Entrepreneurs Use a Balanced Scorecard to Translate Strategy into Performance Measures
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Journal of Small Business Management 2006 44(3), pp. 407–425
Entrepreneurs Use a Balanced Scorecard to
Translate Strategy into Performance Measures
by Andra Gumbus and Robert N. Lussier
Although 50 percent of Fortune 1000 companies currently use a balanced score-
card (BSC), few small businesses are using a BSC. A review of the literature finds no
BSC papers in leading small business/entrepreneurship journals. This article begins
with a discussion of the BSC and why a small business should use it. Three small to
medium-sized enterprise (SME) case studies are presented, with a copy of their BSC,
to illustrate how Hyde Park Electronics, Futura Industries, and Southern Gardens
Citrus use a BSC to set strategy and align operations to achieve breakthrough results.
Implications are, that like large businesses, SMEs can also benefit from using a BSC.
Entrepreneurs of SMEs can use the case studies to develop their own BSC to improve
performance. Implications for practice and research are discussed.
Introduction cost–benefit analysis and return on invest-
The balanced scorecard (BSC) is one of ment (Field 2000); it is being used to help
the most highly touted management tools change organizational culture (Simpson
today (Staff 2002; Atkinson and Epstein and Cacioppe 2001); and several compa-
2000; Frigo and Krumwiede 2000), and nies have reported improved operational
Fortune 500 companies are increasingly efficiency and profitability as a result of
using it. A survey found that approxi- using the BSC (Atkinson and Epstein 2000;
mately 50 percent of Fortune 1000 com- Gumbus, Bellhouse, and Lyons 2003).
panies in North America and 40 percent Researchers have clearly stated that
in Europe use a version of the BSC companies of all sizes are good at devel-
(Kaplan and Norton 2001a). The editors oping mission statements and strategies
of the Harvard Business Review (HBR) but poor at implementing operational
identified the BSC as one of the most sig- strategies to achieve them, and that they
nificant management ideas of the past 75 are poor at measuring whether they are
years (PR 2003). The BSC is now being achieving their mission and strategy. The
listed as a value methodology along with BSC addresses this problem by linking
Andra Gumbus is assistant professor of management, Sacred Heart University.
Robert Lussier is professor of management and former director of Israel programs, Spring-
field College.
Address correspondence to: Andra Gumbus, gumbusa@sacredheart.edu.
©2006, International Council for Small Business
GUMBUS AND LUSSIER 407the mission to strategy and then trans- explain what the BSC is and why small
lates the strategy into operational objec- businesses should use it. Then, three
tives and measures. The BSC can be used SME case studies of firms using the BSC
with five or 5,000 employees working are presented to illustrate how entrepre-
toward the same goals (Gumbus and neurs are currently using the BSC to
Johnson 2003; Green et al. 2002). How- improve performance. Each case study
ever, a review of the literature, from includes a copy of the firms’ BSC as an
January 2000 to September 2003, of the aid for other SME to develop their own
Journal of Small Business Management, BSC.
Journal of Business Venturing, Entrepre-
neurship Theory and Practice, Interna-
tional Small Business Journal, and the
What Is a BSC and
Journal of Small Business Strategy Why Should Small
resulted in no papers with BSC in the Businesses Use It?
title. A general BSC search throughout Kaplan and Norton first introduced
entire articles also did not find any of the BSC in 1990 through a one-year
these journals, nor any other small busi- study of 12 companies. The results were
ness/entrepreneurship journals, includ- reported in the HBR in 1992 (Kaplan and
ing the topic of the BSC. Thus, this Norton 1992). These researchers con-
empirical case study of three small to cluded that financial measures alone
medium-sized enterprises (SMEs) using were not sufficient to measure perform-
the BSC fills a gap in the literature while ance. Other factors in the new economy
addressing management practices in such as competence and knowledge, cus-
small enterprises and entrepreneurship. tomer focus, and operational efficiency
Clearly, large businesses are benefiting and innovation were missing from tradi-
from using a BSC, and small businesses tional financial reporting. They reported
can also benefit from using a BSC, as the highly successful results of Rock-
supported by three case studies pre- water and FMC Corporation’s use of BSC
sented in this paper. (Kaplan and Norton 1993). In 1996,
Kaplan and Norton published The Bal-
Methodology anced Scorecard: Translating Strategy
The primary methodology is case Into Action to explain how to develop
study. Research was conducted through and use the BSC (Kaplan and Norton
personal interviews with executives at 1996a) and two more papers in the HBR
Hyde Park Electronics, Futura Industries, (Kaplan and Norton 1996b, 1996c).
and Southern Gardens Citrus (SGC). Over the years, Kaplan and Norton
The U.S. Small Business Administration and others have conducted research sup-
defines small business as having fewer porting their statement that financial
than 500 employees. In Europe the term measures are not enough. The BSC has
small to medium-sized enterprise is fre- been successfully used to increase per-
quently used to define both small firms, formance in large organizations and
with a maximum of 50 employees and reported in journal papers in the profit
medium-sized companies with a maxi- sector by the U.S.-based Pitney Bowes
mum of 250 employees. All three case (Green et al. 2002), Coors Brewing
study firms have fewer than 250 employ- Company (Walker 1996), and White
ees and are therefore considered small in Lodging Services (Denton and White
the United States and an SME in Europe. 2000), as well as by European-based ABB
Because of the lack of literature in the Industrie A.G. (Ahn 2001), and in the
small business/entrepreneur journals, nonprofit sector by the city of St. Charles,
the paper begins with a discussion to IL (Maholland and Muetz 2002) and a
408 JOURNAL OF SMALL BUSINESS MANAGEMENTcardiology unit of a hospital (Oliveira company strategic initiatives. Motivating
2001). By implementing the BSC model, managers and employees and measuring
Duke University’s preoperative services their performance are key challenges to
department has “evaluated, balanced, any enterprise (Denton and White 2000).
