Small and Medium companies

 

“The root cause of either small business failure or poor performance is almost invariably a lack of management attention to strategic issues.”(Jennings and Beaver, 1997)


No matter the size, businesses have benefited from management tools and concepts supported by balanced scorecard - a mechanism for managers to identify, analyze, communicate and monitor the progress regarding business strategies. The links between an organization’s approach to strategic planning and its business performance exist both in small and large sized organizations.


However, for many small- and medium-sized enterprises the idea of using balanced scorecard is considered idealistic due to the misjudged conception that its design and implementation need the budget and manpower of a large organization to be successful.


Indeed, though SMEs should think about it in a different way than the multinational, balanced scorecard can be a part of their business strategy, with even more influential for a small than for a large sized corporation.

 

In a large sized organization, senior managers can lose control of its performance as a result, of their business’s culture and don’t have a clear picture of the overall business. These are basic motivators of implementing a balanced scorecard in a large corporation. However, though managers in a SME don’t have this problem, they can use balanced scorecard for creating a strategic vision and set of objectives for the business, easily and clearly to share with the entire staff.

 

Benefits of the Balanced Scorecard implementation in SMEs

The fact that literature does not refer to Balanced Scorecard as being used by SMEs should not be a barrier that its implementation is as appropriate as for large organizations. Core to this view is the experience of seeing the clear examples of SMEs implementing Balance Scorecard, due to the benefits that the implementation of this management tool brings:

 

  • The need for a clear direction for the future: where is the organization heading?
  • The need for a clear understanding of the business model by the managers: is the organization doing the right things that it should?
  • The need to develop the ability to focus and prioritize: how to balance long-term development and short-term operational pressures?
  • Organizational agility and flexibility driven by learning: how to incorporate new knowledge in the strategic and operational planning processes? (Andersen, Cobbold & Lawrie, 2001).

 

Balanced Scorecard implementation objectives aim to:

  • Create a system approach to form an integrated Strategic Management Process;
  • Provide a tool for communicating the strategy, the processes and systems required for driving performance;
  • Draw a cause and effect roadmap in a one page strategy map, easily to measure and evaluate performance upon.

 

A good Balanced Scorecard should have a mix of outcome measures (lagging indicators) and performance drivers (leading indicators), as both serve different purposes. Outcome measures need performance drivers to communicate how the outcomes are to be achieved or give an early indication about whether the strategy is being implemented successfully. Conversely performance drivers need outcome measures (may achieve short term operational improvements) to reveal whether operational improvements have translated into expanded business with enhanced financial performance (Kaplan & Norton, 1996).

 

Thus, the Balanced Scorecard can be used to:

  • Clarify the strategy and gain consensus throughout the organization
  • Communicate the strategy within all organizational levels
  • Align departmental and individual goals to the organizational strategy
  • Link strategic objectives to long term targets and annual budgets
  • Identify initiatives and align them with the strategy
  • Perform systematic strategic reviews periodically
  • Obtain and use feedback to learn about and improve the strategy (Kaplan & Norton, 1996)

 

Steps to implement the Balanced Scorecard in SMEs

In SMEs, the process of implementation takes less time and resources involved. We chose in the following part, to present the practical steps to implement Balanced Scorecard in a small and medium enterprise, from the CEO checklist point of view, as he can have a great influence upon the process:

 

Step 1:

  • Communicating the implementation plan
  • Agreement with management agenda
  • Design and adoption of Strategy Map
  •  Identifying process owners
  • Plan the periodic review meetings

Step 2:

  • Collect data, design first report, targets and initiatives
  • Review and approve first scorecard report
  • Document initiatives  and document them to Strategy Map

Step 3:

  • Cascading the instrument through  department integration
  • Educate managers and employees with regards to Balanced Scorecard
  • Indicator selection and target setting
  • Scorecards linked into department meetings

Step 4:

  • Embedding the Balanced Scorecard
  •  Periodic update for the Strategic Plan based on the Scorecard
  • Link the budget to the Scorecard
  •  Link performance evaluations to the Scorecard

Source: adapted after Sword (2003)

 

Some Critical Success Factors/Best Practices for implementation are:

  • Clear scope definition & plan implementation in phases.
  • Top Management support & leadership.
  • Educating the employees about the importance of Balanced Scorecard and its impact on the organization and themselves.
  • Making BSC a part of Strategy and conducting monthly review meetings.
  • Committed team with a good Coordinator.
  • Reward points for successfully implementing the initiative.

 

The major difference for a Balanced Scorecard implementation for a large corporation and a SME is the process duration, as it is faster in small organizations, as there are fewer people and generally less complex organizational structures. With efficient internal or external process facilitation, a small organization can usually complete the initial design over a period of 4 to 6 weeks, compared with 12 to 14 weeks in large organizations (Andersen, Cobbold & Lawrie, 2001).

 

Conclusions

Through a well-designed, well-implemented balanced scorecard, SMEs can benefit from a powerful snapshot of their organization and its goals to outside sources, such as potential investors, banks, and so on, but also with a plan shared by management, employees and external stakeholders to drive success (Bourne et al., 2001).

 

Once the balanced scorecard has been designed, much evidence shows that large organizations fail to carry through the adjustments needed to make it a success. A commitment is required throughout a management chain that can run to ten or fifteen levels; a level of management unwieldiness that is blissfully absent in the SME.

 

The sense of ownership for an organizational strategy is highly important, as collective approach boosts the strategy value and the support during its implementation, by the people responsible for executing it. Whether an organization is large or small, successful strategy implementation ultimately depends on managing staff to align their actions, work and individual goals together with the organization’s strategic goals.

 

Resources

  • Andersen, H., Cobbold, I. & Lawrie, G. (2001), Balanced Scorecard implementation in SMEs: reflection in literature and practice.
  • Hudson, M., Smart, A. & Bourne, M. (2001), Theory and practice in SME performance measurement systems, International Journal of Operations & Production Management, Vol. 21, No. 8, pp. 1096-1115.
  • Jennings, P. & Beaver, G. (1997), The performance and competitive advantage of small firms: A management perspective, International Small Business Journal, Vol. 16, pp. 63-75, available at: http://isb.sagepub.com/content/15/2/63.short.  
  • Kaplan, R., S. & Norton, D., P. (1996), The Balanced Scorecard. Translating Strategy into Action, Harvard Business School Press, Boston, MA.
  • Sword, R., (2003), Practical Steps to Implement: The Balanced Scorecard - A Case Study from Local Leadership to National Performance.  

BSC in practice : By company type

 

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