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Cross Cultural Management Non-financial performance measures and the BSC of multinational companies with multi-cultural environment: An empirical investigation Wagdy M. Abdallah, Majbour Alnamri,

Article information: To cite this document: Wagdy M. Abdallah, Majbour Alnamri, (2015) "Non-financial performance measures and the BSC of multinational companies with multi-cultural environment: An empirical investigation", Cross Cultural Management, Vol. 22 Issue: 4, pp.594-607, https://doi.org/10.1108/CCM-12-2013-0195 Permanent link to this document: https://doi.org/10.1108/CCM-12-2013-0195

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Non-financial performance measures and the BSC of

multinational companies with multi-cultural environment

An empirical investigation Wagdy M. Abdallah

Department of Accounting and Taxation, Seton Hall University, South Orange, New Jersey, USA, and

Majbour Alnamri Department of Accounting, King Abdulaziz University, Jeddah, Saudi Arabia

Abstract Purpose – The purpose of this paper is to investigate the use of financial and non-financial performance measurement practices, including the use of the balanced scorecard (BSC) and the impact of the cultural values on the use of performance measurement systems (PMSs), in multinational companies (MNCs) operating in the Middle East with a special attention to the Saudi Arabian subsidiaries. Design/methodology/approach – Data were collected using a survey mailed to 180 randomly selected Saudi manufacturing subsidiaries in different industrial cities to collect data on their PMSs including the use of the BSC. Findings – Financial measures are more widely used by most of the companies included in the sample due to the fact they are common, well known, and the most familiar performance measures in the business practice and they are more standardized measures which can be easily understood, implemented, and quantified. Moreover, the use of the non-financial measures was at a very low rate compared with the use of financial measures. The reasons were the difficulty in finding objective measures of the effect of social factors and the avoidance of any disclosure of social problems that are existed in the society. Research limitations/implications – Several variables were not included in this study such as corporate culture, use of information technology, the use of mass number of expatriates in the KSA with completely different cultural values, and several other environmental factors, which might have a significant impact on the choice of multiple performance measures. Practical implications – From a practical standpoint, this study demonstrates that increasing levels of external environmental factors and exposure to American best practices could act as forces to adapt more updated and sophisticated PMSs in the Middle East. Moreover, it will contribute to the knowledge of PMSs in the emerging countries, particularly in Middle East countries. Social implications – Social variables have significant impact on the productivity of employees and they should be incorporated into the performance indictors in objective and practical models. Originality/value – This study illustrates how MNCs in the Middle East are adapting and applying the PMS and the effect of culture on the use of non-financial measures. Keywords Balanced scorecard, Financial measures, Non-financial measures, Performance measurement system, Social variables Paper type Research paper

1. Introduction In general, the Middle East is a region in which the political have dominated the economic variables and where the interests of the state have often eclipsed those of the society. It is a region in which the states and governments, preoccupied with war

Cross Cultural Management Vol. 22 No. 4, 2015 pp. 594-607 © Emerald Group Publishing Limited 1352-7606 DOI 10.1108/CCM-12-2013-0195

Received 30 December 2013 Revised 11 February 2015 Accepted 6 March 2015

The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/1352-7606.htm

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and peace, with survival, with basic democratic currents and constant challenges to their power and authority, have often included accounting and economic issues at the bottom of their lists of priorities. Since early 2011, several countries in the Middle East have been going through several revolutionary movements starting with Morocco then Egypt, Iraq, Libya, Syria, Yemen, and many other Middle East countries causing, to some extent, instability in the political, economic, and social aspects in the region. In the meantime, multinational companies (MNCs), which have foreign activities in the Middle East, have their own concern about the success and challenges of conducting their international businesses in the region.

Today, Middle East subsidiaries’ of the American and the non-American MNCs and their managers’ performance have been judged by using the traditional performance measurement system (PMS) which compare the actual performance with the expected performance based only on financial measures; such as rate of return on investment, earning per share, current ratio, inventory turnover, return on common stockholders’ equity, and many other financial ratios. Given the current conditions in the Middle East, the time has come for PMS of MNCs to be changed to use more appropriate and relevant performance tools in response to the current global business conditions.

