System Dynamic Modelling for a Balanced Scorecard : With a Special Emphasis on Skills, Customer Base, and WIP

Purpose - The purpose of this paper is to analyse some dynamic consequences of the theoretical foundations of the balanced scorecard (BSC) with the aid of a simulation approach based on part of a real BSC. Design/methodology/approach - The model includes five perspectives and a number of financial and non-financial measures. All indicators are defined and related to a number of assumed cause-and-effect relationships. Time lags are included to stipulate one of the most important characteristic of BSC. We use the model to simulate different strategies or scenarios over time. Through three different scenarios we also demonstrate the effects of different variables on the profit or RoCE (Return on Capital Employed). Findings - The results show that minimal changes in the three variables: skills, customer base and work in process may influence profit in different directions.Research limitations/implications - Our analytical model is based on assumed associations hypothesized from literature as well as from our study of a case. In this type of model, the sensitivity of our results with respect to the assumptions should be analysed in subsequent studies. In addition, our model should be extended to cover a complete BSC of an actual company.Practical implications - The model may be used as the first step in putting numbers on an integrated BSC model. The model is our first attempt to study an analytical version of BSC and to make inferences concerning optimal or rational relationships between different indicators and perspectives. The credibility or benefit of the model is insight into the finality of a model but it can also be used as a teaching exercise of BSC. It is easy to extend our model to more realistic circumstances, by including more measures or change time lags. Using the assumed cause-and-effect relationships between financial and non-financial performance measures, attention should also be paid to the definitions and the number of indicators. Originality/value - A large number of case studies and surveys are now present in BSC literature. However, there is a lack of more theoretical and analytical modelling of the BSC. Our paper just throws a little light on this modelling approach