3. THE BSC AND COMMUNICATION OF STRATEGY

Kaplan and Norton [1996c] state that, "by articulating the outcomes the organization desires as well as the drivers of those outcomes (by using the BSC), senior executives can channel the energies, the abilities, and the specific knowledge held by people throughout the organization towards achieving the business's long-term goals." Thus, Kaplan and Norton assert that not only does the BSC embody or help create organizational strategy and knowledge, but also the BSC itself makes their communication "articulate." Merchant [1989] argues that communication failure is an important cause of poor organizational performance. Because no organization's knowledge or strategy exists apart from or succeeds without its key human actors, the ability to effectively communicate may be itself a source of competitive advantage [Tucker et al., 1996; Daft and Lewin, 1993; Grant, 1993; Schulze, 1992; Amit and Shoemaker, 1990]. If the BSC does articulate organizational knowledge and strategy in a superior manner, then it may be a source of competitive advantage, at least until all competitors use it equally well. Communication theory, however, posits a complex set of characteristics that affect the quality or effectiveness of communication (or articulation) in organizations.

Based on a review of the literature, an organizational communication device or system may be characterized by the qualities of its (1) processes and messages, (2) support of organizational culture, and (3) creation and exchange of knowledge. Brief reviews of these communication characteristics follow.

PROCESSES AND MESSAGES

Individuals use and rely on communications if its processes and messages are perceived as understandable and trustworthy. Other characteristics of effective organizational communication processes are routineness, predictability, reliability, and completeness [Barker and Camarata, 1998; Goodman, 1998; Tucker, et al., 1996]. Communication also is more effective if it uses concise messages and clearly defined terms [Goodman, 1998]. Furthermore, an effective communication system precludes suppression of truth or misstatement of performance. There should be no ambiguity regarding the differences between truthfulness and "looking good" or integrity with winning. Thus, the effective communication system and its users will be intolerant of "spin, deniability, and truth by assertion" [Goodman, 1998]. Therefore, organizational communication will be effective if processes and messages are valid representations of performance.

SUPPORT OF CULTURE, VALUES, AND BELIEFS

Effective organizational communications support organizational culture and individual interest by reinforcing desired patterns of behavior, shared values, and beliefs. Effective communications demonstrate that the organization does what it says and that individual or group rewards are predicated on their actions [Tucker, et al, 1996; Goodman, 1998]. Communications by leaders that consistently articulate shared goals, values and beliefs [Tucker, et al, 1996; Goodman, 1998] also are effective in reinforcing culture and directing behavior. Furthermore, effective communications must encourage behavior consistent with goals, values, and beliefs [Goodman, 1998].

CREATION AND EXCHANGE OF KNOWLEDGE

Knowledge, which may be objective or tacit, is the basis of strategy formulation and implementation. Therefore, an effective communication system supports an organization's strategy by nurturing both objective and tacit knowledge. The effective communication system exchanges objective (observable) knowledge among key individuals so that all are aware of the organization's current status. Organizations create objective knowledge from the development and integration of new knowledge by individual specialists. Objective knowledge usually derives from the refining and sharing of individuals tacit knowledge, which is understood but not yet articulated or usable by the organization. Therefore, an effective communication system encourages and enables the sharing of individuals experiences and collects those shared experiences. This may be best accomplished by intense and frequent sharing, and by dialogue rather than one-directional reporting. Perhaps importantly for the effectiveness of the BSC, de Haas and Kleingeld [1999] argue further that participation in the design of performance measurement systems is an important determinant of effective communication of strategy.

In summary, similar to other effective organizational communication devices, a BSC that creates effective motivation and strategic alignment should possess the qualities of:

• Valid ¡V reliable, understandable, trustworthy ¡V messages

• Support of organizational culture

• Knowledge-sharing

The second research question is:

• Does the evidence support causal paths from (in)effective BSC communication to strategic (non)alignment, (in)effective motivation, and (poor)good performance?

Subsequent discussions elaborate the details of a model that reflects these research questions. While it is bold to judge the effectiveness of the BSC against evidence from a single, non-experimental BSC implementation, a thorough examination of a critical case can be instructive and perhaps generalizable.

