The effect of strategy, structure, and the balanced scorecard (BSC) on firm performance

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Date
2003-11
Authors
Sailan, Md Saaid
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Publisher
Universiti Sains Malaysia
Abstract
The objective of the study is to examme factors that potentially influence the performance of business corporations in Malaysia i.e. diversification (corporate strategy), the BSC (performance measurement system), and decentralization (organization structure). In the context of management control, contingency theory holds that the most appropriate control system in any organization is contingent on the circumstances within and surrounding the organization. Taking a contingency theoretical perspective in this study, the corporate strategy and organization structure are considered as potential contextual factors of BSC adoption and the study explores how firm performance is affected by different levels of BSC adoption. Since corporate strategy is a subject of concern of high raking individuals in an organization and is more easily identifiable in large organizations, the study has selected 500 companies listed on the Kuala Lumpur Stock Exchange across industries as the sampling frame and the senior executives in the organizations as the respondents to the survey. While strategy and organization structure dictate the appropriate type of control, the BSC is used to enhance and influence the strategy implementation process. Hence, the study sees that there is an important link between strategy, organization structure, and the BSC and an interaction or a congruent matching of these variables is essential to firm performance which warrant for the study be carried out. Findings of the study reveal that there are positive and significant relationships between the independent variables and the dependent variable also between the independent variables referred to as the independent effects. Further. the joint effects of the independent variables on firm performance are found to be stronger than their individual effects, however, the presence of diversification in the model fails to improve the joint effects owning to the multicollinearity effect. On the other hand, results of the test on the interaction effects reveal that there is a significant interaction effect of decentralization with BSC on performance but not for diversification with BSC and diversification with decentralization. Consistent with the research framework of the study, the mediating effect of BSC adoption was evidenced with the presence of indirect effect between decentralization and firm performance via BSC adoption but not for such effect between diversification and firm performance. The study is hoped to offer business practitioners and the academia a model for predicting firm performance by incorporating the mediating role of BSC, as a relatively new performance measurement system, in the framework.
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Keywords
Performance of business corporations in Malaysia
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