Empirical Investigation of Balanced Scorecard's Theoretical Underpinnings

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Empirical investigation of balanced scorecard’s theoretical underpinnings
Article in Journal of Accounting & Organizational Change · November 2015

DOI: 10.1108/JAOC-03-2014-0024
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2015, Journal of Accounting & Organizational Change, 11(4): 546-572. DOI: 10.1108/JAOC-03-2014-0024
Empirical Investigation of Balanced Scorecard’s Theoretical

Underpinnings
Christos Sigalas
Doctor of Philosophy
Department of Business Administration
University of Piraeus
Correspondence to: Christos Sigalas, email: csigalas@acg.edu
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Abstract
Purpose – The purpose of this study is to investigate empirically the balanced scorecard’s
theoretical underpinnings.
Design/methodology/approach – This study undertakes a cross-sectional, self-administered e-
mail survey in order to examine the convergent and discriminant validity of the performance
indicators of balanced scorecard’s four perspectives using principal components analysis and
confirmatory factor analysis.
Findings – The results suggest that the performance indicators of each balanced scorecard’s
perspective converge with the performance indicators of the same perspective and discriminate
from other perspectives’ performance indicators.
Research limitations/implications – Future researchers are invited to conduct conceptual-level
tests of the balanced scorecard framework using the newly constructed subjective scales of the
performance indicators of balanced scorecard’s perspectives. Furthermore, scholars conducting
empirical research on the field are encouraged to further investigate the balanced scorecard’s
theoretical underpinnings using various research designs, multiple research methods and a
combination of existing and new balanced scorecard’s performance indicators.
Originality/value – This study contributes to the academic stream of management accounting
and strategic management field by, i) empirically validating the theoretical underpinnings of
balanced scorecard that is a prerequisite for balanced scorecard to advance from a framework to
a theory, and ii) providing subjective scales for measuring the generic performance indicators of
balanced scorecard’s four perspectives that can be used in future research of the balanced
scorecard framework’s hypotheses. In addition, the literature is enhanced with a newly
developed perceptual measure of firm performance with attributes the balanced scorecard’s four
perspectives.
Keywords Balanced scorecard, Theoretical underpinnings of balanced scorecard, Validity of

balanced scorecard framework, Performance indicators, Perceptual measure of firm
performance, Subjective scales
Paper type Research paper
Acknowledgements
The author wishes to thank the two anonymous reviewers for their helpful comments and
recommendations on the earlier versions of this paper.
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Introduction
The balanced scorecard (BSC) is one of the most influential theoretical frameworks in the fields
of management accounting and strategic management (Nørreklit, 2003; Modell, 2012). In
particular, balanced scorecard framework has received widespread attention and recognition
(Malmi, 2001; Bessire and Baker, 2005; De Geuser et al., 2009), has generated a large volume
of scholarly output (Kraus and Lind, 2010; Barnabe and Busco, 2012) and is universally
accepted in management and accounting courses and textbooks as an essential performance
measurement system (Bessire and Baker, 2005; Kraus and Lind, 2010; Salterio, 2012). In
addition, BSC has been successfully implemented by numerous organizations and has been
regularly listed among the top ten management tools used throughout the world (Rigby and
Bilodeau, 2011).
During the past two decades of its existence, BSC has evolved, from a high profile performance
measurement system (Kaplan and Norton, 1992), to a strategic management system (Kaplan and
Norton, 1996a, 1996b), a tool for comprehensive strategy maps (Kaplan and Norton, 2000,
2001a, 2004a) and a vehicle of corporate-wide strategic alignment (Kaplan and Norton, 2006a).
By noticing this evolution, Modell (2012, p. 476) argues that BSC has evolved “in tandem with
increasing concerns with the need to render management accounting practices strategically
relevant”. As a result, much of what scholars in management accounting, regarding its early
performance management manifestations, and in strategic management, relating to its
contemporary strategic implications, study, write about and teach has been greatly influenced by
the fundamental arguments of the balanced scorecard theoretical framework. Therefore, BSC
has become a dominant interdisciplinary theory in management accounting and strategic
management.
Given that all theories must survive repeated attempts at empirical falsification before they can
be accepted as ‘true’ (Godfrey and Hill, 1995), one might assume that the BSC owes its
influence to well-documented assessments of the empirical support for its theoretical
underpinnings. Surprisingly, this is not the case. The theoretical underpinnings of BSC emanate
from the central tenet of the balanced scorecard theoretical framework relating to the four
distinct perspectives, i.e. financial, customer, internal-business-processes and learning and
growth (Kaplan and Norton, 1992). In summary, the balanced scorecard theoretical framework
hypothesizes that the four aforementioned perspectives are the cornerstones of a multi-
dimensional performance measurement system that balances financial and non-financial
performance indicators (Kaplan and Norton, 1996a). Thus, all performance indicators
measuring the same perspectives are theoretically grouped into four categories, equal in number
to BSC’s four distinct perspectives. For that reason, all performance indicators should converge
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with the performance indicators measuring the same perspective and should discriminate from
generic performance indicators measuring the other perspectives. The above proposition can be
articulated as the theoretical underpinnings of BSC.
Despite the fact that the theoretical underpinnings of BSC are widely acknowledged, to date no
systematic assessment of the BSC’s theoretical underpinnings, which is assessment of the
convergent and discriminant validity of the performance indicators of BSC’s four perspectives,
has been conducted at a quantitative empirical level. Although there have certainly been i) many
individual tests of the causal relationship between BSC usage and improved performance (see
Lipe and Salterio, 2000; Malina and Selto, 2001; Ittner et al., 2003a; Davis and Albright, 2004;
De Geuser et al., 2009) and ii) several studies on BSC applications and implementations in
various countries, industries and company sizes (see Letza, 1996; Ahn, 2001; Malina and Selto,
2001; Kasurinen, 2002; Speckbacher et al., 2003; Braam and Nijssen, 2004; Lohman et al.,
2004; Papalexandris et al., 2004; Toumela, 2005; Andon et al., 2007), surprisingly there have
been only few empirical examinations of BSC’s theoretical underpinnings (see Hoque and
James, 2000; Boulianne, 2006; Boulianne, 2008). This is quite unforeseen, since the empirical
validation of BSC’s theoretical underpinnings is the precondition of any subsequent study,
employing the balanced scorecard theoretical framework. In addition, BSC, unlike ad hoc
performance measurement systems, should articulate “the theory of the business” (Kaplan and
Norton, 1996b, p. 17). Consequently, BSC’s theoretical underpinnings deserve intense and
systematic research attention.
In response to the above gap, to the limitations of previous surveys that have examined the
validity BSC’s theoretical underpinnings and to recent literature’s call for empirical and
theoretical research of the balanced scorecard framework (Kaplan, 2012), this study employs a
quantitative empirical research design for the investigation of BSC’s theoretical underpinnings.
Particularly, this study undertakes a cross-sectional, self-administered e-mail survey in order to
examine the convergent and discriminant validity of the performance indicators of BSC’s four
perspectives using principal components analysis and confirmatory factor analysis. It is believed
that the subsequent empirical results provide strong empirical support for BSC’s theoretical
underpinnings. Following this development, this paper also seeks to develop a new perceptual
measure of firm performance with attributes the perspectives of balanced scorecard framework.
Literature Review
Balanced scorecard theoretical framework as an academic theory is relatively young. Its

