Business and Management Review Vol. 2(1) pp. 50 – 62 March, 2012
Available online at http://www.businessjournalz.org/bmr
ISSN: 2047 - 0398
Strategic Management and Balanced Scorecard: The Particular Case of Small and
Medium Enterprises (SMEs) In Portugal
Maria da Conceição da Costa Marques, PhD
In Management, specializing in accountancy
Associate Professor of
Instituto Superior de Contabilidade e Administração de Coimbra
E-mail: conceicao.m@netcabo.pt / mcc@ci.uc.pt
ABSTRACT
Small and medium enterprises play a role of great importance in the Portuguese business structure. The use of
strategic management tools like the Balanced Scorecard (BSC) can provide the strategic direction and
organizational development of the national business. Meeting the specific needs of small business is important
when deciding which strategic management tools to adopt. The BSC, was originally designed thinking of large
companies and organizations, but can be adapted to small and medium enterprises (SMEs), taking into account
some specificities in its implementation. This article discusses the potential benefits of the adoption by SMEs the
BSC approach, putting emphasis on the most important management processes for these companies. For this
end, a critical review of the literature on the subject is done, showing some data on SMEs in Portugal.
Keywords: balanced scorecard, performance indicators, performance, SMEs
INTRODUCTION
The dominant paradigm in strategic management is characterized by two main functions: the formulation of
strategy and its implementation. The main contributions to this approach is from Ansoff (1965), Andrews (1971,
1986) and Porter (1979, 1980, 1985, 1998). In general, strategic management is about how the strategy is
developed and implemented. Furthermore, the formulation of the strategy relates to how the company selects
and defines its strategy and discusses its implementation through strategic management.
According to a study by the Institute of Support to Small and Medium Enterprises and Innovation (IAPMEI),
2008, small and medium enterprises (SMEs) are dominant in Portugal, representing 99.6% of companies in the
country. They create 75,2% of jobs and account for more than half of the business, which is 56.4%.
To be successful, enterprises need to set a target course for its activities and assess whether they are following
this. To achieve this goal, they can not only rely on the assessment of financial performance, but also on nonfinancial indicators.
Improving the performance of the companies is one of the current topics, especially for the Portuguese
economy. The opening and globalization of markets in recent years 1 led to increased competition, exposing most
Portuguese companies to difficulties as a result of low productivity and poor performance, in comparison to
their counterparts in developed countries.
Traditional management systems, based mainly on economic and financial indicators for verification of past
performance, are still prevalent among the few management tools currently used by Portuguese companies.
However, increasingly these indicators have been found to be less able to analyze and determine the key
assumptions that lead to success or failure of organizations / companies 2.
1
Especially in the eighties
The financial data are insufficient to assess the performance and the success of the organisations. The
valuation of the enterprises in the stock market depends mostly on intangible factors internal or external to
the enterprise.
2
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Business and Management Review Vol. 2(1) pp. 50 – 62 March, 2012
Available online at http://www.businessjournalz.org/bmr
ISSN: 2047 - 0398
The use of non-financial indicators increased with the disclosure of the concept of Balanced Scorecard (BSC),
proposed by Kaplan and Norton in 1992. It advocates the use of financial and non-financial indicators in a
balanced manner, to measure organizational performance.
The concept of Balanced Scorecard is presented as a management tool that aims to provide a comprehensive and
integrated vision of organizational performance under the financial perspective (which reflects the results of past
actions), and introduces three new non-financial perspectives, concerning intangible factors, and aimed to
measure the effectiveness of competitive factors in future performance.
The BSC brings a new vision, in which the indicators for evaluating past performance, are complemented by
variables that are intended to measure the effectiveness of competitive factors of future performance.
Empirical studies on the implementation of the BSC for SMEs in the years following the emergence of the
concept hardly occurred. After some years, literature on the use of this methodology is already available, after
studying the applicability of the method in smaller firms.
In Portugal, the disclosure and study of BSC is still very limited in comparison with countries like the United
States or the European Union. The existing approaches on the subject hardly refer to its implementation in
smaller companies.
1. SMALL AND MEDIUM ENTERPRISES IN PORTUGAL
1.1 Classification
According to the European Commission, small and medium enterprises are classified as from 1 January 2005, in
accordance with the definitions set in the table below. It aims to promote entrepreneurship, investment and
growth, facilitate access to risk capital, reduce administrative expenses and increase legal security. This came
into force on 1 January 2005.
