INFORMATION TO USERS This manuscript has been reproduced from the microfilm master. UMI films the text directly from the original or copy submitted. Thus, some thesis and dissertation copies are in typewriter face, while others may be from any type of computer printer. The quality of this reproduction is dependent upon the quality of the copy submitted.
Broken or indistinct print, colored or poor quality illustrations and photographs, print bleedthrough, substandard margins, and improper alignment can adversely affect reproduction. in the unlikely event that the author did not send UMI a compiete manuscript and there are missing pages, these will be noted. Also, if unauthorized copyright material had to be removed, a note will indicate the deletion., maps, drawings, charts) are reproduced by sectioning the original, beginning at the upper left-hand corner and continuing from left to right in equal sections with small overlaps. ProQuest information and Learning 300 North Zeeb Road, Ann Arbor, Mi 48106-1346 USA 800-521-0600 University of Nevada, Reno The Balanced Scorecard: Evolution to Long-Term Performance A thesis submitted in partial fulfillment of the requirements for the degree of Master of Business Administration by Michael T.
Kertr/Thesis Advisor August, 2003 UMI Number: 1415871 + UMI Microform 1415871 Copyright 2003 by ProQuest Information and Learning Company. All rights reserved. This microform edition is protected against unauthorized copying under Title 17, United States Code. ProQuest Information and Learning Company 300 North Zeeb Road P.
Box 1346 Ann Arbor, Mi 48106-1346 UNIVERSITY OF NEVADA THE GRADUATE SCHOOL RENO We recommend that the thesis prepared under our supervision by MICHAEL T. ZANINI entitled THE BALANCED SCORECARD: EVOLUTION TO LONG-TERM PERFORMANCE be accepted in partial fulfillment of the requirements for the degree of MASTER OF BUSINESS ADMINISTRATION = AaStephen G.,Advisor “> 75 TF Oe Ph. “Committee Member LỤ (0v / „Wvonnc E. ,Committee Member NK it W.
Graduate School Representative NS Lek., Associate Dean, Graduate School ABSTRACT The Balanced Scorecard was introduced over ten years ago by Robert. Kaplan and David P. Norton with significant fanfare and excitement This study traced the evolution of the initial Balanced Scorecard Model into its current form and investigated its ability to generate improved long-term performance. The results of the study showed that the Balanced Scorecard concept is widely accepted worldwide as a strategic performance management tool but is not as widely adopted as kas been reported.
Study results also showed that adoption of the Balanced Scorecard does not necessarily guarantee improved long-term performance Managers are therefore advised to carefully evaluate the likelihood of achieving benefits from the implementation of the Balanced Scorecard into their organizations until the parameters needed to ensure long-term performance improvements are more fully understood. u ACKNOWLEDGEMENT The author would like to thank everyone who committed their time and support to the completion of this thesis. In particular, the author would like to thank Stephen Kerr for his guidance and mentoring and Lynn Bible and Yvonne Stedham for their time and valuable insight into the content of this thesis. TABLE OF CONTENTS ABSTRACT ACKNOWLEDGEMENT TABLE OF CONTENTS ii LIST OF TABLES vi LIST OF FIGURES Vil CHAPTER 1: THE BALANCED SCORECARD: EVOLUTION TO LONG-TERM PERFORMANCE el — SIGNIFICANCE OF THE STUDY RESEARCH QUESTIONS Question 1: The Evolution of the Balanced Scorecard & Question 2: Consulting Firms Promotion of the Balanced Scorecard Question 3: Linking the Balanced Scorecard to Performance Measures Question 4: The Balanced Scorecard and Long-Term Performance Measures 10 CHAPTER 2: THE EVOLUTION OF THE BALANCED SCORECARD 12 BALANCED SCORECARD — THE INCEPTION 13 BALANCED SCORECARD - THE DEVELOPMENT 14 BALANCED SCORECARD —- TODAY 19 Balanced Scorecard Criticism 24 BALANCED SCORECARD - THE FUTURE 26 Balanced Scorecard Software 26 The Balanced Scorecard and External Reporting 27 The Balanced Scorecard and the Budgeting Process 28 The Balanced Scorecard Collaborative ^ 3] THE BALANCED SCORECARD EVOLUTION —- SUMMARY 32~ CHAPTER 3: CONSULTING FIRMS PROMOTION OF THE BALANCED SCORECARD a4 33 METHODOLOGY 34 RESEARCH SUMMARY 35 RESULTS 38 Accenture 38 Deloitte Touche Tohmatsu 41 Ernst & Young 43 TABLE OF CONTENTS continued KPMG PricewaterhouseCoopers A.
