European Management Journal (2012) xxx, xxx xxx

journal homepage: www.elsevier.com/locate/emj

Design issues in Balanced Scorecards: The what

and how of control
Deborah Agostino *, Michela Arnaboldi

Dipartimento di Ingegneria Gestionale, Politecnico di Milano, Via Lambruschini 4b, 20156 Milano, Italy

KEYWORDS Summary The design and use of Performance Measurement Systems (PMS) have been
Performance Measure- widely investigated in management studies. However, recent work has highlighted the
ment System; potential importance of treating design and use not as separate dimensions, but rather
Balanced Scorecard; as mutually entangled features, calling for further research into their interaction. Focus-
Control style; ing on a specific, widely adopted performance technique, the Balanced Scorecard (BSC),
Diagnosis; this study explores how use of the PMS is interrelated with its design dimension. In inves-
Interaction tigating PMS use, a distinction between diagnostic and interactive control is adopted as a
framework of analysis. At the empirical level, the research is based on a two year multiple
case study of seven Italian companies.
2012 Elsevier Ltd. All rights reserved.

Introduction of organisational and contextual variables on the design of

the PMS, and its effects on performance outcomes. More re-
Both the design and use dimensions of Performance Mea- cently, the attention of scholars has been catalysed by the
surement Systems (PMSs) have been widely explored by topic of PMS use, with researchers striving to understand
managerial and accounting scholars (Broadbent & Laughlin, how managers use, or might use, the information provided
2009; Ferreira & Otley, 2009a; Li & Tang, 2009; Otley, by a PMS (Nilsson & Kald, 2002; Tuomela, 2005; Wouters,
1999). A PMS is defined as a set of mechanisms and pro- 2009), and the determinants of these different uses (Henri,
cesses used by an organisation to identify key objectives 2006a; Hoques & James, 2000; van Veen-Dirks, 2010;
and support the implementation of actions, planning, Verbeeten & Boons, 2009).
measurement, control, rewarding and learning (Ferreira & The above studies have investigated the determinants of
Otley, 2009a). Research on PMS design has mainly sought PMS design and use separately, finding evidence that both
to investigate how to define the PMS best suited to an these dimensions, here conceptualised as what and
organisations characteristics, with a view to augmenting how, influence the operation of the PMS. Yet, though it
performance effectiveness (see Chenhall, 2003 for a is recognised that the diversity of measurement and their
review). To this end, such studies have analysed the impact use are two closely intertwined dimensions of PMSs that
must be examined specifically (Henri, 2006a, p. 97), re-
* Corresponding author. Tel.: +39 02 23994073; fax: +39 02 search to date has overlooked the interaction between
23992720. them. PMS design has recently been investigated jointly
E-mail address: [email protected] (D. Agostino). with its use (see for example Ahrens & Chapman, 2004; de

0263-2373/$ - see front matter 2012 Elsevier Ltd. All rights reserved.
doi:10.1016/j.emj.2012.02.001

Please cite this article in press as: Agostino, D., & Arnaboldi, M., Design issues in Balanced Scorecards: The what and how of control,
European Management Journal (2012), doi:10.1016/j.emj.2012.02.001
2 D. Agostino, M. Arnaboldi

Haas & Kleingeld, 1999; Ferreira & Otley, 2009b; Henri, sions in the field. Next, the research methodology is ex-
2006a). These contributions indirectly tackled the issue of plained, followed by a discussion of the results of the case
interaction between design and use, but with mixed find- studies. Finally we draw some conclusions.
ings. For example, de Haas and Kleingeld (1999) propose a
normative framework for designing a PMS that enables a
specific type of use, namely interactive. Using a longitudinal Theoretical background and conceptual
case study in a restaurant chain, Ahrens and Chapman perspective
(2004) show how specific design principles foster an en-
abling PMS use, allowing managers to simultaneously pursue This study explores the interaction between PMS design and
efficiency and flexibility. These studies suggest that the use, focusing specifically on a widely adopted technique:
design of organisational controls play a crucial role in fit- the Balanced Scorecard (Kaplan & Norton, 1992). Previous
ting organisational behaviour to organisational goals (de studies on PMS design or use have employed a variety of per-
Haas & Kleingeld, 1999, p. 234), thereby treating design spectives of analysis, ranging from stakeholder theory
as the predominant factor shaping the appropriateness of (Atkinson, 1998; Li & Tang, 2009), to behavioural theory
a PMS. In contrast, other case studies acknowledge that (Lipe & Salterio, 2000), institutional theory (Brignall & Mod-
the use of the Management Control System (MCS) has the ell, 2000; Modell, 2003), and resource based view theory
ability to counteract issues with MCS design (Ferreira & Ot- (Fink, Marr, Siebe, & Kuhle, 2005; Luneborg & Nielsen,
ley, 2009b, p. 35). For instance, Henri (2006a) found that 2003). When the aim is to investigate the factors that drive
the way in which a PMS is used entrains differences in per- PMS design or use, the majority of contributions draw on
formance measures. More specifically, a monitoring use is contingency theory (see Chenhall, 2003 for a review), which
associated with a predominance of financial measures, is based on the notion that PMSs are not invariant, and are
while a strategic use is mainly characterised by a predomi- instead shaped by the individual circumstances of each
nance of non-financial measures. Ferreira and Otley organisation. Earlier studies adopting this perspective indi-
(2009b) instead emphasise the prominent role of use, high- cate that organisational and contextual factors, such as
lighting how intensity of PMS use can counterbalance misfits environment, size, technology, culture and strategy do mat-
in PMS design. These mixed findings might be explained by ter in PMS design, and give rise to heterogeneity in how the
the fact that the studies in question simultaneously investi- PMS is implemented in practice (Chenhall, 2003;; Otley,
gated PMS design and use, but overlooked their interaction. 1980; Waterhouse & Tissen, 1978). These findings have been
Building upon loose contingency (Chapman, 1997), complemented by other contingency studies (Gerdin &
the present work has the objective of theoretically and Greve, 2004; Otley, 1980), investigating the association be-
empirically assessing how the aspects of PMS design and tween contextual factors, design choices and performance
use are interrelated, through a focus on a well-known per- effectiveness. These contributions have enriched the previ-
formance measurement technique, the BSC (Kaplan & Nor- ous literature with the concept of contingency fit (Van de
ton, 1992). Use is specifically investigated by adopting ven & Drazin, 1985), providing an explanation of how differ-
Simons (1995) distinction between diagnostic and interac- ent contingencies affect the PMS design and its ensuing per-
tive control, while the design dimension is analysed with formance outcomes.
reference to four attributes emerging from the previous For what concerns PMS use, the topic has been widely
BSC literature (e.g. Malmi, 2001; Speckbacher, Bischof, & investigated, beginning with Hopwoods (1972) seminal work
Pfeiffer, 2003). The balance between financial and non- on budgeting, in which he recognised that:
financial performance measures, the cascading of the BSC,
[. . .] even standard accounting reports can be used in
the determination of target levels and the reward system
many different ways in performance evaluation. Within
associated with BSC measures are here related to how the
the human consciousness, while the accounting data
PMS is used, whether diagnostically or interactively. The
are given, their interpretation and precise use is the out-
choice of a loose contingency approach was driven by
come of a personal, and social process which is sustained
the need for more accurate results than those obtainable
by the meanings, systems of belief, pressures and pur-
from hard contingency testing (Chapman, 1997), thanks
poses that are brought to bear by the managers using
to a closer contact between the organisation and the re-
data (Hopwood, 1972, p. 159)
searcher (Otley, 1980). Accordingly, the research question
investigated in this study is the following: how is the type This early contribution stimulated greater attention to
of use, characterised as diagnostic or interactive, related use (Otley, 1980), which was then brought to a wider audi-
to the BSC design? We empirically address this question in ence by Simons (1995), who conceptualised the style of con-
seven non-financial firms that had been using a BSC for at trol relating to data use, distinguishing between diagnostic
least three years. Through an in-depth investigation, we and interactive styles. Diagnostic control corresponds to a
identify two distinct types of Balanced Scorecards, which control framework based on a cybernetic model. Objectives
we call Diag-BSC and Int-BSC, associated with different are set, plans implemented, and, at the end of a given per-
styles of use (diagnostic or interactive), and different design iod, results are measured and any needed corrective actions
features. taken. This approach is also known as management-by-
The results of our research are discussed in the remain- exception control (Simons, 1991), because top managers
der of this paper. First, we present previous studies on are involved only when results deviate from the established
the design and use of PMSs; we then go onto operationalise targets. Interactive systems instead support double-loop
the concepts of design and use specifically for the BSC, with learning (Argyris, 1977), providing assistance in identifying
the purpose of explaining how we detected these dimen- emerging strategies. They call for active participation of

