International Management Accounting Conference 7

2 3 December, 2014

Review of Using Balanced Scorecard among SMEs

Mahshid Lonbani1, Saudah Sofian2, Mas Bambang, Barato3

1
Ph.D Student, Faculty of Management, Universiti Teknologi Malaysia, Johor, Malaysia
Email: lonbanimahshid@gmai.com.
2
Associate Professor, Faculty of Management, University Teknologi Malaysia, Johor,
Malaysia. Email: saudah@utm.my.
3
Associate Professor, International Business School, Universiti Teknologi Malaysia, Kuala
Lumpur, Malaysia. Email: mbaroto@gmail.com.

ABSTRACT

Balanced scorecard (BSC) has been used in different businesses with different sizes. Large
firms as well as small and medium sized enterprises (SMEs) tend to use multidimensional
BSC instead of relying on traditional performance measurement. Although there are plenty of
studies evaluating the use of BSC in large companies, studies which specifically focus on
small firms is relatively few. The purpose of this paper is to review the literature regarding the
use of BSC in SMEs to find out the level of its applicability and implementation in
these environments. Based on extensive review of available literatures, it can be seen that
most of the BSC scholars believe that it has the potential to be used in small firms, and
therefore it is applicable in this context; however, SMEs do not implement BSC effectively,
and due to different reasons, they tend to use only some specific parts of this performance
measurement system.

Keywords: Balanced Scorecard- Small and Medium sized enterprises- Performance

Measurement

INTRODUCTION

Traditional performance measurement is based on financial indicators which mainly focus on

short term view strategy. This way of evaluating the performance is not adequate for
managers to run their businesses effectively (McCunn, 1998). Managing the future is more
critical for companies rather than merely evaluating the past events. Kaplan and Norton
(1992) have created a new era in performance measurement system. They developed the BSC
to overcome a limitation of one dimensional performance measurement. In BSC, business
performance is evaluated and monitored in a comprehensive manner; financial and
nonfinancial, internal and external, as well as short term and long term (Kaplan and Norton,
1992). Today, BSC has become popular among large as well as small organizations, and it

71
 International Management Accounting Conference 7
2 3 December, 2014

can be seen that this system can play a significant role in translating strategy into relevant
performance measures. In this study available literature regarding the use of BSC in SMEs
will be reviewed in order to clarify the level of its implementation and also the possibility of
using this method in SMEs. Therefore, this paper is organized as follows: it starts with a brief
overview of BSC, and then SME with its main features will be represented, in the next section
methodology will be explained which is followed by a discussion of the application of BSC in
SMEs together with a summary of previous studies. Finally the findings of the studies will be
discussed and a conclusion is made.

BALANCED SCORECARD

BSC was developed by Kaplan and Norton (1992) and it considers vision and strategy in
managing and evaluating business performance. Firms strategy can be linked to operational
performance using the BSC. This multidimensional system focuses on four different
perspectives including: financial, customers, internal business process and learning and
growth. BSC can be considered as an important system for measuring the performance of
large firms as well as small organizations. The formality and complexity of this system may
be diminished in small firms, but neither its effectiveness nor its importance will be affected
by the features of firm size (Von Bergen and Benco, 2004). The BSCs four perspectives are
illustrated in Figure 1:

72
 International Management Accounting Conference 7
2 3 December, 2014

FIGURE 1: Translating Vision and Strategy: Four Perspectives

(Kaplan and Norton, 1996)

SMALL AND MEDIUM SIZED ENTERPRISES

Currently, SMEs have highlighted their significant role in business environment. They are mainly
recognized by three distinctive attributes including number of employees, paid-up capital, and
annual revenues (Kureshi et al., 2009). There are numerous characteristics which differentiate
SMEs from large organizations; central distinction between large and small rms is the greater
external uncertainty of the environment in which small rm operates, together with the greater
internal consistency of its motivations and actions (Storey, 1994; Welsh and White, 1981). Some
particular features of SMEs can be found in almost every study since they are very distinguishable
and crucial. One of them is related to their strategy and planning system. Scholars have
differently referred to SMEs poor strategic planning such as being informal (Da Costa Marques,
2012), dynamic and emergent, very limited (Gunasekaran et al., 1996; Mintzberg, 1981), and short
term oriented (McAdam, 2000).