and improved patient satisfaction by The organization as well as individuals
decreasing surgical delays, improving can monitor progress and use the card
physician satisfaction, enhancing elective as a map to achieve business success.
case minutes within the surgical block, Starting with strategic initiatives, a
and increasing volume while also company cascades departmental and
decreasing overall cost per case” individual objectives that correspond to
(McLean and Mahaffey 2000). The the strategy. Reporting on these meas-
National Women’s Health Quality Initia- ures allows the firm to monitor progress
tive Advisory Council commented on the and easily course-correct if problems are
contribution of the BSC, stating that it is identified. Many firms use a red, yellow,
the most effective tool that can be and green traffic light reporting system
applied across the health-care industry. to indicate targets not met, in danger of
They credit the power of the card with not being met, and those met. Compa-
organizing multiple stakeholders around nies that have used the card for many
a shared mission, communicating and years are applying it to compensation,
managing outcomes, and most impor- employee performance appraisal, and
tantly for its unique balanced approach capital budgeting as well.
(Inamdar et al. 2000). The BSC enables a focus on long-term
The BSC has evolved from manage- growth versus a short-term focus on
ment reporting to a strategic tool used quarterly results. It also expands the
by executive teams to set strategy, align traditional short-term financial metrics
operations, and communicate with inter- by including customer, operational effi-
nal and external stakeholders (Gumbus ciency, and employee learning and
and Lyons 2002; Gumbus, Lyons, and growth measures. The card provides a
Bellhouse 2002; Schatz 2000). The frame- balance between short- and long-term
work of the four perspectives of the BSC goals and also balances what gets
helps to translate strategy into objectives measured—financial plus quality and
and measures. The four perspectives are consumer and employee satisfaction
financial, customer, internal process, and dimensions. All dimensions of the card
learning and growth (Kaplan and Norton are equally important and results relate
1996a). The critical success factors to one another. For example, the finan-
created in each of the four perspectives cial dimension answers the question,
are balanced between long term and “How do our shareholders view our
short term, as well as internal and exter- performance?” The customer dimension
nal factors that contribute to the business answers the question, “How must we be
strategy. The BSC not only translates the viewed in the eyes of our consumers?”
strategy to operational terms but also The operational efficiency dimension
aligns the organization to the strategy by answers the question, “Which processes
focusing employees on their role in are working well and which needs to be
accomplishing the company mission fixed in order to meet our internal and
(Frigo and Krumwiede 2000). external customer demands?” Finally, the
The BSC is a management tool that learning and growth dimension answers
provides a framework for translating the question, “What kinds of people do
strategy into action. It provides a set of we need to hire and retain, and what sort
metrics that track a firm’s progress of company culture do we promote to
against goals and objectives to meet achieve our vision?” The objectives and
GUMBUS AND LUSSIER 409measures create focus for the future, not to guide improvement in all four per-
a simple measure of the past. A success- spectives of the BSC. Objectives are
ful BSC program should be a change the end results/outcomes that entrepre-
process, not a “metrics” project (Kaplan neurs want to achieve by a specific
and Norton 2001b). In summary, the BSC future date. Measures determine if objec-
helps an organization in the following six tives are being achieved. Targets are
ways: quantifiable, measurable performance
outcomes that entrepreneurs target
(1) Promotes growth—due to focus on
within each objective. Initiatives are the
long-term strategic outcomes, not
strategies and tactics (plans) to achieve
just short-term operational results.
specified targets and objectives. The
(2) Tracks performance—individual and
objectives and measures (or metrics)
collective results can be tracked
create focus for the future, not a simple
against targets in order to correct and
measure of the past. A successful BSC
improve.
program should be a change process, not
(3) Provides focus—when measures are
a “metrics” project (Kaplan and Norton
aligned to a few critical strategies,
2001b).
the BSC provides focus on what is
Is your SME achieving its mission/
important to the company.
vision? If you do not have a quick meas-
(4) Alignment to goals—when you
urable answer, besides financial, you
measure what is truly important to
need a BSC. If your team is without a
success, the measures become linked
scorecard, it is not playing the game; it
and support each other. Alignment
is only practicing (Maholland and Muetz
occurs across the organization.
2002). The BSC plays to the well-known
(5) Goal clarity—the BSC helps respond
management adage—if you want to
to the question, “How does what I do
manage it, you have got to measure it,
daily contribute to the goals of the
and you get what you measure and rein-
enterprise?”
force. So if you are not measuring your
(6) Accountability—individuals are as-
financial, customer, process, and learning
signed as owners of metrics in order
and growth, you and other stakeholders
to provide clear accountability for
really do not know how well you are
results.
performing.
SMEs can benefit in these six ways. As The following three case studies
discussed, financial measures are not support why SMEs should use a BSC, and
enough for any business, as the BSC can they explain how firms use a BSC to
be used with five or 5,000 employees increase financial, customer, operational
working toward the same goals (Green efficiency, and learning and growth per-
et al. 2002). In fact, measuring customer, formance. A copy of the three BSCs are
operational efficiency, and learning and included as a guide to SMEs in develop-
growth all contribute to the bottom line ing their own BSC. To provide confiden-
(Kaplan and Norton 2001c). A review of tiality, the actual performance figures
the accounting and finance literature that are on the firm’s BSC are not
includes BSC papers (Ittner, Larcker, and included in their BSC in this paper.
