Value for the diagnostic process

Compared to the budget process, the BSC is likely to contribute with significant diagnostic value. Considering the drawbacks of forecasting, applying benchmarks, although only internal, would probably be beneficial. Since the design of the BSC goes a long way in improving the diagnostics, we believe that implementing it would decrease the chances for mechanical use of the diagnostic control system. It is also well suited for designing an incentive system to direct the necessary attention to the relevant performance measures.

Additionally, although not a shortcoming in the budget process, the BSC is well suited for communicating strategies making it a good alternative for diagnostic control.

15.3 Conclusions

The BSC clearly has several advantages both for interactive and diagnostic control. Compared to the current control systems in the bank, we opt to assert that the BSC would serve as an improvement either used interactively or diagnostically. But, as we have mentioned here and further explained in Part II, it will always be the way that the managers use the BSC that is of

80 importance. Especially for the shortcomings related to the external benchmarking a control system can never be the sole solution.

Since the success of implementing the Scorecards depends on the managers’ and employees’

attitude towards it, as well as their willingness to make good use of it, we will not take a stand to whether it should be utilized in the interactive or the diagnostic control process. We do however acknowledge that the bank is unlikely to remove their budget, implying that an interactive use of it is more likely. Additionally we consider the Focus areas’ fiscal importance to be increasing and acknowledge their development in the bank over the last years. Consequently, we believe that if the bank opts to introduce a new control system, it will be in their interactive control process. If we assume correctly, we hope that the management uses the BSC actively to increase the internal debate and dialogue, as well as building on their current knowledge of – and position in the market to achieve continuous proactivity in their Interactive control process.

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CONCLUSIONS

The challenge we strived to overcome in this thesis was how Sparebank 1 Ringerike could customize their Management control process to a changing environment. In the theory we were concerned with interactive and diagnostic control, the budget and the Balanced Scorecard presented with a normative perspective. We argued that the bank would need a well functioning interactive control process to capture the strategic uncertainties relevant to their business strategies, and signal these by using an interactive control system. We also acknowledged that the bank would have to complement the interactive control process with a diagnostic control process suited to keep the bank’s operations on track.

In the analytical part we found several shortcomings with respect to both of their processes.

With respect to the Interactive process, the managers’ interactive attitude is not reflected in the control system. The lack of signalling, cause-and-effect relationships, as well as arbitrary benchmarking and bonus system hamper the debate and dialogue and presumably lead to an interactive approach only once a year. The Diagnostic control is in the bank performed through the Budget process. This process is however highly mechanic and applies doubtful preset standards as well as a non existing incentive system.

We do however acknowledge why these shortcomings have prevailed in their control systems.

The bank’s strong position in – and knowledge of the market, the organizational culture claiming significant informal communication, and the utilization of the competences in SB 1 Gruppen are all factors reducing the incentives to revise their Management control process.

Our conclusions as well as the bank’s curiosity did however lead to further investigations on how the Balanced Scorecard could participate in improving the shortcomings. We do argue that the BSC could remedy a great deal of the shortcomings both in the Interactive and the Diagnostic process. We do not take a stand to if and in which process the BSC should be implemented. We find it more important to stress that the managers must comprehend and adopt the necessary strategic attitudes for any control system to function well in the Interactive and the Diagnostic control process.

The solution to the problem statement must thus be to improve both their Interactive and their Diagnostic process. The Interactive process will be improved by employing a control system

82 facilitating the debate and dialogue, whereas the Diagnostic process will be improved by directing focus towards improving the mechanic approach. If successfully achieved, we believe the bank will be even more capable of coping with future challenges.

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CLOSING NOTE

We have reached the end of our thesis, and it is time for some final reflections on our work and the results we have attained, as well as making some suggestion for further research. We would also like to take this opportunity to once again thank all the people who have contributed to the thesis.

On the work

The description of the bank is based solely on our subjective interpretations of the information obtained through the internal documents as well as the interviews that we have conducted. As we have not actively participated in the process, there are bound to be elements that have not received our attention. Neither do we possess a comprehensive knowledge of the bank’s local environment nor the bank sector in general, that might have influenced our view on certain issues. Finally, we have not performed a comprehensive investigation to test whether our interpretations are correct, and we acknowledge that misinterpretations may have occurred.

Regardless of this, we feel that we have obtained a solid understanding of the organization and how it works. The employees in the bank have generously and openly answered all of our questions and there have been no restrictions as to which documents we have been given access to. Finally, Magne’s work experience from the bank has also provided us with valuable insight that would have been almost impossible to obtain otherwise.

Suggestions for future research

The final section describes how the BSC could remedy some of the shortcomings identified through the analysis. Although we have identified some positive attributes with the use of the Scorecard, we would like to stress the importance of conducting a more thorough analysis on all the consequences of an implementation of any control system in the organization before starting the development and implementation process. This analysis should draw upon the internal competence present in the bank, involving more people from various levels of the bank.

We end with a humble wish that this thesis can be of value for the bank especially and others who have taken the time to read it.

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REFERENCES

Literature

• Anthony, R. N. & Govindarajan, V. (2004) – Management Control Systems. McGraw-Hill/Irwin, 11^th edition.

• Davis, S. & Albright, T. (2003) – An investigation of the effect of Balanced Scorecard implementation on financial performance. Management Accounting Research nr.15.

• Hedberg, B. (1981) – How Organizations Learn and Unlearn, in Starbuck, W. H. &

Nystrom, P. C. (eds) Handbook of Organizational Design pages 3-27, New York:Oxford University Press.

• Kaplan, R. S. & Atkinson, A. A. (1998) – Advanced management accounting. Prentice Hall. 3^rd edition.

• Kaplan, R. S. & Norton, D. P. (1996) – Linking the Balanced Scorecard to Strategy.

California Management Review, Vol. 39.

• Kaplan, R. S. & Norton, D. P. (2004) – How strategy maps frame an organization’s objectives. Financial Executive, March/April.

• Mintzberg, Henry (1973) – The Nature of Managerial Work. New York: Harper &

Row.

• Olve, N., Petri, C. Roy J. & Roy S. (2004) – Twelve years later: Understanding and realizing the value of balanced scorecards. Ivey business journal, May/June.

• Simons, R. (1987) – Accounting control systems and business strategy: an empirical analysis. Accounting, Organization and Society; Vol. 12.

• Simons, R. (1990) – The role of management control systems in creating competitive advantage: new perspectives. Accounting, Organization and Society; Vol. 15.

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• Simons, R. (1991) – Strategic orientation and top management attention to control systems. Strategic Management Journal; Vol 12.

• Simons, R. (1995) – Levers of control: how managers use innovative control systems to drive strategic renewal. Harvard Business School Press.

• Simons, R. (2000) contributors: Antonio Dávila, Robert S. Kaplan – Performance Measurement & Control Systems for Implementing Strategy. Prentice-Hall Inc.

• Spence, M. (1974) – Market Signalling, Cambridge MA: Harvard University Press

• Wallander, J. (1994) – Budgeten – et onödigt ont. SNS Førlag.

Internal documents

• Strategi for Sparebank 1 Gruppen AS (2004-07)

• Budsjett og Planer 2005 for Sparebank 1 Ringerike

• ”Presentasjon SpareBank 1 Ringerike, Stavanger 15.juni 2005”. Powerpoint presentation.

Meetings

• Bjørnenak, Trond – Counselling sessions related to the work on the thesis.

• Haugli, Steinar – Interviews to get more information on the bank. Performed on several occasions, over the phone, the Internet and face-to-face meetings.