Accountability and Role Effects in Balanced Scorecard Performance Evaluations When Strategy Timeline Is Specified

Abstract

This study experimentally examines if fixation on lagging financial measures (relative to leading non-financial measures) as reported in prior balanced scorecard literature is mitigated when evaluators are provided with a strategy implementation timeline (a non-manipulated variable). The experiment manipulates whether or not evaluators are subject to process accountability as well as the role to which evaluators are assigned (i.e. supervisor or subordinate). We predict and find that, in general, the provision of an implementation timeline results in evaluators placing more weight on strategically linked, leading non-financial measures within a subordinate's time span of control compared to strategically linked, lagged financial measures beyond the subordinate's controllable time horizon. However, we also find that evaluators in the role of a supervisor differentiate less between strategically linked non-financial measures that fall within the subordinate's control and strategically linked financial measures beyond the subordinate's control when held accountable compared to supervisors not held accountable. On the other hand, participants in the role of a subordinate were able to differentiate appropriately between these measures when held accountable. Our results extend prior research by considering how linking a timeline to strategy implementation may assist evaluators when assessing performance in the presence of both leading and lagging strategic measures. Further, reference to an implementation timeline may influence role and accountability effects. Implications for future research in multidimensional strategic performance evaluation are discussed.

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Acknowledgements

We thank Yuhchang Hwang for assistance in obtaining participants in a previous version of the paper. We thank Kristy Towry and Lynn Hannan for their insightful comments on a previous version of the paper. Finally, we are particularly thankful for the many helpful suggestions provided by Salvador Carmona (editor) and two anonymous reviewers.

Notes

¹It is important to note in the beginning that we did not explicitly manipulate the presence or absence of a strategy implementation timeline. Rather, we indirectly test the efficacy of providing an implementation timeline by manipulating the pattern of BSC results for two store managers and comparing our observed results against those of similar prior studies where a timeline was not provided.

²Conversely, Tayler (2010) found that solely communicating causal linkages with a strategy map was not effective in reducing the motivated reasoning to perceive a strategic initiative as successful that can occur when a manager is also involved in the initiative's selection.

³If this hypothesis is supported it would provide evidence that the timeline decision aid was effective in overcoming fixation on lagging financial measures. On the other hand, if this hypothesis is not supported it would reflect persistent attention to lagging financial performance measures and we can conclude that the timeline was not sufficient in reducing financial measure fixation.

⁴The BSCs used by Libby et al. (2004) were the same BSCs used in Lipe and Salterio (2000). Lipe and Salterio (2000) specifically designed and pretested the BSCs used in their study to ensure that participants would view all measures (both common and unique) as ‘equally relevant’ to the performance evaluation judgements participants were required to make (p. 292). In their eighth footnote, Libby et al. (2004) re-emphasise that ‘ … in our setting all BSC performance measures are relevant to the strategic objectives of a division … ’ (p. 1079).

⁵The specific elements of the BSC examined in the study (e.g. time span of control, accountability, role, and strategic ‘buy-in’) were not part of the textbook or class coverage of the BSC. Thus, participants were not sensitised to the experimental treatments or the specifics of the BSC task prior to completing the experimental materials. The course was an online course with students being employed at different locations, many out of state and some out of the country. That is, these were not local students taking an online version of the course for purposes of convenience. Therefore, though we cannot state unequivocally that participants did not compare different versions of the case with each other, we believe it was highly unlikely.

⁶The first semester of administration resulted in 77 responses and the second semester resulted in an additional 31 responses, for a total of 108 responses. Participants did not significantly differ with respect to age, gender, full-time professional work experience, or experience with the BSC across semesters (all p > .37, two-tailed). Further, participants did not significantly differ with respect to their perceptions of task realism, difficulty, or understandability across semesters (all p > .50, two-tailed).

⁷The order of store presentation was randomised. Approximately one-half of the participants evaluated the North Store first, with the remainder evaluating the South Store first. Consistent with Lipe and Salterio (2000), store presentation order did not influence the results.

⁸Differences in response rates between the two accountability conditions are a function of varying participation rates across multiple sections of the course from which participants were solicited. All students enrolled in a given course section were randomly assigned to treatment conditions prior to receiving the request for participation.

⁹Participants in the accountability condition read the following statement: ‘A regional manager will review these responses, so it is important to be careful and precise in completing [the documentation] requirement’. Thus, the specific identity and views of the intended audience for the accountability comments were unknown to participants.

¹⁰As noted above, Wong-On-Wing et al. (2007) decreased role bias by providing additional situational information (the quality of the underlying strategy) to evaluators as a manipulated factor between subjects. Because our interest is in the effect of existing belief levels on the use of diagnostic (strategic) information, we asked all participants to provide this information as a measured variable.

¹¹Analysis shows that the assumption of homogeneity of regression slopes for the control variable is satisfied.