perception and applicability of the balanced scorecard in...
TRANSCRIPT
Perception and Applicability of the Balanced Scorecard in Hong Kong Organizations
BY
SZETO WAN PING 03004953
Accounting Option
An Honours Degree Project Submitted to the School of Business in Partial Fulfilment
of the Graduation Requirement for the Degree of Bachelor of Business Administration (Honours)
Hong Kong Baptist University Hong Kong
April 2006
ACKNOWLEDGEMENT
Firstly, I would like to express my sincerest appreciation to my supervisor, Prof. Lin, the
Head of Accounting and Law Department of Hong Kong Baptist University. He did spare lots
of time in providing invaluable advice and guidance throughout the honor project process,
especially statistic techniques. I want to give my truthful gratitude for his patience and
support.
Moreover, I would like to grant my thankfulness to Mr Bernard Wu for his kind
assistance in distributing the questionnaire and all the respondents for their cooperation in
filling the questionnaire.
Last but not least, I whole-heartedly acknowledge my friends and my family. Their
encouragement and care are very important to the completion of this project.
CONTENT
ABSTRACT ............................................................................................................................. A
1 INTRODUCTION ............................................................................................................ 1
2 LITERATURE REVIEW ................................................................................................ 3
2.1 BSC is a strategic management model................................................................... 3
2.2 The balance of financial and non-financial perspectives ....................................... 4
2.3 Cause-and-effect relationships ............................................................................... 4
2.4 Applicability of the BSC........................................................................................ 5
2.5 Usefulness of the BSC............................................................................................ 5
3 METHODOLOGY........................................................................................................... 8
4 FINDINGS AND ANALYSIS ........................................................................................ 10
4.1 General views of all organizations ....................................................................... 10
4.2 Comparisons between BSC users and non-BSC users......................................... 15
5 DISCUSSION ................................................................................................................. 18
5.1 Strategic Management Model .............................................................................. 18
5.2 The balance of financial and non-financial perspectives ..................................... 19
5.3 Cause-and-effect relationships ............................................................................. 20
5.4 Applicability of the BSC...................................................................................... 20
5.5 Usefulness of the BSC.......................................................................................... 21
6 CONCLUSION AND LIMITATIONS ......................................................................... 24
7 REFERENCES .................................................................................................................. i
8 APPENDIX (Questionnaire Copy) .................................................................................. iv
A
ABSTRACT
The Balanced Scorecard has been widely applied in the United States since the
introduction by Kaplan and Norton in 1992. Hong Kong, as an international and commercial
centre with more than 1000 listed companies, the usage of BSC in Hong Kong is an attractive
topic that motivates to conduct this research. Apart from the usage of BSC, the perceptions,
applicability and its usefulness held by Hong Kong organizations are other concerns.
The research shows that BSC is not widely adopted in Hong Kong, and managers in
Hong Kong companies do not consider the BSC is applicable to their business. The findings
reflect most respondents agree with the BSC as a strategic management model, the balance of
financial and non-financial measures and cause-and-effect relationships. They believed that
BSC provides a framework for vision translation and communication which brings divisional
goals consistent with corporate goals. However, due to its difficulty in the linkage of BSC
model and the real economic environment, experts and other resources in relation to the
measures development, companies may choose other simpler measurements and management
systems.
1
1 INTRODUCTION
Traditionally, many organizations adopt the primary financial measures such as profit
margins, return on capital employed, earnings per share, as their performance evaluation
indicators. Due to the evolvement of business concerns, such measures are criticized as one
dimensional, narrow in focus, incomplete and inherently backward-looking at the history of a
company (Kaplan, 1984; Ittner and Larcker, 1998; Chakravarthy, 1986; Hoque et al., 2001).
The framework of the Balanced Scorecard (BSC) was introduced by Robert Kaplan and
David Norton in 1992 to make the performance evaluation to be more comprehensive. With
the original base of financial perspective, a broader range of aspects, namely, customer,
internal business processes and learning and innovation are included in this model. These four
perspectives are linked through cause-and-effect relationships as well. The combination of
financial and non-financial measures not only shows a way of measuring the success of an
organization, but also provides a strategic control model to achieve its vision and strategic
objectives.
The BSC has been widely adopted in the world and it has a significant influence on
organizations. According to a US survey, 60% of Fortune 1000 firms have implemented this
model (Silk, 1998). Moreover, Kaplan and Norton claimed in their books: “The BSC is an
innovative performance management system that any company could use to focus and align
their executive teams, business units, human resources, information technology and financial
resources on a unfield overall strategy much as business have traditionally employed financial
management systems to track and guide their general fiscal direction.” With the assertion that
all companies can use the BSC and widespread adoption of the BSC, this paper aims to
examine the perceptions of the BSC in Hong Kong organizations, to evaluate the applicability
of the BSC in Hong Kong and to evaluate the corresponding benefits and weaknesses related
to the BSC in the context of Hong Kong business environment.
2
The next section discusses the literature related to the BSC. It is followed by the research
method, findings and analysis, discussion, conclusion and limitations of the study.
3
2 LITERATURE REVIEW
In late 1980s, more managers started to aware of the importance of turning the strategic
vision for an organization’s future development into tangible and realizable results by
matching measurement with its business strategy (Thomas et al., 1999). Therefore, many
strategic management models and theories such as the Boston Consultancy Group portfolio
planning model, game theory, Balanced Scorecard, and dynamic multi-dimensional
performance model (Maltz et al., 2003) were evolved. Among those approaches, the BSC had
gained worldwide acceptance.
2.1 BSC is a strategic management model
Kaplan and Norton described the BSC as a strategic management model which is
capable of communicating vision and strategy objectives to all parts of the organization
and enabling the organization to manage strategies and operations over a longer term.
Hence, the BSC is developed and derived directly from the organization’s vision and
strategies (Kaplan and Norton, 1992; 1993; 1996a). On the other hand, Otley (1999)
acknowledged BSC as a valid management tool. This model creates the ability for
management to clarify and translate a vision to strategy so that consensus and
commitment to that strategy can be established throughout the organization. Even though
NØrreklit (2000) criticized that BSC’s management control model resulted in a gap
between planned and actual strategy for the sake of the hierarchical strategy formulation
process, Malina and Selto’s study (2001) and Beverley et al.’s study (2005) showed that
the BSC is an effective means of strategic management that can increase the overall
awareness of the corporate strategy.
