Management Accounting: Decision Making

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The Balanced Scorecard (herein; BSC) originated as a set of measures conceived by Robert Kaplan & David Norton in 1990- it was designed to show management a streamlined overview of the organisational unit. This model features four perspectives in a feed-forward system whereby each perspective leads into the next, in the order; Financial, Customer, Internal Business Processes and Learning & Growth. These perspectives were purported to be the critical drivers of a company’s strategic objectives.

The purpose of this paper is to comment an opinion on the BSC’s success in assisting organisations in decision-making, drawing upon supportive and critical arguments from a range of relevant scholarly articles.

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Strategic Management Accounting (herein; SMA) incorporates short- and long-term vision, while integrating Financial and Non-Financial Information to come to strategic decisions. The integral factor in Japanese management accounting systems’ success, when compared with Western systems, is the combination of corporate strategy with management accounting (Hariman, 1990).

Lord (1996) summarises the traditional characteristics of SMA as observation of competitor activity, cost reduction and aligning accounting emphasis with strategic position (Lord, 1996). It can be said that the BSC employs cost reduction strategies within its Financial and Internal Business Processes Perspectives, and a combination of accounting with strategy, however it can be argued that the BSC fails to include the specific monitoring of competition activity within its model (Andon P., 2005).

Kaplan & Norton analogise the function of the BSC to that of dials and indicators in an airplane cockpit (Kaplan, 2005), whereby it is explained that exclusive reliance on one performance measure can be fatal.

“For Kaplan & Norton, SMA amounts to integrating elements of strategy theory into management accounting.” (Roslender, 2003)

The BSC is designed to focus managers on the most important indicators of performance; to streamline, simplify and operationalise organisational vision. The BSC can be viewed as a mechanism for communicating critical factors in successful marketing performance. This thought process is backed up by the marketing accountability project, which emphasises the importance of using a varied range of performance measures, metrics and reporting formats such as the BSC (Shaw, 1997).

The BSC is said to play a key role in Best Value Implementation by connecting operations and strategy in a continuous system, while also proving useful in linking other improvement initiatives. However, for this to be applicable, the BSC must be designed with accurate and adequate information relating to the organisation itself and the environmental context in which it operates (McAdam, 2003). This is an unsafe assumption to make, as information that is reliably accurate and adequate is often difficult to obtain, especially in the Public Sector.

The BSC focuses its vision mostly on the customer and on increasing profitability, however while it is streamlined and concise in its design, cleverly avoiding the potential pitfall of ‘initiative overload,’ it has recently been criticised for excluding an important perspective that involves key stakeholders; Employee Satisfaction- this fifth perspective had been widely deployed in the US, after research showed that it could be a useful yardstick for flagging and reacting to problems within the workforce (McAdam, 2003).

Although the BSC is mainly geared towards the Private Sector, Kaplan & Norton considered a BSC implementation successful if five key steps were achieved:

  1. Defining objectives which could measure performance improvements;
  2. Developing transparency between the top and bottom levels of the organisation to create synergy and maximise communication;
  3. Ensuring accountability and ownership of actions among all staff;
  4. Continuously updating the strategic plan by referring back to the BSC and engaging with feedback, and;
  5. Allowing change to take effect via the support of senior management to champion the process.

They believed that these steps would result in an organisation whose goals and ambitions were aligned from the top down, enhancing the vision of each employee who were incentivised to achieve this goal congruence by personal accountability (McAdam, 2003). Kaplan & Norton argue that the BSC comprises a focused set of balanced measures, claiming to align organisational strategy with labour, by breaking down traditional functional silos, that is, groups of employees within an organisation who operate separately from one another. These are a major barrier to the achievement of a company’s directives (Andon P., 2005).

The BSC is not without its detractors, however. According to Professor Modell’s commentary, one of the main criticisms that kept repeating itself was an evident power struggle, a resistance to BSC implementation. The divide between the desires of the Shareholders (represented by the CEO and Board members) and prominent Stakeholders (employees, suppliers, customers), especially in Public Sector Accounting, was apparent. (Hoque, 2012). This resistance could arise for many reasons, for example, certain employees and managers would be subjected to an increased level of unwanted scrutiny. Many within an organisation may feel like a new emphasis on updated Performance Measures would lead to an incompatible organisational culture, one that may juxtapose their personal opinions on the operation of the business (Andon P., 2005). Furthermore, installation of a new initiative takes time and effort, especially in agreeing upon valid strategic objectives- the fatigue from trying to introduce an entirely new system may discourage stakeholders (McAdam, 2003).

