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Is the BSC right
Is the balanced scorecard right for for academic
academic libraries? libraries?
Michele M. Reid
North Dakota State University, Fargo, North Dakota, USA 85
Received 17 October 2010
Abstract Accepted 18 October 2010
Purpose – The purpose of this paper is to consider the potential utility for higher educational
institutions, and in particular libraries, of the balanced scorecard (BSC) performance measurement
tool, originally developed by Kaplan and Norton for use in businesses and since adapted for the public
and non-profit sectors.
Design/methodology/approach – The relevant literature was reviewed to ascertain key aspects
and functionalities of the BSC framework, survey implementations and determine perceptions of the
system’s effectiveness and weaknesses, and – while the BSC has as yet been put into practice only
infrequently in libraries – treat its appropriateness for information service.
Findings – The BSC supplements financial accounting with non-financial leading indicators to link
performance drivers and outcome measures in cause and effect relationships that can predict future
performance and drive a single organizational strategy. Also intended as a straightforward reporting
“dashboard” revealing whether improvements in one area have been at the expense of another, the
BSC is considered more effective as an aid in forecasting the overall health of an organization than
traditional accounting-based models. It provides a capacity to monitor obligations to stakeholders and
to produce transparent and reliable financial information, and the resulting internal control
environment can promote integrity and ethical values.
Originality/value – Academic libraries may find the BSC a useful approach in determining service
value, in demonstrating fiscal responsibility, and – through metrics focused on organizational goals
and strategy – in validating their role, as knowledge-based and networked environments, in the
delivery of a quality educational product to their customers.
Keywords Academic libraries, Balanced scorecard, Leading indicators, Organizational strategy,
Performance measures, Service value
Paper type General review
What you measure is what you get [. . .] managers want a balanced presentation of financial
and operational measures (Kaplan and Norton, 1992, p. 71).
Introduction
As higher education institutions face increased competition for students and research
dollars, the globalization of educational offerings, the expense of emerging technologies,
and pressures to practice fiscal constraint and accountability, they often look to the
business world for useful financial tools. Some have seen in the balanced scorecard (BSC)
a model with which to address these challenges from a customer service focus:
questioning how to offer increased value to their students, and how they can improve The Bottom Line: Managing Library
their processes while containing and reducing costs. While, as yet, there have been few Finances
Vol. 24 No. 2, 2011
published reports of successful applications of the BSC in universities, its potential has pp. 85-95
been realized in other settings (Beard, 2009) and, especially given the financial needs of q Emerald Group Publishing Limited
0888-045X
university libraries, its applicability should be explored. DOI 10.1108/08880451111169106
2. BL The balanced scorecard phenomenon
The BSC is a performance measurement tool first developed by Kaplan and Norton for
24,2 the business sector (Kaplan and Norton, 1992), that subsequently evolved into a broader
strategic management system and has been customized to meet the needs of a variety of
environments and markets (Kaplan and Norton, 2001b). By 2002, 60 percent of Fortune
1000 companies had experimented with the BSC (Moxham, 2009, p. 744; Kaplan and
86 Norton, 2005, p. 12), and its implementations in such companies as Best Buy, Cigna,
DuPont, Exxon Mobil, Hilton Hotels, Ricoh, Southwest Airlines, Sprint, UPS and
Wendy’s have been examined in detailed case studies (Kaplan and Norton, 2001b, 2009).
By 2004, it had been adopted by 80 percent of large US companies, making it the nation’s
“most popular” management tool for improving performance (Hillstrom, 2009).
BSC use has since spread to the public and nonprofit sectors (Niven, 2003), including
higher education (Beard, 2009; Dorweiler and Yakhou, 2005; McDevitt et al., 2008). The
Mayo Clinic and the University of San Diego were early successful adopters in the
non-profit and academic realms, respectively (Kaplan and Norton, 2009). Indeed, the
BSC “was received and used so enthusiastically and effectively” in recent years that
Harvard Business Review listed it as one of the “75 most influential business ideas of
the twentieth century” (Bible et al., 2006, p. 18), while Kaplan and Norton’s first BSC
monograph (Kaplan and Norton, 1996a) was chosen as one of the “100 best books of all
time” by business columnists Covert and Sattersten (2009).
Financial and nonfinancial measures
The BSC model is distinct from previous performance measurement systems in that it
includes financial and nonfinancial measures, reflecting a balance between leading and
lagging indicators of performance (measures that drive performance and outcome
measures). Specifically, it is designed to supplement financial accounting measures
(lagging indicators) with performance criteria from three nonfinancial dimensions or
perspectives (those of the “customer,” “internal business processes,” and “employee
learning and development”) that provide leading indicators to support long-term
planning. Companies can use the BSC to track financial results “while simultaneously
monitoring progress in building the capabilities and acquiring the intangible assets
they will need for future growth” (Kaplan and Norton, 1996c, p. 75).
