Review of Using Balanced Scorecard Among SMEs
Review of Using Balanced Scorecard Among SMEs
Review of Using Balanced Scorecard Among SMEs
2 3 December, 2014
ABSTRACT
Balanced scorecard (BSC) has been used in different businesses with different sizes. Large
firms as well as small and medium sized enterprises (SMEs) tend to use multidimensional
BSC instead of relying on traditional performance measurement. Although there are plenty of
studies evaluating the use of BSC in large companies, studies which specifically focus on
small firms is relatively few. The purpose of this paper is to review the literature regarding the
use of BSC in SMEs to find out the level of its applicability and implementation in
these environments. Based on extensive review of available literatures, it can be seen that
most of the BSC scholars believe that it has the potential to be used in small firms, and
therefore it is applicable in this context; however, SMEs do not implement BSC effectively,
and due to different reasons, they tend to use only some specific parts of this performance
measurement system.
INTRODUCTION
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can be seen that this system can play a significant role in translating strategy into relevant
performance measures. In this study available literature regarding the use of BSC in SMEs
will be reviewed in order to clarify the level of its implementation and also the possibility of
using this method in SMEs. Therefore, this paper is organized as follows: it starts with a brief
overview of BSC, and then SME with its main features will be represented, in the next section
methodology will be explained which is followed by a discussion of the application of BSC in
SMEs together with a summary of previous studies. Finally the findings of the studies will be
discussed and a conclusion is made.
BALANCED SCORECARD
BSC was developed by Kaplan and Norton (1992) and it considers vision and strategy in
managing and evaluating business performance. Firms strategy can be linked to operational
performance using the BSC. This multidimensional system focuses on four different
perspectives including: financial, customers, internal business process and learning and
growth. BSC can be considered as an important system for measuring the performance of
large firms as well as small organizations. The formality and complexity of this system may
be diminished in small firms, but neither its effectiveness nor its importance will be affected
by the features of firm size (Von Bergen and Benco, 2004). The BSCs four perspectives are
illustrated in Figure 1:
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Currently, SMEs have highlighted their significant role in business environment. They are mainly
recognized by three distinctive attributes including number of employees, paid-up capital, and
annual revenues (Kureshi et al., 2009). There are numerous characteristics which differentiate
SMEs from large organizations; central distinction between large and small rms is the greater
external uncertainty of the environment in which small rm operates, together with the greater
internal consistency of its motivations and actions (Storey, 1994; Welsh and White, 1981). Some
particular features of SMEs can be found in almost every study since they are very distinguishable
and crucial. One of them is related to their strategy and planning system. Scholars have
differently referred to SMEs poor strategic planning such as being informal (Da Costa Marques,
2012), dynamic and emergent, very limited (Gunasekaran et al., 1996; Mintzberg, 1981), and short
term oriented (McAdam, 2000).
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SMEs are believed to have limited financial and human resources (Garengo et al., 2005).
Having a restricted overview of the market is another feature which leads SMEs to be incapable of
controlling their competitive position (Huang and Brown, 1999). Instead of being able to drive the
market, they have to be flexible and adapt to existing changes (Ghobadian and Gallear, 1997;
Shari and Aspinwall, 2000). The mentioned features are the most important ones which were
highlighted severally by different scholars.
METHODOLOGY
Though scarcity, different studies regarding the use of BSC in SMEs have been reviewed in this
paper. The most up dated papers were included in this study. Research papers, from different
journals were reviewed to identify thrust areas of research. On the basis of review, gaps are
identified and future recommendation is proposed.
Kaplan and Norton (1992, 1996, 1998) originally focused on large firms. This can be seen from
their early BSC papers. Large technology firms and Banks are among the most target users
mentioned in these texts, however SMEs and public sector organizations have not received
considerable attention (Johanson et al., 2006; Chow et al., 1997). There are some limitations in the
process of designing and applying the BSC in organizations. Many scholars have investigated the
general limitation of this performance measurement system (Dinesh and Palmer, 1998; Epstein and
Manzoni, 1998; Norreklit, 2000; Olson and Slater, 2000) ;however, studies in assessing the
limitation of BSC implementation in SMEs is very few (Von Bergen and Benco, 2004; McAdam,
2000; Andersen et la., 2001; Rompho, 2011; Hudson et al., 2001; Zinger, 2002; Tennant and
Tanoren, 2005; Gumbus and Lussier, 2006 ) mostly because of the limited number of cases in
which BSC has been applied (Rompho, 2011).
compared to large organizations. Andersen et al. (2001) pointed to this key difference as they were
designing this multidimensional performance measurement system.
Barnes et al. (1998) and Rantanen and Holtari (2000) believe that traditional performance
measurement are used more frequently in small firms and balanced models are seldom used. There
are several reasons behind the applicability (or not applicability) of BSC in SMEs contexts
(e.g. Zinger, 2002 ; Rompho, 2011 Suprapto et al., 2009). In addition some scholars believe that
BSC is implemented in these environments while others have a different opinion (e.g. Kureshi et
al., 2009; Russo and Martins, 2005; Sousa et al., 2005). A summary of studies which analyzed the
possibility and level of BSC usage in SMEs is presented in Table 1.
