JMAR

Volume Twelve
2000

Linking Balanced Scorecard Measures to

Size and Market Factors: Impact on
Organizational Performance
Zahirul Hoque
Wendy James
Griffith University–Gold Coast Campus
Abstract: This paper examines the relationship between organization size, product
lifecycle stage, market position, balanced scorecard (BSC) usage and organizational
performance. Using financial and nonfinancial measures, the BSC appraises four
dimensions of performance: customers, financial (or shareholders), learning and
growth, and internal aspects. Based on a survey of 66 Australian manufacturing
companies, the paper suggests that larger firms make more use of a BSC. In addition,
firms that have a higher proportion of new products have a greater tendency to make
use of measures related to new products. A firm’s market position has not been found
to be associated significantly with greater BSC usage. The paper also suggests that
greater BSC usage is associated with improved performance, but this relationship does
not depend significantly on organization size, product life cycle, or market position.

INTRODUCTION
In recent years, scholars and practitioners have expressed concerns with
traditional performance measures that focus solely on financial metrics such as
return on investment or net earnings (Atkinson et al. 1997; Ittner et al. 1997;
Kaplan and Norton 1996; Lynch and Cross 1991; Shields 1997). The balanced
scorecard (BSC) approach to management (Kaplan and Norton 1992, 1993,
1996) has gained prominence in management accounting research as a way of
integrating financial and nonfinancial performance measures (for reviews, see
Atkinson et al. 1997; Ruhl 1997; Shields 1997; Simons 2000). The BSC views
organizational performance from four dimensions: financial (or shareholders),
customers, internal business processes, and learning and growth. Atkinson et
al. (1997, 93–94) suggest that BSC has the potential to provide planners with a
way of expressing and testing a sophisticated model of cause-and-effect in the
organization—a model that provides managers with a basis on which to manage
the drivers of desired outcomes.
While work of Kaplan and Norton has added to our knowledge of how a BSC
can provide managers with an integrative framework to manage organizational
activities, little evidence is available outside the U.S. on current practice in the
area (Hoque et al. 1997; Creelman 1998).1 Atkinson et al. (1997, 94) note that
“the balanced scorecard is among the most significant developments in
management accounting and thus, deserves intense research attention.” This
paper is an attempt to contribute to the limited body of knowledge in this area.

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 The purpose of this research is to search for a relationship between BSC
usage and (1) organization size, (2) product life-cycle stage, and (3) strength of
market position. It also looks for a contingent relationship between
organizational performance (the outcome variable) and the match between BSC
usage and the three contextual variables described above. The framework for the
research is illustrated in Figure 1.
FIGURE 1
Framework for the Study

Organization Size

Balanced Scorecard Organizational

Product Life-Cycle Usage Performance
Stage

Strength of
Market Position

The next section of the paper briefly reviews the relevant literature and
develops the research hypotheses. The research method applied is described in
section three. Section four presents our results. The final section concludes the
paper.

VARIABLES AND RESEARCH HYPOTHESES

Atkinson et al. (1997, 94) suggest that management accounting research can
explore BSC practices using a range of methods such as case studies, behavioral
experiments, and analytical and empirical approaches. Taking a contingency
theoretic perspective2 in this study, we consider the size of organizations,
product life-cycle stage, and market position as potential contextual factors of
BSC usage and explore how organizational performance is affected by different
uses of BSC in different settings. Each of these variables will now be considered
in turn.

Balanced Scorecard (BSC)

A BSC looks to the following four key perspectives:
Financial perspective—includes profitability measures such as operating
income, return-on-capital-employed, sales growth, generation of cash flow,
or economic value-added;
Customer perspective—encompasses such measures as customer
satisfaction, customer retention, new customer acquisition, customer
response time, market share, and customer profitability;
Internal-business-processes perspective—the key measures include product
design, product development, post-sale service, manufacturing efficiency,
quality, etc.; and
Learning and growth perspective—measures the ability of employees,
information systems, and organizational procedures to manage the business
and adapt to change.
The use of a BSC does not mean just “using more measures”; it means
putting a handful of strategically critical measures together in a single report, in
a way that makes cause-and-effect relations transparent and keeps managers

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from sub optimizing by improving one measure at the expense of others. 3 To
achieve a balance among the four dimensions of the BSC, a company should pay
attention to all of them.

