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7/23/2019 Exploring Exploring the blurred nature of strategic linkages across the BSCthe Blurred Nature of Strategic Linkages

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Journal of Accounting & Organizational ChangeExploring the blurred nature of strategic linkages across the BSC: The relevance of

loose causal relationshipsFrancesca Francioli Lino Cinquini

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To cite this document:Francesca Francioli Lino Cinquini , (2014),"Exploring the blurred nature of strategic linkages across theBSC", Journal of Accounting & Organizational Change, Vol. 10 Iss 4 pp. 486 - 515Permanent link to this document:http://dx.doi.org/10.1108/JAOC-02-2013-0016

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Exploring the blurred nature ofstrategic linkages across the BSC

The relevance of loose causal relationshipsFrancesca Francioli

Department of Economics, University of Genova, Genova, Italy, and

Lino CinquiniInstitute of Management, Scuola Superiore SantAnna of Pisa, Pisa, Italy

AbstractPurpose The research aims at addressing the way in which linkages based on qualitative causality

could be preferred in designing a balanced scorecard (BSC), by applying a cost-benet judgment withrespect to the complexity of dening strong, statistically reliable cause-and-effect relations among

performance measures.

Design/methodology/approach The authors review the way in which cause-and-effect relations

across the BSC have been developed based on a case study of BSC implemented in an Italian bank

collecting data by in-depth interviews and companys internal archives.

Findings The research reveals how the ambiguity, or blurred nature, of strategic linkages isrecognized in the empirical setting of an bank, facing a highly uncertain and complex environment and

how the orthodox tools of strategy maps and explicit cause-and-effect linkages prescribed by the

theoretical literature are avoided by the human actors. Despite these omissions, the BSC is nevertheless

effective. As the case shows, it generated a democracy where individuals and departments

communicate, commit and collaborate in an effort to implement strategy. The research also shows the

role of the BSC in heightening the importance and awareness of performance evaluation among the

actors.Practical implications The research provides practitioners with insights into how to design and

manage cause-and-effect relationships in BSC. In particular, evidence is provided that nality linkages

in BSC may be successful in use and predictive capabilities, according with expectations and purposes

of the organizations climate of control, in a context in which the cost-benet philosophy in

implementing BSC is followed.

Originality/value The paper addresses an issue of practical relevance in the implementation of BSC

showing a discrepancy between theoretical and practical meaning of causality. Besides the research

highlights, the extent to which linkages across the BSC perspectives (and related measures and

variables) can only be based on individual assumptions about the means to an end and based on

qualitative assertions (nality).

Keywords Management control systems, Balanced scorecard,Strategic performance management systems, Banking industry, Causal relationships

Paper typeCase study

1. IntroductionDuring the past two decades, Kaplan and Norton have been constantly working towardimproving and integrating the general balanced scorecard (BSC) framework, with manyother authors contributing with further suggestions on how to improve the developmentof such an approach toward performance and control.

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1832-5912.htm

JAOC10,4

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Received 28 February 2013Revised 2 September 201329 November 201316 February 20144 March 201412 March 2014Accepted 20 March 2014

Journal of Accounting &

Organizational Change

Vol. 10 No. 4, 2014

pp. 486-515

EmeraldGroup Publishing Limited

1832-5912

DOI 10.1108/JAOC-02-2013-0016
http://dx.doi.org/10.1108/JAOC-02-2013-0016http://dx.doi.org/10.1108/JAOC-02-2013-0016


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In the primary theorization, the BSC was a measurement control system aiming toaddress nancial and non-nancial measures, internal/external and leading/laggingmetrics in a consistent manner (Kaplan and Norton, 1992, 1996b). Recently, the BSC hasacquired some new features, becoming more oriented toward aligning the companys

strategic targets and creating measures that could play a crucial role in planning,clarifying and communicating strategic lines into the organization (Lawrie and Cobbold,2004). In this stream, one of the most critical issues in the current BSC research agendais related to the identication of cause-and-effect relations across its components.Research has shown how the capability of proposing strong causal linkages amongperformance measures in performance measurement systems (PMSs) will inducemanagers to estimate a high probability of achieving their nancial goals and to exertmore effort toward both these goals (and the non-nancial goals that lead indirectly tothe nancial) (Webb, 2004). However, causally weak PMSs do exist in organizations, andtheir existence is not simply due to a lower or poor stage of development. In these cases,the tension toward causality is questioned. This considered, the main research questions

of this paper are related to:RQ1. Analyze how cause-and-effect links may be observed in the design and use of

BSC in practice.

RQ2. Attempt to detect the general implications for performance managementtheory and practice of the way in which causal relationships are actuallyhandled in the real world.

To this aim, we review the way in which cause-and-effect relations across the BSC havebeen developed in a bank organization. Our empirical ndings show that the issue ofbuilding causal relationship may be faced and solved in practice in the light of thecost-benet approach in management accounting (Horngren, 1975, 1989, 2004), i.e.managing the issue of causality in BSC by choosing the less costly solution while

obtaining the expected effectiveness. This provides some empirical evidence to Luftsgeneral claim referred to strategic performance measurement system (SPMS):

[] causally weak SPMS in general should be strengthened. In some cases, this may be true.In other cases,however, the costs of creating a causally strong SPMS canoutweigh the benets

(Luft, 2004, p. 960).

Moreover, the paper contributes to literature in the following aspects. First, it addressesan issue of practical relevance in the implementation of BSC. In this respect, the researchis in the vein of obtaining practical learning from research in management accounting,as advocated by Baldvinsdottir et al. (2010) when arguing that over the past fewdecades, embracing the status of social scientists by management accountingresearchers has been accompanied by a decline in the logical and normative analyses of

practice[1]. In particular, the ndings of this research show how a discrepancy betweentheoretical and practical meaning of causality persists, and even if the possibility of acausal relationship can be accepted in the managerial setting, this circumstance couldhardly be considered unambiguous in the scientic thought.

Further, the research aims at addressing the way in which linkages based on aqualitative causality could be preferred in designing a BSC, by applying a cost-benet

judgment with respect to the complexity of dening strong, statistically reliablecause-and-effect relations among performance measures. The ndings conrm the

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existence and the relevance in practice of other kinds of relationships among measuresin a BSC, such as nality and logical linkages as claimed by Nrreklit (2000) and Malinaet al. (2007). They also highlight the potential effectiveness of these relationships, ifconsidering the aims of BSC use and the context in which BSC is implemented. In this

respect, the research shows how in a bank organization, the level of environmentaluncertainty and complexity is recognized as a substantial barrier in justifying the effortto identify and quantify the relationships among business variables in the design of BSCin a cause-and-effect logic. As a consequence, managers avoid building strong(measured and statistically validated) causal relationship in favor of dening loose(qualitative, logical and nality) relationships. This approach indeed represents the wayin which managers translate the concept of causality in practice according with thecost-benet approach in management accounting. In fact BSC, even if causally weak,reveals anyway consistent to mobilize people in their organization toward the goals: thisway, loose causal relationship show effectiveness according with the expectations anduse of the PMS in that business context. Even if causal linkages are omitted, the BSC isanyway effective, by generating a democracy where individuals and departmentscommunicate, commit and collaborate in an effort to implement strategy. Finally,according with the ndings, the paper points out some contextual conditions that maymake BSC useful without intended or validated strong cause-and effect relations.