4
2.2 The balance of financial and non-financial perspectives
The adoption of the BSC model leads to a combined use of multiple non-financial
measure-based performance evaluation with financial measurement. In the development
of the BSC, Kaplan and Norton believed that there is no a single performance indicator
can fully capture the complexity of an organization’s performance. In addition to the
primary financial measures as the important measurement, there are three additional
measurement perspectives: customer, internal business processes and learning and
innovation. The customer perspective is concerned with the identification and
satisfaction of target customers or market segments; the internal business processes
perspective identifies the competencies which the company must excel; the learning and
innovation dimension identifies the continuous improvement and value creation to the
company while the financial perspective is those financial measures concerned by
shareholders. Kaplan and Norton (1996b) suggested that these four perspectives can be
modified to be adapted to the needs of various firms. Although Malmi (2001) indicated
that most companies use the four perspectives, Beverley et al. (2005) concluded that
modified BSC perspectives allow greater viability within organizations’ concerns due to
their increased relevance to specific strategies and internal reporting requirements. The
BSC is a framework which can be adapted to and modified to the specified needs of a
company.
2.3 Cause-and-effect relationships
The evolution of the BSC into a strategic management system comprises of the
significant cause-and-effect relationships. The measures in each perspective are linked
with each other, for example, a measure of learning and innovation perspective drives a
measure of internal business processes which drives measures of customer perspective
and in turn drives financial measures. Such assumption enables non-financial measures
5
to predict financial results, which yields a feed-forward control system (de Haas and
Kleingeld, 1999)1 . Malmi (2001) argued that even there is no such relationship in the
management system, the BSC can still be successfully used and hence the relationship is
not so significant. On the contrary, Beverley, Yvonne and Michelle (2005) conducted a
survey and came to the conclusion that most firms agree with the importance of the
interdependent relationship between BSC measures.
2.4 Applicability of the BSC
According to Kaplan and Norton, BSC can be applied in any company as a strategic
management tool. They advocated that all companies are capable of employing the BSC
as a strategic planning and management tool, using the four perspectives measurements
and applying the cause-and-effect relationships.
Nigel (2005) further specified some criteria to implement BSC. First, the company
should link the performance measures to strategy implementation. Second, the company
should outline strategies in details and disseminate them throughout the company for the
purpose of employees’ understanding. Third, the company should establish proper
measures before BSC implementation. Fourth, a performance reporting system is needed
to track the progress of strategy and those BSC measures on operational basis. Fifth,
appropriate actions should be taken to improve the BSC implementation.
As supported by Doran et al. (2002), the implementation is a continuing process
that requires monitoring, continuous learning, feedback and adjustment.
2.5 Usefulness of the BSC
In addition to the benefits relating to the balance of financial and non-financial
measurements and cause-and-effect relationships, there are some other advantages
associated with the BSC.
1 Quoted from NØrreklit, 2000.
6
Since the BSC is regarded as a strategic management tool, it provides business
executives with a complete framework for planning, targets setting, initiatives aligning
and decision making (Wisniewski and Dickson, 2005; Beverley et al., 2005). It also
helps entire company to attain its corporate goals. According to Pineno and Cristini
(2003), BSC can improve alignment among divisional goals and the organizational goal
and strategy. It aligns short-term operating plans and performance-evaluation
measurements with long-term strategies. Hence, Balanced Scorecard model is beneficial
to top management and executives in organizational development such as translation of
vision to daily operation and strategy.
Apart from the benefit in developing strategies, BSC provides a timely and
cost-effective means of reviewing whether an organization is on track to achieve its
strategic objectives, vision and mission. Moreover, BSC can help senior managers and
frontline officers to assess the subordinates’ performance effectively. This advantage
brings benefits in human resources aspect. Under the BSC model, all employees are
encouraged to consider the impact of their decisions on profitability (Heather and
II-woon, 2005). The employee’s accountability and the subordinates’ trust in their
supervisors are thus enhanced (Otley, 1999). This results in higher staff morale.
Despite the advantages discussed above and the wide adoption of the BSC, there
are some difficulties in the implementation stage.
According to Wisniewski (2001), the judgement of BSC measures in the
development and implementation stage is very complex. It is difficult to determine which
measures should be used in each perspective. Similar points of view from Nigel (2005)
given that the adoption of BSC requires commitment of resources and the alignment of
strategy with performance measures. All these requirements result in the drawback of
time-consuming in the development and implementation of the Balanced Scorecard
7
model.
Schneiderman (1999) emphasized that the company is necessary to define
appropriate short-term and long-term goals as well as measures. Heather and II-woon
(2005) specified the importance to identify and monitor the significant aspects of a
business. Failure to meet the above conditions leads to failure in the BSC adoption. Both
authors pointed out these two conditions were not an easy task. It supports the drawbacks
of complexity in the use of BSC.
Additionally, Heather and II-woon (2005) identifies several barriers buried in the
BSC. Firstly, BSC is unable to recognize community and environmental issues. It does
not include supplier-related or competitor-related measures while these two areas are
vital to the business survival. Secondly, there is a pitfall that focusing on the lagging
financial indicators instead of the leading non-financial indicators. Wrong focus may be
harmful for a company in the long term. Third, it is difficult to obtain timely and
cost-effective data for the use of BSC. Consequently, they concluded that BSC has
relative little effect on organization performance.
Regarding to the above comments on the BSC and several studies reviewing the
perception and implementation of the BSC, it is worth to conduct a research to see how the
BSC is perceived by Hong Kong organizations.
8
3 METHODOLOGY
A questionnaire was designed to investigate the opinions on the issues as follows: the
perceptions of the BSC in Hong Kong organizations, of its applicability, of the benefits and
weaknesses arisen from its usage, and of the linkage of BSC between strategy formation and
implementation. The whole questionnaire was set by listing out several statements on each
issue, except the section concerning the linkage of BSC to strategy formation and
implementation. Those statements were set according to the ideas developed in the literature
review. The respondents were asked to express their opinions with the use of a five-point
Likert scale from 1 (completely disagree) to 5 (completely agree). In addition, open questions
were used to collect the comment on the linkage of BSC between strategy formation and
implementation. This part of comments would be incorporated to support those statements
findings. Moreover, those respondents without the application of the BSC in their firms were
asked about the reasons.
