2.7. Performance measurement
2.7.8. Performance measurement system for social enterprises
2.7.8.2. Balanced scorecard (BSC)
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76 Somer (2005) developed the social enterprise balanced scorecard (SEBC), which differs from the original balanced scorecard model. He introduced the social goals variable on top of the financial viewpoint. The financial perspective is extended to emphasize sustainability (adding environmental and social performances) (Arena et al., 2015a). Bull (2007) retitled this perspective the multi-bottom line, based on the assumption that SEs respond to different social and environmental issues that society is experiencing. For SEs, organizational profit growth and market exploitation are replaced by strategies for providing social and environmental benefits (Bull, 2007; Bengo, 2012; Arena et al., 2015a) (see Fig.2.2).
According to Mamabolo and Myres (2020:29), “the indicators associated with the financial viewpoint include social, environmental, and financial sustainability; efficacy of budgeting and expenditure management; stakeholders’ financial provisions; trade-profit performance indicators merging social and economic responsibility; and systematic approaches to enunciate social accounting” (Bull, 2007; Mamabolo & Myres, 2019).
The last section of Bull’s (2007) modified BSC highlights the significance of making the organization’s vision explicit and related to other performance perspectives. How managers are strategically engaged with business tools, such as mission and business plans, and how these plans are communicated to various stakeholders are critical issues that concern SE owners/managers (Bengo, 2012).
77 Figure 2.2: The Balance Model and Topic Areas of Bull 2007
Kaplan adapted the BSC for SEs by replacing the profit organization's financial perspective with a mission. Kaplan (2001) argued that, as opposed to a profit sector organization in which financial measurements define the accountability between the company and its owners, an SE’s shareholders’ accountability lies in their mission for social betterment. Thus, the financial perspective is replaced by the mission as a feature, and the highest level of its scorecard (Kaplan, 2001) (See Figure 2.3).
78 Figure 2.3: The BSC Framework adapted by Kaplan 2011
Customer perspective: In the customer perspective section, organizations measure performance by addressing the essential concerns of customers through indicators such as customer satisfaction;
customer criticism; development of new products; customer retention; customer profitability; and on-time delivery (Kaplan & Norton, 1992b).
Kaplan (2001) revised the customer viewpoint measurements of the private sector for non-profit organizations by expanding the definition of the customer and prioritizing it over the financial measurements. Kaplan (2001) explained that the private sector's deals with customers affect the payment and the service delivery. Since donors give non-profit organizations, such as SEs, financial funds, the donors pay for the beneficiaries’ service (Kaplan, 2001), thereby separating the customer perspective into the donor's and the recipient's perspectives (Arena et al., 2015a).
The original Kaplan and Norton balanced scorecard customer perspective as a ‘stakeholder environment’ was modified bySomers (2005) and Bull (2007). The modified perspective is based on the concept that SEs are accountable to numerous people, sometimes in mixed models that manage service and customer beneficiaries. Some measurement elements included cognizance of the stakeholder; recognising and being aware of competitors’ representation and identity;
79 promotional activities; marketing budgets, and assessing the effectiveness of each of these practices (Bengo, 2012; Mamabolo & Myres, 2019). Saidin et al. (2017) highlighted a stakeholder perspective that engages donors, volunteers, or clientele, and which is found by measuring satisfaction and retention and assessing the non-profit’s market share in its position. Stakeholder involvement will enable SEs to recognize the vital, primary drivers and performance indicators (Saidin et al., 2017). This, in turn, can be used to measure performance, meet stakeholders' expectations, and provide a significant advantage for any organization (Somer, 2005).
Figure 2.4: The SE balanced scorecard (SEBC) of Somers (2005)
Internal business perspective: This perspective concerns the “operating performance (cost, quality, and cycle times) of critical processes that create entirely new products and services”
80 (Kaplan 2001: 357). Additionally, the internal business perspective identifies and enhances crucial internal business processes that yield a competitive edge and higher customer satisfaction. The assumption is that organizational efficiency and effectiveness in what companies do must satisfy the customer and earn more financial returns. This perspective's measurements aim to produce goods and provide services that satisfy customers efficiently and effectively (Ankrah & Mensah, 2015). Bull (2007) improved the internal business perspective to place more emphasis on the internal activities that subsidize the performance of organizations. Measurements such as internal structure, organization and management of organizational communications; the quality of internal processes; improved management systems; flexibility, and adaptability, are included in this perspective (Bull, 2007). Corporate culture, organizational structure/management, and internal/external communications are other measurements considered in this perspective (Arena et al., 2015a).
