A review of the balanced scorecard approach from different perspectives

A review of the balanced scorecard approach from different perspectives

 

Highlight 3 main ideas of the balanced scorecard approach from each of the following perspectives: (1) the management control system perspective and (2) the contingency theory perspective. Also highlight 2 new development of the balanced scorecard approach over the past 8 years. Try to provide some citations (and references in Harvard reference format) in your discussion.

The balanced scorecard (BSC) can be understood both as a management control system for translating strategy into action and as a contingency-based approach whose design must fit the organisation’s circumstances. Over approximately 2018–2026, two especially important developments have been the integration of sustainability/ESG measures and the movement towards more dynamic, data-driven and analytically supported scorecards.

1. Management control system perspective

From this perspective, the BSC is not merely a collection of performance indicators. It is a management control system that links strategy, planning, performance measurement, communication and corrective action.

Idea 1: Translating strategy into coordinated objectives

The BSC translates an organisation’s vision and strategy into objectives and measures across several perspectives:

• financial performance;
• customers or stakeholders;
• internal business processes; and
• learning and growth.

The central management-control idea is vertical and horizontal alignment. Senior management formulates strategic priorities, while departments and employees translate those priorities into operational objectives and targets. Thus, the BSC helps connect long-term strategy with short-term managerial action.

It is particularly valuable because it combines financial outcome measures with non-financial drivers. For example, employee training and process innovation may be treated as leading indicators that influence service quality, customer satisfaction and, eventually, financial performance. The assumed causal logic commonly runs from learning and growth, through internal processes and customer outcomes, to financial results.

Idea 2: Combining diagnostic and interactive control

The BSC provides information for two related control purposes:

• Diagnostic control: monitoring whether actual performance conforms to predetermined targets, budgets and standards.
• Interactive control: using performance information to stimulate discussion about strategic uncertainties, emerging opportunities and necessary changes in strategy.

A diagnostic use might involve a monthly dashboard showing sales, costs, customer retention and process-efficiency variances. An interactive use would involve senior managers and operating staff discussing why customer needs have changed, whether the existing strategy remains appropriate and whether new strategic initiatives are required.

This distinction is important because the BSC should not be reduced to a “traffic-light” reporting system. Research reviewing BSC scholarship has observed that many organisations use it mainly as a performance-measurement system rather than as a fully developed management-control system. A stronger approach uses the scorecard to support strategic dialogue, organisational learning and adaptation.

Idea 3: Creating an integrated feedback and accountability cycle

As a management control system, the BSC establishes a recurring cycle:

1.    formulate strategic objectives;

2.    select measures and targets;

3.    assign responsibility;

4.    collect performance information;

5.    compare actual results with targets;

6.    investigate deviations; and

7.    revise actions, resource allocation or, where necessary, the strategy itself.

This cycle makes strategy more concrete and improves accountability. It also enables managers to identify whether poor financial performance is an immediate problem or the consequence of weaknesses in earlier causal links, such as inadequate employee capabilities, slow processes or declining customer satisfaction.

However, the causal links should be treated as strategic hypotheses rather than automatic laws. Managers need to test whether training actually improves processes, whether better processes improve customer outcomes and whether those outcomes influence financial performance. In this sense, the BSC supports organisational learning rather than simply enforcing target compliance.

2. Contingency theory perspective

Contingency theory rejects the assumption that one universally optimal management-control system exists. Instead, the effectiveness of a BSC depends on its fit with contextual factors such as strategy, technology, organisational structure, environmental uncertainty, size, sector, culture and managerial information needs.

Idea 1: There is no universally appropriate BSC

A BSC designed for a manufacturing company should not automatically be transferred to a hospital, university, public agency, airline or online retailer. The relevant objectives, stakeholders and performance drivers differ substantially.

For example:

• a hospital may emphasise patient safety, waiting times, treatment outcomes, staff capability and public accountability;
• an online retailer may emphasise website conversion, delivery reliability, customer acquisition cost, repeat purchases and platform availability;
• a university may emphasise student progression, teaching quality, research impact, graduate employability and financial sustainability.

Recent research on BSC adoption explicitly argues that no standard model is suitable for all organisations; the appropriate design depends on internal and external environmental factors. Therefore, the four conventional perspectives should be treated as a flexible starting point rather than a rigid template.

Idea 2: BSC design should fit environmental and organisational conditions

Contingency theory directs attention to the conditions under which particular BSC designs are likely to be effective. Important contingencies include:

• environmental uncertainty and competitive intensity;
• technological change and digitalisation;
• organisational size and complexity;
• corporate or business-level strategy;
• public, private or non-profit sector context;
• degree of decentralisation;
• regulatory requirements; and
• organisational culture and management style.

In a stable environment, managers may rely on relatively fixed targets and periodic reporting. In a turbulent environment, the scorecard may need shorter review cycles, rolling targets, scenario-based measures and greater emphasis on innovation and responsiveness.

The selection of indicators should likewise reflect the organisation’s strategy. A low-cost strategy may prioritise productivity, process efficiency and unit cost, whereas a differentiation strategy may emphasise innovation, service quality, brand reputation and customer experience. The BSC therefore becomes a contingent design choice rather than an identical package of four perspectives.

Idea 3: The relationship between BSC use and performance is conditional

Contingency theory is concerned not only with the design of the scorecard but also with how it is used. The same BSC may produce different outcomes depending on managerial behaviour and organisational context.

For instance, a highly centralised organisation may use the BSC primarily for formal monitoring and accountability. A decentralised organisation may use it to facilitate dialogue, coordination and local decision-making. Similarly, in a highly uncertain environment, rigid target-based use may encourage dysfunctional behaviour, whereas interactive use may help managers learn and adapt.

