The Implementation Of A Balanced Scorecard Commerce Essay


My 2nd assignment (Jaworski 2008), in the Finance Module, dealt with the issue of designing the balanced scorecard (BSc) for the organisation I am currently employed by - Evans Mockler (EM). Focus of this assignment is on the process of implementation of the balanced scorecard within EM. BSc is a model introduced in 1992 by Kaplan and Norton, which, in its generic form, "translates mission and strategy into goals and measures, organized into four different perspectives: financial, customer, internal business process, and learning and growth" (Simons 2000, p.187). By implementation we understand a process of 'communication, interpretation, adoption and enactment of strategic plans' (Noble 1999, p. 120). Particular emphasis will be put on the challenges of the successful implementation of the change within SME's and its implications for EM.

Paton and McCalman (2000, p.169) argued that "change is a continuous process of confrontation, identification, evaluation and action" and proposed an action-research model of organisational development (OD). This model was further developed by French and Bell (1999) and Cummings and Worley (2005). This model fits well into the issue of design and implementation of the balanced scorecard in EM. This assignment focuses on the latter stages of the OD framework.

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The issue of implementation of the BSc in the organisations is particularly interesting since balanced scorecard itself is commonly used as a tool of converting strategic planning into action and implementing the strategy with the organisations. BSc is being used as an instrument for communication within the organisation and with the external stakeholders. Following experiences confirm that, provided it has been properly developed and presented, BSc often builds consensus and aligns all the stakeholders with the strategy: 'The Scorecard won't create strategy but it helps build consensus and helps deploy it' (Utility Company); 'The reason we would use the BSc is because it aids getting everybody involved in your business objectives and understanding them' (Major Insurance Company) (Mackay, 2004).

2.1 Background

Evans Mockler is a small practice of accountants with the turnover of around £1.5m. At present EM operates in two areas of accountancy services: business assurance (accounting and audit) and taxation.

In March 2008 a BSc for EM has been formulated. Through the direct involvement of the partners and managers of EM in the designing process, the consensus of all parties has been reached as to the choice of the most appropriate measures.

2.2 Aims of the assignment

Even the best strategies and the most useful tools and techniques can fail if they have not been successfully implemented. Hrebiniak & Joyce (1984, p. 12) argued that process of strategy implementation is more difficult than strategy making and that 'sound strategies die because of a lack of execution know-how and the ability to confront organizational and political obstacles that stand in the way of effective implementation'. Kaplan and Norton (2001) argued that the ability to execute strategy is more important than the quality of the strategy itself. Furthermore, according to Beer & Nohria (2000, p. 133) 'about 70% of all change initiatives fail'. Additionally, considering that in view of Garratt (1987) those organisations that do not keep up with the change in the environment will perish, the process of change implementation is crucial and significant to the survival and success of the organisations.

The main aim of the assignment is to present the challenges of the successful implementation of BSc. In order to achieve this goal the different types of change and their characteristics will be described.

Additionally, it has been argued earlier in this assignment that the organisational development framework seems to be very suitable in EM context. Therefore, the latter stages of this model: implementation, assessment and reinforcement will be reviewed.

That will be followed by the analysis of the available previous experiences of the implementation process of BSc in SME's. Drawn on that the main challenges of the successful implementation will be depicted and the recommendations for the implementation process in EM will be presented.

3. Literature Review

In the following the process of implementation of a change in the organisation will be presented. The emphasis will be put on the actions that an organisation needs to take to successfully implement the BSc, to act on the measurements it provides, and to constantly reassess and reinforce BSc, as to ensure it becomes not only a reliable and valid measurement system but also a strategic management framework (Kaplan & Norton 2004). Firstly, it is important to consider what different types of change and with what implications an organisation faces as to gain the understanding of the appropriate context of the BSc's implementation.

3.1 Types of change

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It has been argued that there is not one best way of initiating and managing change (Johnson, Scholes & Whittington 2006). The context and content of change will determine which of the various possible processes of change would be most suitable. According to Balogun and Hailey (1999) there are four types of strategic change (see Exhibit 3.1). Those different types influence the way of managing the particular change. These types are:

adaptation - the most common form of change, which occurs incrementally, within the existing paradigm;

reconstruction - type of change, which is rather rapid but does not fundamentally change the paradigm;

evolution - form of change that requires change of paradigm but occurs over longer period of time; "EM evolves through a process of ongoing adjustments and any changes in the company operations and strategy are incremental" (Jaworski, 2007, p13.) therefore, arguably, this is the most appropriate type of a change that applies to the change depicted in this assignment - the implementation of BSc in EM.

revolution - type of change, which is rapid and requires major change of paradigm.