The paper is structured as follows: Section 2 synthesizes the literature that forms thebasis of the study. Section 3 describes the research method, while Section 4 illustratesthe research site and the process of research. Data are analyzed in Section 5 by a reviewof the characteristics of the BSC under analysis and the description of cause-and-effectrelationships. Finally, the paper presents conclusions, limitations and future researchdirections.

2. Theoretical backgroundAccording toChenhall (2005, p. 396), SPMS are designed to present managers withnancial and non-nancial measures covering different perspectives which, incombination, provide a way of translating strategy into a coherent set of performancemeasures. Again, Chenhall argues that SPMS are characterized by:

a broad array of measures (nancial and non-nancial) that links long-termstrategy with operations and activities across the value chain;

the presence of cause-and-effect linkages between operation, long-term strategyand goals; and

a multi-perspectives structure focused on diverse measurement components suchas customer, nancial, supplier, innovation and process measures.

Examples of well-established specic SPMS models include, but are not restricted to,

Performance Pyramids and Hierarchies (Dixonet al., 1990;McNairet al., 1990;Hronec,1993; Lynch and Cross, 1995), BSC (Kaplan and Norton, 1992, 1996a, 1996b, 2001a,2001b,2004a), the Intangible Asset Scorecard (Sveiby, 1997), Integrated PerformanceManagement Systems (Bititciet al., 1997) and Performance Prisms (Neelyet al., 2002).SPMS supplement traditional nancial measures with a mix of nancial andnon-nancial measures expected to capture by cause-and-effect linkages[2] keystrategic performance dimensions, which are not accurately reected in control systemsusually focusing on short-term accounting measures. As highlighted byEccles (1991),

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quantifying cause-and-effect relations between actions and outcomes is a key point in

the value chain and might aid decision-makers in predicting future effects of currentactions. Consequently, SPMS with comprehensive and valid cause-and-effect relationscould reduce the cognitive complexity of understanding and using multiple measures of

performance (Luft and Shields, 2003;Morecroftet al., 2002).In particular, the BSC ofKaplan and Norton (1992, 1996a, 2001, 2004a, 2006) has been

presented not only as a strategic measurement system but also as a strategic control

system which can align departmental and personal goals to overall strategy, focusingthe crucial element of that model in the existence of cause-and-effect relationships.

Kaplan and Norton (1996b, p. 149) dened strategy as a set of hypotheses aboutcause-and-effect, and highlighted the existence of causal relationships in the BSC,clarifying how strategy maps permit to create value by connecting strategic objectives

in explicit cause-and-effect relationships within the BSC perspectives to achieve plannedgoals (Kaplan and Norton, 1992, 1996a, 2001, 2004a, 2006). Hence, in Kaplan andNortons typical formulation of strategic maps, learning and growth are the drivers of

internal business processes, which are, in turn, the drivers for customer satisfaction,which is the driver for nancial results that eventually create value for shareholders.Again, a predictive causal SPMS like BSC may support managers in focusing on making

decisions (e.g.Kaplan and Norton, 2008), and, to this purpose,Morecroft et al. (2002)pointed out the extent to which control systems based on causal links could explicateboth the dynamic nature of the organization and its environment and systemic relations

among resources and capabilities, providing performance superior to the myopic focuson individual elements of the value chain (Huff and Jenkins, 2002;Sanchezet al., 1996;Forrester, 1994). In this veinWeick and Bougon (2001)claimed that causal maps can

serve as important binding mechanisms, and if cause-and-effect relationships wereperceived as credible by management, they could inuence actions independently from

the validity of their design, as supported byBukh and Malmi (2005).However, researchers have expressed several doubts about the theoreticalfoundations and the practical functioning of causal linkages in BSC.

From a theoretical standpoint, Nrreklit (2000) has addressed fundamental criticismson that. She referred to the denition of causality based on Humes three criteria, namely,that one event is said to cause the other when:

(1) the rst event necessarily or with high probability implies the occurrence of thesecond event;

(2) the rst event precedes the second event in time; and

(3) the second event cannot be rationally inferred from the rst one.

Moreover, Point (1) of the denition implies that for the relationship to be causal, itshould be observed in real life and proven empirically. Point (2) requires the existence ofa well-dened temporal lag between events tied into a cause-and-effect relation. Some

researchers do not treat temporal precedence as the necessary condition for causalrelationships (Karpinski, 1990;Mueller, 1996). In special cases, cause-and-effect events

can occur almost at the same moment without a measurable time lag between them. Itcan also be assumed that cause cannot begin later than effect, treating the two asprocesses that last and overlap in time. Point (3) means that a causal relationship is

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distinct from a logical and nality cause. This point concerning the pure observationalnature of the causal relationship of the denition is problematic in the BSC context.

AlsoOtley (1999, p. 375) has considered causal assumptions of the BSC theoreticallysimplistic:

[] a linear chain is suggested hereby better trained employees in the Innovation andLearning Growth will lead to better business processes being designed (one input to suchchanges, but surely by no means the only one); these in turn will lead to more satisedcustomers and then to happier shareholders. Although a plausible chain of events, it is again

very much a simplication of reality, as conrmed later byBukh and Malmi (2005).

In this vein,Nrreklit (2000)has claimed that it is unrealistic to assume the relationshipbetween the perspectives to be unidirectional; instead, circular logic underpins many ofthe relationships where, for instance, innovation may lead to increased sales and betternancial results. Again, Nrreklit (2000) has argued that the BSC is an accounting modeland thus is built on logical and nality arguments rather than on causal relationships: asan example, the relationship between sales volume and protability involves nancial

calculus or abstract thinking, but it cannot be veried or determined empirically, andtherefore, it is logical in nature. At the opposite, a nality relationship is when a personbelieves a given action to be the best means to an end, and, in turn, such ends actuallycause the action. Hence, behaviors driven by nality are performed because theyconform to the beliefs and wishes of a person (or group). Nrreklit (2000) points out howthe BSC creates confusion among the concepts of causality and (equi)nality ofalternative between beliefs and desired ends, which leads to a reciprocal relationshipwhich cannot be empirically tested and in which individuals outline routes or meanswhich are believed to lead to the planned objectives (for example, making customersvery satised may lead to improvements into nancial performance).

Other investigators have exhibited some doubts about the concept of causalrelations. Cook and Campbell (1979) recognized how individual cause-and-effect links in

open systems could never be isolated, identied or measured with certainty, andMilesand Huberman (1994), even if not ruling out the possibility of establishing causality inreal systems, also admitted that incomplete theory, data limitations and measurementerrors conspired to discourage efforts to test for causal relations using actual businessdata. Olve et al. (1999, p. 209) suggested that there are two types of relationships amongmeasures. One of them comprises veriable associations which may be provided byprevious studies and experiences (or simulated by computer models, for example,system dynamics), while the other is the expression of what one wants to choose toassume. They also stated that:

[] when we are discussing relationships and the balance among different measures in ourscorecard, we must both make use of studies and experience from which conclusion can be

drawn, andrealizethatthere will always remain a certain element of what we choose to believe.Considering the issue of building cause-and-effect relations in practice, further aspectsresult critical for PMSs. Luft (2004), in herdiscussion ofWebbs (2004) article, has shownthe extent at which most of the SPMS are causally weak, hypothesizing several reasons,in particular the elevated cost of the analysis in design causal links, the uncertainty ofthe processes of value generation and the conicting views on effective cause-and-effectrelationships. Along this line, Tuomela (2005) delves into strategic uncertainties, raisingsome doubt in the true application of causal chains within uncertain environments

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where organizations need to continually update their strategic directions; moreover,

Tuomela (2005) and Franco-Santos et al. (2012) argue that the use of causal mechanismscan be very time- and effort-consuming, if they are designed in a rigorous scientic way.

