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PAPER WORK

Implications of Balanced Scorecard towards the

Strategic Performance of SMEs

By

Abdulsattar M.Alshammari
Dr. Amran Rasl
Ivan McPhillips
BanderAlharthi
Month 2012
ABSTRACT

This paper has discussed and analyzed the significant of BSC towards the SMEs. BSC
Implementation in Small and Medium Organizations can improve the performance of the
people and the organization. This research has used the mixed methodology, quantitative
and qualitative methods conducted by interviewing BSC implementation responsible and
by filling up the questionnaire by strategy and performance managers. In this research
study the close ended as well as the open ended questions are being used. Thus, this
research proved that the performance of the organization and employee can be improved
by adopting BSC model into firms.
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Theoretical Background of Balanced Scorecard

Attain the opportunities and staying away from threats is the common objective of any
business, which needs to understand the ability and the environment.

Small and Medium Enterprises (SMEs) role in the recent economy is becoming grater
due to the role of driving the country’s economy by adding value for wither in developed
or in developing countries

Approximately every organization assert that it has its own objectives, mission and
vision, but do they really have? When businesses mentioned their objectives in their
meeting they usually mean the financial side of the business. There is no doubt that the
main aim of any business is the profit maximizing, which sideline the other important
objectives in the management strategy (Vitale Mavrinac 1994, 17).

For the purpose to fill the gap between the management concerns and the other important
objectives, Kaplan and Norton came up with the concept “Balanced Scorecard” as a
solution of the heavy bias to the financial goals. Such concept has given managers a
better indication and control of the performance instead of the regular way (Robert
S.Kaplan and David P.Norton 2007, p.2).

Balanced Scorecard was launched in 1992 to provide better performance control for
firms. It has been designed to provide a strategy translation into the firm’s activities
through every employee and every single activity.

Initially, Balanced Scorecard started as a measure and to define the strategic concepts
such as the growth objective and the quality targets. This gave the birth of the strategy
map. These two methodologies worked

These two methodologies have been used intensely in the education field. Although, the
balanced scorecard usage is still rabidly growing. The balanced Scorecard is a
methodology focuses about the firm’s mission. From the mission, certain goal areas helps
to achieve the missions are identified. Every objective is breaken down to units, data, and
annual measurable goals.

As of the management strategy point of view, the purpose of Balanced Scorecard is to

bring up the firm’s objectives, mission and vision through Key Performance Indicators
(KPIs). The major categories of BSC are: Financial, Customer Service, Internal Business
Process, and Learning and Growth. Focusing on these four dimensions ensures covering
all the firms operations in to the firm’s strategy.
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Today, organization have scorecard for many function such as H.R. scorecard, I.T.
scorecard) which are different than the balanced scorecard. Balanced Scorecard refers to
a group of measures helps to manage and control the firm’s strategy. BSC begins after
setting the firm’s strategy and vision by using some certain measures to achieve and
execute the firm’s strategy (Kaplan and Norton 1992, 1996).

Importance of Non-financial Performance Measures

The only use of financial measures has been criticized because of the short-term thinking.
The short-term thinking can affect the strategic objectives and the firm’s growth because
of unreliable decision. An example of the short-term thinking is the reducing R&D
budget just to reduce the expenditures will automatically increase the profits, and this can
be done for the short-term but for the long-term, this action might affect the product
development, lunching new products and/or services, producing innovative solutions
reduce the costs or increase profits.

Andersen (2001) proposed that the long-term performance depends on the future looking
measures, since the profitability provides assessment for the past performance. In the
other hand, firms are replacing the financial measurements with a broader group of
measures (Chabrow 2002, 20).

The Advantages of Adding Qualitative Perspective with the Balanced Scorecard

Waxenberger and Bieker proposed an improved Balanced Scorecard system which they
call “Sustainable Balanced Scorecard (SBSC)” which involve additional important
factors such as: environment and sustainability which haven’t been included by the
original BSC system.

In addition to the main function which is translating the organization’s mission, BSC can
be used to evaluate the organization’s performance which enable the management to
control better.

