The Balanced Scorecard: a Necessary Good or an Unnecessary Evil? The Balanced Scorecard: a Necessary Good or an Unnecessary Evil

European Management Journal Vol. 17, No. 5, pp. 481–491, 1999 1999 Published by Elsevier Science Ltd. All rights reservedPergamon

Printed in Great Britain0263-2373/99 $20.00 1 0.00PII: S0263-2373(99)00034-1

The Balanced Scorecard: aNecessary Good or anUnnecessary Evil?STELLA MOORAJ, Ecole des HEC, University of Lausanne, SwitzerlandDANIEL OYON, Ecole des HEC, University of Lausanne, SwitzerlandDIDIER HOSTETTLER, Tetra Pak International, Lausanne, Switzerland

The Balanced Scorecard has emerged in recent yearsas what can perhaps best be described as a strategiccontrol tool. Although surrounded by much pub-licity in both professional and academic circles, feworganisations are yet in a position to quantify itsbenefits, therefore investing time and money forunquantifiable results. The question posed in thisarticle is whether or not the Balanced Scorecard isa necessary good, an unnecessary evil …or perhaps,a necessary evil …for such organisations.

Through a discussion of current literature on thetopic and various examples, the article demon-strates that the Balanced Scorecard is a ‘necessarygood’ for today’s organisations. It is a tool whichadds value by providing both relevant and bal-anced information in a concise way for managers,creating an environment which is conducive tolearning organisations and eliminating the need formanagers to ‘choose’ which type of control systemto use at any given time. However, the article alsodraws attention to the fact that the entire BalancedScorecard implementation process relies on bothformal and informal processes, and that there arewritten and unwritten rules which must be con-sidered for the process to be implemented success-fully. 1999 Published by Elsevier Science Ltd. Allrights reserved

The Balanced Scorecard: a NecessaryGood or an Unnecessary Evil?

The Balanced Scorecard has emerged in recent yearsas what can perhaps best be described as a strategiccontrol tool. Its high-profile in management seminarsand academic debates has placed the Balanced Score-

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card alongside approaches such as Activity BasedCosting/Management and Total Quality Manage-ment in terms of industry and literary attention. Thepropaganda surrounding the Balanced Scorecardprovides evidence that it is the key for driving per-formance in organisations; that it transforms strategicmanagement paradigms by placing the emphasis onthe enablers instead of on the results; and that it isthe cockpit which provides all relevant strategicinformation. According to Kaplan and Norton(1996b), ‘The Balanced Scorecard provides managerswith the instrumentation they need to navigate tofuture competitive success’. They claim that it‘…addresses a serious deficiency in traditional man-agement systems: their inability to link a company’slong-term strategy with its short-term actions’; RogerBosworth, Senior Manager, Business planning andperformance at NatWest UK says that ‘Building theScorecard is when you start to get your hands onthose measures and drivers that are at the heart of asolid performance management system’. With state-ments such as these, it is no wonder that many organ-isations are falling over themselves to implementsuch a system. Using the Balanced Scorecard ‘bible’(the original publication by Kaplan and Norton) as areference, supported by internal or external consult-ants, organisations are changing their managementsystem to conform with the Balanced Scorecardethos.

Few organisations are yet, or will ever be, in a pos-ition to conduct a cost–benefit analysis for the Bal-anced Scorecard and therefore invest substantialamounts of time and money for unquantifiableresults. In terms of the literature, the only scent ofcriticism comes from Atkinson et al. (1997) for whomthe Balanced Scorecard does not cohere with theirstakeholder approach to performance measurement.Perceiving the Balanced Scorecard as a performance

THE BALANCED SCORECARD: A NECESSARY GOOD OR AN UNNECESSARY EVIL?

measurement system, they argue that the key to sucha system is that it ‘focuses on one output of strategicplanning: senior management’s choice of the natureand scope of the contracts that it negotiates …withits stakeholders’ and that the ‘performance measure-ment system is the tool the company uses to monitorthose contractual relationships’. They criticise theBalanced Scorecard as failing to:

❖ highlight employee and supplier’s contributions(that it doesn’t consider the extended value chain,which is an essential element of today’s net-worked organisations);

❖ identify the role of the community in defining theenvironment within which the company works;

❖ identify performance measurement as a two-wayprocess (that it focuses primarily on top–downperformance measurement).

