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Journal of Accounting & Organizational Change

Exploring the blurred nature of strategic linkages across the BSC: The relevance of
loose causal relationships
Francesca Francioli Lino Cinquini

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Francesca Francioli Lino Cinquini , (2014),"Exploring the blurred nature of strategic linkages across the
BSC", Journal of Accounting & Organizational Change, Vol. 10 Iss 4 pp. 486 - 515
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JAOC
10,4

Exploring the blurred nature of


strategic linkages across the BSC
The relevance of loose causal relationships
Francesca Francioli

486

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Department of Economics, University of Genova, Genova, Italy, and


Received 28 February 2013
Revised 2 September 2013
29 November 2013
16 February 2014
4 March 2014
12 March 2014
Accepted 20 March 2014

Lino Cinquini
Institute of Management, Scuola Superiore SantAnna of Pisa, Pisa, Italy
Abstract
Purpose The research aims at addressing the way in which linkages based on qualitative causality
could be preferred in designing a balanced scorecard (BSC), by applying a cost-benefit judgment with
respect to the complexity of defining strong, statistically reliable cause-and-effect relations among
performance measures.
Design/methodology/approach The authors review the way in which cause-and-effect relations
across the BSC have been developed based on a case study of BSC implemented in an Italian bank
collecting data by in-depth interviews and companys internal archives.
Findings The research reveals how the ambiguity, or blurred nature, of strategic linkages is
recognized in the empirical setting of an bank, facing a highly uncertain and complex environment and
how the orthodox tools of strategy maps and explicit cause-and-effect linkages prescribed by the
theoretical literature are avoided by the human actors. Despite these omissions, the BSC is nevertheless
effective. As the case shows, it generated a democracy where individuals and departments
communicate, commit and collaborate in an effort to implement strategy. The research also shows the
role of the BSC in heightening the importance and awareness of performance evaluation among the
actors.
Practical implications The research provides practitioners with insights into how to design and
manage cause-and-effect relationships in BSC. In particular, evidence is provided that finality linkages
in BSC may be successful in use and predictive capabilities, according with expectations and purposes
of the organizations climate of control, in a context in which the cost-benefit philosophy in
implementing BSC is followed.
Originality/value The paper addresses an issue of practical relevance in the implementation of BSC
showing a discrepancy between theoretical and practical meaning of causality. Besides the research
highlights, the extent to which linkages across the BSC perspectives (and related measures and
variables) can only be based on individual assumptions about the means to an end and based on
qualitative assertions (finality).
Keywords Management control systems, Balanced scorecard,
Strategic performance management systems, Banking industry, Causal relationships
Paper type Case study

Journal of Accounting &


Organizational Change
Vol. 10 No. 4, 2014
pp. 486-515
Emerald Group Publishing Limited
1832-5912
DOI 10.1108/JAOC-02-2013-0016

1. Introduction
During the past two decades, Kaplan and Norton have been constantly working toward
improving and integrating the general balanced scorecard (BSC) framework, with many
other authors contributing with further suggestions on how to improve the development
of such an approach toward performance and control.

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In the primary theorization, the BSC was a measurement control system aiming to
address financial and non-financial measures, internal/external and leading/lagging
metrics in a consistent manner (Kaplan and Norton, 1992, 1996b). Recently, the BSC has
acquired some new features, becoming more oriented toward aligning the companys
strategic targets and creating measures that could play a crucial role in planning,
clarifying and communicating strategic lines into the organization (Lawrie and Cobbold,
2004). In this stream, one of the most critical issues in the current BSC research agenda
is related to the identification of cause-and-effect relations across its components.
Research has shown how the capability of proposing strong causal linkages among
performance measures in performance measurement systems (PMSs) will induce
managers to estimate a high probability of achieving their financial goals and to exert
more effort toward both these goals (and the non-financial goals that lead indirectly to
the financial) (Webb, 2004). However, causally weak PMSs do exist in organizations, and
their existence is not simply due to a lower or poor stage of development. In these cases,
the tension toward causality is questioned. This considered, the main research questions
of this paper are related to:
RQ1. Analyze how cause-and-effect links may be observed in the design and use of
BSC in practice.
RQ2. Attempt to detect the general implications for performance management
theory and practice of the way in which causal relationships are actually
handled in the real world.
To this aim, we review the way in which cause-and-effect relations across the BSC have
been developed in a bank organization. Our empirical findings show that the issue of
building causal relationship may be faced and solved in practice in the light of the
cost-benefit approach in management accounting (Horngren, 1975, 1989, 2004), i.e.
managing the issue of causality in BSC by choosing the less costly solution while
obtaining the expected effectiveness. This provides some empirical evidence to Lufts
general claim referred to strategic performance measurement system (SPMS):
[] causally weak SPMS in general should be strengthened. In some cases, this may be true.
In other cases, however, the costs of creating a causally strong SPMS can outweigh the benefits
(Luft, 2004, p. 960).

Moreover, the paper contributes to literature in the following aspects. First, it addresses
an issue of practical relevance in the implementation of BSC. In this respect, the research
is in the vein of obtaining practical learning from research in management accounting,
as advocated by Baldvinsdottir et al. (2010) when arguing that over the past few
decades, embracing the status of social scientists by management accounting
researchers has been accompanied by a decline in the logical and normative analyses of
practice[1]. In particular, the findings of this research show how a discrepancy between
theoretical and practical meaning of causality persists, and even if the possibility of a
causal relationship can be accepted in the managerial setting, this circumstance could
hardly be considered unambiguous in the scientific thought.
Further, the research aims at addressing the way in which linkages based on a
qualitative causality could be preferred in designing a BSC, by applying a cost-benefit
judgment with respect to the complexity of defining strong, statistically reliable
cause-and-effect relations among performance measures. The findings confirm the

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existence and the relevance in practice of other kinds of relationships among measures
in a BSC, such as finality and logical linkages as claimed by Nrreklit (2000) and Malina
et al. (2007). They also highlight the potential effectiveness of these relationships, if
considering the aims of BSC use and the context in which BSC is implemented. In this
respect, the research shows how in a bank organization, the level of environmental
uncertainty and complexity is recognized as a substantial barrier in justifying the effort
to identify and quantify the relationships among business variables in the design of BSC
in a cause-and-effect logic. As a consequence, managers avoid building strong
(measured and statistically validated) causal relationship in favor of defining loose
(qualitative, logical and finality) relationships. This approach indeed represents the way
in which managers translate the concept of causality in practice according with the
cost-benefit approach in management accounting. In fact BSC, even if causally weak,
reveals anyway consistent to mobilize people in their organization toward the goals: this
way, loose causal relationship show effectiveness according with the expectations and
use of the PMS in that business context. Even if causal linkages are omitted, the BSC is
anyway effective, by generating a democracy where individuals and departments
communicate, commit and collaborate in an effort to implement strategy. Finally,
according with the findings, the paper points out some contextual conditions that may
make BSC useful without intended or validated strong cause-and effect relations.
The paper is structured as follows: Section 2 synthesizes the literature that forms the
basis of the study. Section 3 describes the research method, while Section 4 illustrates
the research site and the process of research. Data are analyzed in Section 5 by a review
of the characteristics of the BSC under analysis and the description of cause-and-effect
relationships. Finally, the paper presents conclusions, limitations and future research
directions.
2. Theoretical background
According to Chenhall (2005, p. 396), SPMS are designed to present managers with
financial and non-financial measures covering different perspectives which, in
combination, provide a way of translating strategy into a coherent set of performance
measures. Again, Chenhall argues that SPMS are characterized by:
a broad array of measures (financial and non-financial) that links long-term
strategy with operations and activities across the value chain;
the presence of cause-and-effect linkages between operation, long-term strategy
and goals; and
a multi-perspectives structure focused on diverse measurement components such
as customer, financial, supplier, innovation and process measures.
Examples of well-established specific SPMS models include, but are not restricted to,
Performance Pyramids and Hierarchies (Dixon et al., 1990; McNair et al., 1990; Hronec,
1993; Lynch and Cross, 1995), BSC (Kaplan and Norton, 1992, 1996a, 1996b, 2001a,
2001b, 2004a), the Intangible Asset Scorecard (Sveiby, 1997), Integrated Performance
Management Systems (Bititci et al., 1997) and Performance Prisms (Neely et al., 2002).
SPMS supplement traditional financial measures with a mix of financial and
non-financial measures expected to capture by cause-and-effect linkages[2] key
strategic performance dimensions, which are not accurately reflected in control systems
usually focusing on short-term accounting measures. As highlighted by Eccles (1991),