Category
Table I – SMEs’ Definition
N.º Workers
Business Amount
Total Balance
Medium-sized
Company
< 250
= 50 Millions of euros
= 43 Millions of
euros
Small Company
< 50
= 10 Millions of euros
= 10 Millions of
euros
Microcompany
< 10
= 2 Millions of euros
= 2 Millions of
euros
Source: IAPMEI (2005)
As in other global economies, SMEs play in Portugal a very important role in the corporate structure. It should
be noted that SMEs have strengthened the already important position they have in the national business
structure, both by the increased number of business units, as well as the employment it creates and the business
volume it generates at a faster rate than larger companies.
1.2 Characteristics of SMEs
According to Russo (2006:111), there are certain specific features differentiating small and medium size
companies from large business organizations, namely:
 In SMEs, the managers could also be partners / shareholders;
 The hierarchical and organizational structure is simple, with little or no delegation of decision powers by
management;
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 Closed capital companies, which are not listed in the stock market, predominate;
 The material, financial and human resources, are relatively scarce when compared with large firms,
sometimes the cause of limitations of access to more expensive technologies and organizational systems as
well as difficulties in recruiting technical staff for professional and more specialized field;
 The bargaining power of SMEs is often low with the bank, and also with suppliers and larger customers
(such as multinational suppliers of raw materials, customers of large retailers and the automotive industry);
 The lack of public and audited information is predominant. Some medium-sized enterprises must have
their accounts certified3. Although it is mandatory to file the accounts of companies in the Commercial
Registry4. The vast majority has not complied with this in Portugal;
 In general, SMEs are dependent on one or more key persons, essential for the continuity and success of
businesses. Often, the key person ensuring the success of the business is the entrepreneur;
 SMEs operate predominantly on a regional or national level, but in the current context of economic
globalization, many are beginning to strengthen their internationalization;
 Usually, the location of SMEs is related to affective criteria and residence of their proprietors.
In general, the concept of SME includes micro and small enterprises with a simple structure, where the owner
and / or manager manages a small number of employees with the assistance of few or no other
managers/management team. The concept of SMEs also covers small and medium enterprises in size, with
employees who are around 50, 100 or 200, in which the type of organization as above, dependent on a key
person, becomes inefficient. Therefore, the need arises for a hierarchical structure, with intermediate levels, and
managers responsible for functional areas.
1.3 The importance of strategy in SMEs
The strategy seeks to explain the success of companies helping them better define their objectives and determine
the best way to achieve them. According to Porter (1996), the strategy “is the creation of a unique and valuable
position, resulting in a set of choices, which includes a set of integrated activities”.
Choosing a business strategy is based in adopting a set of decisions and actions that in the long term, valuing
customers more (via the products and services available to them) as compared to what is offered by the
competition, permitting essential gains for the sustainability and continuity of the company (Russo, 2006,
p.112).
The concept of strategy presented above, shows the importance of its application to any company, regardless of
size. However, it is confirmed by many researchers that there is insufficient analysis, formulation and
implementation of strategies in smaller firms. This is of major importance because the majority of business in
any market economy consists of small and medium enterprises.
The structure and decision-making process in SMEs, disfavor very formal strategies and management systems.
Portugal, has been witnessing short term management without any strategic direction set by management, which
has resulted in poor performance of SMEs, setting the excessive dependence of the Portuguese economy in
terms of traditional sectors.
Andersen et al. (2001), argue that strategic planning can improve performance in SMEs. The quantum leap in
performance of these business units may occur if the definition of a clear direction to pursue, with renewed
understanding, that ensures the balance between short-term operational objectives and long-term development,
ensuring its features of agility and flexibility.
The use of strategic management tools like the Balanced Scorecard (BSC) can provide the strategic direction
and organizational development of national business, showing those aspects to be of crucial importance.
3
4
As set in article 262 of the code for commercial societies
Article 15 and 70 of the commercial register.
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Business and Management Review Vol. 2(1) pp. 50 – 62 March, 2012
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ISSN: 2047 - 0398
However, the specificities of small businesses should be considered, generally with a flexible and informal
management, which is not always compatible with the high formalism and complexity of management systems
such as the BSC, nor with the great involvement of human resources and financial resources required for its
operation (Russo, 2006: 114).
