Lessons from implementing the balanced scorecard in a small and medium

size manufacturing organization

Kiran Jude Fernandesa,*, Vinesh Rajab,1, Andrew Whalleyc

aDepartment of Management Studies, University of York, Heslington, York YO10 5DD, England, UKbWarwick Manufacturing Group, University of Warwick, Coventry CV4 7AL, England

cBiddle Air Systems Ltd, St Mary’s Road, Nuneaton CV11 5AU, England

Abstract

The UK manufacturing sector is facing massive challenges to survive in today’s global and volatile marketplace. In an attempt to

overcome these challenges, companies are adopting newer management systems to clarify their vision and strategy and translate them into

action. The balanced scorecard (BSC) is one such approach which is gaining significant interest, especially within the small and medium size

enterprises (SME). In this paper, a case study with a SME demonstrates how BSC can be implemented successfully using a systematic and

structured methodology. This paper lists the experimental results of the proposed deployment method and highlights the experiences,

successes and lessons leant during the implementation process. In conclusion, this research exercise confirms the validity and usefulness of

the proposed methodology and offers managerial insights and guidelines for similar implementations.

q 2005 Elsevier Ltd. All rights reserved.

Keywords: Balanced scorecard; Small and medium enterprises

1. Introduction

The key to achieve a state of continuous improvement is

dependent on the ability to measure consistently and

constantly the performance of key processes within an

enterprise (Braam and Nijssen, 2004). Many organizations

have realized the importance of constant and consistent

measurement and have adopted a variety of performance

measurement systems (PMS) over the last few years

(Prajogo and Sohal, 2004). Due to the volatile nature of

today’s globalized businesses it is becoming imperative that

organizations monitor their process performance, the

performance of their supply chains and then align their

processes to the strategic goal of the company. However,

recent data suggests that only 5% of the workforce

understand their company’s strategy, only 25% of managers

have incentives linked to their organizational strategy, 60%

of organizations do not even link budgets to strategy, and

0166-4972/$ - see front matter q 2005 Elsevier Ltd. All rights reserved.

doi:10.1016/j.technovation.2005.03.006

* Corresponding author. Tel.: C44 1904432693.

E-mail addresses: kf501@york.ac.uk (K.J. Fernandes), vinesh.raja@

warwick.ac.uk (V. Raja), andrew.whalley@biddle-air.co.uk (A. Whalley).1 Tel.: C44 2476574268.

85% of executive teams spend less than 1 h per month

discussing strategy (Kaplan and Norton, 2001).

These and other research findings help to explain why

the balanced scorecard (BSC) approach is regaining a

considerable momentum in practice as well as in theory.

There is a vast amount of literature on this topic, listing the

success stories of companies in a variety of business sectors.

It is estimated that around 60% of the fortune 1000

companies in the United States have either adopted or are

familiar with the BSC concept (Silk, 1998). Several other

studies conducted by Malmi (2001) and Rigby (2001)

support this claim with a varying degree of adoption rates.

Even though these studies claim to support the argument that

BSC is widely used in industry, they fail to point out the fact

that, this adoption is mainly in large companies. In addition

to this fact, there is very limited systematic research done on

BSC applications in small and medium scale enterprises

(SME). One of the major knowledge gaps within the

implementation process is the difference in opinion about

the defining characteristics of the BSC concept.

In a recent contribution, the founding fathers of BSC

state that companies ‘claim to have a BSC because they use

a mixture of financial and non-financial measures’ (Kaplan

and Norton, 2001). Kaplan and Norton argue that the

concept of BSC transudes far beyond this ‘limited and

Technovation 26 (2006) 623–634

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K.J. Fernandes et al. / Technovation 26 (2006) 623–634624

narrow’ view. Both researchers emphatically argue that

BSC is not a static concept but a dynamic tool aimed to

consider spread, content, implementation, applications as

well as the individual user’s experiences, expected benefits

and satisfaction. In their recent book, Kaplan and Norton

(2001) have developed a framework for the implementation

of the BSC strategy. The balanced scorecard, originally seen

by Kaplan and Norton as a measurement tool, is now

presented as a means for implementing strategy by creating

alignment and focus. The presented approach is extremely

detailed and complex. It requires a major commitment and

effort from the implementer (company). Though Kaplan and

Norton claim that this framework can be adopted by smaller

organizations, they offer no practical solution to implement

BSC within an SME environment, where limited resource

and expertise are a key issue. Tackling this issue, this paper

highlights the ambiguity of the BSC concept in the

theoretical literature and provides a structured, unbiased

and methodological approach to implementing BSC within

SMEs using an exemplar from a SME manufacturing

organization.

2. Theory of the balanced scorecard

The balanced scorecard (BSC) approach was first

identified and implemented by Kaplan and Norton as a

performance management tool, following a 1-year multi-

company study in 1990. Its aim was to present manage-

ment with a concise summary of the key performance

indicators (KPI) of a business, and to facilitate alignment

of business operations with the overall strategy. Kaplan

and Norton were keen to provide a medium to translate

the vision of the company into a set of clear objectives.

These objectives could be translated into a system of

performance measurements that effectively communicated

Vision and Strate

FINANCIAL“To succeed

financially howshould we appearour stakeholders?

CUSTOMER“To achieve our

vision, how shouldwe appear to our

customers?”

LEARNING & GRO“To achieve our vishow will we sustain

ability to change aimprove?”

