Building and deploying a balanced scorecard within SMEs

With case examples from two small organisations, the Scottish Intellectual Assets Centre and the North West Collaborative Commercial Agency, this article outlines how the balanced scorecard enables SMEs to clearly articulate and communicate their strategic goals and priorities, something that is uncommon in this size of organisation.

Moreover, it explains how the scorecard enables smaller enterprises to retain a focus on “what makes a difference” and “what to focus on to survive”.

Finally, it outlines how smaller organisations are able to involve all employees in the creation of the corporate Balanced Scorecard system comprising a strategy map and a scorecard of metrics, targets and initiatives. Doing so helps to ensure buy-in to the balanced scorecard system and helps to build a performance-focused culture within the organisation.

Since the balanced scorecard was first introduced back in 1992, a constantly remerging question has been whether it is as appropriate and useful within SMEs as it is within large organisations. The question is unsurprising as most of the widely-publicised scorecard success stories are drawn from large organisations, such as StatoilHydro, the US Postal Services and Hilton Hotels, as three examples.

In a large organisation, much of the impetus behind the balanced scorecard system design will be driven by a desire to get a clear picture of the business. As organisations grow and become more complex, senior managers can lose control of its performance - something a balanced scorecard can fix. 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 organisation.

Once the balanced scorecard system has been designed, much evidence shows that large organisations struggle 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 unwieldyness that is blissfully absent in the SME.

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

Indeed, consider two best practice balanced scorecard examples. At the time of implementing its strategy map and supporting metrics, etc, in 2006 the Scottish Intellectual Assets Centre (IA Centre) employed just 10 people.

When the North West Collaborative Commercial Agency (NWCCA) introduced its scorecard system in 2009 it boasted a lean enterprise of just 48 people.

Both of these organizations claimed significant benefits from scorecard usage. For example, the use of the scorecard system has been instrumental in enabling the IA Centre to position itself as a major promoter of intellectual asset management within Scotland, the UK and the rest of the world.

Although benefits from deploying a scorecard system can be secured by organisations of any size and from any sector, and indeed the process for its creation and implementation is broadly similar there are benefits that are particular to smaller firms, and that are rarely highlighted within standard scorecard literature. Benefits that we describe here:

Strategic planning is an established activity in large organisations (albeit oftentimes an unnecessarily long and involved process with the resulting plan placed on a shelf and forgotten about until the following year’s strategic planning cycle). But it is uncommon within small organizations, where the emphasis is usually on short-term wins to build the business and where any strategic visualisation (if it does exist) is restricted to the minds of the company founders.

But through the creation of strategy maps (which should be the starting point in any balanced scorecard implementation), SMEs are provided with a golden opportunity to put strategy onto paper.

A strategy map can be described simply as a “plan-on-a-page”. It is a one-page visualisation of a strategic plan. Due to a lack of a strategic plan or visualisation, most SMEs suffer from employees who are confused about the strategic priorities of the organisation.

This becomes particularly problematic when the organisation has a number of directors, all of whom have their own slightly different models of strategy – this means that each senior manager might be sending out different and therefore confusing messages about strategy.

For instance, despite its small size, a key reason for NWCCA launching its balanced scorecard was that the management team had concluded that it required a robust mechanism for achieving consensual agreement within the executive team as to the key deliverables of strategic success. They also needed to communicate that strategy to everyone in the organisation in a way that was understandable and that enabled performance alignment.

“Basically we didn’t have a performance framework in place. We had implemented management by objectives within the organisation but we really needed something to take us to the next performance level,” explains Michelle McClusker, NWCCA’s Head of Business and Performance. “[Thanks to the] plan on one page, everybody within the organisation can see what we are aiming to do, what our objectives are and what activities we must excel at.”

A further benefit of a strategy map is that it is a powerful instrument in ensuring that there is congruence in the activities and initiatives that are in place to deliver strategic goals.

As with large organisations, SMEs can waste significant amounts of money in the funding of so-called performance improvement initiatives that actually deliver little real or lasting benefits – that is they are of little or no strategic relevance.

Some large organisations have found that the simple process of ensuring that scarce discretionary funding is allocated only to those initiatives that are of proven strategic value (that is that they map directly to one or, preferably, more objectives on the strategy map) leads to the jettisoning of many expensive programs that cost the organisation significant amounts of money.

Proportionate savings can also be secured by SMEs (releasing cash that might be invaluable as the organisation sets out on a growth agenda). Initiative selection is, of course, a core component of a balanced scorecard system.

Of course, an organisation can fail at any time and at any size. But as any student of management will know, a particularly dangerous time is the transition from being a small firm to a large organisation that requires the employment of, and commitment of many people.

Without a 'plan on a page' it is easy for the organisation to 'forget' the key capabilities and relationships that made it succeed in the first place and that it requires to maintain a competitive edge as it grows.

Creating a balanced scorecard helps the organisation maintain its competitive advantage as it grapples with the operational challenges of managing performance (be it growing the business or a focus on survival, which is the case for many SME businesses at the moment).

In designing the corporate level strategy map and scorecard, an SME is able to involve everyone in the organisation; something that is simply impossible within larger organisations for reasons of cost, logistics and time. This provides small companies with a marked head-start on their large counterparts in securing buy-in to the scorecard concept and in the inculcating of a sharp understanding of strategic goals and priorities organisation-wide.

Another, not insubstantial benefit - if more intangible at the outset – is that helps ingrain performance management into the culture of the organisation: a capability that will be of immense value as it grows.

All staff were involved in creating the NWCCA strategy map. To start the process API conducted focused interviews with NWCCA’s staff.

“Such widespread consultation was possible as we are a small company,” explains McCusker. “And the interviews provided an invaluable and balanced view as to what people within the agency believe to be our strengths and weaknesses and how they see the organisation developing going forward.”

This is not to say that the same interview process was deployed enterprise wide. At the senior manager/director level, focused one-to-one interviews were held to consider the entire strategy and to gauge each manager’s take on why the organisation exists, the priority areas in which it must excel and the underpinning enablers of performance.

This was followed by facilitated focus group sessions for functional groups such as finance, operations, IT and marketing, as examples. These sessions focused on what the functional areas must do to support the strategy as well as securing their views on mission critical strategic goals, performance enablers, etc. A further interview phase involved selected external stakeholders as well as non-executive board members, where attention was placed onto overall objectives and outcome targets and not on the internal drivers of performance.

All of the data from the three interview streams was pulled together in the creation of the performance framework’s strategic map. Once a draft map was designed all participants were invited to a feedback workshop to finalise the map. Those staff members that couldn’t attend the workshops were invited to provide written feedback via e-mail. That said the composition of the final map was the decision of the executive leadership team as they who have ultimate responsibility for delivering the organisational strategy.

Without question the balanced scorecard is a powerful tool for organisations of any size, enabling clarity of strategic focus, strategy alignment enterprise-wide and, most importantly the delivering of strategic goals and the implied financial and/or other stakeholder-facing successes.

Not only can the scorecard ease the transition through various organizations sizes and geographic or product/service expansions, but it can also catalyze the inculcation of performance-focused culture: something that is absent in a large percentage of companies – whatever their size.

• The balanced scorecard system offers powerful tools for SMEs
• In SMEs it is less about the creation of a management control tool and more about clarifying the strategy (be it for growth or survival)
• SMEs don’t require the same support processes and communication needed for a BSC implementation in larger organisations. The process can be leaner and less complex.
• SMEs have the advantage of involving a larger proportion of their staff in the creation of strategy maps as well as metrics for the scorecard, generally leading to greater buy-in and understanding.

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Further reading on the balanced scorecard is available through the resources below.