The Issues And Challenges Of Implementing Accounting Essay

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The purpose of this paper is to evaluate the issues and challenges of implementing a balanced scorecard in public sector organizations. In recent years the need of the public sector organizations to show and measure their performance drives them into the need of implementing the BSC. Although the BSC is originally designed for the privet sector (it was designed by Kaplan and Norton and its main perspective where created to fit the privet sector organizations), it is now used by the public sector as well.

However, in order to achieve a successful implementation, there are many issues and challenges that must be overcome. The main issues are the modification of the BSC in the public sector organization, the lack of strategic orientation and mapping the causality between the perspectives of the BSC. There are also barriers that need to be outreached, which are connected with the business policies, the structure and the top managers of the organization.

Public sector organizations are very complex organizations compared to the privet sectors ones. Due to this diverge and the lack of willing to implement the BSC, it is more difficult to design a successful BSC implementation. However, despite the difficulties, the implementation of the BSC is important because it the BSC itself has a lot to offer to the public sector.


2.1 What is a balance scorecard?

According to Kaplan and Norton (1996), the balance scorecard (BSC) is organized in four distinct aspects important to the organization, which are: the financial, customers, innovation and learning and internal processes of the business. As Kaplan and Norton (1996 p.viii) said, "the name reflected the balance provided between short- and long-term objectives, between financial and non-financial measures, between lagging and leading indicators, and between external and internal performance perspectives."

As Chavan (2009) claims, the BHS is a process which is combined by: "Clarify and translate vision into strategy, communicate and link strategic objectives and measures, plan, set targets and align strategic initiatives, enhance strategic feedback and learning" and agrees with Kaplan and Norton that the BSC apart from measuring the financial, also focuses in customers, internal processes and learning and growth that the organizations employees need.

2.2 Why the balanced scorecard is important to businesses?

The BSC is a very useful tool to the managers of every company because of its power to drive the companies through its measurements, in better future results which mean that the organization becomes more competitive. Its main advantage is that transforms the organizations' mission and strategy into measurements that provide the framework for strategic measurement and management system. It also gives the advantage to the companies to achieve future growth by developing the vital assets they need while monitoring its financial results (Kaplan and Norton 1996).

When it comes to non-profit organizations or public sector organizations, the BSC becomes important because of the pressures that have been exerted from both internal and external sources (such as the government). This pressure is due to the need of improvement in performance and accountability which can be effectively achieved by the BSC (Sharma and Gadenne 2011).

As Chang (2007 p. 103) said, "One key benefit of the Balanced scorecard is that it enhances strategic linkage between central and local units."

Issues and challenges of the BSC implementation

3.1 The success factors of a BSC implementation

First of all, it cannot be argued that there are some key elements that an organization must consider in order to achieve a successful implementation of the BSC. According to Assiri, Zairi and Eid (2006), there are 27 critical success factors which are divided in three main categories. The first category is the Dominant factors, which are the most crucial in the implementation. The second category is called the "Main factor" and contains the "mission", the "value", the"vision" and the "strategy". The third one is the "Supporting factors". Northcott and Taulapapa (2012 p.180) support the previous argument with a more analytical study and they claim that the most important factors are

"a participate pre-implementation decision process, learning from others BSC implementations and benchmarking best practice, strong management support, adequate resourcing of BSC initiatives, modifying the standard BSC model so that it matches the organization's context and strategy, continuous in-use learning and training, post-implementing review".

The lack of strategic orientation in a BSC

One of the most important issues that need to be outreached by the public sector organizations, is the lack of perceive strategic orientation. That appears to happen mainly when high level managements ignore or misunderstand the importance of the strategic orientation to the balanced scorecard. As Northcoot and Taulapapa (2012) said, "The BSC design must flow from strategy".

According to Chavan (2009), the high level managers will define the crucial measures and KPIs needed to the organization in order to build the BSC. That means that the leaders are going to determine what "success" means for the organization. It is also their job to transfer this purpose to the employees. This is important because the employees are one of the companies' most valuable assets. So by transferring the purpose of the company to the employees might help the company develop a more appropriate environment which can lead to better strategic orientation. The answer to the question "Why the definition of the KPIs and measurements included in the BSC is a very important factor?" is going to be analyzed further down in this research.

In research done by Kim and Hatcher (2009) can be detected that they linked the strategy with the BSC. They also agree with Northcoot and Taulapapa (2012), that the employees of the organization must embrace the vision in order to ensure communication. That means that it is important to understand the corporate identity of the organization in order to ensure communication which is vital for building the BSC.

However Kaplan and Norton (1996) claimed that the failure of the BSC in the strategy orientation is due to the narrow perspective that the BSC is built to improve the performance of the organization. According to them the BSC is the "way to manage business" because it provides strategies for achieving future success.