AlsoBukh and Malmi (2005, p. 107) report some doubt concerning the existence ofcause-and-effect relationships in practice; however, they sustain that relationships can

assist in adapting and making BSC effective to any particular organization, claimingthat:

[] the relationships in the BSC should not be perceived as generic, but specic to the

organization, the actual situation and the relevant time dimension. Furthermore, the

relationships are not necessarily known for certainty, but are based on belief and assumptions

supportingMakridakis (1990),Nrreklit (2000)andIttneret al.(2003).

Causal linkages in BSC represent a very popular topic in practitioners businessconferences and publications, presenting anecdotal evidence on the implementation anduse of BSC in everyday activities (Eccles, 1991; Magretta, 2002; Crosby and Sheery,

2006). However,Nrreklit (2000,2003) andMalinaet al.(2007)have expressed severaldoubts about the practical development and use of causal linkages in daily activities. Inaccordance with the denition of causality cited above, Nrreklit (2000, 2003) haspointed out that empirical evidence on BSC links is scarce and mixed: time dimension isnot specied in the model design and the relationships among perspectives are likely

logical or nal in their nature. Moreover, the concept of causality in the BSC is ofteninterpreted as a relationship held between the features of events or variables,representing some abstract social concepts; moreover, the popularity of BSC might bedue to the persuasiveness of rhetoric inspired by the concept of a SPMS rather than by

any demonstrable causality[3] (Nrreklit, 2000; Nrreklit et al., 2012). Malina et al. (2007)have described the process of building causal links of a large American manufacturingcompany where managers believed in numerous cause-and-effect relationships in their

control system. Results provided by a statistical test of hypothesized causalrelationships demonstrate that only a few of them were signicant and overall the modelhad no predictive ability. In addition Speckbacher et al. (2003) performed a surveyamong stock-listed companies in German-speaking countries and found that BSC users

insert cause-and-effect linkages only in the more advanced models[4].Kasurinen (2002) described a failed attempt of implementing BSC in a strategic

business unit in a multinational Finland-based group, where one of the major obstaclesto the successful implementation was the difculty of selecting a unique strategy.

Similarly Malmi (2001), while developing a qualitative analysis in 11 Finnishcompanies, pointed out how most of the managers interviewed misunderstood thecause-and-effect logic and perceived the BSC perspectives as being independent from

one another.Again, Ahn (2001), describing the case study of ABB Industry a supplier of

automation products, highlighted that the over-complexity caused by the derivation oftoo many causal chains was a problem of great relevance. The same author showed that,

even if Kaplan and Norton advocate for expressing cause-and-effect links by ifthenstatements, such a recommendation is insufcient because it is always possible to ndarguments in favor of different links, showing how the ABB Industry failed to nd ananalytical solution for this problem.

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To sum up, there is no agreement on the issue of causality across scholars. Someresearchers deny any possibility of establishing causality in the social setting, whereasothers have diverse opinions about its denition and the range of applicability.Moreover, the big discrepancy between theoretical and practical meanings of causality

persists and, even if the possibility of a causal relationship can be accepted in themanagerial setting, it could hardly be considered unambiguous in the scientic thought.The refutation of cause-and-effect in the BSC leads to the consideration of alternativeexplanations for the companys continued use and professed satisfaction with the BSC:organizations may use dynamic SPMs that are composed of relations that are not purelyof cause-and-effect. Thus, the contents of the literature review above address to theresearch questions of this paper: how are issues that arise from cause-and-effectrelationships dealt with in an organization implementing the BSC? What are the actorsperceptions of this issue and how is its ambiguity managed in practice?

3. Research method

Given the issue at the base of the research questions, the use of a case study appearedmore suitable to develop the research questions, namely:

RQ1. The analysis of how cause-and-effect links may be observed in an actual BSCin action.

RQ2. The implication that this may have for the theory surrounding the role ofcause-and-effect associations in the BSC.

Kenny (1979), Pearl (2010) and Malina et al. (2007) have claimed that causal relationshipsin social sciences are not testable by statistical techniques, so supporting a qualitativeapproach to face these issues. In addition, the advantages that case studies present havebeen widely claimed, if considering the emphasis they place on full contextual analysesof a limited number of events or conditions and on their interrelations.Harrigan (1983)

and Corbetta (1999) argued that the benets of the case study method are the meticulousattention to details, relevance of the business practices and access to multipleviewpoints. Again, Snow and Thomas (1994) suggested that eld researchmethodologies, which involved real managers and organizations, examined strategicprocesses and outcomes more realistically than other methods. Moreover, Emory andCooper (1991)suggested that a single, well-designed case study can provide a majorchallenge to a theory and present a source of new hypotheses and constructs. Patton(2002, p. 151) has commented that the failure to nd statistically signicant differenceswhen comparing people on some outcome measures did not mean that there were noimportant differences among them on those outcomes. Instead, the differences maysimply have been qualitative rather than quantitative and due to differences ofquality. Ahrens and Chapman (2007) claim that the advantage of qualitative eld

research lies in the particular way of knowing the eld of research, conrming the claimofChua (1986, p. 615): social reality is emergent, subjectively created, and objectiedthrough human interaction. Besides, Ahrens and Chapman (2007, p. 299) added thatthemethodological and theoretical task of qualitative research is to express the eld associal and not simply to describe or clarify it to the reader as if part of a given nature.Again, they add that doing qualitative eld studies is not simply empirical but aprofoundly theoretical activity. Moreover, a case study involves the detailedexamination of a single setting or a particular event, and its main concern is with detail

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and complexity of the case; it provides explanation of the phenomenon studied becauseit allows a thick description (Miles and Huberman, 1984).

According toBenbasatet al.(1987),Corbetta (1999)andYin (2003), we developed acase study to investigate cause-and-effect linkages in BSC within its real-life context,

where the boundaries between the phenomenon and the context are not clearly evidentand in which multiple sources of evidence (e.g. interviews, archival data, presentationsand other) can emerge. In doing this, we gained a better understanding of the nature andcomplexity of the processes occurring, allowing us to retain the holistic and meaningfulcharacteristics of real-life events (Yin, 2003, p. 14).

In developing our case study, there are several reasons for focusing the researchwithin an organization belonging to the banking industry.

First, Malina et al. (2007) argue that strong causal relations might be common,especially in SPMS that are strongly based on physical processes, such as those inextractive and manufacturing industries, advocating the need of further research inpredominantly service companies supposing a different approach to causal links.Again, in the same paper, the authors call for further research regarding a moretransparent vision about how the links are constructed and made operational in PMS.Hence, residing in this vein, this paper aims at describing the application ofcause-and-effect linkages of BSC within such a strongly service-oriented organization asa bank.

Second, the choice of a bank as a case study has been made, taking into considerationthe tremendous weight of intangible resources in service-oriented rms such as banks,embedded especially in human resources (Rebora, 2003; Goh, 2005; Kamath, 2007;Al-Zoubi, 2013). This aspect contributes to the increase in the weight of causal linkagesin these contexts, as suggested byKaplan and Norton (2004a). In fact, considering thatintangible assets primarily drive wealth and growth in todays economy, they arerecognized as the foundation of individual, organizational and national competitiveness

in the twenty-rst century (Johnson and Kaplan, 1987;Johnson, 1992;Wiig, 1997;Lev,2001; Bounfour and Edvinsson, 2005). In this respect, Kaplan and Norton rened in timethe proposal of the balanced scorecard as a tool to overcome the shortcomings oftraditional management accounting and control practices, highlighting the extent towhich intangible assets seldom affect nancial performance directly. Instead, theywork indirectly through complex chains of cause and effect (Kaplan and Norton, 2004a,p. 54). Thus, the relevance of considering cause-and-effect linkages is likely to be felt inmost contexts with such signicant weight of intangibles as banks.