The BSC claimed two main enhancements over the regular performance measurement
system which are identifying four major elements for every firm’s competitiveness
(Investing in learning and growth activities, Improving efficiency of internal processes,
Providing customer value, and Increasing financial success). The second is making a
linkage between the leading and lagging measures of both financial and nonfinancial
performance. These measures by acrossingeach others in all the organization activities
will be able to evaluate and give a clear image of the organization’s performance.
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The Balanced ScorecardProblems

As per Kaplan and Norton (2001), only 5% of the employees understand their
organization’s strategy, 25% of managers are overall organization’s strategy oriented, and
60% of firms don’t even link their budget to their strategy. Moreover, 85% of executives
are not spending more than one hour a month for discussing the organization’s strategy.

Balanced Scorecard’s implications towards the organizations

Large firm’s practices of the BSC indicate that the design of BSC should be a
combination of the operational and strategic level key employees. The choice of not using
such approach will most probably reduce the strategy value (Simon 1957,
Mintzberg1990), which might even waken the execution due to less interest and support
(Thomson’s “dominant coalition”: (Thomson 1967). (Henrik Andersen, Ian Cobbold and
Gavin Lawrie, 2001, p.5), while small firms have smaller number of decision makers and
stakeholders the number is hard to be control or directed in the large firms.

While the nature of Balanced Scorecard is the same in SMEs and Large firms, the
planning, and implementation time is shorter and easier for SMEs comparing with large
enterprises.

But the approach needs to be documented and organized as done in larger organizations.
Both these types would definitely need collective designing to make the Balanced
Scorecard work in the interest of the organization otherwise the efforts would hardly be
useful in any sense. The small organizations when growing and transforming to medium
organization would require more documentations, controls and balances (Henrik
Andersen, Ian Cobbold and Gavin Lawrie, 2001). The element of persuasion is really
important in doing implementations. The more persuasive the management or owner is,
the more outcome can be achieved. As smaller organizer have usually the stakeholders as
the direct managers of the enterprises, their persuasion is more in effort and effective.
The primary reason for this is certainly the stake involved.

Research Methodology

Research Design

The research is more exploratory in nature than descriptive. It determined the perception
of BSC (Balanced Scorecard) and its application process, its usefulness and repercussions
of its incorporation in the organization’s decision making. It has also explored the reasons
 4

for most repeated outcome (qualitative insights would come into play). In this research
study, the following perceptions have been discussed:

1. The responsibility of implementing and supervising Balanced Scorecard

2. How to enhance the application of BSC (Balanced Scorecard)?

Questioners have been uploaded to (www.surveymonkey.net) which has incorporated the

balanced scorecard techniques. So most of the companies, users can access the link and
fill out the survey in an easy way.

The quantitative aspects of the research inquiry would be the average size of number of
employees in the company, average age of these businesses, net profit earned by them,
time since incorporation of BSC (Balanced Scorecard).

The quantitative analysis has also been laid upon the number of respondents terming the
BSC (Balanced Scorecard) technique as Satisfactory or not Satisfactory to their company
needs. Other statistics have been obtained if the sample response size seems satisfactory
to quantitative needs.

Questionnaire

A questionnaire is a structured technique for collecting primary data. It is generally a

sequence of written questions for which the respondents has to give the answers (Bell
1999).

The first part of the questionnaires consists of six questions and asks for particular details
regarding the type of organizations, its size, its profitability and other details regarding it.
The Second part which consists of five questions deals with how/when/why the
respondents became associated with the BSC (Balanced Scorecard) techniques. Where
did they get the information regarding it, what influenced them to incorporate it? The
third section consists of four divisions (the first division has five questions, the second
has six questions, the third has seven questions and the fourth has twelve questions) it
deals with respondents’ opinion about implementing the BSC (Balance Score Card), in
quantitative manner (closed questions). The fourth section consists of twelve questions
and represents respondents’ opinion about implementing the BSC (Balanced Scorecard)
in descriptive manner (open questions). The advantage of using questionnaire is that it
answers the research objectives clearly at very minimum cost. The questionnaire can be
sent to a large number of potential respondents from amongst which interview
participants can be filtered out.
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The accumulated organizations that received the link of the questionnaire were 63
companies, 39 responds received, 34 out of the 39 were from SMEs (14 small and 20
medium enterprises).

The organizations that participated in the questionnaire were randomly selected

companies, although some companies for the sake of their privacy refused to reveal their
companies’ names.