emergence as a rigorous performance measurement system, dates to the early 1990s following a
milestone publication by Kaplan and Norton (1992) in Harvard Business Review. However,
some of its conceptual origins can be traced back to the past with the introduction of Tableau De
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Bord (TDB) in France (Bessire and Baker, 2005) that “focused on monitoring physical and
financial indicators to assess and anticipate performance” (Lebas, 1994: 475). Nevertheless, the
water-shed event that formulated balanced scorecard framework and contributed to its
widespread attention and recognition, was Kaplan and Norton’s (1996b) book.
In its first theorization by Kaplan and Norton (1992), “…the BSC was primarily a tool meant
for performance measurement, aimed at integrating financial/non-financial, internal/external and
leading/lagging information in a coherent fashion” (Barnabe and Busco, 2012: 529). The
purpose of Kaplan and Norton’s multi-company research project, which led to the introduction
of balanced scorecard theoretical framework “…was to explore performance measurement in
companies in which intangible assets played a central role in value creation. After publication of
the 1992 article and during the last two decades, the BSC has been adopted by a multitude of
private, public, and non-profit enterprises around the world with the intention of broadening
performance measurement by linking financial and non-financial indicators…” (Barnabe and
Busco, 2012: 528-529). BSC came out of the realization that no single performance indicator
can capture the full complexity of a firm’s performance (Epstein and Manzoni, 1998). The
consideration that due to multi-dimensionality of firm performance, the conceptualization of
performance should not only put emphasis on indicators of financial performance, but also
should include indicators of operational, i.e. non-financial, performance, is not new in
management theory and practice. Venkatraman and Ramanujam (1986) along with
Venkatraman and Grant (1986) emphasized the need to complement financial indicators with
operational ones in the conceptualization and measurement of firm performance. In addition,
one year prior to the introduction of BSC, practicing managers were encouraged to monitor their
firm’s non-financial measures as well (Eccles, 1991). The multi-dimensionality of performance
has also been recognized in the literature of accounting (e.g. Callen, 1991) and finance (e.g.
Henri, 2004). The above long lasting and inter-discipline academic exhortation is based on the
well acknowledged fact that financial performance indicators are lagging indicators of firm
performance. In fact, financial performance indicators record the effect of management
decisions not when the decisions are made, but rather as the financial impact of these decisions
materializes. Management decisions can be monitored by other, non-financial, leading
performance indicators (Kaplan and Norton, 1996b). For that reason, BSC illustrates the set of
both financial and non-financial indicators to measure firm performance.
Kaplan and Norton (2008b) are not prescriptive in defining the number and the genre of
performance indicators to include. Consequently, the practice is characterized by wide
variability in both the number and the balance between financial and non-financial performance
indicators (Agostino and Arnaboldi, 2012). However, instead of listing performance indicators
in an ad hoc manner, BSC groups the indicators into four categories, or perspectives, each
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capturing a distinct perspective on a firm’s performance i.e. financial, customer, internal-

business-processes and learning and growth (Epstein and Manzoni, 1998). At this point, it
should be mentioned that initially Kaplan and Norton (1992) had introduced last perspective as
innovation & learning. Later on, they have changed it to learning and growth perspective
(Kaplan and Norton, 1996a, 2001b, 2001c). In addition, nine years after the initial introduction
of BSC, Kaplan and Norton (2001a) use the terms internal-business-processes perspective and
internal perspective interchangeably.
BSC, since its first appearance, has been continuously evolving, capturing and integrating new
ideas and tools (Malmi, 2001; Barnabe and Busco, 2012; Modell, 2012). Kaplan and Norton
(1996a, 1996b, 2001a, 2001b, 2001c, 2004a, 2006a, 2006b, 2008a) acknowledging the
potentialities of BSC in the strategic management process of modern companies, turned BSC
into a system for assisting managers to clarify and obtain consensus on strategic objectives,
helping them in communicating the chosen strategy and consequently aligning the efforts of
both individuals and organizational units. Thus, BSC has evolved, from a high profile
performance measurement system (Mooraj et al., 1999; Nørreklit, 2000), to a tool for
communicating and implementing strategies (Malina and Selto, 2001; Davis and Albright, 2004;
Sundin et al., 2010; Lowe et al., 2011; Barnabe and Busco, 2012; Modell, 2012) and a
framework for determining the alignment of both human and organizational capital with its
strategy (De Geuser et al., 2009; Wiersma, 2009; Kraus and Lind, 2010; Agostino and
Arnaboldi, 2012; Modell, 2012). Therefore, based on BSC’s contemporary incarnations, most
academics and practitioners treat BSC as a strategic management system for corporate goal
setting, planning and budgeting, resource allocation, results measuring, rewarding and learning
activities (Malmi, 2001).
However, both its early incarnations and its contemporary extensions originate from BSC’s
theoretical underpinnings relating to the four perspectives. In particular, BSC’s theoretical
underpinnings emanate from the central tenet of balanced scorecard framework. Balanced
scorecard framework’s central tenet is summarized in the statement that financial, customer,
internal-business-processes and learning and growth, are the cornerstone perspectives of a
multi-dimensional performance measurement system. These perspectives of BSC’s performance
measurement system balance financial and non-financial performance indicators in order to
track past firm performance and provide the antecedents that drive future firm performance
(Kaplan and Norton, 1996a). From the above it is apparent that all performance indicators
should be grouped into four categories, each for BSC’s four distinct perspectives. Consequently,
all generic performance indicators should converge with the performance indicators measuring
the same perspective and should discriminate from generic performance indicators measuring
the other perspectives. The above proposition can be articulated as BSC’s theoretical
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underpinnings. The continuous efforts to falsify empirically BSC’s theoretical underpinnings

