expense o f long-term perform ance Financial measures alone can
be used to accurately represent the position o f a company with strong traditional, physical
assets A large portion o f today's organizations are built on intangible assets such as
knowledge and information technology that are much more difficult to accurately valuate

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As such, the BSC could be used as a means o f providing shareholders and the public with
additional information more reflective o f the important measures for organizations. The
recent Enron and W orldCom scandals could provide additional justification for a new
reporting system.
Skandia, a Swedish insurance company is one com pany that publishes a supplem ent to
their annual report that discusses the fiscal year in BSC terms. There are several
difficulties with reporting with BSC metrics including the subjectivity and the inability to
standardize However, this is a potential future direction and use for the BSC
6. B udgeting: The budgeting process, like financial reporting, is based on the
m anagem ent control systems developed by the early industrial com panies with large
physical assets The world was not a rapidly changing environment and the budgeting
process was fairly rigid and structured. Today's planning processes are expected to
change with the environm ent and have become considerably more complex and time
consuming. The BSC has been proposed as an alternative to the traditional budgeting
process. The Scorecard, with its focus on the organization's strategy, can be extended to
the budgeting process and used as a means to keep the organization flexible and allocate
resources based on strategy.
The use o f the Scorecard in lieu o f the traditional budgeting process has been used in
several organizations with reportedly good success. Volvo Car Corporation, Swedish
bank Svenska Handelsbanken and SKF have replaced or are in the process o f replacing

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their budgeting process with the BSC The use o f the BSC with its focus on strategy
could help to streamline and reduce the tendency for rigid plans, remove the
gam esm anship between managers during the annual budgeting process and could help
organizations focus on the execution o f strategy
C hapter 3: Consulting Firms Promotion o f the Balanced Scorecard
An effective measure o f the penetration o f the Balanced Scorecard into mainstream
managem ent systems is the degree o f promotion o f the concept by management
consulting firms These firms offer their clients the most successful business systems and
tools to help them achieve improved performance. If the BSC is being prom oted by these
firms than a measure o f the success o f the concept can be determined A total o f eleven
consulting firms were studied
1 Limited public inform ation: Much o f the available information on the consultancies
offerings was extremely vague. This was much more prevalent in the general
m anagem ent consulting firms than the consulting arms o f the accounting firms W ith the
exception o f the personal communication with representatives from A T Kearney and
Bain & Company, much o f the conclusions concerning the firm s’ prom otion and
judgm ent o f the BSC were inferred from employee published views on the BSC in
articles or publications.

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Two firms, The M onitor Group and McKinsey & Company offered little information
concerning their offerings on the subject Both their websites and recent publications
gave little information concerning how they approach strategic performance
measurement
2. Guarded information carefully: All eleven o f the firms researched were somewhat
guarded in their willingness to publish information on the specific system s or programs
that they offered their clients in regards to strategic perform ance measurement The
research conducted for this study involved an in-depth analysis o f their websites, their
articles and publications on the topic. It also involved attem pts at personal
communication with the consultancies The vast majority o f these attem pts were met with
no response or curt responses on the lack o f available time to discuss their offerings for
the pursuit o f academic research Only two o f the eleven com panies contacted were
willing to discuss their offerings for this study
3 Promotion o f the Balanced Scorecard in Europe: The BSC and the balanced scorecard
concept seemed to be promoted and advertised more extensively in Europe than in North
America. Pricew aterhouseCoopers and Ernst & Young in particular seemed to heavily
promote the concept in Europe Ernst & Young have developed a Nordic Balanced
Scorecard center, which seems to actively promote the Balanced Scorecard as defined by
Kaplan and Norton extensively throughout Europe