This can be argued because according to the W4 members (in an empirical study conducted in USA and Canada), the most important thing in succeeding in the BSC implementation is the identification of the performance measurements with the strategic planning. As the results of the research show, all 4 perspectives are linked together and the measurements become crucial in order to achieve the goals of the strategy (Wilson, Hagarty, Gauthier, 2004).

However, it is very difficult to combine the strategy with the BSC when it comes to practice. In an empirical study conducted in Germany, most of the managers who were interviewed supported the fact that the BSC is a useful tool which helped them with the strategy process and the building their performance measurement system, but they faced a difficulty with the combination of these two. As only few of the managers interviewed managed to combine strategy with the BSC, it is obvious that the main issue is the lack of experience of the managers. Nevertheless, it was clearly proved that in order to implement the BSC in public organizations, a clear strategy is the most crucial factor, as well as the responsibility and reporting structures. Without strategic orientation it is very difficult to define the goals of the organization and it is even more difficult to fully exploit the benefits of the BSC. In that case the key factor in order to link the strategy with the BSC is to fully understand the "cause and effect reasoning" between BSC and strategy (Greiling, 2010).

Modification of the BSC in the organizations context and strategy (problem in adapting the BSC to suit public sector organizations)

According to Northcott and Taulapapa (2012), one of the main problems in implementing the BHS in a public organization is to understand its structure and modify the BHS according to its strategy. The challenge of applying the BSC in the public sector organizations is because of the fact that it is difficult to define the customer and a lot of managers found it difficult to answer this question. That is because of the particularities that the customers in the public sector organizations have and also to the diverse of non-profit organizations such as the public sector organizations.

According to Kong (2010), defining the customer in a public sector organization is difficult, because of the variety of the services it provides. In other words, public sector is very diverse and the services it provides have a range of customers. So in order to identify the customer, some limitations must be specified.

As Greatbanks and Tapps (2007 p.580) said, "Within a public service environment, customer definition can be more complex, resulting in a multiplicity of customers or service users, as well as stakeholders". A probable definition to the question "who is the customer in public sector", would be everyone who pays taxes. So they must be convinced that the services they get have good compared with the money they spent in taxes. But many of the services in public sector focus on the community too.

Apart from the external customers there are the internal customers too. So another dimension that must be examined carefully is the satisfaction of the internal customer.

According to Chan (2004), one of the reasons that lead to internal customers' dissatisfaction is the lack of linkage between the BSC and the employees' payment-bonuses. Provided that, it is essential to mention that if the internal customer is not satisfied, then his efficiency is decreased and this could lead to external customer's dissatisfaction. Those arguments can be supported by the respondents of the research which was conducted in the USA and Canada's public sector organizations. The respondents rate the importance of this issue with 3.8 out of 5.

Also the number of the KPIs must be defined and apart from that they (KPIs) should be a workable number. But in case of an organization in public sector (because it is a non-profit organization) the number of the KPI is enormous and it is difficult to be processed by managers and as Chang (2007) claims, a public sector organization has to deliver many objectives, so in that case the KPIs can't be easily controlled. This is also supported by Sharma and Gadenne (2011), who said that public sector organizations come under great pressure because of internal and external sources such as the government.

In the empirical study in the NHS, was found that the government had to use six dimensions of KPI in order to improve the measurement of the performance of the hospitals. Those dimensions had all together 49 KPIs which were all valuable to measure this performance and they were called High Level Performance Indicators (HLPI) because they are significant to the hospitals (Chang, 2007).

On the other hand, Greatbanks and Tapps, (2007) claim that the private sector sometimes becomes an obstacle to the implementation of the BSC to the public sector organizations', because many of the framework of the private organizations are treated as identical and used in an identical way in public sector organizations and that is caused by the pressure exerted in order to demonstrate accountability. In their article Sharma and Gadenne (2011) support the fact that a public sector organization is more demanding than a private one, so there are more KPIs that need to be calculated. The last parameter of this subject is that public sectors' managers should recognize the work of private sector organizations and learn from them, but more important, to seek their experience diluted in their own standards.

The experiment that took place in WOAK (a non-profit organization in Hong-Kong) proves the above. The failure of the aspects (as the managers and employees of the organization claimed) was in determining the KPIs which are valuable for measuring the BSC, in the training of the frontline level, in understanding what strategy is and how to apply the strategy and finally in spending less time in executing the strategy than needed because they spent more time in planning the BSC (Kwokwah, Connel, 2006).

As Kong (2010) points, the failure of the BSC in the private sector rely on the non-financial measures and variables. In that case, the fact that WOAK failed to achieve those non-financial measures and variables should be expected in a non-financial organization (Kwokwah, Connel, 2006).

Another issue that must be considered in modifying the BSC in public sector organizations is how "balanced" the scorecard is. According to Norreklit (2000), there are two problems associated with finding the balance in the BSC. The first one is that the links between the aspects in the BSC are logical rather than causal. In additions he claims that there are differences between the strategy planned and the strategy expected by the company. Those two factors combined, make the BSC's assumptions invalid and that is the reason why it should be adjusted in the organization's structure.