Historically, many traditional management accounting techniques were oriented toward measuring foreign subsidiary earnings by using the financial measures of performance of foreign subsidiary managers in the Middle East. Recently, these traditional techniques have been criticized because they were too narrow in focus and did not reflect realities of the Middle East markets and environmental conditions, especially of the Kingdom of Saudi Arabia. The feeling is that many other realistic objectives should be considered in the management accounting performance measurement process. Moreover, with the recent political and social developments in the Middle East region, there are many other non-financial factors affecting the usefulness of currently used techniques of PMS and they should be included to make it more effective and timely responsive to the present conditions in the region.

Two important issues should be considered in the PMS: the environmental and other non-quantitative variables. With respect to the environmental variables, unfortunately, all Middle East environmental variables, including both of the political, economic, and social variables, are beyond the subsidiary manager’s control, so managers should not be held responsible for the effects of these variables on the results of their activities. For performance evaluation of foreign subsidiaries, the impact of all environmental variables should be considered in making the MNCs’ managerial, strategic, and financial decision on a global basis (Abdallah, 2008).

With respect to the non-financial variables, traditionally, PMSs have been based on financial measures with the objective of using the system to compare actual performance of the Middle East subsidiaries and their mangers with the expected performance, facilitate measurement of the subsidiaries’ performance in meeting some predetermined set of criteria, help top management in making resource allocation decisions so that corporate resources are directed to subsidiaries where expected returns are the highest, and motivate decision makers to achieve their goals and overall corporate objectives. However, the success of any organization is a function of the implementation of an effective PMS which should include the combination of both financial and non-financial measures.

The purpose of this paper is fourfold: first, to investigate the use of both financial and non-financial performance measurement practices in Saudi companies, and to what extent they use the balanced scorecard (BSC) in their PMSs; second, to explore the

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challenges and the reasons of adapting or not adapting the BSC; third, to know the problems involved in adapting an objective, realistic, and practical PMS; and fourth, to explore the effect of the cultural values on the use of the PMS. In the next section, the related literature will be reviewed. Section 3 presents the characteristics of the Saudi economy as emerging economy and its cultural values. Section 4 discusses the extent of PMS adaption and the research hypotheses. Section 5 discusses the research methodology used and the data analysis. In the final section, conclusion, limitations of the research paper and suggestions for future research will be discussed.

2. Literature review Like other human social activities and disciplines, accounting is a product of its social, economic, political, and legal environment. Accounting plays a significant role in measuring and communicating the results of economic, social, and managerial performance of a business firm. Every day, it provides corporate executive and financial officers, managers, employees, shareholders, governments, the public, and the professional organizations the needed information for the reevaluation of financial, economic, social, and political objectives and activities of their companies.

Traditional accounting-based performance measures of MNCs are outdated because of the existence of the significant environmental and technological changes in recent years. In fact, technological pace creates a crucial need for MNCs to use a wider variety of both customer and employee services in a faster and timely manner to fulfill the needs of both customers and employees for the purpose of achieving the economies of scale combined with a higher productivity of the work force.

Three decades ago, financial executive officers and mangers of MNCs rejected to use the financial measures as the only indicators of their subunits’ and their managers’ performance. Moreover, the traditional financial and accounting indicators, such as return on investment, have been criticized as being inadequate and insensitive tools for decision making and the changing environmental conditions because they were developed for the financial reporting requirements in meeting the external users’ needs (Kootanaee et al., 2013; Letza, 1996). They began to look for new more realistic and relevant indicators of performance because the professional literature has believed and recommended that managers should be evaluated based on upgraded and integrated PMSs that should include both the financial and non-financial measures (Modell, 2012; Gosselin, 2005). The integrated PMSs should include the design of BSCs with more emphasis on non-financial measures including environmental variables and would encourage organizations to put more weight on customer and employee satisfaction, higher quality, more market share, productivity, and innovation in their PMSs (Ghosh and Wu, 2012; Humphreys and Trotman, 2011; Said et al., 2003; Kaplan and Norton, 1996c; Dixon et al., 1990). Overall, the suggested changes would motivate both manufacturing and service organizations to improve ultimately the performance of both foreign subsidiaries and their managers and to judge their performance based on more objectives, realistic, practical, and relevant indicators.