A sample of 50 Hong Kong companies listed on the Hong Kong Stock Exchange was
randomly selected. The questionnaires were sent to the chief financial officers or financial
managers or company secretaries of the 50 companies through email. Four weeks after the
initial mail-out, there was no response while two companies replied with refusal. Subsequent
to the poor response, follow-up phone calls were made to the selected companies except the
two rejected. Consequently, there were 12 responses with completed questionnaires. Later on,
questionnaires were distributed in a class of part time MBA by asking those who had
acknowledged of the BSC and worked in a listed company to fill in the questionnaire. In
return, 10 questionnaires were received. Therefore, this study is carried out based on the total
22 returned questionnaires. These companies come from a wide range of industries, including
banking and financial services, logistics, engineering, outdoor advertising, mining,
9
manufacturing, property and business services, retail trade, etc. Regardless of the usage of the
BSC in the respondents’ companies, they are going to answer the five-point Likert scale type
questions concerning the understanding of the BSC and the applicability of the BSC.
Analysis is carried out by comparing the means scores among all statements in two
dimensions. First one is to indicate those statements with higher means which imply that they
are highly agreed by most of the respondents, constantly, those statements with extraordinary
low means are also specified. The second dimension is to compare the perceptions on BSC
between the BSC users and non-BSC users with the use of t-test statistics. It is to test if there
is any great discrepancy in the perceptions of the two subgroups of respondents.
10
4 FINDINGS AND ANALYSIS
In this section, the results and responses are presented with the reference to the
descriptive statistics. Although the sample size and the number of BSC-users are small, the
analysis is based on the descriptive statistics obtained with respect to the following issues:
strategic management model of BSC, the balance of financial and non-financial measures
(four perspectives), cause-and-effect relationships, applicability, and the usefulness of the
BSC. Those results are carried out in two dimensions: general views of all respondents and a
comparison between the views of users and non-users.
4.1 General views of all organizations
Among 22 returned questionnaires, 8 companies indicated the use of the BSC. It
constitutes the usage rate of 36.4%. The industries of the 8 BSC users involve real estate,
logistic, oil chemical manufacturing, engineering, and banking and financial services.
Regarding to those non-users of the BSC, the rationale provided by the respondents
are listed in Table 1.
Table 1 Reasons for non-application of BSC Reasons for non-use Comments from respondents
Company does not use BSC for performance review, but consider revenue as a whole.
Other systems deemed to be more appropriate
Another system has already implemented. Difficult to implement Unfamiliarity with the BSC Too complicated
Lack of resources It requires certain manpower to implement the system. Managements have not known the BSC. Lack of management awareness Our factory does not aware of this management tool. Not necessary for our simple operation. Company size Does not see the need.
11
Table 2 Descriptive Statistics for all statements Overall
Mean (S.D.)
User Mean (S.D.)
Non-user Mean (S.D.)
t-test (p-value)
A. Strategic Management Model
A1 Focuses on long-term success strategies 3.64 (0.953)
4.13 (0.641)
3.36 (1.008)
-1.932 (0.068)
A2 Provides a framework for strategy formation and implementation.
3.59 (0.854)
4.25 (0.463)
3.21 (0.802)
-3.329 (0.003)
A3 Links short-term operational performance with long-term strategic objectives.
3.64 (0.902)
4.13 (0.641)
3.36 (0.929)
-2.064 (0.052)
A4 Uses vision to design the key measures 3.68 (1.129)
4.38 (0.518)
3.29 (1.204)
-2.414 (0.025)
A5 Linkage of vision to daily activities. 3.73 (1.077)
4.00 (0.535)
3.57 (1.28)
-0.893 (0.382)
A6 Valid strategic management tool. 3.33 (0.817)
3.67 (0.577)
3.00 (1.00)
-1.00 (0.374)
A7 Translates vision to a strategy throughout the organization.
3.83 (0.408)
3.67 (0.577)
4.00 (0.021)
1.00 (0.374)
B. The balance of financial and non-financial
measures (four perspectives)
B1 BSC involves four perspectives: learning and growth, internal business process, customer, and financial.
3.68 (0.995)
3.88 (1.125)
3.57 (0.938)
-0.680 (0.504)
B2 The structure of four perspectives is fixed and cannot be adjusted.
2.41 (1.141)
1.88 (0.991)
2.71 (1.139)
1.738 (0.098)
B3 Incorporation of financial measures of past performance and non-financial measures
3.64 (0.789)
4.13 (0.641)
3.36 (0.745)
-2.439 (0.024)
B4 More measures used will give a better performance evaluation
3.00 (0.633)
3.00 (0.000)
3.00 (1.000)
0.00 (1.000)
B5 The 4 perspectives are sufficient to measure the corporate performance. (i.e. no additional perspective should be included)
2.67 (1.366)
2.00 (1.000)
3.33 (1.528)
0.442 (0.275)
C. Cause-and-effect relationships
C1 There is a cause-and-effect relationship among those four perspectives.
3.91 (0.971)
4.13 (0.835)
3.79 (1.051)
-0.781 (0.444)
C2 The cause-and-effect relationship between BSC measures is the most important characteristics.
3.67 (0.972)
4.00 (0.623)
3.33 (0.577)
-2.000 (0.116)
C3 Customer satisfaction drives future financial performance.
3.77 (0.973)
4.00 (0.756)
3.64 (1.082)
-0.822 (0.421)
C4 Internal processes drive future financial performance. 3.77 (0.813)
3.88 (0.835)
3.71 (0.825)
-0.438 (0.666)
C5 Organization’s ability to learn and improve drives future financial performance.
4.05 (0.722)
4.38 (0.518)
3.86 (0.770)
-1.687 (0.107)
12
Table 2 Descriptive Statistics for all statements (Continue)
Overall
Mean (S.D.)
User Mean (S.D.)