This perspective measures the cost, performance, and quality of the non-profit’s key operational processes (Kaplan, 2001). The operating procedures include programmes delivered, services offered, and satisfying customer needs. Focusing on the internal process allows the organization to determine the whole picture and understand how well the non-profit performs (Mamabolo &
Myres, 2019). Similarly, Martello et al. (2008) emphasize that improving internal processes should emanate from the organization's overall strategy. A mechanism should relate each activity to the strategy and should measure the strategy. Additionally, Kaplan (2001) argued that cost, time, and quality-related indicators are internal processes. Hence, to measure the efficiency and effectiveness of the third sector, qualitative measurements in terms of process quality, cycle times, and participation and satisfaction, of the public or beneficiaries must be included (Saidin et al., 2017).
Organizational learning and growth perspective: In an dynamically changing environment and knowledge-driven world, innovation is the critical factor in becoming successful and sustainable.
The indicators used to measure this perspective include the speed of transactions; information technology utilization; management participation; training and development; employee satisfaction; leadership and continual improvement; motivation; facilitating advances in services and new products; team working; and strategic coalitions and partnerships (Bull, 2007; Ankrah &
Mensah, 2015; Mamabolo & Myres, 2019; Taufik et al., 2019). In addition, Kaplan (2001) stated that measurements such as employee motivation; retention; capabilities; alignment; and information system capabilities fall under these perspectives. An organization's innovation and
81 learning ability can achieve growth and increase the shareholder value of an organization through improved operating efficiency (Kaplan & Norton, 1992b).
Benefits of BSC: The foremost benefit of BSC is resolving the shortfalls of traditional financial- based performance measurement tools. Tools such as return on investment; net present value;
internal rate of return; and payback period are traditional performance measurement tools that emphasize solely financial metrics. These approaches have two limitations. The first is that financial metrics concentrate on measuring historical performance, and the results are used to inform future business strategies. Moreover, traditional performance measurement tools do not consider rapidly changing business environments. Thus, emerging opportunities in the business environment are missed. Secondly, financial measurements are conducted periodically, so quarterly, semi-annually, or annually. Organizations are forced to delay assessment or development strategies that boost performance to a specific period. Periodic measurements are less effective in assessing performance, as the business environment changes from time to time. BSC overcomes these shortfalls by providing managers with past, present, and future performance metrics to evaluate performance and improve strategies (Kaplan & Norton, 1992b; Kaplan, 2001).
Many organizations in different sectors (such as health and education) use BSC as a strategic management tool. BSC provides strategic managers with in-depth information regarding the organization's overall activities (Awadallah & Allam, 2015). BSC assists managers in making an informed decision about long- and short-term goals, internal and external achievement, and financial and operational success (Martello et al., 2008). The BSC is beneficial for harmonizing many strategic management procedures, such as performance evaluation; resource allocation;
setting an objective; and employee learning and development (Kaplan, 2001; Awadallah & Allam, 2015). Furthermore, BSC is commonly used in project management, assisting project managers in following the implementation of the project. This includes identifying activities behind schedule and tasks requiring more knowledge, skills, and resources to accomplish the project (Basu et al., 2009; Awadallah & Allam, 2015).
The literature discusses the benefit of the BSC to SEs, particularly small-scale organizations (Basuony, 2014; Owolabi et al., 2016; Dobrovic et al., 2018; Muda et al., 2018; Mamabolo &
Myres, 2019; Taufik et al., 2019). The primary use of BSC in small-scale organizations is to
82 improve their chances of survival by identifying internal and external factors (Hoque, 2014). BSC supports small firms in avoiding failure by identifying internal factors such as poor management, limited financial resources, and a lack of skills by linking them to internal business procedures and learning and development viewpoints (Owolabi et al., 2016). The BSC also supports small businesses in addressing external influences by associating them with the customer, financial aspects and internal business procedures. External factors include uncertainty; complexity; rapid changes in the business environment; excessive competition; and changing macroeconomic circumstances, such as the inflation rate and recession (Muda et al., 2018). Secondly, BSC is used for constant improvement, essential to SME growth, by emphasizing long-term strategic outcomes, and not only short-term operational results (Dobrovic et al., 2018).