are essential for the development of balance scorecard from a framework to an interdisciplinary
theory in the field of management accounting and strategic management. Despite Popper’s
(1959) falsifiability requirement for theory development, little attention has been given to the
empirical investigation of BSC’s theoretical underpinnings that is the assessment of the
convergent and discriminant validity of the performance indicators of BSC’s four perspectives
(Boulianne, 2006; 2008). For that reason, little is known about the validity of the balanced
scorecard framework and its suggested measures (Chenhall, 2003; Ittner et al., 2003b).
From the review of literature in management accounting and strategic management fields, only
few notable attempts to test empirically the validity of BSC’s theoretical underpinnings were
identified. Hoque and James (2000) were the scholars who first undertook the task of assessing
the validity BSC’s theoretical underpinnings. Although, the primary purpose of their study was
to examine empirically the relationship between several firm’s idiosyncrasies, balanced
scorecard usage and organizational performance, Hoque and James (2000) also assessed the
convergent and discriminant validity of the performance indicators of BSC’s four perspectives.
In particular, by applying principal components analysis with varimax rotation, they seek to
determine whether the scales used to measure balanced scorecard usage, can be grouped
according to the BSC’s four perspectives. The results of their survey “… are roughly consistent
with the four perspectives identified by Kaplan and Norton (1992)” (Hoque and James, 2000:
8). Even though Hoque and James (2000) do not explicitly mention why the results are
“roughly” consistent with the four BSC’s perspectives, they imply that in their empirical study,
some of the performance indicators theoretically expected to measure one specific perspective,
were classified under a different perspective. Furthermore, the limitation of “study’s small
sample size” (Hoque and James, 2000: 13), resulted in an implied cases-per-variable ratio of 3.3
: 1, which is lower to the threshold that is regarded as adequate to derive stable components
(Fabrigar et al., 1999; Conway and Huffcutt, 2003; Hair et al., 2010). For that reason, no
compelling conclusions could be drawn regarding the validity of BSC’s theoretical
underpinnings. Lastly, an additional limitation in Hoque and James’ study (2000) was the
confinement to manufacturing sector.
Boulianne’s (2006) survey research was the second attempt to investigate empirically the
validity of balanced scorecard framework and consequently assess BSC’s theoretical
underpinnings. Boulianne (2006) ascertains that the results of the principal components analysis
with varimax rotation confirm the classification of the four BSC perspectives. However,
through an iterative ratification process, Boulianne (2006) had to discard four out of the twelve
total performance indicators, selected from Kaplan and Norton (1996b, 2001a), in order to
validate balanced scorecard framework. In addition, similar to Hoque and James’ (2000) survey,
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Boulianne’s (2006) small sample size imposes a limitation in deriving stable components and
thus providing strong evidence of balanced scorecard framework’s validity. In order to enhance
the robustness of the results in his 2006 study, Boulianne (2008) supplemented his 2006
analysis with Campbell and Fiske’s (1959) Multitrait-Multimethod Matrix. In particular, the
eight performance indicators used in his 2006 survey research, were also used in the Multitrait-
Multimethod Matrix approach, in order to examine the convergent and discriminant validity of
the performance indicators of BSC’s four perspectives. The “…results show that the criteria [of
Multitrait-Multimethod Matrix] are in general satisfied” (Boulianne, 2008: 245). Nonetheless,
the study’s small sample size constricts the generalization of Boulianne’s (2008) results.
Thus, it is obvious that due to a lack of systematic empirical falsification of the BSC’s
theoretical underpinnings, coupled with the limitations of previous efforts to assess the
convergent and discriminant validity of the performance indicators of BSC’s four perspectives,
the actual level of empirical support for the balanced scorecard framework remains uncertain. In
spite of this uncertainty, BSC has engendered great interest in the business world
internationally. BSC’s attractiveness could be attributed to its highly ambiguous nature, which
enhances its adaptability to a broad range of organizational contexts (Ax and Bjørnenak, 2005).
This great interest is not only endorsed by BSC wide adoption (Silk, 1998; Hoque and James,
2000; Kald and Nilsson, 2000; Speckbacher et al., 2003), but also by the large number of
seminars and workshops devoted to BSC implementation (Malmi, 2001). In addition, the great
interest for BSC is also endorsed by large number of software vendors that provide tools for
BSC (Sharman and Kavan, 1999) and by the variety of books which have been published
containing case examples of BSC implementations (e.g. Olve et al., 1998; Horngren et al., 2002;
Drury, 2004; Anthony and Govindarajan, 2007; Hopper et al., 2007). Thus, BSC is generally
more pragmatic since it is based on empiricism. However, empiricism, which widens the gap
between theory and empirical falsification of theoretical propositions, devalues balanced
scorecard framework from an inter-discipline theory to just a management tool (Nørreklit,
2000). In addition, such empiricism may be worrisome to the BSC supporters in that without
systematic evidence of its validity, it is possible that balanced scorecard framework’s
propositions are incomplete and/or require further theoretical development. In such a case, any
past or future research relying on the theoretical arguments from the BSC to propose
propositions, develop and test hypotheses as well as prescribe practitioner advice, may be in
danger of being based on rotten foundations.
In response to this possibility, this paper seeks to investigate empirically BSC’s theoretical
underpinnings in a quantitative empirical research by assessing the convergent and discriminant
validity of the performance indicators of BSC’s four perspectives. In testing the convergent and
discriminant validity of the performance indicators of BSC’s four perspectives, this study also
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seeks to departure from previous studies in three important ways. First, based on Boulianne’s
(2008) exhortation to replicate empirical examination of BSC’s validity in different business
settings, this study employed field survey of firms across all economic sectors and industries.
Second, this study supplements previous surveys with the contemporary multivariate technique
of confirmatory factor analysis. Third, given that a larger sample compared to previous studies
(see Hoque and James, 2000; Boulianne, 2006; Boulianne, 2008) would increase confidence in
the results, this study utilized an adequate sample size to run both established and contemporary
multivariate analyses.
Methodology
Research Design
In response to the fact that to date BSC’s theoretical underpinnings have escaped intense
research-focused investigation as well as to recent literature’s call for further empirical and
theoretical research of the balanced scorecard framework (Kaplan, 2012), this study employed a
quantitative empirical research as the research approach. Given the purpose of the quantitative
research that was to investigate empirically the validity of BSC’s theoretical underpinnings with
observable data from the business environment, field survey was chosen as the research method.
The field survey purposefully included organizations across all economic sectors in Greece,
turning the field survey into cross-sectional survey. To ensure that all sectors of the Greek
economy were effectively targeted, Hellastat’s comprehensive database, which is certified by
Lloyd’s Register Quality Assurance for the quality of its business information, was utilized to
extract the sampling frame of the survey. Following Dillman et al.’s (2009) Tailored Design
Method that encourages the use of modern technology in surveys in order to minimize total
survey error, the cross-sectional survey was carried out using email mode. Moreover, the email
survey was designed to be administered without the presence of the researcher, making the field
survey a self-administered one. Furthermore, the data collection instrument was the
questionnaire in fillable text-processing file. Lastly, the survey items of the questionnaire were
developed in consultation with six practitioners from six companies incorporated in Greece
during cognitive interviews, in line with Dillman’s et al. (2009) guidelines. The practitioners
who participated in the interviews were all senior-level executives, who are heavily involved in
the performance and strategic management process of their firms.
Sample
The population of the survey consists of all medium-sized and large firms incorporated in
Greece, because it was regarded that only medium-sized and large firms could have had the
9