Meyer 2003; Kaplan, Norton, and Witzel
2003; Kerr 2003; Fisher 2002; Frigo and Case Study of the BSC at
Krumwiede 2000) and so does the oper- Hyde Park Electronics
ations literature (Kleijnen and Smits Data were collected through personal
2003; Walker 1996). interviews with Vincent C. Lewis, chief
Entrepreneurs should develop objec- executive officer (CEO) of Hyde Park
tives, measures, targets, and initiatives Electronics. Hyde Park Electronics is a
410 JOURNAL OF SMALL BUSINESS MANAGEMENTmanufacturer of ultrasonic proximity development became a focus, and a new
sensors based in Dayton, Ohio. It is a plant facility was constructed. These
family business started 39 years ago by changes occurred during a change in
the father-in-law of Vincent Lewis. Lewis management as Lewis assumed the role
became CEO in 1999 and led the of running the company from his father-
company in the implementation of a bal- in-law. Lewis credits the BSC with pro-
anced approach to measuring company viding a needed focus on how to run
performance. Hyde Park Electronics the business in a period of tumultuous
employs 42 people with a management change.
staff of eight that designed the BSC. Their It was during this time of transition
journey included many changes and has that CEO Lewis attended the Harvard
been an evolutionary process for the Business School’s Owner/President Man-
company that culminated in a break- agement Program and was first intro-
through year in 2001. The company had duced to the BSC. Lewis embraced the
its most profitable year since 1995 in a concepts of a balanced approach at the
weak economy. Lewis attributes this suggestion of an advisory board member
success to the BSC. in the last quarter of 2000. At the time,
Lewis likes to draw stick figures on a the company had an abundance of
balance beam during his management reports and data but little usable infor-
meetings. He uses this visual to continu- mation. The board requested a metric
ally remind his staff that their business system, and Lewis wanted a simplified
must remain balanced in an environment method of measuring the company that
where it is easy for measures to tip the could help him run the business. His
scale and take priority (particularly management team gathered to discuss
financial metrics). “I draw a balance the measures that were important to
beam with stick figures so we don’t fall their business. Lewis used a unique
to one side, and are constantly looking approach of counter-balancing each
for off-setting measures to balance our measure with an offsetting measure that
business.” The story of their BSC journey, continually balances the metrics so one
sample metrics and how they were dimension never outweighs the other.
selected is discussed in the succeeding The management team gravitated to
paragraphs. the financial metrics first because the
Hyde Park Electronics transitioned company was strong in this area and had
from a low volume company that sold a great number of controls already in
custom machine controls to a narrow place. They were good at cash manage-
customer base with three field sales ment, tracking sales, number of days out-
representatives, to a company that sells standing in receivables, sale versus
several high volume sensor lines through budget, operating income, net income,
a distribution channel to a wide range of current ratio, and distributor sales prior to
customers. A breakthrough design in discussions of the BSC. The team felt
ultrasonic technology changed the focus these measures were all short-term
of the business and became the savior focused and Hyde Park lacked measures
product of the company. Today this that contribute to the long-term success
single product accounts for over 80 of the business. They searched for proac-
percent of sales. The emphasis on ultra- tive measures to steer the business
sonic proximities resulted in a slow shift forward, as opposed to after-the-fact
to a different business model. With the financials that could not be controlled.
introduction of the ultrasonic proximity Next is a discussion of the measures in the
product, the company strategy shifted four perspectives of the BSC (see Appen-
to a penetration sales model, product dix for a copy of the Hyde Park BSC).
GUMBUS AND LUSSIER 411Financial problem we faced at 60 percent effi-
The financial metrics are sales, new ciency. We were not utilizing our staff
product sales, operating income, receiv- well and needed to reduce our workforce
ables outstanding, and a series of to get efficiency in line.”
product development measures, as 80 Another metric that surfaced during
percent of company profits come from this time frame was a problem with high
their new product. These controls are levels of scrap. Manufacturing efficiency
particularly important because costs to needed to be balanced with a measure
develop a new sensor family are more to offset the focus on assembly time
than a quarter million dollars and devel- (which produced high scrap levels) with
opment time can be six to eight months. a focus on scrap. The company started
measuring scrap per line, overall scrap,
Operational Quality and the cash drain produced by scrap.
Product development issues pivotal to This was an interesting lesson on the
the success of the company are time to need to offset one metric with a balanc-
market and quality measures, such as ing metric. Lewis and his management
warranty failures in the field and cus- team gave special emphasis to offsetting
tomer returns. Another key driver of measures when they created the BSC.
quality is product delivery. Lewis and his Examples of offsetting measures are as
team wanted to know how efficient they follows:
were in meeting the customer request for
delivery of product. Metrics created to (1) Sales are offset by income and
monitor delivery were: same-day deliv- income is offset by sales. The
ery, delivery within five days, and on- company could drive sales by over-
time delivery. On-time delivery has spending on marketing and cutting
increased from 89 percent a year ago to prices on risky programs. They could
a current rate of 96 percent. drive income by aggressively shaving
Manufacturing/labor efficiency expenses that risk long-term growth.
emerged as the most critical measure of Sales growth is an indicator of long-
success for Hyde Park. The labor effi- term survival; income is an indicator
ciency standard is critical because a flaw the company is doing everything else
in the standard build time could get well.