Fig. 1. Kaplan and Norton’s balanced scorecard

a powerful, forward-looking, strategic focus to the entire

organization.

Kaplan and Norton were motivated by the fact that

companies mainly relied on traditional financial accounting

measures (like the ROI and payback period) to determine a

‘narrow and incomplete picture of business performance’.

As a result, they suggested that financial measures be

supplemented with additional indicators that reflected

customer satisfaction, internal business processes, and the

ability to learn and grow. Their BSC was designed to

complement ‘financial measures of past performance with

measures of the drivers of future performance’ (Kaplan and

Norton, 1996). It can be clearly seen that their intention was

to keep score of a set of Key Performance Indicators (KPIs)

that could maintain a balance between short and long-term

objectives, between financial and non-financial measures,

between lagging and leading indicators, and between

internal and external performance perspectives. By adopting

such a ‘holistic’ view Kaplan and Norton hoped that

managers, who were traditionally being overwhelmed with

data, would spend more time on decision making rather than

on data analysis.

The original balanced scorecard design identified the

following four perspectives: the financial perspective;

the customer perspective; the internal-business-process

perspective; and the learning and growth perspective.

These perspectives represent three major stakeholders of

any business (shareholders, customers and employees),

thereby ensuring that a holistic view of the organization is

used for strategic reflection and implementation. The

success of these perspectives depends on the fact that

the perspectives themselves and the measures chosen have

to be consistent with the corporate strategy.

BSC requires that KPI be classified into four perspectives

as shown in Fig. 1 below. It requires that companies

categorize its KPI in these four boxes and develop

gy

to”

INTERNAL BUSINESSPROCESSES

“To satisfy our shareholdersand customers, what businessprocesses must we excel at?”

WTHion, ournd

framework (Kaplan and Norton, 1996).

K.J. Fernandes et al. / Technovation 26 (2006) 623–634 625

performance measures within each of these perspectives or

categories. The technique is based on interviews with

mangers by internal or external consultants to identify the

‘strategic objectives’ for each perspective. Then, through

meetings with executives, specific measures are developed

for these objectives. This list is then edited, leaving the

performance measures in the final scorecard.

As can be seen from Fig. 1, the intention of the BSC

approach was to translate the vision and strategy of a

business unit into objectives and measures in four different

areas: the financial, customer, internal-business-process and

learning and growth perspectives. The financial perspective

identifies how the company wishes to be viewed by its

shareholders. The customer perspective determines how the

company wishes to be viewed by its customers. The

internal-business-process perspective describes the business

processes to which the company has to be particularly

adapted in order to satisfy its shareholders and customers.

The organizational learning and growth perspective

involves the changes and improvements which the company

needs to realize if it is to make its vision come true.

The crux of the balanced scorecard is the linking together

of the measures of the four areas in a causal chain which

passes through all four perspectives (Papalexandris et al.,

2004). Thus Kaplan and Norton emphasize that non-

financial strategic objectives should not consist of an

illogical collection of measures, instead, they should

involve a balanced representation of financial and non-

financial measures:

‘Many managers believe, they are using a balanced

scorecard, when they supplement traditional financial

measures with generic, non-financial measures about

customers, processes, and employees. But the best balanced

scorecards are more than ad hoc collections of financial and

non-financial measures.. A scorecard should contain

outcome measures and the performance drivers of those

outcomes, linked together in cause and effect relationships’

(Kaplan and Norton, 2001).

The foundation of Kaplan and Norton’s theory is that the

measures of organizational learning and growth are

the drivers of the measures of the internal business

processes. The measures of these processes are in turn the

drivers of the measures of the customer perspective, while

these measures are the drivers of the financial performance.

They argue that a good balanced scorecard should have a

mix of outcome measures (lag indicators) and performance

drivers (lead indicators). Each of these four strategic areas

should have both lead and lag indicators, yielding two

directional cause-and-effect chains: lead and lag indicators

applied horizontally within the areas and vertically between

areas. The causal paths from the measure indicators on the

scorecard should be linked to financial objectives. This

procedure implies that strategy is translated into a set of

hypothesis about cause and effect relationships, which are

essential because it allows the measurements in non-

financial areas to be used to predict future financial

performance. Thus the claim is that financial measures say

something about past performance while non-financial

measures are the drivers of future performance. The validity

of the model relies, however, on the assumption that the

cause-and-effect relationship exists between the areas of

measurement suggested.

This gives rise to a key question: Can BSC be

implemented in manufacturing SMEs, as a ‘holistic’

method, with limited top management resources? The

answer to this question is very important because

the implementation method determines the outcome of the

implementation process. In an attempt to answer this

question unambiguously, the authors present a practical

method to implement BSC in SMEs with limited top

management resources. The proposed method has strong

grounding in the theoretical works of Kaplan and Norton

(1996, 2001), but provides a practical approach, which can

be implemented by the industrial community.

3. Implementation issues with performance

measurement systems

Traditionally, performance measurement systems were

mainly implemented based on the strategic direction of

the performance manager (larger companies) or the

assigned designate (SMEs). This ‘ad hoc’ approach

commonly resulted in errors and inconsistencies, like

collecting biased data, lack of any statistical analysis, etc.