14 3
4 Accountine firm consultancies actively prom ote balanced scorecards: The five
accounting firm consulting arms were determined to either have in the past, or are willing
to discuss how they can advise clients on balanced scorecard implementation All five o f
the firms prom ote the use o f financial and non-financial metrics, they all offer
performance measures tied to strategy, and they appear to view the Kaplan and Norton
Balanced Scorecard favorably The study found that Ernst & Young and
PricewaterhouseCoopers actively prom ote the Balanced Scorecard as a strategic
performance measurement system as defined by Kaplan and Norton. Accenture, Deloitte
Touche Tohmatsu, and KPMG provide services and promote offerings that parallel the
Kaplan and Norton Balanced Scorecard closely, but in most cases do not use the
Balanced Scorecard name
For instance, KPMG EnterpriseIu advises on the selection o f critical success factors that
are based on the organization’s strategy. These key measures come from non-financial
measures as they connect more strongly with strategy and drive financial results
According to KPMG, the measures should come from four perspectives: resource
performance (HR, information management), process performance (cost, quality, cycle
time), market performance (custom er retention, custom er satisfaction), and financial
performance. KPM G and the accounting firm consultancies studied prom ote the ability to
provide Balanced Scorecards or other offerings with very similar concepts
5 General managem ent consulting firms prom ote balanced scorecard concepts: Based on
the research conducted, none o f the general managem ent consulting firms offer nor have

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described their im plem entation o f the Balanced Scorecard in any publication. However.
A T Kearney, Bain and Company, and Booz Allen Hamilton all seem to have strategic
perform ance measurement offerings that are similar to the Balanced Scorecard In many
cases, the offerings included providing measures from the same perspectives The
measures were often non-financial, value-driven and developed from the organization's
strategy Certainly many o f these concepts are not unique to the Balanced Scorecard,
however their com bined use as a strategic performance measurement offering is
indicative o f the Balanced Scorecard concept as developed by Kaplan and Norton
For example, A T Kearney does not promote the Balanced Scorecard, however, many o f
the vital tenets o f the BSC are evidenced in their strategic perform ance measurement
offerings. The com pany's Integrated Strategic Measures attempts to align their client's
strategic objectives to day-to-day operations by cascading measures through the
organization Their balanced and value-driven measurement and management system
includes financial and non-financial measures that assist in the comm unication their
client’s mission and strategy.
The Boston Consulting G roup and McKinsey & Company did not promote as many o f
the BSC concepts as Bain, BAH and A T Kearney However, they did prom ote the
concepts o f balanced financial and non-financial metrics that are based on strategic
drivers o f long-term perform ance Insufficient information was available on the specific
offerings o f M cKinsey & C om pany and The M onitor Group to be able to fully
understand their offerings.

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Chapter 4: Performance Incentives and the Balanced Scorecard
Has the linking o f performance incentives and financial rewards to the BSC been
successful at all levels o f organizations0 In today's organizations, extracting the best
perform ance from employees is vital for organizations to be successful In order to solicit
this perform ance, organizations must align the interests o f all its employees to the
organization’s strategic objectives. The linking o f perform ance incentives to employee
perform ance and strategy through the Balanced Scorecard is an important aspect o f the
strategic m anagem ent system The application o f expectancy theory assisted in the
understanding o f the potential effectiveness o f this three way linkage
1 Pay for perform ance. The underlying concept behind performance incentives is pay for
perform ance Performance targets are set by the organization and if targets are
successfully reached a financial reward is offered. This type o f extrinsic reward is
criticized as being an inferior motivational tool as compared to intrinsic rewards that are
based on job content Despite this criticism, the popularity o f pay for performance
systems is on the rise A recent survey (Caplan, 2001) found that pay for perform ance
systems increased from 47% in 1990 to 78% in 2000. Furthermore, the pay for
perform ance tool received the highest satisfaction rate for achieving financial results in a
recent study (Rigby, 2001). The widespread use o f performance incentive system s with
the BSC provides valuable insight into its effectiveness as a key aspect o f Balanced
Scorecards

