1.0 Research objective
The objectives of this research objectives is to inspect the importance of focusing the strategic of the balanced scorecard and investigate the result of the implementation- related choices influence by the emphasizing strategy. In this research show the effect of causal-chain focus interact with scorecard responsibility of manager on the judgments making.
2.0 Research question
Whether judgments of the manager will be affecting by the interaction of causal-chain focus and scorecard responsibility of manager?
3.0 Literature Review
3.1 Prior Research on Balanced Scorecard
Balanced scorecard is useful in developing management accounting. (Atkinson et al. 1997) Prior research by Bain & Company revealed that 57 percent of firms in the world use the balanced scorecard. (Rigby and Bilodeau 2005) Moreover, using balanced scorecard in useful way will improve performance notwithstanding size of the firm and product life cycle. (Hoque and James 2000)
Prior research about balanced scorecard emphasized the ability of several measures to produce an equivalent viewpoint of companys' performance. (Kaplan and Norton 1992) Under this viewpoint, managers focus only on financial performance measures based on 4 scorecard component (financial, internal processes, learning and growth and customer, ). Lipe and Salterio (2002) indicate that 4 scorecard views used to form performance measures can influence evaluator judgments.
More lately, scorecard advocate focused on strategy rather than balance, indicating that the scorecard useful to be a tool for defining, communicating, implementing and evaluating strategic objectives. Scorecard relied on the strategy via the strategy map (use to translate outcome to testable hypotheses). The strategy map enhances strategic learning. It aligned the scorecard measures that used to measure the success of strategy.
Malina and Selto (2001) unveil justification that many scorecards do not have definitely clarified causal linkage. This finding proved by Ittner and Larcker (2003) that 30% of being surveyed firms that use the balanced scorecard have explicitly-stated. Furthermore, when strategy maps are used, the hypothesized caused chain failed to test by the managers. (Ittner and Larcker 2003) However, Campbell et. Al (2006) indicated the converse effect of it. Other than that, Lipe and Salterio (2000) imply that involvement of evaluator affected the scorecard-related judgments in the implementation process.
3.2 Motivated reasoning
Motivation affects the tendency for judgments to reach the conclusion. Research in psychology unveiled that human evaluate and analyze data following with their preferences. This is what we knew as "motivated reasoning" (Kunda 1990)
Gilovich (1991) suggests that how evaluators approach evidence will drive the motivated reasoning. There are two situations:
When facing disagreeable suggestion, people will ask "Must I believe this?" and go after information to disconfirm the validity of the bad news.
When facing agreeable suggestion, people will ask "Can I believe this?" and go after information to confirm the validity of the bad news.
There is a common comment said that balanced scorecard with motivated reasoning focus on more noisy, subjective and ambiguous nonfinancial performance measures. (Ittner and Larcker 2003) Reducing in precision and clarity helps manager to interpret evidence with additional areas. In addition, balanced scorecard also provides multiple forms of performance feedback. When reach a certain level, managers are likely to cease finding, despite of disconfirming evidence. In the conclusion, with constant actual scorecard performance, if the scorecard evidence is noisy or ambiguous, managers will reach different outcomes based on their difference preferences.
3.3 Causal Chain
To reduce motivated reasoning, hypothesized causal chain may be increased. Although causal chain-framing is needed for strategic learning, but many firms fail to definitely assert hypothesized causal linkages.
Hypothesized causal chain can help managers pay attention on it and then reduce motivated reasoning. (Kunda 1990). In addition, it can decrease the extent of ambiguity in feedback and thus avoiding managers to look at the data with their preferences only.
3.4 Measure Responsibility
Selection of performance measure is important for implementing balanced-scorecard. Frigo and Krumwiede (2000) stated that middle-level managers should involve in measure selection because they know well about their own department than anyone else and thus they can develop their own scorecards better.
Managers who play the role to select measure are motivated to recognize that their measure choice of performance is good. For instance, if a manager trusts that customer satisfaction affects financial performance through a measure of customer loyalty, then the manager would likely to expose that increase of customer loyalty will then increase financial performance.
Involvement of manager in measure selection might reduce the influence of managers' motivated reasoning. Many initiatives fail to bring performance further down the causal chain. For instance, an initiative can increase customer satisfaction without improving financial performance.
In a conclusion, inability to support a preferred belief after selecting a measure will disconfirm the validity of the initiative based on the measure that has been chosen. This is only true if managers understand the causal linkage well.
4.0 Hypothesis
H1: if the manager were given responsibility to choose the initiative. They will see the initiative as more successful when they use balanced scorecard to do analysis
H2: Managers' motivated reasoning will be reduced by using causal chain scorecard framing.