2. INTRODUCTION OF THE BALANCED SCORECARD IN SMEs
2.1 What is the Balanced Scorecard
Robert Kaplan and David Norton in 1990 conducted a study on the implementation of the BSC, after a study
requested by twelve large U.S. companies5 noted that the gradual increase of the inefficiency of traditional
financial indicators traditionally used to assess their performance. The objective was to measure the ability to
define and wealth-creating activities of modern organizations.
For the authors, the explanation of the success of the BSC in businesses and non-profit organizations or
government is based on the following aspects, described by Russo (2006, p.21):
a. The systems that preceded the BSC and non-financial measures that included non financial measures
in an ad hoc manner, as if they were operational checklists for managers measure the performance.
The BSC came to point out the connection of measures with the strategy and the relationship of cause
and effect that describe the assumptions of the strategy, making it a system adapted to the strategic
management of companies;
b. Companies in the nineteenth century and most of the twentieth century, the industrial era, managed to
maintain their competitiveness based on investment and management of tangible assets. Through
information obtained from financial statements it was possible to measure the performance of tangible
assets. However, from the end of the twentieth century, the intangible factors have become the greatest
source of competitive advantage of companies. This importance was not shown by the accounting
data, but was accepted by the markets6. Within the intangible assets, the relationship and loyalty of
customers and suppliers, innovation of products and services, the quality of production processes,
knowledge and skills of the workforce, the organizational climate supportive of innovation, capacity to
respond to problems and implement improvements may be considered.
The concept of Balanced Scorecard is described by Kaplan and Norton (1992: 71) as a management tool that
aims to provide a comprehensive and integrated vision of organizational performance, in accordance with the
financial perspective (which reflects the past action results) and introduces three new non-financial perspectives,
and intangible factors related to the measurement of the effectiveness of future competitive factors of
performance. The four perspectives foreseen in the model of the cited authors are the following:
i. Financial, with the aim of getting a return on investments and shareholder satisfaction;
ii. Customers, aims to win their satisfaction and loyalty to the establishment through the creation of
differentiating proposals;
iii. Internal processes, which focuses attention on the critical internal processes and activities, to provide
customer and shareholders satisfaction;
iv. Learning and organizational development, where priority is given to creating a climate conducive to
innovation, to the satisfaction of employees, to change, growth and implementation of improvements.
The BSC requires financial and non-financial indicators as a result of the strategy implemented in accordance
with the four perspectives mentioned. The BSC brings a new vision to the organization, where the indicators for
assessing past performance, facts and events from the period, are complemented by variables that are intended
to measure the effectiveness of future performance of competitive factors (Neves and Baptista, 2003, p. 55).
Carvalho and Azevedo (2001: 60/61) refer to a set of characteristics in the BSC, such as: (i) the mission and
strategy of the organization are transformed into objectives and indicators in the four perspectives (financial,
5
Advanced Micro Devices, American Standard Apple Computer, Bell South CIGNA, Conner Peripherals, Cray
Research, Dupont, Electronic Data Systems, General Electric, Hewlett Packard; Shell Canada (Martinez
Rivadeneira, 2000)
6
For example, through being quoted on the stock market.
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Business and Management Review Vol. 2(1) pp. 50 – 62 March, 2012
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customer, internal processes and learning and growth), (ii) provides a structure and language that permits the
communication of the mission and strategy, highlighting the factors that create value over the long term; (iii) the
employees have easy access to information on the causes of present and future success, giving managers the
ability to bring together the energy and skills of staff, to achieve the long-term objectives, (iv) together with the
pursuit of financial targets, there are (non-financial, intangible) action inducers to achieve these, (v)
complements the financial indicators of past performance with the inducers of future performance.
2.2 The Balanced Scorecard as a performance evaluation system
The BSC is a tool that transforms the vision and strategy of the company into a balanced set of performance
objectives and measures. These elements are organized into four different perspectives, as shown in the
following table:
Table II - Perspectives of BSC
“To succeed
financially,
Financial
Objectives Measures Targets Initiatives
how should
we appear
to our shareholders?”
“To achieve
our vision,
how should
“To satisfy
Customer
Objectives Measures Targets Initiatives
we appear
to our
customers?”