To overcome these difficulties performance managers

started to collect data and analyze them using ISO 9000

(Yacout et al., 1998) guidelines. Data collected under

the ISO 9000 guideline was being analyzed at both the

departmental and management level, to measure the

performance of the organizational unit. One of the main

problems with this method was the amassing of too much

irrelevant data. In most cases, there was information

overload to such an extent that departmental managers

and employees would ignore the data outcomes or use it

ineffectively. To overcome the limitation of this ‘infor-

mation overload’ researchers suggested methods to focus

on financial and operational data collection and analysis

(Dull and Tegarden, 2004; Yang et al., 2004). This new

method gave performance managers a clear list of ‘key

performance indicators’ to work with. This system

became quite popular and was strongly advocated by the

Malcolm Baldrige National Quality Award (Jakelski and

Lebrasseur, 1997). However, due to the ‘short-term focus’

of the approach, it did not allow managers to make key

strategic decisions based on ‘long-term’ views. In addition

to these problems, companies, due to this ‘shortsighted-

ness’ were making business decisions with limited data,

which proved to be as problematic as information

overload.

Another approach which became quite popular was the

performance efficiency method. Managers were asked to

K.J. Fernandes et al. / Technovation 26 (2006) 623–634626

record and maintain high levels of efficiency. It was soon

observed that exceptional performance in one area proved

to be disastrous in another. Banker et al. (2004) named

this phenomenon as ‘chicken efficiency’. In an example,

he showed how the manager of a fast-food restaurant

scored a perfect 100% on his chicken efficiency measure

(the ratio of how many pieces of chicken sold to the

amount thrown away) by waiting until the chicken was

ordered before cooking it. However, the end result of the

managers actions were dissatisfied customers (from wait-

ing too long) and lack of repeat business. Another

limitation of this approach was to have a ‘comparison’

view about other team members. As the sole emphasis was

on efficiency measurement, employees had fierce compe-

tition with each other to achieve the ‘number 1’ status,

which in many cases resulted in destroying the teamwork

culture. Another shortcoming of this approach was to

overlook the ‘link’ between the organization’s strategic

plan and performance measures.

In an attempt to overcome these problems and have a

‘holistic’ view, the balanced scorecard (BSC) approach

focused on both financial and non-financial indicators in the

four categories listed and shown in Fig. 1. The approach

advocated the concept of long-term strategy into the

management system through the mechanism of measure-

ment. It promoted an approach where companies could

translate vision and strategy into a tool that could effectively

communicate strategic intent and motivate and track

performance against established goals. The success of the

BSC approach is well documented in the works of Malmi

(2001) and Rigby (2001).

However, there is a limited view on the implementation

process of BSC amongst researchers and moreover much of

the focus of these methods have been around larger

corporations. In their recent works, Kaplan and Norton

(2001), do suggest the applicability of their new framework

to SME, however, they do not specifically give a

methodology for such an implementation. Kaplan and

Norton (2001), like Papalexandris et al. (2004) have

developed implementation methodologies for the large

and affluent companies, where resource, time and expertise

is not a major issue.

In an attempt to contribute to this theoretical and

practical need, this paper presents an approach that has

been specifically derived for SME implementation but has

strong foundations to the Kaplan and Norton (2001)

approach. The experience from the implementation of this

structured, unbiased and methodological approach at a

manufacturing organization is presented in four main

sections. Section 1 introduces the company to the reader

where the BSC approach was implemented. This section is

followed by the methodological approach of implemen-

tation. Sections 8 and 9 list the details of the analysis of

business indicators, lessons learnt from this exercise and our

conclusions.

4. Biddle air systems (BAS)

Biddle Air Systems is a well recognized business,

specializing in climate control and air-curtain technologies,

with a manufacturing facility in the UK and sales offices in

France, Belgium and Germany. The research described

in this paper was carried out at the manufacturing facility in

Warwickshire—West Midlands region of the United King-

dom. BAS is an established SME and operates with less than

250 employees. BAS is ISO 9000 certified, and aims to be

the No. 1 provider of climate control and air-curtain

technology and service in its servicing regions. The

company, like other SMEs in the region, has a hierarchical

organization structure, led by the Managing Director.

The company currently operates in the non-domestic

cooling and ventilation equipment market (SIC DK 29.23),

which can be characterized as mature with little growth,

showing very high saturation in recent years. Demand is

mainly from commercial projects, mainly new construction

sites. However, with the design of new fan coils, convectors

and air-curtains, Biddle Air plans to compete in both the UK

and European market place. In addition to this, there is a

possibility of setting up a sales office in the USA for the

North American market.

To achieve these goals, management at BAS were

keen to establish the necessary focus and attain the

company’s goals. BAS management realized that it was

critical for all employees to clearly understand the

company strategy and fully participate in this endeavor.

It was also crucial to formulate a consistent system for

assessing the overall performance of the company and

ensuring appropriate employee development was

achieved. Thus, an effective and easily understood/com-

municated management system, such as the BSC,

appealed to top management and was considered to be

the most appropriate tool.

5. Methodological approach

The methodological approach developed in this paper

has strong grounding in the Kaplan and Norton’s four-

perspective model as listed in Fig. 1. The approach

operationalizes the idea of BSC implementation in a SME

environment. The approach includes (1) key strategies for

participatory BSC implementation, and (2) implementation

support for the strategies. The developed methodology is a

structured eight-step method, which has been specifically

designed to cater to the following unique operating

conditions at Biddle Air Systems:

†

The lack of human resources rather than financial ones

was the major internal barrier to BSC implementation at

BAS. This factor according to the author’s observation

becomes increasingly important as the size of the

company decreases.