Tennant and Literature based/ survey The adoption of BSC in case Lack of knowledge and being
Tanoren, (2005) organizations was very low unawareness (80%) Financial measures were found
to be the most important and
innovation measures were
BSC can be used in the considered as the least
context of SMEs but with important measures
certain modifications BSC needs to be simpler. It
should involve less time and
minimise extra burden
Andersen et al. reviewing a combination The implementation of BSC Focusing on strategic targets -
(2001) of literature regarding can be very effective in and related objectives and
BSC,SMEs, strategic SMEs though its priorities, and also driving
management etc. effectiveness is different organizations to develop a
from larger counterparts more influential strategic
management process.
Von Bergen Literature based firm size cannot be a barrier Leading SMEs to plan for -
and Benco, for implementing BSC; future and not merely focus on
(2004) therefore, this tool can play a financial measurement
pivotal role in SMEs
contexts
Phillips and Case study BSC was not directly used in Variety of performance Budgetary control
Louvieris, the organizations; though, measurement (very normal Customer relationship
(2005) different non-financial paper based manual processes management
measures were selected or very advanced technology
based processes) were in use Strategic management
Collaboration
Russo and Case study Most of the Portuguese There were not aware of the -
Martins, (2005) SMEs did not implement BSC or being informed
BSC ineffectively. Additionally BSC
was not an easy tool to
implement
Gumbus and Case study BSC can be beneficial for BSC should be designed based -
Lussier, (2006) SMEs but there is no one on particular characteristics and
model which could be critical success factors of any
applicable in all contexts organization
McAdam, Case study SMEs environment are Turbulent market leads SME -
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DISCUSSION
Summary of different studies regarding the use of BSC in SMEs which were presented in the table
can be discussed as follows:
Studies were mainly carried out in order to clarify the applicability of this performance
measurement system in SMEs context and also the level of BSC implementation in these
environments. There was a combination of results regarding the feasibility of applying BSC in
SMEs. Some authors believed that SMEs can use this system and some others had a different point
of view; however, the majority of them agreed on the applicability of using BSC model in Small
firms (Hongmei and Yujun, 2010; Tennant and Tanoren, 2005; Andersen et al., 2001; Gumbus and
Lussier, 2006; Manville, 2007; Suprapto et al., 2009; Da Costa Marques, 2012; Zinger, 2002;
Santagada, 2012). Scholars believe that SMEs can benefit from implementing BSC in different
ways such as having the ability to plan for future (Von Bergen and Benco, 2004), supported to be
innovative and achieve their objectives, better implementing strategy (Zinger,2002) and etc.
Those who did not agree on the feasibility of using BSC, stated that some specific
characteristics of SMEs such as resource scarcity and short term planning can be problematic while
BSC implementation. The majority of the studies show that SMEs do not implement BSC (Phillips
and Louvieris, 2005; Russo and Martins, 2005; Kureshi et al., 2009; Giannopoulos et al., 2013;
Monte and Fontenete, 2012) or do not use this system successfully and effectively (Rompho, 2011;
Phillips et al., 2003; Pamela Muhenje et al.,2013; Hanif and Manarvi, (2010 ).Unawareness and
limited knowledge on BSC, perception of inappropriateness, dominance of managers approaches
were among the most significant factors behind not implementing BSC in SMEs .Among the few
number of SMEs which applied BSC, it can be seen that this system was incompletely
implemented; for instance, only one or two perspectives were considered important, not all four
dimensions.
CONCLUSION
BSC can be considered as an important performance measurement system, it does not only help
SMEs to evaluate their performance but also leads them to develop strategy more effectively. The
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need for adopting BSC in small firms is not remarkable yet, and they mainly prefer to select some
specific non-financial measures such as, factors related to their own customers. Reviewing
literature shows that the number of studies focusing on the use of BSC in SMEs is very few.
Although BSC has received a lot of attention from organizations, SMEs do not effectively use this
system in their environments. Generally, it is clear that BSC is not extensively used in small firms;
nevertheless, they can benefit from using this system if they could develop BSC according to their
own specific features.
The results of this study will lead researchers and professionals involved on SMEs
management to consider BSC more effectively. Results can also increase the knowledge of SME
managers regarding the possibility of using this approach in their organizations/firms.
LIMITATION
There number of studies focusing on the use of BSC in SMEs is very low compared to large
organizations. Therefore reasons for not implementing this method in SMEs environment may not
be covered comprehensively due to this scarcity.
FUTURE RECOMMENDATION
Based on the findings of this paper, researchers can focus on different aspects of using BSC in
SMEs. Since reviewing literature shows that BSC is applicable in SMEs environment but it is not
implemented effectively, scholars can find different ways to deal with problematic factors while
using BSC. They can develop BSC which could be adjust with SMEs characteristics in order to
enhance the level of its usage.
ACKNOWLEDGEMENT
The authors would like to extend their appreciation to the Universiti Teknologi Malaysia for all
facilities that made this research possible.
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