Vision
and
Strategy
our shareholders and
customers,
which
business
processes
must we
Internal Business Process
Objectives Measures Targets Initiatives
excel at?”
“To achieve
our vision,
Learning and Growth
Objectives Measures Targets Initiatives
how will we
sustain our
ability to
change and
improve?”
Source: Kaplan e Norton (1996: 76)
The BSC helps an organization to change its vision and strategy, providing a new framework that tells the story
of organizational strategy through the objectives and measures chosen. The BSC uses the measures in a new
language to describe the key elements within reach of the strategy, while the "scorecard" guards the financial
measures, complementing them with other three different distinct perspectives: customer, internal processes,
training and growth.
The BSC receives a set of strategic and management (information system) which allows to analyze the link
between the mission and vision in the medium and long term, and the short-term operating objectives.
The basic features of the BSC are (Amat i Salas & Soldevilla i and Garcia, 2000; and Uriet Negre, 2003):
a) Adopting a global perspective, balancing short-term with long-term objectives, and non-monetary with
monetary indicators. Therefore, with BSC management control acquires a strategic dimension.
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Business and Management Review Vol. 2(1) pp. 50 – 62 March, 2012
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b)
c)
ISSN: 2047 - 0398
It’s formulation has a participatory nature, as it is built with the joint participation of all managers and
employees who have a role that have to do with the definition and the strategic development of the
organization.
The indicators are structured under four key perspectives: the employees, internal procedures,
customers and the economic and financial results.
As for the definition of perspectives, only the most frequent were mentioned, but as stated by Dávila (1999),
each entity may decide different perspectives, so it is not a closed relationship. Specifically, as shown by Olve et
al (2000), cited by Uriet and Negre (2003), some companies chose to add another perspective, the employee or
human resources.
Amat i Salas and Soldevilla i Garcia (2000:9) suggest that not only success key factors should be identified for
each perspective, which are the factors that the organization can control, and corresponding indicators, but also
relations cause and effect between the different indicators that explain how to achieve better results. It is not,
therefore, placing indicators in any form, but rather that all indicators are interrelated. In this way, information
on what is happening is obtained, but also the reason for is happening.
The perspectives of the BSC, are inter-linked, and should be studied in a joint manner. This inter-relationship is
reflected, for example, in a graph where possible links are established, as proposed by Amat and Dowds (1998),
cited by (Negre and Uriet, 2003), where an improvement in the capability of employees will eventually be
reflected in the results of economic enterprise, through two perspectives: the internal and customer procedures.
It is clear that an improvement in the training of employees, causes a substantial improvement in internal
procedures of the company, which in the long term ultimately benefits the customers, which is achieved by
measuring the degree of satisfaction. Therefore, if customers are satisfied, without doubt the company's results
will be improved.
Summarizing the above, the BSC is based on the assumption that, by acting on the employees' perspectives, they
will be the driving force for improving procedures. This improvement will result in a better budget balance, the
users will consequently be more satisfied.
The four perspectives of BSC previously described: financial, customer, internal and learning and growth,
according to Dávila (1999:38), are the most common because they are applicable in a large number of
enterprises, to organize the business and structure the indicators and training. They are not however, a necessary
condition to have a BSC.
Each organization has its own business model, which depends on its sector and strategy. The organization of the
different stages of the business in perspective encourages communication, and the four traditional perspectives
offer an intuitive structure. But the priority is that the message and information reaches the people of the
company and not the number or the name of the perspectives.
As suggested by Negre and Uriet (2003:5), the BSC provides the organization with contributions such as the
following. It translates the strategy of an organization into a set of indicators: converting the strategy into action.
It is an instrument that communicates the mission of the whole organization in this sense the information should
be stimulating and clarifying for the daily action. This gives coherence to all actions, as it would align the goals.
Besides being an instrument of information and control, it is also a training tool, as it requires the learning from
the good actions and the errors, which implies the possibility of obtaining continuous improvement, currently
we can only improve what is measured.
The use of the BSC requires the coordination of the planning tasks with the strategy and guide the organization
to strategic objectives. Also contributes to the continuing redefinition of the strategy. The environment in which
an organization functions, changes itself, achieving a feedback between the experiences and decisions of the
global vision decisions of the company.