If we accept the definition of the Balanced Scorecardas a strategic control system, then another of its keycritics is Simons (1990) who condemns researcherswho promote ‘strategic control systems’, arguing thatthey ‘…do not understand fully the means by whichstrategic control has been achieved.’ He states that‘…strategic control can be achieved by using familiarsystems in special ways that recognize how strategiesare formulated and implemented in organizations’.He continues… ‘In this sense, managers do use con-trols strategically, but without resorting to special-ized strategic control techniques. The result of thisprocess is an unobtrusive, yet effective, control ofstrategy.’

What then of the Balanced Scorecard? Is it a neces-sary good for today’s organisations, an unnecessaryevil …or perhaps, a necessary evil…? This article willattempt to answer these questions by investigatingthe role of the Balanced Scorecard within an organis-ation, including its fit with existing management con-trol systems. The Balanced Scorecard will be deemedto be ‘good’ if it adds value to the organisation, andwill be considered ‘necessary’ if it proves to be essen-tial to management.

An Introduction to the Balanced Scorecard

The Balanced Scorecard was first identified andimplemented by Kaplan and Norton as a perform-ance management tool, following a one-year multi-company study in 1990. Its aim is to present manage-ment with a concise summary of the key success fac-tors of a business, and to facilitate the alignment ofbusiness operations with the overall strategy. It‘…provides a medium to translate the vision into aclear set of objectives. These objectives are thenfurther translated into a system of performancemeasurements that effectively communicate a power-ful, forward-looking, strategic focus to the entireorganization’ (Kaplan and Norton, 1989).

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Relevant and Balanced InformationOne of the primary motivations in developing theBalanced Scorecard was that top management werebeing overwhelmed with data and were spending toomuch time analysing these rather than on makingdecisions. A further intention was to overcome thebias of existing management information towardsfinancial measures. The Balanced Scorecard para-digm is that the financial results are obtained by suc-cessful implementation of strategic initiatives in thekey business perspectives — as opposed to beingtheir driving force.

Four PerspectivesThe original Balanced Scorecard design identifiedfour perspectives which are the financial perspective;the customer perspective; the internal-business-processperspective; and the learning and growth perspective.The perspectives represent three of the major stake-holders of the business (shareholders, customers andemployees), thereby ensuring that a holistic view ofthe organisation is used for strategic reflection andimplementation. The importance with each of theseperspectives (no matter how many are chosen to benecessary) is that the perspectives themselves and themeasures chosen are consistent with the corporatestrategy. Figure 1 shows how the Balanced Scorecardprovides a framework, through these four perspec-tives, for translating strategy into operational themesand thereby facilitating the role of management.

The financial perspective represents the long-termobjectives of the company. The measures chosen willrepresent the relevant stage in the product or servicelife-cycle and are summarised by Kaplan and Norton(1996a) as rapid growth, sustain and harvest. Finan-cial objectives for the growth stage will be largelybased on sales volumes, existing and new customerrelationships and process development. The sustainstage on the other hand will be represented by meas-ures analysing return on investment such as returnon capital employed, discounted cash flow and per-haps economic value added. Finally, the harveststage will be based on cash flow analysis with meas-ures such as payback periods and revenue volume.

The customer perspective consists of measures relatingto the most desired (i.e. the most profitable) customergroups. It will include several standard measuressuch as customer satisfaction and customer retentionthough in each case these should be tailored to meetthe organisational requirements. Market share, cus-tomer value and customer profitability are other keymeasures that enable an organisation to create a clearvision of the customers whom it should targettogether with an identification of their needs andexpectations from the company.

The internal-business process perspective focuses on theinternal processes required in order for the companyto excel at providing the value expected by the cus-tomers both productively and efficiently. These can


Figure 1 The Balanced Scorecard Framework [Kaplan and Norton (1996a, p. 197]

include both short-term and long-term objectives aswell as incorporating innovative process develop-ment in order to stimulate improvement. Theinternal-business perspective is particularly effectiveduring a period of change as it focuses activity onthe key processes required in order to implement thechange programme efficiently.

The learning and growth perspective focuses on internalskills and capabilities, in order to align them to thestrategic goals of the organisation. The Balanced Sco-recard process will often identify gaps between therequired and existing skills and capabilities. Using itto identify strategic initiatives and related measures,these gaps can then be addressed and closed byinitiatives such as staff training and development.

Cause-and-Effect RelationshipsIdentifiable cause-and-effect relationships are animportant aspect of the Balanced Scorecard whenchoosing the appropriate indicators. It enables thetranslation of a financial aim, such as increasing rev-enue by x%, into operational factors which will leadto that increased revenue. Therefore, by evaluatingthe relevant factors in each segment of the BalancedScorecard which may have an impact on a financialaim, the appropriate measures can be identified andthe alignment of actions to the strategic goals is facili-tated. Figure 2 demonstrates how the financial aimof increasing return on capital employed was trans-lated at Tetra Pak into operational factors for each ofthe Balanced Scorecard segments. It clearly demon-strates the hypothesised cause-and-effect links whichcan be tested using the Balanced Scorecard measure-ment process. The diagram also shows the emphasis


Figure 2 An Example of Cause-and-Effect Links withinTetra Pak

on growth as a means of obtaining the increasedROCE (Return On Capital Employed).

