Article review of “The balance of balanced scorecard”: for Advanced management accounting study

Article review of “The balance of balanced scorecard”

 

How to present this article in Harvard reference format?

Nørreklit, H., 2000. The balance on the balanced scorecard – a critical analysis of some of its assumptions. Management Accounting Research, 11(1), pp.65–88. https://doi.org/10.1006/mare.1999.0121

 

What are the key research issues the article wants to address?

The article aims to address the following key research issues:

1.    Validity of the Balanced Scorecard (BSC) Model: The paper examines whether the balanced scorecard is a valid model for achieving the results it promises, considering it is widely used as both a performance measurement and strategic management control system. It critically investigates some of the key assumptions underlying the BSC, especially those related to causal relationships among measures and its ability to function as a feed-forward control system.

2.    Alignment of Strategy and Actions: The study explores whether the balanced scorecard can effectively align the strategy as planned with the strategy as actually executed through organizational actions, including whether it can handle the problem of strategy implementation.

3.    Causality Among Measures: It questions the assumption of causal linkages among the balanced scorecard’s perspectives (organizational learning and growth, internal business processes, customer perspective, and financial measures), suggesting that these linkages may be more logical than causal, which has implications for performance anticipation and management control.

4.    Organizational and Environmental Rooting: The paper investigates whether the balanced scorecard ensures sufficient rooting both within the organization (employee and managerial buy-in) and in relation to the external environment. It highlights concerns about the top-down, hierarchical nature of BSC implementation and the resulting gap between planned strategy and actual strategic behavior within firms.

5.    Improving and Developing the BSC Model: The research also looks to contribute to enhancing the clarity and conceptual foundations of the balanced scorecard and to suggest theoretical directions for developing the model to reduce existing problems and increase its validity as a strategic management control tool.

In summary, the article focuses on critically analyzing the assumptions underpinning the balanced scorecard, especially regarding causality, strategic implementation, organizational acceptance, and overall validity as a strategic control and measurement system.

 

Describe two main theories employed in this article.

The article primarily employs the following two main theories:

1.    Balanced Scorecard Theory (Kaplan and Norton, 1996): The balanced scorecard (BSC) is a strategic performance measurement and management control system that translates an organization's vision and strategy into a coherent set of performance measures. It integrates financial and non-financial measures across four perspectives — financial, customer, internal business processes, and learning and growth. The BSC aims to link outcome measures and their performance drivers in a causal chain, thus functioning as a feed-forward control system. It also seeks to align departmental and individual goals to overall organizational strategy, providing both strategic measurement and control.

2.    Porter's Competitive Strategy Theory (Porter, 1980, 1985): The article relies on Michael Porter's concept of strategy, which emphasizes that competitive strategy formulation involves relating a company to the competitive forces in its industry environment. According to this theory, strategy should be based on competitive market segments to be served, followed by identification of the internal business processes the firm must excel at to deliver value to customers. Thus, competitive strategy is seen as environment-driven rather than driven by core competencies or internal resources, which should be adapted to fit the environment.

These two theories underpin the article’s critical analysis of the balanced scorecard. The article evaluates whether the BSC's assumptions about causal linkages among perspectives and its strategic control effectiveness hold true when strategy is understood as environment-driven, competitive positioning à la Porter.

 

Describe 3 main claims of the article in terms of Toulmin's model of argument.

Applying Toulmin's model of argument, the article presents the following three main claims, along with their supporting grounds, warrants, and qualifiers:

1.    Claim 1: The cause-and-effect relationships among the four perspectives of the balanced scorecard are problematic and may not validly exist in practice.

• Grounds: Kaplan and Norton’s balanced scorecard is based on the assumption of causal chains linking financial, customer, internal business process, and learning and growth measures, but these cause-and-effect relationships are difficult to empirically prove at the firm level and may be ambiguous or based on concepts like finality rather than clear causality.
• Warrant: A feed-forward control system like BSC requires valid causal assumptions to anticipate performance accurately; invalid causal assumptions lead to faulty performance indicators and dysfunctional organizational behavior.
• Qualifier: This claim is made with the qualification that causality is difficult to firmly establish and the model’s ambiguity weakens its predictive and control power.

2.    Claim 2: The balanced scorecard is not a fully valid strategic management control tool because it does not ensure organizational or environmental rooting, leading to a gap between planned strategy and actual strategic actions.

• Grounds: The BSC’s hierarchical top-down implementation approach struggles to engage lower-level managers and employees effectively, risking poor internal acceptance and implementation. Moreover, it inadequately addresses environmental dynamics like external shocks or strategic leaps requiring interactive and adaptive control.
• Warrant: Effective strategic control requires both internal commitment and environmental responsiveness; tools lacking these will fail to align strategy with realized actions.
• Qualifier: The claim acknowledges that while BSC takes some strategic momentum control into account, it does not sufficiently handle dynamic or unexpected environmental changes.