K.J. Fernandes et al. / Technovation 26 (2006) 623–634 627

†

BSC implementation was perceived to be an interrupted

and interruptible process in BAS. This culture in fact was

commonly observed on other similar projects by the

authors.

†

Biddle Air Systems, like other SMEs, were largely

ill-informed about BSC, how it works and what benefits

could be gained from its implementation.

†

Biddle Air Systems like other SMEs, faced inconsisten-

cies and barriers from external consultants and complain

bitterly about the high costs associated with such

implementation processes.

†

Biddle Air Systems needed support and guidance to

implement BSC, but experienced difficulties gaining

experienced consultants of good value. The lack of sector

specific guidance and material tailored to different sizes

of firms is an added problem.

†

Positive personal attitudes towards performance were not

translated into actions in BAS.

†

Managers at Biddle Air Systems were skeptical about the

benefits, cost savings and customer rewards associated

with the BSC action, and there was a belief that benefits

accrue slowly but costs quickly in BSC implementation.

The authors appreciating the above-mentioned facts

designed the methodology to be ‘semi-autonomous’ in

nature. As an implementation tool in its own right,

Implementa

ProjectInitiation

StrategyClarification

StrategyAnalysis

KPI Analysis

MeaA

Fig. 2. The methodolo

the methodology is still developing and hence will evolve

over a period of time. However, this should not be a concern

for the readers of this paper, as it lists these shortcomings in

Section 10. The developed methodology, listing the eight

phases, is presented in Fig. 2. below.

The authors adopted a phased approach to the implemen-

tation process, shown with dotted lines in Fig. 2. This

phased approach enables both creative and structured

thinking and planning for a BSC implementation project.

The method is designed to be modular, yet sequential

(shown by the arrows in Fig. 2) so that an organization can

choose to start at different levels and proceed at varying

paces depending on its readiness, needs and requirements.

5.1. Phase 1: project initiation

The project initiation phase is perhaps the most important

step in the entire implementation process, because this

phase is responsible for defining the planned deliverables,

and anticipation of actions needed in order to complete the

implementation process. Biddle Air Systems represents a

typical UK SME and faces similar constraints as most SMEs

in the West Midlands Region of the UK, as highlighted in

the section above. As top management in BAS, could spend

a very limited amount of time on one particular project, it

was decided to recruit a research associate at the company

tion Time

surementnalysis

StrategyInitiation

ImplementationPlan

FormalReview

gical approach.

BAS OperationManager

AcademicSupervisors

BAS MD and Board

Project Champion /KTP Associate

DepartmentalChampions

Fig. 3. Project structure at BAS.

K.J. Fernandes et al. / Technovation 26 (2006) 623–634628

under the auspices of the Knowledge Transfer Partnership

(KTP) scheme. Knowledge Transfer Partnerships are

Government funded and enable UK businesses to benefit

from the wide range of expertise available in the UK

Knowledge Base—public and private sector research

institutes and organizations and higher and further edu-

cation institutions. Due to limited expertise in the area of

performance management within BAS, the authors felt that

the KTP scheme was the most ideal route to proceed.

Recruiting a project champion was crucial to this project, as

it is the author’s experience that organizational structure

must be put in place as a necessary first step, especially in

SMEs, because a lack of formal structure in small

companies can lead to serious chaos.

The newly recruited project champion reported jointly to

the BAS operation manager and the academic supervisors.

To gain the necessary confidence and support of the entire

company, the author’s arranged a kick-off workshop. The

key intention of this workshop was to gain the trust and

confidence of the employees at BAS by explaining to them

the benefits of the BSC. The authors used several case

studies, video clips and group discussions to exemplify this

fact. A simple, yet effective and structured questionnaire

aimed to capture employee’s reaction and commitment to

the process, was developed and distributed. As a result of

this effective communication strategy, over 90% of the

employees were convinced about the advantages of

implementing BSC, while the rest were skeptical or

negative about the expected benefits of the BSC, mostly

due to historical experience of improper project manage-

ment. The authors used the survey outcomes to select

members of the project team based on individual interest

and competence. A simple matrix system was used to derive

a list of project team members, which was then formally

approved by the Managing Director of BAS. Due to the size

of the company, it was deemed to have a small, yet effective

group of members, with one member from each department

and led by the newly recruited project champion and headed

by the Operations Manager. The university team consisted

of two faculty members and mainly acted as impartial

external advisors and spent on an average half a day per

week. The resulting project structure is given in Fig. 3

below.

5.2. Phase 2: strategy clarification

The second phase of the developed methodology

required the team to clarify Biddle Air Systems vision and

analyze their operating environment. The project team

decided to implement an ‘organic’ approach to strategy

clarification. The authors regard traditional strategic plan-

ning processes as ‘mechanistic’ or ‘linear’, i.e. they are

rather general-to-specific or cause-and-effect in nature. For

example, the strategy development process often begin by

conducting a broad assessment of the external and internal

environments of the organization, conducting a strategic

analysis (‘SWOT’ analysis), narrowing down to identifying

and prioritizing issues, and then developing specific

strategies to address the specific issues. Due to its non-

rigid approach, the organic approach was thought to best

suite BAS and consisted of the following three steps:

1.

Using simple dialogue and story-boarding techniques the

project team clarified and articulated BAS’s cultural

values.

