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Unformatted text preview: Version July 2004, pending for 2 nd review with Journal of the Operational Research Society Relevance Assumed: A Case Study of Balanced Scorecard Development Using System Dynamics HA Akkermans * and KE van Oorschot Minase, Tilburg, The Netherlands. Trusting his images, he assumes their relevance; Mistrusting my images, I question their relevance. Assuming their relevance, he assumes the fact; Questioning their relevance, I question the fact. When the fact fails him, he questions his senses; When the fact fails me, I approve my senses. Robert Graves, from In Broken Images Abstract The Balanced Scorecard (BSC) has become a popular concept for performance measurement. It focuses attention of management on only a few performance measures and bridges different functional areas as it includes both financial and non-financial measures. However, doubts frequently arise regarding the quality of the BSCs developed as well as the quality of the process in which this development takes place. This article describes a case study in which system dynamics (SD) modelling and simulation was used to overcome both kinds of problems. In a two-stage modelling process (qualitative causal loop diagramming followed by quantitative simulation), a BSC was developed for management of one organisational unit of a leading Dutch insurer. This research illustrates how, through their involvement in this development process, management came to understand that seemingly contradictory goals such as customer satisfaction, employee satisfaction and employee productivity were, in fact, better seen as mutually reinforcing. Also, analysis of the SD model showed how, contrary to ex ante management intuition, performance would first have to drop further before significant improvements could be realised. Finally, the quantitative modelling process also helped to evaluate several improvement initiatives that were under consideration at the time, proving some of them to have unclear benefits, others to be very promising indeed. Keywords : performance measurement, balanced scorecard, insurance, system dynamics, simulation • Correspondence: Henk Akkermans, Minase BV, PO Box 278, 5000 AG Tilburg, The Netherlands. E-mail: [email protected] HA Akkermans and KE van Oorschot – System Dynamics for BSC Development 2 Introduction Some two decades ago, Harvard Professors Johnson and Kaplan renounced conventional financial measures as the right way to control company performance in their book Relevance lost: The Rise and Fall of Management Accounting 1 . Instead, they introduced an integrated set of financial and non-financial measures, which has become known under the label of the balanced scorecard 2-4 . Since then, performance management in general, and the balanced scorecard (BSC) approach in particular, have risen to prominence in both the business world and in academia. Balanced scorecard concepts are now also studied in several areas of management research, such as organisation...
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- Spring '11
- Management, Causality, Causal Loop Diagram, BSC Development, KE van Oorschot