Balanced Scorecard (BSC) Usage and Financial Performance of Branches in Jordanian Banking Industry

The purpose of this paper is to contribute to the body of knowledge in the area of management accounting, particularly performance measurement systems within the BSC framework, by investigating empirically the extent of multiple performance measures usage and their effects on the financial performance of Jordanian banks in the branches level. Nevertheless, the result of this study shows that the non-financial measures usages, particularly, customer oriented indicators and product/ service oriented indicators, appears to be important as it enhances firm performance. Remarkably, the findings reveal that there is positive relationship between the usages of multiple performance measures via overall BSC measures and financial performance in the branches level.

Authors:

• Hamzah Hussein Al-mawali
• Yuserrie Zainuddin
• Noor Nasir Kader Ali

Keywords:

• Performance measurements systems
• BalancedScorecard
• Jordan.

References:

[1] D'Souza, D. E. & Williams, F. P. 2000. Appropriateness of the
stakeholder approach to measuring manufacturing performance. Journal
of Managerial Issues, 7(2): 227-246.
[2] Ittner, C., Larcker, D., & Rajan, M. 1997a. The choice of performance
measures in annual bonus contracts. The Accounting Review, April:
231-255.
[3] Kaplan, H., K. Hill, A.M. Hurtado, J. Lancaster, and R. Robson(2001a)
The strategy focused organization: How the Balanced Scorecard
companies thrive in the new business environment. Boston,
Massachusetts: Harvard Business School Press
[4] Euske, K. J., Lebas, M. J., & McNair, C. J. 1993. Performance
management in an international setting. Management Accounting
Research(4): 275-299.
[5] Kaplan, R. S. & Atkinson, A. A. 1989. Advanced Management
Accounting: Prentice Hall.
[6] Kaplan, R.S. and Norton, D.P. (1992), "The Balanced Scorecard:
measures that drive performance", Harvard Business Review, Vol. 70
No. 1, pp. 71-9.
[7] Kaplan, R.S. and Norton, D.P. (1996a), "Using the Balanced Scorecard
as a strategic management system", Harvard Business Review, Vol. 74
No. 1January-February, pp. 75-85.
[8] Kaplan, R.S. and Norton, D.P. (1996b), Translating Strategy into
Actions: The Balanced Scorecard, Harvard Business School Press,
Boston, MA.
[9] Beechey, J. & Garlick, D. 1999. Using the Balanced Scorecard in
banking. The Australian Banker(133): 28-30.
[10] Birch, C. 1998. Balanced Scorecard points to win for small firms.
Australian CPA, 68(6): 43-45.
[11] Chow, C. W., Ganulin, D., Haddad, K., & Williamson, J. 1998. The
Balanced Scorecard: A Potent Tool for Energizing and Focusing
Healthcare Organization Management. Journal of Healthcare
Management, 43(3): 263-279.
[12] Ittner, C.D. and Larcker, D.F. (1998a), "Innovations in performance
measurement: trends and research implications", Journal of Management
Accounting Research, Vol. 10, pp. 205-38.
[13] Ittner, C.D. and Larcker, D.F. (2001), "Assessing empirical research in
managerial accounting: a value based management perspective", Journal
of Accounting and Economics, Vol. 32 No 1-3, pp. 349-410
[14] Maisel, L. S. 1992. Performance measurement: The Balanced Scorecard
approach. Journal of Cost Management, 6(2): 47-52.
[15] Newing, R. (1995), "Wake up to the Balanced Scorecard", Management
Accounting, Vol. 73 No. 3, pp. 22-5.
[16] Hogan, J., Gressle, M., & Neyland, R. 1999. Creating shareholder value.
Washington: Electric Perspective.
[17] Huselid, M. 1995. The impact of human resource management practices
on turnover, productivity, and corporate financial performance.
Academy of Management Journal, 38(3): 635-672.
[18] Ittner, C.D. and Larcker, D.F. (1998b), "Are non-financial measures
leading indicators of financial performance? An analysis of customer
satisfaction", Journal of Accounting Research, Vol. 36, pp. 1-35.
[19] Johnson, S. T. 1998b. Plan your organization's reward strategy through
pay-for performance dynamics. Compensation Benefits Review, 30(3):
67.
[20] Lockamy, A. & Cox, J. F. 1994. Reengineering Performance
Measurement: How to Align Systems to Improve Processes, Products,
and Profit. New York: Richard D. IRWIN, INC.
[21] Tang, T. L. P. & Fuller, R. M. 1995. Corporate downsizing: What
managers can do to lessen the negative effects of layoffs? Sam
Advanced Management Journal, 60(4): 1231.
[22] Becker, B. & Gerhart. 1996. The impact of human resource management
on organisational performance: Progress and prospects. Academy of
Management Journal, 39(4): 779-801.
[23] Kaplan, R. S. 1998c. Innovation action research: Creating new
management theory and practice. Journal of Management Accounting