Please cite this article in press as: Agostino, D., & Arnaboldi, M., Design issues in Balanced Scorecards: The what and how of control,
European Management Journal (2012), doi:10.1016/j.emj.2012.02.001
Design issues in Balanced Scorecards: The what and how of control 3

senior managers in managerial control, and their regular design principles that foster this type of use. They suggest
involvement in face-to-face dialogue with subordinates. that MCSs can be used not only in a coercive manner, to con-
More recently, Ahrens and Chapman (2004) have proposed strain operational managers, but also in an enabling manner
another classification of uses, distinguishing between to support them, if four design characteristics are adopted:
coercive and enabling styles of use. Coercive use refers repair, internal transparency, global transparency and
to the stereotypical top-down control (Ahrens & Chapman, flexibility.2
2004, p. 271), with detailed organisational rules that Drawing on the notion of contingency fit, Ferreira and
leave workers only limited scope for action. Enabling use Otley (2009b) have investigated how management control
instead puts the emphasis on employees, giving them the system design and use both impact on effectiveness. They
opportunity to deal more effectively with the inevitable introduce the concept of design misfit to describe a Manage-
contingencies in their work (Ahrens & Chapman, 2004, p. ment Control System (MCS) which has limitations with re-
271). spect to the quality, scope, aggregation and presentation
Alongside these different conceptualisations of PMS use, of information to decision makers. They provide evidence
several researchers have focused on investigating its deter- that MCSs with design misfits can still deliver high perfor-
minants, enlarging the spectrum of contingency variables. mance thanks to their intensity of use, suggesting that the
Hoques and James (2000) searched for the contextual way in which MSCs are used may counterbalance limitations
factors which impact on BSC use, operationalised as the in the MCS design.
extent to which BSC measures are used within the organisa- The above studies represent preliminary contributions
tion. They provide evidence that organisational size, early that underscore the importance of investigating PMS design
product lifecycle stage and weak market position are asso- in conjunction with use. Expanding upon these views, and
ciated with greater usage of the BSC. Henri (2006a) inves- adopting a loose contingency (Chapman, 1997) approach,
tigated the contingent role of organisational culture, the present work focuses on the interaction between diag-
distinguishing between control values, based on predict- nostic and interactive use with reference to four design
ability, formality and rigidity, and flexible values, based attributes: financial and non-financial measures, cascading,
on spontaneity, openness and adaptability. When flexible targets, and reward system.
values predominate, PMSs are used to focus organisational Though there are no holistic investigations of this prob-
attention, support strategic decision making, and legiti- lem in the literature, we can draw some useful suggestions
mate actions to a greater extent than when control values from Simons (1995) framework of diagnostic and interactive
predominate. Wouters (2009) instead focused on the use, and from previous studies more specifically focused on
process for implementing a specific type of use-termed each individual design attribute. In investigating the rela-
enabling use-in operational settings, highlighting the tionship between strategic learning and PMS, Fried (2010)
developmental principles which foster this type of use: found evidence that non-financial performance measures
experience-based, allowing experimentation, building on for evaluating intangible resources have an enabling effect
employees professionalism, transparency and employee on organisational learning, enacting an interactive style of
ownership, and outside facilitators. Verbeeten and Boons strategic control. Kaplan and Norton (2001) advocate cas-
(2009) empirically demonstrate that strategic priorities cading the BSC down to individual business units, in order
(e.g. market/customer orientation or innovation) are asso- to facilitate dialogue among executives and managers about
ciated with the use of non-financial performance measures, the scorecard, thus hinting at an interactive use. Simons
such as employee, customer or processes measures. Focus- (1995), in describing the diagnostic style of use, suggests
ing on performance measures in a production setting, van associating performance measures with the reward system,
Veen-Dirks (2010) found evidence that contingency in order to give managers more time to focus on their stra-
variables, namely production strategy, departmental tegic priorities. Furthermore, he associates the diagnostic
interdependence and technological complexity, drive the control style with an explicit definition of goals, strategy
importance of financial and non-financial measures associ- and critical success factors, thereby also implying an expli-
ated with two different uses: periodic evaluation and cit approach to target setting. Other researchers (e.g. Lib-
reward. by, 1999; Magner, Welker, & Campbell, 1995; Shields &
The increased attention given to understanding the Shields, 1998) have instead discussed the participative ap-
determinants and consequences of PMS design and use has proach to budget setting as a way of involving employees
yielded a broad picture, which allows several contextual in the target-setting process, thereby enhancing dialogue
dimensions to be linked to different aspects of PMS design and improving organisational performance. These contribu-
and use. Nonetheless, there is a recognised need to better tions take some steps toward exploring the interactions be-
understand the interaction between design and use (Henri, tween the design elements of a PMS and its diagnostic or
2006b; Ferreira & Otley, 2009b), also with a view to provid- interactive use. We expand upon this by investigating four
ing a holistic perspective for the study of PMSs. To our
knowledge, this question has been addressed by few stud-
ies, and only indirectly: Ahrens and Chapman (2004), in 2
Repair is associated with the breakdown of control processes,
the wider context of organisational structures, and Ferreira
providing capabilities for fixing them; internal transparency is
and Otley (2009b) in the field of performance effectiveness. related to understanding working procedures; global transparency
Adopting a wider perspective aimed at exploring the role means understanding where and how the local processes fit into the
of management control systems (MCSs) in organisations that organization as a whole; flexibility denotes organizational members
pursue both flexibility and efficiency, Ahrens and Chapman discretion over the use of control processes (Ahrens & Chapman,
(2004) discuss the concept of enabling use, identifying the 2004, p. 276).

