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Firm
characteristics
and balanced
scorecard
209
Received 21 May 2013
Revised 26 July 2013
Accepted 20 August 2013
Janek Ratnatunga
School of Commerce, University of South Australia, Adelaide, Australia, and
Lee J. Yao
Department of Accounting, Loyola University New Orleans, New Orleans,
Louisiana, USA
Abstract
Purpose This study aims to examine the effects of balanced scorecard (BSC) usage on performances
in the context of four contingent variables in Singaporean manufacturing firms. The results show that
firms are more likely to adopt BSC if they are large in size, have products at an early product lifecycle
(PLC) stage, operate in highly uncertain environments or adopt differentiation strategies. However, the
adoption of BSC improves performance only in firms that are large or have products at an early PLC
stage. The results suggest that contingent factors in which a firm operates can exert significant effects
on the results of adopting BSC.
Design/methodology/approach Survey data are collected, then the authors check data
correlations, principle components analysis, run regression analysis and ANOVA.
Findings BSC use is positively and significantly correlated with PLC stage, external environment
and performance. Size and strategy are positively correlated with BSC usage, but are not statistically
significant. Higher BSC use is found in large firms with products at an early PLC stage or operating in
a highly uncertain environment. Companies with a cost leadership strategy are significantly associated
with BSC use.
Research limitations/implications This study has small sample size and uses survey research
method. The measurements to capture all aspects of BSC usage are non-exhausting. Future research can
use different methodologies, such as field studies, case studies and lab experiments, to examine other
industries than manufacturing.
Practical implications The authors results show the positive association between BSC use and
certain firm characteristics. Firms with those characteristics should get insights about the benefit of
using BSC and extract the maximum benefit from their investment on the BSC use and those firms
which dont have BSC in implication may think of implementing the BSC use.
Social implications Firms contingent factors affect the value of adopting BSC. With the authors
research result, firms will be aware of how to extract the most value out of BSC and improve the social
wealth of the manufacturing industries.
Originality/value The authors paper is the first paper to use survey method to examine the
association between BSC and firms contingent factors in the Singaporean manufacturing firms setting.
IJAIM
22,3
210
Introduction
Balanced scorecard (BSC) has been widely adopted by businesses since the introduction
of the concept by Kaplan and Norton (1992). A worldwide survey conducted by Bain
(2006) shows approximately 70 per cent of the firms responding to the survey adopted
BSC[1]. These firms differ in size, organizational structure, strategy, operating
environments, country, tasks and operating results from adopting BSC. Contingency
theory suggests an organization needs to match the BSC with its contingency factors to
be successful (Donaldson, 1995). Sisaye and Birnberg (2010) suggest that management
accounting researchers pay particular attention to an organizations approach to
diffusion and adoption strategies of innovation, particularly, the extent and scope
dimensions when designing and implementing process innovation programs.
Fleischman et al. (2010) provided evidence to support the contention that there are
significant perceptual differences about management accounting system services
between providers and users. Hoque and James (2000) examined the impact of an
organizations size, product lifecycle (PLC) and market position on BSC usage. They
found that an organizations operating environment plays an important role in BSC
adoption. Firms operating in different countries are subject to vastly different cultures.
The literature has so far focused on the BSC adoption experience of US companies. Only
a few studies have investigated BSC in non-US firms (Hoque and James, 2000;
Speckbacher et al., 2003; Sandhu et al., 2008).
This paper examines the impact of culture and other organizational contingent
factors on the effectiveness of BSC adopted by Singaporean manufacturing firms.
Singapore has limited natural resources, a small labor force and a small domestic market
with manufacturing and service as two major economic sectors (Quazi et al., 1998).
Singaporean companies depend heavily on the export market to compete globally.
Rapid economic developments in other countries have greatly intensified competition
for Singapores manufacturing sector (Ghosh et al., 2001). Many companies in Singapore
have adopted innovative management accounting practices such as total quality
management (TQM) (Quazi et al., 1998), business process reengineering (BPR)
(Ranganathan and Dhaliwal, 2001) and BSC to improve their competitive effectiveness.
