Why Is The Balanced Scorecard Essential For Small Business Success?
In order to thrive in this economy, small and medium enterprises (SMEs) need not only to constantly innovate; they need to implement a management system that allows them to increase their productivity, monitor their strategy and grow sustainably in the long run.
Many large corporations use the Balanced Scorecard methodology as a way of monitoring their strategy and communicating expectations throughout the organization. They normally face highly competitive markets and generally have a great variety of products and processes to monitor. Yet, they also have more resources to handle these conditions and to drive change within their organizations.
Small and medium enterprises (SMEs), on the other hand, face wildly different conditions and what works for the big ones may not necessarily work for them. Most small businesses constantly focus on their financial objectives as their main goal is to make it to the end of the month alive. It can therefore be difficult for their leaders to sit down and make plans for their company’s future, as most of their time is dedicated to “putting out fires”.
However, the benefits of using the Balanced Scorecard can be as significant for small businesses as they are for multinationals. This methodology allows leaders to easily monitor the performance of the whole company on a real-time basis, allowing for corrective actions to be taken at the right moment rather than waiting for issues to reflect upon the end-of-the-month’s financial indicators to then take action.
The Balanced Scorecard takes a four-perspective approach to extensively analyze the business, as opposed to the traditional approach which focuses mainly on the company’s tangible and financial assets. By incorporating this comprehensive analysis, leaders have access to a clear framework to translate strategic objectives into performance indicators. These will then measure and deliver objective feedback on both the implemented strategy and the initiatives devised to execute it.
While it is true that small businesses require less information to perform their operations and evaluate their performance than larger corporations, the value conveyed by this information and its effective communication throughout the company, is crucial for its success. The Balanced Scorecard allows these companies to self-evaluate themselves truthfully and thus develop stronger strategies to position themselves among their competitors. Thereby, even though a company-wide performance assessment may be simpler in a smaller company, the need for and benefits provided by it are present in all kinds of enterprises.
Furthermore, small businesses are naturally at an advantage versus large-scale companies as they can more easily reach a consensus on key decisions and communicate the necessary changes throughout all levels of the company which, in turn, stimulates employee engagement. It is far easier to get ten people on board than a thousand, as well as it is easier to identify employees who are reluctant to adhere to any new procedures.
Implementing the Balanced Scorecard also enables the company to pay more attention to its operations and human resources. This allows for more effective motivation and training procedures that will most likely lead to more efficient operations and processes. This translates into higher quality products and services, which, in turn, attracts new customers and increases their retention.
In short, both big and small companies can benefit from implementing the Balanced Scorecard methodology within their organizations. Even though its complexity and formality may be lessened in a smaller company, its importance and functionality are essential, regardless of its size. Smaller companies need to keep in mind that their main goal should be to manage their performance in order to attain bigger benefits. As Birch said (1998), “The key point to remember is that what get measured gets managed”.
The first step is the hardest
Taking the first step can sometimes seem a bit overwhelming. That is why we provide our customers the tools and expertise they need to help them clarify their strategy, translate it into operational terms and monitor it to ensure its effective execution.
We have worked hand in hand with the developers of these best practices and have adapted them to our clients’ needs to offer them the best guidance possible.
Author: Trissa Strategy Consulting
Source: Von Bergen, C. W. and Daniel C. Benco. A Balanced Scorecard for Small Business. Durant, OK: Southeastern Oklahoma State University, 2004. Online report.