Management accounting literature suggests that cultural, economic, and technological pressures have different impact upon management accounting practices. As environmental uncertainty increases, managers are expected to seek more information through several organizational tools and to develop different techniques to adapt to the expected environmental changes (Humphreys and Trotman, 2011; Hussain and Gunasekaran, 2002). Therefore, corporate financial officers (CFO), who face higher levels of economic as well as environmental changes, will likely incline to using more financial than non-financial performance measures (Hussain and Gunasekaran, 2002).

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Today, there is a strong evidence form the literature of PMSs that the most single cited problem affecting the implementation of integrated PMS including a combination of financial, non-financial performance measures integrated with the BSC, is a lack of management support, a finding that is applicable to developed and developing countries (Humphreys and Trotman, 2011; Pandey, 2005; Schneiderman, 1999). More other problems, associated with the implantation of an integrated PMS, include incorrect assumptions regarding causality between the dimensions; a lack of a deployment system to operationalize lower levels in the business entity; a lack of integration; a poorly defined strategy; inefficient management control system, and information overload (Ghosh and Wu, 2012; Pandey, 2005; Schneiderman, 1999). Further research has shown that the BSC may be too costly, complicated, and time consuming to implement, that the size of the operation often does not justify the use of such a complex PMS, and that there are extensive training requirements needed to introduce employees to the BSC system (Humphreys and Trotman, 2011; Anthony and Govindarajan, 2001).

There is a large amount of literature on the implementation and problems associated with the use of both financial and non-financial performance measures and the BSC in manufacturing companies (Kootanaee et al., 2013; Basu, 2001; Banker et al., 2000; Lipe and Salterio, 2000; Norton, 2000; Kaplan and Norton, 1992). Many scholars have investigated the PMSs and the prevalent adoption of the BSC in developed industrialized countries such as the USA, the UK, Japan, Canada, and many other countries (Kootanaee et al., 2013; Gosselin, 2005; Otley, 1999; Atkinson et al., 1997). In the 1990s, successful European and Far East companies relied less on narrow financial measures criteria than the so-called “Anglo-Saxon” countries; therefore, there was a call and need for upgraded method of evaluating performance (Letz, 1996). Kaplan and Norton (1992, 1993, 1996a, b) answered that need by publishing their research on the BSC. Kaplan and Norton have reported their experiences in designing scorecards for several American companies. However, Humphreys and Trotman (2011) criticized the use of the BSC as a complex task, with prior research finding a bias toward measures common to two divisions when they evaluate the managerial performance of both managers and subunits. Moreover, an empirical investigation by Khan et al. (2011) examined the use of multiple performance measures and the BSC in Bangladeshi firms and found out the major problems of implementing the BSC are the ambiguity regarding the expected benefits of a BSC and a lack of management support in the implementation of the BSC.

Other research studies examined and evaluated the implementation of the PMSs and the BSC in emerging countries such as Egypt, Malaysia, India, Thailand, Bangladesh, and China (Weerasooriya, 2013; Khan et al., 2011; Hooper et al., 2009; Ismail, 2007). At the present time, there is a lack of empirical research examining the practices of using PMS and analyzing factors that may have significant impact on the selection of those measures in the manufacturing companies in most of the Middle East countries including the Kingdom of Saudi Arabia, Kuwait, Qatar, Jordan, Iraq, and the United Arab Emirates among many other countries. However, there is little evidence available of how MNCs in the Middle East are adapting and applying the Kaplan and Norton BSC model. Moreover, the traditional financial and accounting measures have been criticized as providing an inadequate and insensitive tool for decision making as they were developed for regulatory and financial reporting requirements rather than to manage businesses successfully (Kootanaee et al., 2013; Khan et al., 2011; Johnson, 1994; Eccles, 1991; Kaplan, 1984). Another issue has been ignored in the research literature which is the effect of culture on the use of non-financial measures especially in the Middle East countries.