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quantifying cause-and-effect relations between actions and outcomes is a key point in


the value chain and might aid decision-makers in predicting future effects of current
actions. Consequently, SPMS with comprehensive and valid cause-and-effect relations
could reduce the cognitive complexity of understanding and using multiple measures of
performance (Luft and Shields, 2003; Morecroft et al., 2002).
In particular, the BSC of Kaplan and Norton (1992, 1996a, 2001, 2004a, 2006) has been
presented not only as a strategic measurement system but also as a strategic control
system which can align departmental and personal goals to overall strategy, focusing
the crucial element of that model in the existence of cause-and-effect relationships.
Kaplan and Norton (1996b, p. 149) defined strategy as a set of hypotheses about
cause-and-effect, and highlighted the existence of causal relationships in the BSC,
clarifying how strategy maps permit to create value by connecting strategic objectives
in explicit cause-and-effect relationships within the BSC perspectives to achieve planned
goals (Kaplan and Norton, 1992, 1996a, 2001, 2004a, 2006). Hence, in Kaplan and
Nortons typical formulation of strategic maps, learning and growth are the drivers of
internal business processes, which are, in turn, the drivers for customer satisfaction,
which is the driver for financial results that eventually create value for shareholders.
Again, a predictive causal SPMS like BSC may support managers in focusing on making
decisions (e.g. Kaplan and Norton, 2008), and, to this purpose, Morecroft et al. (2002)
pointed out the extent to which control systems based on causal links could explicate
both the dynamic nature of the organization and its environment and systemic relations
among resources and capabilities, providing performance superior to the myopic focus
on individual elements of the value chain (Huff and Jenkins, 2002; Sanchez et al., 1996;
Forrester, 1994). In this vein Weick and Bougon (2001) claimed that causal maps can
serve as important binding mechanisms, and if cause-and-effect relationships were
perceived as credible by management, they could influence actions independently from
the validity of their design, as supported by Bukh and Malmi (2005).
However, researchers have expressed several doubts about the theoretical
foundations and the practical functioning of causal linkages in BSC.
From a theoretical standpoint, Nrreklit (2000) has addressed fundamental criticisms
on that. She referred to the definition of causality based on Humes three criteria, namely,
that one event is said to cause the other when:
(1) the first event necessarily or with high probability implies the occurrence of the
second event;
(2) the first event precedes the second event in time; and
(3) the second event cannot be rationally inferred from the first one.
Moreover, Point (1) of the definition implies that for the relationship to be causal, it
should be observed in real life and proven empirically. Point (2) requires the existence of
a well-defined temporal lag between events tied into a cause-and-effect relation. Some
researchers do not treat temporal precedence as the necessary condition for causal
relationships (Karpinski, 1990; Mueller, 1996). In special cases, cause-and-effect events
can occur almost at the same moment without a measurable time lag between them. It
can also be assumed that cause cannot begin later than effect, treating the two as
processes that last and overlap in time. Point (3) means that a causal relationship is

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distinct from a logical and finality cause. This point concerning the pure observational
nature of the causal relationship of the definition is problematic in the BSC context.
Also Otley (1999, p. 375) has considered causal assumptions of the BSC theoretically
simplistic:
[] a linear chain is suggested hereby better trained employees in the Innovation and
Learning Growth will lead to better business processes being designed (one input to such
changes, but surely by no means the only one); these in turn will lead to more satisfied
customers and then to happier shareholders. Although a plausible chain of events, it is again
very much a simplification of reality, as confirmed later by Bukh and Malmi (2005).

In this vein, Nrreklit (2000) has claimed that it is unrealistic to assume the relationship
between the perspectives to be unidirectional; instead, circular logic underpins many of
the relationships where, for instance, innovation may lead to increased sales and better
financial results. Again, Nrreklit (2000) has argued that the BSC is an accounting model
and thus is built on logical and finality arguments rather than on causal relationships: as
an example, the relationship between sales volume and profitability involves financial
calculus or abstract thinking, but it cannot be verified or determined empirically, and
therefore, it is logical in nature. At the opposite, a finality relationship is when a person
believes a given action to be the best means to an end, and, in turn, such ends actually
cause the action. Hence, behaviors driven by finality are performed because they
conform to the beliefs and wishes of a person (or group). Nrreklit (2000) points out how
the BSC creates confusion among the concepts of causality and (equi)finality of
alternative between beliefs and desired ends, which leads to a reciprocal relationship
which cannot be empirically tested and in which individuals outline routes or means
which are believed to lead to the planned objectives (for example, making customers
very satisfied may lead to improvements into financial performance).
Other investigators have exhibited some doubts about the concept of causal
relations. Cook and Campbell (1979) recognized how individual cause-and-effect links in
open systems could never be isolated, identified or measured with certainty, and Miles
and Huberman (1994), even if not ruling out the possibility of establishing causality in
real systems, also admitted that incomplete theory, data limitations and measurement
errors conspired to discourage efforts to test for causal relations using actual business
data. Olve et al. (1999, p. 209) suggested that there are two types of relationships among
measures. One of them comprises verifiable associations which may be provided by
previous studies and experiences (or simulated by computer models, for example,
system dynamics), while the other is the expression of what one wants to choose to
assume. They also stated that:
[] when we are discussing relationships and the balance among different measures in our
scorecard, we must both make use of studies and experience from which conclusion can be
drawn, and realize that there will always remain a certain element of what we choose to believe.

Considering the issue of building cause-and-effect relations in practice, further aspects


result critical for PMSs. Luft (2004), in her discussion of Webbs (2004) article, has shown
the extent at which most of the SPMS are causally weak, hypothesizing several reasons,
in particular the elevated cost of the analysis in design causal links, the uncertainty of
the processes of value generation and the conflicting views on effective cause-and-effect
relationships. Along this line, Tuomela (2005) delves into strategic uncertainties, raising
some doubt in the true application of causal chains within uncertain environments

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where organizations need to continually update their strategic directions; moreover,


Tuomela (2005) and Franco-Santos et al. (2012) argue that the use of causal mechanisms
can be very time- and effort-consuming, if they are designed in a rigorous scientific way.
Also Bukh and Malmi (2005, p. 107) report some doubt concerning the existence of
cause-and-effect relationships in practice; however, they sustain that relationships can
assist in adapting and making BSC effective to any particular organization, claiming
that:
[] the relationships in the BSC should not be perceived as generic, but specific to the
organization, the actual situation and the relevant time dimension. Furthermore, the
relationships are not necessarily known for certainty, but are based on belief and assumptions
supporting Makridakis (1990), Nrreklit (2000) and Ittner et al. (2003).