2.

Using the ISO 9000 quality manual as a starting point the

authors conducting several brain-storming exercises,

both within and outside of the project team. The intention

of this exercise was to articulate the company’s general

vision to staff members at BAS.

3.

Developed a simple matrix tool which listed and ranked

BAS’s vision in reference to its cultural values.

The result of this ‘organic’ approach was listing three

clearly defined strategy themes for Biddle Air Systems:

S1.

Provider of high value technical services and integrated

systems solutions through the offering of advanced

environmentally controlled air curtain technology.

S2.

Diverse team of talented professionals with expertise in

selected market segments by recruiting specialist in

new and niche market segments.

S3.

Employer of choice, fostering a culture that values

dedication and continuous improvement

5.3. Phase 3: strategy analysis

The strategy analysis phases mainly consisted of

identification and prioritization of the company’s strategic

objectives. Clear identification and prioritization of its

vision is one of the most important tasks in a SME. Lack of

prioritization had often resulted in erroneous consequences

at BAS. To clearly identify and prioritize BAS’s strategic

objectives, the authors adopted the Prioritization Matrix

(PM) technique, due its simplicity and effectiveness.

K.J. Fernandes et al. / Technovation 26 (2006) 623–634 629

PM is a technique which allows project teams to rank items

or issues by a series of criteria which are important the

organization. The project team implemented the PM

technique to conduct a strategy analysis exercise at BAS.

Series of brainstorming sessions were held to firstly

identify a list of strategic objectives important to BAS.

As this was an important step in the overall implementation

process, the team invited members from the top manage-

ment, who were not part of the project team. Each strategic

objective that was derived discussed in detail and was then

listed to form part of the column in the PM. Each member

who attended the session was then asked to rank each

strategic objective, on a scale of 1–5 (5 being the most

important) using the following criteria:

(1)

Significance of the strategic objective to BAS,

(2)

Importance of the strategic objective to the future of

BAS,

(3)

Importance of the strategic objective to other strategic

objectives.

The derived combined list of strategic objectives was

then classified in relation to BAS’s strategy themes (S1, S2,

S3), which were derived in Phase 1. The strategy map in

relation to Kaplan and Norton’s perspective is illustrated in

Fig. 4. below.

Fig. 4 shows the criteria for each of the four clusters.

Lines are used to connect the criteria, and the direction of

the arrowhead indicates an increase in the ranking value,

which are show in the brackets. The dashed lines line with

double arrows indicates two neighboring strategies with the

same value. The derived strategy map was presented to the

stakeholders sand the Local Management Committee as part

of the quarterly KTP audit process and to obtain their formal

acceptance.

5.4. Phase 4: KPI analysis

The KPI analysis phase involved the selection of the Key

Performance Indicators (KPI) for monitoring the derived

strategic objectives and then assigning KPIs owners, who

would be responsible for one or more of them. KPI are

quantifiable measurements that reflect the critical factors of

an organization. The project team employed a comprehen-

sive effort to identify KPI, which best represented each

strategic objective from the derived strategy map. To

identify and select each KPI, the project team firstly

reviewed existing performance metrics within BAS. In

addition to this, the project team decided to interview each

departmental head to determine a list of KPI for individual

departments. Nominated champions from the team inter-

viewed all departmental managers and created a list of 21

KPIs, ranging from EVA to time-to-market. As this activity

required the project team to ‘dig’ for every possible KPI

from BAS, they termed this activity as KPI mining exercise.

The KPI mining exercise was headed by the project

champion with regular support from the academics. Each

of the 21 KPI was reviewed by the project team and

discussed in considerable detail for relevance and validity.

Five of the 21 KPIs were eliminated, two were eliminated

due to overlap and three were not considered as relevant KPI

to BAS. The resulting list of 16 KPI were then allocated to

each of the four perspectives and is shown in Table 1,

below. Finally the team on consultation with relevant

department heads assigned a KPI owner for each of the 16

indicators.

5.5. Phase 5: measurement analysis

As the outcomes from phase 4 would affect the

performance of the company, a report listing the measure-

ment criteria was also presented to the ISO 9000 quality

circle at BAS. On formal approval of this report, the team

determined for each KPI, a target range and measurement

frequency. Milestones were also set for each target

according to the most appropriate measurement period,

which was determined from industry best practices. Finance

measures were taken annually to coincide with filing of

management accounts with Company House, while others

were taken at shorter intervals in consultation with the

Quality manager of BAS. The company also decided to

implement a Vision Support Plan (VSP) where managers

were required to set departmental level milestones to meet

the ‘main’ targets. By introducing the concept of ‘depart-

mental level milestones’, departmental managers were

given the control and necessary authority to manage

performance within their departments (Fernandes et al.,

2001). The approach of using a ‘bottom-up approach’ is

better suited to a SME, than the traditional method of ‘top–

bottom’ performance measurement systems as advocated by

other BSC approaches (Papalexandris et al., 2004). Table 2,

shows the partial list of targets and frequencies at BAS.

5.6. Phase 6: strategy initiation

The strategy initiation phase involved conducting a

detailed analysis and deriving a plan for attaining the targets

from phase 5. This phase involves the formulation of

business and support plans and architectures. The team in

consultation with the quality manager formalized the

business processes within BAS. An unexpected outcome

of this exercise was a re-engineered version of the ISO 9000

procedures at BAS. For each business process, the team

listed events and triggers that corresponded to each of the 16

KPIs. The derived processes were then submitted to process

owners (stakeholders) as part of a consultation processes.

