Causality analysis in business performance measurement system using system dynamics methodology

One of the main components of the Balanced Scorecard (BSC) that differentiates it from any other performance measurement system (PMS) is the Strategy Map with its unidirectional causality feature. Despite its apparent popularity, criticisms on the causality have been rigorously discussed by earlier researchers. In seeking empirical evidence of causality, propositions based on the service profit chain theory were developed and tested using the econometrics analysis, Granger causality test on the 45 data points. However, the insufficiency of well-established causality models was found as only 40% of the causal linkages were supported by the data. Expert knowledge was suggested to be used in the situations of insufficiency of historical data. The Delphi method was selected and conducted in obtaining the consensus of the causality existence among the 15 selected expert persons by utilizing 3 rounds of questionnaires. Study revealed that only 20% of the propositions were not supported. The existences of bidirectional causality which demonstrate significant dynamic environmental complexity through interaction among measures were obtained from both methods. With that, a computer modeling and simulation using System Dynamics (SD) methodology was develop as an experimental platform to identify how policies impacting the business performance in such environments. The reproduction, sensitivity and extreme condition tests were conducted onto developed SD model to ensure their capability in mimic the reality, robustness and validity for causality analysis platform. This study applied a theoretical service management model within the BSC domain to a practical situation using SD methodology where very limited work has been done