Mandatory BSC usage by all government agencies further increases the awareness and
popularity of BSC among Singaporean businesses (Chia and Hum, 2000).
This study examines how contingency factors lead to differences in BSC usage and
operating results among Singaporean manufacturing firms. Contingency theorys
general presumption is that there is no one best organizational structure and the most
appropriate organizational structure should match the various contingency factors such
as size, strategy and firm environment (Donaldson, 1995). Hoque and James (2000)
examined Australian manufacturing companies regarding the relationships between
BSC and companies size, PLC and market position. Our study extends theirs by
incorporating four contingent variables of Singaporean manufacturing firms: size; PLC
stage; environmental uncertainty; and strategy.
Although Kaplan and Norton (1992) view BSC as a generic system applicable to
various settings, Sandhu et al. (2008) conclude from their case study that the BSC is a
messy object with different connotations depending on how the BSC is translated into
local settings. The inclusion of environmental uncertainty in our study provides more
insights about its effect on BSC usage and results[2].
The next section discusses the literature and hypotheses development, followed by
the discussion of findings, the limitations of this study and future research suggestions.
Firm
characteristics
and balanced
scorecard
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IJAIM
22,3
212
Organizational Size
External
Environment
Figure 1.
Research framework
Organizational
Strategy
Balanced
Scorecard
Use
Organizational
Performance
Firm
characteristics
and balanced
scorecard
213
IJAIM
22,3
214
H4. Firms with a differentiation strategy are more likely to use a BSC performance
measurement system than firms with a low cost strategy.
Interaction effects
Prior research shows that performance improved when the BSC fits into the contextual
variables (Hoque and James, 2000). The complexity of large firms makes it necessary for
them to rely on structured communication and coordination systems such as the BSC.
With the full potential of its product not yet realized and reflected in financial measures,
a firm with one or more important products at an early PLC stage is likely to depend on
non-financial control measures in monitoring operations and gauging the progress of
the product. In contrast, financial measures can usually capture most, if not all, important
information on operating results for firms with mature products. Environmental uncertainty
clouds financial measures and firms facing high environmental uncertainty require
non-financial information and control systems to gain a clear picture of its operations.
Firms adopting a differentiation strategy rely more on sophisticated information and
control systems to coordinate the diversified tasks than do firms adopting a low-cost
strategy.
Research method
The manufacturing industry varies in scales of operation, product market, the stages of
the PLC and the dynamic operating environment, which provides a rich setting for
testing the effect of contingency factors on the BSC usage and the resultant firm
performance.
We identified firms from the member listings of the Singapore Confederation of
Industries and sent out questionnaires to 300 financial controllers. The questionnaire
was pre-tested with a preliminary sample to ensure clarity and understandability. In
addition, external validation checks were administered two weeks after receiving each
questionnaire to detect errors and to ensure consistency in the responses. We conducted
t-tests for the two independent samples to test response bias. Lack of significant
differences (at p 5 per cent) of the mean scores for all four contingency factors between
the early and late responses suggests negligible response bias.
We received 32 responses from the two mailings. Five respondents did not complete
the questionnaire because of contravening company policy or staffing constraints.
Another 10 responses were not usable because the firms were not BSC users. To increase
our sample size, we emailed our questionnaire to 50 financial controllers and received
five completed questionnaires. The adjusted usable response rate was about 9.09 per
cent.
Non-response bias
We conducted telephone callbacks to reduce non-response bias. The t-test for the two
independent samples of respondents and non-respondents showed no significant
differences in the mean scores of size, PLC stage, external environment and strategy
indices. We, therefore, concluded that the non-response bias is negligible.
Demographics of the respondents
Table I shows the average experience of the staff responding to the questionnaire was
7.6 years, ranging from 3 to 12 years. About 50 per cent of the firms were multinational
Number of
employees
0-99
11
100-199
200-299
300
2
3
Firm
characteristics
and balanced
scorecard
215
Table I.