Organization Size
Contingency theories of organizations developed by Burns and Stalker
(1961), Lawrence and Lorsch (1967), and Woodward (1965) suggest that size
may affect the way organizations design and use management systems.
Numerous accounting studies have drawn on this theoretical framework.
Merchant (1981, 1984) claims that organizational growth poses increased
communication and control problems. Bruns and Waterhouse (1975), Ezzamel
(1990), and Libby and Waterhouse (1996) suggest that as firm size increases,
accounting and control processes tend to become more specialized and
sophisticated.
Others in the organizational literature (e.g., Burns and Stalker 1961;
Chandler 1962; Pugh et al. 1969) claim that size is related to greater
decentralization and structuring of activities because of information processing
constraints upon senior management. Furthermore, the need to stimulate
effective communication flows becomes more apparent in larger organizations
where the behavioral orientation characterizing management controls in small
organizations become unworkable. As a consequence, in large business
enterprises, a broader set of information and measurement issues arises (Kaplan
and Atkinson 1998). Small companies frequently do not require elaborate
performance evaluation techniques, as the strategy setters, usually the owners,
are close to the “action.” Based on this a priori reasoning, it is proposed here
that larger organizations are likely to place a greater reliance on a BSC approach
to management than are smaller organizations.

Product Life-Cycle Stage

The organizational strategy literature classifies “product life-cycle stage” into
four categories. These groupings comprise the emerging, growing, maturing, and
declining stages of a product’s life. At the emerging stage, the product is
launched and sales are low with high prices. Sales begin to rise rapidly at the
growth stage because of introductory promotions and growing customer
awareness. At the mature stage, there is no more sales growth as the potential
for new customers is exhausted. At this point, sales have peaked while prices
remain low. Sales reduce at the declining stage as the product is gradually
replaced with either innovations or an enhanced version (for details, see Drury
1994; Sizer 1989; Wilson 1991).
Merchant (1984) suggests that organizations with products in the early
product life-cycle stages tend to make less use of traditional financial control
tools such as budgeting, compared to organizations with products in the latter
stages. This rationale can be extended by considering the potential of a
relationship between product life-cycle stage and BSC usage.
Kaplan and Norton (1996, 21) propose that the BSC retains financial
measurement as the outcome measure of managerial and business performance,
but it also includes a more general and integrated set of measurements that link
current customer, internal process, employee, and system performance to long-
term financial success. It follows, then, that financial controls tools alone are
less useful in early than in late stages of the product life cycle, perhaps because
financial outcomes are less certain at early stages and therefore are noisier

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measures of whether the firm is “doing the right thing.” In addition, financial
outcomes from important decisions may be too far in the future when the firm is
in an early stage, and nonfinancial indicators like new product development and
customer-response measures give earlier indications of whether appropriate
decisions have been made.

Market Position
Market position in this study refers to a company’s revenue share in relation
to its competitors in a particular market. Following the Galbraith (1977)
argument, Merchant (1984) suggests that for firms in a weak market position,
the demand for adaptability and creativity would be greater than the demand for
internal communication, while for firms in a strong market position, the demand
for internal communication would be greater. He argues that when an
organization has a strong market position, the use of budgets for internal
controls would be more prominent than for a firm in a weak market position.
A BSC can satisfy companies’ greater internal communication needs, as it
facilitates decisions and actions that support strategies based on the needs of
stakeholders, internal and external customers, regulatory bodies, managers, and
employees and requires involvement by all levels of the organization (Kaplan and
Norton 1996; Atkinson et al. 1997). We propose that organizations with a strong
market position have a greater demand for internal communication, and thus
are likely to place greater emphasis on the use of a BSC. Conversely, a weak
position in a particular market may create a lesser demand for internal
communication. A lesser demand for internal communication suggests a lower
deployment of sophisticated management systems such as the BSC.
The preceding discussion can be summarized with the following hypothesis:
H1: Balanced scorecard usage is positively associated with: (a) larger
organization size; (b) businesses with products at the early/growth
stage; and (c) businesses with a strong market position.

