Research Question

The review in Chapter 2 demonstrated that the BSC exhibits a common-measure bias due to human cognitive limitation (Slovic and MacPhillamy, 1974; Lipe and Salterio, 2000). Although research shows that some approaches exist to mitigate or overcome the problem, many issues still remain. For instance, the common- measure bias might not exist in the case of individual evaluations of the divisional/unit managers’ performance. Since common-measure bias problems exist where evaluations on divisional/unit managers’ performance by senior managers who have only used financial measures to compare one manager’s performance against another. Additionally, none of the studies identified who in the organisation developed the BSC. Thus, if the senior managers developed the BSC and imposed it on the divisional/unit managers, then it is an inappropriate

technique if they do not employ unique (non-financial) measures to evaluate their performance.

The existence of common-measure bias in the BSC environment has become an important issue since it potentially causes sub-optimal BSC outcomes (Lipe and Salterio, 2000). Its existence is due to senior managers that only use common measures to evaluate divisional/unit managers. This is likely to lead to a perception from divisional/unit managers of unfairness since they believe their evaluations should be based on a set of unique measures that capture their own abilities and capabilities.

The potentially negative effect due to the feeling of unfairness in the performance evaluation process increases the possibility of negative behaviour, which can influence job satisfaction, job related tension, organisational citizenship behaviour and managerial performance. A few studies have examined the relationship between the feelings of unfairness and behaviour (see, for example, Brownell, 1982; Organ and Moorman, 1993; Ross, 1994; Little et al., 2002; Muhammad, 2004), however, there are no studies that have focused on

examining the effect of fairness perception of measures on managerial performance, or the associated process, in the context of BSC.

In the BSC setting, Lau and Sholihin (2005) found that a managers’ fairness perception of performance measures is one of the intervening variables in the relationship between performance measures and managers’ job satisfaction. However, they only examined procedural fairness (process) of the performance measures, and not distributive fairness (outcome). Therefore, the main research question that arises from this study is: what is the effect of the fairness perception of performance measures on managerial performance in a BSC environment? In this study it is argued that participation in the development, implementation and use of performance measures enhances the fairness perception of the performance measures. It also enhances trust between the parties involved in the performance evaluation process, leading to improve managerial and unit performance.

In order to answer this research question, it is necessary to investigate:

1 the relationship between participation and fairness perception regarding

the divisional/unit performance measures used in a BSC environment; 2 whether financial or non-financial measures are perceived more fairly in a

BSC environment;

3 the relationship between participation and interpersonal trust between

parties involved in the performance evaluation process in a BSC environment;

4 the effect of participation on the development of the performance

measures and the use of performance measures in the performance evaluation process; and

5 the effect of participation, fairness perception, and interpersonal trust in

the development of performance measures on divisional/unit managerial performance in a BSC environment.

4.3 Research Framework

One aim of this thesis is to propose a method to overcome the common-measure bias problem in the context of a BSC environment. Currently, common-measure bias has been found in prior studies (see, for example, Lipe and Salterio, 2000; Lau and Sholihin, 2005), the present research will make a contribution to knowledge by providing empirical evidence regarding the effect of fairness perception of performance measures on managerial performance in a BSC environment. This can be achieved by investigating the concepts of fairness perception together with divisional/unitmanagerparticipation and interpersonal trust between parties involved in the performance evaluation process. Based on

the prior research examined in Chapters 2 and 3, the key variable concepts such as participation, fairness perception and trust have been incorporated into the research framework illustrated in Figure 4.1.

Figure 4.1: The relationship between performance measures and managerial performance Trust Fairness Perception Common- measure Bias Managers’ Participation: Performance Measures: Financial vs Non-Financial Measures Managerial Performance

Based on Figure 4.1, this study argues that the higher the level of managers’ participation in developing performance measures, the greater the fairness perception of the performance measures which will result in greater trust between parties involved in the performance evaluation process. It is also expected that the more the manager participates in the development of the performance measures, the smaller the possibility of common-measure bias, which may, in turn, eventually increase managerial performance. Moreover, the greater the fairness perception of the performance measures and the stronger the trust between parties in the evaluation process, the more likely it is that managerial performance will improve. Finally, it is expected that there will be a positive relationship between the fairness perception of the performance measures and the trust between parties involved in the performance evaluation process.