Causal linkages in BSC represent a very popular topic in practitioners business


conferences and publications, presenting anecdotal evidence on the implementation and
use of BSC in everyday activities (Eccles, 1991; Magretta, 2002; Crosby and Sheery,
2006). However, Nrreklit (2000, 2003) and Malina et al. (2007) have expressed several
doubts about the practical development and use of causal linkages in daily activities. In
accordance with the definition of causality cited above, Nrreklit (2000, 2003) has
pointed out that empirical evidence on BSC links is scarce and mixed: time dimension is
not specified in the model design and the relationships among perspectives are likely
logical or final in their nature. Moreover, the concept of causality in the BSC is often
interpreted as a relationship held between the features of events or variables,
representing some abstract social concepts; moreover, the popularity of BSC might be
due to the persuasiveness of rhetoric inspired by the concept of a SPMS rather than by
any demonstrable causality[3] (Nrreklit, 2000; Nrreklit et al., 2012). Malina et al. (2007)
have described the process of building causal links of a large American manufacturing
company where managers believed in numerous cause-and-effect relationships in their
control system. Results provided by a statistical test of hypothesized causal
relationships demonstrate that only a few of them were significant and overall the model
had no predictive ability. In addition Speckbacher et al. (2003) performed a survey
among stock-listed companies in German-speaking countries and found that BSC users
insert cause-and-effect linkages only in the more advanced models[4].
Kasurinen (2002) described a failed attempt of implementing BSC in a strategic
business unit in a multinational Finland-based group, where one of the major obstacles
to the successful implementation was the difficulty of selecting a unique strategy.
Similarly Malmi (2001), while developing a qualitative analysis in 11 Finnish
companies, pointed out how most of the managers interviewed misunderstood the
cause-and-effect logic and perceived the BSC perspectives as being independent from
one another.
Again, Ahn (2001), describing the case study of ABB Industry a supplier of
automation products, highlighted that the over-complexity caused by the derivation of
too many causal chains was a problem of great relevance. The same author showed that,
even if Kaplan and Norton advocate for expressing cause-and-effect links by ifthen
statements, such a recommendation is insufficient because it is always possible to find
arguments in favor of different links, showing how the ABB Industry failed to find an
analytical solution for this problem.

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To sum up, there is no agreement on the issue of causality across scholars. Some
researchers deny any possibility of establishing causality in the social setting, whereas
others have diverse opinions about its definition and the range of applicability.
Moreover, the big discrepancy between theoretical and practical meanings of causality
persists and, even if the possibility of a causal relationship can be accepted in the
managerial setting, it could hardly be considered unambiguous in the scientific thought.
The refutation of cause-and-effect in the BSC leads to the consideration of alternative
explanations for the companys continued use and professed satisfaction with the BSC:
organizations may use dynamic SPMs that are composed of relations that are not purely
of cause-and-effect. Thus, the contents of the literature review above address to the
research questions of this paper: how are issues that arise from cause-and-effect
relationships dealt with in an organization implementing the BSC? What are the actors
perceptions of this issue and how is its ambiguity managed in practice?
3. Research method
Given the issue at the base of the research questions, the use of a case study appeared
more suitable to develop the research questions, namely:
RQ1. The analysis of how cause-and-effect links may be observed in an actual BSC
in action.
RQ2. The implication that this may have for the theory surrounding the role of
cause-and-effect associations in the BSC.
Kenny (1979), Pearl (2010) and Malina et al. (2007) have claimed that causal relationships
in social sciences are not testable by statistical techniques, so supporting a qualitative
approach to face these issues. In addition, the advantages that case studies present have
been widely claimed, if considering the emphasis they place on full contextual analyses
of a limited number of events or conditions and on their interrelations. Harrigan (1983)
and Corbetta (1999) argued that the benefits of the case study method are the meticulous
attention to details, relevance of the business practices and access to multiple
viewpoints. Again, Snow and Thomas (1994) suggested that field research
methodologies, which involved real managers and organizations, examined strategic
processes and outcomes more realistically than other methods. Moreover, Emory and
Cooper (1991) suggested that a single, well-designed case study can provide a major
challenge to a theory and present a source of new hypotheses and constructs. Patton
(2002, p. 151) has commented that the failure to find statistically significant differences
when comparing people on some outcome measures did not mean that there were no
important differences among them on those outcomes. Instead, the differences may
simply have been qualitative rather than quantitative and due to differences of
quality. Ahrens and Chapman (2007) claim that the advantage of qualitative field
research lies in the particular way of knowing the field of research, confirming the claim
of Chua (1986, p. 615): social reality is emergent, subjectively created, and objectified
through human interaction. Besides, Ahrens and Chapman (2007, p. 299) added that the
methodological and theoretical task of qualitative research is to express the field as
social and not simply to describe or clarify it to the reader as if part of a given nature.
Again, they add that doing qualitative field studies is not simply empirical but a
profoundly theoretical activity. Moreover, a case study involves the detailed
examination of a single setting or a particular event, and its main concern is with detail

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and complexity of the case; it provides explanation of the phenomenon studied because
it allows a thick description (Miles and Huberman, 1984).
According to Benbasat et al. (1987), Corbetta (1999) and Yin (2003), we developed a
case study to investigate cause-and-effect linkages in BSC within its real-life context,
where the boundaries between the phenomenon and the context are not clearly evident
and in which multiple sources of evidence (e.g. interviews, archival data, presentations
and other) can emerge. In doing this, we gained a better understanding of the nature and
complexity of the processes occurring, allowing us to retain the holistic and meaningful
characteristics of real-life events (Yin, 2003, p. 14).
In developing our case study, there are several reasons for focusing the research
within an organization belonging to the banking industry.
First, Malina et al. (2007) argue that strong causal relations might be common,
especially in SPMS that are strongly based on physical processes, such as those in
extractive and manufacturing industries, advocating the need of further research in
predominantly service companies supposing a different approach to causal links.
Again, in the same paper, the authors call for further research regarding a more
transparent vision about how the links are constructed and made operational in PMS.
Hence, residing in this vein, this paper aims at describing the application of
cause-and-effect linkages of BSC within such a strongly service-oriented organization as
a bank.
Second, the choice of a bank as a case study has been made, taking into consideration
the tremendous weight of intangible resources in service-oriented firms such as banks,
embedded especially in human resources (Rebora, 2003; Goh, 2005; Kamath, 2007;
Al-Zoubi, 2013). This aspect contributes to the increase in the weight of causal linkages
in these contexts, as suggested by Kaplan and Norton (2004a). In fact, considering that
intangible assets primarily drive wealth and growth in todays economy, they are
recognized as the foundation of individual, organizational and national competitiveness
in the twenty-first century (Johnson and Kaplan, 1987; Johnson, 1992; Wiig, 1997; Lev,
2001; Bounfour and Edvinsson, 2005). In this respect, Kaplan and Norton refined in time
the proposal of the balanced scorecard as a tool to overcome the shortcomings of
traditional management accounting and control practices, highlighting the extent to
which intangible assets seldom affect financial performance directly. Instead, they
work indirectly through complex chains of cause and effect (Kaplan and Norton, 2004a,
p. 54). Thus, the relevance of considering cause-and-effect linkages is likely to be felt in
most contexts with such significant weight of intangibles as banks.
Third, the choice of a bank as a case study is grounded on the consideration of the
deep change and uncertainty that recently occurred in the banking sector and the
consequent pressure for performance developed within these organizations. In the past
two decades, the European banking industry has been subject to structural changes
caused by modifications occurring in its external environment, the liberalization of
capital flows and the prospect of a Common European Union market influencing
domestic banking policy toward greater variety of services being offered, stronger
exploitation of scale economies and more efficiencies (OECD, 2009; KPMG, 2011).
4. Research site and data collection
If considering the Italian banking sector, in the past decades, the banks have been forced
to search for scale and scope economies with the aim of increasing their efficiency. As a

