Balanced Scorecard: A Review of Implementation and Future Opportunities

Balanced Scorecard: A Review of Implementation and Future Opportunities

Dosen: Prof. Ir. Syamsir Abduh, M.M., PhD.By:

Fendy Susanto – 222141503Lilian Isabella Wardhana – 222141505

Yvonne Wangdra – 222141511

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Contents• Concept of Balanced Scorecard

– Introduction– History– Strategy Map– Improvement– Future Opportunities

• Benefits of Balanced Scorecard• Balanced Scorecard Drawbacks• Key Implementation Success Factors• Article Discussions

Quality Management and Standardization_Group Assignment

INTRODUCTIONConcept of Balanced Scorecard

Source: Balancescorecardorg, 2016

Introduction : Concept of Balanced Scorecard

• First introduced as a Balanced Scorecard in a 1992 Harvard Business Review article (Kaplan & Nort on, 1992).

• Basic concept is to study performance measurement in companies whose intangible assets played a central role in value creation (Nolan Norton Institute, 1991).

• Founder:

Robert Kaplan David Norton


• The founders’ statement:“Norton and I believed that if companies were to improve the management of their intangible assets, they had to integrate the measurement of intangible assets into their management systems”

Source: Balancescorecardorg, 2016


Financial metrics as the ultimate outcome measures for company success, with metrics from three additional perspectives – customer, internal process, and learning and growth as the drivers for creating long-term shareholder value.

Figure 1. The original structure for the Balanced Scorecard (BSC)

What is Balanced Scorecard?

• One of the most influential concepts in accounting and management. (Madsen & Stenheim, 2015).

• A strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. (Balancescorecardorg, 2016)

http://strategymanage.com/strategic-planning-basics/

HISTORYConcept of Balanced Scorecard


1990s

1993

1996Current

• Kaplan and Norton develop BSC

• Links strategy and performance

• BSC used as a Strategic Management System• Kaplan and

Norton starts to put BSC to work

• BSC used extensively in business and industry, government, and nonprofit organizations worldwide

History : Concept of Balanced Scorecard

1.1. Historical Roots: 1950-1980• In the 1950s, a GE corporate staff group recommended that divisional performance

be measured by one financial and seven nonfinancial metrics

These are roots of Balanced Scorecard

FINANCIAL

CONSUMERS

INTERNAL BUSINESS PROCESSES

LEARNING AND GROWTH

ESSENCE OF BALANCED SCORECARD


1.1. Historical Roots: 1950-1980• However, GE’s recommendation was failed -- corporate pressure for short-term

profits led them to compromise long-term objectives and their public responsibilities.

• There was a lacking in a clear way of describing and communicating top-level strategy in a way that middle managers and front-line employees could understand and internalize

• In the mid-1960s, Robert Anthony, identified three different types of systems: strategic planning, management control, and operational control

• Strategic planning: the process of deciding upon objectives, on changes in these objectives, on the resources used to attain these objectives, and on the policies that are to govern the acquisition, use, and disposition of these resources.

• Management control: the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objectives”

• Operational control: the process of assuring that specific tasks are carried out effectively and efficiently. Information for operational control was mostly nonmonetary, though some information could be denominated in monetary terms (presumably, frequent variance reports on labor, machine, and materials quantity and cost variances).

The primary management system for most companies, until the 1990s, used financial information almost exclusively and relied heavily on budgets to maintain focus on short-term performance.

1.2. Japanese Management Movement: 1975-1990• During the 1970s and 1980s, innovations in quality and just-in-time production

by Japanese companies challenged the Western leadership in many important industries.

• Western companies’ narrow focus on short-term financial performance contributed to their complacency and slow response to the Japanese threat.

• US corporations had become obsessed with short-term financial measures and had failed to adapt their management (Johnson and Kaplan, 1987)


1.2. Japanese Management Movement: 1975-1990• Proposed method to create intangible assets could be capitalized and placed as asset

on the corporate balance sheet.• Financial reporting could be more relevant if companies capitalized their expenditures

on intangible assets or with other methods by which these assets could be placed on corporate balance sheets.