Third, the choice of a bank as a case study is grounded on the consideration of thedeep change and uncertainty that recently occurred in the banking sector and theconsequent pressure for performance developed within these organizations. In the pasttwo decades, the European banking industry has been subject to structural changes

caused by modications occurring in its external environment, the liberalization ofcapital ows and the prospect of a Common European Union market inuencingdomestic banking policy toward greater variety of services being offered, strongerexploitation of scale economies and more efciencies (OECD, 2009;KPMG, 2011).

4. Research site and data collectionIf considering the Italian banking sector, in the past decades, the banks have been forcedto search for scale and scope economies with the aim of increasing their efciency. As a

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consequence, the number of commercial banks dropped from 1,100 to 841 in 1988-2000by mergers or acquisitions (considered as a benecial solution compared to the closureof inefcient banks, as their exit was expected to involve economic and social costs).Starting from the global nancial crisis of 2007, the banking sector has been

characterized by high degrees of external environment uncertainty and volatility thathas led, for instance, to the development of new strict international regulations andunpredictability of the stock exchange. Italian banks managed to cope with the rstround of the crisis better than most of its European peers, showing a high level ofresilience, thanks to the traditional business model applied to the domestic bankingsystem (OECD, 2009;KPMG, 2011). Many factors played an important role in ensuringthat Italian banks take a relatively prudent attitude, such as the banking supervisionrules of the Bank of Italy, and the traditional relations and practices such as thecomparatively smaller size of Italian rms and the low debt of households (OECD, 2009;KPMG, 2011). However, tensions on liquidity, much more than the scarce capital andvolatility, risked compromising the stability of the credit institutes. Liquidity injections

by the European Central Bank, which granted almost 200 billion to Italian creditinstitutes with a three-year maturity at 1 per cent rate, and the widening of theGovernment guaranteed collateral range for nancing on traditional channelscontributed to the reduction of spreads on the yield on public debt maturities with theaim of re-launching the granting of credit to the economy, despite the persistentdifculties with the market for deposits.

The present study was performed between February 2010 and July 2012 in an Italianbank located in Western Italy (which we will refer to as Alpha Bank), which was oneof the rst banks in Italy to implement regularly a BSC, starting the process of planningand development in 1999 and reaching its full implementation some years later.

Alpha Bank is a midsize regional savings bank, listed in the Milan Stock Exchangesince 1994 (rst bank to be quoted in the Italian Market) and actually enclosed in several

indexes (for instance FTSE All-Share Capped, FTSE Italia All-Share, FTSE Italia MidCap, FTSE Italia Finanza and FTSE Italia Banche) with total assets for almost 40billion as of December 31, 2010; 6,003 employees and 177.2 million of euro of net prot in2010, enjoying strong nancial success over the past 10 years.

Alpha Bank holds a strong 28 per cent share of customer deposits in its home marketof the Region of Liguria where half of its loan portfolio is concentrated. Since 2000, thebank has also expanded its franchise outside Liguria through organic growth and theacquisition of small local banks and branch networks (for example, most recentlythrough the purchase of 22 branches from another Italian bank, Banca Monte dei Paschidi Siena). The mission of Alpha Bank is focused on providing a wide variety oftraditional banking activities including treasury services, sales of money marketproducts to corporate customers, foreign exchange dealing, underwriting, trading and

selling for debt and equity security, as well as a range of other nancial servicesprovided by specialized divisions of the bank. Alpha operates both in the banking sectorand marginally with companies in the insurance business. As of December 31, 2010, ithad 667 banking branches of which 666 were located in 13 Italian regions and 1 abroad,while the two insurance companies operated through 432 insurance outlets distributedthroughout Italy. The distribution channel is made up, on the one hand, by branches andinsurance outlets and, on the other hand, by a network of banking advisors for private,corporate and afuent individuals and small businesses.

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The organizational structure of the bank is built around specialties, the retaildivision, the planning and control area, the product section and the administration area.Furthermore, the organizational structure is completed by the compliance and internalauditing areas aimed at supervising the global results of the bank and their congruency

to the disposition of national and international supervisors. The general manager isresponsible for managing divisions, centers and facilities and is accountable to theboard of supervisors. This organizational structure is highly centralized in Genoabecause half of its loan portfolio is concentrated in the local market of Liguria. AlphaBank was one of the rst banks in Italy to regularly use BSC[ 5], and had started theplanning and development process in 1999 and reached its full implementation someyears later, in 2003. In the initial phase of the BSC project, a pilot study was rstdeveloped for the banking and insurance networks and was later extended to all thedepartments of the banks head quarter. As highlighted by the human resource (HR)manager, the reasons underlying Alpha Banks decision to set up a control systemdeveloping a BSC model could partially be attributed to the changes and the

introduction of new and stricter regulation policies, and to the increasing competivenessand Mergers and Acquisitions (M&A) actions within the banking industry at nationaland international levels. The goal of the project was to increase the quality of themanagement control and information function in such a way that the execution of thestrategic and divisional plans could be monitored with objective, reliable, timely andconsistent information.

The access to research data was gained through personal contacts and wassponsored by the Managing Director, through a meeting held to explain the topic ofresearch. The material of study included numerous internal documents includingarchival data, presentations addressed to practitioners and media (shown for instance atthe Milan Stock Exchange), some articles published in Italy, presentations prepared adhocfor our investigation purposes and Web site documents.

The analysis of eldwork material was an ongoing process that allowed us toidentify and track various explanations of what was occurring. The interviews wereconducted in a semi-structured fashion in line with the content of the literature review,supplemented by open-ended discussion on topics raised both by the interviewers andthe interviewees. Most of the interviews were tape-recorded (with the agreement of thepersons interviewed) and condensed notes were made during eld visits and transcribedimmediately after these events, to preserve the details as much as possible. Interviewtranscripts and eld notes were organized chronologically, and common and peculiarissues in the accounts were analyzed to capture key themes. Furthermore, someclarifying information was facilitated via e-mail and during telephone conversations.

The rst to be interviewed were the managers having a global vision of the BSC, whocould provide the information required; this then led us to the persons charged of the

specic tasks we needed for our investigation. We interviewed rst the director of theAdministration department, followed by the director of the Research & Developmentarea and the director of the HR sector (with two employees charged of the compensationsystems linked to BSC) and nally we conducted an interview with a professor at thelocal university of Economics who contributed to developing the Alpha banks BSC.Afterward, in 2012, we had a second interview with the director and an employee fromHR, and then with the chiefs of the Technological & Operational Support area, Planningand control department and Commercial and Marketing unit. The interviews lasted

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from 1 to 2 hours each. Table I summarizes the investigation material in terms of

interviews, number of meetings, duration of each interview and documents provided bythe interviewed.