repeated over 5,000 units or 5,000 times. (2) New product sales is a measure of
Final assembly time is the metric used to development effectiveness. Hyde
bill the customer, so how long it takes to Park tracks what they are spending
make the product determines price. With on new product development and
the customer price based on time to time to market. New product sales
build, it is crucial that the company takes are an indicator of whether those
20 minutes to assemble and not 30 investments are paying off.
minutes. In December 2000, manufactur- (3) Welfare per employee offsets labor
ing efficiency was at 60 percent, a efficiency measures. If rapid declines
number that alarmed management and in employee welfare occur and the
drove required changes in labor and company experiences corresponding
process to increase that number to 81 increases in income and efficiency,
percent as of June 2002. “We can’t use then that could be a precursor to an
quality as an excuse for NOT meeting unhappy workforce.
other customer expectations, such as (4) Quality, labor efficiency, labor
price and delivery,” said CEO Lewis. “The utilization, scrap, and direct versus
BSC forced us to look at efficiency issues indirect labor all work together to
and showed us the over capacity help measure one of the core
412 JOURNAL OF SMALL BUSINESS MANAGEMENTcompetencies—manufacturing. Too so at this point they do not focus on
much focus on one can result in turnover or vacancy rates. Lewis is con-
upsetting the system balance. templating whether performance reviews
are on time in a future version of the BSC.
Customer Satisfaction
The management team felt that Lessons Learned
measures of customer satisfaction are Employees who are not used to being
increased sales and increased income measured can be threatened when the
that would result from product accept- results of their work are posted for all to
ance and the generation of repeat cus- see. This public display of data on the
tomers. Other key customer metrics that manufacturing floor created concern
drive customer satisfaction are related to about how the data might be used by
product shipment and whether the cus- management. Employees initially felt that
tomer gets the product on the date they management was trying to get them to
requested. work harder by measuring efficiency of
Marketing efforts are measured by manufacturing. Lewis explained to his
tracking data from the web portal employees that, yes, that is the case and
created for the distribution channel part- the duty of responsible management is
ners. Items tracked are use of the site, to focus on efficiency.
orders online, and the effect of direct- A gain sharing program was launched
mail marketing and advertising on lead in 2001 that took four of the BSC meas-
generation and portal activity. ures and attached a goal and gain-
sharing award according to these targets.
Learning and Growth When all the following measures are
Lewis admits that this is the hardest met, employees receive a lump sum
area to quantify. The management team bonus amount: (1) operating profit—
asked one basic question to determine financial metric target 15 percent; (2)
what to measure: “Are we making cumulative warranty return—customer
employees happy?” This simple question metric target 1.7 percent; (3) delivery on
drove creation of the metrics for this time—customer metric target 90 percent;
quadrant. Hyde Park has many employee and (4) scrap per line—financial metric
welfare programs such as benefits, profit target 1.8 percent.
sharing, training, and employee commu- Employees at Hyde Park are becom-
nication and employee activities. It ing more comfortable with measurement
decided to measure money spent on and are questioning metrics and how
training per month, and money spent on they are used to guide the business.
employee programs in this dimension of Lewis welcomes the questions and in-
the BSC. creased comfort level in public measure-
Programs consist of monthly town ment of company employees. Results
hall meetings that showcase a depart- of the BSC are posted on the company
ment, quarterly state of the business intranet and are used to guide advisory
meetings, small-group conversations board meetings.
with the CEO, and various parties and Lewis is convinced that the use of the
celebrations. For example, Hyde Park has BSC, the increased use of metrics and
been celebrating, for 39 years, when it general awareness of measures have
hits shipment goals, by closing the man- directly contributed to the greatest profit
ufacturing plant on Friday afternoons at generated at Hyde Park in seven years—
3:30 p.m. for a pizza and beer party. the 2001 results. Everyone at Hyde Park
The company has long-term employ- can be proud of the changes made on
ees whose average tenure is 17–22 years; the journey to a BSC.
GUMBUS AND LUSSIER 413Comparison of Hyde Park to Large as available modes of transport, repair Organizations Using the BSC time, frequency of on-time arrivals, and Hyde Park used the BSC to balance other measures of customer satisfaction financial measures with customer and with public transportation. The city links operational measures and achieved their the BSC to budgeting in order to allocate greatest profit in seven years with its resources to strategic initiatives. Benefits 2001 results. Large organizations such as cited by the city include awareness and Bridgeport Hospital have also achieved understanding of strategy, linkage to impressive results attributed to the budgeting, enhanced teamwork, im- implementation of a BSC. After using a proved management decision-making, BSC for four years, Bridgeport Hospital and the ability to report outcomes to the reported in 2001 that patient satisfaction community (Niven 2003). At Hyde Park, and customer preference increased, and Lewis has achieved similar increases to time to admit a patient decreased as well customer base and enhanced awareness as number of hours on emergency of company strategy. department diversion were below target. Volume and market share were at goal Case Study of the BSC at with targeted services above goal. The Futura Industries number of full-time equivalent employ- Data were collected through personal ees were below target, and supply chain interviews with Susan Johnson and Tami savings in excess of $750,000 were Olsen, president and former human reported. Senior Vice President (VP) for resource (HR) VP at Futura Industries, Planning and Marketing Dorothy Bell- respectively. Based in Clearfield, UT, house attributes the hospital’s success to Futura is an international company witsh the BSC that provides alignment and 230 employees and more than 50 years monitoring of daily operations to strate- of experience in aluminum extruding, gic goals (Gumbus 2003). The City of finishing, fabrication, machining, and Charlotte, NC was one of the first to design. Futura serves a high-end niche in adopt a BSC approach to performance a variety of markets such as original measurement, and it has reaped many equipment