73
 International Management Accounting Conference 7
2 3 December, 2014

SMEs are believed to have limited financial and human resources (Garengo et al., 2005).
Having a restricted overview of the market is another feature which leads SMEs to be incapable of
controlling their competitive position (Huang and Brown, 1999). Instead of being able to drive the
market, they have to be flexible and adapt to existing changes (Ghobadian and Gallear, 1997;
Shari and Aspinwall, 2000). The mentioned features are the most important ones which were
highlighted severally by different scholars.

METHODOLOGY

Though scarcity, different studies regarding the use of BSC in SMEs have been reviewed in this
paper. The most up dated papers were included in this study. Research papers, from different
journals were reviewed to identify thrust areas of research. On the basis of review, gaps are
identified and future recommendation is proposed.

APPLICATION OF BSC IN SMES

Kaplan and Norton (1992, 1996, 1998) originally focused on large firms. This can be seen from
their early BSC papers. Large technology firms and Banks are among the most target users
mentioned in these texts, however SMEs and public sector organizations have not received
considerable attention (Johanson et al., 2006; Chow et al., 1997). There are some limitations in the
process of designing and applying the BSC in organizations. Many scholars have investigated the
general limitation of this performance measurement system (Dinesh and Palmer, 1998; Epstein and
Manzoni, 1998; Norreklit, 2000; Olson and Slater, 2000) ;however, studies in assessing the
limitation of BSC implementation in SMEs is very few (Von Bergen and Benco, 2004; McAdam,
2000; Andersen et la., 2001; Rompho, 2011; Hudson et al., 2001; Zinger, 2002; Tennant and
Tanoren, 2005; Gumbus and Lussier, 2006 ) mostly because of the limited number of cases in
which BSC has been applied (Rompho, 2011).

The process of developing a BSC in SMEs is similar to those deployed in larger

organizations; however, the duration of this process will be different. Since the number of SMEs
employees is fewer and their organizational structure is less complex, the process will be quicker
74
 International Management Accounting Conference 7
2 3 December, 2014

compared to large organizations. Andersen et al. (2001) pointed to this key difference as they were
designing this multidimensional performance measurement system.

Barnes et al. (1998) and Rantanen and Holtari (2000) believe that traditional performance
measurement are used more frequently in small firms and balanced models are seldom used. There
are several reasons behind the applicability (or not applicability) of BSC in SMEs contexts
(e.g. Zinger, 2002 ; Rompho, 2011 Suprapto et al., 2009). In addition some scholars believe that
BSC is implemented in these environments while others have a different opinion (e.g. Kureshi et
al., 2009; Russo and Martins, 2005; Sousa et al., 2005). A summary of studies which analyzed the
possibility and level of BSC usage in SMEs is presented in Table 1.

TABLE 1: Results of previous studies

Reference Methodology Main Findings Reasons Behind Variables

Tennant and Literature based/ survey The adoption of BSC in case
Tanoren, (2005) organizations was very low
BSC can be used in the
context of SMEs but with
certain modifications
Andersen et al. reviewing a combination The implementation of BSC
(2001) of literature regarding can be very effective in
BSC,SMEs, strategic SMEs though its
management etc. effectiveness is different
from larger counterparts
Von Bergen Literature based firm size cannot be a barrier
and Benco, for implementing BSC;
(2004) therefore, this tool can play a
pivotal role in SMEs
contexts
Phillips and Case study BSC was not directly used in
Louvieris, the organizations; though,
(2005) different non-financial
measures were selected
Russo and Case study Most of the Portuguese
Martins, (2005) SMEs did not implement
BSC
Gumbus and Case study BSC can be beneficial for
Lussier, (2006) SMEs but there is no one
model which could be
applicable in all contexts
McAdam, Case study SMEs environment are
Lack of knowledge and being
unawareness (80%) Financial measures were found
to be the most important and
innovation measures were
considered as the least
important measures
BSC needs to be simpler. It
should involve less time and
minimise extra burden
Focusing on strategic targets -
and related objectives and
priorities, and also driving
organizations to develop a
more influential strategic
management process.
Leading SMEs to plan for -
future and not merely focus on
financial measurement
Variety of performance Budgetary control
measurement (very normal Customer relationship
paper based manual processes management
or very advanced technology
based processes) were in use Strategic management
Collaboration
There were not aware of the -
BSC or being informed
ineffectively. Additionally BSC
was not an easy tool to
implement
BSC should be designed based -
on particular characteristics and
critical success factors of any
organization
Turbulent market leads SME -

