CRITICAL REVIEW

Critical Review

Critical Review

Introduction

According to Gumbus and Lussier the main reason for the introduction of the balanced scorecard was that, in the authors' views, organizations only measured financial performance. There was too much emphasis on financial measures and not enough on operational performance. By complementing financial measures of past performance with the objectives and measures of financial, customer, internal business process, and learning and growth, managers are provided with a framework to translate a strategy into operational terms. The great thing about the balanced scorecard is that it minimizes information overload by limiting the number of measures. It forces managers to focus on the handful of measures that are most critical.

Critical Review

Since its introduction in 1992, the Balanced Scorecard (BSC) has increasingly attracted interest among practitioners and academics. A variety of benefits, both non-financial and financial, are claimed to result from BSC use. For example, experts stated that the BSC can be used to: clarify and gain consensus about strategy; communicate strategy throughout the organisation; align departmental and personal goals to the strategy; link strategic objectives to long-term targets and annual budgets; identify and align strategic initiatives; perform periodic and systematic strategic reviews; and obtain feedback to learn about and improve strategy. Furthermore, these benefits are expected to ultimately result in improved financial outcomes. Several surveys report that the BSC is widely used in large companies in the USA and throughout Europe. Despite widespread adoption of the BSC, little research has been done on the implementation and performance effects of the BSC concept.

Generally, implementation of new management technologies does not always achieve the claimed benefits. For example, Ittner et al.'s (1997) study of a BSC compensation system in retail branch banks found no evidence that the scorecard approach enhanced branch managers' understanding of business goals, plans for meeting these goals, or connections between the managers' job and business objectives. Ittner et al. (2000) did not find evidence that a large bank's BSC promoted increased strategic awareness. Experts indicated that more empirical evidence would be useful as most of the BSC literature is either normative prescription or uncritical reports of BSC “successes”. Further, those examining performance effects reported mixed results. Therefore, it is important to investigate whether BSC use actually results in the claimed benefits and positive performance effects.

Gumbus and Lussier define the BSC as "a comprehensive set of performance measures that provides a framework for a strategic measurement and management ...