manufacturer (OEM), floor positive results from the implementation covering trims, electronics, transporta- of a BSC. The city adopted the traditional tion, shower door, marine store fixture, quadrants to fit its culture and empha- and retail. Its mission, Extraordinary size the customer perspective rather than Value through Extrusions, is achieved by the financial as a public-sector organiza- a focus on their business purpose— tion. The city uses the BSC to articulate meeting the changing needs of customers. strategy and cascades objectives, meas- Futura attributes its success to a culture ures, targets, and initiatives from their where every individual is expected to strategy. It has simplified the number of contribute to the success of the company measures over the years and delineate as well as to the success of the customer. four types of measures: activity, input, Employee standards are: a sense of output, and outcome (Niven 2003). These urgency, uncompromising integrity, trust, are tracked across a corporate BSC as interdependence and individual contri- well as key business unit (KBU) score- bution, and being the best. The BSC has cards. For example, the city-level score- enabled the company to focus on the card may have a customer objective to key measures that determine business provide public transportation and success. According to Johnson, “We measure users of public transportation. believe the key to helping our business The KBU scorecard for the transportation partners achieve success is by providing department might measure details such them with superior customer satisfac- 414 JOURNAL OF SMALL BUSINESS MANAGEMENT
tion.” Futura uses the BSC to focus on norms of more than 50 percent, the
two competitive weapons that put it company’s annual rate of 7 percent
ahead in a saturated marketplace—their turnover last year substantiates that the
ability to hire and retain the best people company focus on employee satisfaction
and their devotion to the customer. pays off. The company has not always
In 1995, Susan Johnson was recruited had good turnover statistics—as recent
to run Futura based on her philosophy as 1998, the company experienced a 43.7
of putting the employee first. She is com- percent turnover. The improvement can
mitted to the belief that employees make be partially attributed to a combination
the difference in the marketplace, and of many work life initiatives aimed at a
Johnson walks the talk when it comes to corporate culture based on performance
employee work life initiatives. According and employee commitment. In order to
to Johnson, “I hate anecdotal stories of monitor many work life initiatives and
what makes a company the best. In our continually improve the offerings of
industry we traditionally talk dollars per employee programs, Futura surveys em-
pound, but I believe we need a different ployees annually to see what programs
kind of value for our customers. We had are truly valued.
all the financial metrics, lots of customer Employee satisfaction is measured by
measures, and got ISO accredited three the annual Leadership Review, which
years ago so we had internal processes asks employees to evaluate their
focused on quality, but it is our employ- manager, and by a unique review called
ees that differentiate us from all other the Birthday Review, held during the
extrusion companies.” month of the employee’s birthday.
Johnson’s belief that loyal employees’ Employees have a face-to-face meeting
link to satisfied customers meant that the with HR representatives and are asked a
BSC was a natural progression to meas- series of questions about the company.
uring the business. It puts the focus on After the verbal dialog, the employees are
people as the foundation for business given an anonymous survey. Issues iden-
success. Utah Business Magazine named tified in the dialog are followed up with
Futura to the top 10 Family Friendly a Birthday Review that responds to iden-
Employers in Utah for the fourth year in tified issues or complaints. On a scale of
a row in 2003 and the top private 1–4, the target is 3.2 (they achieved 3.26
employer in the state for 2001. The year to date [YTD]) for employee satis-
emphasis on the learning and growth faction. Futura modeled their questions
dimension of the BSC is the foundation on the work of the Gallop Corporation
for Futura’s state recognition and ulti- and asks questions about work climate,
mate business results. Next is a discus- communication, and achievement.
sion of the measures in the four The third metric refers to average cer-
perspectives of the BSC. tification levels—a job wage skill classi-
fication attained by additional training
Learning and Growth and job skills. Factors such as corporate
Futura has three main measures in the citizenship and cultural maturity are also
learning and growth that are linked to monitored—with a goal of 80 percent of
employee retention and development. employees moving to the next level
They believe these are the cornerstones during their performance review. Com-
to the ability to attract and retain key pensation is not awarded based on
talents in the local market. First, turnover tenure; it is based on the skill certifica-
is measured in the following two ways: tion level attained and the completion of
(1) one year plus turnover, and (2) total required training. This provides not only
company turnover. In an industry with a guide to compensation but also a map
GUMBUS AND LUSSIER 415for employees to chart their course and The Link
future career progression with Futura. All employees’ incentive compensa-
During 2003, Futura completely re- tion is linked to the BSC. The hourly
vamped its performance review system employees are linked to a plant per-
for plant employees with an even greater formance card to drive individual incen-
slant toward skill certification, flexibility, tives for employees. Employees are paid
and improvement actions based on its a base salary and have a quarterly
ISO system. Futura believes this will help formula for incentives based on hours
the company to develop greater capabil- worked times a point system that gener-
ity to flex capacity up and down rapidly ates a financial award linked to the
in the plant. following three metrics: (1) on-time
delivery, (2) company-wide first pass
Customer Service yield at 98.9 percent; and (3) safety and
The management staff asked a basic housekeeping.
question when determining customer “We have seen a 20 percent increase
metrics, “How do you give good cus- in plant productivity, our first pass yield
tomer service?” The answer was the levels are at 99 percent, and our worker
ability to hire people aligned with Futura compensation costs are dramatically
values and to retain people who reduced. In 2002, our free cash flow gen-
perform. This dimension of the BSC was eration was twice our best year and
simplified to four key measures: cus- payroll was not reduced to achieve this
tomer satisfaction, customer hassle result,” stated Johnson.
index, on-time delivery, and lead times.
