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Rethinking balanced scorecard (BSC) measures: formative versus reflective measurement models

Author

Listed:
  • Sungbum Park
  • Heeseok Lee
  • Seong Wook Chae

Abstract

Purpose - Most empirical balanced scorecard (BSC) studies have shown a tendency to wrongly employ reflective indicators instead of the more theoretically suitable formative indicators. However, formative indicators are difficult to apply due to the lack of statistical software support and a standardized model testing method. The paper aims to discuss these issues. Design/methodology/approach - This study empirically compares the reflective and formative measurement method with standardized model comparison criteria. After collecting 217 valid questionnaires from companies in South Korea, the authors applied a structural equation modeling technique to analyze the data. Findings - The result shows that the formative measure provides greater validity for the corporate performance measurement using BSC. Further, this study shows the indicators’ relative influence on each BSC perspectives using the formative measure. Practical implications - This study proved the usefulness of the formative measure analysis method and suggested its practical use, focusing on the indicators most useful in developing corporate strategies. In addition, the authors showed that formative indicators could be used in the corporate environment by overcoming the limitations of conventional studies that were confined to causal relationships with latent variables. Originality/value - This study may be the pioneering work that compares formative and reflective indicators simultaneously, addressing the usefulness of formative measurement and its application validity in the existing empirical studies using reflective measurements.

Suggested Citation

  • Sungbum Park & Heeseok Lee & Seong Wook Chae, 2017. "Rethinking balanced scorecard (BSC) measures: formative versus reflective measurement models," International Journal of Productivity and Performance Management, Emerald Group Publishing Limited, vol. 66(1), pages 92-110, January.
  • Handle: RePEc:eme:ijppmp:ijppm-08-2015-0109
    DOI: 10.1108/IJPPM-08-2015-0109
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    Citations

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    Cited by:

    1. Bahtiar Mohamad & Adamu Abbas Adamu & Muslim Diekola Akanmu, 2022. "Structural Model for the Antecedents and Consequences of Internal Crisis Communication (ICC) in Malaysia Oil and Gas High Risk Industry," SAGE Open, , vol. 12(1), pages 21582440221, March.
    2. Adilson Carlos Yoshikuni & José Eduardo R. Favaretto & Alberto Luiz Albertin & Fernando de Souza Meirelles, 2018. "The Influences of Strategic Information Systems on the Relationship between Innovation and Organizational Performance," Brazilian Business Review, Fucape Business School, vol. 15(5), pages 444-459, September.
    3. Robert M. Yawson & Amy K. B. Paros, 2023. "Systems Perspective of the Use of the Balanced Scorecard for Organization Development and Change," SAGE Open, , vol. 13(4), pages 21582440231, December.
    4. Jitender Kumar & Neha Prince & H. Kent Baker, 2022. "Balanced Scorecard: A Systematic Literature Review and Future Research Issues," FIIB Business Review, , vol. 11(2), pages 147-161, June.

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