75
 International Management Accounting Conference 7
2 3 December, 2014

(2000) inconsistence with to be flexible regarding their

implementation of BSC
Manville, Case study BSC is implementable in
(2007) SMEs environment
Suprapto et al., Case study BSC can be applied in
(2009) Malaysian SMEs
environment
Rompho, Case study BSC has been failed in Tai
(2011) electrical appliance SME
Da Costa Literature based BSC can help small
Marques, organizations ( specific
(2012) features of SMEs should be
considered while
implementing this system)
Kureshi et al., Case study BSC was not implemented in
(2009) 61% of companies in north
part of Pakistan respondents
Sousa et al., Case study England and Portugal SMEs
(2005, 2006) highlighted the importance of
BSC but did not use it
accordingly
Phillips et al., Case study SMEs in four different parts
(2003) of the world including
Malaysia, Singapore, Hong
Kong, and Australia have
shown to use BSC but not
fully benefit from all four
perspectives
Giannopoulos Case study Most SMEs in UK and
et al., (2013) Cyprus did not use BSC
Monte and Case study Small fuel retailers in
Fontenete, Portugal did not implement
(2012) BSC
Zinger, (2002) Literature based BSC can play a significant
role in SMEs context
Hongmei and Literature based BSC can helps SMEs to
Yujun, (2010) improve the implementation
of knowledge
management(KM)
Pamela A survey conducted on a BSC was partially
Muhenje et al., sample of manufacturing implemented in
(2013) SMEs manufacturing SMEs in
Nairobi
Santagada, Literature based BSC was considered as an
(2012) effective tool to be
implemented in SMEs
Hanif and Case study Mainly one perspective of
Manarvi, BSC has been used in in
(2010) SMEs and the other three
were considered insignificant
strategy adoption
It is Supported by both internal
and external factors
Results were proved by the
factor analysis and the
reliability test
SMEs frequent changes of
strategy
Operationalize SMEs strategy
and support them to achieve
their objectives
They were not willing to use
BSC though it was perceived
highly effective
Lack of employees skill and
difficulty in understanding the
process
Size of the organization plays a
critical role in choosing
measurement system and
measures used
Unawareness together with
perception of inappropriateness
Mangers low level of
education, and unawareness of
BSC model within companies
Increasing the ability of
mangers to implement strategy.
Leading to innovation and
better communicate with
external parties
Breaking down the objectives
of KM, and measuring the
performance of KM through
indicators of BSC
There was a gap between the
knowledge regarding three
other BSC perspectives and
their application in SMEs
Help SMEs to maintain their
competitive position and
increase organizational
alignment
Managing the organization was
dominated by personal attitudes
and there was a limited
knowledge on BSC
A set of KPI related to business
plan were chosen
Learning and growth, mission
and vision, customer and
internal business perspective.
-
All four perspectives can be
applied; however the model
should be adjusted gradually
depending on the situation
-
Learning and growth
perspective have received less
attention and financial
indicators were considered
more important compared to
others
Financial and customer
indicators were the only
implemented perspectives in
companies
The most important factors in
decision making process were
financial indicator rather than
non-financial measures
-
-
All four dimensions can be
applied in order to breaking
down the objectives of KM
Most selected measures were
related to financial perspective
-
Customer dimensions of BSC
were more important compared
to the others

