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Upload Literature Review
022021
International Business (Liberty University)
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Running Head: Literature Review 1
Literature Review
Business
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Literature Review 2
Abstract
This review will examine the current body of work regarding the Balanced Scorecard
(BSC) and its application to post-merger firms. It will identify the advantages and disadvantages
of application specifically related to post-merger firms.
The commonly established and accepted working definition of BSC will be analyzed
while identifying the common themes presented in the current body of literature. The current
working model is widely accepted, with critical factors in the application, audience perspective,
and limited availability of practical case studies aimed at defining size and scope. In its current
state, there are several gaps that scholars must address to further the application of BSC models
to develop more comprehensive solutions.
The BSC model applied to post-merger case studies is limited in current literature and
incomplete. Case studies have identified gaps; however, scholars have not yet identified
alternative applications to the model to address. Problems within the model are generated from
the same elements that make it widely accepted and unique. Factors such as flexibility hint at the
more abstract nature of the model and allow it to be universally applicable; however, this is an
abstract measure that the practitioners of BSC do not fully understand.
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Introduction
Defined by Norton and Kaplan, the Balanced Score Card (BSC) is a tool that "keeps
companies looking – and moving – forward instead of backward" (Kaplan et al., 1998, para. 41).
This notion has allowed BSC models to remain at the forefront of application, research, and
practice for several decades. For this literature review, the topic has been narrowed in scope to
precisely understand the implementation in post-merger firms, understanding both the
advantages and disadvantages.
The Blocher text, Cost Managements: A strategic Emphasis, builds on the definition for
BSC by emphasizing that it is "an accounting report that includes the firm's critical success
factors in four areas: (1)financial performance, (2)Customer satisfaction, (3)internal processes,
and (4) learning and growth." (Blocher et al.,2019, pg.910). The Blocher text has built upon the
foundation of Kaplan, allowing researchers to utilize both definitions as working models while
applying their findings to the topic. The result has been an array of implementation methods and
fluid purposes that are applicable based on each case study, acting as a catch-all for measures of
success as defined by internal firm leadership.
Applying BSC models to post-merger organizations is critical as firms attempt to realize
the objectives intended by the merger processes at the onset. The current body of literature on
the topic, while robust in emphasis on the utilization of BSC, neglects its implications as it
applies specifically to post-merger firms. Many scholars notated that newly created entities
would benefit from the BSC model; however, they fail to explicitly identify, discuss, or offer
case studies to point to its application. An accepted segment of literature highlights the uniques
ability
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of BSC to act as a catalyst for unity and to act as an alignment mechanism during the formation
of a new firm. This notion is one of the more abstract and least well-defined elements of the
model currently presented in the literature.
The body of research regarding the Balance Scorecard (BSC) is large, with most
information revolving around its basic application and definition. The literature reviewed
attempts to aid in a more precise definition of the model by examining various case studies and a
more limited scope of application to post-merger firms. The working definition as presented
above is widely accepted as the current working definition. This is a critical element to review,
as many scholars have attempted to rework the definition to fit a specific study mold that is not
universally applicable. These studies will examine a particular industry segment such as African
Banks and apply the working definition to identify present and directly correlated to success
(Oghuywu et al., 2016). The implication of this type of study neglects to consider external
elements of impact, such as government intervention and regulation.
The impact of BSC on post-merger firms is highlighted in the article; The Balanced
Scorecard Can Take the Pain out of Mergers by Paul Niven by utilizing the case of the 2002
Aliant merger of four large telecommunications companies. The author examines the application
of the BSC models as a practical solution to several challenges that arise during merger
processes. His findings are summarized by attributing the model for creating results that are
"both rapid and significant" (Niven,2010, para.12). BSC implementation has the unique ability
to impact financial results, customer satisfaction scores, internal employee satisfaction and
"Employee learning and growth" (Niven,2010, para.14).
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The interconnected nature of BSC and post-merger firms is a critical understanding for
business scholars. The strategic application of financial resources revolves around understanding
and aligning the organization's goals. By its very nature, merger activities require extensive time
and financial investment from firms to achieve their desired business advantages. The BSC
model allows for defining, measuring, and aligning all elements to work towards a common
goal.
Balance Score Card and Post-Merger Firms
Several themes in the literature regarding the Balanced Score Card (BSC) and its
application to the accepted working definition arise across the literature reviewed. The articles
reviewed commonly grouped themes into four functional areas: the flexibility to define success
measures, a full measure of success being more critical than stand-alone measures derived from
accepted accounting principles, alignment of leadership and employees on clear, attainable, and
measurable goals, and the definition of the newly formed entities culture and measures for
operating process success.