Kearney Bain & Company Booz Allen Hamilton The Boston Consulting Group McKinsey & Company The Monitor Group CONCLUSION CHAPTER 4: PERFORMANCE INCENTIVES AND THE BALANCED SCORECARD 67 PERFORMANCE INCENTIVES 68 Reward Systems 68 intrinsic versus Extrinsic Rewards 72 PAY FOR PERFORMANCE 75 Organization Wide Systems 76 Profit Sharing 76 Gain Sharing 77 Employee Stock Ownership Plans 77 Team Incentives 78 Individual Incentives 78 Executives/CEO 79 Front Line Employees 79 PERFORMANCE INCENTIVES AND STRATEGIC PERFORMANCE MEASUREMENT SYSTEMS 80 Link Between Strategy and Employee Performance 80 LINKING PERFORMANCE INCENTIVES AND REWARDS TO THE BALANCED SCORECARD 86 Mobil North American Marketing and Refining 89 Hilton Hotels 92 Texaco Refinery and Marketing 94 CIGNA Property and Casualty 9S Ingersoll-Rand 97 Performance Incentives and the Balanced Scorecard in Europe 99 Executives/CEO Performance Incentive Systems 100 THE FUTURE OF PERFORMANCE INCENTIVES 103 CONCLUSIONS 104 CHAPTER 5: THE BALANCED SCORECARD AND LONG-TERM PERFORMANCE 106 RESEARCH DISCUSSION 107 TABLE OF CONTENTS continued METHODOLOGY Time Horizon and Long-Term Performance Critena Selection Process Balanced Scorecard Adopter Companies CASE STUDIES Case 1: Hilton Hotels Case |: Results Case 2: Wendy's International Case 2: Results Case 3: Dofasco Case 3: Results CASE DISCUSSION CHAPTER 6: FINDINGS, CONCLUSIONS AND RECOMMENDATIONS FINDINGS Chapter 2: The Evolution of the Balanced Scorecard Chapter 3: Consulting Firms Promotion of the Balanced Scorecard Chapter 4: Performance Incentives and the Balanced Scorecard Chapter 5: The Balanced Scorecard and Long-Term Performance CONCLUSIONS RECOMMENDATIONS AND DISCUSSION MAIN RESEARCH QUESTION SUMMARY CHAPTER 7: REFERENCES vi LIST OF TABLES Table 1: General Management Consultants Market Share 2001 Table 2: Consulting Firms Strategic Performance Measurement Offering Summary Vil LIST OF FIGURES Figure 1: Defining the Cause-and-Effect Relationships of the Strategy Figure 2: Lodging Comparison - %Return from Hilton's BSC Implementation 1996 Figure 3: Restaurant Companison - %Retum from Wendy's BSC Implementation 1999 Figure 4: Materials Comparison - %Return from Dofasco’s BSC implementation 1996 CHAPTER 1: THE BALANCED SCORECARD - EVOLUTION TO LONG-TERM PERFORMANCE The Balanced Scorecard (BSC) is one of the 75 most influential ideas of the twentieth century according to Harvard Business Review (Niven. Accolades such as this abound for this management tool. As a student of management, it is essential to understand and valuate the use of the concept of the BSC in order to determine its effectiveness as a management practice. The Balanced Scorecard is a strategic performance measurement system that was developed by Robert S.
Kaplan and David P Norton. The tool was developed to guide organizations to achieve breakthrough results by embedding strategy at the heart of the organization. The concept, developed over ten years ago, was significantly different than any existing performance measurement system and generated considerable excitement. A variety of applications and variations of the Balanced Scorecard have emerged over the last ten years.