Futura’s approach to determining cus- Internal Operations
tomer satisfaction involves placing calls Internal metrics focus on new product
to 20 randomly selected customers each development as a percent of sales. Futura
month and posing seven questions about is expanding their top end customer base
quality. They contracted a consultant to and has a target of 20 percent of sales
visit 50 customers to determine what from new customers. The current rate is
was most important to them. These 16 percent of sales derived from new
resulting customer survey questions products.
were derived from actual customer con- The most important metric on the
cerns regarding quality, on time delivery, BSC, according to Johnson, is safety,
and fair value of product and services. which drives ultimate productivity and
Johnson determined that quarterly cus- profitability. Housekeeping and safety
tomer statistics were not frequent are given top priority at Futura, which
enough and conducts her monthly benchmarks itself against national norms
meeting around the results of the sur- for safety. Numbers are tracked for total
veyed customers. The goal is 9.0 on a recorded incidents per 200,000 labor
scale of 1–10. The highest score is 9.2 for hours. TRIR nationally is reported at 10,
responsiveness, the lowest score is for for the total aluminum extrusion indus-
lead time at 8.6, and the overall score is try it is 9, and at Futura it is 2.5—three
8.92. The final question on the survey and a half times lower than the industry
asks the customer, “Futura Industries average. Seethe Futura Industries BSC
goal is to be a hassle-free supplier. On a (Figure 1) to review its measures.
scale of 1–10 how well would you say
they are meeting this goal?” This exem- Lessons Learned
plifies Futura’s commitment to the cus- Execution of strategy is the key to
tomer and the timely resolution of success. Johnson believes that the key to
customer issues and complaints. execution is all about 2 dimensions:
416 JOURNAL OF SMALL BUSINESS MANAGEMENTFigure 1
Futura Industries Balanced Scorecard—2002
Through May 31, 2002
MEASUREMENT TARGET ACTUAL-YTD
Prosper * Income $/ % $147K/1.9% 2Q 85K /1.7%
Grow $600K/2.0% yr 251K/2.0%
Survive
* Free Cash ROTA 4.38 % 11.55 %
FINANCIAL
Strategic Pillars
Operational
Growth Excellence * TRIR / Lost Time 0 / 0 (# of emp) 10 / 6
* Customer Satisfaction 85% 86.4%
- New Customers * Customer Complaints < 30 per month (360) yr 37.8 avg / 189ytd
- Existing Customers * On-Time Deliveries 95 % 80 % mo / 83% ytd
* RMA’s < .25 .10% mo/ .13% ytd
Speed * Total Inventory Turnover 15 7.2
Intimacy - we know * Total Finished Goods Turnover 25 12.2
our customers’
businesses and we use Market Composition: 2nd Qtr AVG
that knowledge to Quality * Commercial 41.2% 43.3%
Urgency &
Responsiveness
solve problems * OEM Simple 12.8% 14.0%
* OEM Complex 46% 42.6%
CUSTOMER PERSPECTIVE
* % of Sales from New Products 13 % 18.4% ytd
Planning & * Margins on NP, Std/Real/Net 21% / 10% / 8% 19.4% / 14% / 11.1% ytd
Flawless new
products planning delivery - Deliver * Quote Accuracy (runs 1-4)----------- + 20% on first runs 6% ytd
& delivery what we say Cost of Quality:
when we say * Recoveries ------------------------------ 80% 80.12% yr
* Plant Scrap ----------------------------- 2% 2.56% yr
* Rework ---------------------------------- .4% .32% yr
GUMBUS AND LUSSIER
Identify new
Urgency &
Responsiveness
opportunities in Continually * Total Production Cost/Std hr. 5000 lbs 5237 lbs.
cost
* $ Packed/Person >$13,500 $13,822
Continually improve Turnover
our competencies * Key / Leadership Turnover < 5% 0%
* One Year + Turnover < 7% 2.2% ytd 5.3% trend
* Total Company Turnover < 20% 6.2% ytd 14.9% trend
Provide a safe, challenging
Employee Satisfaction
& enjoyable workplace * Leadership Survey Avg 4.2 + (scale 1-5) 3.9
* Birthday Reviews Avg 3.2 + (scale 1-4) 3.27
Hire people aligned with our values
LEARNING, INNOVATION & GROWTH
Average Cert. Levels 80% Advancement
417hiring the right people and communica- ing access to strategic information, and a
tions. The BSC has enabled Futura to climate in which employees are moti-
focus on hiring talent and retaining cus- vated and empowered to strive to
tomers. Core competencies at Futura are achieve the vision (Kaplan and Norton
the ability to hire and develop reliable 2001c). Both Futura and Mobil NAM&R
and responsible people and the ability to utilized employee surveys and employee
communicate internally and externally. core competencies as the foundation for
At Futura the BSC is viewed as a man- measurement. National Bank Online
agement tool and not a series of metrics. Financial Services (OFS) used a product
The company uses the BSC to guide leader strategy similar to Futura with an
operational decisions and link strategy to emphasis on increasing revenue per cus-
objectives. tomer and deepening relationships with
Advice from Johnson includes the existing customers. Both companies used
need to focus on information technology customer outcome measures to add and
(IT) readiness. Does your company have retain high-value and high-potential cus-
the kind of IT people it needs and the IT tomers. Product availability and reliabil-
capacity and system to support execution ity targets were created to offer superior
of strategy? Most companies have too service capability to customers. National
many metrics to facilitate focus. Simplify Bank OFS achieved similar results to
measures. Most important is knowing Futura, receiving several awards as Best
what measures drive the business and Online Bank, and decreased downtime
that you are measuring the right things on the website by 71 percent, which
for business success. Finally, Johnson resulted in decreases in customer service
states that the BSC is not easy to imple- calls. The chief financial officer credited
ment, and that it is extremely important the BSC with keeping the company
to link all employee pay to the BSC. focused on operational issues while man-
Futura Industries uses the BSC as a aging customer relationships (Kaplan
strategic tool to align values to company and Norton 2001c).