Research, 10: 89-118.
[24] Lust, J. A. 1986. The Impact of Benefits Availability on Employee
Benefit Satisfaction. Academic Journal, 31: 686-690.
[25] McCarthy, E., Alan, R. N., Compton, & Terence, E. 1993. Strategic
human resource management. Journal of Business Financial and
Accounting, 59(23): 56-74.
[26] Lipe, M. G. & Salterio, S. E. 2000. The Balanced Scorecard: Judgmental
Effects of Common and Unique Performance Measure. The Accounting
Review, 75: 283-298.
[27] Light, D. A. 1998. Performance measurement: Investors' Balanced
Scorecard. Harvard Business Review, 76(6): 17-20.
[28] Kaplan, R. S. & Norton, D. P. 2001c. Transforming the Balanced
Scorecard from Performance Measurement to Strategic Management:
Part 2. Accounting Horizons, June: 147-160.
[29] Kaplan, R. S. & Norton, D. P. 2001b. Transforming the Balanced
Scorecard from Performance Measurement to Strategic Management:
Part 1. Accounting Horizons, 15(1): 87-104.
[30] Pineno, C. J. 2002. The Balanced Scorecard: An incremental approach
model to health care management. Journal of Health Care Finance,
28(4): 69.
[31] Heskett, J., Jones, T., Loveman, G., Sasser, E., & Schlesinger, L. 1994.
Putting the service profit chain to work. Harvard Business Review,
March-April: 164-174.
[32] Hoque, Z. and James, W. (2000), "Linking balanced scorecard measures
to size and market factors: impact on organizational performance",
Journal of Management Accounting, Research, Vol. 12, pp. 1-17.
[33] Sim, K.L. and Koh, H.C. (2001), "Balanced Scorecard: a rising trend in
strategic performance measurement", Measuring Business Excellence,
Vol. 5 No. 2, pp. 18-26.
[34] Maiga, A.S. and Jacobs, F.A. (2003), "Balanced scorecard, activitybased
costing and company performance: an empirical analysis", Journal
of Managerial Issues, Vol. 15 No. 3, pp. 283-301.
[35] Davis, S. and Albright, T. (2004), "An investigation of the effect of
balanced scorecard implementation on financial performance",
Management Accounting Research, Vol. 15 No. 2, pp. 135-53.
[36] Banker, R.D., Potter, G. and Srinivasan, D. (2000), "An empirical
investigation of an incentive plan that includes non-financial
performance measures", The Accounting Review, Vol. 75 No. 1, pp. 65-
92
[37] Droge, C., Jayaram, J. and Vickery, S. (2000), "The ability to minimize
the timing of new product development and introduction: an
examination of antecedent factors in the North American automobile
supplier industry", Journal of Production Innovation Management, Vol.
17, pp. 24-40.
[38] Said, A.A., HassabElnaby, H.R. and Wier, B. (2003), "An empirical
investigation of the performance consequences of non-financial
measures", Journal of Management Accounting Research, Vol. 15, pp.
193-223.
[39] Bryant, L., Jones, D.A. and Widener, S.K. (2004), "Managing value
creation within the firm: an examination of multiple performance
measures", Journal of Management Accounting Research, Vol. 16, pp.
107-31.
[40] Rozita Jusoh, R., Ibrahim, D. N., & Zainuddin, Y. (2008). The
performance consequence of multiple performance measures usage
Evidence from the Malaysian manufacturers Multiple performance
measures57 (2), 119-136.
[41] Anderson, E.W., Fornell, C. and Lehmann, D.R. (1994), "Customer
satisfaction, market share, and profitability: findings from Sweden",
Journal of Marketing, Vol. 58 No. 3, pp. 53-66.Ashton, 1998;
[42] Abernethy, M. and Lilis, A.M. (1995), "The impact of manufacturing
flexibility on management control system design", Accounting,
Organization and Society, Vol. 20 No. 4, pp. 241-58.
[43] Perera, S., Harrison, G. and Poole, M. (1997), "Customer-focused
manufacturing strategy and the use of operations-based non-financial
performance measures: a research note", Accounting, Organizations and
Society, Vol. 22 No. 6, pp. 557-72.
[44] Young, S.M. and Selto, F.H. (1993), "Explaining cross-sectional
workgroup performance differences in a JIT facility: a critical appraisal
of a field-based study", Journal of Management Accounting Research,
Vol. 5, pp. 300-302.
[45] Govindarajan, V. (1988), "A contingency approach to strategy
implementation at the business-unit level: integrating administrative
mechanisms with strategy", Academy of Management Journal, Vol. 31
No. 4, pp. 828-53.
[46] Xenikou, A., & Simosi, M. (2006). Organizational culture and
transformational leadership as predictors of business unit performance
Journal of Managerial Psychology 21(6), 566-579
[47] Nunnally, J.C. (1978), Psychometric Theory, McGraw-Hill, New York,
NY.
[48] Hair, J.F., Anderson, R.E., Tatham, R.L. and Black, W.C. (1998),
Multivariate Data Analysis,Prentice-Hall, Englewood Cliffs, NJ