Please cite this article in press as: Agostino, D., & Arnaboldi, M., Design issues in Balanced Scorecards: The what and how of control,
European Management Journal (2012), doi:10.1016/j.emj.2012.02.001
4 D. Agostino, M. Arnaboldi

attributes of PMS design, and their interactions with the deploying the scorecard across the whole of the organisa-
style of use. tional hierarchy. According to the authors, implementation
of the BSC at different levels of the organisation, down to
BSC design and use that of personal scorecards, ensures alignment and commu-
nication of the strategy throughout the entire organisation.
Our empirical investigation of the relationship between PMS A variety of cascading design choices are observed in prac-
design and use is grounded in the research perspective of tice. Some companies develop a single BSC at the organisa-
contingency literature. To conduct the analysis and derive tional or business unit level (Decoene & Bruggeman, 2006).
insights, we focused on the performance framework of the Others instead adopt a cascading approach, developing
BSC. The BSC is considered a significant technique to inves- organisational, business unit and personal BSC that are
tigate PMSs at two levels. First, it has been widely adopted interlinked with each other (Speckbacher et al., 2003).
by companies of different size and industry around the The third design choice concerns target setting, which
world (Gautreau & Kleiner, 2001; Ittner, Larcker, & Randall, relates to defining the performance goals to be achieved
2003; Kald & Nilsson, 2000; Nielsen & Sorensen, 2004; and associating them with BSC measures. Empirical studies
Speckbacher et al., 2003). Second, its wide scope entails a reveal different positions in the types of targets that should
potential company-wide use at different organisational lev- be set, whether explicit or implicit. For instance, Ahn
els and with different purposes of use (Malmi, 2001; Speckb- (2001), in analysing the BSC adopted by a company, empha-
acher et al., 2003), providing an ideal field for the research sised the benefit of explicit targets: the exact values to
at issue. The following section accordingly seeks to opera- achieve were defined for each performance measure. Tuo-
tionalise the BSC design and use dimensions, in order to help mela (2005) instead, provides contrasting evidence: defining
us capture these two dimensions in the field. targets for non-financial measures was seen as problematic
due to the unavailability of past data for those performance
metrics. Given the difficulties in establishing the exact va-
BSC design
lue to achieve, the author recognised the importance of set-
ting implicit targets to be subsequently discussed with
BSC design refers here to structural characteristics, which
employees.
answer the question: What are the relevant technical fea-
The last design choice involves the link between the BSC
tures managers have to consider when introducing a BSC in
measures and the reward system. Extant literature shows
their organisation? We can thus define this first area of
different positions with respect to this aspect. The impor-
investigation as embracing the what: what choices man-
tance of linking the PMS with a system of reward is long
agers have to make when implementing the technology?
recognised as fundamental to increase the motivation of
More specifically, drawing upon previous empirical studies
employees (Hopwood, 1972). At the same time, other
(e.g. Speckbacher et al., 2003), the BSC design covers all
authors (Bonner & Sprinkle, 2002; Ittner, Larcker, & Meyer,
the design decisions that occur at the time of the BSC imple-
2003; Malina & Selto, 2001) highlighted controversial effects
mentation. Four design features emerge as recurrent and
and dysfunctional behaviours associated with this linkage,
leading to heterogeneous results: Key Performance Indica-
which can lead to internal conflicts (Wong-On-Wing, Guo,
tors (KPIs), cascading, target setting and reward systems.
Li, & Yang, 2007). Focusing specifically on the BSC, Kaplan
The link with the reward system is sometimes referred to
and Norton (1996) suggest establishing an incentive system
as an attribute of PMS use (e.g. Malmi, 2001; Speckbacher
associated with performance measures in order to ensure
et al., 2003), but according to our definition of design it rep-
alignment between the strategy and managerial actions,
resents a decision about the BSC structure, and as such falls
but the practice is characterised by heterogeneous situa-
within the what dimension. Below, we illustrate the
tions. Some companies link the scorecard to the reward sys-
components of the BSC design, and their potential heteroge-
tem (e.g. Epstein & Manzoni, 1998), while others do not (see
neity when enacted in practice.
the surveys by Malmi, 2001 and Speckbacher et al., 2003).
The first design choice concerns KPI selection. The inno-
vative element introduced by the BSC is the incorporation,
into a single template, of both financial and non-financial BSC use
measures. Kaplan and Norton are not prescriptive in defining
the number of measures to include, and the balance be- The concept of BSC use is analysed here placing emphasis on
tween financial and non-financial KPIs. Consequently, the the communication process associated with the technique.
practice is characterised by wide variability in both the Operationally, we answer the question: how does the com-
number of performance indicators and the balance between munication process - and consequently the control - associ-
financial and non-financial measures. Finnish companies ated with the BSC take place within the organisation? On
have BSCs with a number of performance measures ranging the strength of this definition, we label BSC use the
from 4 to 25 (Malmi, 2001); BSC applications in healthcare how dimension: describing how the control style is en-
organisations include between 13 and 44 measures (Gurd acted in practice.
& Gao, 2007); the implementation of the BSC in a small to Simons (1995) distinction between interactive and diag-
medium-sized manufacturing company was found to be nostic use is adopted to frame the how dimension, be-
characterised by 21 KPIs (Fernandes, Raja, & Whalley, cause it emphasises the intensity of the communication
2006). process and the style of control adopted by managers (Aber-
The second design choice relates to cascading, which is nethy, Bouwens, & van Lent, 2010). The choice of this dis-
the approach suggested by Kaplan and Norton (1996) for tinction is justified by the recognition that communication

