Balance Scorecard

JOURNAL OF MANAGEMENT ACCOUNTING RESEARCH Vol. 23 2011 pp. 81–98

American Accounting Association DOI: 10.2308/jmar-10085

The Balanced Scorecard: The Effect of Strategy Information on Performance Evaluation Judgments

Kerry A. Humphreys Ken T. Trotman University of New South Wales

ABSTRACT: Judging divisional performance using the balanced scorecard is a complex task, with prior research finding a bias toward measures common to two divisions when managerial performance is evaluated. We conduct two experiments investigating the role of strategy information and strategically linked performance measures in eliminating this bias and establish a boundary condition for the common measures bias. We demonstrate that when strategy information is provided to managers and only some measures are strategically linked, the common measures bias exists (consistent with Banker et al. 2004). We find that when all the performance measures are strategically linked, but no strategy information is provided, the common measures bias also exists. However, if strategy information is provided and all measures are strategically linked (a condition which did not exist in previous research), the common measures bias is eliminated. Keywords: balanced scorecard; common measures bias; strategy information.

INTRODUCTION trategic performance measurement systems, such as the balanced scorecard, aim to improve performance evaluation judgments by providing a set of enhanced financial metrics and future-oriented, non-financial measures (Sprinkle and Williamson 2006). For this reason, it is suggested the balanced scorecard be used in management review decisions (Kaplan and Norton 1996). However, evaluating performance using the balanced scorecard is a complex task (Merchant 2006), where the decision maker is presented with multiple measures across four perspectives, often without guidance on how to weight and combine information cues in an overall judgment and without normative criterion for...