• 22 May 2008
  • Working Paper

Testing Strategy with Multiple Performance Measures Evidence from a Balanced Scorecard at Store24

by Dennis Campbell, Srikant M. Datar, Susan L. Kulp & V.G. Narayanan

Executive Summary — To what extent do balanced scorecards provide useful information for testing and validating an organization's strategy? Numerous case studies of balanced scorecard implementations document their use in translating organizational strategies to objectives and measures, communicating strategic objectives to employees, evaluating the performance of business units, and aligning the incentives of employees across business units and functions. There has been comparatively little research, however, on the potential learning and feedback role of balanced scorecards. Analyzing balanced scorecard data from Store24—a privately held convenience store retailer in New England—during the implementation of an innovative but ultimately unsuccessful strategy, this study investigates whether, when, and how information about problems with the firm's strategy was captured in the multiple performance measures of its balanced scorecard. Key concepts include:

  • Store24's balanced scorecard contained useful and timely information for detecting problems in its strategy.
  • The results also suggest that Store24 executives eventually learned about problems with the strategy despite a lack of reliance on such formal analysis.
  • Analysis of the balanced scorecard could have yielded more timely information as well as more detail on why the strategy was not working as planned. Multiple measures in a balanced scorecard might systematically be used to test how well different drivers of performance are working to achieve strategic objectives and superior financial performance.

Author Abstract

We analyze balanced scorecard data from a convenience store chain, Store24, during the implementation of an innovative, but ultimately unsuccessful strategy. Quarterly strategic reviews, based in part on the firm's balanced scorecard, led executives at Store24 to identify problems with, and eventually abandon, this strategy over a two year period. We find that formal statistical tests of the hypotheses underlying the firm's balanced scorecard and strategy map reveal problems with the strategy on a timelier basis. We also test alternative hypotheses to those underlying the firm's formal strategy map and scorecard that are consistent with concerns expressed by some of Store24's top executives during the initial stages of implementing the new strategy. Our analysis demonstrates that this firm's balanced scorecard contained useful and timely information for distinguishing between these alternatives. These results provide some of the first field-based evidence on the potential for a firm's balanced scorecard to provide useful information for detecting problems in its strategy.

Paper Information