Missing Non-Strategic Targets: Are Managers Penalized for Emphasizing Important Measures?

Abstract

Kaplan and Norton (1992, 1996) espouse that performance measures in a balanced scorecard (BSC) should be linked to strategy. However, many firms are currently using BSC measures which are not linked to strategy. Banker et al (2004) found that using devices such as strategy maps helps evaluators focus on strategically-linked (SL) measures, such that they are weighted more than non-strategically-linked (NSL) measures, helping to overcome biases such as the common-measures bias. We conduct an experiment using strategy maps and BSCs with both SL and NSL measures to assess how missing performance targets influences performance evaluations. Statistical results indicate the when both managers outperform all targets, a manager that dominates on SL measures is rated more highly than a manager who dominates on NSL measures. We extrapolate the finding of Banker et al (2004) to set up conflicting hypotheses for the reaction in the presence of negative performance information. We find that a manager that misses some targets is evaluated more negatively than a manager with linearly-equivalent total performance who slightly outperforms on all targets regardless of the importance of the below-target measures. While Banker et al (2004) found that evaluators could use a strategy map to focus on SL measures, this study demonstrates that the effectiveness of strategy maps is limited in the presence of negative performance.