The Relevance of the Balanced Scorecard on Assessing Firm Performance of Ecommerce Companies

Abstract

Strategic alignment between the business model and the assessment of firm performance in the context of particular operational and competitive environments has been increasingly discussed in the literature on measurement of economic performance. In this paper, the relevance of non-financial measures in representing the strategic alignment between the business model and firm performance is examined in the context of the eCommerce environment. A set of financial and non-financial measures unique to eCommerce companies are developed. This set of measures is utilized to rank order eCommerce companies by applying a Latent class model. The classification procedure is then cross-validated to assess the goodness of fit and results demonstrate that the Latent class model is a good fit for classifying the eCommerce companies on their performance on multiple dimensions. The rank orderings of the companies are then examined to document the alignment between eCommerce companies' strategic focus on customers and innovation objectives and indicators of future firm performance, such as continued viability and survival of company, and market performance. Results highlight the relevance of non-financial versus financial metrics in assessing future firm performance in the context of the specific operational and competitive environments within which eCommerce companies operate.

Keywords: Non-financial measures of firm performance, Electronic commerce, Performance measurement, Balanced Scorecard, Gibbs sampler, Latent class models

JEL Classification: M41