5. Alpha bank: the features of BSC and the cause-and-effectrelationships thereinThe way Alpha Bank set up its model can be dened as both traditional andinnovative at the same time. It wastraditionalbecause the architecture of the modelclosely resembled the BSC methodology as developed by Kaplan and Norton (1992) andthe perspectives were labeled from the bottom to the top as Financial, Customer,

Internal and HR; yet, at the same time, it was innovative because it added a furtherperspective, namely, Internal Client, addressed to the head quarter for measuring the

quality of services (for example, the rapidity in answering e-mails and providingdocuments) to colleagues and the quality of the interrelationships among the personnel

inside the bank.The Financial perspective is oriented toward the evaluation of the protabilityelements of the strategy and the set of metrics used by Alpha Bank include the following

indicators: return on equity (ROE), return on assets (ROA), cost income, contributionmargin, leverage, TIER 1, nancial intermediation activities (FIA), direct deposits, loans

to customers. The Customer perspective identies, for instance, the targeted marketsegments measuring the companys success in these elds; this dimension is measuredby customer acquisition, satisfaction, retention, multichannality, development of online

services. The Internal perspective is focused on the internal operations and on specicstrategic projects; key performance indicator (KPIs) are based on the analysis of their

protability, quality and timeliness. The HR perspective identies and aims to stimulatethe capabilities of the personnel working within the bank, and it is measured, for

instance, by job rotation, hours of training per employee.Finally, an internal client perspective is developed only for the BSC of the

headquarter to evaluate work climate and collaboration within departments and withinthe bank. This perspective is measured by nine behavioral factors referred to somecomponents of social capital[6], namely, structural, relational and cognitive capital,

each of them valued for management and departments, namely: trust; collaboration;expertise; reliability; willingness; innovation and exibility; problem solving; timeliness

and vision. Again, the internal client perspective is monitored externally (differentlyfrom the other perspectives that are measured internally by the bank headquarter), i.e.

by surveys performed by an external consulting company for guaranteeing theindependence of the data collected. Thus, using simultaneously HR and internal client

perspectives, Alpha Bank shows its interest in monitoring both individual developmentand individual interactions[7].

Alpha Bank designs and allots different models of scorecards according to

departments and business units consistently to the targets reported in its Strategic Plan.For instance, Figure 1 depicts a KPI in the case of networking units and subsidiaries are

associated to nancial, customer and internal (and marginally to HR) perspectives,while for the headquarter, the scorecards present a more enlarged view inserting

nancial, HR, internal and internal client dimensions (instead of customer).

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Table ICase study interviews

number of meetings

duration of each interview

and documents provided

by the interviewedInterviews

No.of

meetings

Du

rationofeach

interview

(averageinminutes)

Documents

February2010-

September2010

Managingdirector(conta

ctperson)

1

60

DirectoroftheResearch&

Developmentdepartment

2

90

Internalpresen

tation

Articlepublish

edinabook

DirectoroftheHRdepart

ment

3

90

Internalpresen

tations

Adhocpresentationspreparedforourresearchpurposes

Presentationfr

omtheBSCpractitionerconferences

BanksOrganizationchart

BSCstructure

BSCfunctionin

g

Websitedocuments

Strategicplan

EmployeeoftheHRdepa

rtment

1

120

Examplesofdepartmentalscorecards

EmployeeoftheHRdepa

rtment

1

90


ProfessoratthelocalUniversityof

Economics(subject:bank

sand

nancialinstitutions)

1

60

Articlepublish

edinabook(thesameprovidedbytheDirectorof

ResearchandD

evelopment)

June9,

2012-August201

2

Directorandemployeeof

theHR

department

1

100


Strategicplan

DirectoroftheTechnolog

icaland

OperationalSupport

1

70

Directorandemployeeof

the

PlanningandControldep

artment

1

70

PresentationofAlphaBanksBSCatanItalianunive

rsity

conference

Glossaryofthestrategicobjectivesandindicators

Presentationfr

omtheBSCpractitionerandacademic

conferences

Directorofthecommercialand

marketingdepartment

1

70

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5.1 The strategic planning processAlpha Bank has implemented its scorecard program in a top-down fashion, involvingvarious organizational levels like plants, departments or team levels by compensationsystems anchored to the BSC measures. In spite of that, the communication of strategicdirectives is limited to top and departmental managers excluding lower organizationallevels.

The strategic process comprises seven main stages, as depicted inFigure 2, and it isbased on a closed-loop mechanism. The bank begins the process by developing a

SUBSIDIARIES

Producon

internal Client

internal

HR

HEAD QUARTER

financial

NETWORK

Insurance

customer

Banking

HR

Retail

financial

customer

internal

Source:Banks presentation prepared ad hocfor the research purposes

Corporate

financial

customer

internal

Private

financial

customer

internal

WM

financial

customer

HR

Private lending

financial

customer

HR

Corporate lending

financial

customer

HR

Payment Systems

financial

customer

HR

Support Units

financial

customer

HR

Figure 1.BSC structure of

perspectives

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strategy statement at the top management level (Step 1, Figure 3); subsequently, theytranslate it into specic objectives and initiatives of a strategic plan to the HR andPlanning and Control departments managers (Step 2, Figure 4). Then, using the plan asa guide, those units dene specic micro-projects necessary to achieve such objectives(Step 3, Table II). Afterwards, the Planning and Control department translates targets ofeach project into operational objectives and measures, by inserting them in perspectivesand shaping links (Step 4). As departmental managers and HR department execute thestrategic and operational plans, they continually monitor and learn from internal results

and external data on competitors and the business environment to assess the alignmentwith the strategy (Step 5,Table III). Finally, they periodically communicate the resultsobtained by the targets execution to top management who reassess the strategy,updating the aims of the bank if the assumptions underlying the strategic plan areout-of-date or faulty (Step 6), and starting another loop around the system (Step 7).

5.2 Causal relationshipsKaplan and Norton (1996a and 1996b) suggested using the BSC as a strategicmanagement system, which later became a central idea in their subsequent publications(Kaplan and Norton, 2001aand2001b). The BSC put to work the strategic objectives ofthe company, reecting the main strategic goals of the organization, linking togetherperformance indicators across perspectives by cause-and-effect chains.

In this respect, in the interview, the director of the HR department argued that bankmanagers somehow consider causal linkages, even if the idea of formalizedcause-and-effect chains by strategy maps receives only limited attention in the model ofBSC implemented by the bank. He was aware of the importance of connectivity anddependence among the elements of the map; however, the achievement of this step, hefeels, is difcult in terms of implementation, uncertain in the processes of valuegeneration and the conict of managerial views on what constitutes truecause-and-effect relationships. The major argument pushed forward by the HR manager

Frequency of

update: 6 months

Frequency of update: 3-6

STEP 1 StrategicplanningHistorical dataResponsible: TopmanagementFrequency of update: 6months 1 year

STEP 2 Translation ofstrategic planning intotargetsLevels: individual departments global

Responsible : Planning &Control and HumanResourcesdepartments.HistoricaldateFrequency of update: 3-6 months

STEP 4 Translation ofthe targets identified foreach micro-projects intospecific metrics insertedinto perspectives andassociated by strategicrelationships linking

performance to rewardsystemsResponsible: HR divisionsupported by all thedivisions

STEP 3 Translation of thetargets in micro-projectscreated ad hoc for strategicpurposesLevels: What? How?