resources to develop and sustain management accounting tools such as BSC. The sampling
frame was drawn from Hellastat database that according to the accreditation of Loyd’s Register
Quality Assurance contains almost all Greek firms having corporate legal form under Greek
commercial law. Applying a size criterion of 10 million Euros of revenues the three consecutive
fiscal years of 2007, 2008 and 2009, Hellastat database resulted to a sampling frame of 2,033
firms. The size criterion of 10 million Euros of revenues was determined by European Union
Commission (2003) recommendation concerning the size thresholds of medium-sized and large
enterprises. In addition, the reason behind the use of three consecutive years instead of one year,
was to exclude potential cyclical effects and abnormal events that could have led to coverage
error (see Thomas et al., 1993).
Based on Cochran’s (1977) random sampling techniques and an expected range of response rate
between 25 and 29 percent, a minimum drawn sample size between 5,372 and 6,232 cases
should have been used. The lower bound of the range is set from the common response rate in
accounting research (Smith, 2003) whereas the upper bound is set from the expected response
rate in empirical studies of strategic management using established methods for nontraditional
contexts (Kriauciunas et al., 2011). Since the estimated minimum drawn sample size was far
above the population size, i.e. 2,033 firms, census of the population was carried out instead of
random sample selection.
Variables
The performance indicators of each of BSC’s four perspectives are measured by the generic
measures that were identified by Kaplan and Norton (1996b).
Financial Perspective
The financial perspective is comprised of performance indicators that measure the long-term
objectives of the company. The specific performance indicators, or generic measures, of
financial perspective depend on the stage of firm’s life-cycle (Kaplan and Norton, 1996b). For
example, in the growth stage, the performance indicators of financial perspective will be largely
based on revenue volumes, whereas in the sustain stage, the performance indicators will be
represented by measures analyzing return on investment such as return on capital employed,
discounted cash flow and economic value added. On the other hand, in the harvest stage, the
performance indicators of financial perspective will be based on cash flow analysis with
measures such as payback periods and revenue volumes (Mooraj et al., 1999). For the purpose
of this study, the performance indicators of financial perspective were selected from Kaplan and
Norton (1996b, p. 44) condensed table with the generic measures per perspective. In particular,
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the selected performance indicators of financial perspective are the return on invested capital
and the financial return.
Customer Perspective
The customer perspective includes performance indicators that measure several attributes of a
firm’s existing and targeted clientele. According to Kaplan and Norton (1996b, p. 67) “The core
measurement group of customer outcomes is generic across all kinds of organizations”. For that
reason, all the generic measures, as proposed by Kaplan and Norton (1996b, p. 67), were used
as performance indicators of customer perspective. Specifically, customer satisfaction, customer
retention, customer profitability, customer acquisition and market share were used as the
performance indicators of the customer perspective. It is worth mentioning that Kaplan and
Norton in their 2004a book, among others, include acquire customers and retain customers (that
imply customer acquisition and customer retention respectively) in the customer management
process, which falls under internal perspective. However, the performance indicators of
customer acquisition and customer retention were retained under customer perspective since
most probably Kaplan and Norton (2004a) classify customer acquisition and customer retention
to internal perspective when they refer to their respective “processes that enhance customer
value” (Kaplan and Norton, 2004b), not when they refer to the measures of those processes. In
addition, during the cognitive interviews, several senior managers proposed that the set of
indicators measuring customer performance should also include customer solvency. Thus, the
feedback from the executives who participated in cognitive interviews led to the enhancement
of customer perspective with an additional performance indicator that is customer solvency.
Internal-Business-Processes Perspective
The internal-business-processes perspective includes performance indicators that measure the

performance of all value-chain processes. Kaplan and Norton (1996b) argue that there are three
principal business processes in a generic value-chain model, i.e. innovation, operations and
postsale service. “In the innovation process, the business unit researches the emerging or latent
needs of customers, and then creates the products or services that will meet these needs. The
operations process, the second major step in the generic internal value chain, is where existing
products and services are produced and delivered to customers.” (Kaplan and Norton, 1996b, p.
96). Based on the above argumentation, operation process could be divided into production and
distribution processes. Kaplan and Norton (1996b, p. 97) continue by suggesting that “The third
major step in the internal value chain is service to the customer after the original sale or delivery
of a product or service”. Therefore, based on balanced scorecard framework, product/service
innovation, production, product distribution/service delivery and postsale service, are the
performance indicators of internal-business-processes perspective.
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Learning and growth Perspective
The learning and growth perspective includes performance indicators that measure internal
skills and capabilities. Kaplan and Norton’s (1996b) experience in building BSCs across a wide
variety of organizations has revealed three main performance indicators for the learning and
growth perspective, i.e. employee capabilities, information systems capabilities and employee
motivation. Furthermore, in Kaplan and Norton (1996b, p. 44) condensed table with the generic
measures per perspective, learning and growth perspective includes employee satisfaction as
well. For that reason, the selected performance indicators of learning and growth perspective are
the employee satisfaction, the employee capabilities, the employee motivation and the
information systems capabilities.
The selected performance indicators of BSC’s perspectives were reviewed by senior executives,
during cognitive interviews process, in order to ensure their clarity and relevance to non-
academics. Through an iterative ratification process between literature and senior executives’
feedback, a set of items emerged (see Appendix, items BS1-BS2 for financial perspective, items
BS3-BS8 for customer perspective, items BS9-BS12 for internal-business-processes perspective
and items BS13-BS16 for learning and growth perspective). These items are positively coded,
such that the higher the response, the greater the firm’s: i) financial performance, ii)
effectiveness in customer management, iii) effectiveness in internal-business-processes
management and iv) ability for learning and growth. Lastly, the emerged items of performance
indicators of BSC’s perspectives are measured via subjective scales. The subjective scales for
measuring BSC’s performance indicators were selected, because there is evidence that senior
managers prefer subjective performance indicators over objective ones in the design of BSC
(Northcott and Smith, 2011). In addition, subjective scales for measuring BSC’s performance
indicators were used, since the objective data for BSC’s performance indicators were not
comparable due to significant differences between industries.
Data Collection
The data set for the empirical investigation of BSC’s theoretical underpinnings is derived from
the responses to survey items of either Chief Executive Officers, or
Chief Financial Officers, or any other senior-level executives, who are heavily involved in the
performance and strategic management process of their firms. Since all respondents are
members of senior management that participate in the performance and strategic management
process of their firm, it is assumed that they are all highly qualified to provide accurate
responses to the survey items. The questionnaire, which was used to collect the responses in
survey’s items, was mailed electronically to all 2,033 firms of the sampling frame. All
respondents engaged with this survey, were assured of confidentiality. Apart from the
12

questionnaire, a cover letter was also sent out in the series of emails. The cover letter served to
explain the purpose of the study in order to motivate the respondents to participate in the survey
in accordance with common practice (Julian and Ofori-Dankwa, 2008; Dillman et al., 2009). As
per Tailored Design Method guidelines (Dillman et al., 2009), several reminder emails, with an
attachment of the questionnaire in fillable text-processing file, were sent after the initial
electronic mailing.
Out of total 2,033 listings in the sampling frame, 286 email addresses proved to be defunct and
256 email addresses were not available in the database of Hellastat. Pursuant to common
practice in business empirical researches, the response rate was adjusted for defunct and missing
email addresses (see Doving and Gooderham, 2008). Of the 1,481 firms that received the
questionnaire, 268 usable completed questionnaires were received, reflecting an adjusted
response rate of 18.1 percent. Although the adjusted response rate is close to the response rate
accomplished by surveys in the field of accounting (see Smith, 2003) and compares favorably
with the response rate of surveys in the field of strategic management (see Powell, 1992b;
Spanos and Lioukas, 2001; Gunn and Williams, 2007; Hmieleski and Baron, 2008), the
presence of non-response bias was tested as per common practice (Armstrong and Overton,
1977). In particular, independent sample t-tests and non-parametric independent sample Mann-
Whitney U tests, in cases where the normality assumption is violated, were conducted for each
survey item to determine if mean and median of the data provided by early respondents (first
half responses, n = 134) differed significantly from late respondents (second half responses, n =
134). All statistics were insignificant1, suggesting that the answers of the respondents and non-
respondents do not differ, thus there is no non-response bias in the data of the survey.
Furthermore, in order to test for the presence of bias among respondents, ANOVA analyses as
well as Kruskal-Wallis tests, for items that their data violate normality assumption, were
conducted2. Of the 31 items on the survey, significant differences existed between respondents
for only one, or 3.2 percent of the total items. Because 5 percent of the mean responses are
expected to be significantly different at the p = 0.05 level by chance alone, the fact that
significant differences were found to exist for only 3.2 percent of the items is not entirely
unexpected. Based on the above along with the fact that the statistics of the rest 30 items on the
survey were found insignificant, suggest that the responses among the various job-titled
respondents do not differ.