Please cite this article in press as: Agostino, D., & Arnaboldi, M., Design issues in Balanced Scorecards: The what and how of control,
European Management Journal (2012), doi:10.1016/j.emj.2012.02.001
Design issues in Balanced Scorecards: The what and how of control 5

aspects are today critical in increasing understanding of ered to be a powerful tool for in-depth exploration of
how managers use accounting information in performing practices in use, and for deriving comparative explanations
their activities (Hall, 2010, p. 311). for complex phenomena (Eisenhardt & Graebner, 2007; Yin,
To practically capture these two styles of use in the field, 2003). It also has the advantage of allowing data from dif-
we rely on Simons (1995), and the subsequent studies adopt- ferent sources, such as interviews, observations and ar-
ing his framework (e.g. Tuomela, 2005). These studies iden- chives, to be combined, achieving triangulation (Denzin,
tify some aspects of the communication that are useful for 1978). Data collected from interviews were continuously
distinguishing between a diagnostic and interactive use: cross-referenced with data from other sources, and cross-
intensiveness of use by top managers, intensiveness of use checked against insights from similar cases in the sample.
by operational managers, and engagement in face-to-face In this way, the internal validity and reliability of the
dialogue. case-study material was enhanced; moreover, the decision
The first element is the attention the BSC receives from to derive insights from multiple case studies serves to make
top managers. An interactive system is characterised by fre- the results even more robust and compelling (Yin, 2003).
quent personal attention from top management levels. Con- Specifically, we conducted a two year study (20072008)
versely, a diagnostic use is characterised by control on an of seven Italian non-financial firms operating in different
exception basis (Simons, 1991), which means that senior industries, and characterised by different ownership struc-
managers intervene only when measures deviate from the tures and sizes (see Table 1).
expected targets. The second element is the attention the We deliberately chose companies of different sizes, and
BSC receives from operational managers. For a control sys- operating in different industries, in order to investigate a
tem to be defined as interactive, it must not only command heterogeneous array of BSC design and use settings.
frequent involvement of senior managers, but also active In each company, we began by interviewing the Chief
participation of operational managers across lower levels Financial Officer (CFO), with the purpose of understanding
of the organisation (Simons, 1991). The third element is the main characteristics of the BSC, and the manner in
the presence of face-to-face dialogue. The attention that which it is used, with particular attention to how informa-
interactive systems require from both senior and middle tion derived from the scorecard is used, communicated
managers leads to frequent face-to-face meetings to discuss and disseminated throughout the organisation. This initial
results, problems and opportunities, also during informal interview gave us preliminary insights into the design and
occasions. In contrast, the diagnostic style of control only use characteristics, and allowed us to access BSC reports.
calls for face-to-face dialogue when results deviate from We then further investigated these issues by interviewing
the established targets. Simons specifies that diagnostic at least one of the senior managers charged with use of
and interactive uses are not mutually exclusive; rather, the BSC, and thus involved in the communication process
any diagnostic control system can be made interactive associated with the control tool. The decision to also in-
by continuing and frequent top management attention and clude users of the technique was made to obtain a more
interests (Simons, 1994, p. 171). comprehensive picture of the phenomenon under investiga-
tion, and to explore in-depth how the communication pro-
cess associated with the BSC takes place. This was useful,
Research design in particular, for fully capturing the interactive style of con-
trol, since it is characterised by involvement of managers at
Relatively little is known about the interaction between de- different levels. We conducted a total of 22 interviews with
sign and use, so an exploratory case-study approach was CFOs and senior managers, having an average duration of
chosen as the most suitable research method. At a first one and a half hours each. Table 2 lists the key informants
glance, it might seem odd to use a case-study methodology in the seven companies; some of them were interviewed
in contingency research, which has traditionally been twice to further explore interesting issues emerging from
strongly rooted in hypothesis testing. However, the mixed analysis of the data from the first meeting.
findings of previous studies on PMS design and use have A semi-structured interview approach was adopted, using
led us to ground our research in loose contingency (Chap- a check-list as a reference. Outlines of the interviews were
man, 1997), which acknowledges the benefits of gaining sent to each company in advance, and a follow up summary
more in-depth and accurate results from a qualitative meth- of the discussion was then sent to the interviewees in order
odology. Furthermore, the case-study approach is consid- to avoid misunderstandings and obtain further clarifications.

Table 1 Description of the seven companies.

Name Industry Revenue 2007 (in mill) No. of employees Holding nation
TEL Telecommunications 723 4800 Italy
SEMIC Semiconductors and other electronic components 321 1200 USA
PHARMA Pharmaceutical 1400 3500 France
ELECT_1 Electronics, electrical equipment 900 850 Germany
ELECT_2 Electronics, electrical equipment 2920 14 000 USA
MOTOR Motor vehicles and parts 11 196 26 461 Italy
IND Industrial and farm equipment 350 1245 Italy

Please cite this article in press as: Agostino, D., & Arnaboldi, M., Design issues in Balanced Scorecards: The what and how of control,
European Management Journal (2012), doi:10.1016/j.emj.2012.02.001
6 D. Agostino, M. Arnaboldi

Table 2 Interviews. Results

Company Position No. of
This section presents the findings from the seven case stud-
interviews
ies, illustrating how the BSC is used, and the relationship
TEL Chief financial officer 1 with its design features. In order to permit a thorough
Performance controller 1 discussion and establish links between the theoretical
Director in investor relation 1 framework and the empirical data, insights from the cases
department are structured around the how dimension and then linked
Operation manager 1 to the what dimension, which provides evidence of their
interaction. By organising the analysis in this manner, it is
SEMIC Chief financial officer 2
possible to highlight specific links to the cases, and also
Operation manager 1
illustrate the breadth of the gathered data.
PHARMA Chief financial officer 1
Cost controller 1
The Balanced Scorecard: how
Marketing manager 1