The Role of the Balanced Scorecard

Since its introduction as a performance measurementtool in 1991, an increasing number of roles have beenidentified for the Balanced Scorecard. These rangefrom providing the critical information to be used ina strategic reflection process, to being a key part ofthe management system of the organisation whereby


360° feedback can be obtained on both the strategicobjectives and the indicators being used to measureits attainment. This more comprehensive role can beseen in Figure 3 which demonstrates the role of theBalanced Scorecard as the ‘king pin’ of a manage-ment system.

Although the Balanced Scorecard will have a role toplay in each of the four sections of the managementsystem, often one or two of the sections will domi-nate. This will depend on the motivation fordeveloping the Balanced Scorecard and on its stageof implementation. For example, in Europe, manyorganisations are implementing the Balanced Score-card with an emphasis on planning rather than oncontrol. They use the BSC as a tool for encouragingall managers to think strategically about the organis-ation and its future. As such, emphasis is placed onthe strategic feedback and learning, and on the com-munications sections of the management system.Examples of companies which have developed oneparticular function of the Balanced Scorecard includeWhirlpool, British Airways World Cargo and TetraPak. Whirlpool, the domestic appliance manufac-turer, has implemented its Balanced Scorecard as ameans of creating a performance culture within itsEuropean subsidiaries. British Airways World Cargoimplemented their Balanced Business Scorecard as ameans of accompanying and measuring the achieve-ment of change and improvements during a majortransformation process. As can be seen from theinsert, Tetra Pak uses this new management systemas a way of supporting strategic implementation inits local companies in order to gain enhanced feed-back from all areas of the business.

Although a very similar Balanced Scorecardimplementation process is pursued by many organis-

Figure 3 A Management System for Strategic Implementation [Kaplan and Norton (1996a, p. 197]


ations, it produces different measures and differentBalanced Scorecard roles according to the companydynamics and competitive position. This can be dem-onstrated by some of the case studies developed byKaplan and Norton (Mobil USM&R, Cigna propertyand assurances and Skandia insurance), all of whomhad the same external influences for implementation,yet all of whom convey different advantages of theBalanced Scorecard. For example, within Mobil, theability to communicate the strategy to all membersof the organisation and to obtain valuable feedbackand ideas from employees nearest the customers wasexpressed as one of the key benefits obtained fromthe process. Within Cigna, a fundamental advantagecame from the ability to link the Balanced Scorecardmeasures for each employee to an internal shareprice. This dramatically improved productivity as itmeant that each individual reconsidered his/her rolewithin the organisation, and concentrated on areas inwhich he/she could add value to the business. Themotivation for this came from the fact that eachemployee owned internal shares and could win orlose according to overall company performance, asperceived internally. Finally, with the Skandia casestudy, we witnessed the first attempt at using the Bal-anced Scorecard as a tool for external communi-cations. Although this was perhaps not the majoradvantage for Skandia, it demonstrates that the Bal-anced Scorecard has communication potential as aholistic system, which encompasses all stakeholdersof the business.

The above discussion and examples tend to suggestthat the Balanced Scorecard does indeed improve oncurrent systems in a variety of ways. It provides rel-evant and balanced information in a concise way formanagers, thereby reducing the time for ‘digestion’of information and increasing the time for decision-


making. It also creates an environment which is con-ducive to learning organisations through the testingof hypotheses regarding cause-and-effect relation-ships and by laying the groundwork for a 360° feed-back process. Given the demands of today’s competi-tive environment, these aspects enable us to concludethat the Balanced Scorecard is a ‘good’ system formanagement. However, many systems have beenproposed in the past which aimed at adding value tomanagement. Whilst some of them may have beendesirable to have, not all of them could be describedas being ‘necessary’. The question remains therefore,is the Balanced Scorecard ‘necessary’?

