Technovation 26 (2006) 623–634
www.elsevier.com/locate/technovation
Lessons from implementing the balanced scorecard in a small and medium
size manufacturing organization
Kiran Jude Fernandesa,*, Vinesh Rajab,1, Andrew Whalleyc
a
Department of Management Studies, University of York, Heslington, York YO10 5DD, England, UK
b
Warwick Manufacturing Group, University of Warwick, Coventry CV4 7AL, England
c
Biddle 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
* 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.
0166-4972/$ - see front matter q 2005 Elsevier Ltd. All rights reserved.
doi:10.1016/j.technovation.2005.03.006
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
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K.J. Fernandes et al. / Technovation 26 (2006) 623–634
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 multicompany study in 1990. Its aim was to present management 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
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
FINANCIAL
“To succeed
financially how
should we appear to
our stakeholders?”
CUSTOMER
“To achieve our
vision, how should
we appear to our
customers?”
Vision and Strategy
INTERNAL BUSINESS
PROCESSES
“To satisfy our shareholders
and customers, what business
processes must we excel at?”
LEARNING & GROWTH
“To achieve our vision,
how will we sustain our
ability to change and
improve?”
Fig. 1. Kaplan and Norton’s balanced scorecard framework (Kaplan and Norton, 1996).
K.J. Fernandes et al. / Technovation 26 (2006) 623–634
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 nonfinancial strategic objectives should not consist of an
illogical collection of measures, instead, they should
involve a balanced representation of financial and nonfinancial 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 nonfinancial areas to be used to predict future financial
625
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 ‘information 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 ‘shortsightedness’ 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
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K.J. Fernandes et al. / Technovation 26 (2006) 623–634
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 waiting 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 competition 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 measurement. 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 implementation. 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 Kingdom. 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/communicated 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 fourperspective 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
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 implementation 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.
† 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 inconsistencies 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.
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
The authors appreciating the above-mentioned facts
designed the methodology to be ‘semi-autonomous’ in
nature. As an implementation tool in its own right,
Project
Initiation
Strategy
Clarification
Strategy
Analysis
KPI Analysis
Measurement
Analysis
Strategy
Initiation
Implementation
Plan
Formal
Review
Implementation Time
Fig. 2. The methodological approach.
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K.J. Fernandes et al. / Technovation 26 (2006) 623–634
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 education 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 management. 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 planning 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
BAS MD and Board
BAS Operation
Manager
Academic
Supervisors
Project Champion /
KTP Associate
Departmental
Champions
Fig. 3. Project structure at BAS.
analysis (‘SWOT’ analysis), narrowing down to identifying
and prioritizing issues, and then developing specific
strategies to address the specific issues. Due to its nonrigid 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
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 management, 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.
629
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 measurement 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 ‘departmental 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.
5.4. Phase 4: KPI analysis
5.6. Phase 6: strategy initiation
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 comprehensive 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 interviewed 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
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
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K.J. Fernandes et al. / Technovation 26 (2006) 623–634
S2. Diverse Team of
Professionals
Revenue
Growth (4)
Cost
Leadership
(4)
Learning & Growth
Internal Processes
Customer
Financial
S.1 High Value
technical service
S3. Employer of
Choice
Increased
Earnings
(4)
Add Value
to BAS
(4)
Profitability
(5)
New
Products
(5)
Responsive
Supply (5)
Customer
Partnership
(5)
Preferred
Supplier (5)
Design
Productivity
(5)
Product
Excellence
(5)
Product
Learning (4)
New
Product
Launch (4)
Employee
Retention
(5)
Time to
Market (5)
Product
Focus (4)
Fig. 4. Strategy map at BAS.
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 characters 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
K.J. Fernandes et al. / Technovation 26 (2006) 623–634
631
Table 1
KPIs at BAS
Perspective
Strategy
KPI
Owner(s)
Finance
Growth
Profitability
Cost leadership
Add value to BAS
Increased earning
New products
Responsible supply
Preferred supplier
Customer partnership
Product excellence
Increased design productivity
Product launch
Employee turnover
Product learning
Product focus
Revenue growth
Return on equity
Unit cost
Economic value addition
EBIT
% of sales from new products
On-time delivery
Share of key accounts
No. of cooperative efforts
Cycle time
Efficiency
Actual launch vs delay
Reduction in W/F
Time to new process maturity
% of product representing 80%
sales
Compare to competitors
Finance Manager
Customer
Internal processes
Learning and growth
Time to market
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 departmental 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 management 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.
6. Discussion about KPI
The authors in this study aimed to minimize methodological 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
Marketing Manager
Operation Manager/Quality
Manager
Office Manager
collection procedures and methods for constructing and
presenting indicators. The project team focused on developing 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
Table 2
List of Targets at BAS
Perspective
KPI
Frequency
Target (%)
Finance
Revenue growth
Return on equity
Unit cost
Economic value
addition
EBIT
% of sales from new
products
On-time delivery
Share of key accounts
No. of cooperative
efforts
Cycle time
Efficiency
Actual launch vs delay
Reduction in W/F
Time to new process
maturity
% of product representing 80% sales
Compare to competitors
Yearly
Yearly
Yearly
Yearly
[10
[10
[12
[10
Yearly
Quarterly
[10
[5
Quarterly
Half-yearly
Quarterly
[10
[5
[5
Quarterly
Quarterly
Half-yearly
Yearly
Quarterly
Y10
[5
Y5
Y10
Y10
Quarterly
[5
Quarterly
[5
Customer
Internal
processes
Learning and
growth
632
K.J. Fernandes et al. / Technovation 26 (2006) 623–634
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 comparability. 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 ‘impartial’ 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 manufacture 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 warehouse 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 downstream 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
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 knowledge 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 management 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 activities; 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 management consultants. Another observation made by the authors,
was the availability and retention of skilled project persons
633
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 refrigeration 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
634
K.J. Fernandes et al. / Technovation 26 (2006) 623–634
Transfer Partnership Programme. The authors acknowledge 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
of Warwick. An alumnus from the Walchand Institute of Technology (WIT), Mississippi 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 European 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.