Performance Measurement with the Balanced Scorecard

In this chapter performance measurement system is described as a balanced and strategic system that is able to support the decision-making process by gathering, elaborating and analysing critical information. The search for balance of the measurement system is a way to support and make explicit the need for abandoning the model of opportunistic search for profit, in favour of a circular and holistic vision of the concept of entrepreneurial success. The looking for strategic alignment underlines the need to create a system focusing on a limited number of critical phenomena that lead an enterprise to finding a specific position in the industry and to taking advantage of specific internal resources and competencies.

The design of a strategic and balanced dashboard may be based upon various reference models; in this chapter, we focus out attention on the Balanced Scorecard as it is the most diffused, easy to understand and renowned model at the international level.

Scholarly literature offers methodologies for the implementation of a PMS that are based upon a top-down approach and that aim at translating strategy into action, with little consideration to the tendency of small enterprises not to give much importance to the formalisation of their strategic choices. In this chapter, the authors identify a circular methodology to implement a strategically aligned performance measurement system in SMEs. The proposed methodology is based on the Balanced Scorecard Model and features four main phases: (1) the analysis of current “individual dashboards” to actually show the performances that are kept under control; (2) the clarification of the key success factors (CSFs) underlying the measures under control; (3) the definition of the desired strategy map as a result of the comparison between CSFs that are currently under control and the desired strategy; (4) the translation of the desired strategy map into a dashboard of indicators necessary for the implementation of the strategy.

Every enterprise finds itself in the position of facing and interacting with the environment that it is surrounded by. Enterprise has to outline the corporation’s identity in its relationships with the outside: more specifically, it consists of the special entrepreneurial formula i.e. it is how the company specifically responds to the manifold expectations/needs of the various parties that it interacts with.

In this chapter, we describe the formation process leading to corporate strategy and the role of the Balanced scorecard in strategy management by exploring the relationship between the Balanced scorecard and the four main engines of strategy management: (1) the strategy control loop, (2) the strategic intent formation loop, (3) the entrepreneurial and innovation loop and (4) the value, aspiration and attitude review loop (in brief, the “mental models”) of the top management.

In this chapter, the literature on performance measurement in manufacturing companies is reviewed and the diffusion, characteristics and determinants of performance measurement in SMEs are analysed. Shortcomings in the performance measurement systems are highlighted and the many factors that seem to constrain PMSs in manufacturing SMEs are defined, e.g. lack of financial and human resources, wrong perception of the benefits of PMS implementation, short-term strategic planning, tacit knowledge and little attention given to the formalization of processes. Moreover, using dimensions defined according to the information found in the literature, two PMS models specifically developed for SMEs are compared with generic PMS models. The comparison points out an evolution in PMS models over time; in particular, the models developed in the last 20 years are more horizontal, process-oriented and focus on stakeholder needs.

The chapter describes the experience of three leading SMEs that successfully experimented the proposed approach. With the description of the three case studies, the reader will be guided through the understanding of both the process that led to the adoption of a circular approach and the main critical aspects that can promote the implementation of a measurement system in SMEs. The Valbona case narrates in detail the integral design and implementation process of a management dashboard that firmly adhered to the four phases of the circular model; the Home Cucine case stresses the key role of TQM in the development of SMEs, as well as the need for integrating the directives that such an approach imposes and adequate performance management tools. Only upon integrating the two approaches is it possible to build a system capable of supporting the management activity of small enterprises. The Uniflair case shows how important it is to accurately analyse and define single performance indicators, as an indispensable requirement to the effective management of performances.