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ISSN: 2047 - 0398
In summary, the BSC, besides informing, contributes to the formulation of strategy for its communication, for
setting the objectives of the organization and employees, to motivate and train continuously, and to redesign the
strategy.
2.3 The articulation of the four perspectives of Balanced Scorecard
To build a BSC that reflects the strategy of the company, the company, the company needs to define (Russo,
2006, p.49): (i) the cause and effect relationships, (ii) the results and inducers of these results, (iii) the link to
financial objectives.
To implement a BSC it is necessary to determine the relationship of cause and effect, considering, in each
perspective and from the various perspectives, the objectives with the performance of inducers. The objectives
should be translated into performance indicators and inducers of performance indicators should be reflected in
indicators of means.
To implement the BSC they use the strategic map of the company. This map is displayed through a scheme that
provides a visual presentation of the critical objectives of the company and of the essential relations between
them, leading to the performance of the organization. The way these are presented is different amongst
depending on the direction on the objectives to be achieved, according to the predefined strategy.
Figure I - Company's strategic map
PERSPECTIVES / STRATEGIC GOALS
Profitability
Financial:
Growth
Customer Loyalty
Customers:
Customer Satisfaction
Internal Processes:
Learning/
Development
Quality of service
Qualific.of Employees
Technology
Source: Adapted from Hernandez et al (2000:52)
In the example of the above table, linking the four perspectives can be made as indicated below. To achieve the
goal of profitability (measured, for example, through the indicator Economic Value Added - EVA), first, high
levels of ' employee qualification ' and' use of certain technology ' are essential , considered vectors of
performance (induce) in the perspective of learning and development.
These inducers will enable the achievement of a 'quality of service', where the result indicator (internal
procedures) chosen can be the “number of returns”. The inducer 'level of quality service', aim at achieving a
high level of 'customer satisfaction' (client perspective). The improvement of the rate of customer satisfaction
and hence of 'customer loyalty', will be essential to achieve the financial objective. Thus, growth in turnover will
result in a greater profitability.
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This being so, it is important that the various perspectives can be reorganized according to the objectives of the
organization, even if these are non profitable. For example the needs of the citizens (client perspective) in the
case of a Municipality or the promotion and development of culture (learning perspective) in the case of a
Foundation. The BSC, with this possibility of reorganization of the various perspectives, is a tool adaptable to
various organizations independent of its purpose, objectives and activity.
The BSC communicates the strategy of the organization, which is reflected in the strategic map of the company.
Through the goals and measures, shows how these are achieved. The definition of the results that the
organization wants to achieve, it is possible to plan how to achieve these, namely how the employees, customers
and shareholders achieve the satisfaction of their objectives.
2.4 Appropriateness and implementation of Balanced Scorecard to the management of SMEs
Russo (2006: 114) argues that in the years following the emergence of the concept of the BSC there has
practically been no empirical studies on the application of this management tool for small and medium
enterprises. After some years, there is already some literature on the use of this methodology, having carried out
empirical studies on the applicability of the method in smaller firms.
Portugal is still low in the dissemination and study of BSC compared with countries like the United States or the
European Union. Existing approaches on the subject hardly refer to its implementation in smaller companies.
This author conducted a study on SMEs in the plastics processing industry in the central coastal region7 and the
findings were that those companies8 are still more concerned with the management of short-term operational
aspects, with the use of financial indicators in the assessment of its performance by the client analysis and the
performance of their internal procedures (in the case of the exporters). However, strategically important nonfinancial factors, such as those relating to human infrastructure (skills and competencies of employees and
organizational (the technologies supporting the strategy and 'culture' 'environment' in the company) are
forgotten.
Although the BSC was originally designed for big companies and organizations, it should not be limited to this
type of business, as this tool may be very important in smaller companies, in supporting the implementation of
the strategy and predispose the entire organization to achieve the proposed objectives. It is therefore important,
the dissemination of new management tools such as BSC, in the national SMEs, with appropriate adjustments to
its size and the Portuguese reality.
Recently, some emerging approaches and empirical studies of the BSC in countries where the small company
has a major role such as European countries like Holland, Denmark and Spain and some countries in the Far
East and Latin America.