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3. Characteristics of the Saudi economy as emerging economy Despite the significant political movements across the Middle East countries and the continued weakness in other major economies, Saudi Arabia’s economy is believed to be continued to expand at a healthy pace. In 2011, the Saudi government committed $130 billion in financial incentives in February and March to address economic sources of social discontent, such as housing scarcity and a low public-sector minimum wage. Oil revenues through Saudi Aramco company account for 85-90 percent of the Saudi budget, and the costs of these measures pushed the government’s break-even price for oil for 2011 to around $84 (US Department of State, 2012).

The government has been improving the investment climate continues to be an important part of the government’s broader program to free the country’s trade and investment regime, diversify an economy overly dependent on oil, and promote employment for a young population. Saudi Arabia has made progress on its World Trade Organization (WTO) commitments since joining the organization in 2005. However, it has yet to join the Government Procurement Agreement, as pledged at ratification. In its “Doing Business 2012” report, the country was ranked by the World Bank as the 12th out of 183 economies in terms of ease of doing business (US Department of State, 2012).

The Saudi Government welcomes foreign investors, assuring them that Saudi Arabia imposes no restrictions on the entry or repatriation of capital, profits, or salaries. The government especially encourages foreign investment that transfers technological expertise and provides employment and training opportunities for Saudi nationals. As a part of a major government drive to boost the economic and technical developments in certain areas, it indicated that a tax credit will be granted to foreign investors based on their investment, employment, and training to Saudi nationals. Another important issue is that Saudi Arabia became the 149th member of WTO in December 2005 which should further encourage foreign investment and economic reform in Saudi Arabia.

The foreign-direct-investment law, revised in 2000, permits foreigners to invest in all sectors of the economy, except for real-estate investment in Mecca and Medina, some subsectors in printing and publishing, audiovisual, and media services, land-transportation services excluding inter-city transport by trains, and upstream petroleum. The Saudi Arabian General Investment Authority (SAGIA) periodically reviews the list of activities excluded from foreign investment and submits its reviews to the Supreme Economic Council for approval. Although these sectors are off-limits to 100 percent foreign investment, foreign minority ownership in joint ventures with Saudi partners may be allowed in some sectors. Foreign investors are no longer required to take local partners in many sectors and may own real estate for company activities (US Department of State, 2012).

Joint ventures in Saudi Arabia always take the form of limited-liability partnerships, to which there are some disadvantages. Foreign partners in service and contracting ventures organized as limited-liability partnerships must pay, in cash or in kind, 100 percent of their contribution to authorized capital. SAGIA’s authorization is only the first step for setting up such a partnership. Still, foreign investment is generally welcome in Saudi Arabia if it promotes economic development, transfers foreign expertise to Saudi Arabia, creates jobs for Saudis, and/or expands Saudi exports. As a result of the improving climate for foreign investment in Saudi Arabia and sustained high-oil prices, foreign direct investment has boomed since 2000. After years of rhetoric without substantial change, Saudi Arabia made its first real allowances to foreign investors with the Foreign Investment Act of 2000.

The work environment and the employee performance levels in the KSA have been impacted by the cultural values. Unlike the Western international companies, the

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greatest challenge for the management in the KSA is the great efforts of corporate executive officers and managers to improve the productivity and performance of their employees due to cultural issues and business practices.

Most of Saudi nationals are motivated by status and position which makes a big challenge for keeping and training a wide base of Saudi skilled labor staff. Moreover, many Saudi employees are not motivated to stay in lower-level jobs and prefer to work in managerial positions (Idris, 2007). Expatriates of third world countries, such as Bangladesh, India, Pakistan, Egypt, and Sudan, represent the majority of hired skilled and unskilled work force in Saudi Arabia. It is an evident that Saudi culture has significant impact on Saudi national employees’ performance and incentives. This fact has to be considered in analyzing both of financial and non-financial performance measurements in Saudi companies.