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2. Performance incentives in all levels o f the organization: The examples identified in
chapter four displays a wide range o f companies that linked perform ance incentives to the
Balanced Scorecard in all levels o f the organization Mobil NAM&R. Hilton Hotels.
Texaco M arketing & Refining and CIGNA Property and Casualty ail linked rewards to
perform ance o f Balanced Scorecard metrics The clear link between Balanced Scorecard
metrics and perform ance facilitated the ability to tie reward to perform ance targets that
were directly affected by employee performance Expectancy theory assists in the
understanding o f the importance and effectiveness o f this linkage between employee
motivation and performance. All the analyzed companies included middle and upper
management in the perform ance incentive structure. Ingersoll-Rand included their
Executives in their BSC perform ance incentive system Mobil NAM & R carried their
perform ance incentive system to the front-lines o f the organization. Performance
incentives have been tied to the Balanced Scorecard for employees at all levels o f
organizations
3. Performance incentives are effectively linked to the Balanced Scorecard: The examples
presented provided a wide variety o f performance incentive systems used by BSC
com panies In each case, the short-term financial results o f these organizations
substantially improved. For example, Mobil NAM&R linked their BSC metrics to
perform ance incentives (Kaplan and Norton, 2001) The company instituted this
perform ance incentive system from top management to non-union front-line staff. The
linkage drove the perform ance o f the organization in both the short-term and the long
term. They improved their ROC from 6 to 16% and improved their com petitive position
R e p r o d u c e d with p e r m i s s io n of t h e co p y rig h t o w n e r. F u r th e r r e p ro d u c tio n prohibited w ith o u t p e rm is s io n .

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from last in 1993 to first from 1995 to 1998 The linking o f perform ance incentives to the
BSC was successful at all levels o f the organization.
It cannot be positively concluded that the performance incentive system or the Balanced
Scorecard itself solely contributed to the financial success o f the organization. However,
subjective opinion by knowledgeable representatives o f the company all point to the
performance incentive system and the Balanced Scorecard as key contributing factors to
the success o f the organization. These opinions, in conjunction with the understanding o f
the effectiveness o f perform ance incentive systems and the successful turnaround in the
short-term financial success o f these organizations, provide evidence o f the link between
the two
Chapter 5 The Balanced Scorecard and Long-Term Perform ance
Are companies that have adopted the BSC more successful at achieving superior long
term perform ance9 One o f the tenets o f the Balanced Scorecard is that the focus on non-
financial metrics that are the leading indicators o f perform ance helps adopters achieve
improved long-term perform ance The exclusive reliance on financial m easures alone
causes organizations to constantly be looking backwards and measuring historical
performance, instead o f focusing on measures that drive perform ance into the future.
Research was conducted to identify if BSC companies are successful in the long-term

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1. Non-financial measures are widely used: An analysis o f previous studies revealed
several surveys that concluded that companies believe that the use o f non-financial
indicators o f performance and the alignment o f the organization to the strategy results in
successful long-term performance The IMA Survey reported by Frigo (Aug 2002)
showed that more than 90% o f survey respondents said that non-financial measures
should be used more extensively in their firms. Non-financial m easures are effective at
driving financial performance by measuring and tracking strategic activities
2. BSC companies are more successful at communicating strategy: Communication o f
strategy throughout the organization is vital for the successful execution o f strategy
Frigo (Aug 2002) discusses an IMA Survey, which provided evidence that companies
who were BSC users believed their performance measurement system was effective at
comm unicating and supporting strategy Non-BSC users in the study reported that their
system was less effective at communicating and supporting strategy
3. Recent adoption o f the BSC The long-term perform ance study criteria included a tim e
horizon o f three years This time frame excluded many BSC adopters from the study A
large number o f BSC adopters, according to this study, appear to have implemented the
BSC in the last several years, which excluded them from this study A report o f BSC
users in Germ an-speaking countries (Speckbacker et al., 2002) concluded that a large
percentage o f com panies’ first introduced their BSCs between 1998 and 2000 Many o f
the identified users o f the BSC in North America have similarly implemented the BSC
only recently
R e p r o d u c e d with p e r m i s s io n of t h e co p y rig h t o w n er. F u r th e r re p r o d u c tio n proh ibited w ith o u t p e r m is s io n .