• Challenge:• Value from intangible assets is indirect• Value from intangible assets depends on organizational context and strategy• Intangible assets seldom have value by themselves.

• Recommendation: For companies to integrate nonfinancial indicators of their operating performance into their management accounting and control systems, mainly focus on improving quality, reducing cycle times, and improving companies responsiveness to customers demands. These would lead naturally to improved financial performance

• The stage was set for thinking about a general framework by which both senior-level executive teams and front-line production workers would receive financial and nonfinancial information, balancing between both.


1.3. Stakeholder Theory vs Balanced Score Card• Stakeholder theory was useful to articulate a broader company mission beyond

a narrow, short-term shareholder value-maximizing model. It increased companies’ sensitivity about how failure to incorporate stakeholder preferences and expectations can undermine an excessive focus on short-term financial results.

• The Balanced Scorecard, however, incorporates stakeholder interests endogenously, within a coherent strategy and value-creation framework, when outstanding performance with those stakeholders is critical for the success of the strategy.



STRATEGY MAPConcept of Balanced Scorecard

Strategy Map: Concept of Balanced Scorecard


IMPROVEMENTConcept of Balanced Scorecard

Improvement: Concept of Balanced Scorecard

create Office of Strategy Management (OSM), to be the process owner of the strategy execution within the organization.

Creation of Closed Loop Management System for Strategy Execution


FUTURE OPPORTUNITIESConcept of Balanced Scorecard

Future Opportunities: Concept of Balanced Scorecard

Steps to improve BSC:1. measure organizational leadership in each implementation and assessing

this factor’s role in creating success.• The four strategy-focused organization principles other than leadership. But none of

the four principles can be effectively mobilized and sustained without leadership at the top.

• Of course, such a strong claim about both necessity and sufficiency needs to be tested through careful research designs and instruments.

2. the emerging literature and practice on enterprise risk management needs to be more formally embedded in the strategy map and Balanced Scorecard.

3. strategy maps still represent a highly-aggregated view of causal relationships among strategic objectives.


BALANCED SCORECARDBENEFITS

Why use Balanced Scorecard

Source: www.hr-scorecard-metrics.com

• Help increase organisation’s focus on key things needed to create breakthrough performance• A BSC shows that an organisation is only weak in a couple of areas - but that these areas are impeding its overall

success. By focusing everyone in the organisation on improving those areas, overall performance gets better. Generally, the BSC prescribes that only three to five measures should be developed for each of the four perspectives : Financial, Internal Operations, Customer and Company Learning & Growth (Neely 1998).

• Help to integrate various corporate programmes (like quality and customer service)• Focusing on everybody's customer service performance behaviours will lead to small improvements in each

department or unit; the overall effect will be a bigger improvement in the organisation's customer service performance across the board.

• Bridging the gap between different fields• The second advantage of the BSC is that it serves as a bridge between different fields. Both financial and non-financial

measures are included in the scorecard. Also researchers from different management fields have examined the concept. The management accountancy aspect of the BSC has been considered by, for example, Newing (1994) and Nørreklit, (2000). Also in the operations management field the BSC is well-known (Neely et al. 1995; Bourne, et al. 2000; Hafeez et al. 2002, Lohman et al. 2002) From a strategy perspective, the BSC has been described by for example Mooraj, et al. (1999), Hudson, et al. (2001) and Kaplan and Norton (2001). Furthermore, the concept has been used for the strategic management of information systems (Martinsons, et al. 1999). This interest in and the successful use of the BSC by researchers and managers from different fields indicates that it is possible to combine performance measures related to different aspects of a company into only one scorecard.

• Improve communication of organisation’s vision and strategy• Align organisation’s strategy with workers daily activities

Benefits of Balanced Scorecard

BALANCED SCORECARDDRAWBACKS


Balanced Scorecard Obstacles• Causality relationships between the areas of measurement in the BSC are unidirectional and

too simplistic. • Some scholars note that there is no cause-and-effect relationship between some of the suggested areas of

measurements in the BSC (Norrekelit, 2003; Mohobbot, 2004; Henk and Kim 2002).