H3: Managers' responsibility to select measure of an initiative will reduce the effects of motivated reasoning when framing the scorecard as a causal chain.
5.0 Conceptual Framework
Scorecard responsibility
Motivated reasoning
Scorecard framing
6.0 Methodology
6.1 Task and Design
In this research, the participants were the role of managers of a fictitious pizza company. The task need to do was evaluated the new strategic initiative whether the strategy need to implement by using the balance scorecard. The participants were given two initiatives to implement to consider that were side order strategy and quality ingredients. Two initiatives measures, customer survey score and returning customer score were given to the participant to make decision.
The research used 2 types of scorecard framing with 3 levels of scorecard responsibility. To control scorecard framing, 50 percent of the participants' background information given was used the four component of scorecard that was focus on financial, internal processes, learning and growth and customer of the company. These participants were in the "four groups" (FG) scorecard-framing setting. However the other 50 percent of the participants were in "causal chain" (CC) scorecard-framing setting, their background information was more detail and focus hypothesized cause-and effect relationships with the scorecard components. Therefore those were the two type of scorecard framing
For the scorecard responsibility there had three levels. The first one-third participant would classify as "low responsibility" (LR) as they had no responsibility to choose initiative strategic and measures that they wanted they need to follow the top management level to implement the "quality ingredients strategy "and use the "returning customer score". However the other one-third participant have given the chance to choose the initiative strategic they wanted but need to follow the measure the company chosen, returning customer score", this group were " initiative responsibility" (IR) . Lastly one-third participant were the "initiative and measure responsibility' (IMR) group where the participant giving all the responsibility to choose the initiatives strategic and measures that they wanted to implement.
6.2 Participants
The participants that the researcher used were the MBA management accounting students. All the participant must had been know the way of making decision by management accounting data especially balanced scorecard. At least know the basic knowledge about the balance scorecard that was the four perspectives of the balance scorecard.
7.0 Result
7.1 Hypothesis testing
In order to test H1, the interact of scorecard responsibility and motivated reasoning, the researcher compared the judgments between the group of participants which were in "low-responsibility and four groups"(FG/LR) with the participants in the group of "initiative responsibility and four groups" (FG/IR).
The results derive from the experiment shows a significant simple effect between FG/LR with FG/IR. From the table 1 Rollout decision, LR had 52.0 mean however IR had higher mean than LR that was 66.4. From the mean the difference between these two mean was 14.4 and the p value for this comparison of FG/LR and FG/IR is 0.022 which is lower than 0.05. Therefore the researcher concluded that there had significant differences between FG/LR and FG/IR, H1 supported.
H2 was assuming that when the causal chain scorecard frame used, the manager's motivated reasoning will decrease. To test the H2, the researcher needed to compares two types of scorecard framing, four group and causal chain in the two differences responsibility (Low responsibility and Initiative responsibility). Those were "low-responsibility and four groups"(FG/LR), "initiative responsibility and four groups" (FG/IR), " low responsibility and causal chain"(CC/LR) and " initiative responsibility and causal chain" (CC/IR).
From the table 1, the mean of the four groups is same as the result get when tested the H1 that was FG/LR is 52.0 and FG/IR is 66.4. However, the means for the CC/IR is 70.7 which is greater than the causal chain in the low responsibility perspective (CC/LR) is 51.5. From that entire figure, the researcher found that this was not significant. Therefore the result show that H2 cannot be supported because the difference is 2.4 only so the p value is not significant means that the p value must be greater than 0.05. It also mean that scorecard responsibility more likely will affect the motivate reasoning than the scorecard framing used by the manger.
Lastly, H3 was assumed that motivate reasoning would be reduce when the scorecard framing is causal chain type and the managers has the responsibility to choose the measures of an initiatives. To test this H3, the researcher need to compares the all two types of scorecard framing and three levels of the scorecard responsibility. From the table panel B, the researchers have used 6 comparisons to come out the H3 conclusion.
First comparison the researchers were start from the comparison of the initiative responsibility and initiative measure responsibility in the same four groups. In the table 1 show that the means of FG/IR is 66.4 however FG/IMR is smaller than FG/IR that is 65.7. From that the differences between these two groups is 0.7 and have p- value that was greater than 0.05 as it is not significant for this comparisons. The other comparison was the same as first ones just only this comparison was focus on causal chain scorecard framing rather than four groups scorecard framing. From the table 1, means of CC/IR is 51.5 which were smaller than CC/IMR which is 68.6. From that figure the researchers found out the differences of these two groups are 17.5 which have a significant result. That means it had a p- value was lower than 0.05 that is 0.006.
