Corporate strategy formulation based on balanced scorecard : a contingency model and system for weighting decision

Abstract

Measuring corporate performances is of great significance, because it drives strategy. Performance is an explicit pillar of corporate strategy. Many companies work assiduously to select performance measures to better meet their goals, but these measures are not well understood. Companies can give analysts only limited description of what performance measures are and how much they are important. The need for measuring knowledge components has motivated the need for a variety of performance measurement methods. The Balanced Scorecard (BSC) is one of them. However, it is difficult to lead to a sufficient consensus on corporate strategy at its implementation stage. Thus, it is necessary for the BSC measures to reflect strategic objectives in more systematic fashion. Furthermore, the weights of performance measures should be determined a priori to implement a BSC-based performance measurement system. This dissertation focuses on the following research objectives: (i) to find the effect of corporate strategic choices on the weighting of the BSC performance measures and (ii) to find the important environmental variables in determining these weights and propose a system for weighting decision. Corporate strategies are explored within the framework of Miles and Snow’s taxonomy, where they are categorized into prospectors, defenders, analyzers, and reactors. The relative weights for each performance measure are calculated by the use of the Analytic Hierarchy Process. A sample of 219 companies can confirm the link between corporate strategies, environmental forces, and the weights of the BSC performance measures. These weights shift depending on the nature of challenges companies face. In the light of this empirical evidence, a system is proposed to help retrieve the BSC weights of the companies with similar characteristics. In order to measure the proximity between companies, a k-nearest neighbor technique is employed. This system can help find the weights of the perform...