Who? (project responsibleand team) Deadline?Responsible: Research &Development departmentsupported by all the divisions

STEP 5 Review of the targetsattained.Levels: individual departments globalResponsible: departmentalmanagementUpdated dateFrequency of update: daily,1-3-6 months/1 year

STEP 7 TopManagementFeedbackResponsible:Planning & Controldepartment

STEP 6 Management feedbackReview of the targets andperformance attained. Spread ofbonusResponsible: Planning & Controland Human Resources managersFrequency of update: 3-6 months

Figure 2

Strategic planning process

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was that working on the cause-and-effect part of their performance measurement modelwas not of primary interest for the organization at the moment:

[] for us our Strategy Plan is the rst step for design scorecards, their components and theirfunctioning. I know strategy maps are crucial in the concept of BSC, but they are difcult toimplement. I mean it is unrealistic that a company can design, develop and -above all- usecause-and-effect mechanisms in its monitoring system, in its BSC [], [] no [] implementationof cause-and-effect mechanisms is unrealistic []. The use of cause-and-effect mechanisms in our

scorecards is not one of our rst primary interests at the moment (Director of the HR department).

1 SOCIO-POLITICAL SCENARIO

Aging society and net population decrease

Integration: 2.4 million new immigrants, numbers growing fast,low level of access to financial services

Job instability and new family life cycles: increasing rates ofdivorces, common-law couples, extended and mixed

Decreased propensity to save and increased propensity toconsume and borrow

2 REGULATORY SCENARIO

New standards governing the banking industry: Basel III(increased capital requirements and stricter liquidity managementrequirements) and reputation risk

Constraints and restrictions for consumer protection (maximumoverdraft charges, usury interest rate, mortgage portability)

Introduction of Solvency II on solvency requirements for theinsurance sector

3 ECONOMIC SCENARIO

Globalization vs nationalistic tensions

Growth of global GDP driven mainly by emerging countries Asia aswell as Latin America and Africa)

Slow recovery of the Italian economy (1% growth of the GDP overthe plan period)

Progressive raise of interest rates as of 2011

4 TECHNOLOGY SCENARIO

Widespread digitalization

Use of technology and interchannel in areas where no physicaloffices exist

Opportunity to let customers' needs emerge: customers arecalled on to plan products and services interactively (e.g.shopping cart style modular current accounts)

New, technologically advanced payment methods to acquire newyoung customers

Channels addressing the electronic social networks

5 COMPETITION SCENARIO

Possible new wave of M&As driven by the need to optimizecapital and liquidity

Shrinking of unit margins on traditional products andsimultaneous search for maximum distribution Efficiency andcommercial effectiveness

New competitors: large-scale distribution, telecom providers,application and network/virtual community administrators

Easier to compare prices of financial service offerings andcustomers' readiness to switch to a different provider

Source:Archival data of the bank

Figure 3.Strategic planning process

- Step 1: competitive

scenario Italy

(2010-2014)

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In this vein, the director of the commercial and marketing department added that:

Because of volatility deriving from the current nancial crisis, those KPI that could lead tomisleading results are frequently altered toward more feasible solutions oriented to a dailymonitoring, as a consequence in this context the use of cause-and-effect relationships is

unfeasible (Director of the Commercial and Marketing Department).

Asking for the use of cause-and-effect relations in Alpha bank, also the director of theTechnological and Operational Support was not sure about their presence, adding thatanyway such linkages were not formalized by strategy maps:

I dont know if causal relations among measures, perspectives and strategic objectives arepresent, maybe so, maybe not, anyway they are not formalized by graphical representations

(Director of the Technological and Operational Support).

However, he highlighted how the BSC of the bank presents some linkages acrossdimensions if considering specic line of business:

The development of internet banking services can decrease the costs of each branch of the

retail network, the deployment of a new credit card, providing new services, can lead toincrease customer satisfaction, while monitoring risk activities (computed for example by theanalysis of the insolvency rate on loans to customers) may lead to improving into nancial

results (Director of the Technological and Operational Support).

Having provided us with an explanation for our questions about causal linkages, theR&D department produced a slide developed ad hoc for answering our investigation, inwhich they attempted to design some examples of potential cause-and-effectrelationships in the BSC of the branches of the retail network, thus conrming the

Figure 4Strategic planning

process Step 2: example

of strategic direction and

goals

501


linkages across

the BSC
http://www.emeraldinsight.com/action/showImage?doi=10.1108/JAOC-02-2013-0016&iName=master.img-001.jpg&w=343&h=241


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absence of a systematic development of formal strategic maps. This scheme is presentedinFigure 5that shows perspectives and objectives providing a description of the KPIused in the BSCs of the branches. Causal relationships are depicted by a succession ofarrows completed by the description of mechanisms of cause-and-effect. The gureshows that the development of the causal linkages follows a bottom-up approachcorresponding to the basic idea of the BSC concept that the goals of the variousperspectives build on one another and ultimately affect the achievement of the nancialgoals; therefore, the links are identied among the perspectives starting from the HRperspective through the internal and customer perspectives up to the nancial one. Forexample, training activities can increase the competence and motivation of the staff,

improving internal processes (for example, by the development of new services). In turn,effective internal processes can improve the quality of customer services increasingtheir loyalty, retention and satisfaction, leading to good economic performance (forexample, the increase of nancial intermediation activities or a low degree ofinsolvency). Finally, resources coming from the nancial perspective are used tosupport training activities developing employees capabilities.

Although the use of formal causal strategic maps is not implemented, BSC managersin Alpha support strategy deployment by asystematic monitoring of strategic projects:

Table II.Strategic planning

process Step 3:

translation of micro-

projects into measures

Perspective Strategic objective Measures

Financial Risk monitoring Rorac

Leverage

Tier 1

Increase return Roa

FIA

Cost income

Proactive credit management Direct deposits

Loans to customer

Pricing optimization Contribution margin

Internal Development of corporate

services

Project X protability

Project X timeliness

Project X quality

Increase return Ofcial ratings update

Customer Increase customer retention Customer retention

Increase customer

satisfaction

Customer satisfactiona (only for the

private banking area)

Increase customer

acquisition

Customer acquisition

Development of integrated

interchanneling

Development of on-line services

Development of multichannality services

Internal client Increase the global level of

employees satisfaction

Internal client satisfaction

HR Improve employees skills Job rotation

Hours of training per employee

Note: a The bank is notableto measure the customer satisfaction forall thewhole groupbecause of the

high costs in gathering such data

Source: Archival data of the bank

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Table IIIStrategic planning

process Step 5

frequency of measurementPerspective

Str

ategic

objective

Measures

Measureowner

Measurementfrequency

Financial

Ris

kmonitoring

Rorac

Riskmanagement

department

1month(dailyincaseofa

highdegree

ofmarketvolatility)

Leverage

Riskmanagement

department


highdegree

ofmarketvolatility)

Tier1

Riskmanagement

department


highdegree

ofmarketvolatility)

Inc

reasereturn

Roa

Riskmanagement

department


highdegree

ofmarketvolatility)

FIA

Riskmanagement

department


highdegree

ofmarketvolatility)

CostIncome

Riskmanagement

department


highdegree

ofmarketvolatility)

Proactivecredit

ma

nagement

Directdeposits

Riskmanagement

department


highdegree

ofmarketvolatility)

Loanstocustomer

Riskmanagement

department


highdegree

ofmarketvolatility)

Pricing

optimization

ContributionM

argin

Riskmanagement

department


highdegree

ofmarketvolatility)

Internal

Developmentof

cor

porateservices

ProjectXprotability

Planningandcontrol

department

3-6months(accordingtothedeadline

oftheproject)

ProjectXtimeliness

Planningandcontrol

department


oftheproject)

ProjectXquality

Planningandcontrol

department


oftheproject)