The Balanced Scorecard and Strategy

In Simons’ criticism of strategic control systems, herelies on the definitions put forward by Schendel andHofer (1979) who state that strategic control ‘focuseson whether (1) the strategy is being implemented asplanned, and (2) the results produced by the strategyare those intended’ and by Lorange et al. (1986) whodefine a strategic control system as: ‘…a system tosupport managers in assessing the relevance of anorganization’s strategy to its progress in theaccomplishment of its goals and, where discrepanciesexist, to support areas needing attention.’ As Simonspoints out, these definitions lead to a perception ofstrategic control systems as a process for keepingstrategies on track and essentially parallel strategyformation with planning and strategy implemen-tation with control. There is therefore a lack of theunplanned, no room for spontaneous reflection, andno place for the management of the unintended strat-egy (a function of culture, efforts to correct what wasseen as misguided in the first place andmiscommunications) which, according to Mintzberg,makes up a substantial part of the emergent strategyof an organisation.

Simons goes on to discuss the array of formal controlsystems available to management. He describes theseas ‘diagnostic control systems’ (which periodicallyand systematically measure progress against plans,therefore concentrating on yesterday’s strategies),‘interactive control systems’ (which are those requir-ing regular management attention and discussionwithin the organisation, therefore focusing on the for-

Figure 4 A Comparison of the Traditional View of the Relationship Between Strategy and Planning and Controlwith that of Simons’


mation of tomorrow’s strategies) and ‘boundary con-trol systems’ (which are designed to communicatethe boundaries of permissible activity to allemployees in the organisation). Simons argues thattop management will place the emphasis on theparticular type of system that ‘…addresses the criticaluncertainties that top managers perceive could thre-aten the achievement of their vision for the future’,suggesting that only one of these systems will be thefocus of management attention at any one time. Healso stresses that the traditional view of planning andcontrol and their relations with strategy formationand implementation should be inverted, as demon-strated in Figure 4.

Simons’ discussion is essentially one arguing for thecompetencies of management to decide on which for-mal control system to place the emphasis on at anyone time. However, there seems no logical reasonwhy the managers should be forced to make thischoice. It seems plausible that control systems couldbe developed which encompass diagnostic, inter-active and boundary elements. After all, as perfectlydemonstrated by Simons, each has its place withinthe organisation. In fact, if we bring the spotlightback on to the Balanced Scorecard, we can see thatit does indeed combine elements of all three of theSimons’ systems.

The Balanced Scorecard contains elements of a bound-ary control system in that it evolves from the vision,mission and strategic goals of the organisation. Itsfour perspective framework depicts limits in theorganisation as it encourages employees to focustheir attention on the key aspects of the business. Ifwe refer back to the role of ‘communication of strat-egy’ inherent in many Balanced Scorecard implemen-tation processes, we recognise it is a tool which couldbe used for the definition and dispersion of the corevalues of the organisation. Using the Balanced Score-card in this way ensures that employees are awareof the mission of the organisation, of its major stra-tegic goals and, more importantly, of the role thatthey have to play in their achievement. This perhapsfacilitates the adherence to the core values outlined,as long as they are well understood by theemployees. An example of the use of the BalancedScorecard as such a system is demonstrated in theTetra Pak example (see Figure 7).


The Balanced Scorecard also contains elements of aninteractive control system in that it reinforces the learn-ing organisation theory by providing the possibilityto test cause-and-effect relationship hypotheses, byforcing managers to look transversally at their organ-isation, and by providing a focus for 360° feedback.Depending on the competitive environment of thecompany, a strategic goal will be outlined and itsachievement measured. This does not mean however,that all actions from then on in are passive, and con-sist purely of historical data. It is possible, or perhapsessential, to include proactive objectives on the Bal-anced Scorecard, which will advance the companytowards its strategic goals and which, more oftenthan not, will require a great deal of interaction. Anexample would be an organisation which wanted tobe closer to its customer either in moving from afunctional to process organisation or wanted to createcross-functional teams attached to specific customers.Without a great deal of interaction and top-manage-ment involvement, such an initiative would not bepossible.

Finally, the Balanced Scorecard contains elements ofa diagnostic control system. Its inclusion of lag indi-cators which measure the progress towards theachievement of objectives fits neatly into Simons’definition. However, as has been shown, these diag-nostic measures are merely one part of a whole. Thisis demonstrated in the insert which explains howTetra Pak benefits from the Balanced Scorecard as aboundary, interactive and diagnostic control system.The relationship between the three systems for a typi-cal Balanced Scorecard is shown in Figure 5.

