BSC and Performance Management 1

THE RELATIONSHIP BETWEEN PERFORMANCE MEASUREMENT AND

MANAGEMENT: THE BALANCE SCORECARD FOR ACHIEVING PERFORMANCE

MANAGEMENT

By [Name]
 BSC and Performance Management 2

The Relationship between Performance Measurement and Management: The BSC for Achieving

Performance Management

Introduction

In the 21st century, the global marketplace has become extremely volatile. In a bid to

survive and overcome the challenges in such business environment, organisations have embarked

on adopting workable performance management systems (PMS) for implementing strategies and

turning them into action (Brown et al., 2018). The balanced scorecard (BSC), as introduced by

Kaplan and Norton (1992), is one of the performance measurement and management tools that is

gaining ground as worldwide companies apply it. Cignitas et al. (2022) posit that the BSC aids

the clarification and translation of strategy and vision into measurable outputs within an

organisation. As such, effectively implementing the BSC can be critical to executing business

strategy successfully since it allows a company to translate strategy into action. Practically,

leaders of business organisations are faced with change management and thus must formulate

strategies for successfully implementing PMSs. Systems such as the BSC move companies from

financially biased performance measurements more balanced methods. According to Brown et

al. (2018), the growth, development, and competitiveness of firms can effectively depict their

implementation strategies.

A substantial level of research and various studies demonstrate the popularity of BSC

implementation in different organisation types throughout Europe (Saraiva and Alves 2015).

Moreover, firms that have successfully and effectively applied BSC as their PMS have achieved

numerous benefits including enhanced strategic alignment, performance reporting, organisational

performance, and business planning (Zorek, 2020). Kaplan and Norton (2000) suggested that

implementing BSC successfully is illustrated when firm strategy changes in action and yields

benefits. Yet, majority of small and large organisations adopting the PMS have failed to translate
 BSC and Performance Management 3

strategy to action and have not achieved any benefits from BSC. In Tawse and Tabesh (2022), it

is estimated that 70% of BSC implementations failed. Despite the existence of a considerable

amount of literature regarding the BSC framework, research on the proper ways of

implementation is scarce. Besides, it is not clear due to limited research on whether BSC

implementation can translate into to improved performance management. Therefore, the purpose

of this paper is to establish the relationship between BSC and successfully achieving

performance management.

Literature Review

The literature review has been conducted in relation to the research question: “Evaluate

the relationship of the balance scorecard used in organisations to successfully achieve

performance management”. The review of literature explore a body of research from different

scholars about performance management and the BSC framework using theories of change. The

literature ideas will be utilised as the basis for findings and hence conclusions of this paper.

Performance Management (PM)

PM is a necessity for business for it establishes organisation health (Nxumalo et al.,

2018). These conclude that business leaders applying PMS can influence the difference between

failure and success. Effectively employing BSC includes positive performance results that make

it clear that a company is growing and performing per strategy. With the changing business

environment, companies are embracing newer PMSs where BSC is greatly adopted and

implemented currently. Lueg and Vu (2015) ascertain that the need to measure performance has

promoted the adoption of PMSs which are more balanced compared to the traditional methods

that only relied on financial measures. It has been found that the major challenge to the

effectiveness of PMS lies in the failure to sustain a balance of strategic and operational

management, and using meaningful measures aligned to vision, mission and strategy (Alani et
 BSC and Performance Management 4

al., 2018). A good PMS will thus help an organisation to operationalise its strategy and vision

following proper linkage of PMS to strategy.

It is critical to implement a firm strategy. The research has indicated an association

between successful implementation of strategy and superior firm performance (Oliveira et al.

2022). Nevertheless, Nxumalo et al. (2018) show that companies face numerous challenges

during the implementation of new strategic plans. Lewin’s force field analysis, a change theory,

explains the forces that cause failures in the implementation of change. The theory suggests that

restraining forces must be weakened lest the implementation of change being unsuccessful

(Capatina et al., 2017). Cândido and Santos (2015) emphasise this fact with the finding that of all

organisations undertaking strategic initiatives, between 50% and 90%, fail. Although majority

companies fail to implement new strategic plans, Quesado et al. (2018) note that alignment of the

firm’s strategy to its PMS assists in translating the strategy into action which produces bigger

firm performance outcomes.

