Setting benchmarks and evaluating balanced scorecards with data envelopment analysis

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Abstract:

Balanced scorecards are having a major impact on executives' strategic decision making by encouraging their use of future-oriented, non-monetary success indicators. This article explains how to create a balanced scorecard with a reasonable number of indicators, set appropriate benchmarks for them, and evaluate overall management performance against those benchmarks. In doing so, it relies heavily on a controlling tool that is new to the business sector: data envelopment analysis. After discussing the theoretical foundations of this nonparametric optimization procedure and defining several key terms, the article presents a practical example. The example assesses management's performance from several perspectives, paying particular attention to implications of the analytic results for a firm's strategic and operational controlling. The article also offers an overview of various models for data envelopment analysis, describes limits to its use, and concludes with a summary of key findings.

Keywords: Benchmarking; Control; Data envelopment analysis; Performance measurement; Strategic management

Document Type: Research Article

DOI: http://dx.doi.org/10.1108/14635770310477762

Publication date: June 1, 2003

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