Moreover, there are several variables were not included in this research study such as corporate culture, use of information technology, the use of mass number of expatriates in the KSA with completely different cultural values, and several other environmental factors.

4. The extent of PMS adaption and the hypotheses The use of the performance measurement models, with the integration of the BSC, in manufacturing companies of the developed countries has been increased significantly in the past three decades. Kaplan and Norton (1992, 1993, 1996c) and Dixon et al. (1990) suggested the integration of the use of BSC into PMSs. It is expected that all these systems would put more emphasis on non-financial performance measures and would help business entities to give more weight to customers’ satisfaction, innovation, higher employees’ productivity, and many other non-financial measures in their PMS. In general this change would help business entities in the KSA to improve ultimately their financial performance.

To investigate the use and the extent of the adaption of financial and non-financial measures in manufacturing multinational companies (MMNCs) in the KSA, in this study, it is hypothesized:

H1. MMNCs are expected to use to a great extent more frequently financial performance measures than non-financial performance measures.

To investigate the use and the extent of the adaption of BSC or an integrated PMS in MMNCs in the KSA, in this study, it is hypothesized:

H2. MMNCs that have used a BSC or an integrated PMS use more frequently non- financial performance measures.

In a centralized organization, top-management executives make all types of decisions. In a decentralized organization, decision-making authority is not confined to a few top executives; instead, decision-making authority is delegated and spread throughout the organization. In the Middle East, foreign subsidiary managers are delegated authority to make certain decisions; however, they may be limited by the global objectives of the top management. In this case, PMS should consider the fact that managers’ performance cannot be based on the effect of factors which are not under his/her control. Therefore, we may elaborate the following hypothesis:

H3. MMNCs, that are more centralized, are expected to use to a great extent more frequently financial performance measures while decentralized firms are expected to use more non-financial performance measures.

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At this point, we would like to emphasize the fact that performance measurement of MNCs and their segments are significantly affected by several environmental factors and especially the cultural environmental factors. Most performance measurement tools consider only the financial indicators and ignore the impact of the social factors which should be considered as a major one of the non-financial indicators. In fact, the social factors, if measured correctly, may be one of the major motives for employees to achieve a higher productivity in MMNCs. We need to define those social performance indicators, use reasonable indicators and incorporate them into the PMS with the financial measures of performance.

Understanding the economic, legal, social, and political history of the Middle East is so important for accountants, corporate executive officers, and local managers. For accountants and corporate executive officers, it is the environment in which the management control system (including the PMS), accounting systems, practices, and profession have been developed and grown. Therefore, the environmental variables are the basis for the PMS and the accounting systems and practices in the Middle East. To corporate executive officers and managers in MNCs, keeping pace with the most recent economic, cultural, and political developments is so crucial for the success of their Middle East operations, competition, and investments. Therefore, we may elaborate the following hypothesis:

H4. MMNCs that face a higher level of environmental uncertainty are expected to use to a great extent non-financial performance measures than companies that face a lower level of environmental uncertainty.

5. The research methodology and data This research paper used a questionnaire to examine the performance measures that MMNCs of foreign subsidiaries in Saudi Arabia: first, use in the PMS; second, classify these measures into categories; third, assess the extent to which MMNCs use performance measurement innovations such as the BSC and integrated PMS; and fourth, examine the association between the measures and the environmental uncertainty including the cultural factors.

A survey, in both Arabic and English languages, was mailed to a total sample consisting of 180 Saudi manufacturing companies in different industrial cities in the KSA to collect data on their PMSs including the use of the BSC. The major industrial areas, which were included in the study, are: Jubail, Yanbu, Jeddah, and Madinah. This method was utilized due to the advantage that the designed questionnaire could be sent to a large number of participants in a limited time. The research population consisted of all Saudi subsidiaries of American and foreign MNCs operating in the KSA. A covering letter explaining the purpose of the study was included in the mailing, along with the questionnaire and a stamped-paid envelop. The expected results show: first, whether the traditional measures of performance are still widely used; second, what proportion of the companies have decided to implement new performance measurement approaches; and third, if the company used the BSC, as a part of an integrated PMS, to know and discuss the objective of using it and the challenges and problems of the implementation of the financial and non-financial measures at their organization.