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4 Not-for-profit adoption: The long-term performance study criteria required selected
com panies to be for-profit. The result o f this filter was a finding that a large number o f
BSC adopters are not for-profit organizations. A relatively large portion o f identified
BSC adopters on the Balanced Scorecard Collaborative website are not-for-profit
institutions Similarly, a large portion o f the more successful exam ples o f BSC adopters
in Kaplan and N orton's second book (2001) are not-for-profit organizations The
Scorecard has been adopted in many academic institutions, municipal governments,
governm ent branches and other non-profit organizations
5 BSC adopter secrecy: The lack o f identifiable BSC adopters could be as a result o f
actual users o f the strategic performance management system not publishing information
on their use o f the BSC If press releases, studies, or reports were not written on an
individual com pany’s use o f the BSC, then the company would not have been identified
as a user in this study
Contact with the Balanced Scorecard Collaborative resulted in either an inability to
identify BSC adopters as a result o f confidentiality issues or a lack o f knowledge on the
part o f the Collaborative and its Executive as to which and how many organizations have
actually adopted the Balanced Scorecard
6 Business unit level o f adoption: The implementation o f the BSC corporate-wide was
another criteria o f the long-term performance study The vast majority o f identified BSC
adopters use the BSC only as high as the business unit or divisional level. Some very
large corporations use the BSC, such as Dupont, ABB, Siemens and ChevronTexaco, but

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almost all do not elevate the BSC to the corporate level Speckbacker et al (2002) found
similar results in corporations from German-speaking countries. Corporations with
different divisions, different divisional strategies and dissimilar operating philosophies
might have determined that a meshing o f BSC measures at the corporate level renders
them less effective at communicating strategy and driving performance
7 Unsuccessful long-term perform ance: Hilton Hotels, W endy's International and
Dofasco were the three companies that survived the selection criteria Hilton
underperformed companies from its industry segment, W endy's was unchanged and
Dofasco outperformed its comparison companies In these cases, all three companies
have been using the BSC over a long time horizon and all three did not achieve improved
long-term perform ance The Balanced Scorecard with its focus on the drivers o f
perform ance is supposed to help companies achieve superior long-term performance
CONCLUSIONS
1. The Balanced Scorecard is widely accepted worldwide but not as widely adopted: The
Balanced Scorecard has achieved widespread global acceptance since its inception in
1992. It has been reported that the BSC has been implemented in over 50% o f the
Fortune 1000 companies in North America, 50% in Europe and 35-40% in Australia
(Colabro, 2001). The Balanced Scorecard is one o f the 75 most influential ideas o f the
twentieth century according to Harvard Business Review (Niven, 2002) Furthermore,

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Balanced Scorecard literature is extensive, Kaplan and Norton’s books have sold
thousands o f copies around the world and a third book on the subject is being written by
Kaplan and Norton
Eight o f the eleven consultancies researched prom oted similar concepts to the Balanced
Scorecard o f Kaplan and Norton. The accounting firm consulting arms actively prom ote
balanced scorecards Three o f the general management consulting firms have offerings
that are very similar to the concepts o f the Balanced Scorecard These consultancies all
have a global reach and considerable influence on the adoption o f new management tools
Balanced scorecards and similar strategic performance management systems have been
im plem ented by their clients worldwide The promotion o f balanced scorecard concepts
by the consultancies provides evidence o f the widespread acceptance o f the Kaplan and
Norton Balanced Scorecard.
However, despite its widespread and much heralded successful implementation around
the world, the reported success does not appear to be completely accurate. The findings
o f chapter five confirm that widespread implementation o f the BSC is not correct The
results show that a significant portion o f BSC adopters are not-for-profit organizations
They also show that the BSC is only used at the business unit level o f companies and not
at the corporate level. Despite the criteria, only three companies were found to have
adopted the BSC before 2000. If the BSC has been implemented at over 50% o f Fortune
1000 com panies in N orth America, the research should have identified a more numerous
selection o f companies.

15 2
The world-wide attention o f the BSC has resulted in many organizations wanting to be
seen as doing something with the Scorecard. A large portion o f organizations with
"balanced scorecards" have probably only implemented some o f Kaplan and Norton's
concepts such as four perspectives and both financial and non-financial metrics A small
degree o f implementation o f BSC concepts results in companies identifying themselves
as BSC adopters. This phenomenon also contributes to the inflation o f BSC adoption
figures
The Balanced Scorecard is not as widely adopted as has been reported. Rigby's (2001)
survey on management tool implementation supports this finding The survey concluded
that the balanced scorecard was being used at 36% o f the companies surveyed,
considerably less than the greater than 50% figure that has been widely quoted.
2. Alignment o f the organization to strategy is a key evolutionary step o f the BSC The
alignment o f the entire organization to the execution o f strategy led to the evolution o f
the Balanced Scorecard from a performance measurement reporting tool to a strategic
perform ance management system.
The BSC is an effective management system that can be used to align the entire
organization to achieving strategic objectives. The implem entation o f the Scorecard
requires an in-depth look into the adopting company by knowledgeable em ployees at all
levels o f the organization. The development o f individual metrics that are measurable,
explicitly linked to strategic objectives and based on meaningful financial and non-