In addition to managing traditional fixed assets, the BSC process allows managers
to transform organizations by leveraging their ability to exploit intangibles, such as
customer relationships, product development, and intellectual capital (Bible et al., 2006,
p. 18). It claims a further advantage over traditional measurement systems in linking
long-term strategy with short-term targets, allowing the budgeting process to result in
a better allocation of resources (Norreklit, 2000, p. 68). Not only are performance drivers
and outcome measures to be seen as linked in cause and effect relationships that aid in
predicting future financial performance (Kaplan and Norton, 1996b), but spreading the
metrics across the four financial and nonfinancial perspectives can promote a shared
vision and drive a single organizational strategy (Bible et al., 2006, p. 19).
The BSC is also intended as a straightforward reporting mechanism or dashboard
that allows executives to quickly determine whether they have improved in one area at
the expense of another (Kaplan and Norton, 1992, p. 71). It is considered more effective
as an aid to forecasting the overall health of an organization than traditional
accounting-based models that tend to focus only on individual departments (Seraphim,
2006), or that provide data that are often “too aggregated to be of much help to
3. management” in determining overall strategy (DeBusk and Crabtree, 2006, p. 44). Is the BSC right
Other advantages include the capacity to monitor obligations to stakeholders and to for academic
produce transparent and reliable financial information that can be used to create
effective internal control environments facilitating actions “based on integrity and libraries?
ethical values” (Callaghan et al., 2007, p. 63).
The basic BSC framework 87
The basic scorecard asks managers to view their organizations from a variety of
perspectives built around four basic questions:
(1) How do we look to shareholders (the financial perspective, including such
familiar measures as ROI, revenue, net income and cash flow)?
(2) How do our customers see us (the customer service perspective, including
measures of customer satisfaction)?
(3) What must we excel at (the internal process perspective, focusing on
performance measures)?
(4) Can we continue to improve in creating value (the staff development and
learning perspective, focusing on knowledge creation and innovation) (Kaplan
and Norton, 1992)?
Frigo summarized the dynamic flow within the four perspectives by characterizing the
BSC as providing:
A hierarchical framework that management can use to link or connect the unique strategic
activities to the ultimate goal of financial value creation. At the top of the framework is
financial performance, which is driven by a unique customer value proposition. This is in
turn delivered by the right set of business processes (the value chain). At the base of the
hierarchy is innovation and growth, which provide the capabilities and infrastructure for
continually evolving value proposition and processes. The cause and effect linkages within
the BSC hierarchy can be powerful tools for strategy evaluation (Frigo, 2002, p. 6).
Kaplan and Norton underscored that financial performance “provides the ultimate
definition of an organization’s success” (Kaplan and Norton, 2004b, p. 27). The basic
business BSC is designed to assist a company in creating sustainable growth in
shareholder value (the profit motive), and success with targeted customers provides a
principle component for improved financial performance. In contrast, the “strategies of
public sector and nonprofit organizations are designed to create sustainable value for
citizens and constituents” (p. 28). In adapting the BSC to fit the public and non-profit
sectors, including government and higher education, Niven (2003) recognized that
financial measures “can best be seen as either enablers of customer success or
constraints within which the group must operate” (p. 34).
Budgeting and the BSC
Some adopters of the BSC claim it is a way to put “strategy back into the center of the
budgeting process,” and that it can be an effective replacement for the traditional
annual budget model in more fully integrating the budget within an organization’s
strategic planning process (Bible et al., 2006, pp. 21-22). Kaplan and Norton, however,
viewed financial budgeting as two related processes, with BSC organizations utilizing
two separate budgets:
4. BL (1) An operational budget of nondiscretionary spending and expenses is determined
24,2 by the volume and mix of services produced or delivered. Such a budget is
dynamic in allowing for new opportunities and environmental changes.
(2) A strategic budget includes discretionary spending on new capabilities and
initiatives to enable future growth (Kaplan and Norton, 2001b, pp. 288-295).
88 Discretionary spending is therefore directly linked to the organization’s strategy (Bible
et al., 2006, p. 22), and may forecast how investments in learning and growth drive
continuous process improvement and lead to increased customer satisfaction (Brewer,
2002, p. 46).
Managing strategy with the BSC
Kaplan and Norton outlined four processes that help managers link the BSC’s strategic
objectives to actions:
(1) Translating the vision, including clarification and consensus-building.