ELECT_1 BU director 1 Following Simons (1995) framework, we clustered the BSCs

BU Chief financial controller 1 of the case studies based on whether they were diagnostic
BU performance controller 1 or interactive, obtaining four BSCs associated with a preva-
lently diagnostic control style, and the remaining three
ELECT_2 Chief financial officer 1 associated with a predominantly interactive control style.
Commercial manager 1 A typical example of diagnostic BSC use is provided by
Operation manager 1 PHARMA, where the Italian CFO clarified:
MOTOR Chief financial officer 2 I greatly appreciate the BSC because it is concise and
Commercial manager 1 succinct: it is able to provide me with key essential data.
IND Chief financial officer 1 But we only prepare it once a year! So Im not continu-
Sales manager 1 ously involved with it.
Business analyst 1 Though reflection about the data is thorough, this pro-
cess only happens once a year, and does not give rise to
internal discussion. This situation was also confirmed by
All the companies had declared they were using a BSC. the cost controller and the marketing manager, who ex-
Given that BSC design features may differ, as discussed in plained that meetings are organised only when the BSC an-
the previous section and subsequently confirmed by our nual report signals an exception.
empirical evidence, we adopted three further criteria to The companies TEL, ELECT_1 and SEMIC were also classi-
determine whether the selected organisations complied fied as having a diagnostic BSC style. In all three cases, the
with the BSC technique. First of all, the presence of finan- CFOs receive the report on a quarterly basis, and use it to
cial and non-financial measures; second, the clustering of control the progress of the business by comparing the cur-
such measures under at least three perspectives, and their rent value with the pre-defined target. In particular, the
collection in a single report. Third, the BSC had to have CFO at TEL was appreciative of the instrument:
been introduced at least three years previously, in order
Three years after the BSC introduction, I can say that it is
for its use to be sufficiently well established within the
a precious tool for me. It is just a 3-page report highlight-
company.
ing the results in different colours, depending on the
In analysing the data, we followed the guidelines sug-
degree of achievement of the target, and is thus immedi-
gested by Eisenhardt (1989) and Yin (2003). All seven indi-
ately easy to understand. It takes just a few minutes to
vidual cases were written out as stand-alone histories.
get a clear and concise overview of multiple aspects of
After that, the unique patterns of each case were identified,
the business.
and similar patterns were categorised under common
themes. This approach helped us to organise and summarise When asked about how often they discuss the BSC re-
the collected data. Specifically, we clustered the seven sults, his answer was clear: the BSC receives the attention
companies according to the BSC style of control, whether of operational or human resource managers only when a
diagnostic or interactive, and then we searched for common performance measure is highlighted in red, indicating fail-
patterns in the BSC design associated with these distinctive ure to achieve a target. In fact, the report is not distributed
styles of use. It is important to note that a given control tool to departmental managers: it is a tool solely in the hands of
can be used either diagnostically or interactively within the the CEO and CFO. Other senior managers are involved only
same organisation (e.g. Tuomela, 2005), and that a diagnos- when problems arise; discussions with them have so far oc-
tic use may switch to an interactive use (Simons, 1995). curred just two times, when team productivity and cus-
However, for the purposes of our study, we drew a clear dis- tomer satisfaction respectively fell below the established
tinction between diagnostic and interactive styles of use in target values.
order to identify patterns of influence between the what Of the three companies classified as having an interac-
and the how. tive system, IND best exemplifies the category. The CFO

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Design issues in Balanced Scorecards: The what and how of control 7

pays continuous attention to the BSC measures, and not just Moreover, he noted that proposals about how to improve
when he receives the monthly report: attainment of targets or new measures to include have of-
ten emerged from informal discussions. He gave the exam-
Measures in the scorecard and target levels to achieve
ple of the cost of quality:
are discussed on a continuous basis with senior manag-
ers. We decide together what the feasible and ambitious It was as a result of discussions among us that, last year,
targets are. we decided to introduce this new KPI in the BSC. This mea-
sure is extremely useful, as it gives us an idea of how much
It follows that face-to-face discussions, as well as infor-
it costs for us to maintain high quality products.
mal communications, not only played a central role during
the BSC design phase, but continue to do so now during its At MOTOR, the CFO receives the BSC quarterly, but the
day-to-day use. Furthermore, the report is distributed to se- report includes monthly data for the three-month period
nior managers throughout the organisation; in this way, covered by the document. Hence, their BSC has three col-
everyone is aware of the overall situation of the business. umns, one for each month, showing the corresponding devi-
The interaction process associated with the BSC clearly ations from one month to the next. Every month, formal
emerges from the words of the sales manager: meetings between the CFO, CEO and the first line managers
of each business unit are organised to discuss the BSC re-
When a new KPI is introduced to control the sales activ-
sults, identify potential problems and, if necessary, update
ities of our employees, we are like baby sitters. We try to
the long term plans. The controller clearly stated:
support them every day; in this way, we help them to
shift from being threatened by the KPIs to actively par- We do not wait until the report is complete to take
ticipating in their management. And this emerges from action, but rather try to control the progress of the busi-
their ideas and proposals for improvements. ness at least once a week. We are rarely surprised when
The BSC is used interactively also at ELECT_2 and at MO- we receive the report, since we already know its
TOR. At ELECT_2, it has the objective of focusing the atten- contents.
tion of the entire organisation on the product technology,
which is recognised as a critical success factor. In fact,
The interaction between the how and the
the company produces and sells premium home appliances
characterised by high technological content and the BSC
what
has the purpose of catalysing the attention of the entire
In analysing the BSC design features in the seven case stud-
organisation around this aspect. The report is prepared
ies, we found certain recurring dimensions of the what
quarterly (as in the cases of TEL, ELECT_1 and SEMIC); how-
associated respectively with diagnostic and interactive con-
ever, in this case the communication generated by the BSC
trol styles. Accordingly, we label the BSC types associated
goes beyond formal delivery of the document. As the CFO of
with diagnostic use Diag-BSC, and those associated with
ELECT_2 specified:
interactive use Int-BSC (see Table 3). Below, we describe
I often discuss the progress of the BSC measures with the interaction between BSC use and design, and the
senior managers in the production or commercial areas. effects of the style of use on heterogeneity in the what
I think it is important to share what we are doing and how. dimensions.

Table 3 Main findings.

What controlling How controlling
Diagnostic Interactive
KPI balance
Especially financial SEMIC, PHARMA, ELECT_1,
Financial + non-financial objective TEL IND
Financial + non-financial subjective ELECT_2, MOTOR

BSC cascading
Corporate only TEL
Corporate + depart not linked SEMIC, PHARMA,ELECT_1
Corporate + depart linked ELECT_2, MOTOR, IND

Target definition
Explicit TEL, SEMIC, PHARMA, ELECT_1
Implicit ELECT_2, MOTOR, IND

Link reward system

No link TEL, SEMIC, PHARMA, ELECT_1
Yes, without negotiation ELECT_2, IND
Yes, with negotiation MOTOR

