Balanced scorecards, mental models, and organizational performance: a simulation experiment

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Ritchie-Dunham, James Loomis

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Organizations are heavily investing in enterprise-wide information systems and performance scorecards intended to improve strategic decision making. However, there is a need for better evidence that using these technologies systematically improves organizational performance. To overcome the lack of experimental control when studying real firms, the current study investigates decision behavior within a realistic simulation of a wireless telephone company. A controlled experiment involving 118 MBA students found significant differences between two types of scorecards (financial vs. balanced) and two types of enterprise systems (fragmented vs. integrated) regarding the simulated firm’s long-term financial performance. The balanced scorecard positively affected decision makers’ mental models of how elements of the simulated firm dynamically interrelate, which led to improved performance. The integrated enterprise system had a positive effect on performance. Unexpectedly, the number of stakeholders taken into consideration was positively associated with firm performance and was unaffected by the type of scorecard. These findings yield new insights into the effectiveness of scorecards and enterprise systems, and shed light on the underlying mechanisms responsible for these gains.