Contextual Factors, BSC Usage, and Organizational Performance

Based on prior research examining the effects of contextual variables on the
design and use of control systems and performance we seek a contingent
relationship between organizational performance as the dependent variable and
organization characteristics and BSC usage as the independent variables
described above. The “fit” hypotheses in this study relate to the motivation that
greater reliance on the BSC results in increased performance of organizations
that are large, early in the product life cycle, or strong in the market.
The first “fit” hypothesis proposes that because large organizations depend
more on sophisticated information and control systems using diverse measures,
they will derive more benefit from reliance on the BSC than will small
organizations.
H2: The effect of BSC reliance on organizational performance will be more
beneficial for large organizations than for small organizations.
Likewise, the second “fit” hypothesis derives from the motivation that since
organizations at early stages of their product life cycle depend more on
sophisticated information and control systems using diverse measures, they will
receive more benefits from the BSC than will organizations in a mature phase.
H3: The effect of BSC reliance on organizational performance will be more
beneficial for organizations with products at the early life-cycle stage
than for organizations with products at the mature stage.
 The third “fit” hypothesis is concerned with the expectation that because
organizations in a strong market position depend more on sophisticated internal
communication and control systems using diverse measures, they will derive
more benefits from reliance on the BSC than will organizations in a weak market
position.
H4: The effect of BSC reliance on organizational performance will be more
beneficial for organizations with a strong market position than for
organizations with a weak market position.

RESEARCH METHOD
A questionnaire4 with a cover letter and a postage-paid, self-addressed
envelope was mailed to the chief financial controllers of 188 Australian
manufacturing firms in July 1997. These companies were randomly chosen from
the Business Who’s Who of Australia (Dun & Bradstreet 1997). Forty-three of the
188 questionnaires sent out in the first mailing were returned. A second mailing
resulted in a further 27 returned questionnaires. Four of the 70 respondents
failed to complete the questionnaire, citing reasons such as contravening
company policy and staffing constraints. Consequently, the adjusted usable
response rate is 35.1 percent.
A sample of non respondents was contacted by telephone to investigate
reasons for nonresponse. The reasons given for nonresponse were consistent
with those who had returned the questionnaire without completing them, that is,
either due to staffing constraints or contravening company policy. To test for the
existence of possible response bias, t-tests for two independent samples were
undertaken by testing first and second mailing returns as suggested by
Oppenheim (1966, 34). No statistically significant differences in the mean scores
on the firm size, industry, or performance indices between the early and late
responses were noted, suggesting the absence of response bias. The average
experience of the participants in the company was 6.5 years, with a range of four
months to 25 years. Table 1 provides a profile of the responding firms. In this
study the responding firms were independent business units, not the head
offices.

TABLE 1
Profile of Responding Companies (n =
66)
Number of Employees n Organization Type

0–149 26 Textile, Clothing, Footwear & Leather

Wood & Paper Product
Printing, Publishing & Recorded Media
Petroleum, Coal, Chemical & Associated Product
Metal Product
Machinery & Equipment
150–299 10 Food, Beverage & Tobacco
Textile, Clothing, Footwear & Leather
Wood & Paper Product
Printing, Publishing & Recorded Media
Petroleum, Coal, Chemical & Associated Product
Non-Metallic Mineral Product

4
 Metal Product
Machinery & Equipment
300–449 5 Textile, Clothing, Footwear & Leather
Printing, Publishing & Recorded Media
Metal Product
Machinery & Equipment
450–999 7 Textile, Clothing, Footwear & Leather
Printing, Publishing & Recorded Media
Petroleum, Coal, Chemical & Associated Product
Metal Product
Machinery & Equipment
1,000 or greater 18 Food, Beverage & Tobacco
Textile, Clothing, Footwear & Leather
Metal Product
Machinery & Equipment

Measurement of Variables
Organization Size
Organization size was measured using three measures: sales turnover, total
assets, and number of employees. These three measures were highly correlated
(p < .001). We conducted our analyses using each of these measures as a proxy
for size, one at a time, but the results were similar throughout. Consistent with
previous studies (Bruns and Waterhouse 1975; Merchant 1981, 1984; Ezzamel
1990; Libby and Waterhouse 1996), only those results obtained when the
number of employees was used as a proxy for size are reported. Due to the
nonnormality of “size,”5 it was transformed using the square root of the variable
for use in regression analysis. Table 2 presents the descriptive statistics for this
variable in its original and transformed form.