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8 D. Agostino, M. Arnaboldi

We found that BSCs used diagnostically, here termed nisation. Instead, departmental BSCs are voluntarily
Diag-BSC, were associated with four design features: the developed by functional managers who like the instrument
predominance of financial KPIs, no cascading of BSCs from and wish to control their own specific activities. I dont
the corporate report, explicit targets, and absence of links know what the contents are because I dont check that
with the reward system. In terms of KPIs, analysing the BSC report.
template of the four diagnostic companies, we found that
During the interview with the marketing manager of the
financial indicators tend to predominate and that non-finan-
pharmaceutical department, he then clarified that he
cial measures are few, typically accounting for just two or
adopts the BSC to monitor his own activities, collecting de-
three out of a total of 20 or 25 KPIs included in the report.
tailed measures such as the number of patients or the num-
The BSC of TEL exemplifies this situation, with non-financial
ber of prescriptions for each of six therapeutic areas. He
measures accounting for just three out of a total of 15 KPIs:
further explained that these figures are not delivered to
number of orders acquired, percentage of occupational
top managers, unless they request them; instead, they are
accidents, and learning hours. Financial measures also pre-
used by departmental managers as a tool for controlling
dominate when the four traditional BSC areas are modified,
departmental activities. Cascading is defined as deployment
as typified by ELECT_1 and SEMIC. At ELECT_1 the produc-
of the BSC throughout the organisation, which allows strate-
tion area was replaced by a global competitiveness
gic measures to be translated into objectives and measures
area, which consists mostly of financial measures, relating
appropriate to each particular group (Kaplan & Norton,
mainly to sales figures or cost savings. There are only a
1996). Given this conceptualisation, the existence of these
few non-financial KPIs: number of orders issued by e-mail,
corporate and departmental BSCs cannot be regarded as
number of items per employee, and number of employees
cascading, since they are stand-alone reports and not linked
in the distribution team. At SEMIC, the report does not in-
to each other.
clude the innovation and learning area, and in its place
With respect to target setting, we found diagnostic use
contains a large number of measures pertaining to produc-
to be associated with explicit targets. This means that for
tion, that are mainly financial and objective. This imbalance
each performance measure in the BSC there is a detailed
in favour of financial measures can be ascribed to the prev-
statement of the exact value to be achieved in a given per-
alently exception-based communication process surround-
iod. This finding is aligned with Simons description of a
ing the BSC. Diagnostic companies prefer measures which
diagnostic control system: measures should be objective,
are easily quantifiable, since the need for interaction is re-
complete and responsive (Simons, 1995, p. 90). All four
duced if the selected measures are objective, as confirmed
case-study companies were found to adopt three columns:
by the controller at PHARMA:
the first giving the explicit value of the target, the second
Measures included in the BSC are easily quantifiable. filled in with the actual value, and a third status column
Thats a good point because this facilitates benchmarking containing red, yellow or green bullet points, indicating the
of BSCs for different subsidiaries. The selection of more level of target achievement. At ELECT_1, all the measures
subjective or customised performance measures might in the corporate BSC are associated with specific targets
have been problematic, providing us with data that would determined by top management. For example in the case
not have been comparable. By selecting financial mea- of customer perspective, there is a 10% target value for
sures that everyone knows we can avoid this problem. new customer, while for the market share indicator there
is a target of 3% market share gained from a specific com-
The absence of local BSCs cascaded down from the cor-
petitor (name omitted for confidentiality reasons). The
porate report, or the lack of a link between the corporate
CFO explained that this approach is extremely useful for
and departmental BSCs, is another feature of diagnostic
keeping the business under control:
use. At TEL and SEMIC, the report is designed for the corpo-
rate level only, and consists of aggregate measures relating By setting our desired objective for each performance
to the organisation as a whole. The reason for this choice measure, we can exactly know our ability to reach the
was clarified by the manager responsible for the BSC imple- target. Not only this: we can also assess how much we
mentation at TEL: are under- or over-performing.
The decision to introduce the BSC was driven by a spe- The controller at SEMIC emphasised the importance of
cific objective: to have a report that is able to summarise setting explicit targets. During the interview, he noted
the overall business situation on a single page. Achieving how defining clear targets fosters control at distance, pro-
this objective did not require cascading the scorecard to viding top management with a precious end-of-quarter
the lower levels: we need aggregate values! snapshot of the entire business, that highlights areas of
weakness or improvement.
The remaining two companies instead employ both cor-
The CFO at TEL likewise recognised the extreme impor-
porate and departmental reports; however, these docu-
tance of the BSC, and specified that the exact value of each
ments are not related to each other. This means that the
performance measure is explicitly defined in order to clo-
measures in departmental BSCs are not derived from those
sely monitor attainment of strategic objectives. Among
defined at the corporate level. The controller at PHARMA
the advantages of the BSC, he mentioned the possibility of
was clear on this point:
immediately evaluating critical measures by checking the
The corporate BSC is the document we use to control and difference between actual and target values. By taking this
monitor the overall business. It is derived from our approach, he explained, top management can simply set the
strategic guidelines, but it is not extended across the orga- targets and then come back to the BSC measures at end-of-

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Design issues in Balanced Scorecards: The what and how of control 9