Inc

reasereturn

Ofcialratings

update

Planningandcontrol

department


highdegree

ofmarketvolatility)

(continued)

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Table III.Perspective

Str

ategic

objective

Measures

Measureowner

Measurementfrequency

Customer

Inc

reasecustomer

retention

Customerreten

tion

Commercialplanningand

marketingdepartment

6months

Inc

reasecustomer

sat

isfaction

Customersatis

faction

(privatebankingarea)


marketingdepartment

1year

Inc

reasecustomer

acq

uisition

Customeracqu

isition


marketingdepartment

6months

Developmentof

integrated

inter-channeling

Onlineservices

development


marketingdepartment/

technologicaland

operationalsupport

1year

Developmento

f

multichannels

ervices


marketingdepartment/

technologicaland

operationalsupport

1year

Internalclient

Inc

reasethe

glo

ballevelof

em

ployees

sat

isfaction

Internalclient

satisfaction

HRdepartment

1year

HR

Improve

em

ployeesskills

Jobrotation

HRdepartment

1year

Hoursoftrainingper

employee

HRdepartment

1year

Source:Archivaldataofthebank

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PER

SPECTIVESANDOBJECTIVES

KPIDESCRIPTION

CAUSALLINKAGES

Effecveinte

rnal

processesimp

rove

qualityofcustomer

Customerssasfied

improvefinancial

results

Goodeconom

ic

performancepe

rmits

investments

in

innovaonandle

arning

Personneltraining

improvesinte

rnal

processes

Riskmonitoring

Customer

Perspective

Internal

Perspective

HRPerspective

Financial

Perspective

Increaseretailandinstitutionaldeposits

Increasereturnforbusinessarea

TotalRisk-WeightedAssets

Insolvenc

FinancialIntermediationActivities

Insuranceproducts

Mortgagestocustomers

Consumercredit

Customersatisfactionandretention

Customeracquisition

Customerretention

Increaseproductivity

Productsownership

Developmentintegratedinterchannel

Marketingcampaigns

Trainingactivities

Improvement

Source:AlphaBank,slidepreparedad-hoc

forth

epurposeofourinvestigation

employeesskills

Figure 5Cause-and-effect linkages

in the BSCs of branches

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We do not use strategy maps, but it is very interesting what is happening this year (2011). Infact, in relation to the Strategic Plan 2011-2014, a specic unit was created to take care oftranslating the actions of the strategic plan projects that then feed the projects of the BSC of thedifferent organizational structures. This way, the direct link between long-term strategies and

what is required by organizational structures processes from this year onwards is managed ina structured way (Director of the HR department).

The role of BSC in managing performance by qualitative, non-nancial aspects isclaimed to be more important than the measurement of cause-and-effect relationships,and it is highly appreciated in the system:

We exploited the potential of the system mainly by introducing qualitative elements inmanaging performance, as the internal customer evaluation and a monitoring system of theprocesses related to the special projects annually approved by the units. In addition, theintroduction of training as a part of the performance measurement has improved the policy forstaff development. []. The introduction of the internal customer evaluation has implied aspasmodic attention on how we are judged by our colleagues (Director of the Technological

and Operational Support).In this vein, the Director of the Technological and Operational Support highlighted thatthe BSC is felt as maintaining its effectiveness in creating pressure on people toward thegoals set by the Top Management:

BSC is a great innovation and an incredible behavioral engine: when the branch managersees the scorecard with the target weighted, he knowswhere to go. [] BSC is an engine forthecompanys behavior and managers have dedicated to this instrument a spasmodic attention;this is also true as in recent yearsa strong campaign had been implemented in terms of internalpublications, sponsorship and presentation of the BSC project (in 2003) with a strong

commitment by top management (Director of the Technological and Operational Support).

Again, The Director of the Technological and Operational Support underlined as the

use of BSC in Alpha contributes to increase the internal communication amongpeople:

By implementing BSC the knowledge of our organization has dramatically increased. BSCallowed the knowledge of what each of us makes and this is particularly important consideringthat the work of your colleague is linked to your work. Now I know who is responsible of a

specic organizational goal (Director of the Technological and Operational Support).

Limitations are recognized, but they do not overcome the benets perceived:

Managing the BSC is very complex, particularly in the target assignment: this means to deneand to measure objectives and to monitor them in time. []. I think that BSC has generated aculture. []. In general BSCis democratic because it allows the involvement of multiple unitsand to share the differences of mindsets in the organization, above all in the planning process

(Director of the Technological and Operational Support).

In the end, BSC is like democracy: it is an imperfect model, but it is the best of the existing

models (Director of the HR department).

To sum up, none of the linkages among measures and perspectives in Alpha isempirically tested by nancial or non-nancial estimations, rather they are establishedon subjective valuations. As a consequence, there are no leading and lagging indicatorsand the strength of the linkage is thought (imagined) only in qualitative terms. Loose,

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not statistically reliable, linkages are induced, but nonetheless the strength in orientingand evaluating the organization seems not to be limited by this.

6. Discussion and conclusionCause-and-effect relationships are considered the core of the BSC to make it a learningtool capable of driving organizations toward strategic goals (Kaplan and Norton, 1996a,1996b,2001;Nrreklit, 2003;Speckbacheret al., 2003;Malmi, 2001). In a performancemeasurement system, the strength of relationships among performance measures hasbeen considered fundamental in supporting managers to estimate a higher probabilityof achieving their nancial goals and to exert more effort toward these goals. However,a stream of research has argued for the ambiguity of cause-and-effect-relations and thepossibility that logical and nality relations may complement or supplantcause-and-effect-relations (Nrreklit, 2000;Malinaet al., 2007).

In the vein of the latter claim, the case study on Alpha bank has been described anddiscussed in this paper. In Alpha Bank, BSC is used as a guideline for strategic

alignment and communication, evaluation and control of performance. It can alsoprovide a basis for organizational learning, design of managerial incentives, and in thebudgeting process. Managers recognize that the introduction of BSC has dramaticallychanged the perception of the importance of performance evaluation, making themhighly committed to achieving the targets set in BSC performance measures. Moreover,in designing the dimensions of BSC, these measures are understood and managed betterby managers.

To this aim, linkages cover four of the priority areas contained in the strategy plan:rst, the development of multichannality systems[8] and new nancial instruments;second, the improvement of customer satisfaction; third, the employees capabilities;and fourth, the control of the global risk level of the bank. These linkages follow abottom-up approach corresponding to the basic idea of the BSC developed by Kaplan

and Norton where the goals of the various perspectives build on one another andeventually affect the achievement of nancial goals. Links are identied among theperspectives, starting from the HR perspective through the internal and customerperspectives right up to the nancial one. For instance, training activities can increasethe competence of the personnel supporting the development of new products (forexample, a new credit card) which, in turn, is a driver for the increase of customersatisfaction, which is, in turn, a driver for the ROA; and eventually, resources comingfrom the nancial perspective can be used to support training activities developingemployees capabilities.

Nevertheless, none of these linkages among measures and perspectives is empiricallytested by Alpha in the form of monetary estimations or by statistically testableassociations. Rather, they are established on subjective valuations, personal

assumptions, perceptions and desires in which individuals outline routes or meanswhich are believed to lead to the planned objectives. Thus, leading and laggingindicators are not monetary estimations, and their value is determined only inqualitative terms. Such types of associations do not have any causalorigins, rather theyare based onnalityrelations.