TABLE 2
Descriptive Statistics
(n = 66)
Standard Theoretical Actual

Mean Deviation Range Range

Organization Size 1697 5178 NA 11–38,148

(26.74)* (31.60)*

Product Life-Cycle Stage 29.50% 0.26 0%–100% 0%–100%

Market Position 3.71 0.92 1–5 1–5
Overall BSC Usage 3.10 0.71 1–5 2.03–5
Financial Perspectivea 3.94 0.76 1–5 1.92–5
Internal Business Perspectivea 3.04 0.75 1–5 1–4.5
Innovation and Learning
Perspectivea 2.40 1.01 1–5 1–4.33
Customer Perspectivea 3.29 1.30 1–5 1.38–4.63
Organizational Performance 3.55 0.68 1–5 1.6–5

* Transformed statistics.

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a
Used in additional regression analysis reported in Appendix B.
NA = not available.

Product Life-Cycle Stage

Product life-cycle stage was measured using an instrument adapted from
Merchant (1984). The following question was posed to the respondents of this
study to measure the product’s maturity:
Given below are descriptions of four alternative stages of the product life
cycle. Considering all the products of your firm, please indicate below the
percentage of products that are at the following stages:
Emerging (a new product has recently been launched on the market;
currently sales are low and prices are relatively high) _____ % Growth (a
product that has increasing sales due to increasing
demand) _____ %
Mature (a product that provides stable income, neither increasing
or declining sales while prices remain low) _____ %
Declining (profits and sales are declining due to declining interest
by consumers) _____ %
Total 100%
These percentages were grouped into one variable, namely “product life-cycle
stage,” for each firm by summing the emerging and growth percentages and
subtracting from that the sum of the mature and declining percentages. 6 Table 2
presents descriptive statistics for the measure.
Market Position
Market position was measured using the instrument developed by Merchant
(1984). It asked respondents to indicate on a five-point Likert scale their
company’s revenue share, ranging from 1 (“Your company’s market (revenue)
share is small and insignificant in comparison with that of the leading firms”) to
5 (“Your company is the dominant firm in your segment of the market”). Table 3
presents descriptive statistics for this measure.

BSC Usage
BSC usage was measured using a 20-item scale similar to that developed by
Hoque et al. (1997). The instrument comprised items that incorporate Kaplan
and Norton’s (1992) four dimensions of the BSC. It asked respondents to
indicate the extent to which each item was used to assess their organization’s
performance on a fully anchored, five-point Likert scale ranging from 1 (not at
all) to 5 (to a great extent). A reliability check for the measure in this study
produced a Cronbach alpha (Cronbach 1951) of 0.81, which is considered to be
well above the lower limits of normal acceptability (Nunnally 1967). It should be
noted that our BSC measure might not pick up the strategic linkages of a real
BSC usage; it does pick up firms’ tendency to use quantitative measures
(frequency and extent of reporting) of several kinds in assessing performance.
This construct shares with the BSC construct the idea that financial measures
alone are insufficient.
Appendix A presents the descriptive statistics for each item of the scale. A
principal components analysis (PCA) with varimax rotation was performed to
determine whether the measures used in the survey can be grouped according to
6
the BSC’s four perspectives. The results of the factor analysis, which also appear
in Appendix A, are roughly consistent with the four perspectives identified by
Kaplan and Norton (1992).
A mean score was calculated for each of the four perspectives. The primary
hypothesis tests were performed using an average of these four perspective
means to represent overall BSC usage. Additional tests were performed using
each of the perspective means separately. Table 2 presents descriptive statistics
for the measure.