1
Results of t-tests and Mann–Whitney U tests are not reported herein but are available upon request.
2
Results of ANOVA, Kruskal-Wallis and normality tests are not reported herein but are available upon
request.
13

Analysis and Results
The empirical investigation of BSC’s theoretical underpinnings was carried out using principal
component analysis with promax as rotation method to all items that were developed to measure
the main performance indicators of BSC’s four perspectives. The principal component analysis
was selected as it is more appropriate than factor analysis when the objective is to discover the
minimum number of factors needed to account for the maximum portion of the total variance
represented in the items (DeCoster, 1998; Hair et al., 2010).
Oblique rotation method of promax was adopted since it allows correlated components instead
of maintaining independence between the rotated components (Ho, 2006; Hair et al., 2010).
Based on the leading proposition in balanced scorecard theoretical framework that every
performance indicator of the four main perspectives is an element in a chain of cause-and-effect
relationships between the perspectives (Kaplan and Norton, 1996b), one could advance to the
conclusion that the items measuring the performance indicators of BSC’s perspectives will be
closely related, justifying the use of oblique rotation method. In support, the correlations among
the four components that were extracted from principal component analysis are all above 0.4,
thus higher than 0.32 meaning that there is more than 10 percent overlap in variance among
components, enough variance to warrant oblique rotation (Tabachnick and Fidell, 2007).
Insert Table I. about here
The value of Kaiser-Meyer-Olkin measure of sampling adequacy test is equal to 0.882 well
above 0.5, therefore meritorious (Kaiser, 1970; Kaiser and Rice, 1974; Hair et al., 2010).
Moreover, Bartlett test of sphericity is statistically significant, indicating sufficient corrections
among items (Hair et al., 2010). Furthermore, the cases-per-variable ratio, using listwise
deletion method for missing values, is 16 : 1 (=260/16), which is meritorious to derive stable
components (Everitt, 1975; Hair et al., 2010). In addition, the explained variance of the
extracted four components (see results in Table I.), from the un-rotated component matrix since
in oblique rotation methods the variance cannot be added (Costello and Osborne, 2005), is
above 60 percent of the total variance that is satisfactory given the 60 percent threshold set for
social sciences (Hair et al., 2010).
14

The results of the principal component analysis show that all items converge with items
measuring the same construct and discriminate from items measuring other constructs. In
particular, the rotated component structure matrix produced four components, equal in number
with the four perspectives of balanced scorecard framework. More specifically, the Return on
Invested Capital (BS1) and Financial Return (BS2) items measuring the main performance
indicators of financial perspective converge under one common measure and discriminate from
the rest items. Likewise, the items measuring the main performance indicators of customer
perspective, i.e. Customer Satisfaction (BS3), Customer Retention (BS4), Customer Solvency
(BS5), Customer Profitability (BS6), New Customer Acquisition (BS7) and Market Share (BS8),
converge to a separate measure. Furthermore, the items measuring the main performance
indicators of internal-business-processes perspective, i.e. Ability to Create Innovative Products
or Services (BS9), Efficiency in Production or Service Operation Processes (BS10), Efficiency in
Product Distribution or Service Delivery Processes (BS11) and Postsale Service Processes (BS12)
converge under one common measure and discriminate from the rest items. Lastly, the items
measuring the main performance indicators of learning and growth perspective, i.e. Employee
Satisfaction (BS13), Employee Capabilities (BS14) and Employee Motivation (BS15), converge to
a separate measure and discriminate from the rest items.
Only the item of Information Systems Capabilities (BS16) loads almost equally to both internal-
business-processes and learning and growth perspectives. The review of BSC’s literature after
examining the results of the principal component analysis, pointed out that initially Kaplan and
Norton (1996b) introduced information systems as a performance indicator of learning and
growth perspective. However, in their later work, Kaplan and Norton (2001a: 149) classify
information systems in the internal perspective, which is the succeeding perspective of internal-
business-processes. Thus, the results of the analysis seem to verify BSC’s lack of clarity
regarding the classification of information systems capabilities performance indicator to either
internal-business-processes or learning and growth perspective. Most likely, Kaplan and Norton
classify information systems capabilities into the learning and growth perspective when they are
referring to the second intangible capital within learning and growth perspective, which is the
availability of information systems, knowledge applications and infrastructure required to
support a firm’s strategy (Kaplan and Norton, 2004a). On the other hand, they probably classify
information systems capabilities into the internal-business-processes perspective when they are
referring to the effectiveness of information systems (Kaplan and Norton, 2001a). The
effectiveness of information systems can be better conceptualized as the effective use of
information technology, such as ecommerce (Gadenne et al., 2012). Thus, the results of
principal component analysis provide strong evidence in support of the convergent and
15

discriminant validity of the performance indicators of BSC’s four perspectives, and

consequently provide empirical support of the BSC’s theoretical underpinnings.
The empirical investigation of BSC’s theoretical underpinnings was supplemented with

confirmatory factor analysis in order to verify the results of the principal component analysis.
Given that the missing data of the study’s dataset do not exceed 5 percent of total cases and the
missing data below 5 percent might be ignored when computing correlation or covariance
matrixes (Savalei and Bentler, 2006), the remedy of listwise deletion was applied in the
confirmatory factor analysis.
Insert Table II. about here
In order to use confirmatory factor analysis for testing the validity of the performance indicators
of BSC’s four perspectives, a measurement model is specified as per Kaplan and Norton’s
(1996b) propositions regarding the cause and effect relationships among BSC’s perspectives. In
particular, the causal path runs from learning and growth to internal-business-processes, from
internal-business-processes to customer and ultimately from customer to financial perspective.
In addition, learning and growth perspective is directly linked to customer and financial
perspectives.
A good fitting model may be indicated when the ratio of chi-square statistic to the degrees of
freedom is less than 2 (Byrne, 1989; Tabachnick and Fidell, 1996). The chi-square statistic to
the degrees of freedom of the resulting model is 1.964, indicating an acceptable fit to the data
(Schermelleh-Engel et al., 2003). However, chi-square statistic is sensitive to sample size and
violations of assumptions of multivariate normality (Bentler, 1983; Jöreskog and Sörbom,
1989). Therefore, as has been done in similar studies (see Kalliath et al., 1999; Cagwin and
Bouwman, 2002), it is useful to supplement the chi-square with other indicators of fit. As
presented in Table II, the measurement model reached satisfactory model fit criteria based on
other indicators of fit. Firstly, the goodness of fit index (GFI) is above to 0.90 (Jöreskog and
Sörbom, 1989; Schermelleh-Engel et al., 2003). Furthermore, the adjusted goodness of fit index
(AGFI) is higher than 0.80 and close to 0.90 (Libby and Tan, 1994; Schermelleh-Engel et al.,
2003). Additionally, the value of all baseline comparisons’ indices, namely Bentler-Bonett
normed fit index (NFI), Tucker-Lewis index (TLI) and comparative fit index (CFI), are all
above 0.90 (Tabachnick and Fidell, 1996; Hu and Bentler, 1999; Tabachnick and Fidell, 2001;
16