Exhibit 3.1 Types of Change

One of ways to explain the idea of the evolution within the organisation is by 'conceiving of organisations as learning systems, continually adjusting their strategies as their environment changes. This has given rise to the idea of the learning organisation' (Johnson, Scholes & Whittington 2006 p.507.), which EM aspires to be. This can also be depicted as an organizational development model.

3.2 OD model for change

According to Cummings and Worley (2005, p. 1) 'organizational development is a systematic application and transfer of behavioural science knowledge to the planned development, improvement, and reinforcement of the strategies, structures and processes that lead to organizational effectiveness'. The process of designing and implementing the balanced scorecard within EM shows most of the elements of the organisational development for change (Senior & Fleming 2006) with 5 main stages (see Exhibit 3.2).

In the previous assignment (Jaworski 2008), which dealt with the issue of designing BSc we could observe the three early stages of the said model: the diagnosis of the current situation and the development of a vision for a change with elements of gaining commitment to the proposed vision and developing a plan of action by means of designing the BSc. The next step is to implement the designed balanced scorecard and the continuous assessment and reinforcement of the change. As we could observe in the Exhibit 3.2 the different stages of the change are inter-connected and the organisation is often going back to the earlier stages of change in order to re-adjust and improve the various elements of change.

Exhibit 3.2 Organisational development model for change

The change agent, shown in the middle of the diagram 3.2 is the 'individual or group that helps effect the change in the organisation' (Johnson, Scholes & Whittington 2006 p.519).

Senior and Fleming (2006) argue that OD, being so called 'soft' model for change, does not always 'face up to harsh realities of change' (p.376). They emphasise, following Farquhar et al. (1989, p. 37), that the process of change implementation in a situation without crisis needs have often incremental character and needs more time to build up the momentum for more radical types change. Additionally they argue that 'OD is limited when change situations are constrained' (p.377) e.g. dictated by CEO with all the precise requirements and details of a change.

In the following we will focus on the process of implementation of the change in order to examine the challenges of the successful implementation of the BSc

3.3 Implementing the change

The process of implementation of a change in general, and particularly implementation of a balanced scorecard, needs to be given careful attention. This issue has been stressed by numerous authors, who in their works focused on the requirements for the successful implementation of the balanced scorecard (Frigo & Krumwiede 2000, Mackay 2004 and Butler, Letza & Neale 1997).

The first key step in ensuring the successful implementation of BSc is to 'assess the organization's ability and availability for applying BSc' (Inamdar et al., 2002, p. 192). This assessment takes into account the role of CEO and his knowledge and commitment to BSc as well as the commitment of all other stakeholders throughout the whole organization to the concept of BSc (Inamdar et al., 2002, p. 186). Not only the management (Guimarães e Silva & Prochnik 2005) but everyone at every level in the organisation needs to understand the BSc concept and its strategic implications as well as their role in achieving the strategy (Kaplan & Norton 2001). The internal and external communication needs to be of a priority and the information regarding the BSc needs to be distributed to all employees as well as the external stakeholders. Balanced scorecard needs to become a 'living document' in order to become a successfully implemented measurement system (Mackay 2004).

3.4 Assessing and reinforcing the change

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Hamel and Prahalad argue that in modern strategic management theory there is a need for a dynamic view of strategy formation (Hamel and Prahalad, 1996). When competitive environments are undergoing significant change, strategists need to think ahead and try to foresee how markets will develop in the future. They must then identify what abilities the organisation must focus on in order to succeed in those markets.

Where a formal planning approach is taken towards strategy formulation, the underlying assumptions of the organisation's strategy should be challenged by the reported outcomes of the strategy implementation. This is the process of 'double loop' organisational learning (Argyris, 1991). Feedback information should cause changes to the strategy formulation process. As one research interviewee stated about the BSc, 'My goal … is to use this as a strategic tool and ask, 'why are we off on that particular measure? Are we measuring the right thing? Is it what we are doing is never going to deliver a good result, or is there something else going on here?'… and using it to inform and have an informal discussion about where we should be putting resource going forwards' (Mackay 2004 p.32)

Farquhar et al. (1989, p. 49 cited in Senior & Fleming 2006, p.374) argue: 'a real danger in process of organizational change is the failure to carry it through sufficiently far. Companies may be tempted to relax when the immediate crisis recedes while they still have not addressed the deeper organizational problems which generated the crises'. In some cases, the BSc reporting framework may indicate that the selected strategy will not deliver the desired outcomes and a change of thinking may be required. The double feedback loop is the final stage of the BSc cycle, leading back to the diagnosis of the situation followed by another cycle.

