50
ENDNOTES
1
The growing body of research that has investigated empirical links between non-financial and finan cial measures of
performance in a variety of firms and industries also includes: Amir and Lev, 1996; Banker et al., 1993, 1995, 1996, 2000;
Barth, and McNichols, 1994; Behn and Riley, 1999; Foster and Gupta, 1990, 1999; Ghosh and Lusch, 2000; Hughes,
2000; Ittner and Larcker, 1997, 1998a; Perera et al., 1997]. These studies often find significant relations between non-
financial measures and measures of financial performance, though studies of the performance effects of including non-
financial measures in co mpensation plans are less consistent. Given extensive theoretical and growing empirical support,
it is not surprising that many organizations report that they are turning to forward-looking, non-financial information to
both guide decisions and evaluate cu rrent performance [Ittner and Larcker, 1998b].
2
A similar approach to combining multiple measures of performance, the tableau de bord, has been used by some French
companies for many years [Epstein and Manzoni, 1997].
3
Objective knowledge is observable and expressible in normal language – production processes and outcomes, for
example. Tacit knowledge, however, is known and understood but not easily expressed in language – an individual’s
experiences or insights, for example. This paragraph draws heavily from Tucker et al. [1996].
4
Consideration of time lags may be important to describing these cause and effect relations [e.g., Banker et al., 2000;
Norreklit, 2000].
5
For example, Banker et al. [2000] provide empirical support from extensive time-series data within a service firm for
relations between leading non-financial measures and lagging financial performance. Furthermore, they use an event-
study method to find beneficial performance effects from including non-financial measures in management performance
evaluations.
6
Proponents of economic-value added, or EVA
TM
, also claim improvements over traditional financial measures of
performance, but it, too, is a summary financial measure, albeit one that corrects for alleged financial reporting errors.
EVA
TM
does not incorporate complementary, non-financial measures of performance.
7
While the first claim for the value of multiple measures of performance would generate little controversy beyond
considerations of costs and benefits, the second claim is a bold and rigorous hypothesis. A literal and potentially testable
description of the BSC is that it describes contemporaneous, leading, or lagging relations among performance measures.
For example, improvements in learning and growth such as increased training should be reflected in predictable
improvements in internal processes, such as reduced cycle time [e.g., Luft and Shields, 1999]. Likewise, improvements in
internal processes would result predictably in improved customer value (e.g., satisfaction and market share). Finally,
improvements in customer value would lead to predictable increases in financial success (e.g., profits). Creating such a
comprehensive and coherent model is an ambitious objective that is akin to simulating the business model of the
organization itself. Accomplishing such an empirical result may not establish causality among BSC elements because (1)
some proposed measures may not be independent, (2) causes of profitability may not be generalizable beyond the
context of a specific firm [Norreklit, 2000], and (3) factors omitted from the model may be correlated with both causes
and effects.