Non-user Mean (S.D.)
t-test (p-value)
D. Applicability of the BSC
D1 Your firm can adopt the Balanced Scorecard. 3.23 (1.066)
3.75 (0.707)
2.93 (1.14)
-1.834 (0.082)
D2 Your firm can use BSC as a planning tool. 2.77 (1.343)
2.88 (1.642)
2.71 (1.204)
-0.264 (0.794)
D3 Your firm can use the four perspectives to measure the performance.
3.50 (1.066)
4.00 (0.535)
3.21 (1.051)
-1.960 (0.064)
D4 Your firm can use the cause-effect approach to develop the performance measures.
3.24 (1.091)
3.63 (1.061)
3.00 (1.080)
-1.296 (0.210)
D5 The measures in the four perspectives can be grouped together to check for balance.
3.24 (1.044)
3.50 (1.195)
3.08 (0.954)
-0.897 (0.381)
D6 Your firm can transform the measures into a detailed operational policing plan.
3.29 (1.056)
3.50 (1.195)
3.15 (0.987)
-0.721 (0.480)
D7 Your firm can link performance measures to strategy implementation.
3.59 (0.959)
4.13 (0.835)
3.29 (0.914)
-2.135 (0.045)
D8 Your firm can outline strategies in details.
3.50 (1.378)
3.67 (1.528)
3.33 (1.528)
-0.267 (0.802)
D9 A number of measures is needed to be established before BSC implementations are launched.
3.59 (0.959)
3.63 (0.916)
3.57 (1.016)
-0.123 (0.903)
D10 Your firm can establish the performance reporting systems for the BSC measures to track the progress of the overall strategy.
3.29 (1.056)
3.88 (0.835)
2.92 (1.038)
-2.189 (0.041)
D11 Your firm can monitor the measures in BSC and take action as appropriate.
3.00 (1.265)
3.50 (1.195)
2.69 (1.251)
-1.461 (0.160)
D12 BSC can be used to ensure all staff understanding their responsibilities in achieving the strategies and goals.
3.00 (1.000)
2.63 (0.744)
3.23 (1.092)
1.378 (0.184)
14
Table 2 Descriptive Statistics for all statements (Continue)
E. Usefulness of the BSC
Benefits
Overall Mean (S.D.)
User Mean (S.D.)
Non-user Mean (S.D.)
t-test (p-value)
E1 Establishes certain criteria to measure, set standards or targets to align initiatives
3.96 (0.950)
4.38 (0.744)
3.71 (0.994)
-1.767 (0.094)
E2 Communicates the strategy to employees’ individual performance.
3.32 (1.041)
3.75 (1.035)
3.07 (0.997)
-1.515 (0.145)
E3 Clarifies the organizational vision, strategic plans and expected performance to every level of the organization efficiently and effectively.
3.50 (0.859)
3.75 (1.035)
3.36 (0.745)
-1.033 (0.314)
E4 Guides and monitors the execution of the organizational strategies.
3.50 (0.740)
3.75 (0.463)
3.36 (0.842)
-1.211 (0.240)
E5 Provides a good framework for decision-making. 3.50 (0.859)
3.63 (0.518)
3.43 (1.016)
-0.507 (0.618)
E6 Greater accountability of employees 3.46 (0.858)
3.88 (0.835)
3.21 (0.802)
-1.833 (0.082)
E7 Encourages learning and continuous improvement. 3.50 (0.859)
3.63 (0.518)
3.43 (1.016)
-0.507 (0.618)
E8 Develops strategies to stand in competition 3.46 (0.671)
3.50 (0.535)
3.43 (0.756)
-0.235 (0.817)
E9 More profitable since the adoption of the BSC. 2.86 (0.864)
2.86 (0.690)
2.86 (1.069)
0.000 (1.000)
E10 Increases employees’ understanding of strategies. 3.27 (0.884)
3.25 (1.035)
3.29 (0.756)
0.075 (0.941)
E11 Encourages employees to consider the impact of their decisions and performances on the organizational profitability
3.53 (0.915)
3.63 (1.188)
3.43 (0.535)
-0.402 (0.694)
E12 Helps each division to reach its goals and helps the entire company get closer to its ultimate goal.
3.40 (0.828)
3.63 (0.916)
3.14 (0.690)
-1.137 (0.276)
E13 Improves alignment among divisional or individual goals and the organizational goal
3.60 (0.632)
3.88 (0.641)
3.29 (0.488)
-1.979 (0.069)
E14 Achieves a balance between backward- and forward-looking performance measures.
3.47 (0.915)
3.63 (0.518)
3.29 (1.254)
-0.703 (0.494)
E15 Translates vision into values and daily operations effectively. 3.53 (0.516)
3.63 (0.518)
3.43 (0.535)
-0.722 (0.483)
E16 Responses to external forces 3.07 (1.033)
3.00 (0.926)
3.14 (1.215)
0.258 (0.800)
Weaknesses
E17 Difficult to deploy the BSC throughout the organization. 3.41 (1.182)
3.25 (1.282)
3.50 (1.160)
0.468 (0.645)
E18 Difficult to obtain timely and cost-effective data 3.59 (1.098)
3.75 (1.282)
3.50 (1.019)
-0.505 (0.619)
E19 Without a properly defined metrics and time-based goals as a basic foundation, the implementation will fail.
3.73 (0.961)
3.63 (0.744)
3.86 (1.215)
0.453 (0.658)
E20 It takes a long time to develop an appropriate set of performance measures.
3.93 (1.100)
4.13 (1.126)
3.71 (1.113)
-0.709 (0.491)
E21 Scorecard terminologies are not consistent with the culture of your company.
3.07 (0.961)
3.00 (1.069)
3.14 (0.900)
0.278 (0.786)
E22 Judgment of the BSC causes complexity. 3.33 (1.047)
3.88 (1.126)
2.71 (0.488)
-2.519 (0.026)
E23 Difficult to link strategy to performance measures. 2.64 (1.177)
3.38 (1.188)
2.21 (0.975)
-2.484 (0.022)
E24 Fail if an organization does a poor job of identifying and monitoring important operation
4.00 (1.000)
4.25 (0.886)
3.71 (1.113)
-1.038 (0.318)
E25 Unable to recognize the community and environmental issues. 3.13 (1.457)
2.88 (1.642)
3.43 (1.272)
0.721 (0.484)
E26 Unable to identify the competitor-related and supplier-related issues.