Analysis and discussion

Type of Businesses Surveyed

Industrial:
The SMEs respondents belonged to mixed types of businesses 20
41%
from Services to Industrial related businesses. The ratio was companies

tilted towards the Industrial sector with 59 percent (20 59%

Services:
companies) respondents from it and the remaining 41 percent (14 14
companies) from the Services Sector Type of Organizations. This companies

study included firms from many countries (Saudi Figure 1: Business Type (SMEs)
Arabia/USA/UK/Ireland).

Around 41.2 % (14 companies) respondents who belonged to 25 80.0%

Number of Respondents
Profit maximizing organizations attributed their organization 20 58.8% 60.0%
making profit less than € 10,000,000 (SR1,000,000), while in 15
41.2% 40.0%
around 58.8% (20 companies) were making profits between 10
5 20.0%
€10,000,000- €50,000,000 (or) between SR1,000,000- 0 0.0%
10,000,000. 41.2% 58.8%

Section Two 14 20
Below
Between
€ 10,000,000
€ 10,000,000-
Figure(or) below
2: Net €50,000,000
SR1,000,000
profit (or)between
of the SMEs.
This section gives some knowledge about (How, When) did the 10,000,000
(SMEs) choose to implement the BSC (BALANCED
SCORECARD).

How did you know about BSC (Balanced Scorecard)?

15 40.0%
Respondents
Number of

10 26.5% 29.4%
20.0%
5 11.8% 11.8%
5.9% 8.8% 5.9%
0 0.0%
Training course consultant WORKSHOPS previous other companies Managing via our
experience Director experience

Figure 5: How did you know about BSC (Balanced Scorecard)?

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Individuals had mostly learned about BSC (Balanced Scorecard) from either a training
course or from consultants coming to their organization for training and development.
Few of the respondents had heard regarding BSC (Balanced Scorecard) from workshops,
previous experience, other companies or MDs.

Schedules or Deadlines Regarding the Implementation of BSC (Balanced Scorecard)

30 100.0%
Respondents

79.4% 80.0%
Number of

20 60.0%
10 40.0%
17.6% 20.0%
0 2.9% 0.0%
Monthly Quarterly Weekly

Figure 7: Is there any schedules or deadlines you are committed to regarding the implementation

of BSC (Balanced Scorecard)?

Most of the respondents (27 companies) were committed to monthly implementation of

Balanced Scorecard implementation deadline in their organization. Only around 20
percent (7 companies) were implemented it weekly or quarterly. The reason for this could
be the way BSC (Balanced Scorecard) methodology is conveyed to the companies or how
they perceive the optimal deadline for implanting BSC (Balanced Scorecard) based on
their own understanding. There were few responses (Less than 10 percent (2 companies))
which said that there was a different time limit for different departments (In addition to
their previous answer), for some it was weekly, for some quarterly/monthly or even both.

Section Three

This section represents the (SMEs) organizations opinion about implementing the BSC
(Balanced Scorecard), in quantitative manner (closed questions).

Please rate the influence of the following factors in your decision about the benefits of
implementing BSC (Balanced Scorecard) in your organization using the following likert
key: A = extremely significant; B = Very significant; C = Significant; D = Insignificant;
E = No effect at all
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Financial Returns Satisfy Shareholder Expectations

20 60.0%
Respondents
Number of

50.0%
41.2% 40.0%
10
20.0%
8.8%
0 0.0% 0.0% 0.0%
A-Extremely B-Very Significant C-Significant D-Insignificant E-No effect at all
Significant

Figure 8: Financial returns satisfy shareholder expectations (SMEs)

The response regarding shareholder satisfaction from financial returns was mostly
between Very Significant and Significant, 41.2 percent (14 companies) reported it as
being a significant factor while 50 percent (17 companies) saw it as very significant
factor. No one claimed it as an insignificant factor for the implementing the BSC
(Balanced Scorecard) in their organizations.

Customer Satisfaction and Customer Retention

15 50.0%
41.2% 40.0%
Respondents
Number of

10
29.4% 30.0%
23.5% 20.0%
5
10.0%
0 2.9% 2.9% 0.0%
A-Extremely B-Very Significant C-Significant D-Insignificant E-No effect at all
Significant

Figure 13: Customer satisfaction (SMEs)

15 50.0%
Respondents

38.2% 40.0%
Number of

10 32.4% 30.0%
20.6% 20.0%
5
8.8% 10.0%
0 0.0% 0.0%
A-Extremely B-Very Significant C-Significant D-Insignificant E-No effect at all
Significant

Figure 14: Customer retention (SMEs)

 8

Respondents felt that the implementation of BSC (Balanced Scorecard) in their

organization helps towards customer satisfaction and improve client retention. Less than
10 percent (3 companies) of them thought that these were not significant enough factors
for the implementation of Balanced Scorecard Methodology in their respective
organizations.