• Neglects time dimension. • This critical point of the BSC starts from the assumption that the linkage between different points of time

must be understood (Norrekelit, 2003).

• Lack of validation.• The reliance of BSC on few measures makes a critical point of BSC. Mohobbot (2004) and Henk and Kim

(2002) point out that the advantage of checking just a few number measures became disadvantage when not the right numbers are selected for the BSC.

• Lack of the integration between top-levels and operational levels’ measures. • Mohobbot (2004), Henk and Kim (2002) point out that BSC fails to identify performance measurements as

two-ways process. Hondson et al(2001) notes that one of the critical points of BSC is its lack of the integration between the top and operational levels which may leads to strategic problematic.

• Internally focus. • One of the criticisms of BSC is that its framework encourages the focus on internal aspects. Mohobbot

(2004) mentions that the BSC is incapable to answer the questions related to the competitors movements. Additionally, the BSC does not evaluate the significant changes in external conditions.

• Ineffective to corporate sustainability. • According to Thomas (2003) the traditional BSC-concept is not effective enough to contribute to corporate

sustainability. This point of view supported by Mohobbot(2004) and Hink and Kim(2002).

IMPLEMENTATION OF BALANCED SCORECARD

How to implement Balanced Scorecard?


Implementation of Balanced Scorecard• Phase 1: Model Synthesis

– Strategy synthesis: form and commit the management to a consensus view about the organizations vision and strategies

– Measure synthesis: decide on the attributes to be measured with balanced scorecard

• Phase 2: Technical Implementation– Decide on which balanced scorecards tools is used (eg. QPR Balanced Scorecard)

• Phase 3: Organizational Implementation– Definition of the persons who are responsible to measure data and their

empowerment– Explanation of the objectives of Balanced Scorecard implementation to the

employees.– Re-engineering the management and strategy process– Re-engineering the reporting process.

• Phase 4: Technical Integration– Identification of the imported measures and the source systems– Analysis of the database structure and exporting capabilities of the operative systems– Defining t he procedure to get measure data from data sources including data

identification, modification and scheduling.– Implementation of the link between QPR Scorecard and the operative systems.

• Phase 5: Operation of the BSC System– Update measure values– Analyze the Balanced Scorecard results– Report the Balanced Scorecard Results– Refine the Balanced Scorecard model

(Virtanen, 2009)

Implemetation of Balanced Scorecard

9 Steps to Success:1. Assessment2. Strategy3. Objectives4. Strategy map5. Performance measures6. Initiatives7. Performance Analysis8. Alignment9. Evaluation

Source: (Atout, 2015)

Key Implementation Success Factors

• Gain top leadership support; it helps if there is a 'burning platform' for change.• Measure the right things - things that customers, stakeholders, and employees find value

in -- not everything.• Create a governance process that engages key stakeholders.• Design the system to follow the actual work of the organization.• Start development of measures at both the top and bottom of the organization and

cascade them in both directions.• Create a communications campaign that explains how a Scorecard both reflects and

drives a focus on mission.• Align systems: tie them to the organization's planning, measurement, and budget cycles.• Ensure the credibility of the process and honesty in reporting.• Create transparency of information that is as real-time as possible; this is key to its

credibility and usefulness to both senior and frontline managers.• Align incentives: link rewards to performance through effective evaluation and

performance appraisals.

(Kamensky, 2016)

Critical Success Factors

(Lueg & Vu, 2015)

Blind Spots in Critical Success Factors

(Lueg & Vu, 2015)


ARTICLE DISCUSSIONS

“The impact of knowledge management practices on organizational performance: A balanced scorecard approach” Valmohammadi, C., & Ahmadi, M. (2015). Journal of Enterprise Information Management, 28(1), 131-159.

PurposeTo present a holistic approach regarding evaluation of knowledge management (KM) practices on organizational performance. The effects of seven critical success factors (CSFs), namely leadership role, organizational culture, KM strategy, processes and activities, training and education, information technology, and motivation and rewarding system, on organizational performance in the framework of four perspectives of balance scored card (BSC) approach were surveyed.