1 53
financial metrics requires a strong understanding o f strategy and the organization As
such, the developm ent o f the BSC and the communication and alignment o f the m etrics
to each individual employee is the real benefit o f im plem enting a Balanced Scorecard
The true power o f the Balanced Scorecard lies in the creation o f the line-of-sight linkage
between the daily work o f the front-line employees and the strategic objectives o f the
organization The Balanced Scorecard provides a guiding framework for the creation and
unleashing o f the value stored in these em ployees This linkage brings a tangible
connection between employees' work and strategy-, which is critical for a company that is
focused on successfully executing its strategy The non-financial measures o f
perform ance, particularly those from the custom er and internal process perspective, are
the m etrics that can inspire improved perform ance in employees tow ards the execution o f
strategy. Financial results such as earnings per share or return on capital employed have
very little meaning to front-line em ployees as stand alone measures Creating the link
from em ployee’s actions through custom er and internal process metrics to the
overarching financial objectives o f organizations can elicit improved perform ance o f the
em ployees and ultimately the organization
The developm ent and communication o f the line-of-sight alignment between em ployee's
actions. Balanced Scorecard metrics and strategic objectives is further enhanced by the
tying o f rew ards to the measures. Performance objectives and targets can be based on
BSC metrics. These metrics are developed from strategic objectives but are influenceable
by employees. Perform ance incentives, as supported by expectancy theory, are an

1 54
effective motivational tool to solicit the best perform ance from employees at all levels o f
the organization The pay for perform ance system com plem ents and adds to the
effectiveness o f the BSC Employees can stretch to achieve tangible and influenceable
targets based on BSC measures that are designed to drive strategic perform ance The
organization and the employee are rewarded for this improved perform ance The case
studies identified in this study provided evidence o f the effectiveness o f perform ance
incentive systems at all levels o f the organization
3 The Balanced Scorecard does not guarantee long-term perform ance: The Balanced
Scorecard is a strategic performance management system built for the execution o f
strategy by focusing the organization on the drivers o f long-term performance
The case study results o f the long-term perform ance study showed that only one o f the
three identified long-term adopters o f the BSC achieved superior long-term perform ance
The Balanced Scorecard Collaborative has heralded both W endy’s International and
Hilton Hotels as strategy-focused organizations and leaders in the implementation o f the
Balanced Scorecard through their induction into the Collaborative Hall o f Fame. The
results o f the study showed that neither achieved improved long-term performance
Dofasco, an identified adopter o f the BSC by the Collaborative did achieve superior long
term perform ance All three companies use most o f the concepts o f the BSC and place
strategy at the heart o f the organization, but two were not able to achieve the success
prom ised by the BSC

1 55
The three companies are from different industry segments, which does provide a cross-
section o f industries A much wider study was intended but the lack o f identifiable
com panies that met the selection criteria precluded the intent. As such, a more numerous
study with a good cross-section o f industry segments would provide a more definitive
conclusion on the long-term effectiveness o f the BSC. However, the result o f the study
cannot be ignored as it provides evidence that the BSC does not deliver on long-term
performance
An analysis o f the specific metrics used by these three companies provides some
justification o f the results The metrics used by Hilton and W endy's does leave room for
short-term optimization in lieu o f a dedicated strategy to achieve long-term performance
Both companies use several custom er satisfaction metrics on their Scorecard that are
difficult to quantify and accept as representative performance from the custom er
perspective. Conversely, Dofasco's custom er metrics are based on quantifiable product
quality metrics and successful achievement o f delivery targets. This one discernable
difference in perform ance metrics o f the three organizations does provide some potential
justification for the difference in long-term performance.
As a result, it can be concluded that the implementation o f a Balanced Scorecard does not
guarantee successful long-term performance The BSC assists organizations at setting
strategy at the heart o f the organization. It helps communicate and align the entire
organization to achieving strategic objectives. It also provides a structure for the
developm ent o f effective and balanced performance measures However, the correct