Profile of responding
companies (N 22)
companies, 27.3 per cent were private firms, 9.1 per cent were family-owned and 13.6 per
cent were listed on the Singapore Stock Exchange.
Data analysis
Size
Table II presents the descriptive statistics of all variables in the survey. We used three
alternative measures for size: annual revenue, total assets and total number of
employees. The Pearson correlations between pairs of these three measures show high
correlations (p 0.001). Furthermore, the results of statistical analyses are consistent
when each of these three measures serves as the proxy for size. Consequently, we report
below only the results using the total number of employees as size proxy. The square
root of this variable is used in subsequent regression analyses because of the
non-normality of the variable.
PLC stage
Following Hoque and James (2000), we asked respondents to assess the percentage of
each of their firms product offerings at each of the PLC stages. We used the difference
between the total percentage of products at the development and growth stages and
Variable
Organizational size (original)
(Transformed)
PLC stage
Environment
Strategy
Financial perspective
Internal business perspective
Innovation learning perspective
Customer perspective
Overall BSC use
Organizational performance
Mean
SD
Theoretical range
Actual range
127.05
10.31
10%
4.07
3.50
5.03
4.88
3.42
5.36
4.68
4.99
102.71
4.66
0.56
1.06
0.59
1.12
1.21
1.51
1.08
0.85
1.09
NA
NA
100%-100%
1-7
1-7
1-7
1-7
1-7
1-7
1-7
1-7
8-341
2.83-18.47
10%-80%
2.00-6.40
2.42-4.76
3.60-7.00
3.00-6.71
1.25-6.50
2.57-7.00
3.24-6.74
2.60-7.00
Table II.
Descriptive statistics
(N 22)
IJAIM
22,3
216
those at the mature and declining stages as the measure for PLC stage for the firm. A
positive value indicates that the firms products are predominantly at early PLC stages,
while a negative value suggests the opposite.
Environmental uncertainty
To assess environmental variability, we followed Miller and Droge (1986) in including
two subscales: unpredictability and dynamism. Each was measured on a 7-point Likert
scale. The unpredictability subscale measures a firms ability to forecast consumer and
competitor behavior, while dynamism indicates the rate of change in marketing
practices and product technology. We followed Miller (1988) in focusing on a narrowly
defined spectrum of the environment, rather than the overall industry parameters.
Although there are alternative measures for perceived environmental uncertainty,
managers perceptions of the actual target markets (Dess and Beard, 1984) has been
demonstrated to possess objective validity (Miller, 1988) and is the measure used in this
study for perceived environmental uncertainty.
Strategy
Porter (1985) shows two common business strategies: differentiation strategy or cost
leadership strategy. A firm with differentiation strategy can price its products at
premium prices through differentiating its products via customization, product
innovation and product variety. A cost-leading firm earns its profits through
price-cutting and cost reduction. Rather than using a two-strategy categorical
classification, this study followed Abernethy and Lillis (1995) in using a 7-point
continual scale. The scale places cost leadership and differentiation at the two ends of
the continuum reflecting the degrees of differentiation and cost leadership in its
strategy.
Balanced scorecard
We modified the instrument developed by Hoque and James (2000) to measure the
use of the BSC. The adapted instrument comprised 20 items, chosen for the local
context and incorporated the four dimensions of Kaplan and Nortons BSC.
Respondents were asked to indicate on a scale from 1 (Not at all) to 7 (To a great
extent) the extent to which each item was used in their organizations performance
evaluations. The Cronbach alpha coefficient is 0.85, indicating satisfactory internal
reliability for the scale.
A principal component analysis resulted in four factors all with eigenvalues of [mtqu]1.
Sixteen of the 20 items have factor loadings of 0.4 on one of three factors (Table III).
Identifying the four factors using the factor loadings of these 16 items, the factors follow
along the lines of the four BSC perspectives identified by Kaplan and Norton (1992).
The following data summarizes items with factor loadings of 0.4.
