Common-Measures Bias in the Balanced Scorecard: Cognitive Effort and General Problem-Solving Ability

Abstract

Lipe and Salterio (2000) found decision-makers role-playing as superiors in a performance evaluation setting placed 97 percent of criteria weight on information common to subordinates in making their judgments when evaluating performance using the Balanced Scorecard (BSC). Because theory underlying the BSC (Kaplan and Norton 1996, 2001) assumes all measures included are relevant for achieving organizational objectives, several subsequent studies have attempted to understand or alleviate this common-measures bias (e.g., Krumwiede et al. 2002; Banker et al. 2004; Libby et al. 2004; Roberts et al. 2004; Dilla and Steinbart 2005). This study is the first to directly test the effort-based explanation of the common-measures bias (Slovic and MacPhillamy 1974, Lipe and Salterio 2000). Additionally, this research investigates the role of participants' problem-solving ability on mitigating the common-measures bias. Results show strong support for the effect of problem-solving ability on increased measures usage, but not for the effort-based explanation. Superiors who relied more on common measures were less convinced subordinates should be evaluated with different measures and less convinced that subordinates' target markets were unique. These results raise important questions about the nature of common-measures bias.