BUSI 601 Week 7 Individual Learning Project 2 Example

The Balanced Scorecard as a Contemporary Management Technique: Research Evidence and an Application to Costco Wholesale

Introduction

The first learning project concluded that Costco Wholesale competes through cost leadership supported by a membership model, and that six critical success factors capture whether that strategy is working. It also noted two areas to watch: renewal among members outside the core North American market and pressure on a deliberately thin margin. This paper explores the balanced scorecard, a widely used contemporary management technique, and applies it to Costco. The question is whether organizing those success factors into a scorecard linked by a strategy map would help the company manage its strategy better than a list of measures alone.

The Balanced Scorecard and the Strategy Map

Kaplan and Norton developed the balanced scorecard in the early 1990s in response to a concern that financial measures alone describe past results without explaining how future results will be produced. Their scorecard groups measures under four headings: the financial results owners expect, the customers the firm serves, the internal processes at which it must excel, and the learning and growth of its people and systems. Kaplan and Norton (1996) argued that the scorecard becomes a strategic management system, rather than a collection of measures, when its objectives are linked by cause and effect, when it mixes outcome measures with the performance drivers that produce them and when it ties back to financial results. Blocher et al. (2019) present the scorecard in the same way, as a tool for implementing strategy, and pair it with the strategy map, a diagram that shows how improvements in learning and growth are expected to improve internal processes, which in turn deliver value to customers and financial performance to owners.

The technique is now old enough to have a substantial research record. Hoque (2014), reviewing two decades of scorecard studies, found that research had moved from describing adoption toward examining how the scorecard is used and with what consequences, and he noted that the evidence on performance effects remained mixed and dependent on how the scorecard was implemented.

Evidence on Effectiveness

The most direct evidence of a performance effect comes from Davis and Albright (2004), who compared branches of a bank that implemented a balanced scorecard with branches that did not. Over the study period, the scorecard branches outperformed the others on a composite of key financial measures. Because branches of a single bank share products, systems and market conditions, the comparison is more controlled than most studies of management techniques, though the authors could not randomly assign the scorecard.

Malina and Selto (2001) studied how a scorecard was used to communicate and control strategy in a large manufacturer's distribution network. They found that the scorecard could communicate strategy and motivate managers when its measures were seen as linked to strategy and within managers' control, but that disagreements over measures, benchmarks and the way results were used created tension and reduced its value. Speckbacher et al. (2003), surveying companies in German-speaking countries, found that many firms that reported using a balanced scorecard used it only as a set of financial and nonfinancial measures, without the cause-and-effect links or the connection to action plans and incentives that Kaplan and Norton described. That finding suggests that some disappointing results may reflect incomplete implementations rather than the technique itself.

Documented Pitfalls

Two pitfalls are especially relevant to a company with many similar operating units. Lipe and Salterio (2000) asked participants to evaluate the managers of two divisions whose scorecards contained both common measures, shared across divisions, and unique measures, specific to each division's strategy. Evaluators based their judgments on the common measures and largely ignored the unique ones. If the unique measures are the ones that capture a unit's particular strategy, this common-measures bias defeats much of the scorecard's purpose.

Ittner et al. (2003) examined a financial services firm that used a balanced scorecard to determine bonuses, with supervisors free to weight the measures subjectively. In practice, supervisors relied heavily on financial measures, ignored many nonfinancial measures, including some that predicted future financial performance, and made bonus awards that employees perceived as favoritism. The firm eventually abandoned the scorecard-based plan. The lesson is not that subjectivity is always harmful, but that a scorecard used for pay requires clear, agreed weights and evidence that the measures matter.

Applying the Balanced Scorecard to Costco

Costco's strategy map begins with its people. In the learning and growth perspective, the company's emphasis on taking care of employees, which Cascio (2006) linked to low turnover and high productivity, supports internal processes: efficient buying, low-cost warehouse operations and the development of Kirkland Signature products. Those processes deliver the customer value proposition, quality merchandise at consistently low prices, which drives renewal, Executive upgrades and member growth. Member growth and renewal, in turn, drive fee income and the sales volume on which buying power depends, producing the financial results. Banker et al. (2000) found that nonfinancial measures added to a performance plan can foreshadow later financial results, which is the premise of linking these perspectives.

The proposed scorecard below uses fiscal 2026 figures from Costco's annual report as baselines where they are reported (Costco Wholesale Corporation, 2026). Targets are illustrative proposals for discussion.

The Executive share is computed from the annual report's 42.3 million Executive members among 84.1 million paid members. Several measures, such as private-label share and employee turnover, are tracked internally rather than reported, so their targets would be set from Costco's own data.

The strategy map also clarifies how the measures interact. A decline in employee retention would be expected to show up first in internal process measures, such as longer checkout times or weaker execution of new Kirkland Signature lines, and later in renewal and Executive upgrades, and only after that in fee revenue. Under a financial-only reporting system, managers would see the problem after members had already left; under the scorecard, the leading indicators would give them time to respond. The same logic applies to margin. If the company absorbs tariff or supplier cost increases to keep prices low, the merchandise margin would fall in the short term, and the scorecard would show whether renewal and member growth held up enough to justify the decision. In that sense the scorecard does not replace the judgment Costco's leaders already exercise; it gives that judgment a shared vocabulary and earlier evidence, and it gives warehouse managers a clearer view of how their daily decisions about staffing, service and assortment connect to the company's results.