3.93 (0.884)
4.13 (0.641)
3.71 (1.113)
-0.891 (0.389)
E27 There is a pitfall that focusing on the lag indicators instead of lead indicators in BSC.
2.80 (1.207)
2.75 (1.282)
2.86 (1.215)
0.165 (0.871)
E28 BSC have little effect on organization performance. 2.83 (0.753)
2.67 (1.155)
3.00 (0.512)
0.500 (0.643)
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The following analysis is based on the descriptive statistics shown in Table 2. On the
subject of the strategic management model, it shows that the top three statements with the
highest mean scores are A4, A5 and A7, especially for Statement A7, these mean scores are
almost 4. Generally, all the statements are over 3.5 mean, except the Statement A6 which has
the lowest mean of 3.33.
When concerning the financial and non-financial measures (i.e. four perspectives), the
top three statements, B1, B3 and B4, have the means of 3.68 (s.d.=0.995, n=22),
3.64(s.d.=0.789, n=22) and 3(s.d.=0.633, n=22) respectively while the other two statements
B2 and B5 are calculated with much lower figures, e.g. 2.41 (s.d.=1.141, n=22) and 2.67
(s.d.=1.366, n=22) respectively.
As regard to the cause-and-effect relationships embedded in the BSC, the mean is at a
higher level that closes to 4. For Statement C5, it has a highest mean of 4.05 (s.d.=0.722,
n=22) while the other statements are generally resulted in the mean scores above 3.5.
In relation to the applicability of BSC in these respondents’ companies, they generally
rated between 3 and 3.5 in respect of those statements. Exceptionally, the mean of Statements
D7 and D9 are identical with the mean score of 3.59 (s.d.=0.959, n=22) while Statement D2 is
rated with an extraordinary low mean of 2.77 (s.d.=1.343, n=22).
With respect to the usefulness of the BSC, the statements are divided into two
categories: benefits and weaknesses. Statements E1, E13 and E11 under the benefits category
are the top 3 with the mean scores of 3.96 (s.d.=0.950, n=22), 3.60 (s.d.=0.632, n=22) and
3.53 (s.d.=0.915, n=22) respectively. Generally, the mean of other statements are around 3.5,
except Statement E9 which is resulted in a particular low mean score of 2.86 (s.d.=0.864,
n=22).
On the other hand, under the weaknesses category, Statements E20, E24 and E26
scored with the highest means that close to 4. The mean scores of other statements are
15
commonly rated at the range from 3 to 3.5 with the exception of StatementsE23, E27 and E28.
The exceptional statements’ mean scores are well below the middle point of 3 which lies
around 2.8 and even lower at 2.64.
4.2 Comparisons between BSC users and non-BSC users
4.2.1 Strategic Management Model
There are four statements that the two groups view differently. Regarding to
Statements A1 and A3, the means of user group for both statements are relatively higher
at 4.13 while the means of non-user group are only 3.36 (significant at 0.1 level). For
statement A2, there is a greater difference in the mean scores of 4.25 for user-group and
3.21 for non-user group (significant at 0.01 level). The group means of statement A4 are
4.38 for user-group and 3.29 for non-user group (significant at 0.05 level). Apart from
these statements, the two groups share similar opinions on the others. Both groups
generally have a positive support on the subject of strategic management model
indicated by the above mean score of 3.
4.2.2 The balance of financial and non-financial perspectives
The two groups have a different comment on statement B2 and B3. In respect of the
former statement, the mean of user group is 1.88 while the mean of the non-user group
is 2.71 (significant at 0.1 level). As regard to the statement B3, the mean score of 4.13
shown in user group is higher than that of 3.36 shown in non-user group (significant at
0.05 level). For the other statements, there is no significant difference. Both groups are
with a high mean score approaching to 4 for statement B1, and even have an identical
mean on statement B4. Although the means of user and non-user groups in statement B5
are apart from each other, i.e. 3.33 and 2.00 respectively, there is no statistically
significant difference.
16
4.2.3 Cause-and-effect relationships
Throughout the five statements, user group and non-user group are indicated with a
similar high mean score that around 4. With the use of the independent sample test, no
significant difference is found under this aspect.
4.2.4 Applicability of the BSC
Among the 12 statements, user group and non-user group have a significant
difference on four statements: statement D1 with the user group mean of 3.75 and
non-user group mean of 2.93 (significant at 0.1 level); statement D3 with the user group
mean of 4 and non-user group mean of 3.21 (significant at 0.1 level); statement D7 with
the user group mean of 4.13 and non-user group mean of 3.29 (significant at 0.05 level)
and statement D10 with the user group mean of 3.88 against non-user group mean of
2.92 (significant at 0.05 level). Moreover, statements D11 and D12 are marginally
different. The mean of user group for statement D11 is 3.5 while that of non-user group
is 2.69 (significant at 0.1 level). On the contrary, the mean of non-user group for
statement D12 is greater at 3.23 compared with that of user group’s 2.63 (significant at
0.1 level). In the view of the other statements, both groups generally have optimistic
mean scores ranged from 3 to 3.7 while only one statement with a low mean around 2.8
rated by both groups, i.e. D2.
4.2.5 Usefulness of the BSC
With respect to the benefits, different views of the two groups are shown in three
statements: Statement E1 that the user group mean is 4.38 while the other group mean
is 3.71 (significant at 0.1 level); Statement E6 which is rated at 3.88 by the user group
and rated at 3.21 by the other group mean (significant at 0.1 level); and statement E13
that the means of user and non-user are 3.88 and 3.29 respectively (significant at 0.1
17
level). According to the statistics of p-value, the means of both groups are similar
regarding to the other statements of benefits. Especially for statements E3 and E4, the
mean scores are relatively high. Noticeably the same low mean score on statement E9 is
for both groups.