4. Method

This assignment is focused on the analysis of challenges faced by Evans Mockler when implementing the Balanced Scorecard. For this purpose the compiled secondary data of the previous experiences of other organisations that had implemented the Balanced Scorecard have been gathered.

4.1 Secondary data collection

To the advantages of the secondary data we can count that it 'provides the comparative and contextual data' and it 'can result in unforeseen discoveries' (Saunders M, Lewis Ph & Thornhill A 2007 p. 259). Some of the weaknesses of secondary data are that they were usually collected for different purposes than the needs of the assignment and the quality of data is often difficult to assess, therefore data sources must be carefully evaluated. The data interpretation also might be a problem and can depend on the particular communicated viewpoint, not necessarily giving the true picture of the subject being researched. Therefore it was important to 'exclude the irrelevant to my research data', and analyse and interpret only the appropriate available information (Saunders M, Lewis Ph & Thornhill A 2007 p. 264).

Documentary secondary data, by which we understand data that were originally collected for other purposes (Saunders M, Lewis Ph & Thornhill A 2007), and the survey-based secondary data, understood as a data 'collected using a survey strategy, usually by questionnaires that have already been analysed for their original purpose' (Saunders, Lewis & Thornhill 2007 p. 249) have been gathered from the following sources:

Andersen, H., Cobbold I, and Lawrie, G. (2001) Balanced Scorecard implementation in SMEs: reflection on literature and practice. This paper discusses the potential benefits to SMEs in adopting the Balanced Scorecard methodology and the underlying management processes most relevant to SMEs. It also makes observations about how use and value may differ between Balanced Scorecard application in large and smaller enterprises.

Mackay, A. (2004) A Practitioners' Report Based on: 'Shareholder and Stakeholder Approaches to Strategic Performance Measurement Using the Balanced Scorecard', CIMA.The research undertaken by CIMA was "specifically designed to provide an insight to management on the application of the BSC process based on the experience of UK organizations" (Mackay 2004, p.5). Results of this research have provided interesting findings with regards to the process of implementation of the BSC in the organisations in the UK.

Lewis, L. L., Schmisseur, A. M., Stephens K. K. and Weir K. E. (2006) Advice on Communicating During Organizational Change: The Content of Popular Press Books Journal of Business Communication; 43; 113. Their analysis is based on the research focused on the leading-edge books about the change process (list in Appendix A) with regards to 'themes concerning the communicative role of change agents, general strategies for communicating and introducing change, and tactics for communicating during implementation of change' (p.114).

Guimarães e Silva, B. F. and Prochnik, V. (2005) Seven Challenges for the Implementation of Balanced Scorecard in Hospitals, Rio de Janeiro Press. This article discusses the issues of the implantation of performance measurement techniques by a sample of 15 hospitals and shows the challenges found in the international literature concerning implementation of Balanced Scorecard are also present in the Brazilian healthcare institutions.

The above method of using the secondary data from rather broad but relevant set of sources attempted to mitigate the effects of the mentioned earlier disadvantages of this type of data.

5. Findings

The research has resulted in the following findings from the experiences of the organisations that have implemented the BSc in the past.

5.1 Ensuring that the organization has got the ability and availability for applying BSc.

It has been noted by practically all of the secondary data sources that one of the most important factors for successful BSc implementation is the 'buy in' of all members of the senior management team (e.g. Inamdar et al., 2002, Kaplan and Norton 2000). An executive from a major power company made the following comments: 'We had one sort of false start in introducing the BSc. The executive at that time was still very much preoccupied with managing the 'old world', which was a predominant thing, so they weren't really very enthusiastic about it' (Mackay, 2004). The organizations having CEOs with a good knowledge of BSC had better results. Sound knowledge of the subject and commitment by executives are extremely important for successful implementation.

The resources, i.e. time, special skills and information systems, committed to the implementation of BSc are also of the great importance (Inamdar et al., 2002, p. 193). Successful organizations were able to implement BSc much quicker, often in half the mean time estimated, because they used more resources. Furthermore, it has been noticed that skills in formulating the strategic hypotheses, data analysis and administration are also significant aspects (Andersen et al. 2001).

Lewis et al. (2006) noted that according to the reviewed books the most important role of the change agent during the implementation of the change is to promote communication and participation among all of the stakeholders (p.118 & 119): 'Belasco (1991) argued that after creating a new tomorrow, change agents must empower their employees to live that vision: "The common thread throughout all success stories is the action of leaders-at all levels in an organization-to create a right new tomorrow-and then empower people to achieve that tomorrow" (p. 50). Oakley and Krug (1991) said that among the positive qualities of a creative leader is the ability to be "listen-oriented" (p. 223), empowering people to make decisions, and teaching the importance of self-responsibility'. They argued that all stakeholders need to feel a part of the change process if they are going to accept change and commit to its objectives. Change agents need to encourage employees to take ownership and be autonomous independent thinkers.