Market Share Increase

15 50.0%
40.6% 40.0%
Respondents
Number of

10 31.3% 30.0%
5 18.8% 20.0%
9.4% 10.0%
0 0.0% 0.0%
A-Extremely B-Very Significant C-Significant D-Insignificant E-No effect at all
Significant

Figure 16: Market share increase (SMEs)

While majority of the respondents did feel that the implementation of BSC (Balanced
Scorecard) help in increasing market share but there were minority of 9.4 percent
respondents (3 companies) which did not agree with them at all. Moreover 9.4 percent (3
companies) also believed that customer acquisition was not a significant factor for
bringing in BSC (Balanced Scorecard).

The Balanced Scorecard provides management with a comprehensive picture of

business operations

30 100.0%
Respondents
Number of

20 64.7%
50.0%
10
23.5%
0 5.9% 5.9% 0.0% 0.0%
A-Extremely B-Very Significant C-Significant D-Insignificant E-No effect at all
Significant

Figure 19: The Balanced Scorecard provides management with a comprehensive picture of business

operations (SMEs).

There was a strong perception that BSC (Balanced Scorecard) provided management
with comprehensive picture business operations. Around 22 out of the 34 respondents
responded that they found it an Extremely Significant contributing towards the decision
of implementing BSC (Balanced Scorecard) in their organizations. There were only two
individuals who thought that this was an insignificant factor which leads to the bringing
in of BSC (Balanced Scorecard).
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Creativity and Unexpected Ideas Increase

20 60.0%

Respondents
Number of
15 44.1% 40.0%
10
20.6% 20.0%
5 14.7% 14.7%
5.9%
0 0.0%
A-Extremely B-Very Significant C-Significant D-Insignificant E-No effect at all
Significant

Figure 21: Creativity and Unexpected ideas increased (SMEs)

Only 20 percent respondents (7 companies) thought that Creativity and unexpected ideas
were hardly affected by the BSC (Balanced Scorecard) implementation. They thought of
it as insignificant factor or a factor which had no link at all with the implementation of
balanced scorecard mythology in their organizations. Remaining 80 percent (27
companies) disagreed with them.

Existence of Quality Measures

15 60.0%
Respondents
Number of

10 41.2% 38.2% 40.0%

5 20.6% 20.0%
0 0.0% 0.0% 0.0%
A-Extremely B-Very Significant C-Significant D-Insignificant E-No effect at all
Significant

Figure 22: Existence of quality measures (SMEs)

Almost all the respondents felt this was significant or more than a significant
motivational factor for implementing BSC (Balanced Scorecard) in their organizations.
41.2 percent (14 companies) believed it as very significant factor, 38.2 (13 companies) as
significant and almost 20 (7 companies) believed it as an extremely significant factor for
the implementation of Balanced Scorecard.
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Increase of Employee Retention

20 60.0%
Respondents 15 44.1%
Number of

40.0%
10 26.5%
17.6% 20.0%
5 11.8%
0 0.0% 0.0%
A-Extremely B-Very Significant C-Significant D-Insignificant E-No effect at all
Significant

Figure 26: Increase of employee retention (SMEs)

Almost 26.5 Percent (9 respondents) believed that implementation of BSC (Balanced

Scorecard) hardly help in employees’ retention. The remaining 73.5 percent (25
respondents) thought of it as a significant or more than a significant factor to have BSC
(Balanced Scorecard) in their organization.

Increase of Employee Training

15 50.0%
Number of Respondents

41.2% 40.0%
10 30.0%
26.5% 26.5%
5 20.0%
10.0%
5.9%
0 0.0% 0.0%
A-Extremely B-Very Significant C-Significant D-Insignificant E-No effect at all
Significant

Figure 27: Increase of employee training (SMEs)

Around 73 percent (25 respondents) believed that it is a significant factor to increase the
training of the employees but 26.5 percent (9 respondents) thought of it as insignificant
which a high enough number is.