Out of the 12 weaknesses statements, the two groups view differently on two
statements: E22 with a mean of 3.88 from user group and 2.71 from non-user one
(significant at 0.05 level) and E23 which is expressed with a user group mean of 3.38
and a non-user group mean of 2.21 (significant at 0.05 level). There is no significant
difference between the two groups for the rest of the statements. In general, the
respondents agree with those weaknesses statements, particularly for statements E20,
E24 and E26, both groups rated the mean scores over 4 to demonstrate the agreement
levels. However, statements E27 and E28 are resulted in a lower mean that tends
towards disagreement.
18
5 DISCUSSION
The adoption of BSC in Hong Kong organizations is not widely spread as in the United
States and New Zealand2. The reasons for not applying the model can be summarized into 5
points. Firstly, the respondents may think that other measurements such as amount of
revenues and profits deemed to be more appropriate. Secondly, the unfamiliarity with the BSC
causes difficulty in the usage of BSC. This results in the third reason that lack of resources
since adequate and relevant expertise and competence are required in the implementation. The
fourth reason is the lack of management awareness of the BSC model, and the last one may be
the matter of company size. Although there is a low level of usage, the variety of industries
that have adopted BSC does support the assertion of Kaplan and Norton that every company
can use the BSC.
5.1 Strategic Management Model
On the subject of the strategic management model, the mean of all statements are
above the mid-point of Likert scale. It implies that all respondents agree with the
function of the BSC to communicate the corporate vision and strategic objectives
throughout the organizations and enable the management to link the short-term
operations with the long-term strategic objectives. Under this aspect, the translation of
vision, linkage of vision to daily activities and the foundation of vision in developing key
measures in BSC get the high level of support from the respondents.
When comparing the views of the user group and non-user group under this subject,
there are four items that sharing different points of views. These are: i) the use of vision
in measures development as a foundation, ii) framework for strategy formation and
implementation, iii) a tool to focus on long-term success, and iv) the link between
short-term operations and long-term strategic objectives. User group had a stronger 2 Quoted from Blundell et al. (2003): the survey conducted in New Zealand gave the usage rate of 58%.
19
support to these items while non-user just held a minor degree of support. It may be due
to users’ experiences in the implementation and they may find that the theory can be
applied in practice. Although both groups share similar views in other items, users do not
strongly support, as non-users, on the issue of agreeing the BSC is a valid strategic
management tool. According to the written comments of users, even they acknowledged
the concept of the BSC as a strategic management tool, it was difficult for them to link
the concept to the real life situation due to various uncontrollable factors in the real
world, for example, market situation, company policy, staff morale, etc.
5.2 The balance of financial and non-financial perspectives
Concerning the balance of financial and non-financial perspectives (i.e. the four
perspectives), the respondents, in an overall view, do not strongly agree with the
incorporation of the financial and non-financial measures as well as the four perspectives
involvement in BSC as expected. Despite of the low degree of agreement, users indeed
had a more positive support to the incorporation of the financial and non-financial
measures.
On the other hand, the respondents considered that the four perspectives in BSC
may not be sufficient to measure the corporate performance and its structure should be
modified. Similar to the previous discussion, users also strongly support the idea given
by Kaplan and Norton that the four perspectives are only the framework and can be
modified to meet the special needs of different users. Since non-users may not have any
experience in the use of BSC, they can only make their judgement based on their abstract
knowledge and thus they are not sure whether the modified four perspectives allow
greater viability within the company.
20
5.3 Cause-and-effect relationships
On the matter of cause-and-effect relationships in the BSC, all respondents provided
a more positive support than other aspects. It implies that respondents are aware of the
interdependence relationships between BSC measures and its significance. Particularly,
the cause-and-effect relationship of learning and innovation and financial perspectives
gets the highest support by the respondents. The findings are consistent with Haas and
Kleingeld’s feed-forward control system which means the non-financial measures can
predict financial results. As a result, both users and non-users consider the
cause-and-effect relationships as a critical assumption in the BSC.
5.4 Applicability of the BSC
In relation to the applicability of BSC in those responding companies, the
respondents agreed that their firms can link the performance measures to strategy
implementation and the necessity of establishing the measures before BSC
implementation. They also agreed that their companies can use the four perspectives as
measurements and to outline the strategies in details. In this regard, it seems that their
companies can implement the BSC as mentioned by Nigel (2005)3. However, this
research provides limited support on company’s ability to apply BSC.
In comparing the users’ and non-users’ views on the applicability of BSC, although
users have a relatively greater extent of agreement than non-users, users do not confirm a
stronger support on their ability to use the BSC. In accordance with the users’ comments,
they described the implementation as complicated since the BSC model requires all
levels of management to firstly understand the strategies and then link the strategies to
BSC. Even though the successful linkage of BSC and strategy implementation is very
rewarding, there are some external factors which make the BSC difficult to apply. This is
3 Nigel Evans (2005): The suggested five criteria to implement the BSC.
21
consistent with the finding that the respondents believed that they cannot use the BSC as
a planning tool instead of a performance measurement.
When comparing the two groups’ views on the applicability of BSC, user group was
asked about the appropriateness of the 12 items in the use in BSC. Generally, both
groups provide more or less the same view except four items. In addition to the issue of
BSC adoption, the others are the ability to link performance measures to strategy
implementation, the use of the four perspectives as performance measurements, and the
use of performance reporting system to track the progress of strategy implementation.
Regarding application of BSC, users usually gave a more positive support to those
matters while non-users assessed themselves lack of ability to link performance
measures to strategy implementation and others.
5.5 Usefulness of the BSC
The usefulness of BSC is discussed in two categories: benefits and weaknesses.
There are five significant benefits that are highly agreed by the respondents:
i. BSC provides criteria to measure and set standards to align initiatives.
ii. BSC improves alignment among divisional or individual goals and the
organizational goals.
iii. BSC can translate vision to daily operations effectively
iv. BSC can translate and clarify the organizational vision, strategic plans and
expected performance throughout the company efficiently and effectively.
v. BSC encourages all employees to consider the impact of their decisions and
performances on the organizational profitability.
Nearly all benefits listed are agreed by the respondents. However, both users and
non-users disagreed that the adoption of BSC can bring more profit to the company. It
implies that the implementation of BSC may lead to a higher cost which may be
22
regarded as a weakness.
