Killing the balanced scorecard to improve internal disclosure
| Date | 09 January 2017 |
| Published date | 09 January 2017 |
| Pages | 45-62 |
| DOI | https://doi.org/10.1108/JIC-02-2016-0027 |
| Author | Christian Nielsen,Morten Lund,Peter Thomsen |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & Finance,Accounting/accountancy,Behavioural accounting |
Killing the balanced scorecard to
improve internal disclosure
Christian Nielsen
Department of Business Studies, University of Aalborg, Aalborg, Denmark and
Hogskolen i Hedmark, Hedmark, Norway, and
Morten Lund and Peter Thomsen
Department of Business and Management, University of Aalborg,
Aalborg, Denmark
Abstract
Purpose –Two drawbacks to current management information practices are identified. First, the level of
abstraction from which internal management disclosures are constructed using current frameworks is too
generic; and second, the current process of identifying relevant management disclosures is outdated.
The purpose of this paper is, therefore, to discuss whether contemporary conceptions of value creation from
the field of business models can improve the currently applied frameworks used for generating internal
management disclosures on intellectual capital. Hence, this paper offers a timely critique of the balanced
scorecard, and other performance measurement concepts developed over the last 25 years.
Design/methodology/approach –The paper reviews contemporary literature on the balanced scorecard,
and related concepts, for generating internal management disclosures relating to intellectual capital.
Furthermore, the problems that balanced scorecard type frameworks have as vehicles for constructing
relevant internal management disclosures are explored.
Findings –This essay argues that internal management disclosures need more precise underpinnings of
value creation than offered by current frameworks. An empirically validated structure that establishes
alignment between value creation and internal management disclosures, through the mechanism of business
model configurations, is applied to overcome the two identified drawbacks of current practices.
Research limitations/implications –This is a conceptual/normative offering.
Practical implications –Following the critique, this essay prompts a new way forward for identifying
internal management disclosures and performance measures, their validation, and subsequent benchmarking
by expanding upon the concept of business model configurations. This concept offers a value driver platform
with related clusters of KPIs connected to each of the 71 identified business model configurations as a starting
point for management’s identification of relevant KPIs, and their analysis, benchmarking, and application for
performance management.
Originality/value –The argumentsoffered in this essay illustratehow it is possible to enhancethe relevance
of internal management disclosures bychallenging and changing the normative level of abstraction applied.
Keywords Performance measurement, Representation, Disclosure, Balanced scorecard, Business models,
Levels of abstraction
Paper type Conceptual paper
1. Introduction
In the past decade, numerous new forms of organisation and ways of creating value have
appeared. In conjunction with this, new technologies and other forms of intellectual capital
have also emerged. Together, these mechanisms of organisation and technology leverage
combinatorialinnovations (Varian, 2010)by creating new spaces for value creation,new ways
of serving customers, and sometimes entire new products. Consider Uber’sdisruptionofthe
taxi industry, how Airbnb currently challenges the hotel industry, and the way in which
Skype set the standardsfor internet-basedphone services over a decade ago. Such disruptions
(Christensen and Raynor, 2013) radically alter the IC that creates value in a given industry.
Hence, this is alsoexpected to alter the managementdisclosures and managerial performance
measurement information that is relevant for guiding managers’decision making.
The objective of this special issue of the Journal of Intellectual Capital is to explore
corporate disclosure of IC in the light of suchemergingchanges.Coupledwithcritiqueof
Journal of Intellectual Capital
Vol. 18 No. 1, 2017
pp. 45-62
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-02-2016-0027
Received 29 February 2016
Revised 13 July 2016
27 September 2016
28 September 2016
28 September 2016
Accepted 28 September 2016
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
45
Killing the
balanced
scorecard
the ability of reporting vehicles such as annual reporting (Lev, 2001), standalone
IC reports (Dumay, 2016), and even the currently favoured integrated reporting (Dumay
et al., 2016) in presenting meaningful disclosures regarding IC and value creation,
this essay argues that a valid starting point is to first identify relevant internal
management disclosures –a term we here apply synonymously with Eccles’(1991)
“most important measures of performance”(p. 132) and Kaplan and Norton’s (2001a, b)
“performance objectives and measures”(p. 147). Once these have been identified, these
relevant internal management disclosures, chosen on behalf of their association with the
business model configuration with which a given organisation chooses to compete, can
then be compared over time, benchmarked with other organisations, and finally used as a
privileged basis for IC disclosure choices.
Current frameworks relating to IC and performance measurements generally date back
to the 1980s and 1990s, now widely diffused concepts such as activity-based costing, the
balanced scorecard (BSC), just-in-time, business excellence, IC reporting, and knowledge
management emerged. Together, these concepts, at the time of their development, all
challenged the prevailing line of thinking within management accounting and the broader
areas of management. Despite recent disruptive business model developments, company
managers interested in identifying relevant measures for the performance of the IC
embedded by their choice of business model, only have access to models and concepts based
on strategic thinking of a bygone era.
Contemplating the rapid developments of the last decade, it may appear as if the
evolution of management accounting concepts has failed to follow both technological
developments and the evolution of business. With internet-based and mobile technologies as
strong driving forces, we have recently experienced how increased access to data has
revolutionised the everyday life of many businesses, among other things resulting in a
remarkable growth of new types of business models. These trends have resulted in a wide
range of models, tools within the general management field during the past years, and a
number of models and concepts related to service design, customer value creation, and
the concept of business models such as the customer journey (Edelman and Singer, 2015),
value proposition design (Osterwalder et al., 2014), the lean launchpad (Blank et al., 2013),
the business model canvas (Osterwalder and Pigneur, 2010), and kickass companies
(Kristiansen et al., 2015).
Looking towards the recent developments in relation to external management
disclosures, the integrated reporting framework (IIRC, 2013) appears to have identical
weaknesses to that of the earlier IC disclosure frameworks. The integrated reporting
framework, in its current form, incorporates a complex –and not necessarily compatible –
mix of metrics, outcomes, and stakeholders. Indications are that the IIRC’s agenda to
develop a more strategic and value-focussed framework for mainstream corporate reporting
(Flower, 2015; Dumay, 2016), while retaining the value-creating potential developed in more
than 20 years of business model research and praxis, has failed.
The argument presented in this paper is that new forms of value creation, rooted in
disruptive business models, will challenge the existing frameworks currently used to
measure the performance of companies’IC and value creation. However, because
managers continue to base their analyses of corporate value creation, corporate
performance, and related benchmarks on industrial era typologies of value creation, this
may introduce deficiencies and be problematic from a managerial point of view.
The remainder of this essay is aimed at answering the question “Can contemporary
conceptions of value creation from the field of business models improve the currently
applied frameworks used for generating internal management disclosures on intellectual
capital?”To do this, two drawbacks of current frameworks are debated and a potential
solution is discussed.
46
JIC
18,1
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