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consequence, the number of commercial banks dropped from 1,100 to 841 in 1988-2000
by mergers or acquisitions (considered as a beneficial solution compared to the closure
of inefficient banks, as their exit was expected to involve economic and social costs).
Starting from the global financial crisis of 2007, the banking sector has been
characterized by high degrees of external environment uncertainty and volatility that
has led, for instance, to the development of new strict international regulations and
unpredictability of the stock exchange. Italian banks managed to cope with the first
round of the crisis better than most of its European peers, showing a high level of
resilience, thanks to the traditional business model applied to the domestic banking
system (OECD, 2009; KPMG, 2011). Many factors played an important role in ensuring
that Italian banks take a relatively prudent attitude, such as the banking supervision
rules of the Bank of Italy, and the traditional relations and practices such as the
comparatively smaller size of Italian firms and the low debt of households (OECD, 2009;
KPMG, 2011). However, tensions on liquidity, much more than the scarce capital and
volatility, risked compromising the stability of the credit institutes. Liquidity injections
by the European Central Bank, which granted almost 200 billion to Italian credit
institutes with a three-year maturity at 1 per cent rate, and the widening of the
Government guaranteed collateral range for financing on traditional channels
contributed to the reduction of spreads on the yield on public debt maturities with the
aim of re-launching the granting of credit to the economy, despite the persistent
difficulties with the market for deposits.
The present study was performed between February 2010 and July 2012 in an Italian
bank located in Western Italy (which we will refer to as Alpha Bank), which was one
of the first banks in Italy to implement regularly a BSC, starting the process of planning
and development in 1999 and reaching its full implementation some years later.
Alpha Bank is a midsize regional savings bank, listed in the Milan Stock Exchange
since 1994 (first bank to be quoted in the Italian Market) and actually enclosed in several
indexes (for instance FTSE All-Share Capped, FTSE Italia All-Share, FTSE Italia Mid
Cap, FTSE Italia Finanza and FTSE Italia Banche) with total assets for almost 40
billion as of December 31, 2010; 6,003 employees and 177.2 million of euro of net profit in
2010, enjoying strong financial success over the past 10 years.
Alpha Bank holds a strong 28 per cent share of customer deposits in its home market
of the Region of Liguria where half of its loan portfolio is concentrated. Since 2000, the
bank has also expanded its franchise outside Liguria through organic growth and the
acquisition of small local banks and branch networks (for example, most recently
through the purchase of 22 branches from another Italian bank, Banca Monte dei Paschi
di Siena). The mission of Alpha Bank is focused on providing a wide variety of
traditional banking activities including treasury services, sales of money market
products to corporate customers, foreign exchange dealing, underwriting, trading and
selling for debt and equity security, as well as a range of other financial services
provided by specialized divisions of the bank. Alpha operates both in the banking sector
and marginally with companies in the insurance business. As of December 31, 2010, it
had 667 banking branches of which 666 were located in 13 Italian regions and 1 abroad,
while the two insurance companies operated through 432 insurance outlets distributed
throughout Italy. The distribution channel is made up, on the one hand, by branches and
insurance outlets and, on the other hand, by a network of banking advisors for private,
corporate and affluent individuals and small businesses.

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The organizational structure of the bank is built around specialties, the retail
division, the planning and control area, the product section and the administration area.
Furthermore, the organizational structure is completed by the compliance and internal
auditing areas aimed at supervising the global results of the bank and their congruency
to the disposition of national and international supervisors. The general manager is
responsible for managing divisions, centers and facilities and is accountable to the
board of supervisors. This organizational structure is highly centralized in Genoa
because half of its loan portfolio is concentrated in the local market of Liguria. Alpha
Bank was one of the first banks in Italy to regularly use BSC[5], and had started the
planning and development process in 1999 and reached its full implementation some
years later, in 2003. In the initial phase of the BSC project, a pilot study was first
developed for the banking and insurance networks and was later extended to all the
departments of the banks head quarter. As highlighted by the human resource (HR)
manager, the reasons underlying Alpha Banks decision to set up a control system
developing a BSC model could partially be attributed to the changes and the
introduction of new and stricter regulation policies, and to the increasing competiveness
and Mergers and Acquisitions (M&A) actions within the banking industry at national
and international levels. The goal of the project was to increase the quality of the
management control and information function in such a way that the execution of the
strategic and divisional plans could be monitored with objective, reliable, timely and
consistent information.
The access to research data was gained through personal contacts and was
sponsored by the Managing Director, through a meeting held to explain the topic of
research. The material of study included numerous internal documents including
archival data, presentations addressed to practitioners and media (shown for instance at
the Milan Stock Exchange), some articles published in Italy, presentations prepared ad
hoc for our investigation purposes and Web site documents.
The analysis of fieldwork material was an ongoing process that allowed us to
identify and track various explanations of what was occurring. The interviews were
conducted in a semi-structured fashion in line with the content of the literature review,
supplemented by open-ended discussion on topics raised both by the interviewers and
the interviewees. Most of the interviews were tape-recorded (with the agreement of the
persons interviewed) and condensed notes were made during field visits and transcribed
immediately after these events, to preserve the details as much as possible. Interview
transcripts and field notes were organized chronologically, and common and peculiar
issues in the accounts were analyzed to capture key themes. Furthermore, some
clarifying information was facilitated via e-mail and during telephone conversations.
The first to be interviewed were the managers having a global vision of the BSC, who
could provide the information required; this then led us to the persons charged of the
specific tasks we needed for our investigation. We interviewed first the director of the
Administration department, followed by the director of the Research & Development
area and the director of the HR sector (with two employees charged of the compensation
systems linked to BSC) and finally we conducted an interview with a professor at the
local university of Economics who contributed to developing the Alpha banks BSC.
Afterward, in 2012, we had a second interview with the director and an employee from
HR, and then with the chiefs of the Technological & Operational Support area, Planning
and control department and Commercial and Marketing unit. The interviews lasted

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from 1 to 2 hours each. Table I summarizes the investigation material in terms of


