How Flawed is the Balanced Scorecard Construct?

Abstract

The balanced scorecard has been used now for over two decades. It's conceptual basis have been clarified only recently by Robert Kaplan, one of its creators,in his paper: Conceptual Foundations of the Balanced Scorecard (ssrn abstract 1562586). This has helped to fill a void felt by many followers of BSC and will hopefully provide the basis by which this construct can be developed into a proper theory for describing how to effectively handle the issue of implementation of strategy. One of the issues brought up by Kaplan is a critical observation on BSC by Michael Jensen in a paper in 2001:Value maximisation, stakeholder theory and the corporate objective function ( Journal of Applied Corporate Finance, (Fall), 8-21). While Kaplan has dealt with this criticism in a rather brief manner, this paper takes a deeper look at Jensen's comments. The hypothesis underlying his criticism is identified, the assumptions underlying his observations to support this hypothesis is uncovered and both are dealt with from the framework of the basic assumptions underlying the BSC construct and the practical reality of the working executive. It is shown that the criticisms of the BSC by Jensen do not stand up to the scrutiny from the basic tenets of BSC or the practical world. The BSC construct may have some issues but these are not the ones identified by Jensen.