Ho, 2006). Moreover, the root mean square error of approximation (RMSEA) is 0.061,
suggesting an adequate fit (Browne and Cudeck, 1993; Schermelleh-Engel et al., 2003; Gadenne
et al., 2012). Lastly, the standardized root mean square residual (SRMR) is 0.049, lower than
the threshold of 0.05, indicating a good fit (Hu and Bentler, 1999; Byrne, 2001). It should be
highlighted that the goodness of fit criteria are heavily influenced by the model specification.
On the other hand, the pattern of causal relationships among BSC’s four perspectives specifies
the measurement model. Although Kaplan and Norton’s (1996b) propositions regarding the
cause and effect relationships in BSC are generally accepted, several scholars have expressed
concerns about the proposed causality that holds among BSC’s four perspectives (see Nørreklit,
2000; Bessire and Baker, 2005).
Following the determination of model fit criteria, the validity of the measurement model was
analyzed. From Table II, the unstandardized regression weights are all significant at the 0.001
level. The standardized regression weights, or factor loadings, range from 0.482 to 0.917 with
an average of 0.708. Excluding the performance indicator of Information Systems Capabilities
(BS16), the factor loadings range from 0.564 to 0.917. Thus, all factor loadings are above 0.50
and most them above 0.70, suggesting that the performance indicators, which are theoretically
grouped into the four BSC’s perspectives, share a high proportion of variance in common (Hair
et al., 2010). The average variance extracted (AVE) and the composite reliability (CR) were
calculated manually based on Fornell and Larckers’ (1981) formulas. AVE is higher than 0.50
for financial perspective as well as for learning and growth perspective, suggesting adequate
convergence (Bagozzi and Yi, 1988; Hair et al., 2010). In addition, AVE is lower than 0.50 but
higher than 0.4 for both customer and internal-business-processes perspectives, indicating
mediocre but acceptable convergence as per recent studies (see Rae and Sands, 2013).
Moreover, CR for all four BSC’s perspectives is above 0.70, indicating acceptable reliability
(Hair et al., 2010). Based on the above statistical evidence of the confirmatory factor analysis, it
is assumed that the validity of the 16 performance indicators of BSC’s perspectives is achieved.
In conclusion, the results of principal component analysis and confirmatory factor analysis
provide evidence in support of the convergent and discriminant validity of the performance
indicators of BSC’s four perspectives. Consequently, collectively the two multivariate analyses
provide empirical support of the BSC’s theoretical underpinnings.
Developing a Measure of Firm Performance
In light of the empirical support of BSC’s theoretical underpinnings, literature in the fields of
management accounting and strategic management could be enhanced with a perceptual
measure of firm performance with items the four perspectives of balanced scorecard framework.
The need for a perceptual measure of firm performance that is constructed by multi-item
17

subjective scale stems from the fact that although there is a sufficient number of measures based
on quantitative financial aspects of firm performance, less emphasis has been placed on the
qualitative non-financial components of firm performance (Škrinjar et al., 2008; Upadhaya et
al., 2014). For that reason, there is a gap in literature for a subjective scale that balances both
financial and non-financial attributes of firm performance in order to measure this multi-
dimensional and unobserved construct. On the other hand, BSC’s four perspectives are ideal for
developing a new perceptual measure of firm performance that needs to include both financial
and non-financial items, or attributes. The main reason for the above suggestion is that
according to balanced scorecard framework, financial, customer, internal-business-processes
and learning and growth perspectives are the core financial and operational dimensions of firm
performance.
Based on the above gap in literature, the new perceptual measure of firm performance was
developed to include four items, namely Return On Invested Capital (P1), Effectiveness In
Customer Management (P2), Effectiveness In Internal-Business-Process Management (P3) and
Ability For Learning And Growth (P4), each for the financial, customer, internal-business-
processes and learning and growth BSC’s perspectives, respectively. The items of the newly
developed perceptual measure of firm performance based on BSC’s perspectives were reviewed
by the senior executives, who participated in the cognitive interviews, in order to ensure their
clarity to non-academics. These items are positively coded such that the higher the response in a
five-point equal intervals scale, the greater the firm’s performance.
Insert Table III. about here
In order to assess the construct validity of the newly developed perceptual measure of firm
performance, a measure of a second construct that in theory discriminates from the construct
under investigation, i.e. firm performance, needs to be employed (Kerlinger and Lee, 2000;
Trochim, 2006). The selected construct is the one of firm competitiveness because most
scholars acknowledge that superior firm performance and competitive advantage are
conceptually distinct (Ma, 2000; Powell, 2001; Arend, 2003; Newbert, 2008; O’Shannassy,
2008). Consequently, since superior firm performance, namely the above industry average firm
performance, and competitive advantage, namely the above industry average firm
competitiveness, are conceptually distinct, it follows that firm performance and firm
18

competitiveness will be conceptually distinct too. Firm competitiveness was measured via
Sigalas et al. (2013) subjective scale.
The assessment of construct validity was carried out using factor analysis with promax as
rotation method. Factor analysis was used because the primary objective was to identify the
latent dimensions, or constructs, represented in the items of firm performance’s and firm
competitiveness’ scales (Hair et al., 2010). Oblique rotation method of promax was adopted
because firm performance and firm competitiveness are related since the leading proposition in
strategic management is that superior firm performance arises from competitive advantage
(Barney, 1997; Grant, 1998; Roberts, 1999; Durand and Vaara, 2009). In support, the
correlation of the two factors that were extracted from factor analysis is equal to 0.557,
justifying the use of oblique rotation method (Tabachnick and Fidell, 2007). The value of
Kaiser-Meyer-Olkin measure of sampling adequacy test is equal to 0.773, Bartlett test of
sphericity is statistically significant and the cases-per-variable ratio, using listwise deletion
method for missing values, is 33 : 1. In addition, the extracted two factors, from the un-rotated
factor matrix accounts for 62 percent of the total variance. Given that the last four items in
Table III. that measure firm performance discriminate from the first four items measuring firm
competitiveness and converge with the last four items measuring the same construct, which is
firm performance, it is concluded that the newly developed perceptual measure is indeed a valid
measure of the construct of firm performance.
The reliability of the newly developed perpetual measure of firm performance with items the
perspectives of balanced scorecard framework was tested by estimating its internal consistency
reliability. In particular, Cronbach alpha coefficient was computed to test the internal
consistency of the newly developed perpetual measure of firm performance. The Cronbach
alpha coefficient for firm performance scale is equal to 0.73, suggesting that all of the items are
reliable and the entire measure is internally consistent (Cronbach, 1951; Nunnally, 1978;
Robinson et al., 1991; Ho, 2006; Hair et al., 2010).
Based on the above construct validity and reliability assessments, it is believed that the newly
developed perceptual measure with items the four perspectives of balanced scorecard
framework can serve as a rigorous indicator of the multi-dimensional and unobserved construct
of firm performance. In addition, given that perceptual measures correlate well with objective
measures of firm performance (Dess and Robinson, 1984; Venkatraman and Ramanujam, 1987;
Dollinger and Golden, 1992; Powell, 1992a; Boulianne, 2007), the newly developed perceptual
measure could be used in future empirical i) large-sample studies, when access to objective firm
performance data is obscured, and/or ii) in cross-sectional studies, when industries’
heterogeneity makes the objective performance indicators of various firms not comparable.
19