It seems plausible therefore that the Balanced Score-card is a strategic control system which offers man-

Figure 5 The Balanced Scorecard Comprises Boundary, Interactive and Diagnostic Elements of Control


agers the possibility to combine all types of controlsystems and that, as such, it adds value to manage-ment. It allows the measurement of the performanceof the current strategy, whilst enabling time andenergy to be spent on the formation of tomorrow’sstrategies. This eliminates the need for managers to‘choose’ which control system to use at any giventime, thereby maximising the productivity of a holis-tic information base instead of using only partialinformation. It would therefore seem logical to arguethat the Balanced Scorecard is a ‘necessary’ tool fortoday’s managers. However, many seemingly ‘neces-sary’ and ‘good’ systems have fallen by the waysidedue to their conflict with current systems. It is there-fore important to spend a moment investigating thepotential conflicts between the Balanced Scorecardand other existing systems.

The Balanced Scorecard and Existing ManagementControl Systems

Within an organisation, there exists a multitude ofmanagement control systems, both formal and infor-mal. Every one of these systems influences behav-iour, be it voluntarily or involuntarily. It is essentialtherefore that there is a coherence between the sys-tems, and that employees receive a consistent mess-age throughout the organisation and through time.The majority of traditional systems, such as planningand costing systems, aim at fulfilling one particularpurpose — in this case resource planning andimproved knowledge of costs. They appear to bestandalone systems and, unfortunately, are oftentreated as such by management. In implementingsuch systems, management address one particularissue and are not always concerned with its cohesion


with the strategic goals of the organisation. Effec-tively, they are healing a wound, without any con-scious recognition of the importance of that woundwhen viewed as part of a whole. Perhaps moreimportantly, in many cases, it is their remunerationstructure which encourages them to do so.

For example, a production manager who is remuner-ated for the profits of his unit may implementActivity Based Costing as a means to obtain morepertinent cost information with a view to reducingcosts. On the other hand, the headquarters haveidentified a shortage of resources and wish all energyto be spent on the development of new products. Itseems logical that whilst the manager is beingremunerated according to his financial performance,he will forgo the requirements of headquarters andwill continue to improve his own situation. By ident-ifying a balanced set of financial and non-financialmeasures which are linked to the strategic goals ofthe organisation, it is possible to prevent such con-flicts and to ensure that managers are being encour-aged to conduct business in a manner which isrewarding to both him/herself and the organisation.Also, the implicit contract which is established in theidentification of goals and performance measuresensures that goal congruence is achieved which initself facilitates the task of management control sys-tems.

Not only does the Balanced Scorecard provide ameasurement framework which improves align-ments of actions to the strategic goals of an organis-ation, but it also provides a platform for identifyingpriorities. During the identification of strategicinitiatives which need to be implemented in order toachieve the various objectives, managers often findthemselves inundated with ideas. By continuallyreferring to the strategic goals which have been out-lined, they are able to set priorities and to overseethe implementation of other projects, such as ActivityBased Costing. This means that they have the com-plete picture and are able to identify the importanceof each initiative with this in mind.

Although the Balanced Scorecard is designed tobecome a key part of the management system of anorganisation, it is rarely introduced as such from thebeginning. Although many managers will state fromthe outset that the Balanced Scorecard will becomethe king-pin for all strategic and performancemeasurement systems, they will often run it parallelwith current systems at least in the beginning inorder to insure themselves against initial teethingproblems. Also, achieving a complete Balanced Sco-recard is a time-consuming process and often thebenefits of implementing an incomplete pilot out-weigh the advantages of waiting for the completionof the Balanced Scorecard before introducing itwithin the organisation.

The adoption of the Balanced Scorecard will have a


direct impact on the other management control sys-tems of the organisation and vice versa. In order togain the necessary buy-in from employees, it isimportant to demonstrate that the Balanced Score-card is not merely a supplement to current systemswhich simply adds work, and not value, to the organ-isation. Therefore, it is essential to identify the advan-tages of the Balanced Scorecard from the beginning,to communicate them to the organisation and, moreimportantly, to ensure that they are achieved. Forexample, it is not sufficient to state that the BalancedScorecard will replace current monthly reports if, foran indefinite period, the two reports are producedtogether.

Often, the Balanced Scorecard will require the collec-tion of new data which, in turn, will require new col-lection systems and often new responsibilities. As hasbeen proved time and time again within organis-ations, there is a tendency to resist change. Therefore,in order to ensure a smooth transition to the BalancedScorecard process, a communications exercise isessential in order to explain the process, to clarifyrumours, and to use the informal systems to theadvantage of the process as opposed to its disadvan-tage. This exercise will need to be tailored to theorganisation, which means that it should be tailoredto the various cultures that it hosts.