quarter, because first line managers know what it is ex- rate level only. This means it is not extended across the
pected of them. A diagnostic approach to targets is appar- hierarchy, and features aggregate performance measures
ent from the amount of time top managers spend on that make it difficult to base managers rewards on them.
them. Targets elicit the attention of top managers during The second explanatory factor is purpose of use. Diag-BSCs
the planning phase, when the value for each measure is de- are instruments for controlling the business; they are
fined, and during the control phase, when actual results are implemented with the goal of monitoring performance
compared with the previously established objectives. Dis- over time. This specific purpose of use does not elicit a
cussions are initiated only on an exception-basis, whenever need to create a system of incentives based on BSC
a measure is highlighted in red. It follows that all the objec- measures.
tives have to be clearly set out, defining the value to An interactive use of the BSC instead implies different
achieve for each performance measure. traits, which result in an Int-BSC: a better balance between
The lack of links with the reward system is another char- financial and non-financial performance measures, the cas-
acteristic of the diagnostic style, which is instead counter- cading of departmental BSCs from the corporate document,
intuitive with respect to the Simons explanation of the implicit targets, and links with the reward system. The fre-
importance of linking target with compensation system in quent discussions between top managers and lower levels
order to provide clear direction for effort. The BSCs here might explain the adoption of both financial and non-finan-
investigated were found not used for compensating manag- cial measures, including subjective ones. For example, the
ers when they meet their targets; rather, it is regarded by BSC at IND includes financial KPIs in the financial area of
the CFOs of diagnostic companies as a tool for summarising the report only; the BSC in ELECT_2 includes a set of subjec-
the overall situation of the business from various perspec- tive measures which are related to employee satisfaction,
tives: it provides a snapshot of the company at a precise mo- talent growth and effectiveness of learning programs; the
ment in time. This advantage of conciseness is however BSC at MOTOR contains measures related to customer satis-
offset by the inclusion of information that is too generic faction and brand image. The CFO of ELECT_2 explained the
for employee bonuses to be linked to such measures. The process of selecting BSC measures, highlighting the interac-
CFO at TEL explained to us that there is no association be- tive dynamics:
tween BSC measures and the reward system:
When something is not clear, or when we need to define
Managers objectives are determined by the budget. some new measures, a discussion with the managers of
There are a few indicators in the BSC which coincide with the areas involved is organised, and they provide us with
those we have in the budget, and these are used to set their direct experience in the field.
incentives; however their objectives remain centred on
The cascading of departmental BSCs starting from the
the budget, not on the BSC.
corporate report is another design dimension we found to
The CFO at PHARMA likewise specified that they do not be associated with an interactive use. This cascading is
set incentives based on BSC measures. He explained that facilitated by the dialogue which managers promote sur-
they specifically want aggregate measures to track the busi- rounding the control tool. According to the CFO of IND:
ness and compare the results of different subsidiaries. How-
The discussion of strategy with senior managers helps us
ever these are insufficiently detailed for isolating the
to translate the corporate performance measures into
contribution of individual managers from them, and this is
departmental measures. The managers of the areas
the reason why they lack this link. At ELECT_1 there is like-
involved play a crucial role in this process, and this helps
wise no association between the BSC measures and the re-
us in defining departmental BSCs. For example, within
ward system because, as they explained, each manager is
the commercial department we were developing KPIs
evaluated on the basis of Economic Value Added (EVA):
associated with service level. We sat around a table with
During the budget definition process managers pay a the employees close to the business, discussing together
great deal of attention to the EVA measure and how it which measures might be useful.
is defined, because everything is evaluated on the basis
Within this company, strategy in fact drives the defini-
of it. (Vice-director at ELECT_1)
tion of the corporate document, which is then used to de-
Finally, the finding is also confirmed by the SEMIC case, rive BSCs for departmental units. At ELECT_2 they cascade
where performance measures are not used for compensat- the BSC down to the level of personal scorecards, which
ing managers because, as was explained during the meeting, contain measures each manager is directly able to influ-
BSC measures are too aggregated and fall outside the scope ence. This means that the KPIs in the personal scorecards
for which this PMS is currently intended. The informant fur- can be traced back to the initial strategic lever. The com-
ther clarified that the purpose of the report is to monitor mercial manager gave us an example: she is the coordinator
the progress of their business. of a group of people; therefore her document contains a
This association between design and use appears to be measure associated with overall employee satisfaction in
in contrast with Simons (1995) depiction of a diagnostic the innovation area of the corporate report, intended to
control system. From our empirical evidence, the lack of foster the well-being of people inside the organisation.
a reward system associated with BSC measures was bound The adoption of implicit targets is also linked to an inter-
up with two factors: the dissemination of BSCs at different active approach to the BSC The subjectivity in performance
levels throughout the organisation, and the purpose of measures is highlighted in the interactive companies, where
use. In the first place, a Diag-BSC is not cascaded through- targets are defined in terms of the desired variation posi-
out the organisation; rather, it is designed for the corpo- tive or negative to be achieved, and are arrived at

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10 D. Agostino, M. Arnaboldi

through a negotiation process between the CFO and other in association with interactive design traits. When the com-
senior managers. This situation was clear at IND, where pany shifted to a diagnostic style of use, it did not change
top managers discussed with subordinates both which mea- the BSC design features, but retained its original interactive
sures to include in the BSC and the respective target levels. structure. This situation created problems of misalignment
between the Int-BSC design and its diagnostic use, under-
We need a talking number! BSC measures are useful if
scoring how these two dimensions are closely intertwined
they can represent aspects of company performance
and need to be managed in concert. Specifically, the pres-
which are dependent upon people. This means that we
ence of non-financial measures, cascading of the BSC, and
need to involve employees who contribute to that mea-
the reward system were found to be unsuited for the diag-
sure, discussing with them what to measure, how to mea-
nostic approach adopted.
sure it, and the result.
The first cause of misalignment was related to the types
He went onto explain that they do not set the exact tar- of measures in the corporate BSC. The inclusion of financial
get value; rather, they negotiate improvements in the mea- and non-financial measures was found to be incompatible
sure in order not to limit the scope for action within the with the new diagnostic use, as a comment by the CFO
organisation. A similar approach to targets is adopted at demonstrates:
MOTOR. Targets are negotiated for the corporate BSC as
We needed something clear and simple that everybody
well as for departmental scorecards during meetings with
could understand, without fuzzy interpretations. Our
first line mangers. They are set as percentage improvements
specific objectives were centred on production costs
in BSC measures, for example a four per cent reduction in
and the quality of the silicon wafer produced. (CFO at
spare part delivery times. After this, discussions and meet-
SEMIC)
ings take place to understand the result achieved, irrespec-
tive the percentage variation. The reasons for the actual The inadequacy of the types of measures in the scorecard
values achieved are discussed to detect changes in the can be ascribed to a shift in priorities at the top level. The
market, as well as to identify internal problems or companys board was interested in controlling organisa-
opportunities. tional activities at distance, based on a few key variables:
This relationship between the how and the what the costs and quality of the production. This different style
can again be ascribed to the communication process of use thus called for simpler and more objective measures.
adopted: the ability to discuss results, problems and oppor- SEMIC progressively abandoned the non-financial measures
tunities makes it easier to also define the desired targets in previously included in the report, such as level of innovation
broader terms, because control is assured by the constant or talent growth, arriving at a BSC with a predominance of
attention devoted to the BSC measures. financial measures. The one exception was customer satis-
Finally, the link between BSC measures and the reward faction, which was considered relevant given the companys
system is another design dimension associated with an inter- goal of achieving lower costs without compromising the
active use. The CFO at MOTOR made this clear when he ex- quality of the silicon wafers produced.
plained the configuration of the reward system: The second cause of misalignment concerned the cascad-
ing of the BSC measures, as noted by the cost controller of
BSC measures are used to define the rewarding of first
the plant:
line managers and lower levels: we call them profes-
sional experts. The approach we use to define incentives The centralisation of decision making and the exclusion
is quite demanding because it is directly negotiated with of all departments from strategy definition created prob-
the people involved. Usually each person is evaluated on lems in deploying the BSC at lower levels: how could we
the basis of a set of measures in the BSC, each of which define measures to include in our departmental score-
has a relative weight depending on the relevance of that card without knowing the overall strategy? It was impos-
measure for the company and the influence of that per- sible because we didnt know the strategic guidelines!
son on the measure. Once it is negotiated, it is consoli-
During the first year following the shift to a diagnostic
dated and enters the system.
style of use, the new corporate BSC coexisted with the
Another particularly interesting comment emerged dur- pre-existing Int-BSC at the departmental level. However
ing an interview at IND, in which the CFO stated that the two documents were no longer related, since the mea-
BSC measures are not merely tools for measuring, but also sures of the departmental reports were not linked to the
tools for incentivising actions. This quote is significant in new financial measures of the corporate BSC. The attention
that it reveals a dynamic philosophy behind the process of given by top management to departmental reports progres-
selecting measures, negotiating incentives and discussing sively diminished because, as the cost controller clearly ex-
results with the employees who are directly involved. plained, the measures were useful when delivered and
discussed with the top management team. During such
occasions, they had the opportunity to share ideas about
The misalignment between the how and the strategic priorities and potential problems signalled by weak
what: the SEMIC case measures. The result was that, one year after the transition
to a diagnostic use, cascading of corporate measures was
SEMIC was included among the companies that have a diag- abandoned, and only a corporate BSC retained.
nostic style of use and a corresponding Diag-BSC, because The third cause of misalignment was the link between
this is the PMS currently in place. However, when the BSC BSC measures and the reward system, which proved to be
was introduced in 2002 it was initially used interactively, difficult to establish with a diagnostic style of use. The