4. RESEARCH SITE AND BSC CHARACTERISTICS

OVERVIEW OF THE RESEARCH SITE

The research site is a U.S. FORTUNE 500 equipment manufacturing company with in excess of 25,000 employees and $6 billion sales. The company is regarded as a long-term, well-managed company that is succeeding in competitive domestic and foreign markets. The company recently adopted a customer- and quality-driven strategy to improve its competitiveness and perceived a need to expand its management controls and performance management beyond traditional, financial measures. The company began changing its performance measurement systems with a BSC pilot study that focuses on a very important but relatively small (in terms of individuals directly involved) part of the company. Approximately two years ago the company began its implementation of the BSC with a scorecard, the Distributor-BSC (DBSC), for its 31 North American distributorships, which are responsible for a large share of the company's sales. The company has sufficient resources to assign BSC responsibilities to key staff that are championing its development and implementation. These staff members have had formal BSC training and are not using services of outside consultants.

The company's distributors in North America have primary responsibility for retail sales and service of company products. Distributorships are organized by geographical area and may not sell other companies competing products. Although they are independently owned, individuals with employment experience in the company currently lead 30 of the 31 distributorships. Distributors affiliate with the company under renewable three-year contracts, which are based on realized and expected future performance.

The authors gained access to this company because of a family relationship between one of the authors and executives of the company. In this sense the field study is serendipitous, but the site is attractive on a priori, objective grounds, and would have been a top candidate in a purposive sampling approach. To summarize, the company has a long history of effective management control, extensive resources, and a commitment to communicate its strategy to its distributors. Furthermore, early in our investigation we perceived considerable tension and possible resistance to change among parties affected by the DBSC, which, as Ahrens and Dent [1998] counsel, usually makes for an engaging study. Thus, the company and its DBSC project are ideal for field study research on the balanced scorecard.

OVERVIEW OF THE DBSC

Purpose of the DBSC. Company documents and literature show that staff personnel designed the DBSC to improve communication of the company's retail distribution strategy to its distributors. Company documents state the purposes of the DBSC are to:

• Highlight areas within distributorships that need improvement

• Provide an objective set of criteria, consistent with the company's strategic initiatives, to guide and measure total distributor performance.

These purposes fall well within the scope of the use of the BSC as envisioned by Kaplan and Norton. However, administrators who developed and use the DBSC describe two additional functions, which have far reaching implications for managing the company's distribution system:

• DBSC performance will be used as the starting point for the three-year contract review process.

• The DBSC is used for comparing and ranking distributorships and may be used for performance-based compensation.

Until the DBSC, the company had evaluated formal distributor performance solely on financial and market share measures. Because the DBSC includes many previously unmeasured areas of performance, it represents a dramatic change in communication, interactions, and formal relations between the company and its distributors.

Structure of the DBSC. As suggested in the literature, the DBSC contains measures of performance in each of the scorecard areas plus another for corporate citizenship, which the company felt was lacking in Kaplan and Norton's specification of the BSC. Additionally, the company has arranged its DBSC measures in categories that reflect its own priorities and culture. Though many distributors prepare BSC-type measures in "real time", the company staff compiles, analyzes, and disseminates the DBSC to top management and to distributors quarterly. An internal document (usual BSC categories shown in brackets) describes the DBSC as:

"...comprised of measures that are categorized into groups which are aligned with [the company's strategic] objectives: Competitive Advantage [customer value and internal processes], Profitability and Growth [internal processes and financial success], Corporate Citizenship, and Investments in Human Capital [learning and growth]. A fifth category has been added to include Other measures important to distributor performance [internal processes]. Each of the categories includes specific measures with specific criteria for acceptability. The results for the measures within each category will be weighted to determine an overall scored for each category and an overall score for the distributorship."

A summary of the measures and the weights currently used in the DBSC are in table 1. For comparability with the literature, we have arranged these measures into the usual BSC categories, but we also note where the company has placed them in its own categories.

This ends Part 2 of 4