This explains why empirical findings on BSC adoption and performance are not always consistent. A scorecard may improve performance when it is strategically aligned, understood by employees and supported by appropriate information systems, but have limited value when measures are imposed mechanically, poorly connected to strategy or used mainly for punishment.

3. Two developments over the past eight years

Development 1: Sustainability and ESG-integrated balanced scorecards

The most significant development has been the extension of the traditional BSC into the sustainability balanced scorecard (SBSC). Organisations increasingly incorporate environmental, social and governance measures alongside financial and operational indicators.

This development reflects a shift from a narrow shareholder-performance logic towards broader accountability to stakeholders and future generations. Possible measures include:

• carbon emissions and energy consumption;
• waste reduction and circularity;
• employee diversity, equity and inclusion;
• occupational health and safety;
• community impact;
• ethical supply-chain performance;
• data privacy and governance; and
• stakeholder trust.

Sustainability can be integrated in at least three ways:

1.    embedding ESG indicators within the existing four perspectives;

2.    adding a separate sustainability or stakeholder perspective; or

3.    redesigning the strategy map so that environmental and social outcomes are treated as strategic outcomes and drivers.

A systematic review describes the SBSC as a multidimensional performance-measurement and management-control tool that can help drive corporate sustainability. More recent research has also examined the integration of ESG indicators into BSCs in manufacturing and public-sector organisations. However, implementation remains difficult because organisations must select credible indicators, resolve trade-offs between financial and sustainability objectives, and avoid treating ESG measurement as merely a reporting exercise. A 2025 review, for example, identifies indicator selection and organisational resistance as continuing barriers.

Development 2: Dynamic, digital and analytically supported scorecards

A second development is the movement from relatively static, periodic scorecards towards dynamic systems supported by digital data, real-time dashboards, predictive analytics and increasingly artificial intelligence.

Traditional BSC reporting often relied on quarterly or monthly spreadsheets. Newer applications seek to:

• automate the collection of operational and customer data;
• connect the scorecard with enterprise systems and digital platforms;
• monitor indicators in near real time;
• identify trends and anomalies;
• forecast likely performance;
• simulate the effects of strategic decisions; and
• revise targets as environmental conditions change.

This is particularly relevant in volatile sectors. A 2025 airline study, for example, combined BSC indicators with MEREC weighting and the CoCoSo multi-criteria ranking method to develop a more data-driven performance model tailored to industry conditions. Other recent work has proposed dynamic BSC approaches that respond more explicitly to changing organisational and environmental conditions.

The implication is not that technology replaces managerial judgement. Rather, digital tools can strengthen the BSC’s feedback and learning functions. Managers can receive earlier warnings about deteriorating customer satisfaction, process delays or emerging sustainability risks. Nevertheless, excessive automation may create new problems, including data overload, algorithmic bias, weak data quality and overemphasis on what is easily measurable.

Overall comparison

Issue	Management control system perspective	Contingency theory perspective
Main question	How does the BSC translate strategy into action and control?	Under what conditions is a particular BSC design and use effective?
View of the BSC	An integrated system of objectives, measures, targets, feedback and accountability	A context-dependent management-control design
Main emphasis	Strategy execution, coordination, monitoring and organisational learning	Fit with strategy, structure, technology, environment and sector
Treatment of perspectives	Four perspectives provide a balanced structure for linking drivers and outcomes	The perspectives may need to be adapted, extended or reweighted
Main risk	The BSC becomes a narrow reporting or target-compliance mechanism	Managers assume that one standard BSC works equally well everywhere
Current development	Digital dashboards, dynamic review and analytics	Context-sensitive ESG, sector-specific and adaptive scorecards

Concluding interpretation

The two perspectives are complementary. The management-control perspective explains how the BSC can coordinate action and support strategy execution, while contingency theory explains why its design and use must vary across organisations and changing circumstances. For contemporary organisations, an effective BSC is therefore likely to be strategically aligned, context-sensitive, sustainability-aware and sufficiently dynamic to incorporate timely digital information.

References

Benková, E., Gallo, P., Balcerzak, A.P. and Pietrucha, J. (2020) ‘The impact of selected factors on the quality of business environment’, Journal of Business Economics and Management, 21(4), pp. 1023–1045.

Garefalakis, S., Angelaki, E., Spinthiropoulos, K., Tsamis, G. and Garefalakis, A. (2025) ‘The implementation of ESG indicators in the Balanced Scorecard—case study of LGOs’, Risks, 13(8), p. 154.

Kaplan, R.S. and Norton, D.P. (1992) ‘The balanced scorecard—measures that drive performance’, Harvard Business Review, 70(1), pp. 71–79.

Kaplan, R.S. and Norton, D.P. (1996) The Balanced Scorecard: Translating Strategy into Action. Boston, MA: Harvard Business School Press.

Kaplan, R.S. and Norton, D.P. (2001) The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Boston, MA: Harvard Business School Press.

Mio, C., Costantini, A. and Panfilo, S. (2022) ‘Performance measurement tools for sustainable business: A systematic literature review on the sustainability balanced scorecard use’, Corporate Social Responsibility and Environmental Management, 29(2), pp. 367–384.

Silva, A., Maldonado, I., da Silva, M. and Cepeda, C. (2025) ‘Sustainability balanced scorecard: Systematic literature review’, Journal of Risk and Financial Management, 18(6), p. 324.

Simons, R. (1995) Levers of Control: How Managers Use Innovative Control Systems to Drive Strategic Renewal. Boston, MA: Harvard Business School Press.

Tuan, T.T. (2022) ‘Factors affecting the application of balanced scorecard to improve business performance in Vietnamese listed companies’, Cogent Business & Management, 9(1), Article 2149146.