Integrating the balanced scorecard and enterprise risk management: Exploring the dynamics between management control anchor practices and subsidiary practices

Abstract

This paper analyses the interplay between the balanced scorecard (BSC) and enterprise risk management (ERM) by employing a longitudinal case study of a large energy corporation (Global Energy). In contrast to prior research largely focusing on the ‘why’ question of BSC-ERM integration (i.e., benefits and potential pitfalls), we shift our attention to the ‘how’ question – unpacking processes underlying BSC-ERM integration over time, and the potential difficulties experienced by organisational actors during such processes. At the heart of our empirical findings was a hierarchically arranged management control infrastructure. The BSC served as the management control anchor practice (Ahrens, 2018), which was highly visible, including at the local business unit level. ERM, in comparison, assumed the role of a subsidiary practice struggling to gain visibility and traction, especially at the local level. BSC-ERM integration efforts spurred antagonistic social relationships among different actors, with our case highlighting two key additional factors – organisational structure and common mindset – that were of importance in analysing how BSC-ERM integration played out. Whilst prior work cautions that integration between ERM and other control practices may suppress alternative and potentially useful perspectives on risk, we found no such ill effects. Instead, ERM as a subsidiary control practice significantly increased its impact in Global Energy when integrated with the more established and impactful BSC anchor practice. We also extend prior literature on management control anchor practices by showing how ERM, as the subsidiary practice, did not simply execute predefined scripts determined by the anchor practice, but substantially influenced and changed the BSC anchor practice. The literature generally assumes that the anchor practice remains stable. However, in our case, input from ERM managers and the ERM practice led to significant changes in BSC performance evaluation.