The intentional absence of formalized strategic maps in Alpha BSC is justiedbecause of their conceptual complexity and uncertainty in representing the process ofvalue generation, conrming the discrepancy between academic formulations and

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management practices that may occur if considering the application of the cost-benetprinciple in designing a management accounting and control system (Horngren, 1975;Horngren et al., 2011). As a consequence, the idea to build strong cause-and-effect chainsamong performance measures receives limited attention.

Although the Alpha bank does not use formalized, strong causal strategy maps andperformance measures, managers believe that relationships grounded on logical and,above all, nality relations are perceived as credible, and express satisfactionconcerning the use of BCS. They consider it useful for strategy implementation,communication, learning, commitment, motivation, collaboration within individualsand departments and incentive activities; the objective of mobilizing the organizationis obtained avoiding the cost of developing strong cause-and-effect relationships. TheBSC is however effective, as the case shows, it has generated a democracy whereindividuals and departments communicate, commit and collaborate in an effort toimplement strategy. Therefore, there is no basis in this case study for the conclusion thatexplicit cause-and-effect linkages are crucial for effectiveness of BSC as a

communication tool, conversely to the claims of Kaplan and Norton (2001a, 2004a,2004b).

This refutes the conclusions of Ottman (2006) (who highlighted how the absence of aformalized causal model created difculties in implementing organizational strategiclines and in designing non-nancial measures), and the investigations of (2) Kaplan andNorton (2008) and Qu and Cooper (2011) who recommend the use of strategy maps(given their capability to provide a powerful tool for visualizing cause-and-effectrelationships among strategic objectives reducing a complex strategy statement to asingle page). By contrast, our results imply that nality linkages may provide successfuluse and predictive capabilities of BCS, according with expectations and purposes, in acontext in which the cost-benet philosophy in implementing BSC is followed(Horngren, 1975; Horngren et al., 2011). The ndings support the idea that nalityrelations can be at the base of a BSC that aims to reect the organizations climate ofcontrol of the companys environment, style of management and institutional andsocial cultures, to communicate its strategy, to enhance learning and the legitimacy andfairness of goals and performance measurement in a service organization (Malinaet al.,2007). In this case, the loose nature of strategic linkages is not a limitation of the BSCbut may represent a deliberate choice to enhance such dimensions of the performancemeasurement system at hand. Moreover, the use of nality links avoids the tensionsamong managers that rise in establishing what constitute cause-and-effect relations.

The commitment to improve the quality of internal services among organizationalunits strongly affects the BSC approach in Alpha. The introduction of the InternalClient perspective in the BSC, as discussed in Section 5, testies the relevance given to

the goal of managing work climate and collaboration within the departments of thebank. This reects the fact that, being a service- and knowledge-intensive organization,the weight of intangibles embedded in HR is particularly high and, consequently, thatcreating value to customer implies an effective mobilization of human resource to thisaim. This highlights another reason for the proclivity toward blurred linkages: inAlpha, the priority given to monitoring both individual development and individualinteractions within the organization makes the linkages built across the BSC mainlybased on individual assumptions, beliefs, perceptions and subjective assessments. Such

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loose relationships can be only of nality in nature, but they can be of utmostimportance in guiding people toward the objectives assigned.

Finally, the attitude toward loose relations in Alpha is reinforced by the situation ofhigh environmental uncertainty, in which causal and logic relationships are considered

per se too complex to be represented and measured.Considering the aforementioned aspects, our ndings contribute in addressing some

relevant contextual conditions for a successful implementation of BSC without intendedor validated strong cause-and-effect relations.

The research presents some limitations. First, the focus of this study is restricted tothe Italian banking industry and to the BSC. Second, we analyzed a single organization,conversely to the recommendations of Yin (2003) about the necessity of the use ofmultiple cases in qualitative analysis, but consistently to the suggestions ofEmory andCooper (1991) who argue that a single, well-designed case study can offer a majorchallenge to a theory giving a source of new hypotheses and constructs.

Such limitations may be addressed by further research, for example, replicating thisstudy in similar organizations or in different industries. A multiplicity of investigationsmay further concern deepening cause-and-effect issues in BSC: the inuence ofcontingency factors in the design and use of cause-and-effect chains; the extent ofenvironmental uncertainty on the strategic process and on the development of strategymaps; if the use of formalized causal chains and the employment of potential causalchains based on subjective beliefs and qualitative assessment of results may enhancethe use of a performance measurement system as an explorative and iterative learningapproach for management, rather than the mechanical learning system that the BSCassumes (Nrreklit etal., 2008). Also, further investigations should analyze the inuenceof implementation stages of BSC on the development and use of causal linkages and theimpact of social capital components in the design and use of BSC. The research of thispaper represents just a step in these directions.

Notes

1. Again,Baldvinsdottir et al. (2010) highlight the extent to which the primaryaim of accounting

research is to explain and understand the behavior of accountants, within given institutional

settings and changing their behavior is not a priority within the research schema of

accounting academics.

2. According toKenny (1979)cause-and-effect models should have a central position within

social science research for at least three reasons. Firstly, most researchers either implicitly or

explicitly construct models and a formal development of the method would assist these

researchers. Second, causal modeling can support the development, modication and

extension of measurement and substantive theory and third, cause-and-effect models can give

social science a stronger basis for applying theory to solving social problems.3. Kenny (1979, p. 9) argues that although theory takes the form of causal statements, the

guiding ideas of theory are not those statements but rather an image or an idea. Many of the

important ideas of natural science are not causal but are pictures of a process. Although

evolution, the periodic table, and the kinetic theory of gases have a mathematical form, they

are fundamentally images.

4. Speckbacheret al.(2003, p. 363) claim that BSC users insert cause-and-effect linkages in only

the second and third types of BSC. They dene three main models of BSCs ranging from a

509


linkages across

the BSC


27/32

minimum-standard BSC (Type I) to a fully-developed BSC (Type III) considering the

natural evolution of the BSC concepts and practices over time. Then, BSC of Type I is

characterized by a specic multidimensional framework for strategic performance

measurement that combines nancial and non-nancial strategic measures, BSC of Type II

is typied by BSC Type I that additionally describes strategy by using cause-and-effect

relationships, while BSC of Type III is represented by BSC type II that also implements

strategy by dening objectives, action plans, results and connecting incentives with BSC.

5. The bank calledits monitoring system BSC referring to the Kaplan and Nortonmodel. In spite

of the many denitions of BSC presented in the academic and managerial literature (Bisbe

et al., 2007), here we are going to follow Alpha Bank using the term BSC for referring to its

control system.

6. According toColeman (1988,1990) social capital is anything that facilitates individual or

collective actions, generated by networks of relationships, reciprocity, trust and social norms.

In this eld, some authors, for instanceLin and Dumin (1986),Lin et al.(1981)andMarsden

and Hurlbert (1988), highlight that social capital is a productive resource facilitating actions

that range from an individuals occupational attainment to a rms business operation.

7. Coleman (1988)suggests that the concept of physical capital as embodied in tools, machines

and other productive equipment can be extended to include human and social capital as well.

More in detail physical capital refers to changes in materials to form tools that facilitate

production; human capital is created by changes in persons that bring about skills and

capabilities that make them able to act in new ways, while social capital concerns changes in

the relations among persons that facilitate action.

8. The term multichannelity refers to the set of services always available to customers provided

by different communication channels, for instance, branches, automatic machines, online

banking and mobile platforms. In 2012, Italian banks invested more than 4.3 billion in

Information and Technology Systems and around 43 per cent of the investment projects refer

to multichannelity services development (Abi Lab, 2013).

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