Connecting with ideas of Lewin’s force field analysis, companies may fail to have

successful implementation of new methods due to limiting factors like lacking resources and

capabilities (Capatina et al., 2017). Neher and Maley (2019) highlight shortage in resources like

finance, time and personnel as a significant factor for unsuccessful implementation of strategy.

To deal with such challenges, Neher and Maley (2019) propose that implementing PMSs such as

the BSC surpasses strategy implementation challenges for the BSC measures represent the firm’s

strategy. Oliveira et al. (2022) found that BSC implemented in retail exporters was associated

with better performance than where it was not used. Meaning, there is a great variation in

performance measurement and management outcomes for firms that engage PMS that are proven

to translate strategy into action.

The Balanced Scorecard

The BSC was developed by Kaplan and Norton (1992) with the aim of addressing the

shortcomings of traditional performance measurement approaches. The BSC tool enables the

translation of firm strategy and vision into implantation. While past organisations relied on

financial measures including return on investment, profit/loss, and budgets for measuring

performance, they were deemed deficient in meeting wholesome measurement results. Kaplan

and Norton found this traditional practice to be focused on short-term hence developed BSC to

integrate financial and non-financial measures of the organisation (Ndevu and Muller, 2018).

Indeed, BSC seems to encourage implementing long-term strategies through short-term action.

The firm’s strategy can be attained through looking into daily actions. The BSC was however not

smooth for some managers in the initial stages which is why the originators added examples on

how organisations applied the four perspectives of financial, internal business processes,

customers, and learning and growth to help capture firm performance in entirety. While the

customer perspective measures how customers rate the company, internal processes concerns

what must be done to satisfy stakeholders, financial looks into growth, sustainability and

profitability, and finally learning and growth minds the improvement of the quality of employees

(training and culture). Measuring firm performance from the four perspectives gives leaders a

complete view of the organisation.

In relation to the above, research outlines different benefits of the BSC in PM. Among

the key benefits is the finding that BSC successfully manages firm’s long-term strategy

(Quesado et al., 2018). In this, BSC is said to set a pace for the firm to identify short-term

activities that contribute to the overall goal. BSC is utilised by mangers to develop strategic

initiatives that focus on issues which bring about firm growth. Moreover, Tawse and Tabesh

(2022) mention that BSC aids the translation of mission and strategy into tangible actions and

facilitate the internal communication of strategic objectives. In other words, tangible actions
 BSC and Performance Management 6

allow the company’s stakeholders to focus on its strategic priorities. The proper implementation

of BSC allows for the communication of the contribution of individual employees. In change

management theories, it is clear that successful change is only possible when employees feel

comfortable and appreciated for their service (Al Frijat, 2018). Meaning, a performance measure

strategy including the recognition of employees could end in high performance. Thus, literature

has listed numerous benefits of implementing BSC in companies but they all point to the tool

being critical to alignment of strategy to action leading to successful PM.

The issue of failing to implement BSC successfully cannot be unmentioned. The research

reveals that between 50% and 90% of companies trying the BSC fail to use it successfully

(Cândido and Santos, 2015). Implementation problems for BSC can be social, technical or

conceptual. Yet, Zorek (2020) posits that numerous BSC implementation studies show the best

ways of using the tool successfully. For instance, the theory of critical success factors (CSF)

outlines implementation processes and procedures that could be incorporated in change

implementation. Authors note CSF for implementing BSC including: communication of the BSC

plan (Sirait et al., 2020); top management support and cooperation with firm members (Sirait et

al., 2020); organisation strategy with performance indicators that are clear and attainable, and be

aligned to BSC perspectives (Nazari-Shirkouhi et al., 2020); and education or training on the

BSC tool (Lueg and Vu, 2015). Such a highlight of CSF helps the leaders to identify the aspects

that can enable successful PM including factors for using BSC successfully.

