The Judgmental Effects of Management Communications and a Fifth Balanced Scorecard Category on Performance Evaluation

ABSTRACT: This study extends prior balanced scorecard (BSC) research by examining management’s choice of whether to include four or five BSC categories when a specific nontraditional strategic objective is present. The results of the study show that when management communications about a specific nontraditional strategic objective are limited and a set of specific strategic performance measures indicate superior performance by one manager over another, evaluators discount their reliance on these measures in their performance-related judgments when these measures are clustered into a fifth BSC category relative to when these measures are integrated among the four traditional BSC categories. That is, adding a fifth BSC category resulted in a de-emphasis of the relevant information about the specific nontraditional strategic objective. But, when a fifth BSC category is present, enhancing management communications about a specific strategic objective resulted in greater emphasis on the relevant information about the specific nontraditional strategic objective. When a traditional, four-category BSC is used, enhancing management communications about a specific strategic objective did not result in greater emphasis on the relevant information about the specific nontraditional strategic objective. Our results showing that under certain conditions information presented in a fifth BSC category is discounted by evaluators runs counter to professional literature and has practical implications for companies considering the use of additional BSC categories to communicate strategic objectives.