interviews, number of meetings, duration of each interview and documents provided by
the interviewed.
5. Alpha bank: the features of BSC and the cause-and-effect
relationships therein
The way Alpha Bank set up its model can be defined as both traditional and
innovative at the same time. It was traditional because the architecture of the model
closely resembled the BSC methodology as developed by Kaplan and Norton (1992) and
the perspectives were labeled from the bottom to the top as Financial, Customer,
Internal and HR; yet, at the same time, it was innovative because it added a further
perspective, namely, Internal Client, addressed to the head quarter for measuring the
quality of services (for example, the rapidity in answering e-mails and providing
documents) to colleagues and the quality of the interrelationships among the personnel
inside the bank.
The Financial perspective is oriented toward the evaluation of the profitability
elements of the strategy and the set of metrics used by Alpha Bank include the following
indicators: return on equity (ROE), return on assets (ROA), cost income, contribution
margin, leverage, TIER 1, financial intermediation activities (FIA), direct deposits, loans
to customers. The Customer perspective identifies, for instance, the targeted market
segments measuring the companys success in these fields; this dimension is measured
by customer acquisition, satisfaction, retention, multichannality, development of online
services. The Internal perspective is focused on the internal operations and on specific
strategic projects; key performance indicator (KPIs) are based on the analysis of their
profitability, quality and timeliness. The HR perspective identifies and aims to stimulate
the capabilities of the personnel working within the bank, and it is measured, for
instance, by job rotation, hours of training per employee.
Finally, an internal client perspective is developed only for the BSC of the
headquarter to evaluate work climate and collaboration within departments and within
the bank. This perspective is measured by nine behavioral factors referred to some
components of social capital[6], namely, structural, relational and cognitive capital,
each of them valued for management and departments, namely: trust; collaboration;
expertise; reliability; willingness; innovation and flexibility; problem solving; timeliness
and vision. Again, the internal client perspective is monitored externally (differently
from the other perspectives that are measured internally by the bank headquarter), i.e.
by surveys performed by an external consulting company for guaranteeing the
independence of the data collected. Thus, using simultaneously HR and internal client
perspectives, Alpha Bank shows its interest in monitoring both individual development
and individual interactions[7].
Alpha Bank designs and allots different models of scorecards according to
departments and business units consistently to the targets reported in its Strategic Plan.
For instance, Figure 1 depicts a KPI in the case of networking units and subsidiaries are
associated to financial, customer and internal (and marginally to HR) perspectives,
while for the headquarter, the scorecards present a more enlarged view inserting
financial, HR, internal and internal client dimensions (instead of customer).

Director of the commercial and


marketing department

June 9, 2012-August 2012


Director and employee of the HR
department
Director of the Technological and
Operational Support
Director and employee of the
Planning and Control department

Employee of the HR department


Employee of the HR department
Professor at the local University of
Economics (subject: banks and
financial institutions)

February 2010- September 2010


Managing director (contact person)
Director of the Research &
Development department
Director of the HR department

Interviews

70

70

70

100

120
90
60

90

1
1
1

60
90

Duration of each
interview
(average in minutes)

1
2

No. of
meetings

Presentation of Alpha Banks BSC at an Italian university


conference
Glossary of the strategic objectives and indicators
Presentation from the BSC practitioner and academic
conferences

Examples of departmental scorecards


Strategic plan

Internal presentation
Article published in a book
Internal presentations
Ad hoc presentations prepared for our research purposes
Presentation from the BSC practitioner conferences
Banks Organization chart
BSC structure
BSC functioning
Web site documents
Strategic plan
Examples of departmental scorecards
Examples of departmental scorecards
Article published in a book (the same provided by the Director of
Research and Development)

Documents

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Table I.
Case study interviews,
number of meetings,
duration of each interview
and documents provided
by the interviewed

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HEAD QUARTER
nancial
internal Client
internal
HR

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498

SUBSIDIARIES

NETWORK

Banking

Insurance
customer

Private
nancial
customer

Support Units
financial

Producon
WM

customer

financial

HR

customer

internal

HR

Private lending

Corporate
nancial

financial

customer

customer

internal

HR

Retail

Corporate lending
nancial

financial

customer

customer

HR

HR

internal

Payment Systems
financial
customer

Figure 1.
BSC structure of
perspectives

HR

Source: Banks presentation prepared ad hoc for the research purposes

5.1 The strategic planning process


Alpha Bank has implemented its scorecard program in a top-down fashion, involving
various organizational levels like plants, departments or team levels by compensation
systems anchored to the BSC measures. In spite of that, the communication of strategic
directives is limited to top and departmental managers excluding lower organizational
levels.
The strategic process comprises seven main stages, as depicted in Figure 2, and it is
based on a closed-loop mechanism. The bank begins the process by developing a

STEP 1 Strategic
planning
Historical data
Responsible: Top
management
Frequency of update: 6
months 1 year

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Frequency of
update: 6 months
1
STEP 7 Top
Management
Feedback
Responsible:
Planning & Control
department

STEP 2 Translation of
strategic planning into
targets
Levels:
individual
departments
global
Responsible : Planning &
Control and Human
Resources
departments.Historical
date
Frequency of update: 36 months

STEP 3 Translation of the


targets in micro-projects
created ad hoc for strategic
purposes
Levels:
What?
How?
Who? (project responsible
and team)
Deadline?
Responsible: Research &
Development department
supported by all the divisions

STEP 6 Management feedback


Review of the targets and
performance attained. Spread of
bonus
Responsible: Planning & Control
and Human Resources managers
Frequency of update: 3-6 months

Frequency of update:

STEP 4 Translation of
the targets identified for
each micro-projects into
specific metrics inserted
into perspectives and
associated by strategic
relationships linking
performance to reward
systems
Responsible: HR division
supported by all the
divisions

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STEP 5 Review of the targets


attained.
Levels:
individual
departments
global
Responsible: departmental
management
Updated date
Frequency of update: daily,
1-3-6 months/1 year

3-6

strategy statement at the top management level (Step 1, Figure 3); subsequently, they
translate it into specific objectives and initiatives of a strategic plan to the HR and
Planning and Control departments managers (Step 2, Figure 4). Then, using the plan as
a guide, those units define specific micro-projects necessary to achieve such objectives
(Step 3, Table II). Afterwards, the Planning and Control department translates targets of
each project into operational objectives and measures, by inserting them in perspectives
and shaping links (Step 4). As departmental managers and HR department execute the
strategic and operational plans, they continually monitor and learn from internal results
and external data on competitors and the business environment to assess the alignment
with the strategy (Step 5, Table III). Finally, they periodically communicate the results
obtained by the targets execution to top management who reassess the strategy,
updating the aims of the bank if the assumptions underlying the strategic plan are
out-of-date or faulty (Step 6), and starting another loop around the system (Step 7).
5.2 Causal relationships
Kaplan and Norton (1996a and 1996b) suggested using the BSC as a strategic
management system, which later became a central idea in their subsequent publications
(Kaplan and Norton, 2001a and 2001b). The BSC put to work the strategic objectives of
the company, reflecting the main strategic goals of the organization, linking together
performance indicators across perspectives by cause-and-effect chains.
In this respect, in the interview, the director of the HR department argued that bank
managers somehow consider causal linkages, even if the idea of formalized
cause-and-effect chains by strategy maps receives only limited attention in the model of
BSC implemented by the bank. He was aware of the importance of connectivity and
dependence among the elements of the map; however, the achievement of this step, he
feels, is difficult in terms of implementation, uncertain in the processes of value
generation and the conflict of managerial views on what constitutes true
cause-and-effect relationships. The major argument pushed forward by the HR manager

Figure 2.
Strategic planning process

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1 SOCIO-POLITICAL SCENARIO

Aging society and net population decrease


Integration: 2.4 million new immigrants, numbers growing fast
,
low level of access to financial services
Job instability and new family life cycles: increasing rates of
divorces, common-law couples, extended and mixed
Decreased propensity to save and increased propensity to
consume and borrow

500

2 REGULATORY SCENARIO

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New standards governing the banking industry: Basel III


(increased capital requirements and stricter liquidity management
requirements) and reputation risk
Constraints and restrictions for consumer protection (maximum
overdraft charges, usury interest rate, mortgage portability)
Introduction of Solvency II on solvency requirements for the
insurance sector

3 ECONOMIC SCENARIO

Globalization vs nationalistic tensions


Growth of global GDP driven mainly by emerging countries Asia as
well as Latin America and Africa)
Slow recovery of the Italian economy (1% growth of the GDP over
the plan period)
Progressive raise of interest rates as of 2011

4 TECHNOLOGY SCENARIO

Widespread digitalization
Use of technology and interchannel in areas where no physical
offices exist
Opportunity to let customers' needs emerge: customers are
called on to plan products and services interactively (e.g.
shopping cart style modular current accounts)
New, technologically advanced payment methods to acquire new
young customers
Channels addressing the electronic social networks

