The tyranny of the Balanced Scorecard in the innovation economy
| DOI | https://doi.org/10.1108/14691930610639769 |
| Published date | 01 January 2006 |
| Pages | 43-60 |
| Date | 01 January 2006 |
| Author | Sven C. Voelpel,Marius Leibold,Robert A. Eckhoff |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
The tyranny of the Balanced
Scorecard in the innovation
economy
Sven C. Voelpel
International University Bremen, Bremen, Germany
Marius Leibold
University of Stellenbosch, Matieland, South Africa, and
Robert A. Eckhoff
EMPRISE Consulting Group, Du
¨sseldorf, Germany
Abstract
Purpose – To trace the rationale, features, development and application of the Balanced Scorecard
(BSC) over the past ten years, to provide a critical review of its key problematic effects, and to suggest
a future direction.
Design/methodology/approach – The shift from the industrial to the innovation economy
provides a background to identifying five major problem areas of the BSC which are then discussed
with reference to selected case examples. An alternative systemic scorecard is then proposed.
Findings – The tyranny of the BSC as a measurement “straightjacket” is beginning to jeopardize the
survival of firms, hinders much-needed business ecosystem innovation, thereby negatively affecting
customer value rejuvenation, shareholders’ benefits, other stakeholders as well as societal benefits in
general. A more systemic alternative is proposed.
Research limitations/implications – Future research might focus on further development of the
systemic scorecard in different industries and organisational settings with detailed systemic
measurement techniques.
Practical implications – Rather than relying on the static BSC, it would be more effective to adopt a
systemic perspective in measuring/managing intangible assets.
Originality/value – An alternative to the BSC is proposed that involves radical change in its
underlying assumptions by moving to a more systemic, dynamic framework – a systemic
management system, including a systemic scorecard.
Keywords Balanced scorecard,Innovation, Intellectualcapital
Paper type Research paper
Introduction
When introduced by Kaplan and Norton (1992; 1996) the Balanced Scorecard (BSC)
represented an innovative approach to measuring a firm’s performance. Instead of just
measuring the financial results of a firm, the important and logical causal factors for
financial outcomes were identified and included in an expanded and “balanced scorecard’.
Others had previously proposed the measurement of firm performance in non-financial
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1469-1930.htm
The authors wish to thank the anonymous reviewers, Stephan Abe
´e and David O’Donnell as well
as participants in the intellectual capital stream at the 4th International Critical Management
Studies Conference in July 2005, Cambridge University, UK, for their valuable contributions and
discussions.
BSC in the
innovation
economy
43
Journal of Intellectual Capital
Vol. 7 No. 1, 2006
pp. 43-60
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691930610639769
terms (see Eccles, 1991), but this was the first time that performance measurement was
proposed in an integrated causal, and most importantly systematic, way.
Firms had already been measuring non-financial indicators such as customer
satisfaction, cycle times, market share, product quality, and service quality. The BSC,
which was developed from a multi-company study, now provided a multi-dimensional
view of the firm, linking financial and non-financial measures in a coherent system.
The new measurement approach has been considered as a very useful tool in
enhancing the understanding of organizational dynamics in terms of cause-effect
relationships, and in improving a firm’s efficiency. The BSC approach became
well-known and generally accepted in the academic as well as in the business world
(Ampuero et al., 1998), being widely adopted in various industries and organizations,
including large US companies as different as Federal Express, General Electric,
Wal-Mart, and public and non-profit organizations.
From industrial to innovation economy
With a shift from the industrial economy towards an economy now predominantly
characterized by intangible assets, such as knowledge and innovative capability,
organizations have to manage increasing leve ls of complexity, mobility and
uncertainty. The often disruptive changes that have occurred since about the last
decade of the twentieth century have blurred traditional industry and organizational
boundaries and have shed new light on traditional business compe tencies, processes
and practices. The ability to manage knowledge-based intellect is of critical importance
in this new environment (Quinn, 1992). The evolution of the globally networked society
has changed our world into a global village; one that constantly undergoes dynamic
and unpredictable socio-cultural changes (Leibold et al., 2002). At the root of these
developments are the advancing technological possibilities that enhance the pace of
communication, causing an increase in organizational connectivity and innovation.
Moore’s law (1965) and Metcalfe’s law (Buckman, 2004, p. 99) demonstrate that the
speeds of technological advancement and connectivity are growing exponentially and
with seemingly unfathomable velocity. This is resulting in an unprecedented increase
in the rate of value innovation, and new ways in how it is generated, with some
observers now contending that we have entered the era of the innovation economy (see
Christensen and Raynor, 2003).
The core principles that underpin the modern enterprise are all being challenged
today – replication, specialization, hierarchy, extrinsic rewards, functional integration,
restructuring, business process reengineering, enterprise resource planning, supply
chain synchronization, customer relationship management – if not in their
fundamental nature, then in their application. In many instances key internal
functions and traditional “core competencies” are moving outside the firm, being
outsourced to network partners in integrated supply and demand chains. While most
traditional business management principles of the industrial economy remain valid in
a limited sense (for existing and proven business models that are still successful in
some environments), they now seem inadequate in coping with disruptive change,
either in an adaptive or creative way. Figure 1 depicts the major differences in features
between the industrial economy of the twentieth century and the innovation economy
of the early twenty-first century.
JIC
7,1
44
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