The literature emphasises the significance of BSC as an effective mode for measuring

performance. However, it is still not clear whether BSC and PM are directly connected without

other factors for no study has vividly explored this relationship. The next section indicates the

research methods used to find literature and analyse it to produce findings and conclude on the

research question.
 BSC and Performance Management 7

Research Methods

The qualitative research design where the literature review method was selected is

adopted. According to Khan (2014), researchers choose strategies for acquiring knowledge about

any topic through research methodology. The literature review method is appropriate for the

current paper because it offers authentic and tested information. Qualitative methods are also

preferred for they aid in the attainment of a better understanding of phenomena from different

perspectives and timeframes (Aspers and Corte, 2019). Reviewing literature that stretches across

different fields and time scope aids the affirmation of relevance (reliability) of results and

conclusions. A number of online databases were thus searched for relevant studies that could

help answer the research question. Some of the databases searched included Google Scholar,

ProQuest Dissertations and Theses, Sage, and the Walden University online database. The

review of literature for resources related to the research question included peer-reviewed journals

and articles, dissertations, books, corporate reports and websites. As such, the analysis of

gathered information was through thematic analysis in which themes related to answering the

research question were identified and hence discussed to reach conclusions.

In the financial industry, it is important that companies institute ethical principles when

dealing with financial information. However, the role ethics plays should be defined to allow

people avoid mistakes and trust issues during accounting. Endenich and Trapp (2020) articulate

that the accounting and financial principles should be adopted to prevent accountants from

misusing information and disclosing it to unauthorised parties. As such, during the research of

this paper ethical consideration was given to the resources since methodological approaches

should assume specific outcomes based on the question. Besides, ethics frames knowledge about

accounting, practice and policy since accountants are expected to maintain prudence, honesty

and integrity. In this case, information pertaining to answering the question were framed based
 BSC and Performance Management 8

on discussions and conclusion from previous studies. Therefore, following ethical practices to

analyse the BSC and performance management in organisation should be tailored along ethical

practices.

Findings

The purpose of this paper was to establish the relationship that the BSC as utilised in

organisations has with successfully achieving PM. Findings from the review of literature are

relayed in thematic manner. Three themes have been presented as follows:

1. Refocusing the organisation as successful PM

From the literature review, it is seen that implementing the BSC tool for measuring

performance refocuses the organisation towards creating improved performance. The studies

indicate that managing performance cannot be counted as successful if the methods of measuring

do not cause positive change. Cignitas et al. (2022) established that organisation can be

successful in adopting BSC when their people act with the same perception about its ability to

transform the accounting discipline. Highlighting the benefits of BSC, the studies have shown

that the four perspectives of the tool help business leaders to look at performance in a wholesome

rather than unbalanced manner. Thus, it is clear that BSC is a means of refocusing the

measurement of performance.

2. Operationalization of the business strategy as successful PM

The other essential theme identified from the literature review is that BSC operationalises

the business strategy. Studies concerning implementation of BSC indicate that the approach

reflects the firm’s strategy in its performance measure and targets. Banchieri et al. (2016)

established that performance measured against an organisation’s expectations can reflect

strategic outcomes based on specific indicators. As such, the strategy is translated into action as

it is part of the performance measurement targets and indicators. Most of the explored studies
 BSC and Performance Management 9

conclude that performance management is deemed successful if it turns strategy into action, and

BSC implementation is found to fulfil this.

3. The communication factor

The final finding for this study lies in the communication aspect highlighted in the

literature review as being enabled by the BSC PMS. According to a substantial amount of

research, communication is a critical factor in the success of an organisation. Findings show that

management holds the power to control how an organisation implements BSC PMS tools

through training and educating members about its validity (plan (Sirait et al., 2020: Nazari-

Shirkouhi et al., 2020). For PM, the ability to communication the business strategy and

encourage stakeholders to perform is an indicator of successfully managing performance. BSC

facilitates the internal communication of strategic objectives and allows the communication of

the individual employee contribution which promotes a feeling of togetherness.

Discussion and Conclusion

In this section, findings are compared to the themes from other studies that confirm the

findings from literature. The section also explains the conclusions and implications of how the

results benefit social change, recommendations and suggestions for future research.