(1) internal business perspective;
material waste and scrap loss;
yield;
average cycle time;
plant utilization; and
manufacturing cycle efficiency
Item
Eigenvalues
Percent variance explained
Return on equity
Cash flow
Return on sales
Return on investment
Material waste and scrap loss
Yield
Average cycle time
Plant utilization
Manufacturing cycle
efficiency
Number of new patents
Percentage of sales generated
from new products
Time-to-market of new
products
Number of employee
suggestions
Market share
On-time delivery
Customer satisfaction surveys
3.110
19.440
0.201
0.126
0.162
0.134
0.247
0.039
0.228
0.134
0.790
0.082
0.003
0.836
0.494
0.082
0.247
0.203
0.262
0.767
0.180
0.479
0.028
0.921
0.018
0.027
0.382
0.279
0.019
0.081
0.661
0.097
0.184
0.469
1.678
10.488
0.111
0.422
0.485
0.115
0.089
0.105
0.164
0.411
0.121
0.789
0.830
0.585
1.622
10.137
0.863
0.593
0.485
0.849
0.169
0.075
0.177
0.086
0.057
0.266
0.058
0.008
Firm
characteristics
and balanced
scorecard
217
Table III.
Principal components
analysis of the BSC
IJAIM
22,3
218
Performance
Following Abernethy and Lillis (1995), we asked respondents to appraise their
organizations performance regarding margin on sales, capacity utilization, customer
satisfaction and product quality. The performances were appraised on a scale from 1
(below average) to 7 (above average). A factor analysis indicates that all four measures
loaded on one factor, explaining about 69.6 per cent of the total variance. The Cronbach
alpha coefficient of 0.89 suggests satisfactory internal reliability.
Results
Table IV shows Pearson correlation results. As expected, BSC use is positively and
significantly correlated with PLC stage, external environment and performance.
Although size and strategy are positively correlated with BSC usage, they are not
statistically significant.
The following regression is used to test H1-H4:
BBC_USE 0 1 SIZE 2 PLC 3 ENV 4 STRA e
(1)
Where BSC_USE BSC usage; SIZE firm size; PLC product-life-cycle stage,
measured in five stages from product introduction to maturity; ENV external
environment, i.e. the managers perceptions of the actual target markets unpredictability
and dynamism; and STRA strategy, measured in a continuous scale from low cost to
differentiation.
Table V presents the regression results. Adjusted R2 of the model is 0.568. Pearson
correlation coefficients reported in Table III shows that PLC stage, strategy and external
environment are all significantly correlated at p 0.01. The tolerance test (tolerance
0.1) and variance inflation factor (VIF 10) suggest that multicollinearity is not likely
to have significantly affected the results.
The regression results show 1, 2 and 3 are positive and highly significant (p 0.05),
implying that higher BSC use is found in large firms with products at an early PLC stage
or operating in a highly uncertain environment. 4 is negative and significant,
suggesting that companies with a cost leadership strategy are significantly associated
with BSC use. These results support H1, H2 and H3, but not H4.
Variable
Table IV.
Correlation matrix
(pearson correlation)
Organizational size
PLC stage
External
environment
Organizational
strategy
Overall BSC usage
Organizational
performance
Organizational
size
PLC
stage
1.000
0.184
1.000
Overall
BSC
Organizational
Environment Strategy usage
performance
0.480
0.421*
0.142
0.229
0.559** 0.515**
0.491*
0.219
1.000
0.605** 0.543**
0.614**
1.000
0.307
0.741**
0.143
1.000
1.000
Notes: * Correlation is significant at the 0.05 level; ** Correlation is significant at the 0.01 level
Table VI reports the ANOVA tests of BSC on performance and the four contingent
factors. None of the interaction effects were significant at a level below p 0.05. The
effect of BSC use on performance was significant for large firms (p 0.01) and for firms
with products at early PLC stages (p 0.05), which supports H1 and H2. The
non-significant results for environmental uncertainty and strategy failed to support H3
and H4.