Any comments and modifications proposed by the process

owners were presented to the project team and suitable

action was taken to modify the required change. On

derivation and approval of all new processes, a web-based

IT support architecture was created in consultation with the

IT manager. A budget to support the derived process

Fina

ncia

lC

usto

mer

Inte

rnal

Pro

cess

esL

earn

ing

& G

row

th

S.1 High Valuetechnical service

S2. Diverse Team ofProfessionals

S3. Employer ofChoice

RevenueGrowth (4)

Profitability(5)

NewProducts

(5)

ProductExcellence

(5)

ProductLearning (4)

DesignProductivity

(5)

CostLeadership

(4)

ResponsiveSupply (5)

NewProduct

Launch (4)

ProductFocus (4)

IncreasedEarnings

(4)

CustomerPartnership

(5)

EmployeeRetention

(5)

Time toMarket (5)

Add Valueto BAS

(4)

PreferredSupplier (5)

Fig. 4. Strategy map at BAS.

K.J. Fernandes et al. / Technovation 26 (2006) 623–634630

and support architecture was presented to the BAS board of

directors by the Managing Director of BAS for approval.

5.7. Phase 7: implementation plan

As part of the implementation plan the team arrived at a

joint consensus to derive a detailed plan using Microsoft

Project. The project champion also acted as the project

manager to implement the BSC approach within BAS.

Departmental Managers were briefed about the entire

process on a regular basis. The entire implementation

process took around 6 months to implement. A bespoke

web-based system was developed on a Microsoft.NET

platform. Managers and process owners could log on the

system to add/view/delete/review the performance char-

acters for their individual departments and processes. It is

not within the scope of this paper to highlight the details of

the developed software system and the reader is referred to

the KTP implementation report for further details about the

system (Biddle Air Systems, 2004). The developed system

not only allowed managers and process owners at BAS to

enquire about their KPI performance, but also allowed them

Table 1

KPIs at BAS

Perspective Strategy KPI Owner(s)

Finance Growth Revenue growth Finance Manager

Profitability Return on equity

Cost leadership Unit cost

Add value to BAS Economic value addition

Increased earning EBIT

Customer New products % of sales from new products Marketing Manager

Responsible supply On-time delivery

Preferred supplier Share of key accounts

Customer partnership No. of cooperative efforts

Internal processes Product excellence Cycle time Operation Manager/Quality

ManagerIncreased design productivity Efficiency

Product launch Actual launch vs delay

Employee turnover Reduction in W/F

Learning and growth Product learning Time to new process maturity Office Manager

Product focus % of product representing 80%

sales

Time to market Compare to competitors

Table 2

List of Targets at BAS

Perspective KPI Frequency Target (%)

Finance Revenue growth Yearly [10

Return on equity Yearly [10

Unit cost Yearly [12

Economic value

addition

Yearly [10

EBIT Yearly [10

Customer % of sales from new

products

Quarterly [5

On-time delivery Quarterly [10

Share of key accounts Half-yearly [5

K.J. Fernandes et al. / Technovation 26 (2006) 623–634 631

to have a holistic view of the entire operation of BAS, and if

necessary derive reports on any specific aspect of the

processes.

5.8. Phase 8: formal review

The authors decided to conduct a formal review of the

entire implementation process on conclusion of the project.

The review was conducted at two levels, internal and

external. As part of the internal audit process, departmental

managers were asked to present their ‘departmental views’

on the implementation process in general and about any

‘tangible’ benefits BSC had on their departments. Over 80%

of the departmental managers stated that they and their

departmental employees could consistently access depart-

mental performance (for all four perspectives) and clearly

link this to the company vision. The remainder (10% of

managers) felt that they would require more time to come to

this conclusion, but agreed that BSC was a good manage-

ment system to be adopted by Biddle Air System. The KTP

consultant (representative of the DTI) conducted the

external audit process. The key finding of the external

consultant was that ‘BSC does work for SMEs if

implemented methodologically as shown at Biddle Air

Systems’. Based on the outcomes of both the audits, the

authors feel that BSC can be successfully applied to a SME

using the developed methodology.

No. of cooperative

efforts

Quarterly [5

Internal

processes

Cycle time Quarterly Y10

Efficiency Quarterly [5

Actual launch vs delay Half-yearly Y5

Reduction in W/F Yearly Y10

Learning and

growth

Time to new process

maturity

Quarterly Y10

% of product represent-

ing 80% sales

Quarterly [5

Compare to competitors Quarterly [5

6. Discussion about KPI

The authors in this study aimed to minimize methodo-

logical problems for the set of KPIs it established, both

through its selection process and its recommendations about

the computation and presentation of indicators. One of the

key principles established in this paper was to improve the

quality of KPIs, by implementing common definitions, data

collection procedures and methods for constructing and

presenting indicators. The project team focused on devel-

oping valid indicators based on existing data sources, before

suggesting new data for collection. The core set of

indicators includes indicators that are relatively ‘robust’,

on the grounds that it is better to have unbiased and

comparable indicators that may not be extremely specific or

sensitive, than indicators that are (theoretically) specific or

sensitive, but will be unreliable and measured with bias at

the departmental level.