156
performance metrics that provide substantive indications o f perform ance are necessary to
drive long-term performance
RECOM M ENDATIONS AND DISCUSSION
Four recommendations for future research stem from this study The Balanced Scorecard
has been proposed as an alternative or at least as a compliment to the budgeting process
Is this feasible and can it drive perform ance9 Second, select com panies have also used
the BSC as an external reporting tool Can it be sufficiently standardized, accepted and
used in the future9 There exists significant opportunity to delve further into the
effectiveness o f the BSC in driving long-term performance Lastly, a study could be
undertaken to determine the true degree o f implementation o f the Balanced Scorecard
1. Budgeting recom m endation; The traditional budgeting process is a tim e consuming
process that requires a significant amount o f resources and energy from com panies In
addition, most budgets are static and based on models developed when organizations
were highly structured and based on tangible assets. Today's organizations are more
service oriented with a considerable amount o f their assets based on intangible assets.
Furthermore, most traditional budgeting processes do not place strategy at the heart o f the
process but the Balanced Scorecard offers this ability.

15 7
Examples o f companies who have done this are limited but a study into the feasibility o f
this extension o f the BSC concept would be meritorious The BSC could provide an
additional competitive advantage by extending its use as the centerpiece o f the budgeting
process. It could drive organizations forward and reduce the wasted resources comm itted
annually to developing static budgets based on traditional perform ance metrics
2 External reporting recom m endation: The BSC has been used by select com panies as
both a compliment to the traditional financial reporting format and as a substitute to the
financial reports The Balanced Scorecard gives a clear picture o f an organization's
performance in all aspects o f organizations through the various perspectives. The BSC
clearly identifies an organization’s strategic performance. Therefore, it could offer all
stakeholders including shareholders, an effective and accurate window into the annual
perform ance o f companies The recent accounting scandals have severely weakened
investors' confidence in the ability o f companies to report perform ance truthfully and
accurately It has also degraded the confidence o f investors and the public in the ability o f
auditing firms to qualify financial reports in an ethical manner. If consensus can be
achieved on the standardization o f certain BSC concepts, it could be used as an external
reporting tool to give the public a better and clearer understanding o f annual
performance.
3 M ore research needed before the BSC can be accepted as a universal strategic
perform ance management system : The research conducted in this report yielded a small
sample o f companies with which to analyze for long-term perform ance. A more in-depth
research study could be undertaken to identify more long-term BSC adopters in the years

1 58
ahead to gain a more definitive sample size with which to better qualify the degree o f
effectiveness o f the BSC to drive long-term performance Perhaps a better metric for
performance can be selected that will allow for the inclusion o f business units or
divisions that will increase the sample size This information is vital for management
practitioners because one o f the main tenets o f the BSC is that by focusing the entire
organization on strategy, it can be better executed to drive long-term performance
Furthermore, a detailed analysis with a larger cross-section o f industries could lead to a
better understanding o f the effect o f the selection o f certain performance measures on
driving long-term performance
4 Quantifiable understanding o f the extent o f BSC adoption A significant finding o f this
study was that the BSC might not be as widely implemented as has been reported The
promotion o f balanced scorecard concepts by the consultancies does provide strong
evidence o f its worldwide acceptance but not necessarily o f its adoption
A direct and independent study to qualify the number o f BSC users, the organizational
level o f implementation o f the BSC and the length o f use o f the BSC are all important
aspects to be investigated to assist in the determination o f the acceptance and success o f
the Balanced Scorecard. It is hypothesized that there are many varying degrees o f
implementation and use o f the concept A better understanding o f the degree o f
implementation or type o f use o f the BSC would assist managers to determine the most
effective use o f the Balanced Scorecard.

