Performance measurement systems : an examination of the influence of the contextual factors and their impact on performance with a specific emphasis on the balanced scorecard approach

In an attempt to understand the performance measurement systems, this study utilises the contingency
theory theoretical framework to examine the contingent relationships between several contextual
factors and the usage of financial and non-financial performance measures for performance
measurements and evaluation purposes. The contextual factors consist of business strategy,
organisational structure, perceived environmental uncertainty, intensity of competition, organisation
size, total quality management and just in time manufacturing approaches. This study also
investigates the implications of fit (internal consistency) between the above contextual factors and the
extent of performance measurement diversity usage on organisational effectiveness (i.e.
organisational performance and level of satisfaction). Nine performance measurement categories are
investigated including: financial, customer, operational, innovation, employee, supplier, environment,
quality and community categories. During the 1990s and until recently, considerable publicity and
interest has been given to the balanced scorecard approach (BSC). This study also gathers empirical
data to investigate various issues relating to BSC approach. The major aims of the study are to
examine how the manufacturing companies are dealing with this approach and to determine the extent
to which the above contextual factors influence the extent of balanced scorecard usage.

The findings are based on a questionnaire mailed to a target sample of 900 UK manufacturing
companies with an annual sales turnover in excess of £50 million. A total of 163 usable responses
were received representing a response rate of 19.7%. For the purpose of data analysis, the study
utilises descriptive statistics and multivariate statistics (i.e. structural equation modelling using EQS
5.7 and multiple regression).

The results of the descriptive analysis show that financial, customer, operational and quality
performance categories are extensively used for performance measurements and evaluation purposes.
Other non-financial performance categories (i.e. innovation, supplier, employee, and environment)
are also used but to a lesser extent. Despite the popularity of the balanced scorecard (BSC) approach,
only a minority of companies (30%) reported using it in their performance measurement systems. The
findings also emphasise the inconsistency between companies following the BSC approach,
particularly the number and types of perspectives used. The results of structural equation modelling
suggest a strong support for the cost strategy, formalisation, regulatory aspects of perceived
environmental uncertainty, size, aspects relating to the intensity of competition and the extent of the
use of both total quality management and just in time manufacturing approaches have a significant
influence on the extent of performance measurement diversity usage (i.e. financial and non-financial
performance measures). The results also indicate that the different approaches to fit utilised in this
study (i.e. bivariate and systems approaches), based on structural equation modelling, result in
insightful findings relating to the contingent relationships between the anticipated contextual factors,
the extent of performance measurement diversity usage and organisational effectiveness. The results
using multiple regression indicate that formalisation, raw material aspects of perceived environmental
uncertainty, size and the extent of the use of total quality management significantly influence the
extent of balanced scorecard usage.

A distinguishing feature of this study is that it extends previous BSC studies in determining the extent
of balanced scorecard usage. The results suggest that using financial and non-financial performance
measures does not necessarily imply that the companies are really balanced scorecard users. This
finding therefore raises implications for future balanced scorecard researchers, and by drawing off
contingency theory literature, it overcomes some of the deficiencies of previous research relating to
balanced scorecard approach. Finally, this study contributes to the literature by utilising the structural
equation modelling method, which has several advantages over other multivariate data analysis.