Technovation 26 (2006) 623634 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 Marys Road, Nuneaton CV11 5AU, England

Abstract The UK manufacturing sector is facing massive challenges to survive in todays 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 signicant 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 conrms 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 todays 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 companys 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 ndings 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 dening 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 nancial and non-nancial measures (Kaplan and Norton, 2001). Kaplan and Norton argue that the concept of BSC transudes far beyond this limited and

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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 users experiences, expected benets 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 rst identied 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 nancial accounting measures (like the ROI and payback period) to determine a narrow and incomplete picture of business performance. As a result, they suggested that nancial measures be supplemented with additional indicators that reected customer satisfaction, internal business processes, and the ability to learn and grow. Their BSC was designed to complement nancial 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 nancial and non-nancial 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 identied the following four perspectives: the nancial 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 reection 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 classied 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 Nortons balanced scorecard framework (Kaplan and Norton, 1996).

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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, specic measures are developed for these objectives. This list is then edited, leaving the performance measures in the nal 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 nancial, customer, internal-business-process and learning and growth perspectives. The nancial perspective identies 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 nonnancial strategic objectives should not consist of an illogical collection of measures, instead, they should involve a balanced representation of nancial and nonnancial measures: Many managers believe, they are using a balanced scorecard, when they supplement traditional nancial measures with generic, non-nancial measures about customers, processes, and employees. But the best balanced scorecards are more than ad hoc collections of nancial and non-nancial 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 Nortons 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 nancial 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 nancial 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 nonnancial areas to be used to predict future nancial

performance. Thus the claim is that nancial measures say something about past performance while non-nancial 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 difculties 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 nancial 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 efciency method. Managers were asked to

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record and maintain high levels of efciency. 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 efciency. In an example, he showed how the manager of a fast-food restaurant scored a perfect 100% on his chicken efciency 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 dissatised 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 efciency measurement, employees had erce 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 organizations 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 nancial and non-nancial 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 specically give a methodology for such an implementation. Kaplan and Norton (2001), like Papalexandris et al. (2004) have developed implementation methodologies for the large and afuent 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 specically 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 ofces in France, Belgium and Germany. The research described in this paper was carried out at the manufacturing facility in WarwickshireWest Midlands region of the United Kingdom. BAS is an established SME and operates with less than 250 employees. BAS is ISO 9000 certied, 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 ofce 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 companys 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 Nortons 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 specically designed to cater to the following unique operating conditions at Biddle Air Systems: The lack of human resources rather than nancial ones was the major internal barrier to BSC implementation at BAS. This factor according to the authors observation becomes increasingly important as the size of the company decreases.

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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 benets 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 difculties gaining experienced consultants of good value. The lack of sector specic guidance and material tailored to different sizes of rms 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 benets, cost savings and customer rewards associated with the BSC action, and there was a belief that benets accrue slowly but costs quickly in BSC implementation. The authors appreciating the above-mentioned facts designed the methodology to be semi-autonomous in nature. As an implementation tool in its own right,
Project Initiation

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. 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 dening 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

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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under the auspices of the Knowledge Transfer Partnership (KTP) scheme. Knowledge Transfer Partnerships are Government funded and enable UK businesses to benet from the wide range of expertise available in the UK Knowledge Basepublic 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 authors experience that organizational structure must be put in place as a necessary rst 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 condence and support of the entire company, the authors arranged a kick-off workshop. The key intention of this workshop was to gain the trust and condence of the employees at BAS by explaining to them the benets 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 employees 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 benets 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 clarication 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 clarication. The authors regard traditional strategic planning processes as mechanistic or linear, i.e. they are rather general-to-specic 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 specic strategies to address the specic 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 claried and articulated BASs 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 companys general vision to staff members at BAS. 3. Developed a simple matrix tool which listed and ranked BASs vision in reference to its cultural values. The result of this organic approach was listing three clearly dened 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 identication and prioritization of the companys strategic objectives. Clear identication 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 BASs strategic objectives, the authors adopted the Prioritization Matrix (PM) technique, due its simplicity and effectiveness.