Increase of Employee Skills

20 50.0%
Respondents

38.2% 38.2%
Number of

10
17.6%
0 5.9% 0.0% 0.0%
A-Extremely B-Very Significant C-Significant D-Insignificant E-No effect at all
Significant

Figure 28: Increase of employees' skills (SMEs)

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Majority respondents felt that BSC (Balanced Scorecard) implementation would help in
improving the employees’ skill. Only 17.6 percent (6 respondents) replied it was not a
significant enough factor to implement BSC (Balanced Scorecard).

Increase of Employee Satisfaction

15 40.0%
35.3% 35.3%
Respondents
Number of

10
17.6% 20.0%
5 11.8%
0 0.0% 0.0%
A-Extremely B-Very Significant C-Significant D-Insignificant E-No effect at all
Significant

Figure 29: Increase of employees' satisfaction (SMEs)

Around 35.3 percent (12 respondents) felt is as significant factor and again 35.3 percent
(12 respondents) thought it as a very significant factor.

Increase of Employee Morale

20 60.0%
Respondents

47.1%
Number of

40.0%
10 29.4%
17.6% 20.0%
0 5.9% 0.0% 0.0%
A-Extremely B-Very C-Significant D-Insignificant E-No effect at all
Significant Significant

Figure 30:Increase of employee morale (SMEs)

The employee morale is expected to rise from BSC (Balanced Scorecard) and the
respondents replied that it is significant or more than a significant factor.

Open Ended Questions

 Did the implementation of BSC (Balanced Scorecard) - Transforms strategy into

action and desired behaviors?

Thirty out of thirty four (SMEs) respondents who answered this question agreed with
BSC (Balanced Scorecard) transforming strategy into action and desired behaviors. This
is reasonably positive response which makes approximately 89 percent of those who
answered. There were few individuals who saw a very strong relation and some saw no
relation at all. The ones who answered yes gave the following reasons:Clarification of the
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objectives, Assist in achieving the main goal, and Breaks main objectives into numerous
chunks and makes them easier to transform strategy into action and desired behavior.

 Did the implementation of BSC (Balanced Scorecard) bring unique Competitive

Advantage such as: reduce time frame, improved decision and better solutions,
improved process or any other competitive advantage?

The entire number SMEs respondents replied by the implementation of BSC (Balanced
Scorecard) resulted in the improvement of the processes, improvement in decisions and
better solutions. These are the competitive advantages that have brought by the
implementation of BSC (Balanced Scorecard) in the organizations. Reduced time frames
were another reasonably popular response amongst the respondents.

The other competitive advantages mentioned by the respondents included:Help measure

organization capabilities, improved quality of work with more clear objectives and
reduced cost, Unite the efforts set clear and ambition sub-goals, improving the overall
performance

 Did the implementation of the methodology facilitate communication and

understanding of business goals and strategies at all levels of an organization?

Except three individuals all other thirty three respondents replied that the implementation
of the methodology in the SMEs did facilitate understanding of the business goals and
strategies at all levels of an organization. The cause given was once again clarity in
objective for all individuals working in the organization.

 The Balanced Scorecard provides management with a comprehensive picture of

business operations

Majority of the SMEs respondents agreed with this statement. They replied that BSC
(Balanced Scorecard) provides management clarity in the organizational objectives,
straight forwardness, and defining clear consequences of their organization strategies.
Only four respondents disagreed with the above statement.
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RECOMMENDATIONS

The recommendations in regards to Balanced Scorecard Implementation can be made

based on the conclusion provided by the research. The research indicates that their
knowledge base regarding Balanced Scorecard needs to be improved. This would lead to
more awareness regarding the methodology. More innovations in this regard are needed
to bring in buy in from company employees as it an essential part on which company
performance is gauged. As far as the enhancement of Balanced Scorecard Methodology
is concerned, it can be improved through more communication, better understanding, and
through involvement of more employees. Using Balanced Scorecard is very helpful for
companies, especially small and medium companies, where some Company used the
Balanced Scorecard although it is large companies, so this research gives an opportunity
to the small and medium companies to use the balanced scorecard with very low costs
and innovative ways. It can be suggested in the future to study the implication of
Balanced Scorecard implementation in specific industry or country.

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