The judgmental bias in performance evaluation: Its existence and mitigating methods — Evidences from a BSC experimental study

Each business unit in a diversified company needs to formulate its operating strategy, and accordingly develops its own Balanced Scorecard (BSC). However, previous studies found that there is a judgmental bias when company executives evaluate the performance of business units using their BSCs, which assigns excessive weighing to common measures among business units and neglects using the information of unique measures of each unit. It impairs greatly the application value of the BSC. This study proposes two methods of mitigating the judgmental bias: (1) Improving strategy description to enhance evaluators´ understanding of the operating strategy and unique measures of business units; (2) Adopting a disaggregated evaluating pattern with requirement to justify evaluation process so as to stimulate evaluators´ cognitive effort. We conducted an experimental study to examine the effectiveness of the two methods, requiring participants to play the role of company executives and evaluate the overall performance of its two business units using their BSCs and strategy information. We manipulated the performance of two business units so that the performance (better-than-target percentage) of each of four measures in every BSC aspect varies according to common measures or unique measures, but their sum of percentages is the almost same. Results of the experimental study indicate that either improving strategy description or stimulating cognitive effort lowers the difference of weightings evaluators assign to common and unique measures, therefore reducing effectively the extent of the judgmental bias.