The Balanced Scorecard: Plant-Level Evidence of Relations Between the Four Perspectives

Abstract

We use structural equation modeling to evaluate patterns of relations in two models – a sequential model that links a series of non-financial and financial outcome measures in an ordered hierarchical manner according to the four perspectives described in the balanced scorecard (BSC) and a complex model that permits direct relations between outcome measures in lower-order perspectives with outcome measures in any higher-order perspective of the BSC hierarchy. We perform our analysis at the plant level using generic outcome measures from a nation-wide survey of business establishments in Canada. Our model specifications follow Bryant, Jones and Widener (2004) who conduct a firm-level analysis of companies included in the American Customer Satisfaction Index. Our plant-level results indicate that both the sequential and complex models fit the data well. The validity of the sequential model supports the premise of linking the outcome measures in a sequential chain ordered according to the BSC hierarchy. Direct relations observed in the complex model support the proposition that some relations between perspectives exist that are not permitted in the sequential model. We find evidence of two such types of relations for our outcome measures and data. Innovation and quality (internal business process perspective) link sequentially to profitability outcomes (financial perspective) through customer satisfaction and market share (customer perspective) but also link directly to productivity (financial). Computer usage (learning and growth perspective) links sequentially through innovation and quality (internal business process) to customer satisfaction (customer) but also links directly to return on sales and productivity (financial).