However, as Davis (2006) claims, the aim of the public sector organizations is to increase the common wealth and can this can be achieved only when the customers are satisfied by the services of the organization.

3.4 Problems with mapping causality

The problem with mapping causality is oriented in the fact that the "BSC is poorly understood or even under-developed" as Northcott and Taulapapa (2012) discussed in their research.

Lowrie and Cobbold (2004) examined the causality in the BSC and reached the conclusion that the strategic objectives are connected to each other. Also their causality is associated with the strategy of the organization and the failure of the BSC leys in the fact that it was very difficult to be designed. As Dror (2007 p.50) said, "The causality concept is a significant issue in the area of managing performances. It enables to identify medium and long-term causality patterns and linkages among performance measures." In his research proves that with using his approach is better to determine the causality needed to build the BSC in both strategic and operational level.

However, Barnabe (2011) tends to disagree with simple methods. According to him, in order to make a better BSC implementation the use of a dynamics-based BSC is more appropriate.

The dimensions of actions, plans and strategies are not clearly shown in the BSC. In further analysis, means that even though the BSC is a good tool for measuring the performance of the organization, when it comes to the causality of the organization there are problems that need to be overcome. The more data and evidences accumulated, the better provision of estimates of cause and effect relationships, but on the other hand the BSC is based on simplicity and this makes difficult to implement the BSC if not the appropriate indicators are selected. But when it comes to the public sector, which uses many non-financial measurements as shown before, it is difficult to link the relationships. As Dror (2007 p.42) states, "Typically, companies collect and build up huge amounts of raw data that are not purpose oriented". So in further analysis, the disadvantage of building a BSC in a public sector organization is that it takes a lot of time because it is very complex (Barnabe, 2011).

In other words, what Barnabe (2011) claims, is that when applying the BSC combined with a dynamics-based BSC, it is easier to find the connections between the relationships which are created in the BSC, as well as separate the "causes and effects in time."

3.5 Which are the barriers to a successful BSC implementation.

Statistics in New Zealand showed that less than 19% of the LGO's respondents use the BSC in their organizations. The main reason for this, as the respondents replied, is the usage of alternative systems which were either self-developed or they used alternative available non-BSC tools. Another reason is the size of the organization. Small size organizations tend not to implement the BSC. The resources are also a barrier for the organizations. The BSC is based on gathering information, so if there are not sufficient resources to process that information and get valuable results, the BSC cannot be implemented in the organization's structure. Furthermore, the lack of recourses reacts to the customer service. Also, another important issue is the lack of time. Many of the managers think that they are too busy to spent time on organizing a BSC and they should spent this time focusing on current problems of the organization. Last but not least, the lack of the top managers' support which is crucial for promoting the BSC is another difficult obstacle. Top managers should encourage the middle managers to use the BSC and help them by providing recourses in order to sustain it (Northcott and Taulapapa 2012).


Although the BSC is a tool designed for the private sector, it is also useful to the public sector, but in order to make it work properly there are plenty of issues and challenges needed to be outreached. Those adjustments are vital for the BSC implementation and when they are successfully processed, the BSC becomes an accepted management tool (Wilson et al., 2004).

The modification of the BSC to the public organizations' structure is difficult, because of the many non-financial aspects of the organization, which are important to determine the goals as well as accomplish them. In order to do that, the organization must define the suitable or appropriate KPIs needed. However, there is not a right answer to the question how many KPIs and measurements are appropriate for an organization. But due to the complexity of the public sector, those measures should not be large in number. The external customers' definition is also another point that must be examined carefully because of the complexity of the public sector. Till now, efforts failed to show results in identifying them. The internal customers' satisfaction is also an issue that must be examined, because it affects measurement factors such as profit and external customer satisfaction as well as the balance between the perspectives of the BSC (Kong, 2010).

The strategy appears to be another crucial issue. The strategy is going to determine of which measurements and KPIs need to be implemented as well as how the managers are going to design the policies and how they are going to make the employees embrace them. Those measurements are important because they are going to determine the organizations performance (Sharma, Gadenne, 2011).

Last but not least, mapping the causality is also a big challenge for public sector organizations. Its successfulness mainly depends on the effort to understand and develop the BSC according the organization's needs. Its significance is major because without it, the organization seems to be helpless in sustaining the strategy and in the development of performance management control systems (Lowrie, Cobbold, 2004).

As Assiri et al., (2006) claim, although there is an expansion of the BSC in public sector organizations, further research should be done on the limitations and the challenges of implementing it. However, if those issues are overcome, the BSC becomes a powerful management tool.

In conclusion, the main points of a successful BSC implementation are not only the modification of the BSC and the strategic orientation, but also mapping the causality between the perspectives of the organization and the time spent to understand, design and the usage of wide approaches, because the aim of the BSC is the strategy and the vision of the company (Kaplan and Norton, 1992).