76
 International Management Accounting Conference 7
2 3 December, 2014

DISCUSSION

Summary of different studies regarding the use of BSC in SMEs which were presented in the table
can be discussed as follows:

Studies were mainly carried out in order to clarify the applicability of this performance
measurement system in SMEs context and also the level of BSC implementation in these
environments. There was a combination of results regarding the feasibility of applying BSC in
SMEs. Some authors believed that SMEs can use this system and some others had a different point
of view; however, the majority of them agreed on the applicability of using BSC model in Small
firms (Hongmei and Yujun, 2010; Tennant and Tanoren, 2005; Andersen et al., 2001; Gumbus and
Lussier, 2006; Manville, 2007; Suprapto et al., 2009; Da Costa Marques, 2012; Zinger, 2002;
Santagada, 2012). Scholars believe that SMEs can benefit from implementing BSC in different
ways such as having the ability to plan for future (Von Bergen and Benco, 2004), supported to be
innovative and achieve their objectives, better implementing strategy (Zinger,2002) and etc.

Those who did not agree on the feasibility of using BSC, stated that some specific
characteristics of SMEs such as resource scarcity and short term planning can be problematic while
BSC implementation. The majority of the studies show that SMEs do not implement BSC (Phillips
and Louvieris, 2005; Russo and Martins, 2005; Kureshi et al., 2009; Giannopoulos et al., 2013;
Monte and Fontenete, 2012) or do not use this system successfully and effectively (Rompho, 2011;
Phillips et al., 2003; Pamela Muhenje et al.,2013; Hanif and Manarvi, (2010 ).Unawareness and
limited knowledge on BSC, perception of inappropriateness, dominance of managers approaches
were among the most significant factors behind not implementing BSC in SMEs .Among the few
number of SMEs which applied BSC, it can be seen that this system was incompletely
implemented; for instance, only one or two perspectives were considered important, not all four
dimensions.

CONCLUSION

BSC can be considered as an important performance measurement system, it does not only help
SMEs to evaluate their performance but also leads them to develop strategy more effectively. The

77
 International Management Accounting Conference 7
2 3 December, 2014

need for adopting BSC in small firms is not remarkable yet, and they mainly prefer to select some
specific non-financial measures such as, factors related to their own customers. Reviewing
literature shows that the number of studies focusing on the use of BSC in SMEs is very few.
Although BSC has received a lot of attention from organizations, SMEs do not effectively use this
system in their environments. Generally, it is clear that BSC is not extensively used in small firms;
nevertheless, they can benefit from using this system if they could develop BSC according to their
own specific features.

The results of this study will lead researchers and professionals involved on SMEs
management to consider BSC more effectively. Results can also increase the knowledge of SME
managers regarding the possibility of using this approach in their organizations/firms.

LIMITATION

There number of studies focusing on the use of BSC in SMEs is very low compared to large
organizations. Therefore reasons for not implementing this method in SMEs environment may not
be covered comprehensively due to this scarcity.

FUTURE RECOMMENDATION

Based on the findings of this paper, researchers can focus on different aspects of using BSC in
SMEs. Since reviewing literature shows that BSC is applicable in SMEs environment but it is not
implemented effectively, scholars can find different ways to deal with problematic factors while
using BSC. They can develop BSC which could be adjust with SMEs characteristics in order to
enhance the level of its usage.

ACKNOWLEDGEMENT
The authors would like to extend their appreciation to the Universiti Teknologi Malaysia for all
facilities that made this research possible.