Besides that, the researcher also done a comparison of initiative responsibility in two differences type of scorecard framing that were four groups and causal chain. The researcher found the means of each groups from the table 1and also had been mention above. For the difference of FG/IR compared with CC/IR show that it had not significant differences in p value of this comparison of initiative responsibility in differences type scorecard framing which have 4.4 differences. However the researcher also had done for the initiative measure responsibility in the two types of scorecard framing. This comparison showed a significant difference of p value is 0.038 for FG/IMR and CC/IMR which is lower than 0.05.
A comparison initiative responsibility and measure responsibility in the causal chain scorecard framing to all other initiative responsibility is significant. This means compared FG/IR, FG/IMR and CC/IR with CC/IMR has get a differences of -14.4 and p value 0.006 which is lower than 0.05. Besides, the comparison of scorecard framing by measure responsible interaction is also significant differences where had 0.044 p value which is lower than 0.05.
From 6 pair comparison results above shows that participant with freedom to choose initiative strategy and initiative measures would more likely reduce the motivate reasoning than participant only has responsibility on initiative strategy but it must in situation where the participant is using the causal chain scorecard framing. Therefore the results of all the comparison have supported the H3.
In the conclusion, from all three hypotheses testing above the research only can support H1 and H3 assumption.
7.2 Financial-Perspective Emphases
Since the new initiatives implement was not affected company financial performance, participants with initiative responsibility will not emphasis on the financial perspective so much. For the participants with low responsibility would putted more focus on the financial performance of company than participants with initiative responsibility when four groups scorecard framing used. From the table 2, mediation analyses can found out that means of LR participants emphasis on financial is 44.6 which is higher than means of IR participants focus on financial. This shows the differences of -12.9 and has a significant value in p value that is 0.003. However the interaction of framing by initiative responsible shows not significant value on the financial focus.
A reasonable mediation of financial focus on judgment had been suggested as the significant effect of IR on financial focus.
The following situations are requires by the mediation:
Contrast of interest require to has significant relation with dependent variable
The contrast require to has significant relation with potential mediator
Potential mediator require to has significant relation with dependent variable
When the potential mediator effect been controlling, the significant level of the relation between dependent variable and the contrast would decrease.
From the table 2 Panel A, it show that financial focus has been mediated the effect of IR on the judgment. Firstly, there has significant contrast in step 1 as the p value is 0.024. Afterward, step 2 indicates the negative effect of the contrast on financial perspective emphasis (t = -12.9, p = 0.003). Next, there has show negative effect in step 3 of financial focus on judgment which p value is 0.001. Lastly, when financial focus in step 4 is t-value equal to 1.24 and shows no significant on the judgment by the contrast effect. Hence, IR influence the participants to focus on the financial perspectives in their evaluation of strategy was the extent the judgment of the effect of IR works on it. All of these findings suggest that financial-perspective emphasis perhaps help to explain the managers' decreased propensity to come out new initiative when managers given the responsibility to choose the measure and used causal chain scorecard framing.
In the experiment, the initiatives selected by the IR participants would motivated to understand more detail about the initiative, however measure responsibility participants would be more motivated to get the positive effects of company performance they selected to measure. Hence, participants who are provided with hypothesized causal chain should increase their financial focus on company performance by getting positive of customer satisfaction on financial performance.
Then, in the Panel B of Table 2, it shows the analysis breakdown of mediation of financial perspective emphasis on H3 results. At first, comparing IMR participants in causal chain scorecard setting versus others IR participant in step 1 show a contrast significant which have 0.049 p value. After that, the step 2 shows the positive effect on financial focus with 0.089 p value. Next, in step 3 the p value is 0.081 which have negative effect of financial focus on judgment. Last of all, in step 4 where the financial focus is controlling, it shows low significant that is 0.062 p value on judgment. Therefore, participants' emphasis on financial performance in their strategy evaluation comes to support H3.
7.3 Perceived Measure Quality
Research in psychology stated that the participants who are given the responsibility to choose measure will understand more about the measure higher than the participants who are not given the measure responsibility, as long as these participants are able to gather a reasonable argument to that end.
Nonetheless, the participants who are given the responsibility to choose the measures and used the causal chain scorecard frame, their ability to understand more about the measures are limited because the increase propensity to check the financial perspective which are not affected by new measure. The question of "How well did the measure of customer satisfaction reflect actual customer satisfaction?" would be asked to test the above assumption. Where they can answer in a range of -10 to +10 which -10 refer to low quality and +10 is mean high quality.
Participants with both IR and IMR would more understand the new measure than the participants who just only have IR, unless causal chain scorecard used. The average understanding of measure of participants with both IR and IMR are higher than participants with just only IR that is 2.0 and 0.8 respectively in the four groups scorecard.
