Abstract

http://ssrn.com/abstract=328880
 
 

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Using the Balanced Scorecard as a Control System for Monitoring and Revising Corporate Strategy


Dennis Campbell


Harvard Business School

Srikant Datar


Harvard Business School

Susan Cohen Kulp


George Washington University - Department of Accountancy; George Washington University School of Business

V. G. Narayanan


Harvard Business School

September 5, 2002

Harvard NOM Working Paper No. 02-35

Abstract:     
This paper illustrates how a company can use its performance measurement system to i) evaluate its operating strategy, ii) identify potential problems with its strategy, and iii) devise plans to mitigate these problems. Kaplan and Norton (1992) define strategy as a set of hypotheses linking non-financial measures to future value through a series of cause-and-effect relationships. Using data from a convenience store chain, we demonstrate how performance measures and the links between the measures can be used to identify potential problems with the firm's operating strategy. Furthermore, we explore whether the performance measurement system can highlight the causes of these problems and identify possible solutions. While preliminary tests indicate no significant direct relationship between non-financial measures of strategy implementation and the firm's financial performance, detailed analysis reveals that financial performance is associated with the interaction of measures of strategy implementation and employee skills. Financial performance also directly relates to employee skills and store location proxies. We find that the firm's strategy positively (negatively) impacts financial performance in stores with high (low) employee skill levels. Thus, a poor fit between strategy and capabilities primarily caused the ineffectiveness of the strategy. These findings highlight the importance of conditioning the formulation and implementation of a firm's strategy on its core competencies. More importantly, we demonstrate that performance measurement systems can be used to monitor, analyze, and revise a firm's strategy.

Number of Pages in PDF File: 45

Keywords: Performance Measurement, Balanced Scorecard, Control System, Non-financial Measures, Business Strategy

JEL Classification: M1, M4

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Date posted: October 1, 2002  

Suggested Citation

Campbell, Dennis and Datar, Srikant and Kulp, Susan Cohen and Narayanan, V. G., Using the Balanced Scorecard as a Control System for Monitoring and Revising Corporate Strategy (September 5, 2002). Harvard NOM Working Paper No. 02-35. Available at SSRN: http://ssrn.com/abstract=328880 or http://dx.doi.org/10.2139/ssrn.328880

Contact Information

Dennis Campbell
Harvard Business School ( email )
Soldiers Field
Boston, MA 02163
United States
Srikant Datar
Harvard Business School ( email )
Soldiers Field
Boston, MA 02163
United States
617-495-6543 (Phone)
617-496-7363 (Fax)
Susan Kulp (Contact Author)
George Washington University - Department of Accountancy
School of Business and Public Management
Washington, DC 20052
United States
202-994-3874 (Phone)
George Washington University School of Business ( email )
2201 G Street, NW
Funger Hall 604
Washington, DC 20817
United States
202-994-3874 (Phone)
V. G. Narayanan
Harvard Business School ( email )
Soldiers Field
Boston, MA 02163
United States
617-495-6359 (Phone)
617-496-7363 (Fax)
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