The questionnaire contains six sections: the first one collects general information of the company such as the type of industry, the total invested capital in the local currency, the main products, the number of years the company in business, the number of employees, and the production capacity. The second section consists of questions

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about the PMS used by the company. The respondents of the Saudi companies were asked about the objectives of the PMS used and their level of satisfaction with the currently used system. The respondents were asked to rate the degree of agreement with each statement based on a five-point Likert-type scale ranging from 1 “strongly disagree” to 5 “strongly agree.” All other questions were measured on the same five- point Likert-type scale.

The third and fourth sections collect information about the financial and non-financial performance measures, respectively used by the company and the degree of agreement with each statement. Table II shows the list of the financial and non-financial performance measures, respectively used in the questionnaire. The fifth section asked about the use of the BSC for performance evaluation. The sixth section collects information about the challenges and problems facing the adoption and implementation of the BSC. The language used in designing the questionnaire was English; however, due to the fact that several of the Saudi manufacturing companies are managed by Saudi nationals whose primary language is Arabic. The primary questionnaire was translated into the Arabic language and two forms of the questionnaire were mailed out: one form was in English and the other one was in Arabic language.

The returned questionnaires were analyzed using SPSS package. Descriptive statistics, factor analysis, rank order test, and t-test were employed to test H1, H2, and H3. With regard to H4, the responses will be analyzed by showing the means and standard deviations.

6. Research results and discussion As mentioned earlier, the objective of this study is to provide empirical evidence on the use of financial and non-financial performance measurement practices and the application of the BSC in randomly selected manufacturing subsidiaries in the KSA. To serve this purpose the authors submitted a courtesy letter along with the questionnaire to financial managers and the CFO of the selected medium and large- sized manufacturing Saudi companies to explain the purpose of the study and to ensure the confidentiality of the participants’ response. A list of Saudi manufacturing companies was obtained and details of the manufacturing companies participating in this study were derived from the Directory of National Industries (Chamber of Commerce and Industry, 2009).

The survey instrument was used to collect the relevant data on the suggested hypotheses and variables that may have implications on PMSs in the manufacturing companies in the KSA. Since this study aims to examine the financial and non-financial measures of performance adapted by MNCs with their affiliates in the KSA, randomly selected different MNCs, which have affiliates in the KSA were invited to participate in the study. The authors decided to omit small size manufacturing companies, as it was uncertain of generating a sufficient response rate in the light of the industry practice of the use of the financial and non-financial performance measurement in the KSA. After various blocks of mailings and substantial follow-up actions, a total of 180 questionnaires were sent out, a total of 81 (45 percent) were responded, and nine of them were excluded for not answering all the questions asked. The 72 returned questionnaires were statistically analyzed using SPSS package.

The industry composition of the randomly selected sample is presented in Table I. Annual sales volume of 64 percent of the responded companies were over SR100 millions Saudi Riyals (SR) and 37 percent had annual sales volume of less than SR100 millions. The survey examined the use of 33 financial and non-financial

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measures (12 are financial and 21 are non-financial) that are widely used in prior studies (Khan et al., 2011; Jusoh et al., 2006, 2008; Ismail, 2007; Drury et al., 1993; Chenhall and Langfield-Smith, 1998). Respondents were asked to rate the use of both financial and non-financial measures on a five-point Likert-type scale ranging from 1 “strongly disagree” to 5 “strongly agree” to a higher extent than other measures.

