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Although literatures abound for large companies where implementation of the Balance Scorecard is quite common, study aimed on the implementations and limitations of the Balanced Scorecard in small and medium-sized enterprises (SMEs) is not easy to reveal. This is despite the widespread theoretical knowledge indicating that implementation of the Balanced Scorecards in SMEs is more likely to fail compared to larger firms. This study seeks to identify the reasons for the failure of the Balanced Scorecards implementation among service SMEs in the Kingdom of Saudi Arabia (KSA). It specifically investigates the challenges facing Saudi service SMEs in adopting and implementing their Balanced Scorecards. To support filling the gap, this paper was prepared looking into Saudi Service SMEs that face challenges in their efforts to implement the Balanced Scorecard. The research explores the cause of the unsuccessful implementation of the Balanced Scorecard. The research aim of this paper is to identify the challenges facing managers in implementing the Balanced Scorecard and provides reasons why these challenges have come to place. Data was gathered for this paper via case studies and interviews. Fifteen in-depth interviews were performed, with the managers concerned with the design and implementation of the Balanced Scorecard. The researcher also looked at firms internal reports, and collected information relevant to the design, and implementation of the Balanced Scorecard in those firms. The results obtained from this study indicate that poor design and implementation of the Balanced Scorecard, coupled with the lack of resources to facilitate the implementation are the biggest contributors to the problem. Other challenges included lack of senior management commitment to the projects; poor employees and stakeholder engagement and communication; long development process and incapacity caused by the lack of human capital and equipment, including software and hardware.
CHAPTER 1: INTRODUCTION
This chapter introduces the thesis and provides an adequate background and rationale for the research. The study will seek to assess the application of the Balanced Scorecard in the Services sector. It particularly focuses on Small and Medium-sized Enterprises (SMEs) operating in the Kingdom of Saudi Arabia (KSA), and aims to identify the challenges facing managers in the implementation of the Balanced. The research will also explain factors contributing to the challenges.
Background to the Study
1.2.1 SMEs in Saudi Arabia
Saudi Arabia is the biggest country in the Gulf Cooperation Council (GCC), both geopolitically and economically, with its economy being largely dependent on its vast oil deposits. It not only has the biggest oil reserves in the world, but is also the world's biggest producer and exporter of oil. Oil accounts for about 90% of exports and about 80% of government income (The Economist Intellegence Unit, 2012). With the government's successful implementation of the foreign direct investment policies and the power of the banking and monetary system have supported the nation to become the first regional financial system and an important market in the world. While Saudi has a stable and strong financial and banking system, which encourages private investments through vast financing and government advantages, SMEs face difficulties in securing support and funding.
1.2.2 SMEs in Saudi Arabia face some Major problems.
According to the Saudi Chamber of Commerce, SMEs face enormous challenges which include the absence of unified working descriptions for SMEs and lack of expert Saudi human resources in various fields i.e. Management, accounting, marketing, technical, technology and other essential abilities. Other difficulties include inadequate funding, poor information and policy frameworks, coupled with inadequate or lack of incentives, regulations and weak bonds between large firms and SMEs, (Atkinson, Waterhouse and Wells, 1997).
The Government of KSA confirmed the formation of National committee two years ago, which is accountable for the preparation of comprehensive strategies to encourage and develop SMEs, through the cooperation of high official members of different expert Government and private officials. This has however been hampered by the slow creation of the committee due to the challenges tasks in the style of the work of the committee.
1.2.3 Challenges for SMEs in KSA
Within the present financial climate, Saudi SMEs face formidable challenges that restrict their capability to remain competitive and sustainable. The absence of focused and constant support services and plans, which fulfil the demands of SMEs across their improvement phases, has heavily contributed their short lives. On average, SMEs last seven years. Leading among SME challenges is their incapability to access capital (debt and equity) that is related to their especial phase of expansion. Equity investment is important for survival of a venture, particularly in its early phases. Though, in KSA a dearth of venture capital and angel investor funds is there that encourage young organizations in different fields.
With regard to debt capital, less than 2% total lending of Saudi banks is going to SMEs contrasted to about 14% in non-GCC nations. In spite of the size of sector, investors avoid lending to SMEs for different motives (The Economist Intellegence Unit, 2012). Generally, a common lack of accessible and reliable knowledge is there is about them. Moreover, no confirmed legal situation is there that supports for collateral registry and legal enforcement in matter of default. Lastly, different SMEs do not have audited financial reports, effectively limiting the prospects of securing financing or estimating their performance. This needs monetary organizations to spend greater resources and time in servicing them, resulting in enhanced working costs, either causing lenders to charge premiums to SME consumers, or ignore them completely.
All of these problems enhance the hazards of lending. Without the proper incentives for lenders to enhance the flow of credit to the SME sector, or the suitable strategy tools to control their hazards, banks cannot be anticipated to present SMEs a major part of their lending portfolios. Other issues for SMEs contain a demand of expert human resources in business and technical fields, bureaucratic red tape, a shortage of market knowledge, and a normally fragile policy/regulatory condition.
The Saudi government, along with the private sector has identified the possibility of SMEs and their demand for an extensive base of support comprising capital (debt and equity), training and business facilities. Actually, Saudi Arabia has the biggest number of private and public sector SME support plans within the GCC (The Economist Intellegence Unit, 2012). The currently defined Ninth Economic Plan looks to grow SME support, further through enhancing the capability of specialized funds and monetary institutions to give credit to SMEs, while at once providing different styles of technical support.
Even though their numbers are large and some of the plans are well supported and productive, the current SME support plans perform in an uncoordinated and fractured situation. A basic lack is there about strategic cooperation which stops a holistic method to growing the sector. Consequently, important lessons are lost and attempts are normally duplicated leading to higher costs and preventable redundancies. SMEs are largely self-dependent and managers are required to explore best practices in order to survive and grow their businesses. Employment of systems such as the Balanced Scorecard to achieve corporate goals and high performance is important to SMEs.
1.3 Rationale for undertaking the Research
The rationale behind this research is the author's interest in the topic. The researcher's background is in operations management and finance. This has enabled the author to understand the business workings of SMEs in the services sector. The researcher is a citizen of Saudi Arabia and is interested in the field of administration and management. This paper looks into the application of the Balanced Scorecard in Saudi services SMEs. The author believes that the products of this research will help business with scarce resources to improve their operational effectiveness and efficiency. This study will also provide management with an understanding of current issues related to the Balanced Scorecard and assist them in achieving better organizational performance.
1.4 Research Aim
To investigate the challenges facing managers of SMEs that are providing Services in Saudi Arabia and are implementing the Balanced Scorecard as a strategic planning system.
1.5 Research Questions
What are the challenges facing managers in implementing the Balanced Scorecard?
Why and how these challenges were created and emerged?
How these challenges can be overcome through looking at the different factors related to Balanced Scorecard implementation in SMEs?
1.6 Project Roadmap
This research paper is organized in the following order:
Chapter 2 - Literature Review, which covers the Saudi SMEs' operating environment and provides a detailed literature review regarding their operations, performance and the Balanced Scorecard.
Chapter 3 - Research Methodology
This chapter provides details on the methodology applied in this research. It shows the strategy of the paper, performed research approach and the methods of data compilation applied.
Chapter 4 - Findings and Analysis
This section highlights the findings found based on the followed methodology.
Chapter 5 - Discussion and Recommendations
This chapter discusses the implications of the findings, by providing recommendations for Saudi service SMEs.
Chapter 6 - Conclusion and Further Research
This chapter provides a conclusion of this paper and suggests future research possibilities.
Provides a conclusive list of all the sources that were used in the report and project