The importance of developing truly usable indicators was

a central tenet of the project team discussions and is evident

in its results. The project team incorporated this principle

into the methodology for classifying the indicator set, by

K.J. Fernandes et al. / Technovation 26 (2006) 623–634632

clearly distinguishing between indicators that can be used

now and those that were desirable but require further work.

Consequently, not all issues were covered in equal density

in the first version of the developed software tool. Product

excellence and increased earning, for instance, are not

equally represented at the departmental management level.

This project also addressed methodological problems in

its recommendations on the computation and presentation of

KPIs. In particular, some KPIs are computed by key

subcategories to improve their interpretation and compar-

ability. Such straightforward stratification should help

SMEs make comparisons more meaningful. The same is

true for standardization, and explains why the project team

recommended that indicators are often to be collected ‘by

other variables’, such as employee turnover by employee

reduction levels. However, it must be remembered that all

the comments regarding the quality of the indicators apply

also to all other variables, and that any adjustment can only

be valid, if the new variable is collected homogeneously

over departments.

This project has also defined indicators, whenever

possible, as full distributions to improve our understanding

of the variation in indicators between departments. Because

the way that data is presented can strongly influence the

user’s interpretation of its meaning, the project team had

emphasized the importance of providing guidelines for

presentation and including confidence intervals and sample

sizes, when necessary. While the use of confidence intervals

is important to underline that the departments differ

substantially in the size of their populations, confidence

intervals do not solve all problems.

Finally, the authors recommend that a structured

reporting methodology be developed for presenting these

indicators to users. Structured reporting relies on specialists

to interpret information and provide ‘meta data’ on policy

context that helps the non-specialist user to understand and

appreciate the meaning of observed variations. Specialists

can compare indicators with each other for internal validity

and are familiar with sectoral research, which can be used to

confirm external validity. Interpretation of indicators

becomes easier as the developed software tool develops

because the data is available over time; short-term

fluctuations of indicators are more difficult to interpret

than longer term trends.

Furthermore, this historical perspective enriches ‘impar-

tial’ reporting by providing an additional dimension for

understanding the development over time in BAS as a whole

and comparing them between different departments. Finally,

enlisting academics via the KTP scheme has helped BAS

implement BSC within its West Midlands operation.

7. Success and lessons learnt

BSC is an approach which can be implemented to

constantly and consistently monitor the performance of

the organization. The need to excel constantly is determined

by both internal and external forces in an SME. External

forces like new global markets and internal forces like lack

of skilled labor create a dynamic environment for SMEs to

operate in. Companies have to adapt constantly to this

change and in-turn make changes to their performance

measurement systems. The implementation of the BSC

approach within BAS has provided SMEs with a practical

method for carrying out similar exercises within their

organizations. The implementation exercise at BAS resulted

in the following benefits:

†

The Implementation of BSC enhanced BAS’s ability to

respond rapidly to the ever-changing refrigeration and

air-conditioning market within which it operates. With

a robust support system all KPIs could be monitored

easily at all levels. This enabled different departments

within BAS share KPI data, and some of this

information was also accessible from remote locations

over the web in real time. With such accurate data, the

company made more precise outsourcing and manu-

facture decisions.

†

It enhanced the stability and operability of the company.

For example, the rate of shortage of raw materials has

been decreased by 15%. It also allows the planners to

determine a lack of resources. These results have

dramatically increased the company’s income.

†

The inventory could be kept at a very low level. Due to

the accurate and timely information, the company

could reasonably and effectively control the inventory

level using inventory control indicators. The inventory

level of raw materials, parts, semi-manufactured goods,

and finished goods has been diminished by about

12–18%.

†

The average stock turnover of products in the ware-

house had been lowered by about 8% and that of parts

and semi-manufactured goods has been lowered by

about 6%.

†

The information flow in the supply chain has been

speeded significantly. Moreover, the effort to maintain

the information flow has been significantly reduced.

There have also been some ‘indirect’ results. For

example, the implementation of the system has standardized

the relationship between upstream enterprises and down-

stream enterprises. Five unified goals have been reached in

this SME, resulting in consolidation of: (1) quality control

standards; (2) development and manufacturing plan; (3)

knowledge property protection methods; (4) competing

strategies; and (5) product price policies. It has also

improved the cooperation between different teams and

promoted a unified enterprise culture. Lastly, the rapid

response to market requirements gained from the system has

increased the influence of the company’s products as seen

by customers and made the company better know in the

West Midlands region.

K.J. Fernandes et al. / Technovation 26 (2006) 623–634 633

8. Lessons learnt

Some key success factors were achieved by adopting a

team effort. The lessons learnt can be concluded as follows.

Support from the Department of Trade and Industry’s

Knowledge Transfer Partnership Scheme. The KTP scheme

paid for 60% of the total project cost, without which the

company would not have been able to transfer the knowl-

edge and expertise from the University academics to their

organization.

Strong support from the top management. On the one

hand, the Managing Director (MD) gave the necessary

resources to implement BSC, on the other hand, MD gave

the project team strong power to deploy the system.

Sometimes, he participated in meetings to solve manage-

ment problems and kept the implementation process going

smoothly and efficiently.

Good cooperation within Departments. The departments

were mostly controlled by Departmental Managers or

Heads. Departments had their own goals, management

methods, and systems. For example, some departments did

not want to use the developed IT system, because they did

not want to spend money on any new IT infrastructure.