Generally, both groups shared similar views on the benefits except the benefits 1
and 2 mentioned above as well as the use of BSC can equip employees with greater
accountability. Users strongly agreed with those points while non-users agreed to a minor
extent. Since the users have experienced with the BSC, they are able to comment with
evidence together with their knowledge which eventually provide a stronger support on
the benefits of BSC.
Relating to the weaknesses, there are three significant points:
i. A scorecard will fail if an organization is unable to identify and monitor the
important aspects of operation.
ii. The BSC is unable to identify the supplier-related and competitor-related issues.
iii. It takes a long time to develop an appropriate set of performance measures.
These are consistent with the comments given by Wisniewski (2001) and
Schneiderman (1999). With reference to the users of BSC, they noticed that key
measures should be set and agreed and reported frequently for monitoring performance.
An appropriate set of performance measures takes a long time to develop.
Although most of the weaknesses are agreed by the respondents, there are three
points disagreed. The respondents opposed the minor effect of BSC on organization
performance, the pitfall of single focus on the financial indicators and the difficulty in
the linkage of strategy to performance measures.
Generally, both users and non-users held a similar view on all the weaknesses
including the former two opposed issues. However, the two groups shared different
views in two items: the complexity of the BSC and the difficulty in the linkage of
strategy to performance measures. Users held a stronger state of agreement with the
complexity of the BSC while non-users tended to disagree with it. This contradicts with
23
the reason of the unfamiliarity with BSC given by the non-users. In addition, users had
confirmed more strongly the difficulty in the linkage of strategies to performance
measures but non-users disagreed. Non-users believed that it is not so difficult to link the
strategies to performance measures. This conflicts with the findings in the applicability
section that non-users assess themselves as low ability to link the strategies to
performance measures. The existence of the two inconsistencies may be explained by
lack of practical usage.
24
6 CONCLUSION AND LIMITATIONS
This study comes up with a conclusion that there is a low usage of BSC in Hong Kong
due to its complexity and complicated implementation. Theoretically, respondents agree with
all the characteristics of the BSC, i.e., strategic management model, balance of financial and
non-financial measures, and cause-and-effect relationships. Practically, these characteristics
do not always apply. Instead, users also encounter some problems regarding the applicability
of BSC. Take strategic management model as an example, respondents believed that BSC can
translate the corporate vision throughout the organization, but they could hardly admit it as a
valid management tool because some unpredictable factors may arise in reality. For instance,
there may be a sudden international event that causes economic recession, the strategic
objectives may not be able to achieve; or the changed market conditions cause the company to
change its original strategic plan; or the senior staff do not act bona fide towards the corporate
goals; or competitors develop their comparative advantages that override others.
To promote the use of BSC in the business, it is suggested to conduct a trial and error
process or a pilot testing by modifying the BSC to fit with actual situations. If the content of
BSC is tested, the BSC can be improved to adapt to the special needs of each firm. Once
implemented, the strategies should be fully communicated throughout the company so that
staff at all levels can acknowledge the strategies and work towards the corporate goals. In
addition, the BSC content must be reviewed and revised regularly to make best use of it.
As with other empirical studies, there are some limitations associated with this study.
First, the survey period is rather short and most companies are in the peak seasons, only
limited numbers of companies have participated in this research. This leads to the second
limitation of small sample size. This study consists of 22 listed companies while there are
over 1000 companies listed in the Hong Kong Stock Exchange. Third, the statements in the
questionnaire asked for rating are developed just based on limited literature reviews. Further
25
study is recommended to generate a more comprehensive and reliable findings if the survey
can be extended so that more companies will be able to participate. As a result, the larger
sample size may provide more convincing evidence in respect of the perceptions and use of
the BSC. The study may also be widely analyzed according to different industries rather than
the user and non-user subgroups. It is suggested that additional prior studies can be reviewed
to have a broader point of views and the analysis may be carried out in the way other than the
five aspects specified in this study.
i
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Harward Business Review, 71(5), p. 134-147.
ii
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into Action. Harward Business School Press, Boston, U.S.
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Management System. Harward Business Review, 74(1), p. 61-66.
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Performance Measurement to Strategic Management: Part I. Accounting Horizons, 15(1),
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Study of the Effectiveness of the Balanced Scorecard. Journal of Management
Accounting Research, 13, p. 47-90.
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Management Accounting Research, 12, p. 207-220.
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Refining the Search for Organizational Success Measures. Long Range Planning, 36,
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Periodicals, Inc. p. 57-61.
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Galloway Constabulary with the Balanced Scorecard. Journal of the Operational
Research Society, 52, p.1057-1066.
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8 APPENDIX (Questionnaire Copy) I am a Year 3 Accounting major student. Recently, I am doing a research on the
Perceptions of the Balanced Scorecard system in Hong Kong organizations.
Please spend some time to complete the questionnaire. The data obtained will only be
used for the research and will be kept with high confidentiality. Your participation in
this research is highly appreciated.
Section 1 Preliminary questions
1.1 What industry is your company in? Is it a listed company?
What position are you in?
_________________________________________________________________
1.2 Have you ever heard of the Balanced Scorecard before? (Please tick Yes or No)
1.3 Does your company currently use Balanced Scorecard (BSC)?
1.4 Did your company ever use a Balanced Scorecard before?
1.5 If yes, what were the principal reasons for the decision to abandon its use?
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
1.6 Why has the Balanced Scorecard not been considered?
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Yes ( Please go to next question) No ( Thank you for participation )
Yes ( Please go to Section 2 ) No ( Please go to next question)
Yes ( Please go to question 1.5 ) No ( Please go to question 1.6)
v
Section 2 Understanding of the Balanced Scorecard
Based on your perception of BSC, to what extent do you agree with the following
statements? (Please circle a score in a scale from 1 to 5,
1 represents a completely disagree while 5 represents a completely agree)
A. Strategic Management Model
1. BSC is a tool for company to focus on
strategies for long-term success.
1 2 3 4 5
2 BSC provides a framework for strategy
formation and implementation.
1 2 3 4 5
3 BSC links short-term operational
performance with long-term strategic
objectives.
1 2 3 4 5
4 Key measures in BSC are designed based
on the organizational mission and vision.
1 2 3 4 5
5 An effective management system can link
the vision with daily activities.