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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 rstly 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 15 (5 being the most important) using the following criteria: (1) Signicance 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 classied in relation to BASs strategy themes (S1, S2, S3), which were derived in Phase 1. The strategy map in relation to Kaplan and Nortons perspective is illustrated in Fig. 4. below. Fig. 4 shows the criteria for each of the four clusters. Lines are used to connect the criteria, and the direction of the arrowhead indicates an increase in the ranking value, which are show in the brackets. The dashed lines line with double arrows indicates two neighboring strategies with the same value. The derived strategy map was presented to the stakeholders sand the Local Management Committee as part of the quarterly KTP audit process and to obtain their formal acceptance. 5.4. Phase 4: KPI analysis

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 ling 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. 5.6. 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 quantiable measurements that reect 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 rstly 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 modications 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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S.1 High Value technical service

S2. Diverse Team of Professionals

S3. Employer of Choice

Revenue Growth (4)

Financial

Cost Leadership (4)

Increased Earnings (4) Add Value to BAS (4)

Profitability (5)

Customer

New Products (5)

Responsive Supply (5) Preferred Supplier (5)

Customer Partnership (5)

Internal Processes

Design Productivity (5) Product Excellence (5)

New Product Launch (4)

Employee Retention (5)

Learning & Growth

Product Learning (4)

Product Focus (4)

Time to Market (5)

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) 623634 Table 1 KPIs at BAS Perspective Finance Strategy Growth Protability 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 Time to market KPI 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 Efciency Actual launch vs delay Reduction in W/F Time to new process maturity % of product representing 80% sales Compare to competitors Owner(s) Finance Manager

631

Customer

Marketing Manager

Internal processes

Operation Manager/Quality Manager

Learning and growth

Ofce Manager

to have a holistic view of the entire operation of BAS, and if necessary derive reports on any specic 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 benets 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 nding 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.

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 specic or sensitive, than indicators that are (theoretically) specic 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 Finance KPI 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 Efciency Actual launch vs delay Reduction in W/F Time to new process maturity % of product representing 80% sales Compare to competitors Frequency Yearly Yearly Yearly Yearly Yearly Quarterly Quarterly Half-yearly Quarterly Quarterly Quarterly Half-yearly Yearly Quarterly Quarterly Quarterly Target (%) [10 [10 [12 [10 [10 [5 [10 [5 [5 Y10 [5 Y5 Y10 Y10 [5 [5

Customer

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 denitions, data

Internal processes

Learning and growth

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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 rst 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 stratication 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 dened 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 inuence the users interpretation of its meaning, the project team had emphasized the importance of providing guidelines for presentation and including condence intervals and sample sizes, when necessary. While the use of condence intervals is important to underline that the departments differ substantially in the size of their populations, condence 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 conrm external validity. Interpretation of indicators becomes easier as the developed software tool develops because the data is available over time; short-term uctuations of indicators are more difcult 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.

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 benets: The Implementation of BSC enhanced BASs 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 companys 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 nished goods has been diminished by about 1218%. 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 ow in the supply chain has been speeded signicantly. Moreover, the effort to maintain the information ow has been signicantly 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 unied 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 unied enterprise culture. Lastly, the rapid response to market requirements gained from the system has increased the inuence of the companys products as seen by customers and made the company better know in the West Midlands region.

7. Success and lessons learnt BSC is an approach which can be implemented to constantly and consistently monitor the performance of

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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 Industrys 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 efciently. 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 benets 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 specications. This made the interface easier to integrate: the most difcult work was in integrating some of the legacy systems. Finally, the developed system was exible, so that it could be adapted to different departments requirements.

as a major roadblock. A good reason may be the decient 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 benets. 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 Nortons four view perspective to a SME manufacturer. Many of the ndings 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 specic 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 Industrys Knowledge

9. Discussion This paper presents one possible approach to implement BSC in a SME environment, using a novel yet practical methodology. The research identies a number of critical management challenges in the BSC implementation activities; such as KPI analysis, project management, and developing support systems. A number of ndings 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

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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 Yorks 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 Administrations 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 Systems VPN. He is also a senior manager in Carvers IT strategy group responsible for the Internet and Networking Groups broadband networking strategy.