The theme of refocusing the organisation as successful PM supports literature review

findings as well as the applicability of the change theory. Lueg and Vu (2015) suggested that

BSC is important since its four perspectives help business leaders look at performance in a

wholesome rather than unbalanced manner. Kaplan and Norton found this traditional practice to

be focused on short-term hence developed BSC to integrate financial and non-financial measures

of the organisation (Ndevu and Muller, 2018). Related findings from Cignitas et al. (2022)

confirm that public sector employees after embracing BSC performance measures have

embarked on continuous learning and improvement. Such findings propose that the volatility the
 BSC and Performance Management 10

business environment cannot be beaten without ensuring high performance. Understanding the

dynamics of overall performance, which according to the findings can be attained through

implementing BSC, is critical. The four perspectives that make leaders look at whether every

aspect of business is alive help in refocusing the objectives and short-term actions of the

organisation that end in a better PM. Thus, it is clear that BSC is a means of refocusing the

measurement of performance

The theme of operationalization of the business strategy is the most common in the entire

literature review. Numerous studies highlight how BSC’s main target is translating strategy into

tangible actions (Sirait et al., 2020; Tawse and Tabesh, 2022). Alani et al. (2018) hit on the

failure to sustain a balance of strategic and operational management, and using meaningful

measures aligned to vision, mission and strategy as the major challenge to PMS effectiveness.

Indeed, notable findings from different studies ascertain that more than 50% of the organisations

that launch the implementation of PMS fail to attain desired performance measurement

outcomes. For instance, Saraiva and Alves (2015) found that majority business leaders have not

learned the art of aligning business strategy with PMS objectives. However, recent studies on

change management have proven that adopting change moves hand in hand with identifying and

weakening restraining forces (Montreuil, 2022). Organisations need to learn their restraining

issues especially resetting business objectives per overall strategy and gain more in terms of

performance. The current findings reveal that implementing BSC helps business leaders to

identify the various aspects that can lead to performing well on the overall strategy. BSC makes

the strategy operational through reflecting it in the performance measure and targets.

The finding that communication is a critical factor that determines successful PM has not

been isolated either. The theme confirms findings from existing literature stating effective

communication as essential for successful organisations. While strategy is critical to performance

management, communication is the enabler of everything. From the literature, Alani et al. (2018)

note that communication relays the entire firm’s strategy to the concerned parties and hence

promotes PM. An earlier finding by Jääskeläinen and Sillanpää (2013) indicates that effective

communication is critical for successfully implementing BSC processes. However, Banchieri et

al. (2016) noted that majority organisations fail to implement BSC because the leaders cannot

establish reason for leaving the traditional ways of measuring performance. This depicts a need

to identify the CSF before taking on the new PMS process. Clear communication on the process

of change is cited to enable employees take ownership, and understand how to improve, gain

more autonomy and understanding of the direction of business strategy. To conclude on this, one

can confidently say that since BSC perspectives require and also support effective

communication, implementing the BSC leads to effectiveness of PM.

Conclusion and Recommendations

In most or not all organisation types, successful implementation of BSC automatically

depicts a successful attainment of performance management. Mainly, organisations ranging from

small to large can successfully implement BSC if they identify which CSFs apply to their

organisation. Lastly, BSC implementation is a sure way to aligning business strategy to PM and

since BSC eases this by reflecting the strategy in the performance measures and objectives, it

leads to successful achievement of performance management.

Taking into consideration future policy and practice in business organisations, companies

that still rely on traditional PM methods need to learn more about BSC to understand better ways

of achieving successful performance management. Besides, leaders from different organisations

should engage more in understanding effective communication to ensure that their employees

and stakeholders develop buy-in and own the overall strategy. In this, the business interests of all

parties will be satisfied while performance becomes greater and hence effective PM. Leaders of
 BSC and Performance Management 12

businesses until now struggle with executing their strategy successfully. The findings of this

paper and more other related studies can help them establish better strategies and practices

regarding successful implementation of change and performance management initiatives.

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