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Design issues in Balanced Scorecards: The what and how of control 11

reduction in dialogue surrounding the corporate report, and style of control, as advanced by previous work (e.g. Fried,
the abandonment of the cascading approach, resulted in a 2010). The second hypothesis suggests that there is a rela-
single corporate BSC containing mostly financial measures. tionship between implicit targets and an interactive control
The diagnostic style of use, based on controlling a few key style, as advocated by Simons (1995) and by other scholars
measures at distance, without generating discussions be- investigating the participative approach to budget setting
tween top and middle-level management, made it very dif- (Libby, 1999). The third hypothesis is that an interactive
ficult to set incentives for managers: style of use will feature links with the reward system, which
runs counter to the existing literature. Following Simons
How could we be evaluated on the basis of measures that
(1995) thinking, one would expect the opposite: for the
were no longer discussed and negotiated with our
adoption of reward systems to be associated with diagnostic
bosses? (cost controller at SEMIC)
use. Diagnostic use is recognised as a mechanistic tool that
This quote underlines the difficulties of reconciling the enables operation at a distance (Simons, 1995). Since man-
interactive design features of the reward with a diagnostic agers are given specific metrics on which they are evalu-
approach to BSC use, arising from both a shift in type of ated, there is limited need for intervention by top
use and the withdrawal of BSC cascading. The end result managers. From 1995 onwards, the approach to reward sys-
was that top management decided not to use BSC measures tems has evolved being associated with multiple subjective
to reward managers. measures in a compensation formula (Ittner, Larcker, &
These misalignments between a diagnostic style of use Meyer, 2003) and being complemented by dialogue among
and interactive design features led to a progressive change executives and managers (Kaplan & Norton, 1996). Unlike
in the BSC design features which, entrained by the style of the features associated with a diagnostic control system (Si-
use, took on a diagnostic character: predominance of finan- mons, 1995), our results reveal the difficulties of setting
cial KPIs, lack of BSC cascading and absence of links be- incentives based on a Diag-BSC, since the measures included
tween BSC measures and the reward system. in the corporate report though valuable for monitoring
the overall business are too generic to be used for setting
Discussion and conclusions individual objectives. This can be explained in terms of both
the level of BSC dissemination within the organisation, and
The antecedents and the effects of PMS design and use have the purpose for which the BSC is used, which differ for the
been receiving continued attention in managerial research, two types. First of all, the absence of cascading in a Diag-
but recent contributions suggest a need to explore how BSC means that the scorecard is not disseminated across
these two concepts are interrelated (e.g. Henri, 2006b). the organisation; rather, it is a tool in the hands of senior
Drawing on a multiple case study, this work explores the managers. Conversely, an Int-BSC is widely disseminated
interaction between BSC design and use, conceptualising throughout the organisation, since it adopts a cascading ap-
PMS design as the what dimension and PMS use as the proach. The dissemination of an Int-BSC across multiple
how dimension. The what embraces the technical hierarchical levels makes it easier to set target for manag-
features managers choose when implementing a PMS, while ers, because the measures are closer to the managerial
the how concerns the control style associated with the activities. This is instead more difficult with a single corpo-
information provided by the PMS. Our findings indicate that rate report, which includes measures that are relevant, but
such an interaction indeed exists: BSCs used diagnostically not readily traceable to the contributions of individual man-
are characterised by a prevalence of financial measures, ab- agers. Second, the purpose of use is different. A Diag-BSC
sence of cascading, explicit targets, and no link with the re- represents a tool for making decisions and monitoring the
ward system. Int-BSCs instead have the opposite traits: an overall conduct of the business what Malmi (2001) terms
evenly balanced set of financial and non-financial measures, an information purposes role. Given this purpose, there is
cascading of the BSC, implicit targets, and a link to the re- no need to set incentives based on BSC measures. On the
ward system. other hand, an Int-BSC, with its reports spanning all levels
These results offer some useful insights for both academ- of the organisation, is used not only for decision making,
ics and practitioners. From an academic perspective, we an- but also to motivate managers: what Malmi (2001) terms
swer the call for investigating design jointly with use (Henri, the management-by-objective-function of the BSC. Hard
2006a; Ferreira & Otley, 2009b), highlighting the interaction contingency testing could prove particularly fruitful for ver-
between the what and the how, and responding to ifying this association between the reward system and the
the more general call for bringing a holistic perspective to interactive style of use.
the study of PMS (Ferreira & Otley, 2009a). Focusing specif- The investigation of the specific relationships between
ically on the BSC, our study shows that its design features design characteristics and PMS use indicates the existence
differ depending on the specific style of control, whether of a reciprocal interaction between the what and the
diagnostic or interactive. This finding supports the claim how. The misalignment problems that emerged in the
that design and use are closely intertwined (Henri, 2006a), SEMIC case give evidence that design and use are both
but more specifically it provides insights on how the charac- equally relevant for a PMS to work. Though some previous
teristics of design are associated with an interactive or diag- contributions (e.g. Ferreira & Otley, 2009b) have found that
nostic control style, suggesting a set of hypotheses for style of use plays a prominent role in shaping PMS appropri-
hard contingency and testing. The first hypothesis pre- ateness, we did not observe this to be the case. Any changes
dicts that BSCs characterised by a predominance of non- to either the design attributes or style of use must be
financial KPIs will be associated with a more interactive aligned with each other.

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European Management Journal (2012), doi:10.1016/j.emj.2012.02.001
12 D. Agostino, M. Arnaboldi

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European Management Journal (2012), doi:10.1016/j.emj.2012.02.001
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Please cite this article in press as: Agostino, D., & Arnaboldi, M., Design issues in Balanced Scorecards: The what and how of control,
European Management Journal (2012), doi:10.1016/j.emj.2012.02.001