3.    Claim 3: The balanced scorecard needs theoretical and methodological adjustments to improve its validity and usefulness as a strategic control tool.

• Grounds: The invalid assumptions about causality and the hierarchical control approach in the BSC result in suboptimal performance and limited impact; suggestions include adopting more interactive control processes, improving environmental and organizational rooting, and refining concepts used in the model.
• Warrant: Refining the control methods and conceptual clarity will make the BSC more realistic and effective in managing strategy and performance.
• Qualifier: These are proposed theoretical directions rather than fully empirically tested solutions.

These claims clarify the article’s critical evaluation of the balanced scorecard’s assumptions and practices, proposing directions for improvements grounded in theory and analytical reasoning.

** reference:  a collection of management accounting notes

A collection of literature review on advanced management accounting articles

 A collection of literature review on advanced management accounting articles (making use of the Toulmin's model of argument)

1. “On the emergence of strategic management accounting”
2. “The balance of balanced scorecard”

Article review of “On the emergence of strategic management accounting”: advanced management accounting

Article review of “On the emergence of strategic management accounting”

 

How to present this article in Harvard reference format

 

Ma, Y. & Tayles, M., 2009. On the emergence of strategic management accounting: an institutional perspective. Accounting and Business Research, 39(5), pp.403-430.

 

What are the key research issues the article wants to address?

 

The key research issues the article aims to address are:

1.    How Strategic Management Accounting (SMA) practices have been adopted within the processes of management accounting change in an organization.

2.    What kind of change process the case company experienced during the adoption of SMA practices.

3.    What causes or influences the change in management accounting practices, particularly the evolving strategic role of management accountants.

4.    Understanding how accountants engage with strategic issues beyond merely reporting financial data.

5.    The influence of organizational environments and actions on the adoption and diffusion of SMA practices, moving beyond popularity to explaining why certain practices are adopted or rejected.

These issues are highlighted as gaps in prior research which mostly focused on describing popular SMA practices without sufficient analysis of the underlying adoption processes, organizational contexts, and role changes of management accountants

 

Describe two main theories employed in this article.

The article employs two main theoretical perspectives:

1.    Neoinstitutional Theory:

• This is the primary theoretical framework used to analyze management accounting change and SMA adoption in the case company.
• Neoinstitutionalism focuses on how organizations are embedded in wider social, economic, and institutional fields or populations and how institutional pressures (coercive, mimetic, normative) influence organizational behaviors and change processes.
• The theory stresses that management accounting change is not only a technical matter but also involves social and political dynamics, power relations, and value commitments within organizations.
• The article applies neoinstitutional concepts such as archetypal templates (organizational configurations shaping values and privileges), value commitments, and capacity for action to explain how SMA practices emerged as administrative innovations influenced by both external pressures (market competition, regulation) and internal organizational actions.

2.    Strategic Management Accounting (SMA) Theory:

• SMA itself is treated as a conceptual framework or body of management accounting concerned with generating strategically oriented information that supports decision-making and control.
• SMA emphasizes a broader business perspective beyond traditional financial measures, incorporating non-financial, competitor-related, and long-term oriented information for strategy formulation and implementation.
• The article reviews the SMA literature, its contested definitions, and its intent to elevate the role of accountants to strategic partners who actively participate in decision-making rather than only producing routine financial reports.
• SMA theory provides the substantive content of the management accounting changes observed in the company, framing these changes as comprising competitor performance appraisal, customer profitability analysis, and forward-looking strategic measures.

Together, neoinstitutional theory offers the lens for understanding the processes and contextual drivers of change, while SMA theory provides the content and direction of the management accounting change under study.

 

 

 

Describe 3 main claims of the article in terms of Toulmin's model of argument.

Using Toulmin's model of argument—which consists of Claim, Data (Evidence), and Warrant (the reasoning that links data to claim)—three main claims from the article can be described as follows:

1.    Claim 1: The adoption of Strategic Management Accounting (SMA) practices is influenced by both organizational environments and organizational actions, and is not merely a matter of popularity or technical implementation.

• Data: The case study showed that SMA adoption depended on external pressures such as market competition and internal factors like strategic alignment and managerial support, rather than just the existence of SMA techniques. Resistance within the organization also affected adoption. Existing survey evidence showed low adoption rates and limited awareness of SMA, despite perceived merits.
• Warrant: Understanding SMA adoption requires examining the organizational context and human agency within firms, as SMA practices emerge as administrative innovations shaped by these factors, rather than from simple diffusion or technical characteristics.

