Balanced scorecard implementation and financial effect from the perspective of the contingency theory : multiple-case study in Libya

This study investigates how Balanced Scorecard (BSC) is implemented in practice and how affects an organisational financial performance. Drawing on the contingency theory, the study investigates the role of two main contingent variables (environmental uncertainty and business strategy) in shaping BSC implementation and financial effect. The study adopts a case study research with data collected from three Libyan for-profit manufacturing companies (CRM, NIF, and ISC). A total of 63 semi-structured interviews were conducted along with a documentary review and direct observation methods. The qualitative data was analysed using the descriptive analytic strategy, the theory-based pattern matching technique, and the cross-case analysis. The findings indicate that, in practice BSC is implemented in different ways respecting both the adoption and the implementation of its components. The study found that there are differences between BSC organisations in terms of what components are adopted into BSC implementation. Some BSC organisations implement BSC partially by adopting certain BSC components in the way that represents BSC as a multidimensional performance measurement system (PMS), which consists exclusively of financial and non-financial measures grouped into different perspectives. By contrast, other BSC organisations implement BSC fully by adopting all BSC conceptual components in the way that represents BSC as a strategic management system (SMS), which consists of BSC perspectives, BSC strategic objectives and measures, BSC cause and effect relationship, BSC targets, BSC processes of organisational alignment and learning. On the other hand, the study found that, although some BSC organisations can have similarities on the components adopted into BSC implementations, they have different ways for developing and using each of the adopted components. Some of these ways are consistent with those defined by BSC inventors, while the majority are significantly different. In respect of the financial effect of BSC; the findings show that BSC implementation has different effects on an organisational financial performance - non-existent and a positively high - while the positively high financial effect is associated with implementing BSC as a fully developed concept (BSC as SMS). Moreover, the study found that there is no role of the environmental uncertainty and business strategy in shaping the differences between BSC organisations in terms of what components are adopted into BSC implementation. Instead, the implementation of BSC that encompasses all the conceptual components of BSC (BSC as SMS) seems to fit the different values of each of those contingent variables. However, the two contingent variables appear to have an important role in determining the ways BSC components are developed and used, and hence, shaping the implementation of BSC and its financial effectiveness. The study contributes to filling a knowledge gap in BSC literature concerning BSC practical implementation and financial effect. It also contributes to the contingency theory by extending its application from focusing on investigating the adoption rate of BSC to investigating the implementation of BSC and its financial effect. Moreover, the study provides practitioners with guides that assist them with implementing BSC in the way fits their organisation’s level of environmental uncertainty and type of business strategy, therefore enhancing their organisation’s financial effectiveness