The purpose of H1 was to investigate the use and the extent of the adaption of financial and non-financial measures in MMNCs in the KSA. Table II presents all the significant financial and non-financial measures used in the Saudi Manufacturing companies. The measures are classified in a descending order of the ones most widely used, as indicated by the highest mean, to the ones least widely used as indicated by the lowest mean among all measures, as can be seen from Table II. The results also indicate that the top four most frequently used by the respondents are mainly financial measures which are: total sales (mean 4.49), rate of achieved budget (mean 4.25), unit product cost (mean 4.21), and rate of return on investment (mean 4.09). Two of non-financial measures, number of customer complaints (mean 3.91) and customer response time (3.76), were

Industries n %

Cement and construction 4 8 Electronics and electrical 8 19 Food 5 10 Chemicals and petroleum 10 29 Plastic products 8 13 Others 2 11 Total 37 100

Table I. Sample of industrial companies by industry type

Rank List of measures Mean SD

1 Total sales 4.49 1.16 2 Rate of achieved budget 4.25 1.06 3 Unit product cost 4.21 2.19 4 Rate of return on investment 4.09 2.41 5 Number of customers’ complaints 3.91 2.54 6 Customer response time 3.76 2.96 7 Rate of the growth sales 3.70 2.74 8 Rate of defective output to total output 3.67 2.91 9 Rate of market share 3.62 2.96

10 Actual profit margin 3.61 2.80 11 Measure of defective units 3.53 2.06 12 Number of warranty claims 2.74 2.27 13 Time for new product development 2.68 2.25 14 Customer satisfaction 2.55 2.21 15 Rate of new products launched 2.44 2.46 16 On-time delivery 2.36 2.41 17 Number of new employee training/hours programs 2.33 2.99 18 Employees’ satisfaction 1.98 2.58 19 Employees’ suggestions 1.84 2.45 Note: 5, strongly agree; 4, agree; 3, neutral; 2, disagree; 1, strongly disagree

Table II. Financial and non- financial measures used in the Saudi companies

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ranked as the fifth and the sixth, respectively, in terms of the frequency of usage. Another important point was derived from the statistical analysis which was to examine whether the financial measures or the non-financial measure were used.

A statistical test was used to validate this finding, and to confirm whether the difference between the use of financial and non-financial measures is statistically significant, t-test (two tails) was performed to observe the relative importance of financial and non-financial measures. The final results shown in Table III indicate the financial measures (mean 4.058) were found to be widely used than non-financial measures (2.878) for measuring the performance of the randomly selected Saudi manufacturing companies for this research. Therefore, it has been confirmed that most of the manufacturing companies in Saudi Arabia use most frequently the financial more than the non-financial measures in their PMS.

The purpose of H2 was to investigate the use and extent of the adoption of BSC or an integrated PMS in the Saudi MMNCs. In terms of the number of the Saudi Sample companies that have fully adopted the use BSC, column three of Table IV shows that only 13 Saudi firms (18 percent of the sample), and that this rate of full adoption of the BSC is low compared with other developing countries such as Egypt (60.5 percent, Ismail, 2007) and India (45.28 percent, Anand et al., 2005). While 16 firms (22 percent of the sample) have partially adopted the use of the BSC as shown in column 4 of Table IV, and 43 firms (60 percent) have not adopted or used the BSC at all as shown in column 5 of Table IV. Moreover, Table IV – columns 3 and 4 – shows companies in the food, chemicals, and petroleum industries were more likely to adopt the BSC (fully or partially) followed by the companies in the plastic products industry.

To test H3, that the Saudi manufacturing MNCs, that are more centralized, are expected to use to a great extent more frequently financial performance measures while decentralized firms are expected to use more non-financial performance measures. Using the Kendall’s tau non-parametric statistical test, Table V indicates

Performance evaluation using Mean value (overall) SD

Financial measures 4.058 2.06 Non-financial measures 2.878 2.542 Note: At 1 percent confidence level: t ¼ 2.78; p ¼ 0.000

Table III. Comparison of

responses on the use of financial and non- financial measures of

performance evaluation

Industry n Full adoption

of BSC Partial adoption

of BSC BSC not adopted

at all

Cement and construction 6 1 2 3 Food 14 3 4 7 Electronics and electrical 7 2 2 3 Chemicals and petroleum 21 4 3 14 Plastic products 9 1 4 4 Minerals 8 2 1 5 Others 7 0 0 7 Total 72 13 (18%) 16 (22%) 43 (60%)

Table IV. The use of BSC,

financial and non- financial measures in

Saudi Arabia

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there is positive relationship between the decentralized organizations of the Saudi manufacturing companies and the use of the financial and non-financial measures. As can be seen from the first part of Table V, the correlation measurement between the financial measures and the decentralized organization is 15.14 and with the customer perspective is 14.27. We may conclude that there is a positive relationship between decentralized Saudi companies and the use of both financial and non-financial measures of performance.

