The causal relationships between performance drivers and outcomes

Abstract

Purpose: The purpose of this paper is to speculate on the potentials of the system dynamics methodology to contribute to the balanced scorecard (BSC) design and implementation by producing a detailed causal relationships model that links strategic and operational objectives in a more accurate and effective way.Design/methodology/approach: The work is based on the methodological principles and the operational tools provided by the system dynamics methodology and the BSC framework.Findings: One of the main areas that both the relevant literature and Kaplan and Norton identified as critical in developing the original BSC framework is related to the identification and the quantification of “causal relationships” across the BSC, and to the subsequent opportunity to use a mathematical‐computer model to test and simulate such assumptions and their impacts on strategy implementation. Such issues are addressed in this paper.Practical implications: The paper provides information and consideration on how to model and assess causality and cause‐and‐effect relationships in BSC environments. Subsequently, it provides some reflections on the contribution of the system dynamics methodology for the design and implementation of the BSC.Originality/value: The value of this paper is two‐fold: first, it shows that relying on system dynamics tools and methodological principles is possible to better define the concept of causality in BSC frameworks; second, it shows that by integrating system dynamics modelling principles and the BSC framework it is possible to develop a comprehensive approach to performance management and strategy formulation and strategy implementation.