Concluding Remarks
This study was conducted in order to investigate empirically BSC’s theoretical underpinnings.
The empirical investigation of BSC’s theoretical underpinnings was carried out by applying
both well-established and contemporary multivariate analyses for the assessment of the
convergent and discriminant validity of the performance indicators of BSC’s four perspectives.
The results of the principal component analysis and the confirmatory factor analysis indicate
that all items, which were developed to measure the main performance indicators of BSC’s four
perspectives, converge with items measuring the same construct and discriminate from items
measuring other constructs. Based on the above, the findings of the empirical investigation
provide evidence supporting the conventional propositions of BSC that i) the generic
performance indicators should be grouped into four perspectives, each one for financial,
customer, internal-business-processes and learning and growth dimensions of firm performance
as well as ii) all generic performance indicators converge with the performance indicators
measuring the same perspective and discriminate from generic performance indicators
measuring the other perspectives. Thus, our results provide strong evidence in support of BSC’s
theoretical underpinnings.
Following the empirical support of BSC’s theoretical underpinnings, a perceptual measure of

firm performance was developed, since there is a lack of perpetual measures that include both
quantitative financial and qualitative non-financial aspect of firm performance (Upadhaya et al.,
2014). The newly developed perceptual measure of firm performance is based on multi-items
subjective scale that was diligently created in consultation with practitioners in order to include
all the financial and non-financial perspectives of firm performance as proposed by the balanced
scorecard theoretical framework. Based on statistical evidence that the newly developed
perceptual measure of firm performance is both reliable and valid, that respondent bias is not
present in the data, and that there is no bias among respondents, the attempt to accurately
measure the unobservable and multi-dimensional construct of firm performance with items the
four perspectives of balanced scorecard framework, was arguably successful.
The findings of the empirical investigation may be of interest to academics for several reasons.
To begin with, this study validates empirically the central tenet of balance scorecard framework
as proposed by Kaplan and Norton (1996b). This validation is particularly important to the
advancement of balance scorecard from a framework to a theory. In particular, given that i) the
principal limitation of the BSC is its under-theorization (Nørreklit, 2000; Bessire and Baker,
2005), ii) BSC’s theoretical underpinnings are based on metaphorical reasoning (Modell, 2012)
rather on empirical research findings, iii) BSC is heavily based on propagation in order to
appear as an outcome of evolving scientific research (Free and Qu, 2011), this study offers an
20

actual level of empirical support of BSC’s theoretical underpinnings that addresses the above
concerns. In addition, this study departures from previous studies that have examined the
convergent and discriminant validity of BSC’s theoretical underpinnings (see Hoque and James
2000; Boulianne 2006; Boulianne 2008) in three important ways. First, rather than being
confined into a single economic sector, it employs a field survey of firms across all economic
sectors and industries. Second, this study supplements previous surveys with the contemporary
multivariate technique of confirmatory factor analysis. Third, this study, in contrast to previous
empirical surveys, utilizes a large enough sample size to increase confidence in the results of
both established and contemporary multivariate analyses.
Moreover, this study contributes to the existing BSC literature by providing subjective scales
for measuring the generic performance indicators of BSC’s four perspectives. Currently, case
studies in individual organizations constitute the dominant research approach in empirical
studies of the BSC (Modell, 2012). The proposed subjective scales can support more diverse
and cross-sectional empirical research designs, better serving inter-discipline researches in the
future. The use of subjective scales for measuring objective performance indicators, such as
return on invested capital, customer retention and efficiency in production, is justified in
empirical studies where there are significant industry differences due to sample heterogeneity
that make the objective performance indicators not comparable. The use of subjective scales is
also justified in empirical researches where data relating to the objective performance indicators
are simply not available because the companies are not obliged to disclose them. Conclusively,
the findings of the study provide academics and researchers with subjective scales of the generic
performance indicators of BSC’s four perspectives, when access to objective data is restricted
and/or when objective performance indicators are not comparable due to significant industry
differences, in order to investigate empirically research hypotheses of the balanced scorecard
conceptual framework.
Nevertheless, due to lack of systematic empirical falsification of the BSC’s theoretical

underpinnings, the findings presented herein beckon replication. Although the results of this
study support the convergent and discriminant validity of the performance indicators of BSC’s
four perspectives, future scholars are encouraged to further investigate empirically the BSC’s
theoretical underpinnings using various research designs and multiple research methods.
Scholars conducting research in this area in the future may wish to reproduce this study by
replacing the generic and vague performance indicator of information systems capabilities with
the more specific and precise performance indicators of availability of information systems and
effective use of information technology. Furthermore, future studies may wish to add to the
body of knowledge of BSC’s theoretical underpinnings by supplementing the performance
indicators of BSC’s four perspectives used in this study with new ones, preferably four to five
21

indicators for each perceptive, derived from most recent literature (see Kaplan and Norton,
2004a; Gadenne et al., 2012; Rae and Sands, 2013). In addition, scholars wishing to replicate
this study may nevertheless wish to examine the convergent and discriminant validity of BSC
by specifying the measurement model of the confirmatory factor analysis based on alternative
propositions (see Nørreklit, 2000; Bessire and Baker, 2005) regarding the cause and effect
relationships among BSC’s four perspectives.
Moreover, much academic work remains to be done in order for BSC to advance from a
theoretical framework based on empiricism to an academic theory with practical implications.
For that reason, academics are invited to participate in this research agenda. In particular, future
researchers are encouraged to conduct conceptual-level tests of the balanced scorecard
framework in order to examine empirically the relationships among the four BSC’s
perspectives, using the newly constructed items of the performance indicators of BSC’s
perspectives. The reflective nature of the latent variables of BSC’s perspectives, as measured by
the subjective scales of the generic performance indicators, can support contemporary statistical
techniques for testing and estimating causal relations among the four BSC’s perspectives, such
as the structural equation modeling (Bollen, 1989), which is suited to both theory testing and
theory development (Anderson and Gerbing, 1988). In so doing, we as a scholarly community
will have more rigorous evidence by which to confirm, refine, supplement, and/or refute the
BSC’s fundamental propositions. Thereby, we will be in the position to enrich our
understanding of BSC not only as a performance measurement system but also as a
management control system.
22

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Appendix
Performance Indicators of Financial Perspective

Five-point equal intervals scale ranging from much inferior to much superior.
Over the past three years, how would you evaluate your firm compared to main rival firms in
your industry in terms of:
BS1 return on invested capital?
BS2 financial return?
Performance Indicators of Customer Perspective

BS3 customer satisfaction?
BS4 customer retention?
BS5 customer solvency?
BS6 customer profitability?
BS7 new customer acquisition?
BS8 market share?
Performance Indicators of Internal-Business-Processes Perspective

BS9 ability to create innovative products or services?
BS10 efficiency in production or service operation processes?
BS11 efficiency in product distribution or service delivery processes?
BS12 postsale service processes?
32

Performance Indicators of Learning and growth Perspective

BS13 employee satisfaction?
BS14 employee capabilities?
BS15 employee motivation?
BS16 information systems capabilities?
Firm Performance (Newly Developed Perceptual Measure)

P1 return on invested capital?
P2 effectiveness in customer management?
P3 effectiveness in internal-business-process management?
P4 ability for learning and growth?
α = 0.73
Firm Competitiveness (Sigalas et al., 2013)