(2) Communication and linking, including educating staff, goal setting, and linking
rewards to performance measures.
(3) Business planning, including setting targets, aligning strategic initiatives,
allocating resources and establishing milestones.
(4) Feedback and learning, including articulating the shared vision, supplying
strategic feedback, and facilitating strategy review and learning (Kaplan and
Norton, 2001b).
With their focus on aligning financial and nonfinancial measures with an
organization’s vision and mission, Kaplan and Norton utilized complex strategy
maps to illustrate the linkage of long-term goals to operations, including the cause and
effect relationships between the BSC’s key performance indicators (KPIs) (Kaplan and
Norton, 2004c). Strategy was further categorized into “strategic themes,” each
connected logically to the customer value proposition and financial outcomes (Kaplan
and Norton, 2004a, p. 44).
Challenges with designing scorecards
DeBusk and Crabtree cautioned that those designing scorecards must:
.
Identify the best strategy for their organization or unit.
.
Select specific objectives to complement the strategy.
. Select no more than 20-25 performance measures to track progress in achieving
the strategic objectives.
.
Establish targets or goals for the performance measures (such as sales growth,
market share, employee turnover, student graduation rates, etc.).
.
Communicate targets to managers and employees.
.
Encourage managers and employees to meet the targets by offering incentives.
.
Communicate the BSC to all levels of the organization or unit by developing
departmental and employee scorecards complementing the broader
organizational measures (DeBusk and Crabtree, 2006, pp. 44-46).
5. Letza outlined mistakes to avoid in BSC development, including: Is the BSC right
.
Do not measure the “wrong things right.” Make sure measures relate to the for academic
organization’s overall strategic goals. With a choice of so many metrics, libraries?
organizations must concentrate on a few key and appropriate ones.
.
Ensure that all aspects or activities directly relating to the organization’s
strategic goals are measured. Letza noted that some managers tend to pick and
choose what to measure and their BSCs do not produce a comprehensive picture. 89
.
Some organizations have experienced cross-functional conflicts, as lines of
authority may become blurred when initially implementing the new model
(Letza, 1996, pp. 74-75).
Reported benefits and cost concerns
Letza added that the BSC model’s effective deployment can:
.
Deliver information forming the backbone of an organization’s strategy.
. Function as the “cornerstone” of an organization’s current and future success by
balancing short-term, essentially financial performance, with long-term growth
opportunities.
.
Highlight performance by connecting financial or service results with customer
and market interfaces and employee motivation.
.
Act as an integrating tool, both horizontally (across functionality), and vertically
(through levels of management), by communicating an organization’s priorities
and business strategy.
.
Serve as a dynamic, continuous process of evaluating performance and
redefining strategy based on results (Letza, 1996, pp. 75-76).
Users claim that the BSC has become their “key communication vehicle” for reporting,
planning and budgetary processes, and observe that it can streamline communication
and eliminate unit “silos” (Kaplan and Norton, 2001a, p. 65). Despite its benefits,
however, the BSC can be expensive to develop and implement on a large scale.
Specialized consultants are often needed to help map organizational strategy and aid in
selecting relevant performance measures, while an organization’s existing information
systems may need to be modified in order to provide the required input data (DeBusk
and Crabtree, 2006, p. 46).
Recent business research
Despite its increased acceptance, the BSC is not without its detractors, with recent
debates centering on whether it is flexible enough to accommodate a networked
knowledge-based economy (Voelpel et al., 2006, pp. 43-60; Kaplan and Norton, 2006).
These concerns may impact the way it is initially received in knowledge-based
organizations such as libraries. Moreover, the failure rate of BSC implementation in the
business sector has been estimated at as high as 70 percent – attributable to factors
such as not adequately communicating the BSC process and measures to all
organizational levels, a failure to develop a robust feedback or evaluation system, not
translating BSC concepts into concrete actions, and not clearly operationalizing
outcomes and performance measures (Pforsich, 2005, p. 32).
6. BL While use and evaluation of the BSC model is still in an “embryonic stage,” recent
24,2 studies seem to support the claim of its significant effect on performance, including on
financial measures such as cash flow and profit (Iselin et al., 2008, pp. 71-83). In a
survey conducted by DeBusk and Crabtree of members of the Institute of Management,
accountants from more than 1,000 organizations reported that most firms (88 percent)
regularly using the BSC experienced improvements in operating performance. A
90 significant majority (66 percent) also reported improvements in “bottom-line financial
results” (DeBusk and Crabtree, 2006, p. 46).