78
 International Management Accounting Conference 7
2 3 December, 2014

REFERENCES
Andersen, H., Cobbold, I., & Lawrie, G (2001, May). Balanced scorecard implementation in SMEs:
reflection in literature and practice. 2GC Working Paper Presented By Henrik Andersen at the SME
Conference, Copenhagen, Denmark, pp. 1-12.
Barnes, M., Dickinson, T., Coulton, L., Dransfield, S., Field, J., Fisher, N., Saunders, I. & Shaw, D. (1998,
July). A new approach to performance measurement for small to medium enterprises. In conference
proceeding Performance MeaurementTheory and Practice, Cambridge 2, pp. 86-92.
Chow, C. W., Haddad, K. M., & Williamson, J. E. (1997). Applying the balanced scorecard to small
companies. Management Accounting, New York, 79: 21-27.
Da Costa Marques, M. D. C. (2012). Strategic Management and Balanced Scorecard: The Particular Case of
Small and Medium Enterprises (SMEs) In Portugal. Business and Management Review, 2(1): 50
62
Dinesh, D., & Palmer, E. (1998). Management by objectives and the balanced scorecard: will Rome fall
again? , Management Decision, 36(6): 363-369.
Epstein, M., & Manzoni, J. F. (1998). Implementing corporate strategy: from tableaux de bord to balanced
scorecards. European Management Journal, 16(2): 190-203.
Garengo, P., Biazzo, S., & Bititci, U. S. (2005). Performance measurement systems in SMEs: a review for a
research agenda. International journal of management reviews, 7(1): 25-47.
Ghobadian, A., & Gallear, D. (1997). TQM and organization size. International Journal of Operations &
Production Management, 17(2): 121-163.
Giannopoulos, G., Holt, A., Khansalar, E., & Cleanthous, S. (2013). The Use of the Balanced
Scorecard in Small Companies. International Journal of Business and Management,
8(14): 1-22
Gumbus, A., & Lussier, R. N. (2006). Entrepreneurs use a balanced scorecard to translate strategy into
performance measures. Journal of Small Business Management, 44(3): 407-425.
Gunasekaran, A., Okko, P., Martikainen, T., & Yli-Olli, P. (1996). Improving productivity and quality in
small and medium enterprises: cases and analysis. International Small Business Journal, 15(1): 59-
72.
Hanif, A., & Manarvi, I. A. (2010, July). Investigating the implementation of balanced scorecard in
Pakistani small enterprises. In Advanced Management Science (ICAMS), 2010 IEEE International
Conference, pp. 574-578.
Hongmei, C., & Yujun, M. (2010, August). Knowledge Management for SMEs Based on the Balanced
Scorecard. In Management and Service Science (MASS), 2010 International Conference on pp. 1-4
Huang, X., & Brown, A. (1999). An analysis and classification of problems in small business. International
Small Business Journal, 18(1): 73-85.
Hudson, M., Smart, A., & Bourne, M. (2001). Theory and practice in SME performance measurement
systems. International Journal of Operations & Production Management, 21(8): 1096-1115.
Hvolby, H. H., & Thorstenson, P. A. (2000, April). Performance measurement in small and medium-sized
enterprises. In Proceeding of the International Conference on Stimulating Manufacturing
Excellence
Johanson, U., Skoog, M., Backlund, A., & Almqvist, R. (2006). Balancing dilemmas of the balanced
scorecard. Accounting, Auditing & Accountability Journal, 19(6): 842-857.
Kaplan, R.S. & Norton, D.P. (1992). The balanced scorecard measures that drive Performance, Harvard
Business Review, 71-79.
Kaplan, R. S., & Norton, D. P. (1998). Putting the balanced scorecard to work. The Economic Impact of
Knowledge, 315-24
Kaplan, R. S., & Norton, D. P. (1996). Using the balanced scorecard as a strategic management system.
Harvard Business Review, 74(1): 75-85.