TABLE 3
Correlation Matrix
(Pearson Coefficients) (n
= 66)
Organization Product Life- Market Overall BSC Organizational
Variable Size Cycle Stage Position Usage Performance

Organization Size 1.00 –0.13 0.09 0.25* 0.01

Product Life-Cycle
Stage 1.00 0.15 0.26* 0.32**
Market Position 1.00 0.18 0.29**

Overall BSC Usage 1.00 0.46***

Organizational
Performance 1.00

*, **, *** Significant at the 10 percent, 5 percent, and 1 percent level, respectively.
Organizational Performance
Organizational performance was measured by appraising five dimensions of
performance: return on investment, margin on sales, capacity utilization,
customer satisfaction, and product quality. The instrument is conceptually
consistent with Kaplan and Norton’s (1992) BSC theorizing. Following the
procedure used by others (e.g., Merchant 1984; Abernethy and Lillis 1995),
respondents were asked to indicate their organization’s performance compared
to their competitors along the above five dimensions on a scale from 1 = below
average to 5 = above average. Although not presented here, it is noted that the
five dimensions in the performance instrument were positively and significantly
related to each other (p<0.05). A PCA of the five items revealed that all items
loaded on to a single factor with eigenvalue 2.52. The factor score was saved for
use in the regression analyses. The Cronbach alpha for this scale was 0.75,
indicating satisfactory internal reliability of the scale. Table 2 presents
descriptive statistics for the measure.

RESULTS
Table 2 provides descriptive statistics for all variables. Pearson correlation
coefficients appear in Table 3. As expected, BSC usage is positively and
significantly correlated with organization size (r = 0.25, p < 0.10), product life-
cycle stage (r = 0.26, p < 0.05), and organizational performance (r = 0.46, p <
0.01). Although strength of market position is positively correlated with BSC
usage (r = 0.18), it is generally not statistically significant (p-value > 0.10). The
contextual variables, organization size, product life-cycle stage, and strength of
market position are not significantly related to each other, suggesting that
multicollinearity is unlikely. Tests of multicolinearity via tolerance and variance
inflation factor (VIF) presented in Table 4 revealed that multicollinearity does not
pose a problem in interpreting these results. Furthermore, tests of nonlinearity
and heteroskedasticity of the data indicated no major problem for regression
analysis.

TABLE 4
Regression Results (H1)
X4 (BSC Usage) = α0 + β1X1(Size) + β2X2 (Product Life Cycle Stage) + β3X3 (Market Position) + e (n = 66)
Coefficient (predicted
sign
Variable in brackets) Estimate t-value p Tolerance VIF

α0 Intercept α0 2.21 5.84 0.000 NA NA

X1 Organization Size β1 (+) 0.29 2.07 0.005 0.85 1.18

X2 Product Life-Cycle
Stage
β2 (+) 1.30 3.56 0.000 0.92 1.09
X3 Market Position β3 (+) –0.04 –0.46 0.325 0.85 1.18

Adjusted R2 = 0.196, F[3, 55] = 5.714, p = 0.018.

NA = Not available.

Hypothesis 1: Regression Analysis

The following regression model was run to test the relationship between the
dependent and independent variables, as stated in hypothesis 1:

X4 = α0 + β1X1 + β2X2 + β3X3 + e (1) where X4 = BSC usage; X1 =

organizational size; X2 = product life-cycle stage; X3 = strength of market
position; and e = error term. Table 4 reports the results of the regression
analysis. The overall regression model for the three contextual variables
explained 19.6 percent (adjusted R2) of the variance in the dependent variable (F
= 5.714, p = 0.018). The data indicate that the standardized beta coefficients β1
(size) and β2 (product life-cycle stage) are both positive and significant (β1 = 0.29,
p = 0.005, one-tailed; β2 = 1.30, p = 0.000, one-tailed). Although the coefficient β3
(market position) is negative, it is not statistically significant (p = 0.325, one-
tailed). These results support the hypothesis that greater BSC usage is
associated with larger organization size and businesses with products at the
early/growth stage. They do not support the hypothesis that greater BSC usage
is associated with businesses with a strong market position.
To further explore the relationships predicted in the regression model 1,
multiple regression analysis was also run using each of the four BSC
perspectives. The results of this analysis are presented in Appendix B and
indicate that organization size is significantly associated with all of the BSC
perspectives in the expected direction (p-values < 0.10, one-tailed). Product life-
cycle stage is associated with the innovation perspective of the BSC only (β2 =
1.79, t = 2.79, p = 0.005, one-tailed). Overall, the results of F-tests for both the
financial and innovation perspectives are positive and significant (F = 3.501, p =
0.01, one tailed; F = 3.068, p = 0.018, one-tailed), with the contextual variables
explaining 12.4 percent (adjusted R2) and 10.1 percent (adjusted R2) of the
variance respectively.
Hypotheses 2, 3, and 4: ANOVA
To test H2, H3, and H4, the two-way ANOVA procedure was used using
SPSS8.0. ANOVA was used because the data were of insufficient quality (due to
the small sample size) to warrant sophisticated Moderated Regression Analysis
(Bryman and Cramer 1995; Tabachnick and Fidell 1996; Hartmann and Moers
1999).
The results of ANOVA presented in Table 5 (Panels A, B and C) provide
support for the main effect of BSC usage on firm performance (the F-values in
each of the cases are significant). However, the two-way interaction between BSC
usage and each of the predictor variables (size, product life-cycle stage and
market position) performance is not significant. These results thereby provide no
support for H2, H3, and H4.

TABLE 5
Analysis of Variance (ANOVA): Two-Way Interaction Effects (H2–H4)

Sum of Mean
Source of Variation Squares DF Square F Sig. of F

Panel A: Organizational Performance by BSC Usage and Organizational Size (H2)

BSC usage (a) 2.51 1 2.51 6.56 0.01
Organizational Size (b) 0.05 1 0.05 0.13 0.73
Two-way interaction (a × b) 0.22 1 0.22 0.56 0.46
Explained 2.65 3 0.88 2.31 0.09
Residual 19.93 52 0.38
Panel B: Organizational Performance by BSC Usage and Product Life-Cycle Stage (H3)
BSC usage (a) 1.35 1 1.35 3.43 0.07
Product Life Cycle (c) 1.74 1 1.74 4.42 0.04
Two-way interaction (a × c) 0.01 1 0.01 0.02 0.88
Explained 4.18 3 1.39 3.54 0.02
Residual 22.07 56 0.39
Panel C: Organizational Performance by BSC Usage and Market Position (H4)
BSC usage (a) 1.73 1 1.73 3.91 0.05
Market Position (d) 0.16 1 0.16 0.35 0.51
Two-way interaction (a × d) 0.45 1 0.45 1.03 0.32
Explained 2.57 3 0.86 1.94 0.13
Residual 25.19 57 0.44