However when the causal chain scorecard used, the average understanding of measures for the participants with IR only is 0.9 while the participant with both IR and IMR average understanding of measures is -0.3. Therefore there have a significant interaction which p value is 0.054.
The scorecard framing and measure responsibility on understanding of measure had a significant effect Therefore a possible mediation on understanding of measure on judgment is suggested. If the measure does not as what the researcher has predicted that it will affect the financial performance, perhaps the strategic objective of the measure would has doubt that it was refer on the financial perspectives of the company. The decreasing in participants' enthusiasm for rolling out the new initiative will happen.
From the Panel C of Table 2, it stated the step of the analysis of mediation of understanding the measure on H3 results. The step 1 shows the significant contrast in the situation of comparing participants with both IR and IMR in causal-chain scorecard framing to other participants with IR was has a 0.051 p value. Subsequently, in step 2 the understanding of measure shows a negative effect on it with 0.046 p value. Then, in step 3 the understanding of measure show positive effect on the judgment with 0.094 p value. Step 4 indicated there has less significant effect that is 0.076 p value on the judgment when understanding of measure being controlling. Hence, H3 outcome work at least in part through participants' perception of measure quality. The additional analyses (unstipulated) indicated the understanding of measure and financial focus capture different construct which both mediate H3 results.
There have a positive significant effect on understanding of measures with 0.088 p values and negative significant effect on financial focus with 0.079 p values to estimate the judgment. The effect on the judgment will become no longer significant when the two variables has been controlling.
7.4 Follow up survey
Motivated reasoning can influence the information gaining, leading the participant to cut their information search before acquire preference-inconsistent data. Besides, it could lead to dismiss or not believe preference-inconsistent data they acquire before. The ability of participants to call to mind the information of scorecard data would be showed if scorecard responsibility and scorecard framing would influence the participants' acquisition or dependency on the financial data. Participants acquire or depend on financial data will be more probable to consider the causal effects if compare with participants who rely or acquire on the financial data.
One week after the research, participants give their answer to a brief survey to review their recall of key aspects of the scorecard they used in their evaluations. A total sum of 121 participants responded to the survey, which they asked the 4 multiple-choice questions testing participants' recall of the initiative and measure implemented at first. Then their responses were coded as either correct (1) or incorrect (0), and total recall for a participant was coded as the sum of the 4 recall scores.
In addition, the researcher also asked the participant: "Did the restaurants that implemented the new initiative have better/the same/worse gross margins than restaurants that did not implement the new initiative?" The response follows up with a scale from -5 ("Much worse") to +5 ("Much better"), with 0 labeled as "The same." Then the responses derived from the survey coded again as either correct or incorrect.
As anticipated, controlling for recall of the specific initiative and measure implemented, participants with IR stated that the new initiative had a higher positive effect on gross margin than did participants with LR when the four groups' scorecard been used where there have 0.057 p value. Then the key effect of IR is significant also where the p value is 0.036.
By using the no transformed scale responses as the dependent variable, the simple effect of IR is significant where the p value is 0.050, because it is the key effect of IR has p value is 0.026. These derived consequences suggest the participants with IR were less to obtain preference-inconsistent information, providing additional needs into the motivated reasoning process. A contrast comparing responses of participants with IR and IMR where the causal chain scorecard being used to other participants who had IR is not significant. These outcomes are consistent with participants with IR being less probability to obtain financial data than participants who are not responsible for the IR regardless of IMR.
Nevertheless, participants with IR who do obtain this data may be more probable to reliance on the data if they comprehend the causal chain and have IMR.
8.0 Conclusion
The researcher had found out the result from the research taken by them and come a conclusion that when the manager use the scorecard measures frame as a causal chain, it can reduce the optimistic of the strategy implement by the manager will success as their hope. From that research show that the involvement of manager in selecting strategy will have affect on the success of the strategy than no involvement. However for the involvement of manager in selecting the measures of the performance does not bring any affect to the success of the strategy.
From the research result also show that the involvement manager in selecting the measures of performance can reduce the managers' motivated reasoning. The researcher not find any evidence show that involvement manager in selecting the strategy process in the causal chain focus can mitigate the managers' motivated reasoning but find an evidence show that managers' motivated reasoning can be overcome by involving manager in selecting measures of evaluation of performances.
At the end of this research, the researcher had suggested some future research can research on the balance scorecard. There are examining how the managers' motivate reasoning work, and the relationship of the responsibility and managers' reliance on the information acquisition. Besides, examine the affect strategy- evaluation judgments in different aspects of scorecard implementation. The other are more focus on the effect of the causal chain when manager giving more detail information using the casual chain and effect of causal chain effect when in real world setting