5 COMPETITION SCENARIO

Figure 3.
Strategic planning process
- Step 1: competitive
scenario Italy
(2010-2014)

Possible new wave of M&As driven by the need to optimize


capital and liquidity
Shrinking of unit margins on traditional products and
simultaneous search for maximum distribution Efficiency and
commercial effectiveness
New competitors: large-scale distribution, telecom providers,
application and network/virtual community administrators
Easier to compare prices of financial service offerings and
customers' readiness to switch to a different provider

Source: Archival data of the bank

was that working on the cause-and-effect part of their performance measurement model
was not of primary interest for the organization at the moment:
[] for us our Strategy Plan is the first step for design scorecards, their components and their
functioning. I know strategy maps are crucial in the concept of BSC, but they are difficult to
implement. I mean it is unrealistic that a company can design, develop and -above all- use
cause-and-effect mechanisms in its monitoring system, in its BSC [], [] no [] implementation
of cause-and-effect mechanisms is unrealistic []. The use of cause-and-effect mechanisms in our
scorecards is not one of our first primary interests at the moment (Director of the HR department).

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501

Figure 4.
Strategic planning
process Step 2: example
of strategic direction and
goals

In this vein, the director of the commercial and marketing department added that:
Because of volatility deriving from the current financial crisis, those KPI that could lead to
misleading results are frequently altered toward more feasible solutions oriented to a daily
monitoring, as a consequence in this context the use of cause-and-effect relationships is
unfeasible (Director of the Commercial and Marketing Department).

Asking for the use of cause-and-effect relations in Alpha bank, also the director of the
Technological and Operational Support was not sure about their presence, adding that
anyway such linkages were not formalized by strategy maps:
I dont know if causal relations among measures, perspectives and strategic objectives are
present, maybe so, maybe not, anyway they are not formalized by graphical representations
(Director of the Technological and Operational Support).

However, he highlighted how the BSC of the bank presents some linkages across
dimensions if considering specific line of business:
The development of internet banking services can decrease the costs of each branch of the
retail network, the deployment of a new credit card, providing new services, can lead to
increase customer satisfaction, while monitoring risk activities (computed for example by the
analysis of the insolvency rate on loans to customers) may lead to improving into financial
results (Director of the Technological and Operational Support).

Having provided us with an explanation for our questions about causal linkages, the
R&D department produced a slide developed ad hoc for answering our investigation, in
which they attempted to design some examples of potential cause-and-effect
relationships in the BSC of the branches of the retail network, thus confirming the

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Perspective

Strategic objective

Measures

Financial

Risk monitoring

Rorac
Leverage
Tier 1
Roa
FIA
Cost income
Direct deposits
Loans to customer
Contribution margin
Project X profitability
Project X timeliness
Project X quality
Official ratings update
Customer retention
Customer satisfactiona (only for the
private banking area)
Customer acquisition

Increase return

502
Proactive credit management

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Internal

Customer

Internal client
HR
Table II.
Strategic planning
process Step 3:
translation of microprojects into measures

Pricing optimization
Development of corporate
services
Increase return
Increase customer retention
Increase customer
satisfaction
Increase customer
acquisition
Development of integrated
interchanneling
Increase the global level of
employees satisfaction
Improve employees skills

Development of on-line services


Development of multichannality services
Internal client satisfaction
Job rotation
Hours of training per employee

Note: a The bank is not able to measure the customer satisfaction for all the whole group because of the
high costs in gathering such data
Source: Archival data of the bank

absence of a systematic development of formal strategic maps. This scheme is presented


in Figure 5 that shows perspectives and objectives providing a description of the KPI
used in the BSCs of the branches. Causal relationships are depicted by a succession of
arrows completed by the description of mechanisms of cause-and-effect. The figure
shows that the development of the causal linkages follows a bottom-up approach
corresponding to the basic idea of the BSC concept that the goals of the various
perspectives build on one another and ultimately affect the achievement of the financial
goals; therefore, the links are identified among the perspectives starting from the HR
perspective through the internal and customer perspectives up to the financial one. For
example, training activities can increase the competence and motivation of the staff,
improving internal processes (for example, by the development of new services). In turn,
effective internal processes can improve the quality of customer services increasing
their loyalty, retention and satisfaction, leading to good economic performance (for
example, the increase of financial intermediation activities or a low degree of
insolvency). Finally, resources coming from the financial perspective are used to
support training activities developing employees capabilities.
Although the use of formal causal strategic maps is not implemented, BSC managers
in Alpha support strategy deployment by a systematic monitoring of strategic projects:

Internal

Financial

Perspective

Increase return

Pricing
optimization
Development of
corporate services

Proactive credit
management

Increase return

Rorac

Risk monitoring

Official ratings
update

Project X quality

Project X timeliness

Project X profitability

Contribution Margin

Loans to customer

Direct deposits

Cost Income

FIA

Roa

Tier 1

Leverage

Measures

Strategic
objective
Risk management
department
Risk management
department
Risk management
department
Risk management
department
Risk management
department
Risk management
department
Risk management
department
Risk management
department
Risk management
department
Planning and control
department
Planning and control
department
Planning and control
department
Planning and control
department

Measure owner
1 month (daily in case of a high degree
of market volatility)
1 month (daily in case of a high degree
of market volatility)
1 month (daily in case of a high degree
of market volatility)
1 month (daily in case of a high degree
of market volatility)
1 month (daily in case of a high degree
of market volatility)
1 month (daily in case of a high degree
of market volatility)
1 month (daily in case of a high degree
of market volatility)
1 month (daily in case of a high degree
of market volatility)
1 month (daily in case of a high degree
of market volatility)
3-6 months (according to the deadline
of the project)
3-6 months (according to the deadline
of the project)
3-6 months (according to the deadline
of the project)
1 month (daily in case of a high degree
of market volatility)
(continued)

Measurement frequency

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Table III.
Strategic planning
process Step 5:
frequency of measurement

Table III.

Increase the
global level of
employees
satisfaction
Improve
employees skills

Internal client

Source: Archival data of the bank

HR

Increase customer
retention
Increase customer
satisfaction
Increase customer
acquisition
Development of
integrated
inter-channeling

Customer

Strategic
objective

Job rotation
Hours of training per
employee

Internal client
satisfaction

Development of
multichannel services

Online services
development

Customer satisfaction
(private banking area)
Customer acquisition

Customer retention

Measures

HR department
HR department

Commercial planning and


marketing department
Commercial planning and
marketing department
Commercial planning and
marketing department
Commercial planning and
marketing department/
technological and
operational support
Commercial planning and
marketing department/
technological and
operational support
HR department

Measure owner

1 year
1 year

1 year

1 year

1 year

6 months

1 year

6 months

Measurement frequency

504

Perspective

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Training activities

Products ownership
Development integrated interchannel
Marketing campaigns

Customer acquisition
Customer retention

Insurance products
Mortgages to customers
Consumer credit

Financial Intermediation Activities

Total Risk-Weighted Assets


Insolvency

KPI DESCRIPTION

Source: Alpha Bank, slide prepared ad-hoc for the purpose of our investigation

Improvement employees skills

Increase productivity

Internal
Perspective

HR Perspective

Customer satisfaction and retention

Increase return for business area

Increase retail and institutional deposits

Customer
Perspective

Financial
Perspective

Risk monitoring

PERSPECTIVES AND OBJECTIVES

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Personnel training
improves internal
processes

Eecve internal
processes improve
quality of customer

Customers sased
improve nancial results

Good economic
performance permits
investments in
innovaon and learning

CAUSAL LINKAGES

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Figure 5.
Cause-and-effect linkages
in the BSCs of branches

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506

We do not use strategy maps, but it is very interesting what is happening this year (2011). In
fact, in relation to the Strategic Plan 2011-2014, a specific unit was created to take care of
translating the actions of the strategic plan projects that then feed the projects of the BSC of the
different organizational structures. This way, the direct link between long-term strategies and
what is required by organizational structures processes from this year onwards is managed in
a structured way (Director of the HR department).