The Balanced Scorecard and Culture

The Balanced Scorecard will be affected by threemajor types of culture — national culture, occu-pational culture and, perhaps most importantly, theculture of the organisation. National culture affects theBalanced Scorecard primarily in terms of theapproach towards financial performance. Forexample, organisations in the United States considerit to be their duty, and their overriding goal, to maxi-mise shareholder wealth (i.e. to optimise the returnon investment ratio). On the other hand, Europeanorganisations have long been concerned with a stake-holder approach whereby all those with an input inthe organisation are rewarded. These different cul-tural paradigms will have an influence not only onthe development of the Balanced Scorecard, but alsoon its acceptance. It is certainly apparent that manyEuropean organisations are hesitant about it as theyconsider that they have been using balanced perspec-tives for years. Indeed, in France, the tableau de bordis a relatively old management control system whichprovides a mass of quantitative information. It couldbe argued therefore that the Balanced Scorecard addsdifferent value in each of these cases. For the USorganisations, it forces them to look beyond the shortterm financial results to the strategic health of theorganisation. For the Europeans, on the other hand,it helps them to reduce the wealth of indicators cur-rently ‘produced’ in order to obtain a more pertinentselection of strategically important indicators.

National culture is also of relevance when it comes to


defining performance indicators within internationalorganisations. A prime example can be found in thecustomer perspective of the Balanced Scorecard andin the commonly used ‘customer satisfaction index’indicator. It seems evident that a customer satisfac-tion index in Japan (where satisfaction is based larg-ely on intangibles, such as long-term relationships)should be constructed differently to one in the UnitedStates (where satisfaction relies on tangible aspectssuch as reducing lead time). Such aspects wouldtherefore have an impact on the creation of the Bal-anced Scorecard for an international organisation.

In terms of occupational culture, the Balanced Score-card will be affected by traditions. It has been notedby many researchers in the field of organisationalbehaviour that certain occupations have their owndefined culture which consists largely of unstated,informal rules. A Balanced Scorecard which attemptsto use formal indicators to change behaviour and goagainst these traditions is likely to be unsuccessfuland therefore such cultures must be considered whendesigning the Balanced Scorecard.

Finally, organisational culture has the potential to havea large impact on the Balanced Scorecard, be it posi-tive or negative. It is generally considered thatnational and occupational cultures override anorganisational culture, as is implied by Pugh (1993)when he says that ‘On organizational grounds, resist-ance to change can be understood when it is realizedthat, from a behavioural point of view, organizationsare coalitions of interest groups in tension’. However,Collins and Porras (1994), in their book entitled ‘Builtto Last’ imply that a strong organisational culture canin fact override any national or occupational differ-ences, enveloping its employees in a ‘cult-like’environment. Indeed, they pay homage to some ofthe worlds most successful companies who have

Figure 6 The Six Dimensions of Analysis of Means of Organisational Control


developed ‘cult’ cultures, by devoting an entire chap-ter to them.

The organisational structure put in place toimplement the strategy also affects the role of the Bal-anced Scorecard. A decentralised organisation whichrelies on trust and autonomous decision-making forits success would employ the Balanced Scorecard inan entirely different way than a centralised organis-ation which relies on a top–down process of instruc-tions and implementation throughout its hierarchy.Implementing a Balanced Scorecard which contra-dicts the management ethos of the organisationwould create confusion throughout and would putin jeopardy the other formal and informal systems.The implementation of the Balanced Scorecardshould therefore correspond not only to the formalstrategic approach of the organisation, but also to thevarious informal cultures to which it is host.

The Balanced Scorecard and the Missing Elements

Recognition of the informal elements of managementcontrol systems is important if a new system is to besuccessful. Chapello (1996) demonstrates the extentof the informal systems in place through her identi-fication of six major axes to be considered for man-agement control. The elements which are highlightedin Figure 6 are those which are predominantly infor-mal and over which the managers have little control…perhaps giving justification to Dermer and Lucas(1996) who in 1986 wrote an article entitled ‘Theillusion of managerial control’. In their article, theysuggest that a large part of the results of an organis-ation are due to elements outside of managementcontrol.

However, it is important to add that what cannot be


measured is still relevant. It is essential to build intoa Balanced Scorecard the potential for highlightingunforeseen events which may have changed the com-petitive environment of the company. Changes occurand must be taken on board if an organisation is toremain alert and proactive.

Conclusion

The above discussion demonstrates that the BalancedScorecard is a ‘necessary good’ for today’s organis-ations. It adds value by providing both relevant andbalanced information in a concise way for managers.It creates an environment which is conducive tolearning organisations within which hypothesesregarding cause-and-effect relationships can be testedand the groundwork for a 360° feedback process islaid. It also eliminates the need for managers to‘choose’ which control system to use at any giventime by incorporating aspects of boundary, inter-active and diagnostic control systems. This enablesmanagement to maximise the use of a concise, holis-tic information base.