However, on realizing the benefits of BSC all departments

cooperated with each other and were soon on-board.

The use of standard hardware and software systems as

well as standard e-business specifications. This made the

interface easier to integrate: the most difficult work was in

integrating some of the legacy systems. Finally, the

developed system was flexible, so that it could be adapted

to different department’s requirements.

9. Discussion

This paper presents one possible approach to implement

BSC in a SME environment, using a novel yet practical

methodology. The research identifies a number of critical

management challenges in the BSC implementation activi-

ties; such as KPI analysis, project management, and

developing support systems. A number of findings from

the research may be helpful to other SMEs and strategy

makers for successfully institutionalizing BSC within their

organizations.

Most of the BSC implementation literature in the past has

been designed for large organizations, and hence was

unsuitable for implementation within SME units. Working

under the auspices of the KTP scheme showed that

outsourcing skills from academics (acting as consultants)

can be a valuable resource in BSC implementation.

However, it should be noted that companies have found

incompetent consultants to be a major challenge in project

implementation. A possible solution to this is to adopt a

formal methodology for evaluating technical and manage-

ment consultants. Another observation made by the authors,

was the availability and retention of skilled project persons

as a major roadblock. A good reason may be the deficient

policies and reward structures to attract and retain skilled

project persons within the UK SME environment.

It was obvious from the results that in implementing

BSC, organizations faced more behavioral and management

related challenges than pure technical glitches such as

number of KPI or formula for Economic Value Addition

(EVA). These included processes owners not being ready,

resistance to change, lack of training, lack of co-ordination

between departments and lack of funds. A number of

avenues for future detailed research can be recognized that

are based on organizational concerns found in this study.

For example, a detailed study on training methods could

ascertain how BSC training can be effectively carried out.

Another natural extension of this study could be to explore

SMEs which have adopted BSC and have moved to a stage

where the organization realizes business benefits.

Finally, the authors would like to emphasize that the

robustness of a structured methodological approach is of

utmost importance to SMEs with limited resources. After

reading all of the information provided, SMEs should have a

good hold on what BSC is, and what it can do for their

business. Many businesses are already using BSC and many

more will adopt it in the future. SMEs can reduce costs and

create a higher level of implementing BSC approach by

adopting the proposed methodology in this paper.

10. Conclusion

This paper has provided an insight to implementing BSC

in a SME. Additionally, it has shown by practice, the

applicability of Kaplan and Norton’s four view perspective

to a SME manufacturer. Many of the findings of this paper

regarding BSC implementation have highlighted the need

for practicality in general theoretical research. The refriger-

ation and air-conditioning industry is not alone in

experiencing global pressure. Hence, this paper should

provide other SMEs a roadmap to implement BSC with

some minor adjustments to their specific industry.

Undoubtedly, there are several research limitations,

which need to be acknowledged, which can be the basis

of future research work. The paper aims to adopt a

structured methodology as central to the implementation

of the BSC. There are several factors within such an

implementation process that can address social issues, like

quality of working condition, general employee satisfaction,

etc. in addition to the ones tacked by the authors. An

empirical study can be conducted within the industry to

bring up additional interesting issues, which can help further

the developed methodology.

Acknowledgements

This research work has been carried out as part of

the Department of Trade and Industry’s Knowledge

K.J. Fernandes et al. / Technov634

Transfer Partnership Programme. The authors acknowl-

edge the help and cooperation of Dr John Murdock

(University of York) and the Carver Group in preparing

this paper.

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Dr Kiran Jude Fernandes holds an

anniversary research lectureship within

the University of York’s Management

Studies Department. Prior to joining

York, he was a Senior Research Fellow

in Information Systems at the University

ation 26 (2006) 623–634

of Warwick. An alumnus from the Walc-

hand Institute of Technology (WIT), Mis-

sissippi State University (MSU),

Massachusetts Institute of Technology

(MIT) and the University of Warwick, he

worked on the Space Shuttle Main Engines program at the National

Aeronautics and Space Administration’s John C. Stennis Space Center

in Mississippi. His current research work focuses on Technology

Management, Interactive Situation Modeling and Strategic Information

Systems and is epitomized by number publications and research

awards. Kiran is a Chartered Engineer and Member of the Associate

Parliamentary Engineering Group in UK.

Prof. Vinesh Raja is the Professor of

Informatics at the Warwick Manufacturing

Group in the University of Warwick. He is

also in-charge and Chief Knowledge

Architect of the Computer Integrated

Manufacturing (CIM) center, Sun Euro-

pean Manufacturing Center of Excellence

(SEMCOE), Reverse Engineering Center

(REC), Virtual Reality Center (VRC) and

of the leading Internet-based knowledge

portal Collaborative Product Commerce

Center, serving emerging knowledge needs of worldwide senior

executives, consultants, entrepreneurs, educators and researchers.

With grants in excess of £5 Million, he in the last 18 years, has led

and participated in global standards development for E-Business;

Knowledge Management initiatives in the UK consulting industry and

European national government policy; global Information Systems

development projects for industries across USA, India and Hong Kong.

Mr Andrew Walley is the operations manager at Biddle Air Systems

(BAS). Andrew has an extensive software system deployment and

implementation background, which includes leading the system

deployment of Biddle Air System’s VPN. He is also a senior manager

in Carver’s IT strategy group responsible for the Internet and

Networking Group’s broadband networking strategy.