BALANCED SCORECARD IMPLEMENTATION IN SMES: FROM THEORY TO PRACTICE FROM THEORY TO PRACTICE International Conference Business Excellence of October 2009

About us Acumen IntegratAcumen Integrat is a Romanian management consulting company specialised in performance management solutions, project management and technology integration services. Our business model is based on working along organisations to understand their objectives and challenges and identify customised solutions that add value to their activities. Our vision is to be recognised as one of the most capable, progressive and innovative Romanian consulting companies.

Balanced Scorecard implementation in SMEs: From theory to practice In theory, Balanced Scorecard implementation is a clear and not very complicated process. While the implementation and usage of a performance management system in large companies has been thoroughly analyzed, the characteristics of the SMEs raise question on how should a Balanced Scorecard be customised and implemented in order to generate the benefits a SME needs.

The path The premises Benefits of Balanced Scorecard Balanced Scorecard in SMEs Limitations Balance Point Conclusion

No matter the size and industry, every organization wants to achieve performance, and strives to find new and better ways for this purpose. Organizations aim for:

Star EmployeesResources Processes

Star Company

Performing company implicit desire maximise it performance Just as performance, profit is an implicit desire of any company. If profit is never let at free will, and there are always being searched new ways to maximise it, why shouldn’t this happen with performance too?

Performing company Balanced Scorecard One way to increase the performance of a company is to use business tools, like Balanced Scorecard.

The path The premises Benefits of Balanced Scorecard Balanced Scorecard in SMEs Limitations Balance Point Conclusion

A clear sense of direction Source: “Dilbert - A Treasury Of Sunday Strips: Version 00” by Scott Adams, (Andrews McMeel Publishing 2000)

An ability to focus and prioritize

Organizational agility Management teams need systems that are simple and easy to use. With Balanced Scorecard this aspect can be achieved, so the organization will not have to deal with formulas or graphs like these.

A profound understanding of the business model

The path The premises Benefits of Balanced Scorecard Balanced Scorecard in SMEs Limitations Balance Point Conclusion

Small business should think about Balanced Scorecard in a different way than large-sized corporations do. Balanced Scorecard in SMEs

Low degree of formality needed to monitor Quicker and easier re- prioritization No expensive administrative procedures Fewer time to act upon the Balanced Scorecard measurement Less complexity and fewer people generally speeds up the process in SMEs, and changes are much more easier to be managed.

In a large organization, much of the impetus behind the balanced scorecard’s design will be driven by a desire to get a clear picture of the business. As organizations grow and become more complex, senior managers can lose track of their business’s culture and lose control of its performance as a result – something a balanced scorecard can fix. Balanced Scorecard in SMEs Managers in an SME don’t have this problem, and can focus instead on creating a strategic vision and set of objectives for the business – which they can then easily and clearly share with the rest of the organization.

Management engagementCurrent state analysis Balanced Scorecard design and strategy alignment Communicate the strategy - Organizational engagement Embedding the Balanced Scorecard - Monitor, maintain and manage Steps in Balanced Scorecard implementation

Communicate the strategy – Organizational engagement Cascading and Department Integration Identify Departments for Cascading Balanced Scorecard Education Indicator Selection and Target Setting Scorecards Linked into Department Meetings Communicate the strategy – Organizational engagement Cascading and Department Integration Identify Departments for Cascading Balanced Scorecard Education Indicator Selection and Target Setting Scorecards Linked into Department Meetings Embedding the Balanced Scorecard - Monitor, maintain and manage Update the Strategic Plan using the Scorecard Link the Budget to the Scorecard Link Performance Evaluations to the Scorecard Link Compensation to the Scorecard Embedding the Balanced Scorecard - Monitor, maintain and manage Update the Strategic Plan using the Scorecard Link the Budget to the Scorecard Link Performance Evaluations to the Scorecard Link Compensation to the Scorecard Balanced Scorecard design and strategy alignment First Report, Targets and Initiatives Review and Approve First Scorecard Report Link Initiatives to Strategy Map Implement “Strategy Focused” Management Agenda Balanced Scorecard design and strategy alignment First Report, Targets and Initiatives Review and Approve First Scorecard Report Link Initiatives to Strategy Map Implement “Strategy Focused” Management Agenda Management engagement Process Owners Identified Management Agenda Design Identify purpose and objectives for Balanced Scorecard implementation Management engagement Process Owners Identified Management Agenda Design Identify purpose and objectives for Balanced Scorecard implementation Current state analysis Assess the company reality Identify tools and instruments for performance management Create an analysis report to start with Current state analysis Assess the company reality Identify tools and instruments for performance management Create an analysis report to start with Steps in Balanced Scorecard implementation Step2 Step1 Step3 Step4Step5

Critical Success Factors / Best Practices Some Critical Success Factors / Best Practices for implementation in SMEs 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. 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 path The premises Benefits of Balanced Scorecard Balanced Scorecard in SMEs LimitationsLimitations Balance Point Conclusion

Limitations in implementation and use of Balanced Scorecard in SMEs Antrepreneurial orientation Focus on sales and extensive growth Feedback is received immediately Strategy vs execution Change management

The path The premises Benefits of Balanced Scorecard Balanced Scorecard in SMEs Limitations Balance Point Conclusion

Which is the point from where using a Balanced Scorecard tool becomes truly useful in SMEs? Shift from the “antrepreneurial” stage to the “corporate” stage Growth requires efficiency Execution does not follow strategy Many branch / business units Does not do the right things right

Usage Small organizations will find that a well-designed, well-implemented balanced scorecard presents a powerful snapshot of their organization and its goals to outside sources – potential investors, banks, and so on. Where the large organization can point to huge turnovers, glib shareholder presentations and powerful brand valuations, the SME can compensate with a plan shared by management, employees and external stakeholders to drive success.

The path The premises Benefits of Balanced Scorecard Balanced Scorecard in SMEs Limitations Balance Point ConclusionConclusion

Conclusion In SMEs, the Balanced Scorecard benefits can be achieved without the need for developing a complicated and administratively demanding measurement regime by simply using the measures as a mental or verbal frame of reference for addressing strategic and operational change issues, resulting from the pursuit of long-term goals.

Conclusion Successful Balanced Scorecard implementation in SMEs, as in any organization, requires sustained management commitment to using it, making sure it drives the necessary behavioral changes within the organization, starting with the managers themselves.

Conclusion There is undoubtedly a place for the balanced scorecard in the SMEs business strategy – and the possibility that the balanced scorecard might be even more influential for the SMEs than it is for the large corporations.

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