Mackay observed (2004) that many organisations did not provide management information to all employees. Very few organisations distributed all the information in the performance management system to all stakeholders. On average, less than half of information was available to all employees, whereas all managers had the whole information available in more than half cases. Interestingly, '8% of respondents stated that none of the information in the performance management system was available to all managers. If information on their performance is withheld, it is going to be difficult to get employees to change their behaviour or to provide valuable feedback' (Mackay 2004, p.34)

Furthermore, the research has shown little evidence of organisations seeking the opinions and input of employees to the strategy development process (Andersen et al. 2001). Communication with employees in this matter appears to have been restricted mainly to ensuring that they fully understood their goals and targets and associated measures. Equally, although many of the organisations provided some information with regards to BSc to other stakeholders, practically none of them had a formal process for capturing stakeholder input. In addition most had systems for providing performance information to external stakeholders, however the clarity of the information was very variable (Mackay 2004).

5.2. Creating a change culture

Lewis et al. (2006) argued that 'it is important for managers to first know the culture of the organization because some cultures are resistant to change'. Results of the research suggested that a key to successful change implementation is a healthy change culture. They cited (p. 120) Kriegel and Brandt (1996):

"When you create a change-ready environment first, resistance is minimized, and employees are more open to innovation and more likely to take risks. In the change-ready environment, new ideas blossom everywhere, even those places where you least expect them to" (p. 157). The also argued that change agents should provide a 'consistent and strong justification for implementing the change to occur' (p. 121).

Similarly, Mackay (2004) stressed the importance of actively managing the processes of learning and feedback before, during and after implementation. It has been stressed by the researchers that this is the best option for all parties involved, because it improves the administration's credibility and puts one in a good position to lead all the agents taking part in the process.

5.3 Considering usage of the BSc as a strategic management system

This proposal is in addition to putting into practice the five BSc principles as defined by Kaplan and Norton (1997, 2000 and 2004): "All interview participants agreed that the benefits and performance improvements from the BSc could only be realized by taking a systems approach, applying the BSc as a strategic management system rather than a measurement system" (Inamdar et al., 2002, p. 194). Most of the organizations began the implementation of BSc with a measurement-only focus and their experiences emphasized the need to align the company structure with the BSc to make it work (Inamdar et al., 2002).

Similarly, the research executed by Mackay (2004) has shown that in all organisations, and particularly in SME's, there are numerous benefits of the BSc down through an organisation. It can encourage commitment to, and alignment with, the organisation's strategic objectives of all stakeholders.

However, the research suggested that numerous organisations were concerned about new BSc system requiring an entirely new information management system. Many of those organisations chose lower the risks and implemented BSc using a pilot system to find out and deal with the expected or unknown problems (Guimarães e Silva, B. F. and Prochnik, V. 2005).

Other experiences from the BSc implementation programs have shown, that when the organisation, having developed strategic goals and identified relevant performance measures, does not actually use the information provided by BSc to drive changes in the way the organisation works (Schneiderman 1999), then BSc implementation fails. It is therefore important to continuously monitor the progress and effectiveness of change. One of the simplest form of this is known as a 'negative feedback'. It is achieved by making a comparison of the outcome of our actions to any stipulated desired outcome - discrepancies between them are fed back into the system to initiate corrective action. It can take a form of a monthly management review meeting, including reviews of the continuing validity of the strategy and the measures being used (Mackay 2004). However, although negative feedback loops are very efficient in simplistic, mechanistic, well-established tasks and devoid of emotion, more complicated situations within human activity systems do not always work in this way. Therefore it needs to be used with caution.

Summarising this part, the research has shown that throughout the entire organisation the 'what', 'why', 'when' and 'how' of the BSc implementation need to be clearly stated and communicated. The stakeholders need to understand the concept of the BSc and reach a consensus regarding what data, how and why will be collected and fed into the BSc. This needs to be followed by the detailed plan of the BSc implementation, in terms of the technical, organizational and operational integration of the business processes. In the following the practical application of the above will be discussed.