MacAdam (2000) was one of the authors that, through empirical studies, sought to adapt the BSC to SMEs. The
studies showed some potential problems in applying this tool to smaller firms. Below are some examples:
a) SMEs usually operate in turbulent markets, in continuous change, and these need to continually adapt
the strategies;
b) The customer perspective is dedicated to the development of relatively complex and impersonal
systems of measuring performance with regard to meeting their needs;
c) On learning in the context of human resources and organizational development, the BSC requires the
involvement of many people, several hierarchical levels and with many employees, without a direct
involvement with customers;
d) The management and leadership of the SMEs, it is often done by one person full time (the owner) and
may eventually be helped by a few employees who are not available to assess performance;
7
8
The results of this study was part of a Masters Theses (Russo, 2003)
The enterprises in the majority had less than 50 workers and the turnover less than 10 million euros.
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e)
Entrepreneurs of SMEs are naturally concerned with the affairs of their company and can personally
lead the activities and having therefore a greater visibility and proximity to the customers;
f) Comparing the internal procedures of the business, between large companies and smaller companies, it
appears that the SMEs these procedures are more temporary and less defined;
g) The informal style existing in SMEs and the strong tendency to centralize their structure facilitates the
adjustment of their procedures, but this flexibility may be compromised with the implementation of
tools such as BSC;
h) Some authors believe that the BSC as a systematic tool with well defined strategies, is not able to
manage unforeseen events that can occur in an unstable environment where the SMEs operate.
McAdam (2000), even identifying potential problems in implementing the BSC in SMEs, recognizes a number
of benefits arising from the implementation of BSC in small companies, concluding that this approach is
effective for SMEs. Thus:
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
xii.
The BSC is a tool to aid in the definition of a given strategy in SMEs;
SMEs often follow a particular strategy without taking into account the resources and infrastructure
required for the implementation of the plans. With the implementation of the BSC this weakness can be
overcome because this tool facilitates the discussion and management of strategic objectives with the
resources of the organization;
The effectiveness of SMEs can be improved by a broader perspective, connecting the strategy to the
improvements achieved in the business;
In some SMEs, the implementation of the BSC has helped to increase the variety of products and
services available to customers.
The concentration in the setting of targets and measures were considered useful, if done through a more
informal approach, considering the close relationship of proximity between employees and customers;
The alignment of the SME organization with the customers’ needs, has been improved with the use of
the BSC;
With the implementation of the BSC there is greater understanding, commitment and engagement of
employees at all levels, providing learning, and contributing to innovation;
Human resource development is the key and innovative in the knowledge and identifying customer
needs, being promoted through the BSC using measures such as staff training, rewarding, recognition
and employee satisfaction;
With the implementation of the BSC besides the measured performance being adequate to the level of
remuneration awarded, learning and growth are also important;
Through the BSC it is possible to disseminate information to all hierarchical levels (cascade) which
contributes to the clarification of employees in relation to the strategy pursued;
One of the advantages for the implementation of the BSC in SMEs, is that management be done in a
more centralized manner by the top manager / owner and his influence, may refocus the company
through the BSC;
The measures and processes, the BSC has been considered a useful tool for maintaining the procedures
and align these with the business strategy.
After examination of all items listed, one of the main conclusions to McAdam (2000), was that the BSC a
formally complex tool, originally designed for large companies, when an excessive degree of formality is
introduced, it may consequently decrease the flexibility and adaptability of SMEs. In spite of this, there is an
increased in accuracy in measuring the performance as well as the connection and link between the strategy and
operational procedures.
Russo (2006: 128) argues that SMEs in their growing process have distinct organizational and management
needs. When companies are still small, are managed by a leader (usually the owner), with some or no support
from managers and with a small number employees. As the company grows and the number of workers
increases, nearing or exceeding one hundred, this management model becomes inefficient. The need to increase
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the hierarchical structure emerges. This growth, of course increases the complexity and difficulties in
communication and coordination of internal procedures.
In this case, the implementation of the BSC can make an essential contribution to the development of SMEs,
when properly adapted to their reality:
a) Preventing that the complexity of the hierarchical structure increases too, ensuring the strengths of
SMEs, which are simplicity, flexibility and low cost of structure;
b) Resolving the difficulties of communication and coordination due to their growth.
When establishing the difference between micro, small and medium sized companies in the universe of SMEs,
the BSC is more appropriate for firms of small and medium size, with a somewhat formal organizational
structure. The implementation of the BSC in micro enterprises, have to necessarily pass through an assessment
of the cost / benefit.