1 59
The BSC is cited in many texts and is often promoted by academ ic institutions as an
effective and popular strategic performance management system. A quantifiable
understanding o f the level o f adoption o f the BSC could provide evidence that suitable
caution should be added to the promotion o f the concept.
MAIN RESEARCH QUESTION SUMMARY
The Balanced Scorecard has evolved from a tool for reporting on performance to a
strategic perform ance management system The BSC has achieved worldwide acceptance
as an effective system for the execution o f strategy, but the level o f adoption o f the BSC
does not seem to be as widespread as has been reported The strategic performance
measurement system has not been proven to drive the long-term perform ance o f
corporate-wide adopters o f the BSC Until the long-term perform ance o f adopters has
been proven successful, managers should exercise caution in their evaluation o f the
potential merits o f the implementation o f the Balanced Scorecard into their organizations

160
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The Balanced Scorecard: Evolution to Long-Term Performance

A thesis submitted in partial fulfillment o f the

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ProQuest Information and Learning Company

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We recommend that the thesis

be accepted in partial fulfillment o f the

/ ■ Lynn. Bible, Ph.D . .Committee Member

■' Yvonne F.. S tcdham , Ph.D . .Committee Member

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Balanced Scorecard concept is widely accepted worldwide as a strategic performance

their organizations until the parameters needed to ensure long-term performance

im provem ents are more fully understood

R e p r o d u c e d with p e r m i s s io n of t h e co p y rig h t o w n er. F u r th e r r e p r o d u c tio n p rohibited w ith o u t p e r m is s io n .

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ACKNOW LEDGEM ENT ii

TABLE OF CONTENTS iii

LIST OF FIGURES vii

CHAPTER 1: THE BALANCED SCORECARD: EVOLUTION TO

CHAPTER 2: THE EVOLUTION OF THE BALANCED SCORECARD 12

CHAPTER 3: CONSULTING FIRMS PROMOTION OF THE BALANCED

R e p r o d u c e d with p e r m i s s io n of t h e co p y rig h t o w n e r. F u r th e r r e p r o d u c tio n prohibited w ith o u t p e r m is s io n .

TABLE OF CONTENTS continued

CHAPTER 4: PERFORMANCE INCENTIVES AND THE BALANCED

CHAPTER 5: THE BALANCED SCORECARD AND LONG-TERM

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TABLE OF CONTENTS continued

CHAPTER 6: FINDINGS, CONCLUSIONS AND RECO M M EN D A TIO NS 134

CHAPTER 7: REFERENCES 160

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Table 1 General M anagem ent Consultants M arket Share 2001

Table 2: Consulting Firms Strategic Performance M easurem ent

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Figure 1: Defining the Cause-and-EfTect Relationships o f the Strategy

Figure 2: Lodging Comparison - % Retum from Flilton's BSC

Figure 3: R estaurant Comparison - 0/oRetum from W endy’s BSC

Figure 4: M aterials Comparison - % Retum from D ofasco’s BSC

R e p r o d u c e d with p e r m i s s io n of t h e co p y rig h t o w n er. F u r th e r r e p r o d u c tio n p rohibited w ith o u t p e r m is s io n .

abound for this management tool. As a student o f management, it is essential to

effectiveness as a management practice

The Balanced Scorecard is a strategic performance measurement system that was

organizations to achieve breakthrough results by embedding strategy at the heart o f the

have adopted the Scorecard as a performance measurement and strategy implementation

tool in the long-term

R e p r o d u c e d with p e r m i s s io n of t h e co p y rig h t o w n er. F u r th e r re p r o d u c tio n p roh ibited w ith o u t p e r m is s io n .

penetration into mainstream performance management, discusses its progression into

o f the Balanced Scorecard to achieve long-term performance

perform ance measurement and management systems It is important to understand and

successful strategic perform ance measurement tool is determined.

goals with that o f the organization is a hot topic in organizational management

R e p r o d u c e d with p e r m i s s io n of t h e co p y rig h t o w n er. F u r th e r r e p r o d u c tio n prohibited w ith o u t p e r m is s io n .

incentives for employees throughout an organization effectively, an organization's long­

o f options as a long-term performance incentive If CEO s' bonuses were based on a

In addition to its utilization by consultancies as a litmus test o f successful

implementation, what does an unbiased research study conclude as to the long-term

R e p r o d u c e d with p e r m i s s io n of t h e cop y rig h t o w n e r. F u r th e r r e p r o d u c tio n prohibited w ith o u t p e rm is s io n .

recom m endations for future research on the concept o f the BSC

Question 1: The Evolution o f the Balanced Scorecard

incentives for employees throughout an organization effectively, an organization's long