6. Conclusions & Recommendations

In the Strategy Assignment, focused on analyzing the process of strategy development it has been noticed that "EM evolves through a process of ongoing adjustments and any changes in the company operations and strategy are incremental" (Jaworski, 2007 p.13). Taking this into account and the scope of change being considered within this assignment i.e. implementation of the BSc, requiring broadening of the paradigm from the focus on solely financial performance measures to four-dimensional concept of BSc, it is argued that we deal with the evolutionary type of change. This is conclusion is also supported by the perception of EM aspiring to be a learning organisation, "capable of continual regeneration from the variety of knowledge, experience and skills of individuals within a culture which encourages mutual questioning and challenge around a shared purpose or vision" (Johnson, Scholes & Whittington 2006 p.589).

The necessary first step towards the successful implementation of the discussed change, the buy-in of all stakeholders, particularly top management team (e.g. Inamdar et al., 2002, Kaplan and Norton 2000), has been partially achieved during the design process, in which all partners and managers had been involved and the consensus had been reached.

Furthermore, in order to gain the commitment and participation of all EM's employees into implementation of BSc they must feel secure enough to admit mistakes, point out the problems and to not meeting their objectives. EM needs to create a change culture, encouraging openness, transparency and collaborative methods. If this is to be achieved there needs to be a full understanding of the concepts that underpin the BSc, such as negative feedback, double loop learning and the requirements for well presented, reliable data (Lewis et al. 2006). In order to successfully implement BSc within the organisation, EM must ensure that measurements are reliable, verifiable and have continuing validity. Only then BSc can become a vital tool used for the decision making purposes.

EM, being an accountancy practice is strongly budget orientated in its planning approach. It is therefore recommended that the company aligns its budgeting cycle with the BSc cycle. Otherwise, the long-term strategic requirements highlighted during the BSc design process most likely will not be integrated in the short-term financial planning of the budget. Andersen et al. (2001) argue that the balancing of long-term development with short-term requirements for survival is a particularly important issue for SME's.

Mentioned earlier the Strategy Assignment underlined the importance for EM of moving from short term operational effectiveness into medium- and long-term strategic planning (Jaworski, 2007). BSc can become a centrepiece of the strategic management system, which is lacking and needed in EM.

The concept of using the Balanced Scorecard as a central part of a strategic management system (Kaplan & Norton 1996a, 2000) is based on a "double-loop learning cycle" (Argyris 1991), which on a regular review of the strategic performance by asking three core questions:

Have we followed our plans?

Have we achieved our objectives?

What do we need to change in our approach in the future?

In addition to that the potential changes in external environment must be analysed. The internal and external circumstances change continuously and often rapidly. This will allow for broader analysis and discussion leading to decisions about continuing validity of the strategic choices set up in the design process of BSc. As a result BSc can drive changes in both the objectives and their measures. (Argyris 1991). Simons (1995) argue that those organisations that use this type of "interactive component" (allowing for continuous adjustment of plans to include "emergent strategies") in their planning and review processes are very flexible and adaptable in their responses to changes in the outer environment. EM, being a small organisation, with simple structure and learning culture seems to be able to be one of those organisation. The final step of the BSc implementation will be therefore about strategic feedback and learning (Simons 2000), when the last stage of one process of the development and implementation of a balanced scorecard becomes the first of another one.

The process of design and implementation of BSc is a continuous process, requiring sustained commitment of the management to the concept of BSc, by providing all the necessary resources, and by a continuous communication process. As a result BSc can make the strategy of EM to become alive for all stakeholders and drive and direct their efforts towards the growth of the company.

Despite the lack of broad literature focused on the BSc implementation in SMEs, this tool and its associated management framework can be at least as much beneficial to SMEs as to large organisations. Arguably, the potential benefits are likely to differ between the two. In larger organisations BSc is particularly useful through its communications elements i.e. brief and relevant summary information about 'what is going on' in the organisation. In smaller firms such as EM, a BSc provides the description of strategic vision and associated strategic objectives and priorities in a way that builds consensus. Additionally it helps to develop and apply more effective strategic management processes. Those benefits can be achieved without the need for developing a complicated and administratively demanding measurement system (Andersen et al. 2001).

7. Reflections

It's been 9 months since I wrote the assignment on BSc and unfortunately this tool is yet to be implemented. The excitement and commitment of the partners has since significantly lowered, especially considering the other important issues arising, e.g. 30% drop in sales on year to year comparison basis. Hopefully EM can overcome these obstacles and implement this very useful strategic tool.

On a personal note, going back to writing the assignment after almost two months brake was challenging as I had to refresh the understanding on the subject and the ideas that I had before. This is important reminder considering the dissertation's work ahead, which stresses the significance of keeping the steady pace with the work on the dissertation, not allowing any longer brakes, which have destabilising effect on the stream of thoughts.