To test H4, that the Saudi subsidiaries of MNCs that face a higher level of environmental uncertainty are expected to use to a great extent non-financial performance measures than companies that face a lower level of environmental uncertainty. As can be seen from the second part of Table V, using the Kendall’s tau non-parametric statistical test, it has been found a high correlation between using the financial measures and the environmental variables (0.7440). With respect to the non-financial variables, we also found a positive correlation of 0.2014, as indicated in the second part of Table V, between the environmental variables and the innovation and internal business process perspectives, as a non-financial performance measure. We also found a positive correlation of 0.1434, as shown in the second part of Table V, between the customer perspective, as a non-financial performance measure, and the environmental variables. However, the use of the non-financial measures of performance was at a very low rate compared with the use of financial measures. The reasons were the difficulty in finding objective measures of the effect of social factors and the avoidance of any disclosure of social problems that are existed in the society.

7. Concluding remarks and recommendations This research paper investigates the use of financial and non-financial performance measurement practices and the application of the BSC in randomly selected manufacturing subsidiaries in the Kingdom of Saudi Arabia, as one of the main countries among the Gulf countries in the Middle East. This study provides new evidence on the extent to which the companies use an integrated PMSs and the use of the BSC concept in an emerging market associated with different cultural values than other industrial countries. The results may show that financial measures are more widely used by most of the companies included in the sample, which confirms many previous research studies (e.g. Kootanaee et al., 2013; Modell, 2012; Anand et al., 2005; Chenhall and Langfield-Smith, 1998; Lingle and Schiemann, 1996). The reason behind the wide use of the financial measures of performance due to the fact they are common, well known, and the most familiar performance measures in the business practice of the Saudi companies and they are more standardized measures which can be easily understood, implemented, and quantified.

Our findings suggest the use of non-financial measures of performance as an integral part of the PMS in MNCs operating in emerging economies will contribute in

Decentralization Environmental uncertainty

Financial perspective 0.1514 0.7440 Innovation and internal business process perspective 0.0212 0.2014 Human resources and business growth perspective 0.02122 0.1251 Customer perspective 0.1427 0.1434

Table V. Correlation measurement between the financial measures of performance (Kendall's tau test)

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improving productivity and efficiency of local employees. Moreover, this study has a number of implications. First of all, the used survey will contribute to the knowledge of PMSs in the emerging countries, particularly in Middle East countries. In particular, the results of the research paper will indicate that many Saudi companies have either adapted, or are active adapting a wider use of non-financial measures to be integrated into their traditional financial indicators of performance. Moreover, increasing levels of external environmental factors and exposure to American best practices could act as forces to adapt more updated and sophisticated PMSs in the KSA.

There are some limitations of this study and its results must be interpreted with caution. The study is limited to only those Saudi companies which were randomly selected and responded to the questionnaire, which do not represent all Saudi companies in several industrial areas and different industries in the KSA. Moreover, there are several variables were not included in this study such as corporate culture, use of information technology, the use of mass number of expatriates in the KSA with completely different cultural values, and several other environmental factors, which might have a significant impact on the choice of multiple performance measures.

Further future research is thus needed in Saudi and other Middle East countries to better understand the development and use of more appropriate performance measurement indicators which will be more responsive to the cultural values that are unique to the Middle East environmental factors which may add more cultural indicators of performance to be added to the BSC. Areas of future research that might be derived from this study could be direct at explaining why many companies of the KSA and other Middle East countries use some non-financial performance measures but why the rate of the BSC implementation is still very low.

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Corresponding author Dr Wagdy M. Abdallah can be contacted at: [email protected]

For instructions on how to order reprints of this article, please visit our website: www.emeraldgrouppublishing.com/licensing/reprints.htm Or contact us for further details: [email protected]

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