Another frequently appearing limitation of the BSC model is a lack of substance; not to say that the four perspective model isn’t informative and useful, instead that it may be overly simplistic, restrictive and partial, rendering invisible the role of the employee, supplier and community (Maltz, 2003). It has been argued that a more balanced approach in the Financial Perspective, with the view of long-term stakeholder value creation, rather than long-term shareholder value creation, would be preferable (Hoque, 2012). Further criticism levelled against the BSC is in relation to ignoring trade-offs between different measures, particularly that the wide range of measures leads to confusion, not focus. Insufficient elaboration and guidance from the creators of the model has led to even more confusion, specifically regarding selection of the best measures to use in a BSC (Andon P., 2005).

It has been said that an effective strategic management system alerts its users to changes in the competitive environment, obliging senior management to adapt to said changes (van Veen-Dirks, 2002), the BSC fails to do this as it does not monitor the competitive environment within which the organisation operates. The BSC as presently constructed ignores external shocks that may disrupt the realisation of organisational objectives (Andon P., 2005), meaning it cannot be relied upon independently as a strategic management system.

“it is impossible to predict the value of the [BSC] approach before its implementation.” (Ahn, 2001).

Nørreklit’s 2003 paper focuses on whether the initial success of the BSC was due to it being a ground- breaking and convincing theory, or if it was simply a persuasive rhetoric- whereby ‘convincing’ has been defined as “grounded in sound argumentation,” and ‘persuasive’ draws more on the Pathos of the reader; evoking emotion more than logical reasoning. In the paper, Nørreklit uses a ‘scale of modes of expression,’ when describing how scholarly articles, such as an academic dissertation should be comprised mainly of logical and intellectual justification. On the other extreme of the scale lies arguments which are more equivocal and open to interpretation; for example, poetry. It is argued that the BSC is less rooted in straightforward logic, falling closer to the persuasive end of the scale than it should be. The paper describes the BSC as questionable when it comes to its value as an effective strategic management tool, considering the hierarchical nature of the model. (Nørreklit, 2003)

Nørreklit’s initial concluding comments on the BSC surround its false claims of Cause-and-Effect relationships, as there is no such relationship between some of the measurements expressed by Kaplan & Norton, such as the relationship between customer satisfaction and loyalty. This has not been inferred empirically but rather, rationally, as theirs is a logical relationship- thus, lacking one of the criterion to be considered a cause-and-effect relationship (Edwards, 1972). The second concluding comment in this paper concerns the shortcomings of the control model, citing its lack of awareness when it comes to competitive activity and technological advancements that may threaten the organisation’s current strategy (Nørreklit, 2003).

To summarise, my opinion of the BSC is that it can be used as an effective strategic management system for a diverse range of companies when implemented in tandem with other strategic management tools, and that it is a useful educational instrument that achieves its goal of giving upper management a succinct and informative point of view of their organisational unit. I believe that, while it is not a perfect mechanism and there certainly are valid criticisms- such as its implementation in a public sector organisation, and the unusual decision to disregard competitive activity within the model- overall, the system has proven to be used to good effect to achieve goal congruence via strategic decision-making.


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  2. Andon P., B. J. a. M. H., 2005. The balanced scorecard: slogans, seduction and state of play. Australian Accounting Review, 15(35), pp. 29-38.
  3. Edwards, P., 1972. The encyclopaedia of philosophy (Vols 1-8), s.l.: US: Macmillian Publishing Co. ,Inc. & The Free Press.
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  5. Hoque, Z. a. K. R., 2012. The balanced scorecard: comments on balanced scorecard commentaries.. Journal of Accounting & Organizational Change, 8(4), pp. 539-545.
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  10. McAdam, R. a. W. T., 2003. An inquiry into balanced scorecards within best value implementation in UK local government.. Public administration, 81(4), pp. 873-892.
  11. Nørreklit, H., 2003. The balanced scorecard: what is the score? A rhetorical analysis of the balanced scorecard.. Accounting, organizations and society, 28(6), pp. 591-619.
  12. Roslender, R. a. H. S., 2003. In search of strategic management accounting: theoretical and field study perspectives. Management accounting research, 14(3), pp. 255-279.
  13. Shaw, R. a. M. L., 1997. Marketing accountability: improving business performance, s.l.: Robert Shaw.
  14. van Veen-Dirks, P. a. W. M., 2002. Strategic control: meshing critical success factors with the balanced scorecard. Long range planning, 35(4), pp. 407-427.


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