Implementation Plan

Implementation should proceed in three steps. First, senior leaders would confirm the strategy map, since Kaplan and Norton (1996) emphasize that the scorecard's value comes from agreement on how the strategy works. Second, the scorecard would be cascaded to regions and warehouses. To avoid the common-measures bias that Lipe and Salterio (2000) documented, each warehouse's review would include a small number of unique measures tied to its situation, such as renewal among new members in a recently opened location, and reviewers would be asked to comment on each one explicitly. Third, if the scorecard is later tied to bonuses, the weights should be announced in advance and revisited annually using evidence on which measures predict financial results, avoiding the unstructured subjectivity that undermined the plan studied by Ittner et al. (2003).

Limitations

The scorecard has costs and limits. Kaplan and Norton (1996) describe its development as a leadership process that takes months, not a reporting exercise, and Costco's decentralized warehouse managers would need to see the measures as fair and within their control, a condition Malina and Selto (2001) found essential to the scorecard's acceptance. Building reliable data for measures such as turnover by tenure and private-label share requires investment, and a scorecard with too many measures dilutes attention. The evidence on performance effects, while encouraging, comes largely from single-company studies, and the benefits depend on how well the scorecard is implemented. For a company as successful as Costco, the strongest argument for the scorecard is not that it will fix a problem but that it will make the links between employees, members and financial results visible and discussable throughout the organization.

Biblical Integration

In Habakkuk 2:2, the Lord directs that a revelation be inscribed clearly enough on tablets that a runner could carry it. A strategy map serves a similar purpose in an organization: it states plainly how the strategy is meant to work, so that employees in hundreds of warehouses can act on it. The scorecard also reflects the biblical theme of faithful stewardship, since it asks managers to account not only for financial results but for the people and relationships on which those results depend, consistent with the parable in Matthew 25:14-30, in which servants are held accountable for how they developed what was entrusted to them.

Conclusion

The balanced scorecard is a mature management technique with research support when it is implemented completely and documented pitfalls when it is not. Applied to Costco, it would organize the critical success factors identified in the first project into a strategy map that connects employee retention to member renewal and fee income, with measures, baselines and targets in each perspective. An implementation that includes unit-specific measures and transparent weighting would capture the technique's benefits while avoiding the problems the research has documented.

References

Banker, R. D., Potter, G., & Srinivasan, D. (2000). An empirical investigation of an incentive plan that includes nonfinancial performance measures. The Accounting Review, 75(1), 65-92. https://doi.org/10.2308/accr.2000.75.1.65

Blocher, E. J., Stout, D. E., Juras, P. E., & Smith, S. D. (2019). Cost management: A strategic emphasis (8th ed.). McGraw-Hill Education.

Cascio, W. F. (2006). Decency means more than "always low prices": A comparison of Costco to Wal-Mart's Sam's Club. Academy of Management Perspectives, 20(3), 26-37. https://doi.org/10.5465/amp.2006.21903478

Costco Wholesale Corporation. (2026). Annual report on Form 10-K for the fiscal year ended August 30, 2026. U.S. Securities and Exchange Commission. https://www.sec.gov/Archives/edgar/data/909832/000090983226000093/cost-20260830.htm

Davis, S., & Albright, T. (2004). An investigation of the effect of balanced scorecard implementation on financial performance. Management Accounting Research, 15(2), 135-153. https://doi.org/10.1016/j.mar.2003.11.001

Hoque, Z. (2014). 20 years of studies on the balanced scorecard: Trends, accomplishments, gaps and opportunities for future research. The British Accounting Review, 46(1), 33-59. https://doi.org/10.1016/j.bar.2013.10.003

Ittner, C. D., Larcker, D. F., & Meyer, M. W. (2003). Subjectivity and the weighting of performance measures: Evidence from a balanced scorecard. The Accounting Review, 78(3), 725-758. https://doi.org/10.2308/accr.2003.78.3.725

Kaplan, R. S., & Norton, D. P. (1996). Linking the balanced scorecard to strategy. California Management Review, 39(1), 53-79. https://doi.org/10.2307/41165876

Lipe, M. G., & Salterio, S. E. (2000). The balanced scorecard: Judgmental effects of common and unique performance measures. The Accounting Review, 75(3), 283-298. https://doi.org/10.2308/accr.2000.75.3.283

Malina, M. A., & Selto, F. H. (2001). Communicating and controlling strategy: An empirical study of the effectiveness of the balanced scorecard. Journal of Management Accounting Research, 13(1), 47-90. https://doi.org/10.2308/jmar.2001.13.1.47

Speckbacher, G., Bischof, J., & Pfeiffer, T. (2003). A descriptive analysis on the implementation of balanced scorecards in German-speaking countries. Management Accounting Research, 14(4), 361-388. https://doi.org/10.1016/j.mar.2003.10.001