Which portion of the balanced scorecard contains lagging measures of performance?
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journal article Show The Accounting Review Vol. 78, No. 3 (Jul., 2003) , pp. 725-758 (34 pages) Published By: American Accounting Association https://www.jstor.org/stable/3203223 This is a preview. Log in to get access Abstract This study examines how different types of performance measures were weighted in a subjective balanced scorecard bonus plan adopted by a major financial services firm. Drawing upon economic and psychological studies on performance evaluation and compensation criteria, we develop hypotheses regarding the weights placed on different types of measures. We find that the subjectivity in the scorecard plan allowed superiors to reduce the "balance" in bonus awards by placing most of the weight on financial measures, to incorporate factors other than the scorecard measures in performance evaluations, to change evaluation criteria from quarter to quarter, to ignore measures that were predictive of future financial performance, and to weight measures that were not predictive of desired results. This evidence suggests that psychology-based explanations may be equally or more relevant than economics-based explanations in explaining the firm's measurement practices. The high level of subjectivity in the balanced scorecard plan led many branch managers to complain about favoritism in bonus awards and uncertainty in the criteria being used to determine rewards. The system ultimately was abandoned in favor of a formulaic bonus plan based solely on revenues. Journal Information The Accounting Review is the premier journal for publishing articles reporting the results of accounting research and explaining and illustrating related research methodology. The scope of acceptable articles embraces any research methodology and any accounting-related subject. The primary criterion for publication in The Accounting Review is the significance of the contribution an article makes to the literature. Publisher Information The American Accounting Association is the world's largest association of accounting and business educators, researchers, and interested practitioners. A worldwide organization, the AAA promotes education, research, service, and interaction between education and practice. Formed in 1916 as the American Association of University Instructors in Accounting, the association began publishing the first of its ten journals, The Accounting Review, in 1925. Ten years later, in 1935, the association changed its name to become the American Accounting Association. The AAA now extends far beyond accounting, with 14 Sections addressing such issues as Information Systems, Artificial Intelligence/Expert Systems, Public Interest, Auditing, taxation (the American Taxation Association is a Section of the AAA), International Accounting, and Teaching and Curriculum. About 30% of AAA members live and work outside the United States. Rights & Usage This item is part of a JSTOR Collection. The Balanced Scorecard is one of the world’s top ten management tools and has been enjoying global popularity since its introduction in the early 1990s. There is a good reason for this. Historically, the majority of organizations have relied on financial and accounting measures to assess their performance. Financial measures continue to be of fundamental importance to organizations. However, there is a growing awareness that if a company is going to succeed in the contemporary business, it will have to generate and take account of a wider range of measures, reflecting the requirements of such stakeholders as customers, shareholders, employees, environment, and the communities around them. Traditional financial and accounting measures record what has happened in a previous period and are often referred to as “lag indicators.” Relying solely on a lag indicators is like driving a car while looking in the rear-view mirrors. A growing awareness of the need to take a holistic view of the organization was the catalyst that spurred Dr. Kaplan and Dr. Norton (1991) to develop a Balanced Scorecard. As Kaplan and Norton state: "The name reflected the balance provided between short- and long-term objectives, between financial and non-financial measures, between lagging and leading indicators, and between external and internal performance perspectives”. Balanced Scorecard was born. Balanced Scorecard is now widely used as a strategy execution tool that, at the most basic level, helps companies to:
More than half of major companies in the US, Europe, and Asia are using Balanced Scorecard approaches. A global study by Bain & Co finds that the Balanced Scorecard is one of the top ten most widely used management tools around the world. Components of the Balanced Scorecard The original model illustrated leading (looking forward) and lagging (looking back) indicators in four different perspectives: Financial (how are we looking to our shareholders?); Customer (what value do we need to provide to our customers in order to achieve our financial goals?); Internal Processes (what internal processes must we excel at in order to provide the value to achieve the financial targets for seeking?); and Learning and Growth (what skills and competencies must we have in our organization to drive the internal process and to provide value to our customers to reach our financial goals). One can think about this as a strategic framework to make sure that the company’s strategic plan is effective and integrated and holistic. One of the significant strengths of the Balanced Scorecard is its adaptability. The authors make it clear that their four quadrants are only a template. Organizations implementing a Balanced Scorecard process are forced to think clearly about their purpose or mission, their strategy, and who the stakeholders in their organization are and what their requirements might be. The Balanced Scorecard process involves bringing together the key members of an organization to debate and reach a consensus on the purpose of the organization, the requirements of its stakeholders and its strategy. By doing so, it moves beyond being a performance measurement tool to become a useful aid to strategic development. Once the goals in four quadrants are set, the second step of Balanced Scorecard implementation is Key Performance Indicators (KPIs) that allow companies to measure and monitor progress against their most important strategic. KPIs are vital navigation instruments for managers. Each KPI needs to be defined clearly and include specific targets. The final Action Plan ensures that the right projects and initiatives are in place to deliver each of the strategic objectives. If all the components of the Balanced Scorecard are in place, then it can transform an organization. It is such a popular and powerful strategy execution tool because it allows a company to depict and communicate its strategic plan in a straightforward and graphical way as well as monitor and manage the delivery of the plan. The Balanced Scorecard can be used to guide the design of performance reports and dashboards (visual depiction of KPIs). This guidance ensures that the management reporting focuses on the most critical strategic issues and helps companies monitor the execution of their plan. Most Balanced Scorecards need to be reported and reviewed quarterly; this frequency provides effective executive control over the strategy implementation process. A consulting company 2GC survey shows that 56% of organizations use some software automation to help build these Balanced Scorecard reports. Research has shown that organizations that use a Balanced Scorecard approach tend to outperform organizations without a formal approach to strategic performance management. Learn more at our upcoming workshop: https://hr-roi.com/workshop/balanced-scorecard-identify-and-measure-key-performance-indicators-workshop/ ABOUT THE AUTHOR Anna E. Howard, CPA, CMA, Senior Partner at HR ROI, is a finance and accounting professional with a passion for education and empowerment through financial literacy and mastery. She teaches graduate courses at Merrimack College and conducts workshops in Portsmouth, NH, and Boston, MA. Contact her at: (603) 766-4906 or Which balanced scorecard perspective consists primarily of lagging indicators?A note about leading and lagging indicators:
And because the Balanced Scorecard financial perspective is made up primarily of lagging indicators, there are rarely projects or initiatives linked to this perspective (those are linked to drivers like operations or learning and growth).
What are the 4 perspectives of the balanced scorecard?The four perspectives of a traditional balanced scorecard are Financial, Customer, Internal Process, and Learning and Growth.
Which of the following performance measures are part of the balance scorecard?The balanced scorecard involves measuring four main aspects of a business: Learning and growth, business processes, customers, and finance. BSCs allow companies to pool information in a single report, to provide information into service and quality in addition to financial performance, and to help improve efficiencies.
What is target in balanced scorecard?Strategic objectives - what the strategy is to achieve in that perspective. Measures - how progress for that particular objective will be measured. Targets - the target value sought for each measure. Initiatives - what will be done to facilitate the reaching of the target.
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