Design and Methodology• The research hypotheses were raised based on the four perspectives of this approach, namely,

growth and learning, internal processes, customer and financial.• By literature review, CSFs of KM and organizational performance along with their items were

identified in the framework of BSC’s perspectives. • Based on these constructs and their items an instrument was designed and distributed among

managers and employees of the subsidiary firms of Iran National Petrochemical Company (INPC).


Findings • The results revealed that KM practices positively and meaningfully (though

weak) impact overall organizational performance. • This impact is significant only regarding growth and learning dimension and

on the other dimensions is insignificant. • Also, as customer and financial constructs were loaded on one factor based

on the entity of their indicators we considered these two constructs as stakeholders construct.

• In addition, among the above mentioned seven CSFs, motivation and rewarding system obtained the lowest rank among the survey organizations.


Contribution/Positive Added Value to BSc Framework:To provide the empirical support and confirmation of the argument of Walsham (2001) where he suggests

that the best approach for successful implementation of KM is human centered view of KM.• Although machinery is still important in knowledge-based economy and technology undertakes a

considerable and critical role, but the main tool of production is still human mind (Al-Ali, 2003). Because knowledge is only shaped in individuals mind.

To confirm the benefits of BSc in KM implementation: the effect of KM practices on the four organizational performance dimensions of the survey organizations, though weak, is meaningful.

• Accordingly, the most important suggestion for the top managers of organizations in general and INPC’s in particular is to exactly monitor the indicators of four BSC perspectives offered in this research to implement KM in a holistic and balanced manner, so they would hopefully be able to fully reap the benefits of this approach.

This study contributes to the field of KM by empirically investigating the impact of KM practices on various measures of organizational performance in order to prove the suitability of a comprehensive approach like BSC

Based on the calculated coefficients, the ranking of CSFs are as follows; KM strategy, organizational culture, processes and activities, training and education, IT, leadership role, and rewarding and motivation.

• This finding broadens the informational horizon of top managers of the surveyed companies to better prioritize and plan necessary measures.

This study may be viewed as a “pilot study” to provide a baseline and insight into future research of KM for enabling organizational performance.


Drawbacks• The sample is restricted to only three companies, thus lack of generalizabilityHow to fix it?

It needs to gather data from various parts of Iran including both manufacturing and service industries could increase the generalizability of the results obtained.

Several research had been investigated the influence of small, medium, and big companies in KM implementation, however they never compare through the BSc approach (Rohrbeck and Schwarhz, 2013; Alegre, Sengupta, Lapiedra, 2013; O’Connor and Basri, 2014). Thus, the comparison between big and small medium enterprises may also be the subject of research, as well as in developing and developed countries.

• This study the data gathered were cross-sectional,How to fix it?

A longitudinal study could help gain deeper understanding of the cause-and-effect relationship among the variables. This is in accordance with statement from Institute of Work and Health, Canada (2015).


Future Research OpportunitiesFirst, a future study is suggested to conduct a longitudinal research design to

present the evidence of causation which cannot be achieved through cross-sectional designs.

Second, it is encouraged to perform similar researches in other countries particularly in organizations of developed countries which are more likely to be mature in KM implementation to be carried out.

It needs to gather data from various parts of Iran including both manufacturing and service industries could increase the generalizability of the results obtained


References:1. Oluikpe, P.I. (2012), “Developing a corporate knowledge management strategy”, Journal of Knowledge Management, Vol. 16

No. 6, pp. 862-878. 2. Singh, M.D. and Kant, R. (2008), “Knowledge management barriers: an interpretive structural modeling approach”,

International Journal of Management Science and Engineering Management, Vol. 3 No. 2, pp. 141-150.3. Darroch, J. and McNaughton, R. (2002), “Examining the link between knowledge management practices and types of

innovation”, Journal of Intellectual Capital, Vol. 3 No. 3, pp. 210-222.4. Rašul, J., Vu kšić, V.B. and Štemberger, M.I. (2012), “The impact of knowledge management on organisational performance”,

Economic and Business Review, Vol. 14 No. 2, pp. 147-168.5. Zack, M., McKeen, J. and Singh, S. (2009), “Knowledge management and organizational performance: an exploratory analysis”,