DISCUSSION, CONCLUSIONS, AND LIMITATIONS

The paper reports a significant association between size and BSC usage; as
hypothesized, larger organizations are likely to make more use of a BSC. This
result suggests that as size increases, organizations find it more practical and
useful to place greater emphasis on the BSC that supports their strategic
decision making, as the BSC incorporates much broader measures of the
performance of organizations. This evidence confirms others’ findings with
respect to the effect of size on accounting and budgetary control practices (see
Swieringa and Moncur 1974; Bruns and Waterhouse 1975; Merchant 1984;
Miller and Friesen 1984, Giroux et al. 1986; Ezzamel 1990).
 In general, the regression analysis shows the positive association between
early product life-cycle stage and a greater reliance on BSC. However, additional
analysis using each perspective of the BSC individually indicates that firms that
have a higher proportion of new products have a greater tendency to make use of
measures related to new products.
The results provide no support for the positive association between a strong
market position and a greater reliance on BSC. An implication of this result is
that firms with a weak market position may also be motivated to change their
strategy, and therefore will need a BSC more to communicate and implement
their new strategy. However, it should be noted that our unexpected results in
this regard could have been affected by the instruments used or by other factors
such as sample selection or the use of limited control variables. More research,
in different settings using a different sample or different measurement, is needed
to confirm the results.
Contrary to expectations, the results relating to H2–H4 suggest that greater
BSC usage is associated with increased organizational performance, but this
relationship does not significantly depend on organizational size, product life
cycle, or market position. An implication of these results is that an appropriate
“fit” between the degree of BSC usage and organizational characteristics have
less practical significance relative to the direct effects as stated above. However,
these results should be evaluated in the light of the following interpretations.
Hypothesis 1, which predicts firms’ reliance on the BSC, assumes that most
firms will make the choice that is more beneficial to them. There may have a
substantial number of firms whose behavior is not predicted by H1, however.
There are two possible reasons for this.
One possible reason that firms fall in the off-diagonal cells is that these firms
are not making the right choice with respect to BSC usage. The motivation for
H2– H4 assumes that this is the case: that is, firms that should rely on the BSC
but do not will be worse performers. If the firms in the off-diagonal cells are
indeed making incorrect choices about BSC reliance, then our H2–H4 results
suggest that having the right fit between BSC reliance and firm characteristics
does not matter very much to performance.
However, there is another possible reason why some firms do not make the
predicted BSC-usage choices, and why H2–H4 are not supported. It may be that
the theory behind H1 does not classify many of these firms correctly. For
example, perhaps some of the large firms should not be BSC users, because of
some other organizational characteristics they possess—if they do not rely on the
BSC, then it is not really a wrong “fit.” According to this line of argument, the
mean performance of firms in the “low-fit” cells is about the same as the mean
performance of the firms in the “high-fit” cells, because many firms are
misclassified.

Closing Remarks
We close this paper with a discussion of what we can infer from this study.
The findings reported in this paper suggest that large firms make more use of
the measures in the questionnaire used (Appendix A) than do small firms. They
do not suggest whether that is because large firms get (or expect to get) more
benefit from these measures, or because they can spread the fixed cost of
information systems over larger output and therefore find additional measures
more affordable, or because they are more likely to pursue performance-
measurement fads (or are more likely targets for consultants, more concerned
about their image as up-todate management because public image matters more
to them, etc.).
The results also suggest that firms with more new products make more use
of new-product-development measures; however, we do not know which way
causation runs here. Emphasizing these measures might lead to more new
product development, either in reality or because people are gaming the
measure. Or conversely, a firm’s proportion of new products might be
exogenously given; if it is large, then the firm sees a greater need to measure
performance in new-product development and launch.

Limitations and Future Research

This study has several limitations, notably the measurement of the extent of
use of the BSC. This instrument has failed to pick up the strategic linkages of a
real BSC. Using a diversity of measures is a necessary but not sufficient
condition of BSC use, which also requires that the measures be chosen for
strategic focus and causal linkage. Future studies may wish to add to the body
of knowledge in this area by extending the instrument used in this study. A
second limitation of the study is that it is confined to manufacturing firms only.
Therefore, generalizing the results reported in this paper to other situations
(such as service industries) should be done cautiously. A third limitation
pertains to the study’s small sample size. Using alternative approaches (e.g.,
case-study research), one may also attempt to investigate why and how
companies implement BSC, pitfalls in implementing it, and its success in
achieving intended goals, and additionally, whether BSC adoption is designed to
improve performance or to give the external appearance of being modern,
rational, efficient, and legitimate, consistent with Meyer and Rowan (1977),
DiMaggio and Powell (1983), Scott (1994), Hoque and Alam (1999), and Moll and
Hoque (2000).
 APPENDIX A

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Descriptive Statistics and Principal Components Analysis of the BSC Items 7 (n = 66)

Factor Loadings after Varimax Orthogonal Rotation

Descriptive Statistics Factor 1 Factor 3

Innovation Factor 2 Internal Factor 4
Actual Range Standard and Learning Customer Business Financial
Deviation Perspective Perspective Perspective Perspective
Item Mean
1.99 3.06 2.35 1.75
Eigenvalues
66.6 38.3 39.2 58.2
Percent Variance Explained
1–5 0.75 0.76 0.67 0.62
Cronbach Alpha
1–5 0.83 –0.07 0.01 –0.02 0.85
Operating income 4.26
1–5 1.01 0.08 –0.11 0.01 0.72
Sales growth 3.92
1–5 1.25 0.01 – –0.06 –0.04 0.71 –
Return on investment 3.65

