The Balanced Scorecard: The Illusion of Maximization Without Constraints

Proceedings of Pragmatic Constructivism, 2(1): 10-15, 2012

6 Pages Posted: 10 Jul 2014

See all articles by Morten Jakobsen

Morten Jakobsen

Aarhus University

Rainer Lueg

Leuphana University - Department of Accounting; University of Southern Denmark - Department of Accounting

Date Written: January 1, 2012

Abstract

The Balanced Scorecard (BSC) claims to maximize organizational performance through the management of different perspectives (e.g., financial, customers, internal processes, learning & growth). Most of the chosen measures are usually non-financial, as they are supposedly leading indicators of financial success. The developers of the BSC Kaplan and Norton see these perspectives as related, but not as linked to each other by accounting logic. Moreover, Kaplan and Norton recommend cascading the BSC across the organization by breaking up the BSC into sub-targets for each organizational unit. Inevitably, this can lead to situations where actors in an organization focus on a subset of non-financial indicators. In their attempt to maximize these indicators, unit-egoism may lead to sub-optimal overall performance of the organization. This is because the links from non-financial indicators at lower levels of the organization to the overall financial goals have been disjoined. This problem, however, has been largely ignored in the BSC-literature. Therefore, this paper addresses the rationality and limits inherent in the usage of multiple performance measures. For this, we conduct an analytical study based on a literature review.

Keywords: Balanced Scorecard; non-financial measures; key performance indicators; sub-optimization; Value-based Management; accounting logic; decentralization

JEL Classification: M10

Suggested Citation

Jakobsen, Morten and Lueg, Rainer, The Balanced Scorecard: The Illusion of Maximization Without Constraints (January 1, 2012). Proceedings of Pragmatic Constructivism, 2(1): 10-15, 2012. Available at SSRN: https://ssrn.com/abstract=2463885

Morten Jakobsen

Aarhus University ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

Rainer Lueg (Contact Author)

Leuphana University - Department of Accounting ( email )

Scharnhorststra├če 1
Wilschenbrucher Weg 69
L├╝neburg, 21335
Germany

University of Southern Denmark - Department of Accounting ( email )

Campusvej 55
DK-5230 Odense, 5000
Denmark

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