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Keywords Benchmarking, Control, Data envelopment analysis, Performance measurement, Strategic management
Abstract Balanced scorecards are having a major impact on executives' strategic decision making by encouraging their use of future-oriented, non-monetary success indicators. This article explains how to create a balanced scorecard with a reasonable number of indicators, set appropriate benchmarks for them, and evaluate overall management performance against those benchmarks. In doing so, it relies heavily on a controlling tool that is new to the business sector. data envelopment analysis. After discussing the theoretical foundations of this nonparametric optimization procedure and defining several key terms, the article presents a practical example. The example assesses management's performance from several perspectives, paying particular attention to implications of the analytic results for a firm's strategic and operational controlling. The article also offers an overview of various models for data envelopment analysis, describes Emits to its use, and concludes with a summary of key findings.
Introduction
The increasing use of balanced scorecards (BSCs) is changing the way top managers run their companies. When envisioning a firm's future development, they no longer focus chiefly on monetary success indicators in the financial area. Instead, they now also devote roughly equal attention to non-monetary variables in three other areas. As shown in Table I, those areas are: customer relations; business processes; and both the commitment and the capacity to innovate of their employees. This expanded focus is having major consequences for controlling and management accounting staffs.
To help top management realize its visions, these staffs are assisting in developing appropriate strategies, setting new goals, establishing standards or benchmarks, measuring progress, and reporting results pertaining to both monetary and non-monetary variables. Here is the rub. The BSC's goals are interrelated. Efforts undertaken to attain, say, monetary goals therefore also have effects on non-monetary results and vice versa.
Hence, the BSC clearly confronts managers with an extraordinarily complex optimization problem. As explained below, the complexity stems partly from the large number of variables often included on a BSC. Frequently, there are 40 or 50 of them. Some larger organizations even try to track hundreds of success factors. Additional complexity arises from the lack of a common scale of measurement. While money is the common denominator for many financial variables, business processes often involve...