measures. The card provides company
leadership with a one-page, simple yet Case Study of the BSC
powerful tool to capture measures that at SGC
matter to the business. The BSC is the At this small entrepreneurial company
visual representation of the strategies of 150 employees the BSC was used to
and execution metrics, which are com- establish a corporate culture and lead
municated to internal and external an organizational change effort as a new
stakeholders. VP and General Manager (GM) took over
in 1995. Today, SGC is a Balanced Score-
Comparison of Futura to Large card Collaborative Hall of Fame winner
Organizations Using a BSC based on its success using the BSC. The
Futura utilized a BSC to emphasize the implementation story is a role model for
learning and growth dimension as the other small businesses to follow as they
cornerstone for measuring company pursue this management tool. The fol-
results. Large organizations such as lowing case study of SGC illustrates a
Mobil North America Marketing & Refin- successful implementation of the BSC as
ing (NAM&R) also emphasized learning a performance measurement tool in an
and growth with the following three entrepreneurial setting. SGC is a sub-
objectives for their learning and growth sidiary of United States Sugar Corpora-
dimension. Mobil stressed building core tion and competes in a consolidated
competencies and skills at both the market for not-from-concentrate (NFC)
employee and leadership levels, provid- orange juice.
418 JOURNAL OF SMALL BUSINESS MANAGEMENTData were collected through personal market and was in last place among
interviews with Tristan Chapman. He suppliers. Today, SGC supplies 60
was hired as VP and GM in 1995 and percent of the private label market
simultaneously read an article that and is considered the leader in bulk
emphasized the fact that what gets meas- NFC suppliers.
ured gets done. He believed that people (2) SGC became the lowest-cost supplier
want to do a good job, perform well, and of bulk NFC in the citrus industry
achieve. Chapman built a management after utilizing the BSC for a number
team and created a culture that rein- of years.
forced this core belief. He used cross- (3) Recipient of the Kroger Outstanding
functional management teams to define Supplier award in 1996, 1998, and
what should be measured. This critical 1999.
buy-in to the BSC was important to gain (4) Recipient of the Tropicana Supplier
at the managerial level. As the individual of the Year award in 2001.
responsible for the implementation of (5) SGC was named the premier Florida
the BSC, Chapman also had the strong citrus processor in 1997, 1998, 1999,
support of CEO Bob Buker. 2000, and 2001.
“I needed to get involvement from the
entire management team—collaboration Chapman decided the BSC could help
is key to the implementation of the BSC. SGC to accomplish three goals:
I looked around and saw that I was the
biggest problem because I needed to let (1) Align the organization with its
go of the card and take critical feedback overall mission.
from my staff,” admitted Chapman. The (2) Give excellent feedback on the orga-
process of putting together a BSC proves nization’s level of performance.
the management adage—that no one (3) Provide focus on areas that require
person is as smart as all of us. For an improvement.
entrepreneurial owner this lesson is
particularly hard, yet important. “I had The BSC was chosen as a management
to put my ego aside and listen to others tool because it motivates employees to
to allow their input—I had to realize act in ways that increase the company’s
the card was not mine, but theirs.” value to the shareholders, rewards all
Chapman’s success in this process named team members who are accountable for
SGC one of 12 original companies invited performance, and enables SGC to attract
into the Hall of Fame established by the and retain outstanding employees.
BSC Collaborative headed by Robert To build a scorecard leadership team,
Kaplan and David Norton. Chapman organized the plant of 150
Since implementing the BSC, SGC has employees into 10 operating teams.
achieved outstanding results. The com- Chapman established two scorecards as
pany is now the lowest-cost supplier of part of his performance management
NFC orange juice in the industry. “The system:
Balanced Scorecard has been the key to
our organization’s success. It provides a (1) A corporate BSC for overall align-
perfect framework for achieving positive ment to strategic direction.
business results,” stated GM Chapman. (2) A Bonus Scorecard, which consists of
SGC used the BSC to achieve the fol- key measures that link bonus awards
lowing results: to the BSC.
(1) In 1995, SGC supplied none of the Cross-functional teams of managers
NFC orange juice private label were organized and made accountable
GUMBUS AND LUSSIER 419for each of the five scorecard dimension the following five strategic goals for
established by SGC. These dimensions 2001:
are the traditional four from the
(1) Increase sales of NFC by 50 million
Kaplan–Norton model (financial, cus-
gallons.
tomer, internal, and innovation and
(2) Secure 66 percent of fruit supply on
learning), plus a fifth dimension of “core
a long-term basis.
values” (Figure 2). The core values have
(3) Achieve an integrated cost of pro-
their own measures and targets, similar
duction per pound solid of $X.
to the traditional four dimensions. The
(4) Continuously improve processes and
core values answer the question: “By
products, and lower costs.
what principles do we choose to operate
(5) Continue to improve HR, technical,
this business?” SGC’s mission to “[c]ontin-
and operational skills as a competi-
uously improve and become the low cost
tive advantage.