Journal of Knowledge Management, Vol. 13 No. 6, pp. 392-409.6. Zack, M.H. (1999), “Developing a knowledge strategy”, California Management Review, Spring, Vol. 41 No. 3, pp. 125-145.7. Walsham,G. (2001), “Knowledge management: the benefits and limitations of computer systems”, European Management

Journal, Vol. 19 No. 6, pp. 599-608.8. Rohrbeck, R., & Schwarz, J. O. (2013). The value contribution of strategic foresight: Insights from an empirical study of large

European companies.Technological Forecasting and Social Change, 80(8), 1593-1606.9. Alegre, J., Sengupta, K., & Lapiedra, R. (2013). Knowledge management and innovation performance in a high-tech SMEs

industry. International Small Business Journal, 31(4), 454-470.10. O'Connor, R., & Basri, S. (2014). Understanding the role of knowledge management in software development: a case study in

very small companies. International Journal of Systems and Service-Oriented Engineering, 4(1), 39-52.11. IWH. 2015. What researchers mean by... cross-sectional vs. longitudinal studies. https://

www.iwh.on.ca/wrmb/cross-sectional-vs-longitudinal-studies. Accessed 21 April 2016.

https://www.iwh.on.ca/wrmb/cross-sectional-vs-longitudinal-studies



“Firm-Level Outsourcing Decision Making: A balanced Scorecard-Based Analytic Network Process Model” Tjader, Y., May, J.H., Shang, J., Vargas, L.G., and Gao, N. (2014). International Journal Production Economics. 147, 614-623.








• As a result, the combined BSC-ANP approach supports the decision maker in a number of ways, including :– Establishing relationships between and within different

dimensions,– Measuring the strengths of those relationships and interactions,– Determining the overall impact of different dimensions and

individual elements of a dimension on the strategies studied,– Deriving priorities for the dimensions, the components of the

dimensions, and the strategies considered,– Allocating resources according to those priorities, and a– Assessing the sensitivity of strategy priorities to changes in the

priorities of the dimensions and their components.

PurposeThe purpose of this article is to;• Provide an overview of five important areas of Balanced Scorecard (BSC) research:

1. Conceptual evolution2. Adoption and diffusion3. Implementation and use4. Performance effects5. Critical perspectives

• Suggests fruitful areas for further research

“The Balanced Scorecard: A Review of Five Research Areas” Madsen, D.Ø & Stenheim, T. (2015). American Journal of Management, 15(2), 24-41.

Findings The article discusses current trends and emerging issues in the BSC literature and suggests fruitful areas for further research. The following are the findings provided in this article:1. Provide information concerning the evolution of BSC over the course of the first two decades2. Looked at the role of supply-side and demand-side of the BSC concept3. BSC can be customized to fit an organization’s needs and characteristics4. BSC has interpretive space, which leads itself to different interpretations and use in practice5. A lot of critics on BSC’s conceptual and theoretical issues related to the assumptions of

causality

Added values• Provide suggestions on fruitful areas for further research in Balanced Scorecard;

• Research on adoption and diffusion of BSC• Obtain more knowledge about the perceived benefits and problems associated with BSC

use• More insight into how to successfully implement BSC

• Because most of extant research has focused on problems and failed implementations of BSC

• Literature on the use of BSC in SMEs• Cross-national comparative studies of BSC use

• Examine patterns in term of adoption, diffusion, and implementation in different countries

References1. Alegre, J., Sengupta, K., & Lapiedra, R. (2013). Knowledge management and

innovation performance in a high-tech SMEs industry. International Small Business Journal, 31(4), 454-470.

2. Atout, N. (2015). LinkedIn Pulse. Retrieved 21 April, 2016, from https://www.linkedin.com/pulse/implementing-balanced-scorecard-system-nader-atout

3. Balancedscorecardorg. (2016). Balancedscorecardorg. Retrieved 21 April, 2016, from http://balancedscorecard.org/Resources/About-the-Balanced-Scorecard.