Discussion
Kidwell et al. (2002) have demonstrated a large number of successful implementations of
the BSC in the USA with only few exceptions. Such evidence has not yet been
documented in non-US firms. Our study fills this gap by examining BSC use in
Singapore, which possesses a unique operating environment and business practices
differing from those of the USA BSC is not merely an amalgamation of financial and
non-financial metrics; it encompasses an integrated system that motivates employees at
all levels to achieve goal congruence.
We adopted the framework by Hoque and James (2000) to test our hypotheses and
research questions. The inclusion of external environment and organizational strategy
in this study adds additional insights. Overall, our results are consistent with the
findings of Hoque and James (2000). In particular, our findings suggest that Singaporean
manufacturing firms are likely to increase usage of the BSC when they are larger in size,
have products at an early PLC stage or operate in a highly uncertain environment. The
findings show a positive relationship between BSC use and environmental uncertainty
but lack support on differentiation strategy. The two-way interaction effect between
BSC use and strategy and environmental uncertainty do not have a significant impact
on performance. The sample mean of 3.50 on a 7-point Likert scale indicates that
manufacturing firms in Singapore place equal emphasis on both the cost leadership and
differentiation strategies. Hoque and James (2000) found firms with an analyzer strategy
to use the four perspectives of the BSC to a greater extent than firms following the cost
leadership or differentiation strategy, while Gibbons (1996) showed that the analyzer
strategy is the most widely adopted strategic approach in Singapore. This may explain
the lack of significant results for increased BSC use by firms with differentiation
strategy and the impact of differentiation strategy and BSC use on performance.
Firm
characteristics
and balanced
scorecard
219
Variable
Intercept
ORG_SIZE
PLC
ENV
ORG_STRA
Standardized beta
coefficients
t-statistics
p-value
5.510
0.347
0.701
0.563
0.639
6.107
2.238
3.779
3.056
0.316
0.000
0.039
0.001
0.007
0.006
Tolerance
NA
0.853
0.598
0.606
0.502
VIF
Table V.
NA
Regression results
1.172
(H1-H4)
1.672
BSC_USAGE 0
1.651
1.991 1ORG_SIZE 2PLC
3ENV
4ORG_STRA e
IJAIM
22,3
Source of variation
Sum of
squares
Degree of
freedom
Mean
square
Significance
of F
6.713
10.353
1.899
14.143
10.775
1
1
1
3
18
6.713
10.353
1.899
4.714
0.599
11.213
17.294
3.173
7.875
0.004
0.001
0.092
0.001
6.443
1.805
4.049
7.698
17.220
1
1
1
3
18
6.443
1.805
4.049
7.698
17.220
6.735
1.887
4.232
2.682
0.018
0.186
0.054
0.078
2.212
3.932
1.214
7.581
17.337
1
1
1
3
18
2.212
3.932
1.214
7.581
17.337
2.296
4.083
1.260
2.624
0.147
0.058
0.276
0.082
3.115
5.037
1.675
9.998
14.920
1
1
1
4
17
3.115
5.037
1.675
9.998
14.920
3.550
2.869
1.909
2.848
0.077
0.084
0.185
0.056
should be exercised in generalizing the findings of this study to other industries and
contexts. Future research can use different methodologies, such as field studies, case
studies and lab experiments, to examine industries other than manufacturing.
Notes
1. Check the survey results at www.bain.com/management_tools/tools_balanced.asp?groupCode2
2. The local environment that Singaporean firms face of course is globalised competition.
3. According to a study by KPMG, Singapore is the most cost-competitive business location
among nine industrialized countries. See www.sedb.com/edb/sg/en_uk/index/why_
singapore/singapore_rankings.html
4. The survey can be found at www.bain.com/management_tools/Management_Tools_and_
Trends_2007.pdf
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scorecard
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Corresponding author
Ling Liu can be contacted at: liul@uwec.edu
Reproduced with permission of the copyright owner. Further reproduction prohibited without
permission.