2.    Claim 2: SMA adoption and management accounting change can be better understood through a neoinstitutional theoretical framework, which links organizational contexts to organizational actions.

• Data: The article draws on neoinstitutionalism to explain how power relations, value commitments, and capacity for action within the organization influenced the emergence of SMA practices in the case company, such as the role of senior managers and cross-functional cooperation programs (e.g., IBP).
• Warrant: Neoinstitutional theory provides a richer explanation of management accounting change by accounting for social, political, and institutional dynamics, thereby illuminating why and how organizational actors embrace or resist new SMA practices.

3.    Claim 3: Effective SMA implementation involves a shift in the role of management accountants from routine financial reporting towards strategic involvement in decision-making supported by non-financial and forward-looking information.

• Data: Evidence from the case showed management accountants acting as 'sparring partners' or strategic advisors, being embedded within marketing teams, and producing reports featuring competitor, customer, and long-term indicators rather than only historical financial data. This change improved cooperation between finance and other business functions and supported strategic goals.
• Warrant: SMA’s strategic orientation requires new roles and skills for accountants to contribute meaningfully to strategy formulation, thus moving beyond a traditional bean-counter image towards becoming integral to business decision processes.

These claims together address the article’s principal arguments about the nature, causes, and implications of SMA adoption and management accounting change.

 

** reference:  a collection of management accounting notes

A note on how management accountant role and management accounting system contribute to the creation of corporate long-term value

A note on how management accountant role and management accounting system contribute to the creation of corporate long-term value

To create companies to create long-term value, managers need to look outside for opportunities to create value. In this respect, describe in general two ways a professional management accountant and a well-designed management accounting system can contribute to meet this management need.

Managers create long-term value by scanning outside the firm for growth opportunities, and a professional management accountant plus a well-designed management accounting system can support this in two broad ways: (1) by providing strategic, externally oriented information and analysis that identifies and evaluates value-creating opportunities, and (2) by embedding that insight into planning, resource allocation, and performance management so the organisation can execute and sustain value creation.

1) Strategic, externally oriented information and analysis

A professional management accountant acts as a “business partner” who looks beyond internal cost data to synthesise financial and non-financial information about customers, competitors, markets, and the wider environment. In practice, this contributes to the management need to “look outside” in several concrete ways:

·        Market and competitor intelligence integrated with costing: Strategic management accounting (SMA) explicitly brings in external data—such as competitor cost structures, industry trends, and customer value drivers—to help managers assess where the firm can create superior value. Techniques like competitor cost analysis and value chain analysis enable managers to see how the firm’s cost and differentiation positions compare across the whole industry value system, not just inside the factory or office.studocu+3

·        Customer and value-proposition insight: Management accountants help answer strategic questions such as “Who are our most important customers, and how do we provide them value?” and “What substitutes exist, and how do they differ from ours?” by linking customer segmentation, lifetime value, and profitability analysis with operational and market data. This supports decisions on which markets, channels, or product–service bundles offer the best long-term value potential.

·        Sustainability and ESG as sources of advantage: Modern management accounting increasingly incorporates environmental and social metrics (e.g., environmental management accounting, carbon accounting, sustainability balanced scorecards) to identify how sustainability initiatives can reduce risk, lower costs, or differentiate the brand—thereby creating long-term value. A well-designed system captures these external stakeholder expectations and regulatory trends alongside financial data.

A well-designed management accounting system underpins this by routinely collecting, integrating, and reporting both internal (costs, processes, capacity) and external (market, competitor, customer, ESG) data in formats that support strategic discussion, not just operational control.

2) Embedding external opportunities into planning, resource allocation, and performance management

Identifying opportunities is only half the battle; the second contribution is to ensure those opportunities are translated into concrete plans, funded appropriately, and tracked over time.

·        Strategic planning and scenario analysis: Professional management accountants use financial models and scenario planning to test the profitability and risk of new products, markets, partnerships, or digital initiatives. This turns external opportunities into quantified business cases that senior management can compare and prioritise.

·        Resource allocation and investment appraisal: Through capital budgeting, life‑cycle costing, and activity-based insights, management accountants help direct capital and operating resources toward initiatives with the highest expected long-term value, considering both financial returns and strategic fit. A good system links project-level forecasts to overall strategic themes (e.g., growth in a specific segment, ESG targets).

·        Performance measurement aligned to value creation: Tools such as the Balanced Scorecard and strategy maps connect external strategic objectives (customer value, market share, innovation, sustainability) to internal processes, capabilities, and financial outcomes. This ensures that day-to-day decisions and incentives reinforce the pursuit of externally sourced opportunities rather than just short-term cost control.