Five-point Likert scale ranging from strongly disagree to strongly agree.
Over the past three years your competitive strategy has allowed your firm to:
C1 exploit all market opportunities that have been presented to your industry
C2 fully exploit the market opportunities that have been presented to your industry
C3 neutralize all competitive threats from rival firms in your industry
C4 fully neutralize the competitive threats from rival firms in your industry
α = 0.84
33

Table I. Principal components analysis of the performance indicators of the BSC’s four
perspectives
Component 2: Component 3:
Component 1: Component 4:
Internal-Business- Learning and
Items Customer Financial Communality
Processes Growth
Perspective Perspective
Perspective Perspective
Loadings* Loadings* Loadings* Loadings*

BS1: Return on Invested Capital 0.460 0.366 0.404 0.906 0.833
BS2: Financial Return 0.396 0.308 0.390 0.925 0.859
BS3: Customer Satisfaction 0.714 0.512 0.571 0.271 0.609
BS4: Customer Retention 0.811 0.355 0.547 0.300 0.707
BS5: Customer Solvency 0.725 0.183 0.512 0.418 0.623
BS6: Customer Profitability 0.697 0.243 0.407 0.585 0.601
BS7: New Customer Acquisition 0.761 0.568 0.239 0.231 0.695
BS8: Market Share 0.759 0.457 0.203 0.363 0.646

BS9: Ability to Create Innovative
0.372 0.766 0.441 0.321 0.608
Products or Services
BS10: Efficiency in Production or Service
0.460 0.763 0.463 0.308 0.608
Operation Processes
BS11: Efficiency in Product Distribution
0.403 0.743 0.315 0.261 0.559
or Service Delivery Processes
BS12: Postsale Service Processes 0.375 0.666 0.410 0.249 0.461
BS13: Employee Satisfaction 0.473 0.427 0.844 0.381 0.720
BS14: Employee Capabilities 0.446 0.555 0.820 0.327 0.719
BS15: Employee Motivation 0.415 0.394 0.836 0.373 0.702
BS16: Information Systems Capabilities 0.231 0.525 0.501 0.172 0.384
Eigenvalue 6.640 1.444 1.208 1.040 10.333
Variance Explained** 41.5% 9.0% 7.6% 6.5% 64.6%
* from rotated component structure matrix

** from un-rotated component matrix

34

Table II. Confirmatory factor analysis of the performance indicators of the BSC’s four
perspectives
Unstandardized Factor Explained

Average
Regression Weight Loadings Variances Composite
Performance Variance
Factors / BSC Perspectives (Standardized (Squared Reliability
Indicators Extracted
Regression Multiple (CR)
(AVE)
Standard Weight) Correlations)
Estimate*
Error
BS1 1 0.917 0.841
Financial 0.76 0.86
BS2 0.909 0.082 0.824 0.679
BS3 1 0.776 0.602
BS4 1.141 0.091 0.805 0.648
BS5 0.988 0.105 0.611 0.373
Customer 0.45 0.83
BS6 0.796 0.087 0.593 0.352
BS7 0.973 0.100 0.625 0.391
BS8 0.960 0.105 0.590 0.348
BS9 1 0.752 0.566
BS10 0.869 0.077 0.785 0.616
Internal-Business-Processes 0.47 0.78
BS11 0.714 0.078 0.622 0.387
BS12 0.684 0.082 0.564 0.318
BS13 1 0.793 0.629
BS14 0.947 0.071 0.815 0.664
Learning and growth 0.53 0.81
BS15 0.964 0.076 0.775 0.601
BS16 0.618 0.082 0.482 0.232
* significant at the 0.001 level (two tailed)
Chi-square 190.514
df 97
Chi-square /df 1.964
GFI 0.916
AGFI 0.882
SRMR 0.049
RMSEA 0.061
NFI 0.905
TLI 0.939
CFI 0.950

35

Table III. Factor analysis for construct validity assessment of the newly developed
perceptual measure of firm performance
Factor 1: Factor 2:
Items Firm Firm Communality
Competitiveness Performance
Weights* Weights*
C3: neutralization of all competitive threats 0.825 0.387 0.689
C4: full neutralization of all competitive threats 0.803 0.374 0.653
C1: exploitation of all market opportunities 0.691 0.592 0.540

C2: full exploitation of market opportunities 0.646 0.609 0.507
P4: ability for learning and growth 0.320 0.753 0.581
P3: effectiveness in internal-business-process management 0.321 0.655 0.432
P2: effectiveness in customer management 0.426 0.604 0.376
P1: return on invested capital 0.415 0.480 0.262
Eigenvalue 3.229 0.811 4.039
Variance Explained** 46.3% 15.5% 61.8%
* from rotated factor structure matrix

** from un-rotated factor matrix

36

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Empirical investigation of balanced scorecard’s theoretical underpinnings

Article in Journal of Accounting & Organizational Change · November 2015

The user has requested enhancement of the downloaded file.

Empirical Investigation of Balanced Scorecard’s Theoretical

Correspondence to: Christos Sigalas, email: csigalas@acg.edu

Keywords Balanced scorecard, Theoretical underpinnings of balanced scorecard, Validity of

Paper type Research paper

Balanced scorecard theoretical framework as an academic theory is relatively young. Its

capturing a distinct perspective on a firm’s performance i.e. financial, customer, internal-

underpinnings. The continuous efforts to falsify empirically BSC’s theoretical underpinnings

The internal-business-processes perspective includes performance indicators that measure the

Learning and growth Perspective

Analysis and Results

Insert Table I. about here

discriminant validity of the performance indicators of BSC’s four perspectives, and

The empirical investigation of BSC’s theoretical underpinnings was supplemented with

Insert Table II. about here

Developing a Measure of Firm Performance

Insert Table III. about here

Following the empirical support of BSC’s theoretical underpinnings, a perceptual measure of

Nevertheless, due to lack of systematic empirical falsification of the BSC’s theoretical

Kaplan, R.S. (2012), “The balanced scorecard: Comments on balanced scorecard

Performance Indicators of Financial Perspective

BS1 return on invested capital?

BS2 financial return?

Performance Indicators of Customer Perspective

BS3 customer satisfaction?

BS4 customer retention?

BS5 customer solvency?

BS6 customer profitability?

BS7 new customer acquisition?

BS8 market share?

Performance Indicators of Internal-Business-Processes Perspective

BS9 ability to create innovative products or services?

BS10 efficiency in production or service operation processes?

BS11 efficiency in product distribution or service delivery processes?

BS12 postsale service processes?

Performance Indicators of Learning and growth Perspective

BS13 employee satisfaction?

BS14 employee capabilities?

BS15 employee motivation?

BS16 information systems capabilities?

Firm Performance (Newly Developed Perceptual Measure)

P1 return on invested capital?

P2 effectiveness in customer management?

P3 effectiveness in internal-business-process management?

P4 ability for learning and growth?

Firm Competitiveness (Sigalas et al., 2013)

C3 neutralize all competitive threats from rival firms in your industry

Loadings* Loadings* Loadings* Loadings*

BS8: Market Share 0.759 0.457 0.203 0.363 0.646

* from rotated component structure matrix

Unstandardized Factor Explained

C4: full neutralization of all competitive threats 0.803 0.374 0.653

C1: exploitation of all market opportunities 0.691 0.592 0.540

* from rotated factor structure matrix

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