3. IMPLEMENTATION OF BALANCED SCORECARD IN SMEs
3.1 Specific features in the preparation of the BSC
To implement the BSC methodology in SMEs, we may refer to methodology and experience of implementing
the BSC in large companies. However, due to the characteristics of SMEs, especially for being less complex
organizational structures and a smaller number of employees it is required that this is a faster and simpler
process.
According Russo (2006: 129), which in this context refers to 'Australian CPA' it is recommended that SME
managers, in the implementation of the BSC should consider the following essential aspects:
a) Designate the person who will define what the company wants to measure, for the mission, vision
and objectives;
b) Formulate objectives and targets;
c) Avoid complicated models and measuring procedures, with many indicators;
d) Ensure objectivity, since the aim of the implementation of the BSC is to obtain feedback on the
current performance of the company and its reorientation with the future growth in mind.
Since SMEs form the majority of Portuguese business, a single BSC of top management, relatively simplified,
should be implemented. This because SMEs have a lower capacity for the management of systems with the
complexity of the model proposed by Kaplan and Norton, who foresee the decomposition of the BSC in various
Balanced Scorecard, in the same number as the business units or one for each department of the organization.
In the implementation of a BSC in SMEs it is advisable for the first option to be a more simple model, with the
use specific software not being necessary. Initially, it will be more appropriate that the managers use
spreadsheets, Excel-type, thus avoiding heavy investment costs, whose profitability is unknown. It is essential to
measure and manage financial and non-financial elements, essential to the business, in line with the strategic
objectives of the company.
It is also recommended that SMEs initially using the model of four perspectives (financial, customer, internal
processes, learning and organizational development), the model should be reviewed and adjusted gradually
depending on the specific needs.
The entire organization will create and develop their own BSC, different from all others. However, there are
advantages if the firm initially chose tested measures and solutions, which were found essential in other
organizations, especially those operating in similar industry.
3.2 The BSC Methodology
According to Olve et al (1999), the methodology for implementing the BSC, for the manager involves seven
steps, namely:
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Business and Management Review Vol. 2(1) pp. 50 – 62 March, 2012
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ISSN: 2047 - 0398
A. The Company Vision / Organization
The construction of the BSC should start with the definition of the vision. The vision is the description of what
the company / organization intends to be in the future. Normally, in small companies this is not written down,
but known informally by the statements of the leaders regarding their ideals.
It is necessary to look at the contents of the vision in perspectives, goals and indicators, to translate these into
operational terms.
B. The Company Perspectives / Organization
The aim of perspectives is to describe and decompose the vision defined above. The key dimensions of the
organization are considered, enabling the vision of short term (financial), and also the medium and long term
(not financial). The four perspectives: financial, customer, internal processes and learning and organizational
development are usually the most important for companies / organizations. More perspectives may be added, if
they are relevant from the strategic point of view, such as the insertion of an environmental perspective.
C. Strategic Goals
In order to remain in the market an organization must have a competitive strategy to achieve one or more
advantages over the competition. The strategy describes the actions of the company in accordance with its
mission, principles and values.
The realization of the vision is achieved through the strategy, with the selection of market segments and
customers that the company or business unit wants to reach, identifying the critical internal processes and the
choice of individual and organizational skills which should be excellent.
The leaders, in the strategic choices of priority topics, should select those that are more value-generating, with a
high degree of complementation and integration between them. We can choose in this respect, the example
given by Kaplan and Norton: "draw a privileged position, increase the value for customers, achieve operational
excellence, be a good corporate citizen."
The scope of the strategy is the definition of strategic objectives in each of the previously identified prospects.
Thus, the results are defined as the organization wants to achieve, trying to bring reality to the previously
defined vision of the organization. The strategic objectives should be organized into relationships of cause and
effect, which can be shown by a Strategic Map.
The most important strategic objectives can be identified by selecting those that reinforce the skills of the
company or organization and improve its performance, according to the identified critical success factors.
D. Critical Success Factors
The recognition of critical success factors (CSF) should be made while making the strategic objectives. A
company must know what they must do well to achieve their purpose. The analysis of the customer
characteristics combination, represented by the key factors of buying from the competition, expressed by the
factors of competition, leads to these critical factors. The CSF represents the variables that provide better value
for customers and that better distinguish the organization from competitors in the creation of wealth: trademark,
image, leadership, operational efficiency, certain products and services, etc.. The critical factors are those that
are responsible for the company being known and admired by the market and the general public. If the company
can combine their central skills to the CSF, they will achieve the competitive advantages.