The flexibility of BSC to define measures for success is illustrated in, Merger,
Acquisition and Corporate Performance: The Balanced Scorecard Approach by scholars M.E.
Oghuvwu and A.S. Omoye in 2016. The study focuses on the merger of five African banks and
concludes that modified BSC is necessary for realizing success post-merger. BSC measures are
limited by the understanding and definition of "environment" (Oghuywu et al. 2016, pg.71) and
the significant role the element plays in achieving the organization's goals. The scholars point to
the abstract nature of the environment as an aid in determining which success measures should
or shouldn't be applied, hinting that there is no standard measure that would be universally
applicable. The scholars found that the ability of BSC to be modified to meet organizational
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needs set the stage for how critical it is in post-merger applications. The writer concludes that the
often rigid nature of much research in BSC models limits the application and scope when
variables as unique as the firms presented are present.
Applying BSC to post-merger firms is critical in defining success as it pertains to the
many different vantages impacted; the newly formed firm requires this unique element of
flexibility. Kaplan also purposed the application of flexibility in a 1998 article titled, Putting
the balanced scorecard to work, several case studies are presented where measures have been
modified to include things such as internal process, core competencies, employee commitment,
market share, and innovation (Kaplan et al. 1998). Being the foremost expert in BSC models,
Kaplan expands on the flexibility of the model again in the 2020 article, Using the Balanced
Scorecard for Successful Health Care M&A Integration. In this article, variables are assigned to
four perspective hierarchy groups, financial perspective, process perspective, customer
perspective, and learning/growth perspective (Kaplan, 2020). This ability to understand the
varying perspective draws a correlation between the business elements that are present in post-
merger processes and the need for critical alignments to realize the desired outcomes.
BSC is widely accepted as an absolute measure of success, even though it stands in
opposition to generally accepted accounting measures standing on their own to determine a
firm's results. Literature details that BSC "is known to be a flexible tool adaptable to different
types of situations" (Hristov et al., 2016, pg.63). Hristov furthers this notion in discussing the
unique ability of the BSC to be adaptable and generate acceptance from the various perspectives
discussed previously by Kaplan, most notably the financial perspective (Hristove et al., 2016).
To
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summarize, when the correct measure of success is applied through the BSC model, the more
abstract it becomes and the less applicable it is to a singularly accepted view.
The article presented by Y. Tian discusses the more recent development in merger
and acquisitions processes to "no longer achieve financial improvement, but to achieve financial,
operational and management aspects" (Tian, 2019, pg.101). Deviation from goals only
applicable to financial improvement is especially true in mergers that strive to attain critical
synergies, optimize processes, and overcome supply chain constraints. This ideal plays a crucial
role in understanding how BSC stands to understand a full measure of success outside of the
generally accepted principles of accounting and the financial success that they measure.
Furthermore, the BSC model aligns closely with the perspective of firm leadership and ensures
that each element of the business understands the goals and aspirations required to deliver the
needed results; this is especially important in the application to post-merger firms. It follows that
the ability of the firm to self-determine the measures, ensure that they apply to the goals and
objectives of the merger, and identify the level at which achievement is positive or negative,
whether be financial or other, plays a critical role in the application BSC models.
Current literature aligns with the idea that an essential element of BSC application is
understanding the intended audience of the measures applied within the model at
implementation. Understanding the intended audience continues the deviation from a simple
financial measurement of success to the success of internal operators in opposition to the level of
success measured by external operators. Farooq and Hussain highlight that BSC "provides a
visual framework that integrates the organization's strategic objectives" (Farooq et al., 2011,
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pg.764) across four well-defined perspectives, none of which indicate the acceptance of actors
outside the firm looking to determine financial strengths.
The literature reviewed agrees that, except for creating shareholder financial gain, BSC is
a complete model for application when attempting to understand multiple perspectives that are
often present, contradictory, and must align in post-merger firms. Furthering this argument
literature points to the conclusions made by Sethi and Krishnakumar, through multiple studies,
utilization of multiple techniques, and the application of many different measures. The scholars
found that BSC Modeling, Generally Accepted Accounting Principles measures, and
Shareholder value formulas, yielded contradictory results (Sethi et al. 2010). This summary
demonstrates the importance of perspective when applying BSC measures to the determination
of success, and the requirement that these measures must align with the strategic goals of the
new organization. If the goal of firm leadership is to increase market share through merger
activities, the perspective of the customer should be utilized to develop success measures.