However, the entire Balanced Scorecard implemen-tation process relies on both formal and informal pro-cesses, whether this be in relation to the strategicapproach of the organisation and its correspondingstructure, to the cultural aspects of the organisation,or indeed to the management control systems cur-rently in place. In all of these areas, there are writtenand unwritten rules and these must be considered inorder for any new process to be implemented suc-cessfully. Given that each organisation has its owncombination of formal and informal, it is not surpris-ing that each has a unique Balanced Scorecard and aunique priority for its implementation.

The key issue still to be addressed by research in thefield of the Balanced Scorecard is that of cost–benefit.It would be of interest, both to companies who havemade the move to the Balanced Scorecard and tothose who are considering it, to know exactly howmuch value is added. However, given that many ofthe advantages are of an intangible nature, it wouldbe difficult to quantify them in a robust manner andto obtain satisfactory scientific evidence of the truevalue of the Balanced Scorecard. Perhaps managerswill have to be content with case studies and articleswhich attempt to outline some of its advantagesand disadvantages.

A Balanced Scorecard At Tetra Pak

Tetra Pak develops, manufactures and markets sys-tems for the processing, packaging and distributionof liquid food. Tetra Pak produces packagingmaterial at 57 plants and has 72 marketing officesaround the world. Every day more than 200 million


Tetra Pak packages are distributed in over 160 coun-tries. Tetra Pak sales amounted, in 1998, to 11 billionCHF and 18,200 people were employed (more onwww.tetrapak.com). Tetra Pak contributes —together with its customers and suppliers — to thesafe, efficient and environmentally sound productionand distribution of liquid foods to the consumers ofthe world.

Over the last 10 years, Tetra Pak has delivered aprofitable financial performance as a result of itsambitious and forceful expansion in all possiblecountries. Nevertheless, the Group Management wasstill not satisfied with certain other aspects of thebusiness. In practice, Tetra Pak management alwaysrelied on a very complete financial reporting packagewith very few non-financial figures notably in theorganisational and external aspects. In fact, Tetra Pakhas always been, and will most probably remain, avery ‘decentralised’ company giving a large range ofautonomy to an array of small to large companies ledby a robust local management. The glue that ties eachoperation to each other is a set of Corporate CoreValues lead by a remarkable ‘Freedom with Account-ability’ value. By spreading out such Corporate CoreValues, Tetra Pak is bringing together some of thecharacteristics of a boundary control system whichshould lead to specific, key behaviours. On the otherhand, establishing the yearly detailed Budget and fol-lowing-up against actual performance throughoutthe year is the main control system that hasaccompanied Tetra Pak over the years. If this is com-bined with a few thought-provoking company pres-entations, the description of a typical diagnostic con-trol system becomes apparent at Tetra Pak.

By launching a Balanced Scorecard initiative, theintent was to provide the market operations with adifferent way of thinking in order to follow more tho-roughly the implementation of their generally wellelaborated strategy. However, the Balanced Score-card is not only about bringing a new reporting sys-tem. The reasoning behind it is that anticipating thecritical success factors of such a strategy and theircritical measurements is key to defining the uniquepath to short and long term prosperity in each marketoperation and service company. In fact, acting inmature markets such as Western Europe or NorthAmerica or, on the contrary, in developing markets


in Asia or Eastern Europe, where the way of doingbusiness is different, stresses the importance of thedistinct strategy and set of measurements in eacharea. For instance, in North America, the key successfactors would relate more to the highly competitiveprice environment associated with high expectationon customer satisfaction. In China, critical successfactors would be related to managing the highgrowth rate of the market and getting the organis-ation to perform adequately under increasingdemand. Another important element of this initiativeis the trend to link the employee’s individual objec-tives and incentives to a Balanced Scorecard.

An additional advantage of deploying Balanced Sco-recards is the alignment of measurements that helpnurture knowledge sharing between operations anddefine the base for benchmarking from a continuousimprovement standpoint. For instance, measuringcustomer satisfaction in a comparable manner shouldlead to superior and homogeneous products and ser-vices to Tetra Pak world-wide customers.

Also, sharing the Balanced Scorecard results and notthe reporting formality, which is only directed as acontrol mechanism for management, helpsemployees to understand the priorities and objectivesof their particular operations. Therefore, it was of theutmost importance to develop a comprehensive fol-low-up information system easily accessible bymany, in this specific case, using a web-based appli-cation deployed in the Tetra Pak Intranet.