The CSF may be different in the same sector of activity comparing an SME with a large company, because of
their characteristics. The identification of critical success factors should be discussed with employees and if
possible with customers, suppliers and other agents that could make a contribution. The top management does
not always have a real concept of all critical factors of their business.
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Business and Management Review Vol. 2(1) pp. 50 – 62 March, 2012
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E. Indicators / Measures
The indicators to be considered will be fundamental in assessing the degree of compliance with the strategic
aim. Indicators allow assessing how the managers use the critical success factors for achieving the objectives.
The measures chosen should be the most important, considering the cause-effect relationship found between the
different perspectives and indicators. It is recommended that besides being strategically relevant, the indicators
provide the collection of comparative data, over time, as available, are reliable and verifiable and shown with
the greatest possible accuracy.
It is important that indicators of knowledge of the users of the BSC and all are subject to evaluation of
performance in order to facilitate the implementation of the model.
SMEs, usually it is sufficient to articulate a set of indicators (about four or five in each perspective), included in
the BSC's top management. Performance indicators should be quantified through the description of the goals to
be achieved and the corresponding frequency may be targets for short or long term.
F. Initiatives / Action Plans
The BSC should include specific actions essential to the achievement of strategy and vision, as defined
previously. At this point, it is important to define what to do and when to do, i.e. to develop action plans and
operations plans and measuring the various dimensions of the BSC (prospects) in order to achieve strategic
objectives. For this to be achieved, formal programs, initiatives and projects should be done. The initiatives will
have a short, medium or long term impact in the creation of wealth and help to strengthen the competitive
position of the company. In preparing a plan more specific, shall include the appointment of the person
responsible for this plan, the origin of resources and how these should be used as well as the definition of a
schedule and preparing a budget. However, given the characteristics of SMEs and its fragile resources, this
process should not be too formal.
G. Monitoring and management of Balanced Scorecard
After the construction of the BSC, it is essential to encourage its use, improvement and customization to the
needs of the company. To collect the information required to monitor operational activities, data should be
collected on a regular basis (weekly, monthly, quarterly). This process is essential to meet the strategies and
facilitate learning that enables the review and refinement of the strategy itself.
To enhance the implementation of a BSC successfully, the following is essential (Russo, 2006: 161):
 Leadership - the BSC should be led and valued by top management, because in contrast, the
organization may not understand its relevance, making it more difficult or even impossible to implement;
 Accountability - those responsible must be identified and their involvement in implementing the
objectives, targets and action plans;

Communication - the communication and dissemination of information is essential in the deployment
and operation of the BSC, spurred by top management. Some companies it may be necessary to change
the 'culture of secrecy' to an attitude of open communication, sharing information and knowledge;

Change - the whole organization, from the top executives, to the management board as well as the
worker structures, who must take and internalizing that this moment of implementation of the BSC is
involved together in a continuous effort to improve the present and future performance;
Learning and growth - learning from the experience gained, will improve the model, helping each
organization to find the best solutions.

CONCLUSIONS
SMEs have certain specific features which differentiate it from large business organizations, such as
hierarchical and organizational structure, a closed capital, amongst others. In Portugal, as in other global
economies, SMEs play a very important role in the corporate structure.
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The use of strategic management tools such as BSC can provide the strategic management and organizational
development of national business, in those aspects that are of crucial importance. However, the specificities of
small businesses should be considered, usually with a flexible and informal management, which is not always
compatible with the high formalism and complexity of management systems such as BSC.
Even though the BSC was initially designed thinking of big companies and organizations, its application should
not be limited to this type of business, since this tool can be very useful in smaller companies, to help implement
the strategy and prepare the entire organization for the achievement of objectives.
With the use of strategic management tools such as BSC, strategic management and the assessment of the
performance of SMEs in Portugal could be improved. Thus, the BSC can be an aid to the progress of the
national business structure, made mostly by SMEs.
In seeking to implement the BSC, should take into account the characteristics of SMEs, being more appropriate
for use in small and medium size companies, since the organizational structure is already formal, with a loss to
micro-enterprises, where this is not yet the case.
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