1 2 3 4 5
6 The BSC is a valid strategic management
tool.
1 2 3 4 5
7 BSC creates the ability for management to
translate a generic vision into a strategy that
can build consensus and commitment to that
strategy throughout the organization.
1 2 3 4 5
B. The balance of financial and non-financial measures (four perspectives)
1 BSC typically involves the performance
measures across four perspectives: learning
and growth, internal business process,
customer, and financial.
1 2 3 4 5
2 The structure of 4 perspectives mentioned
above is fixed and cannot be adjusted.
1 2 3 4 5
vi
3 BSC incorporates traditional financial
measure of past performance with
non-financial measures to drive future
performance.
1 2 3 4 5
4 More number of measures used will give a
more satisfactory (better) performance
evaluation.
1 2 3 4 5
5 The 4 perspectives are sufficient to measure
the corporate performance.
(i.e. no additional perspective should be
included)
1 2 3 4 5
C. Cause-and-effect relationships
1 There is a cause-and-effect relationship
among those four perspectives.
1 2 3 4 5
2 The cause-and-effect relationship between
BSC measures are the most important
characteristics in the BSC model.
1 2 3 4 5
3 Customer satisfaction drives future financial
performance.
1 2 3 4 5
4 Internal processes drive future financial
performance.
1 2 3 4 5
5 Organization’s ability to learn and improve
drives future financial performance.
1 2 3 4 5
Section 3 Applicability of the Balanced Scorecard (Please circle a score in a scale from 1 to 5,
1 represents a completely disagree while 5 represents a completely agree)
1 Your firm can adopt the Balanced
Scorecard.
1 2 3 4 5
2 Your firm can use BSC as a planning tool
rather than a way of generating
performance measures.
1 2 3 4 5
vii
3 Your firm can use the four perspectives to
measure the performance.
1 2 3 4 5
4 The measures in the four perspectives are
grouped together to check for balance.
1 2 3 4 5
5 Your firms can use the cause-effect
approach to develop the performance
measures.
1 2 3 4 5
6 Your firm can transform the measures into a
detailed operational policing plan in order to
allocate tasks, responsibilities and
timescales.
1 2 3 4 5
7 Your firm can link performance measures to
strategy implementation.
1 2 3 4 5
8 Your firm can figure out strategies in details.
1 2 3 4 5
9 A number of measures is needed to be
established before BSC implementations
are launched.
1 2 3 4 5
10 Your firm can establish the performance
reporting systems for the BSC measures to
track the progress of the overall strategy on
operational basis.
1 2 3 4 5
11 Your firm can monitor the measures in BSC
and takes action as appropriate.
1 2 3 4 5
12 BSC can be used to ensure all staff
understanding their responsibilities in
achieving the strategies and goals.
1 2 3 4 5
viii
Section 4 Practical Advantages/Difficulties in the Use of the Balanced Scorecard With the experience of using Balanced Scorecard or according to your knowledge, to
what extent do you agree with the following advantages/difficulties:
(Please circle a score in a scale from 1 to 5,
1 represents a completely disagree while 5 represents a completely agree)
1 BSC helps establish certain criteria to
measure, set standards or targets to align
initiatives.
1 2 3 4 5
2 BSC can communicate the strategy to
employees’ individual performance.
1 2 3 4 5
3 BSC can translate and clarify the
organizational vision, strategic plans and
expected performance to every level of the
organization efficiently and effectively.
1 2 3 4 5
4 BSC guides and monitors the execution of
the organizational strategies.
1 2 3 4 5
5 BSC provides executives with a good
framework for decision-making.
1 2 3 4 5
6 Employees are equipped with greater
accountability with the use of BSC.
1 2 3 4 5
7 BSC encourages learning and continuous
improvement.
1 2 3 4 5
8 BSC help to adapt the organizational
strategies to stay abreast of the competition.
1 2 3 4 5
9 Your firm has been more profitable since the
adoption of the BSC.
1 2 3 4 5
10 BSC has increased employees’
understanding of strategies.
1 2 3 4 5
11 BSC encourages all employees to consider
the impact of their decisions and
performances on the organizational
profitability. ( to act bona fide)
1 2 3 4 5
ix
12 BSC helps each division to reach its goals
and helps the entire company get closer to
its ultimate goal.
1 2 3 4 5
13 BSC improves alignment among divisional
or individual goals and the organizational
goal and strategies.
1 2 3 4 5
14 BSC achieves a balance between
backward- and forward-looking performance
measures.
1 2 3 4 5
15 BSC translates the organization’s mission
and vision into values and then eventually
down into daily operations effectively.
1 2 3 4 5
16 BSC can response to external forces such
as increasing competition and emerging new
technologies proactively.
1 2 3 4 5
17 It is difficult to deploy the BSC throughout
the organization.
1 2 3 4 5
18 Obtaining timely and cost-effective data for
the use of BSC is a challenge.
1 2 3 4 5
19 Without a properly defined metrics and
time-based goals as a basic foundation, the
implementation of the BSC will fail.
1 2 3 4 5
20 It takes a long time to develop an
appropriate set of performance measures.
1 2 3 4 5
21 Scorecard terminologies are not consistent
with the culture of your company.
1 2 3 4 5
22 Judgment of the BSC, both in its
development and amendments in its later
use, causes complexity.
1 2 3 4 5
23 It is difficult to link strategy to performance
measures.
1 2 3 4 5
x
24 A scorecard can fail if an organization does
a poor job of identifying and monitoring other
important aspects of operation.
1 2 3 4 5
25 BSC is unable to recognize the community
and environmental issues.
1 2 3 4 5
26 BSC is unable to identify the competitor- and
supplier-related issues.
1 2 3 4 5
27 There is a pitfall that focusing on the lag
indicators instead of lead indicators in BSC.
1 2 3 4 5
28 BSC have had relatively little effect on
organization performance.
1 2 3 4 5
Section 5 The linkage of the BSC between strategy formation and implementation Please comment on the linkage between the Balanced Scorecard and the formation
of strategy.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Please give your comment over the linkage between the Balanced Scorecard and the
implementation of strategy.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Please comment on the linkage between the Balanced Scorecard and performance
evaluations.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Thank you for completing this questionnaire.