Explaining relative firm performance in the personal computer manufacturing industry: A balanced scorecard framework

Questions about the relevance of accounting information have generated interest in the use of nonfinancial information to improve performance measurement and decision-making. Research to date, however, has produced only limited evidence of economic benefit from the use of nonfinancial measures. These results may depend as much on firms' ability to implement performance measurement systems that include nonfinancial measures as they depend on the value of the nonfinancial information itself.; This research therefore explores the value of nonfinancial information in conjunction with financial information with respect to explaining firm performance. The value of nonfinancial information is related to its ability to measure relative performance among direct competitors. The nonfinancial information must measure those characteristics that drive long-term strategic success.; This research first proposes a framework that incorporates the cause and effect relationships described in Kaplan and Norton's book The Balanced Scorecard (1996) to integrate nonfinancial leading indicators with financial outcome measures of performance. Using this framework, it addresses two questions: (1) Does nonfinancial information provide insight into the factors that drive different levels of performance within an industry? (2) And, does the framework improve our ability to explain and predict economic performance when compared to models based only on previous financial data?; This research focuses on relative performance in the personal computer manufacturing industry. The highly competitive nature of this industry and the context of rapid change provide a rich environment for examining the role of customer satisfaction. The Balanced Scorecard-oriented framework developed here provides a complete yet parsimonious view of the underlying relationships that determine competitive success or failure in a market or industry.; The evidence shows that the nonfinancial measure, customer satisfaction, is directly related to the relative change in sales and profitability over time, and that relationship is robust to the inclusion of other variables, i.e., proxies for firm image and relative selling prices, that are known to influence consumers' purchase decisions. The personal computer (PC) manufacturing firms that received the highest satisfaction scores enjoyed more than twice the sales growth of other firms. The evidence indicates that customer satisfaction is directly related to nonfinancial measures of business process performance, e.g., process quality and timeliness. It also demonstrates the incremental explanatory power of customer satisfaction when included in models based on the time series nature of accounting data.