The role of BSC in managing performance by qualitative, non-financial aspects is


claimed to be more important than the measurement of cause-and-effect relationships,
and it is highly appreciated in the system:
We exploited the potential of the system mainly by introducing qualitative elements in
managing performance, as the internal customer evaluation and a monitoring system of the
processes related to the special projects annually approved by the units. In addition, the
introduction of training as a part of the performance measurement has improved the policy for
staff development. []. The introduction of the internal customer evaluation has implied a
spasmodic attention on how we are judged by our colleagues (Director of the Technological
and Operational Support).

In this vein, the Director of the Technological and Operational Support highlighted that
the BSC is felt as maintaining its effectiveness in creating pressure on people toward the
goals set by the Top Management:
BSC is a great innovation and an incredible behavioral engine: when the branch manager
sees the scorecard with the target weighted, he knows where to go. [] BSC is an engine for the
companys behavior and managers have dedicated to this instrument a spasmodic attention;
this is also true as in recent years a strong campaign had been implemented in terms of internal
publications, sponsorship and presentation of the BSC project (in 2003) with a strong
commitment by top management (Director of the Technological and Operational Support).

Again, The Director of the Technological and Operational Support underlined as the
use of BSC in Alpha contributes to increase the internal communication among
people:
By implementing BSC the knowledge of our organization has dramatically increased. BSC
allowed the knowledge of what each of us makes and this is particularly important considering
that the work of your colleague is linked to your work. Now I know who is responsible of a
specific organizational goal (Director of the Technological and Operational Support).

Limitations are recognized, but they do not overcome the benefits perceived:
Managing the BSC is very complex, particularly in the target assignment: this means to define
and to measure objectives and to monitor them in time. []. I think that BSC has generated a
culture. []. In general BSC is democratic because it allows the involvement of multiple units
and to share the differences of mindsets in the organization, above all in the planning process
(Director of the Technological and Operational Support).
In the end, BSC is like democracy: it is an imperfect model, but it is the best of the existing
models (Director of the HR department).

To sum up, none of the linkages among measures and perspectives in Alpha is
empirically tested by financial or non-financial estimations, rather they are established
on subjective valuations. As a consequence, there are no leading and lagging indicators
and the strength of the linkage is thought (imagined) only in qualitative terms. Loose,

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not statistically reliable, linkages are induced, but nonetheless the strength in orienting
and evaluating the organization seems not to be limited by this.
6. Discussion and conclusion
Cause-and-effect relationships are considered the core of the BSC to make it a learning
tool capable of driving organizations toward strategic goals (Kaplan and Norton, 1996a,
1996b, 2001; Nrreklit, 2003; Speckbacher et al., 2003; Malmi, 2001). In a performance
measurement system, the strength of relationships among performance measures has
been considered fundamental in supporting managers to estimate a higher probability
of achieving their financial goals and to exert more effort toward these goals. However,
a stream of research has argued for the ambiguity of cause-and-effect-relations and the
possibility that logical and finality relations may complement or supplant
cause-and-effect-relations (Nrreklit, 2000; Malina et al., 2007).
In the vein of the latter claim, the case study on Alpha bank has been described and
discussed in this paper. In Alpha Bank, BSC is used as a guideline for strategic
alignment and communication, evaluation and control of performance. It can also
provide a basis for organizational learning, design of managerial incentives, and in the
budgeting process. Managers recognize that the introduction of BSC has dramatically
changed the perception of the importance of performance evaluation, making them
highly committed to achieving the targets set in BSC performance measures. Moreover,
in designing the dimensions of BSC, these measures are understood and managed better
by managers.
To this aim, linkages cover four of the priority areas contained in the strategy plan:
first, the development of multichannality systems[8] and new financial instruments;
second, the improvement of customer satisfaction; third, the employees capabilities;
and fourth, the control of the global risk level of the bank. These linkages follow a
bottom-up approach corresponding to the basic idea of the BSC developed by Kaplan
and Norton where the goals of the various perspectives build on one another and
eventually affect the achievement of financial goals. Links are identified among the
perspectives, starting from the HR perspective through the internal and customer
perspectives right up to the financial one. For instance, training activities can increase
the competence of the personnel supporting the development of new products (for
example, a new credit card) which, in turn, is a driver for the increase of customer
satisfaction, which is, in turn, a driver for the ROA; and eventually, resources coming
from the financial perspective can be used to support training activities developing
employees capabilities.
Nevertheless, none of these linkages among measures and perspectives is empirically
tested by Alpha in the form of monetary estimations or by statistically testable
associations. Rather, they are established on subjective valuations, personal
assumptions, perceptions and desires in which individuals outline routes or means
which are believed to lead to the planned objectives. Thus, leading and lagging
indicators are not monetary estimations, and their value is determined only in
qualitative terms. Such types of associations do not have any causal origins, rather they
are based on finality relations.
The intentional absence of formalized strategic maps in Alpha BSC is justified
because of their conceptual complexity and uncertainty in representing the process of
value generation, confirming the discrepancy between academic formulations and

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management practices that may occur if considering the application of the cost-benefit
principle in designing a management accounting and control system (Horngren, 1975;
Horngren et al., 2011). As a consequence, the idea to build strong cause-and-effect chains
among performance measures receives limited attention.
Although the Alpha bank does not use formalized, strong causal strategy maps and
performance measures, managers believe that relationships grounded on logical and,
above all, finality relations are perceived as credible, and express satisfaction
concerning the use of BCS. They consider it useful for strategy implementation,
communication, learning, commitment, motivation, collaboration within individuals
and departments and incentive activities; the objective of mobilizing the organization
is obtained avoiding the cost of developing strong cause-and-effect relationships. The
BSC is however effective, as the case shows, it has generated a democracy where
individuals and departments communicate, commit and collaborate in an effort to
implement strategy. Therefore, there is no basis in this case study for the conclusion that
explicit cause-and-effect linkages are crucial for effectiveness of BSC as a
communication tool, conversely to the claims of Kaplan and Norton (2001a, 2004a,
2004b).
This refutes the conclusions of Ottman (2006) (who highlighted how the absence of a
formalized causal model created difficulties in implementing organizational strategic
lines and in designing non-financial measures), and the investigations of (2) Kaplan and
Norton (2008) and Qu and Cooper (2011) who recommend the use of strategy maps
(given their capability to provide a powerful tool for visualizing cause-and-effect
relationships among strategic objectives reducing a complex strategy statement to a
single page). By contrast, our results imply that finality linkages may provide successful
use and predictive capabilities of BCS, according with expectations and purposes, in a
context in which the cost-benefit philosophy in implementing BSC is followed
(Horngren, 1975; Horngren et al., 2011). The findings support the idea that finality
relations can be at the base of a BSC that aims to reflect the organizations climate of
control of the companys environment, style of management and institutional and
social cultures, to communicate its strategy, to enhance learning and the legitimacy and
fairness of goals and performance measurement in a service organization (Malina et al.,
2007). In this case, the loose nature of strategic linkages is not a limitation of the BSC
but may represent a deliberate choice to enhance such dimensions of the performance
measurement system at hand. Moreover, the use of finality links avoids the tensions
among managers that rise in establishing what constitute cause-and-effect relations.
The commitment to improve the quality of internal services among organizational
units strongly affects the BSC approach in Alpha. The introduction of the Internal
Client perspective in the BSC, as discussed in Section 5, testifies the relevance given to
the goal of managing work climate and collaboration within the departments of the
bank. This reflects the fact that, being a service- and knowledge-intensive organization,
the weight of intangibles embedded in HR is particularly high and, consequently, that
creating value to customer implies an effective mobilization of human resource to this
aim. This highlights another reason for the proclivity toward blurred linkages: in
Alpha, the priority given to monitoring both individual development and individual
interactions within the organization makes the linkages built across the BSC mainly
based on individual assumptions, beliefs, perceptions and subjective assessments. Such