79
 International Management Accounting Conference 7
2 3 December, 2014

Kureshi, N. I., Mann, R., Khan, M. R., & Qureshi, M. F. (2009). Quality management practices of SME in
developing countries: a survey of manufacturing SME in Pakistan. Journal of Quality and
Technology Management, 5(I1): 63-89.
Manville, G. (2007). Implementing a balanced scorecard framework in a not for profit SME. International
Journal of Productivity and Performance Management, 56(2): 162-169.
McAdam, R. (2000). Quality models in an SME context: a critical perspective using a grounded approach.
International Journal of Quality & Reliability Management, 17(3): 305-323.
McCunn, P. (1998). The balanced scorecard: the eleventh commandment, Management Accounting, 76: 34-
37.
Mintzberg, H. (1981). Organizational design: Fashion or fit? Harvard Business Review, 59(1):
103-116.
Monte, A. P., & Fontenete, C. (2012). Balanced Scorecard in SMEsA Proposal for Small Gas Stations in
Portugal. World Academy of Science, Engineering and Technology, 66: 244-255
Norreklit, H. (2000). The balance on the balanced scorecard a critical analysis of some of its assumptions.
Management accounting research, 11(1): 65-88.
Olson, E. M., & Slater, S. F. (2002). The balanced scorecard, competitive strategy, and performance.
Business Horizons, 45(3): 11-16.
Pamela Muhenje, C., Nyamwange, O., & Robert, O. (2013). Application of Strategic Performance Measures
in Small and Medium-Sized Manufacturing Enterprises in Kenya: The Use of the Balanced
Scorecard Perspectives. International Journal of Management Sciences & Business Research, 2(6):
45-60
Phillips, B., Wee, T. T. T., & Shanka, T. (2003).The use of performance measures in small and medium
enterprises (SMEs) an exploratory study. Working paper, Curtin Business School, Australia,
available at http://smib. vuw. ac. nz: 8081/WWW/ANZMAC2003/papers/ST14_phillipsb. pdf
Phillips, P., & Louvieris, P. (2005). Performance measurement systems in tourism, hospitality, and leisure
small medium-sized enterprises: a balanced scorecard perspective. Journal of Travel Research,
44(2): 201-211.
Rantanen, H., & Holtari, J. (2000, February). Performance analysis in Finnish SMEs. In Proceedings of the
11th international working seminar on production economics, Innsbruck, pp. 21-25.
Rompho, N. (2011). Why the balanced scorecard fails in SMEs: a case study. International Journal of
Business and Management, 6(11): 39-46
Russo, J., & Martins, A. (2005). The Balanced Scorecard in SMEs. Journal of Accounting, 344: 401-418.
Santagada, G. (2012). Using Balanced Scorecard to Drive Performance in Small and Medium Enterprises.
Ekonomika a Management, 1: 15-27.
Shari, M. Y., & Aspinwall, E. (2000). TQM implementation issues: review and case study. International
Journal of Operations & Production Management, 20(6): 634-655.
Sousa, S. D., Aspinwall, E. M., & Rodrigues, A. G. (2006). Performance measures in English small and
medium enterprises: survey results. Benchmarking: An International Journal, 13(1/2): 120-134.
Sousa, S. D., Aspinwall, E., Sampaio, P. A., & Rodrigues, A. G. (2005). Performance measures and quality
tools in Portuguese small and medium enterprises: survey results. Total Quality Management and
Business Excellence, 16(2): 277-307.
Storey, D. J. (1994). Understanding the small business sector. University of Illinois at Urbana-Champaign's
Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship.
Suprapto, B., Wahab, H. A., & Wibowo, A. J. (2009). The Implementation of Balance Score Card for
Performance Measurement in Small and Medium Enterprises: Evidence from Malaysian Health
Care Services. The Asian Journal of Technology Management , 2(2): 37-49
Tennant, C., & Tanoren, M. (2005). Performance management in SMEs: a Balanced Scorecard
perspective. International Journal of Business Performance Management, 7(2): 123-143.

80
 International Management Accounting Conference 7
2 3 December, 2014

Von Bergen, C. W., & Benco, D. C. (2004). A balanced scorecard for small business. In Proceedings of the
United States Association for Small Business and Entrepreneurship Conference. Dallas, Texas, pp.
15-18.
Welsh, J. A., & White, J. F. (1981). Converging on characteristics of entrepreneurs. Frontiers of
entrepreneurship research, 504-515.
Wiklund, H., & Wiklund, P. S. (1999). A collaboration concept for TQM implementation in small and
medium sized enterprises. International Journal of applied quality management, 2(1): 101-115.
Zinger, J. T. (2002, June). The balanced scorecard and small business: a Stages of development
perspective. In Paper presented at the International Council for Small Business, 47th World
Conference, San Juan, Puerto Rico, pp.1-22.

81