Journal of Management Accounting Research, 2000

1–5 1.16 0.01 –0.04 0.79 0.03
Labor efficiency variance 3.31
1–5 1– 1.16 –0.14 –0.03 0.73 –0.06
Rate of material scrap loss 2.90
5 1–5 1.24 –0.06 –0.13 0.63 0.12
Material efficiency variance 2.85
1–5 1– 1.26 0.02 –0.05 0.59 –0.17
Manufacturing lead time 3.02
5 1.32 0.04 0.05 – 0.58 0.03
Ratio of good output to total output 2.84
1–5 1– 1.20 –0.07 0.06 0.44 –0.02
Percent defective products shipped 2.95
Number of new product launches b 5 1.37 0.87 –0.08 –0.06 0.13
2.26
Number of new patentsb 1–5 0.97 0.86 –0.09 – –0.03 – 0.02
1.62
1–5 1.35 0.72 0.06 0.12 0.04
Time to market new products 2.31
1–5 1.27 0.01 0.73 0.12 –0.05
Survey of customer satisfaction 2.92
1.08 –0.02 0.71 –0.07 0.04
Number of customer complaints 3.67
1–5 1– 1.14 0.04 0.68 0.04 0.06
Market share 3.72
5 1–5
Percent shipments returned
1–5 1.27 –0.07 0.67 –0.06 –0.07
due to poor quality 3.18
1–5 0.88 –0.11 0.60 0.08 0.11
On-time delivery 4.13
1.18 0.24 0.55 –0.01 0.06
Warranty repair cost 2.07
1.23 0.07 0.49 0.09 – –0.02
Customer response time 3.23
1.00 0.12 0.47 0.02 –0.18
Cycle time from order to delivery 3.13

7 The boldface data represent the factor loadings that were greater than 0.40. b As noted in the last section of this paper,
firms use these measures because they are an important part of their portfolio.
 APPENDIX B
Additional Regression Analysis with Independent Variables (Organization Size, Product LifeCycle
Stage, and Market Position) and Four Perspectives of the BSC (H1)
Variable Coefficient Estimate t-value p Tolerance VIF

Panel A: Financial Perspective

α0 Intercept α0 –2.06 –3.10 0.01 NA NA
X1 Organization Size β1 0.30 1.67 0.09 0.90 1.11
1.36 0.18 0.92 1.09
X2 Product Life-Cycle Stage β2 0.90
1.66 0.10 0.87 1.16
X3 Market Position β3 0.28

Adjusted R2 = 0.124; F [3,50] = 3.501; p = 0.01 Panel

B: Internal Business Perspective –1.93 0.06 NA NA

1.93 0.06 0.87 1.15
α0 Intercept α0 –1.24 0.07 0.72 0.87 1.15
X 1 Organization Size β1 0.34 0.83 0.41 0.88 1.13
X2 Product Life-Cycle Stage β2 0.04 X3 Market
Position β3 0.13

Adjusted R2 = 0.048; F [3,52] = 1.921; p = 0.138 (n.s.)

–1.70 0.09 NA NA
Panel C: Innovation and Learning Perspective 1.60 0.09 0.87 1.15
2.79 0.01 0.87 1.15
α0 Intercept α0 –1.16 –0.13 0.90 0.88 1.13
X1 Organization Size β1 0.30
X2 Product Life-Cycle Stage β2 1.79 X3 Market
Position β3 –0.02

Adjusted R2 = 0.101; F [3,52] = 3.068; p = 0.018 Panel –2.14 0.04 NA NA

1.70 0.09 0.87 1.15
D: Customer Perspective 1.21 0.23 0.88 1.15
0.93 0.35 0.88 1.13
α0 Intercept α0 –1.37
X1 Organization Size β1 0.30
X2 Product Life Cycle Stage β2 0.73
X3 Market Position β3 0.14
Adjusted R2 = –0.054; F [3,52] = 2.056; p = 0.117 (n.s.)
16 Journal of Management Accounting Research, 2000
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