This study is an investigation into the evolution of the Balanced Scorecard. who and how it is being promoted today, how it is being used to link employee performance to organizational strategy, and how successful have the companies been who have adopted the Scorecard as a performance measurement and strategy implementation tool in the long-term. SIGNIFICANCE OF THE STUDY The concept of the Balanced Scorecard was introduced in the early 1990s with considerable excitement and promised to change the way performance measurement was conducted and how companies were managed. Ten years have passed since its introduction and this study summarizes the evolution of the Scorecard, categorizes its penetration into mainstream performance management, discusses its progression into incentive pay systems and documents the degree of successfulness of the implementation of the Balanced Scorecard to achieve long-term performance.
Much has been written about the Balanced Scorecard and its penetration into mainstream performance measurement and management systems. It is important to understand and validate the concept of the Balanced Scorecard in order to determine its usefulness. A strong indication of its validity is determined by analyzing its use and the form of its use by the major consultancies. Management consultant companies and the large accounting firm consultancies are hired by organizations to provide new age solutions that fundamentally enhance the competitiveness of their clients.
If they are using and promoting a balanced measures approach, than a good indication of its acceptance as a successful strategic performance measurement tool is determined. Engaging the hearts and minds of all employees in an organization and aligning their goals with that of the organization is a hot topic in organizational management. Developing a set of performance measures that drives a company’s vision and strategy to the front-lines so that each employee can see how his/her work contributes to organizational goals could be a powerful motivational tool to align all the interests of an organization's stakeholders. If this balanced set of measures has been tied to financial incentives for employees throughout an organization effectively, an organization's long- term performance could improve significantly.
Many articles have been written lately discussing the misalignment of CEO compensation and company success due to the use of options as a long-term performance incentive. If CEOs’ bonuses were based on a balanced set of measures and not solely on stock price, this misalignment could potentially be corrected. In addition to its utilization by consultancies as a litmus test of successful implementation, what does an unbiased research study conclude as to the long-term success of Balanced Scorecard adopters? Companies and their executives are often criticized for their feverish obsession with achieving short-term earnings at any cost. The result of this obsession is most often the curtailment of programs and strategic initiatives that could have generated improved future performance.
If companies adopted a balanced set of financial and non-financial measures, does their long-term performance improve? Does the Balanced Scorecard give companies the necessary strategic focus that gives them a competitive advantage to achieve exceptional long-term performance? This study has explored the impact of the Balanced Scorecard on this age-old management problem. RESEARCH QUESTIONS The purpose of this study is therefore to explore to what extent the Balanced Scorecard has evolved into a strategic performance management system that is worthy of the worldwide attention it has received and to determine if it can deliver superior long-term performance. In an effort to explore the research question, it has been divided into four specific questions In chapter two, the evolution of the BSC since its inception is summarized. The study explored the second specific research question in chapter three, which concerned the impact of the BSC on major management consultancies.
In chapter four, an understanding of the association between incentive pay systems and the Scorecard was investigated. The fourth specific research question was explored in chapter five and it analyzed the long-term successfulness of companies who implemented the BSC Lastly, chapter six summarized the findings of this study and provided a set of recommendations for future research on the concept of the BSC. Question 1: The Evolution of the Balanced Scorecard Since its introduction in 1992, how has the Balanced Scorecard evolved and how are Kaplan and Norton promoting it today? The concept of the Balanced Scorecard was first introduced by Kaplan and Norton (1992) in the article, Ze Balanced Scorecard - Measures that Drive Performance. The Balanced Scorecard was developed solely as a performance measurement tool to be used to capture the value-creating activities from an organization's intangible assets: innovative products and services, customer loyalty and relationships, and employee skills and motivation.
Kaplan and Norton contended that these assets could not be adequately valued through traditional financial measurements alone. As the authors gained experience through the implementation of the Scorecard in over 200 various organizations (http.com, November 10, 2002), they determined that it had evolved into an effective tool for organizations to implement and direct their strategies throughout their organizations. This chapter of the study traced the evolution of the Balanced Scorecard from its inception through the development of the BSC by exploring the published papers and books by Kaplan and Norton.