The application of Niven's balanced scorecard in a not-for-profit organization in Hong Kong: what are the factors for success?

• Author: Yeung, Allen Kwokwah

ABSTRACT

In 2003 Niven modified Kaplan and Norton's (1992; 1993; 1996; 2000; 2004) balanced scorecard (BSC) framework, claiming that his redesigned model was more suited to non-profit organizations than was Kaplan and Norton's. Since the redesigned BSC is a very recent innovation, it has not, to date, been tested in Hong Kong. Hence, this study set out to examine the extent to which Niven's BSC model could be applied in a non-profit organization in Hong Kong to assist with the mapping and tracking of their business strategies. Key issues were; the shifting of KPI measurements from input to outcomes, inadequate frontline training and a disproportionate amount of time spent on planning rather than on the execution of strategy.

Key Words: Hong Kong, Balanced Scorecard, Not-For-Profit, Performance Measures.

INTRODUCTION

Although Kaplan and Norton's BSC has been widely applied in the private sector since it was first introduced, there is comparatively little public reporting on its take up within the non-profit sector (Willis 2001). This is most likely due to the unique features of the nonprofits which render the application of the BSC in its original form quite complex and inappropriate. Furthermore, the nature of intangible capital (including human and intellectual) required in Niven's model are very different from those included in Kaplan and Norton's. The former requires a sense of mission and passion while the latter tends to focus on profit and competition.

In Hong Kong (as in other developed nations), non-profit organizations are under increasing pressure to apply proven management tools, such as the BSC, to improve the performance of their organizations. Due to the non-profit nature of the social service sector, the financial focus of the BSC conflicts with the mission-oriented nature of the non-profits. Hence, Niven (2003) re-designed Kaplan and Norton's BSC model through focusing on the different aims and undertakings of non-profits, claiming that the new framework fits the non-profit sector much better than the original BSC.

In order to assess Niven's claim this study set out to examine to what extent his BSC model could assist a Hong Kong based nonprofit organization in mapping and tracking their business planning strategies. A secondary objective was to establish which key success factors may assist in this process and which factors were likely to prove problematic. A case study method was selected which focused on the Welfare Organization Hong Kong (WOHK) as the pilot site for seventeen social service organizations. WOHK undertook to apply the BSC within their organizations if application within the pilot site appeared to be successful.

Firstly, a range of BSC literature is reviewed, followed by a comparison of profit and not-for profit organizations in Hong Kong. Next, the case study is introduced before the findings and conclusions are presented.

WHAT IS THE BALANCED SCORECARD?

Since its introduction in 1992 and the subsequent enhancements, the BSC has been embraced by corporations around the world. As per Niven (2003), the Gartner Group estimates that at least fifty percent of all Fortune 1000 companies are now using the BSC methodology.

Developed from a research project with 12 companies and reputed to be at the leading edge of business performance measurements, Kaplan and Norton (1992) introduced the BSC as a multidimensional and multi-level performance measurement tool. This tool appeared in their landmark article entitled: "The Balanced Scorecard--Measures that Drive Performance" in the Harvard Business Review in 1992, which sparked wide interest in both the business and academic fields.

Since its inception, the BSC has been researched extensively with 830 articles listed in ABI/Inform (June, 2005) alone. The majority of these articles are founded in private-sector applications. Most of them praise the BSC model's "balanced" measurement approach (Richardson 2005). Reporting has focused on how it has been applied successfully in strategic planning and implementation (Scholey 2005; Searcy 2004), enhanced performance measures and management (Wyatt 2004; Li 2005), strengthened total quality management (Blair 2005), or enhanced the reporting of intangible assets and intellectual capital (Shaikh 2004; Marr and Adams 2004). Among these 800+ articles, most of them report positively on the BSC, covering not only applications occurring in the United States, Europe, Australia, and New Zealand, but also from many other countries around the world, including Japan, China and other Asian countries.

There have also been a fair number of BSC applications reported in the public sector in recent years, although the number is significantly less when compared to private sector applications. As an indication, only 47 articles were listed in a search on the ABI/Inform database (June, 2005). The most significant push has been in the United States. In 2005 the US Government passed a series of legislatures to drive accountability based on performance measurement, including setting goals and objectives and monitoring progress towards achieving them (Bush, 2005). They are the 1993 Government Performance and Results Act (GPRA), the 1994 Government Reform Act, and the 1996 Information Technology Management Reform Act. In response to these legislatures, Bush (2005) reports that many federal departments and agencies have since used the BSC to help develop their missions, communicate strong departmental commitment, clearly state performance objectives and measures, and place high value on customer service.

According to Niven (2003) the GPRA has received mixed reviews since its enactment, and it is, therefore, difficult to assess whether BSC applications can be deemed as successful within the public sector to date. Kaplan and Norton (2000) claim that the BSC should work well both in the public and private sector, citing successful cases such as the Royal Canadian Mounted Police (RCMP), the Economic Development Administration (EDA) of the U.S., and the United Kingdom Ministry of Defence (MoD). However, in reviewing strategy maps developed for these entities, although the spirit of the original BSC can still be traced, the layout and order of the four perspectives which focus on: the customer; internal processes; financial; learning and growth tend to look very different overall.

Chan (2004) conducted a survey on 451 local government organizations in the USA and Canada. Of the 184 government bodies that responded, only 14 reported successful BSC implementation. The remainder of the government bodies either did not apply the BSC in their units or found it difficult to implement. The top five difficulties associated with the BSC implementation reported by respondents were that:

1. management were too busy solving short term impending organization problems;

2. they lacked highly developed information systems to support the BSC implementation;

3. there was a lack of any linkage of the BSC to employee rewards;

4. it was too time consuming to develop BSC strategies and that

5. employees lacked the skills and know-how to make the BSC work.

   Nonetheless, these five points could be just as easily be considered as excuses rather than difficulties as they relate to the implementation of change initiatives that may not necessarily apply to the BSC. That said, critics, such as Bittlestone (1994), Brown (1994), Allen (1995), Olve, Petri, Roy and Roy (2004), have all commented on the inadequacies of the BSC. Criticism tends to focus on ineffective implementation, or inappropriate approaches in BSC application, rather than fundamental conceptual flaws of the BSC. These criticisms of the BSC have offered some practical points and lessons learned with regard to the potential for its successful application.

   Nonetheless, if effective, the BSC is expected to enable cross-functional collaboration and co-operation, while aiding communication. As Venkatraman and Gering (2002) indicate there have been as many unsuccessful as successful BSC implementations due to the reasons given above.

   HOW UNIQUE IS THE NON-PROFIT SECTOR?

   Within the OECD a diverse set of organizations form an intermediate structure between the market (private/for-profit sector) and the government (public sector). International literature on the topic often refers to this intermediate sector as the third sector or the non-profit sector. According to Euske (2003), the differences between for-profit and non-profit organizations have been discussed...