Balanced Scorecard for SMEs

							      Is it worth
  Implementing the
 Balanced Scorecard
    into Small and
    Medium-Sized
 Enterprises (SMEs)
Considering the benefits of the Balanced Scorecard
devised by Kaplan & Norton incorporated into small
           and medium sized enterprises




                                         Lee Werrell
                              CEI Compliance Limited
Is it worth Implementing the Balanced Scorecard into Small and
Medium-Sized Enterprises (SMEs)?

To answer that question we have to consider the quality of current Management Information systems,
typically a multi-coloured Red; Amber; Green spreadsheet that purports to show Key Performance
Indicators which, in many cases, provide results or data with no clear value or meaning.

Does the Balanced Scorecard Really Work?

Although what seems to be an obvious truth, the quote famously attributed to the Late Peter Drucker of
"What gets measured gets done," The Balanced Scorecard system of producing useful and important metrics
for the various levels of business is undeniably effective and beneficial.

The international consulting company Bain &
Company conducts an annual survey on management
tools among its large corporate clients. The results often
show that Balanced Scorecards are used by approximately
70 percent of their clients with a very good to exceptional
satisfaction level. This makes the Balanced Scorecard
one of the most widely used strategic tools and places it
within the few tools that provide consistently high
levels of satisfaction to users.

Although the Bain & Company survey shows the pervasive use of the Scorecard, many organisations don't talk
much about their success to the press; however, successes that have been published cover a wide range of
industries. Messrs Kaplan & Norton, the Balanced Scorecard inventors never stated any limits to size of
company who should use it.


So can SMEs benefit from the Balanced Scorecard?

Quite often we find that manyof the executives of small and medium-sized businesses may have the impression
that the Strategy Map and Balanced Scorecard are just for large corporations. Actually, small and medium-
                                                                           sized businesses may find that
                                                                           Balanced Scorecards are easier for
                                                                           them to implement, and that the
                                                                           returns on investment or time
                                                                           invested is more than repaid in a
                                                                           faster time due to their size and
                                                                           flexibility. This also provides a
                                                                           hugely scalable tool for the business
                                                                           as it grows or develops.

                                                                           Further consideration of SMEs is
                                                                           that they could actually have
                                                                           even more to gain from Strategy
                                                                           Maps and Scorecards than large
                                                                           organisations, because of the limited
                                                                           resources theyhave. Smaller
                                                                           companies, especiallythe 10 to 50


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Is it worth Implementing the Balanced Scorecard into Small and
Medium-Sized Enterprises (SMEs)?
bracket in particular, have to make sure that theyfocus their efforts, provide better services, and drop projects or
developments that aren't aligned with strategy. The entire system is designed to align an organisation around a
focus and to easier to identify projects that aren't within that vision.

An obvious benefit for SMEs is that communication and decision-making within them can improve as
well. StrategyMaps unencumberedbylayers ofmanagement andhavingfeweremployees withgreaterspans of
control andunderstandingmakecommunication easier and faster. Strategic issues can come to light faster when
the Balanced Scorecard is incorporated into normal executive or senior management team meetings.

                                                                 Many SMEs are opportunity-driven. These
                                                                 companies providing high value in growing
                                                                 niches or specialism will see opportunity
                                                                 everywhere. Therefore maintaining a focused
                                                                 strategic direction can be as difficult and as
                                                                 walking a kid through a theme park. This is
                                                                 where a Balanced Scorecard can help.

                                                       The Balanced Scorecard enables a focus on
                                                       long-term growth versus a short-term focus
                                                       on quarterly results. It also expands the
                                                       traditional short-term financial metrics by
                                                       including customer, operational efficiency,
and employee learning and growth measures. Where it can really help small and medium
financial services firms is that it provides evidence for treating customers fairly as the data is
not only quantitative but also qualitative. It provides a balance between short and long-term
goals and also balances what gets measured; financial plus quality and consumer and employee
satisfaction dimensions.

All dimensions of the Balanced Scorecard are equally important and results relate to one
another. For example, the financial dimension answers the question, "How do our shareholders
view our performance?" The operational efficiency dimension should answer the question,
"Which processes are working well and which need to be fixed in order to meet our internal
and external customer demands?" The customer dimension answers the question, "How must
we be viewed in the eyes of our consumers?" Finally, the learning and growth dimension
answers the question, "What kinds of people do we need to hire, train, develop and retain, and
what sort of company culture do we promote to achieve our vision?" The objectives and
measures create focus for the future, not a simple measure of the past. A successful Balanced
Scorecard program should be a change process, not simply a periodic benchmarking process.

In summary, the Balanced Scorecard helps an organisation in the following six ways:

(1) Promotes growth: due to focus on long-term strategic outcomes, not just short-term
operational results.
(2) Tracks performance: individual and collective results can be tracked against targets in order
to correct and improve.
(3) Provides focus: when measures are aligned to a few critical strategies, the Balanced
Scorecard provides focus on what is important to the company.




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Is it worth Implementing the Balanced Scorecard into Small and
Medium-Sized Enterprises (SMEs)?
(4) Alignment to goals: when you measure what is truly important to success, the measures
become linked and support each other. Alignment occurs across the organisation.
(5) Goal clarity: the Balanced Scorecard helps respond to the question, "How does what I do
daily contribute to the goals of the enterprise?"
(6) Accountability: individuals are assigned as
owners of metrics in order to provide clear
accountability for results.

SMEs can benefit in these six ways. As
discussed, financial measures are not enough
for any business, as the Balanced Scorecard
can be used with five or 5,000 employees
working toward the same goals (Green et al.
2002). In fact, measuring customer,
operational efficiency, and learning and
growth all contribute to the bottom line
(Kaplan and Norton 2001).

The rate of change in the world of business is
accelerating at a phenomenal rate and greater
regulatory pressures, operating efficiency and
staffing issues present keys to staying in business in the future. The Retail Distribution Review,
Treating Customer’s Fairly, Consumer demands for transparency and clear remuneration
practices as well as further European risk based regulation all compound to make the future a
survival of the efficient. SMEs need to embrace the modern tools of management if they want
to survive.


Biblio: Lee Werrell is a qualified and seasoned risk and compliance professional with deep
and broad ranging experience across banks, retail sales channels, insurance companies as
well as public and private sector areas. He is fully conversant with the UK Regulatory Map
methodology and application, process analysis, measurement, recommendation and
reporting requirements, industry best practice and interpretation of the challenges facing
regulation. Combined with risk emergence mitigation and the evolution of the regulatory
intervention in many new areas such as governance etc. means that for strategic, success
and risk effective planning, he is well placed to help most organisations, financial and non-
financial.

References
Green, M., J. Garrity, A. Gumbus, and B. Lyons (2002). "Pitney Bowes Calls For New Metrics:
The Company Used a Balanced Scorecard to Manage Performance and Increase the Bottom Line,"
Strategic Finance 83(11), 30-36.

Kaplan, R. S., and D. P. Norton (2001). The Strategy Focused Organisation: How Balanced
Scorecard Companies Thrive in the New Business Environment. Boston, MA: Harvard Business
School Press.




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