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loose relationships can be only of finality in nature, but they can be of utmost
importance in guiding people toward the objectives assigned.
Finally, the attitude toward loose relations in Alpha is reinforced by the situation of
high environmental uncertainty, in which causal and logic relationships are considered
per se too complex to be represented and measured.
Considering the aforementioned aspects, our findings contribute in addressing some
relevant contextual conditions for a successful implementation of BSC without intended
or validated strong cause-and-effect relations.
The research presents some limitations. First, the focus of this study is restricted to
the Italian banking industry and to the BSC. Second, we analyzed a single organization,
conversely to the recommendations of Yin (2003) about the necessity of the use of
multiple cases in qualitative analysis, but consistently to the suggestions of Emory and
Cooper (1991) who argue that a single, well-designed case study can offer a major
challenge to a theory giving a source of new hypotheses and constructs.
Such limitations may be addressed by further research, for example, replicating this
study in similar organizations or in different industries. A multiplicity of investigations
may further concern deepening cause-and-effect issues in BSC: the influence of
contingency factors in the design and use of cause-and-effect chains; the extent of
environmental uncertainty on the strategic process and on the development of strategy
maps; if the use of formalized causal chains and the employment of potential causal
chains based on subjective beliefs and qualitative assessment of results may enhance
the use of a performance measurement system as an explorative and iterative learning
approach for management, rather than the mechanical learning system that the BSC
assumes (Nrreklit et al., 2008). Also, further investigations should analyze the influence
of implementation stages of BSC on the development and use of causal linkages and the
impact of social capital components in the design and use of BSC. The research of this
paper represents just a step in these directions.
Notes
1. Again, Baldvinsdottir et al. (2010) highlight the extent to which the primary aim of accounting
research is to explain and understand the behavior of accountants, within given institutional
settings and changing their behavior is not a priority within the research schema of
accounting academics.
2. According to Kenny (1979) cause-and-effect models should have a central position within
social science research for at least three reasons. Firstly, most researchers either implicitly or
explicitly construct models and a formal development of the method would assist these
researchers. Second, causal modeling can support the development, modification and
extension of measurement and substantive theory and third, cause-and-effect models can give
social science a stronger basis for applying theory to solving social problems.
3. Kenny (1979, p. 9) argues that although theory takes the form of causal statements, the
guiding ideas of theory are not those statements but rather an image or an idea. Many of the
important ideas of natural science are not causal but are pictures of a process. Although
evolution, the periodic table, and the kinetic theory of gases have a mathematical form, they
are fundamentally images.
4. Speckbacher et al. (2003, p. 363) claim that BSC users insert cause-and-effect linkages in only
the second and third types of BSC. They define three main models of BSCs ranging from a

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minimum-standard BSC (Type I) to a fully-developed BSC (Type III) considering the


natural evolution of the BSC concepts and practices over time. Then, BSC of Type I is
characterized by a specific multidimensional framework for strategic performance
measurement that combines financial and non-financial strategic measures, BSC of Type II
is typified by BSC Type I that additionally describes strategy by using cause-and-effect
relationships, while BSC of Type III is represented by BSC type II that also implements
strategy by defining objectives, action plans, results and connecting incentives with BSC.

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5. The bank called its monitoring system BSC referring to the Kaplan and Norton model. In spite
of the many definitions of BSC presented in the academic and managerial literature (Bisbe
et al., 2007), here we are going to follow Alpha Bank using the term BSC for referring to its
control system.
6. According to Coleman (1988, 1990) social capital is anything that facilitates individual or
collective actions, generated by networks of relationships, reciprocity, trust and social norms.
In this field, some authors, for instance Lin and Dumin (1986), Lin et al. (1981) and Marsden
and Hurlbert (1988), highlight that social capital is a productive resource facilitating actions
that range from an individuals occupational attainment to a firms business operation.
7. Coleman (1988) suggests that the concept of physical capital as embodied in tools, machines
and other productive equipment can be extended to include human and social capital as well.
More in detail physical capital refers to changes in materials to form tools that facilitate
production; human capital is created by changes in persons that bring about skills and
capabilities that make them able to act in new ways, while social capital concerns changes in
the relations among persons that facilitate action.
8. The term multichannelity refers to the set of services always available to customers provided
by different communication channels, for instance, branches, automatic machines, online
banking and mobile platforms. In 2012, Italian banks invested more than 4.3 billion in
Information and Technology Systems and around 43 per cent of the investment projects refer
to multichannelity services development (Abi Lab, 2013).
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About the authors
Francesca Francioli is Grant Researcher of the Department of Economics at the University of
Genoa (Italy). Francesca gained her PhD at ESADE, Ramon Llull University (Spain), and her
Master at the SDA Bocconi (Italy). Francescas teaching and research interests include strategic
management control systems, management accounting systems and performance measurement
systems. In particular, she is interested in the design and implementation of such systems in the
context of financial institutions and banks. On these topics, Francesca has written several book
chapters. Previously, she had held several positions as junior controller in IT organizations, some

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of which quoted at the Italian Stock Exchange. Francesca Francioli is the corresponding author
and can be contacted at: francioli@economia.unige.it
Lino Cinquini is a Full Professor of Management Accounting and Business Administration. He
holds a PhD in Business Administration from the University of Pisa in 1990. He has worked in
research projects with several profit and not-for-profit organizations in Italy, teaching topics of
management and cost accounting in master and PhD courses. His research areas are in
Management Accounting, Cost management, Strategic Management Accounting and
Performance Measurement. Issues of main interest are measurements and control for decision
making, with a particular focus on cost and performance developed by innovative cost
management systems (ABC, ABM) and the link with non-financial information rising from the
need of process improvement and value creation, also in a value chain perspective (Strategic Cost
Management). Issues related to Sustainability Management Accounting, Accounting for
Intangibles and Management Accounting for Service have been also researched more recently.
These issues have been objects of research, both in manufacturing and service sector (especially
Health Care), also by participation to national granted research projects teams (1995; 1997; 1999;
National Coordinator in 2008). Books and articles have been published, papers presented in
several national and international workshops and conferences and in foreign universities in which
he has been visiting/invited professor [University of Edinburgh (UK), Aarhus School of Business
(DK), University of Tampere (FIN)]. He is a member of the Teaching Board of the PhD in
Management of the Scuola Superiore SantAnna of Pisa and of the PhD in Business Economics of
the University of Pisa. Since 2005 he is a member of the Editorial Board of the journal Accounting
History Review. Since 2006, he is co-editor of the Journal of Management and Governance.
Since 2008, he is a Research Board Member of the Chartered Institute of Management Accountants
(CIMA) (UK). Since 2013, he is national representative at the board of the European Accounting
Association.

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