supplier of high quality citrus products
to our customers, while maximizing “Tying compensation with the bal-
returns to our shareholders,” is reflected anced scorecard is an excellent way to
in these values. reward individuals and teams for achiev-
ing corporate objectives. This piece has
Paying for Performance withstood the test of time mainly
SGC used the BSC to link goals to because we have been responsive to
employee performance. They established feedback and made adjustments where
Figure 2
Core Values
420 JOURNAL OF SMALL BUSINESS MANAGEMENTneeded,” noted GM Chapman. The basis this area are measured weekly and show
for the bonus awards is the Bonus Score- a YTD at threshold and excellent levels.
card (Figure 3). This consists of BSC The core values dimension measures
metrics with three levels of performance safety, attitude, teamwork, productivity,
that determine payment amounts. and quality. All major work units report
SGC has achieved impressive results in in the 90–97 percent range. In the inno-
all dimensions of the card. In the finan- vation and learning dimension training
cial area it measures juice costs per and continuous improvement are meas-
pound solid, and costs have been steadily ured. Improvement teams are developed;
trending down from 1995. In the cus- five opportunities are identified and
tomer dimension, a mission critical metric revised).
is percent shipments within specification,
loading cycle time, and customer service. Comparison of SGC to Large
In this area, operations management Organizations Using the BSC
(OM) shipments chemical specifications SGC used the BSC to achieve out-
percent within specification has risen standing results as the industry leader
steadily from 70 percent in 1995 to 99.86 and lowest cost supplier in their market.
percent in 2002. In the internal opera- Similarly, Mobil NMA&R introduced the
tions dimension the company measures BSC in 1994 to launch a turnaround
total juice yield, total oil recovery, and strategy. It went from ranking last among
total productive maintenance. Results in industry peers to maintaining industry
Figure 3
Bonus Scorecard
GUMBUS AND LUSSIER 421leadership for four years. The perform- fad (Green et al. 2002). As presented,
ance mindset of the BSC is given credit more than half of the Fortune 1000 com-
for this result (Kaplan and Norton panies are using the BSC to improve per-
2001c). The BSC played an important formance, and as illustrated in three case
role in the return to profitability of studies, SMEs can also benefit from using
CIGNA Property & Casualty Insurance this management tool. However, because
after deploying the card as the core man- there is no BSC small business/entrepre-
agement process. It used the BSC to neur literature, a comparison between
manage a transformation from a gener- the three case studies and prior SME
alist to a specialist company. Chemical papers is not yet possible.
(Chase) Retail bank was another early The results of the case studies of Hyde
adopter that successfully used the BSC to Park Electronics, Futura Industries, and
support major change initiatives (Kaplan SGC support the prior literature from
and Norton 2001c). In 1995, AT&T large companies. The implication for
Canada, Inc. turned the company around entrepreneurs is that they too can benefit
by focusing on process improvements from developing and using a BSC. Three
guided by a balanced strategic manage- case studies, with actual BSCs, have been
ment system. By 1998 the company had provided to aid entrepreneurs, and those
an expanded customer base and positive who assist them, develop their own BSC.
cash flow generated from revenue per However, by reviewing the three BSCs,
employee increases. one realizes that they are very different
Other companies have used poor yet work well for these SMEs. Thus, an
financial performance to drive the adop- important implication is that there is no
tion of a BSC such as Zeneca Ag Prod- one BSC that fits all, and BSCs should be
ucts N.A. The company linked incentive used to stimulate thinking of relative
pay to strategic performance and aligned measures in the critical success factors of
goals with the parent company using the any business. The development of the
BSC. United Parcel Service (UPS) moved BSC should be a team-based ongoing
from an operational excellence company process, as the three cases illustrate.
to a more customer-focused approach Thus, the BSC is used for continuous
using the BSC. UPS is an example of a improvement, which is important to the
profitable enterprise adopting a balanced growth of the SME.
measurement system as opposed to this As with all research, this case study
strictly financial metrics prior to 1994. has limitations. This is the first published
Company executives credit the BSC paper on the BSC in a small business/
with moving the company to a more entrepreneur journal, thus there is no lit-
customer-focused and solution-oriented erature base. Implications are the need
business (Kaplan and Norton 2001c). for further research to develop the liter-
Many large organizations have adopted a ature with emphasis on how small
balanced approach to measurement with businesses actually use each of the quad-
successful results. This paper proposes rants in their performance measurement
the use of a BSC approach to measure- system. Further research is needed on
ment so that small business enterprises how small businesses align the BSC to
can share similar gains. employee appraisal, compensation, and
the capital budgeting process (Lyons,
Discussion Gumbus, and Bellhouse 2003). Future
The importance of measuring strategy studies should include larger sample
and operational plans is here to stay, and sizes/. This study has three cases, and
the BSC is not just another management most papers include only a single large
422 JOURNAL OF SMALL BUSINESS MANAGEMENTorganization. All cases in this study are Organizational and Financial Health
manufacturing companies, so there is Using the Balanced Scorecard: A
need for BSC research in the small busi- Case Study at a Yale New Haven
ness service sector. The current study Health System Hospital,” Journal of
and literature include case studies in Business and Economic Studies 9(2),
which the BSC was successfully imple- 54–65.
mented. Another implication is that prac- Gumbus, A., B. Lyons, and D. Bellhouse
titioners and researchers can also benefit (2002). “Journey to Destination 2005,”
from a better understanding of unsuc- Strategic Finance 8(4), 46–50.
cessful use of the BSC, and to compare Gumbus, A., and S. Johnson (2003). “The
successful and unsuccessful implementa- Balanced Scorecard at Futura Indus-
tion of BSCs. In research, as well as in tries: Relentless Commitment to
performance measurement, a balanced Employees Results in Company
approach is recommended. Success,” Strategic Finance 85(1),
37–41.
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