The literature review goes a step further in the conversation regarding the ability of BSC
to aid in the alignment of leadership and employees on attainable, clear, measurable, and concise
goals. The article presented by C.B. Meyer argues that the application of BSC measures, without
alignment, leads to complete failure of the BSC model applied and negative results to the success
measures (Meyer, 2006). The critical elements used by firm leadership are to inspect BSC
measures, adjust those measures as opportunities are observed, and ensure that BSC objectives
are clearly communicated to the employees responsible for implementation necessary to generate
the desired outcomes. Several scholars have gone as far as to conclude that there are more
abstract BSC measures unique to firm performance to be considered for the BSC model and that
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"the organization itself would have to devise its way of measuring" (Kio-Akrofi et al., 2017,
pg.859). The authors again align on the importance of flexibility and adaptability but agree that
measures must be clear, attainable, measurable, and clearly define the successful outcome. At
this point, the dialogue around the measures is created, and clear communication paths are
achieved between leadership or employees conducting the actual work required.
This relationship between post-merger entities and entities at large in the application of
BSC methods denotes a body of literature that agrees on the critical connection between entity
leadership and employee. Literature on the BSC measures and the limited research on the post-
merger application of BSC finds agreement that success is determined by the implementation,
monitoring, and follow-up with adjustments. Scholars suggest that monitoring and follow-up of
critical success factors are of paramount importance, and firms should invest and leverage
business intelligence software unique to their application (Paladino et al., 2008).
The broader view of literature surrounding BSC suggests a relationship between defining
successful measures in BSC models and analyzing the overall perceived success of each BSC
measure in many cases. There are many proposed methods for analyzing the perceived success
for the BSC measure applied, such as accounting assessments, leadership assessments, and other
assessments designed to understand employee engagement, investment, and satisfaction. Again,
understanding the perspective utilized for the BSC model will determine the correct type of
assessment. BSC models have created successful outcomes for each kind of assessment when all
elements within the firm are aligned and working towards the same goal. In essence, BSC
models demonstrate the impact on performance evaluations in both positive and critical formats;
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Tian concludes that "the balanced scorecard provides an effective analysis and judgment system
for performance evaluation." (Tian, 2019, pg.101).
As discussed in the literature reviewed, the advantages of application draw on the
scholar's discussion regarding the application of the measures critical to success. Mergers are
very costly and conducted for many reasons, not limited to financial gains. Current literature
suggests that many of the failures arise from communication gaps between the new leadership
and employees that do not fully understand the purpose or objectives of new activities. Scholars
agree that BSC measures are only as successful in their application as the direct communication
between those implementing and those executing the actions. This critical alignment denotes that
it is strategically responsible for firm leadership to dedicate the time and resources necessary to
create and implement a full Balance Scorecard.
While there are many advantages, some clear disadvantages are identified in the literature
that point to the relationship between application and understanding with little supporting
research into alternatives. Partial execution, unclear goals, unnecessary complexity, and
unattainable measures of success will lead to poor performance, low engagement, and ultimately
model failure. Additionally, the strength derived from the element of flexibility in the model also
leads to its greatest weakness, as flexibility often leads to ambiguous measures that are
inapplicable or so abstract that most cannot understand their importance.
Conclusion and Future Study
Current literature demonstrates that BSC models are successful in many case studies partly
because of the flexibility it offers post-merger organizations to communicate, define and execute
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critical measures of success. The literature reviewed has both quantitative and qualitative
elements, highlighting the universal adaptability of the BSC models. Successful implementation
correlates to explicit and implicit measures that might not have otherwise been accounted for in
many planning phases and allow considerations from various vantages to bother internal and
external. Clearly defined elements of existing literature come from the purest definition of the
concept, as outlined by Kaplan. Most recent case studies have attempted to draw correlations
between successful BSC measures and unsuccessful BSC measures in which the measures for
consideration were the same. These scholars, in turn, cited abstract elements as determining
factors, highlighting communication, environment, internal culture, implementor buy, and overall
engagement as possible determent factors.
As it pertains to post-merger firms, BSC literature is limited but developing. Case studies
are highly segmented by industry and operating environments with varying degrees of regulation
and external impacts. The majority of case studies emphasize sectors such as Banking, Health
Care, or other faculties that in many ways are controversial. This type of case study limits the
scope of application for the literature. It is challenging to draw synergies to other less regulated
industries that may not have no-fail contingencies in place. Simply put, the firms analyzed in the
case studies are not at risk of failure, but rather regulators have taken a vantage of consolidation
being necessary to solve cash flow problems and realize industry synergies within a geographical
region.
