A system dynamics-based simulation experiment for testing mental model and performance effects of using the balanced scorecard

Abstract

This study develops a theoretical model that explains the effectiveness of the balanced scorecard approach by means of a system dynamics and feedback learning perspective. Presumably, the balanced scorecard leads to a better understanding of context, allowing managers to externalize and improve their mental models. We present a set of hypotheses about the influence of the balanced scorecard approach on mental models and performance. A test based on a simulation experiment that uses a system dynamics model is performed. The experiment included three types of parameters: financial indicators; balanced scorecard indicators; and balanced scorecard indicators with the aid of a strategy map review. Two out of the three hypotheses were confirmed. It was concluded that a strategy map review positively influences mental model similarity, and mental model similarity positively influences performance.