Additionally, BSC measurements help SMEs to follow and identify individual and collective achievements; to focus on what is essential for the organization; to align activities to goals and strategies; and to be accountable for the result (Taufik et al., 2019). However, Basuony (2014) highlighted that the implementation of BSC in small organizations is low due to a lack of knowledge about the BSC. Other implementation challenges are insufficient capital to perform BSC measurement and the scarcity of practical research findings as a guideline. Small and medium social enterprises exist to achieve social and environmental objectives, and the multi-objective nature of these enterprises creates difficulties in identifying some non-financial indicators to be used in BSC (Arena et al., 2015a; Mamabolo & Myres, 2019). The lack of tangible resources and an unclear strategy negatively influence the development of BSC measurements (Dobrovic et al., 2018).
Limitations of BSC: The BSC for measuring performance is applied in different industrial sectors and enterprises (from manufacturing to service industries and small to large organizations).
Despite its extensive use and benefits, the concept and application of BSC have limitations.
Evidence indicates that many organizations executing the BSC have either failed to achieve their planned goals or have faced severe glitches in implementation (Awadallah & Allam, 2015). Firstly, the concept of BSC lacks clearly defined relationships with organizational performance (Kraaijenbrink, 2012). Secondly, BSC excludes factors that contribute to the organization's performance, apart from the four perspectives of BSC (Neely et al., 2002b). In addition, Pessanha and Prochnik (2006) argued that the objective and definition of measurement in the BSC exclude
83 the involvement and engagement of key stakeholders, such as government, suppliers, and employees.
In the BSC, there is a lack of clarity and identification of critical success factors. These factors are necessary to identify key performance indicators (Parmenter, 2012). The four perspectives limit the organization’s view (Awadallah & Allam, 2015).
In practice, the BSC initially focuses on the target set as a goal with limited resources, leading to organizations’ underutilised potential. The BSC’s focus on resources as a primary target also hampers invention within the organization. It recognizes that an organization has ranked structures with identified job descriptions and responsibilities, resulting in inflexibility in activities to use opportunities created in the business environment. It is a one-way, linear, cause-and-effect relationship and endorses closed improvement (Awadallah & Allam, 2015).
Despite the more inclusive view of SE performances provided by Kaplan, Somers, and Bull’s models, BSC has some practical limitations (McLoughlin et al., 2009; Bengo, 2012; Arena et al., 2015a; Mamabolo & Myres, 2019). For instance, Kaplan's (2001) model of BSC does not consider strategy and the different and noncumulative set of procedures and initiatives. The tool lacks a possible set of indicators that can measure performance (McLoughlin et al.; 2009, Bengo, 2012).
Additionally, the model does not consider SEs as enterprises with multiple social and financial objectives (Somers, 2005). The tensions created between creating social value and sustaining the business through economic profit in SEs are not considered in the model (Mamabolo & Myres, 2019). Furthermore, the model does not incorporate the complexity deriving from the hybrid nature of SEs and assesses the social impact of SE activities in relation to the private sector emergence of the BSC (McLoughlin et al., 2009; Arena et al., 2015a).
Bengo (2012) pointed out that Somer's 2005 social enterprise balanced scorecard (SBSC) model still disregards the social enterprise performance's complex and dynamic nature, although the model better reflects the final goal of an SE. Firstly, SBSC is a stable framework that does not consider how the relevant performances alter through its life cycle (Arena et al., 2015a). Secondly, the expansion of the customer viewpoint seems to only partially answer the information needs of various stakeholders. SEs are accountable to a wide range of stakeholders who might have an interest in SE results and information, compared to other organizations (Bourne et al., 2000). The SEBC does not incorporate clear needs and wants (which are understandable but challenging to apply) of different stakeholders engaged in each stage of the SE lifecycle (Bengo, 2012).
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