Additional weakness in the current literature is apparent by the lack of alternative
methods and overall lack of research into establishing alternatives. Only one piece of literature is
available that attempts to identify an alternate model to BSC described as "The Performance
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Prism" (Adams et al., 2016); this model fails to find application or support from further case
study research. In the article, the author's fundamental criticism of the BSC model and the basis
by which their model is necessary is pointed to the inability of the BSC model to consider
different vantages other investors and consumers without supporting research. This weakness is
in opposition to the accepted body of literature. There is much conversation around the
adaptability of the BSC model to apply to multiple vantages when they are fully understood.
There are additional gaps in the research regarding the application of post-merger firms to
BSC. Mainly the inability of the scholars to identify and define measures based on effectiveness
outside of the specific case study under scrutiny. Only a single article suggested that elements of
the environment present are differentiating enough for consideration to be a core element of a
BSC model; there is no further study on the aspect.
The second gap observed from the literature is that of application scale; many studies are
of prominent industry leaders, banks, international firms, and large-scale health care operators.
There is little mention of the impact on much smaller firms, which would significantly apply as
the number of firms falling into this scale is much greater than the current presentations.
Specifically, the lack of relevant research on firms most likely to be impacted by mergers and
readily available is not present in recent research.
Continuing studies into BSC must take a look at the disadvantages of the model and
present a body of research that would allow scholars to create alternatives models,
implementations and work more critically to define measures of success used within specific
applications. Additionally, the implication for scope and scale must be explored more thoroughly
as the size of the business and its impacts will significantly change the vantage and lead to
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results much different than many currently available. The current working definition, created by
Kaplan, establishes a foundation model for BSC that has persisted for more than 20 years. The
current quantity of literature with this fundamental view has limited development, interpretation,
and the creation of alternative methods for study and led to contradictory findings in the
definition of success or failure.
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References
Adams, C., & Neely, A. (2016). Using the Performance Prism to Boost the Success of Mergers
& Acquisitions. Institute for Mergers, Acquisitions, and Alliances (IMAA). https://imaa-
institute.org/using-the-performance-prism-to-boost-the-success-of-mergers-acquisitions/.
Blocher, E., Juras, P. E., & Smith, S. D. (2019). Cost management: a strategic emphasis (8th
ed.). McGraw-Hill.
Farooq, A., & Hussain, Z. (2011). Balanced Scorecard Perspective on Change and Performance:
a Study of Selected Indian Companies. 7th International Strategic Management
Conference, 754–768. https://doi.org/10.1016/j.sbspro.2011.09.043
Hristov, I., & Chirico, A. (2016). The Possible Use of Balanced Scorecard in the Due Diligence
Process For M&A Transactions. The 2016 WEI International Academic Conference
Proceedings https://www.westeastinstitute.com/wp-content/uploads/2016/12/Ivo-
Hristov.pdf.
Kaplan, R. S. (2020). Using the Balanced Scorecard for Successful Health Care M&A
Integration. NEJM Catalyst.
Kaplan, R. S., & Norton, D. P. (1998). Putting the Balanced Scorecard to Work. The Economic
Impact of Knowledge, 315–324. https://doi.org/10.1016/b978-0-7506-7009-8.50023-9
Koi-Akrofi, G. Y. (2017). Organizational Performance Improvement Using the Balanced
Scorecard Approach: The Case of an Acquired Telecoms Company. International
Journal of Innovation and Applied Studies, 20(3), 850–862.
Oghuywu, M.E., & Omoye. A.S. (2016). Mergers, Acquisitions, and Corporate Performance:
The Balanced Scorecard Approach. Accounting and Finance Research, 5(4).
https://doi.org/10.5430/afr.v5n4p63
Meyer, C. B. (2006). Destructive Dynamics of Middle Management Intervention in Postmerger
Processes. The Journal of Applied Behavioral Science, 42(4), 397–419.
https://doi.org/10.1177/0021886306289420
Niven, P. (2010). The Balanced Scorecard Can Take the Pain Out of Mergers. KPILibrary.
https://kpilibrary.com/topics/the-balanced-scorecard-can-take-the-pain-out-of-mergers.
Paladino, B., & Williams, N. (2008). Moving Strategy Forward: Merging the Balanced
Scorecard and Business Intelligence. Business Performance Management, 6(1), 12–17.
Sethi, M., & Krishnakumar, D. (2010). A Review of Methodologies Used to Determine Mergers
and Acquisitions' Performance. SSRN Electronic Journal.
https://doi.org/10.2139/ssrn.1803922
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Tian, Y. (2019). Research on Performance Evaluation of Enterprise M&A Based on Balanced
Score Card Perspective. International Conference on Global Economy, Finance and
Humanities Research, 101–104.
https://www.clausiuspress.com/conferences/LNEMSS/GEFHR%202019/GEFHR022.pdf.