4. Darroch, J. and McNaughton, R. (2002), “Examining the link between knowledge management practices and types of innovation”, Journal of Intellectual Capital, Vol. 3 No. 3, pp. 210-222.

5. IWH. 2015. What researchers mean by... cross-sectional vs. longitudinal studies. https://www.iwh.on.ca/wrmb/cross-sectional-vs-longitudinal-studies. Accessed 21 April 2016.

6. Johnson, H. T. and R. S. Kaplan (1987) Relevance Lost: The Rise and Fall of Management Accounting, Boston: Harvard Business School Press.

7. Kamensky, J.M. (2016). Top Ten List: Key Factors That Make a Balanced Scorecard Successful (07-2005). Retrieved 21 April, 2016, from http://www.businessofgovernment.org/brief/top-ten-list-key-factors-make-balanced-scorecard-successful-07-2005

8. Kaplan, R. S. and D.P. Norton (1992) The Balanced Scorecard: Measures that Drive Performance, Harvard Business Review, (January-February): 71-79.

9. Kaplan, R.S. (2010). Conceptual Foundations of the Balanced Scorecard. 10. Madsen, D.Ø & Stenheim, T. (2015). The Balanced Scorecard: A Review of Five

Research Areas. American Journal of Management, 15(2), 24-41.11. Nolan Norton Institute (1991) “Measuring Performance in the Organization of the

Future: A Research Study.”

http://balancedscorecard.org/Resources/About-the-Balanced-Scorecard

http://balancedscorecard.org/Resources/About-the-Balanced-Scorecard


References9. Johnson, H. T. and R. S. Kaplan (1987) Relevance Lost: The Rise and Fall of Management

Accounting, Boston: Harvard Business School Press.10. Lueg, R & Vu, L. (2015). Success factors in Balanced Scorecard implementations:A

literature review. Management Revue, 26(4), 306-327.11. O'Connor, R., & Basri, S. (2014). Understanding the role of knowledge management in

software development: a case study in very small companies. International Journal of Systems and Service-Oriented Engineering, 4(1), 39-52.

12. Oluikpe, P.I. (2012), “Developing a corporate knowledge management strategy”, Journal of Knowledge Management, Vol. 16 No. 6, pp. 862-878.

13. Rašul, J., Vu kšić, V.B. and Štemberger, M.I. (2012), “The impact of knowledge management on organisational performance”, Economic and Business Review, Vol. 14 No. 2, pp. 147-168.

14. Rohrbeck, R., & Schwarz, J. O. (2013). The value contribution of strategic foresight: Insights from an empirical study of large European companies.Technological Forecasting and Social Change, 80(8), 1593-1606.

15. Singh, M.D. and Kant, R. (2008), “Knowledge management barriers: an interpretive structural modeling approach”, International Journal of Management Science and Engineering Management, Vol. 3 No. 2, pp. 141-150.

16. Tjader et al.. (2014). Firm-Level Outsourcing Decision Making: A balanced Scorecard-Based Analytic Network Process Model. International Journal Production Economics, 147(2014), 614-623.

17. Virtanen, T. (2009) QPR Guidelines to Implementing Balanced Scorecard. PR Software Plc. http://www.prototechnika.lt/qpr/wp-content/uploads/2012/07/QPR-Guidelines-for-Implementing-Balanced-Scorecard.pdf.

18. Walsham,G. (2001), “Knowledge management: the benefits and limitations of computer systems”, European Management Journal, Vol. 19 No. 6, pp. 599-608.

http://www.prototechnika.lt/qpr/wp-content/uploads/2012/07/QPR-Guidelines-for-Implementing-Balanced-Scorecard.pdf

http://www.prototechnika.lt/qpr/wp-content/uploads/2012/07/QPR-Guidelines-for-Implementing-Balanced-Scorecard.pdf

References19. Zack, M., McKeen, J. and Singh, S. (2009), “Knowledge management and organizational

performance: an exploratory analysis”, Journal of Knowledge Management, Vol. 13 No. 6, pp. 392-409.

20. Zack, M.H. (1999), “Developing a knowledge strategy”, California Management Review, Spring, Vol. 41 No. 3, pp. 125-145.