Can I apply Balanced Scorecard in a small business?
In 100 Words
Yes! The success of any business ultimately relies on its ability to fulfil the expectations of its stakeholders: Balanced Scorecard is a tool that helps managers articulate an organisation’s strategic goals and track progress towards achieving them. In any organisation, strategic goals are hopefully ultimately focused on fulfilling stakeholder expectations…so yes it is applicable to a business of any size. We look at some ways in which the Balanced Scorecard will differ between small and larger organisations. We will consider four core elements of Balanced Scorecard application – rationale, design, implementation and use.
“The idea of the Scorecard is to describe the essential ingredients of business success”
(Olve et al. ‘Performance Drivers’)
Balanced Scorecard provides an efficient mechanism for managers to both articulate and communicate their strategic goals and implementation plans, and to find out how effectively these goals/plans are being implemented. In large/complex organisations much of the utility of Balanced Scorecard comes largely from the communications elements: the two-way provision of concise and relevant summary information about ‘what is going on’ in the organisation. In smaller firms, often owners (the most important stakeholder) are the managers and also communication within the firm is easier due to size and proximity, therefore our experience is that a greater proportion of the value of Balanced Scorecard comes from two other elements: the clear description of strategic vision and associated strategic objectives and priorities and the building of a consensus on the development and application of how these priorities will be implemented.
As a result, Balanced Scorecard designs for smaller organisations tend to put less emphasis on measurement definition and data collection, and more emphasis on the management team interactions associated with the design and use of the strategic vision and objectives.
“Setting goals and targets through consensus decision-making increases the sense of collective accountability. That encourages staff and management alike to participate more in the ongoing development of the business making better use of available resources.” (2GC Active Management)
Even in a small organisation, Balanced Scorecard implementation should be a collective effort drawing upon the combined operational and strategic insights of key employees involved with running the business. In order to ensure ownership and relevance, the future users of the Scorecard should also be those that design and drive the implementation of it. Strategic success is driven by managers causing other people to change their behaviour in appropriate/necessary ways – so a key part of implementation is ensuring that such behavioural changes occur.
The Balanced Scorecard design process 2GC uses for small organisations is similar to that used for large organisations – see 2GC FAQ How do I create a Strategic Balanced Scorecard? for more information. With efficient internal or external process facilitation, a small organisation can usually complete the initial design over a period of 4 weeks with most of the work completed in two one-day workshops. Additional design activities by each participant normally require about 1.5 - 2 workdays each.
“The key is not to prioritize what’s on your schedule but to schedule your priorities” (Stephen R. Covey)
An essential element of implementation is the linking of the Balanced Scorecard with other processes. 2GC’s annual survey of Balanced Scorecard usage shows us that there are strong/frequent links between Balanced Scorecard and Planning, Budgeting and Risk Management the link to risk management is increasing, perhaps an indicator of economic troubles having an impact. In addition, individual Goal Setting, Reward and Quality Management also relate strongly to a Balanced Scorecard process.
Furthermore all staff need to support the idea of having a Balanced Scorecard. Key to this support are:
- Ownership - people are more likely to use, and support the use of a Balanced Scorecard if they feel some ownership of it. A continuous plan of communication is essential in order to further this ownership which will have been established in the design process with the participating group but other managers need to be brought ‘into the loop’ - this is easier in a small business;
- Culture - the Balanced Scorecard works by building consensus within a management team about shared goals, and focusing their attention on the status of activities being carried out to achieve these goals. This approach requires an organisational culture that fosters co-operative working, and recognises the need for shared responsibilities and accountabilities. Again this is more likely to occur in the smaller organisation;
- Rewards - embedding objectives contained in the Balanced Scorecard in the ‘owner’s’ performance appraisal objectives is an important link in making Balanced Scorecard work - this will really embed your Balanced Scorecard.
“Tenacity and faith may be the most important CEO attributes for successful Balanced Scorecard implementation” (Arthur Schneidermann ‘Why BSCs fail’)
A Balanced Scorecard needs to be used to realise its full value to an organisation - by used we mean regularly reviewed and results acted upon. Many companies, it seems, introduce a Balanced Scorecard and then make few (if any) adjustments in their associated management behaviours that reflect its existence. Part of the reason is that such changes require long term top management commitment to change: something generally easier to achieve in smaller firms with less people involved and where top managers are interacting daily with all the staff.
The management processes used by an organisation need to change as a consequence of applying Balanced Scorecard. Looking externally, the ability to communicate a well articulated and logically constructed plan supported by an efficient approach for monitoring its implementation is also a strong point for any organisation trying to attract and sustain the support of bankers, partners or other external relations. For small and new organisations using the Balanced Scorecard approach can demonstrate that they have things under control and know what they are doing…