The BSC and academic libraries
With an expanding body of literature on successful BSC implementations in public and
nonprofit sector institutions, academic libraries may want to consider the potential
usefulness of the BSC in aligning financial factors with their mission in the context of
customer and stakeholder, human resources, and internal process requirements. The
BSC can allow libraries to focus on efficient ways to produce high quality service
outcomes despite their reliance on usually limited inputs (Kettunen, 2007, p. 409). The
BSC process is also flexible, and can be used in conjunction with existing efforts
already in place at the university, division, or departmental levels. These can include
TQM and other continuous improvement models (Wongrassamee et al., 2003),
enterprise risk management (Beasley et al., 2006), change management (Chesley and
Wenger, 1999; Kaplan and Norton, 2001a, p. 64), and traditional accounting practices
such as activity-based budgeting (Kaplan and Norton, 2001b, pp. 289-291).
Additionally, academic libraries may find scorecards can:
.
Help make the case for increased funding. A carefully developed BSC can tie the
library’s budget more explicitly to strategic planning and align budget
requirements more closely with the larger organization’s priorities. This can put
the library in a stronger position from which to request university funds for
strategic initiatives directly related to the institution’s broader mission, as well as
to secure additional resources through alternative income sources, such as grants
and endowments (McDevitt et al., 2008, p. 32).
.
Build customer and stakeholder awareness and demonstrate accountability. A
BSC can increase customer and stakeholder awareness of how the library’s goals
and objectives are directly related to financial inputs. Outcomes can be linked to
direct return on investment.
.
Provide creative metrics to support the library’s critical role within the university.
A BSC could, for instance, facilitate integrating both financial and nonfinancial
measures of performance into reporting documents (McDevitt et al., 2008, p. 32).
In today’s economic environment, budget justifications are based on more than
just traditional output measures such as circulation counts, number of
interlibrary loan requests filled, or number of reference questions answered.
Libraries must demonstrate their value from the customer perspective, with
metrics more directly related to student and faculty success.
. Aid in assessment and accreditation. BSC data have been used successfully by
faculty departments in self-assessment (McDevitt et al., 2008, p. 33). They can
also demonstrate goal achievement to legislative and accrediting bodies
(Dorweiler and Yakhou, 2005, p. 140).
7. .
Encourage the use of internal controls to promote an ethical environment. The BSC Is the BSC right
model can help facilitate asset management and cost control by taking into account for academic
tangible and intangible investments and expenditures related to service delivery.
The use of effective monitoring processes within the BSC framework may also lead libraries?
to a more systematic focus on ethical behaviors (Callaghan et al., 2007, p. 63).
. Improve productivity. The model is designed to link the contributions of each
individual to an institution’s core objectives, as well as to promote linking 91
rewards with performance. The internal operations perspective includes an
emphasis on continuous improvement in organizational effectiveness.
Although early higher education applications provide base models (Dorweiler and
Yakhou, 2005, p. 140), the BSC must be tailored to each institution’s needs to be
successful (Butler et al., 1997, p. 242). A generic approach, adapted from Niven (see
Figure 1) and presented in Figure 2, suggests how an academic library can begin
translating the core BSC perspectives into its organizational setting (Niven, 2003).
Figure 1.
Balanced scorecard for the
public and nonprofit
sectors
9. Once an academic library determines its needs, based on its vision and strategy, it can Is the BSC right
develop appropriate objectives, initiatives, targets and measures for each of the for academic
outlined perspectives along with detailed strategy maps in order to create a
customized, integrated BSC financial and planning system. libraries?
Conclusion
As the BSC process gains ground in the business world and in public and non-profit
93
sector institutions, including in knowledge-based and networked environments,
academic libraries may find it a useful approach in determining service value and
demonstrating fiscal responsibility. Through the use of metrics specifically focused on
organizational goals and strategy, academic libraries may better measure those
services most closely reflecting their organizational values in order to validate their
crucial role in the delivery of a quality educational product to their customers. The
process of implementing a BSC can provide opportunity for discovering what really
matters to customers and stakeholders, as well as for determining how limited human
and financial resources can be leveraged to drive service to increasingly higher levels
of performance and customer satisfaction.
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11. About the author Is the BSC right
Michele M. Reid is Dean of Libraries at North Dakota State University in Fargo. Following a
Bachelor’s degree, summa cum laude, in History and Spanish from the University of Central for academic
Florida, Reid earned a Master’s degree in library studies from the University of South Florida libraries?
and a Master’s degree in medieval history from Rutgers University. She is an alumna of the
HERS Bryn Mawr Institute for Women in Higher Education Administration and the 2010 UCLA
Senior Fellows Program, and is pursuing a PhD in Higher Education Administration. Michele
M. Reid can be contacted at: michele.reid@ndsu.edu 95
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