Moreover, a Balanced Scorecard will not, on its own,bring about improvements in long-term competi-tiveness and profitability. In fact, it is settingambitious long-term targets — or stretch targets —accompanied by a comprehensive list of initiativesfor each measure, which have proven to be the keydrivers to better overall performance. Also ‘settingthe mind’ of the employees to longer-term objectiveswill prop up the Balanced Scorecard as an instrumentto help foster change. Ultimately, a Balanced Score-card implementation should provide managers withuseful information to allow a better decision-makingprocess. (Figure 7) summarises the dynamic of theBalanced Scorecard at Tetra Pak and its function asa decision-making enabler. Note the feedback andlearning phase that closes the loop and the close inte-gration with the Budget exercise as resources areneeded to perform the list of initiatives. In practice,if resources cannot be allocated it could be that theentire strategy or targets must be revisited. In con-clusion, a Balanced Scorecard should be well inte-grated in the decision-making process of a companybut not be additional indicators of the daily oper-ational work. Its integration within the reporting sys-


Figure 7 Balanced Scorecard at Tetra Pak

tem is seen as important but should not be the objec-tive. In reality, a Balanced Scorecard will help themanagement to better communicate the strategy, tobenchmark with other operations, to prioritise and tomotivate the teams to common and longer-termgoals. These last elements would therefore justify theinvestment of time in deploying and perfecting theBalanced Scorecard. Strong leadership and manage-ment skills are also essential for coping with the natu-ral resistance that one would expect to find in anychange agenda.

References

Atkinson, A.A., Waterhouse, J.H. and Well, R.B. (1997) Astakeholder approach to strategic performance measure-ment. Sloan Management Review Spring, 25–37.

Chapello, E. (1996) Les typologies des modes de controle etleurs facteurs de contingence: un essai d’organization dela litterature. Comptabilite – Controle – Audit, Tome 2,Vol. 2.

Collins, J.C. and Porras, J. I. (1994) Built to Last — SuccessfulHabits of Visionary Companies. Harper Business, NewYork.

Dermer, J. and Lucas, R. (1996) The illusion of managerial con-trol. Accounting Organizations and Society 11(6), 471–482.

Kaplan, R.S. and Norton, D.P. (1996a) The Balanced Score-card — Translating Strategy into Action. Harvard BusinessSchool Press, Boston, MA.

Kaplan, R.S. and Norton, D.P. (1996b) Linking the balancedscorecard to strategy. California Management Review 39(1).

Lorange, P., Scott Morton, M. and Ghoshal, S. (1986) StrategicControl, p. 10. West Publishing Company, St Paul.

Pugh, D. (1993) Understanding and managing organizationalchange. In Managing Change, eds C. Mabey and B.Mayon-White 2nd ed., pp. 108–112. The Open Univer-sity.

Schendel, D. and Hofer, C. (1979) Strategic Management: A NewView of Business Policy and Planning, p. 18. Little, Brownand Company, Boston.

Simons, R. (1990) Rethinking the role of systems in controllingstrategy. Harvard Business School, note 9-191-091.


STELLA MOORAJ, DANIEL OYON, Ecole desResearch Assistant, Ecole Hautes Etudes, Universitedes HEC, Universite de Lau- de Lausanne, Batiment dessanne, BFSH1, CH 1015 Facultes des SciencesLausanne-Dorigny, Switzer- Humaines, CH-1015 Laus-land. E-mail: smooraj@hec. anne-Dorigny, Switzerland.unil.ch

Daniel Oyon is Professor ofStella Mooraj is a Doctoral Management Control andCandidate in the Depart- Director of the Master ofment of Management Con- International Managementtrol at the Ecole des HEC, Programme (MIM) at the

University of Lausanne. Her thesis compares the organ- Ecole des HEC at the University of Lausanne. Hisisational motivations for the implementation of a Bal- teaching and research interests centre on businessanced Scorecard in multinational organisations with strategy, management control systems, innovation andthe actual benefits and disadvantages experienced. Her international business.research interests include strategic control and per-formance measurement in an international environ-ment.

DIDIER HOSTETTLER,Tetra Pak International,CH-1009, Lausanne, Switz-erland. E-mail: [email protected]

Didier Hostettler is Man-ager at Tetra Pak Inter-national, Lausanne, wherefor nine years he has workedin such fields as purchasing,control, and intelligent sys-

tems in Switzerland and the US. He took a key role inestablishing the Balanced Scorecard at Tetra Pak Amer-icas.


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The Balanced Scorecard: a Necessary Good or an Unnecessary Evil? The Balanced Scorecard: a Necessary Good or an Unnecessary Evil