In short, the professional management accountant contributes strategic insight (what external opportunities exist and how valuable they are), while a well-designed management accounting system contributes execution discipline (how to choose, fund, implement, and monitor those opportunities over time). Together, they help managers systematically look outside the firm and convert external possibilities into sustained, long-term value.

** reference:  a collection of management accounting notes

A note on feedback and feedforward control methods employed in a management accounting system

A note on feedback and feedforward control methods employed in a management accounting system

 

Describe 2 typical feedback control methods and 2 main feedforward control methods employed in a management accounting system. How does digitalization enhance these control methods nowadays?

In management accounting systems, feedback control methods evaluate performance after activities are completed, while feedforward control methods anticipate and prevent problems before they occur. Digitalization enhances both by enabling real-time data access, predictive analytics, and automated monitoring that make controls more timely, accurate, and proactive.

Feedback Control Methods

Feedback controls operate on the principle of measuring outputs after completion and using this information to correct future performance.

1. Budget Variance Analysis

This is perhaps the most widely used feedback control in management accounting. After a reporting period (monthly, quarterly, or annually), actual revenues, costs, and profits are compared against budgeted figures. Significant variances trigger investigation and corrective action for the next period. For example, if actual material costs exceed the budget by 15%, management investigates whether this resulted from price increases, waste, or inefficiency, then adjusts purchasing policies or production processes accordingly.

2. Performance Scorecards and KPI Dashboards

Organizations use balanced scorecards or key performance indicator (KPI) dashboards to review completed performance across financial and non-financial dimensions. These typically include metrics such as return on investment (ROI), customer satisfaction scores, employee turnover rates, and operational efficiency ratios. Managers review these periodically (e.g., monthly management meetings) to identify underperformance and implement improvements. For instance, a retail chain might review monthly sales-per-square-foot metrics to decide which stores need merchandising changes or staff training.

Feedforward Control Methods

Feedforward controls focus on inputs and processes before activities begin, aiming to prevent deviations rather than correct them afterward.

1. Standard Costing and Pre-Activity Budgeting

Before production or service delivery begins, standard costs are established for materials, labor, and overhead based on engineering studies, historical data, and expected conditions. These standards serve as benchmarks that guide resource allocation and operational decisions proactively. For example, a manufacturer sets standard material quantities per unit before production starts, ensuring procurement and production planning align with cost targets from the outset. Similarly, detailed budgets are prepared in advance, specifying expected revenues and expenditures, which then guide spending authorization and resource deployment.

2. Input Quality Controls and Pre-Employment Screening

Feedforward control also involves ensuring that inputs meet quality standards before work commences. In management accounting contexts, this includes vetting suppliers through financial health checks, requiring advance deposits or letters of credit, and conducting pre-employment screening to ensure staff have appropriate qualifications and integrity. For example, before approving a new vendor, a company might analyze their credit ratings and past performance to prevent future payment delays or quality issues that would affect cost control.

How Digitalization Enhances These Controls

Digital transformation strengthens both feedback and feedforward controls through improved data availability, analytical capabilities, and automation.link.springer+2

Enhanced Feedback Controls

• Real-time dashboards: Digital accounting systems and ERP platforms provide continuous, real-time access to performance data rather than waiting for periodic reports. Managers can monitor KPIs continuously and respond faster to emerging issues.
• Automated variance detection: AI and machine learning algorithms automatically flag unusual variances or anomalies in financial data, reducing manual review time and improving detection accuracy.
• Integrated analytics: Digitalization links equipment, instruments, and business systems into a continuous data flow, enabling holistic performance analysis across departments.

Enhanced Feedforward Controls

• Predictive analytics: AI analyzes historical and real-time data to forecast equipment behavior, demand patterns, and cost drivers, allowing proactive adjustments before problems occur. For instance, predictive models can forecast material price trends, enabling better budget setting and procurement planning.
• Digital twins and simulation: Organizations use digital twin technology to simulate production scenarios and test different input combinations before actual implementation, optimizing resource allocation in advance.
• Automated input validation: Digital systems automatically validate supplier credentials, credit scores, and compliance certifications before transactions are approved, strengthening pre-activity controls.

Overall Benefits

Digitalization shifts management control systems from reactive, periodic reviews toward continuous, data-driven monitoring and prediction. This enhances transparency, strengthens internal control functions, and supports more informed decision-making. However, organizations must also address emerging tensions such as ethical risks, data privacy concerns, and the need for greater digital literacy among managers.

** reference:  a collection of management accounting notes