Balanced scorecard - managerial method in sustainable development of smes under crisis conditions

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Balanced scorecard - managerial method in sustainable development of smes under crisis conditions

Taranenco L. doctor of economics, lector, Free International University of Moldova

Summary

The balanced scorecard (BSC) is a strategy performance management tool - a semi-standard structured report, supported by design methods and automation tools that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions. It is the method by which this most relevant information is determined that most differentiates the various versions of the tool in circulation. The balanced scorecard also gives light to the company's vision and mission.

Key words: balanced scorecard, small and medium enterprises (SMEs), economic crises, managerial methods, financial indicators.

Problem statement

SMEs operate within market economy under conditions of acerb competition on both domestic and international market. In order to realize their purposes, the entrepreneurs have to ground the activity on own economic strategies, being well founded technically, economically and managerially. Consequently, the market economic relations request the application of efficient managerial methods for the sustainable development of SMEs. The problem statement is to use of new methods that will ensure stable positions and overcome the critical moments of SME activity. These methods have enabled the creation of crisis management model in order to contribute to the ability to pay, to strengthen the financial position and the prosperity of SMEs.

Analysis of recent researches and publications

balanced scorecard managerial crisis

In modern conditions of market economy, it is necessary to apply different assessment methods. One of the most efficient methods of elaborating the complex of indicators is the balanced scorecard. The Balanced Scorecard was originally developed by Dr. Robert Kaplan of Harvard University and Dr. David Norton as a framework for measuring organizational performance using a more balanced set of performance measures.

Highlighting previously unresolved parts of a common problem. The efficiency of the company is determined by the financial-economic indicators entered in the accounts, but this approach does not define a complete image of the company's situation and does not permit to foresee the evolution of future events. Consequently, the companies need to apply new meth-ods providing an efficient assessment of their activity.

Formulating the purpose of the article. The article purpose are to study the effectiveness of using modern management methods for the sustainable development of SMEs during crisis situations through the analyze and the determination of the theoretical and practical approaches of the method concepts and the modern management techniques for the sustainable de-velopment of SMEs.

Presentation of the main material. Anti-crisis management process may be treated as a complex system, which supposes the restructuration of the company based on its diagnostic and later, the elaboration of an actions plan, followed by its accomplishment.

Generally, anti-crisis management of a company supposes:

- external and internal analysis of the company;

- operational assessment and analysis of company's financial situation and the prevention of an eventual insolvency;

- permanent monitoring of commercial activity risks and elaboration of methods for their mitigation.

The company has to operate according to a well- established plan when it elaborated the anti-crisis program, based on practical-theoretical and applicative studies in the field of management, marketing, staff management, financial management, which are incorporated in modern economic science. The results will allow drafting a plan for the administration of the com-pany during or before the crisis situation. Its compliance will result in solving internal issues of the company, preventing the negative influence of external unfavorable factors and using efficiently and on maximum the possibilities provided by the macroenvironment of the company. This is a current issue of SMEs as the multitude of SMEs requires a special approach regarding the anti-crisis management mechanism.

Traditionally, the efficiency of the company is determined by the financial-economic indicators entered in the accounts, but this approach does not define a complete image of the company's situation and does not permit to foresee the evolution of future events. Consequently, the companies need to apply new methods providing an efficient assessment of their activity.

In modern conditions of market economy, it is necessary to apply different assessment methods in order to appreciate the business environment activity and the dynamic of development.

Beside the quantity methods, there are quality methods of activity assessment. The quality criteria are the horizon of the marketplace, the name of the company, the competitiveness, the existence of constant suppliers and consumers.

By the current approaches of the strategic management, the entrepreneurial structures are encouraged to use not only the financial indicators, but also the non- financial elements as the staff, the internal processes and relations with the clients.

The specificity of company's activity branch may dictate the choice of concrete methods. More than that, every chosen method has to meet the specificity of each activity of the company. In this sense, the activity of the company approaches situationally in order to choose the methods of achievements assessment.

One of the most efficient methods of elaborating the complex of indicators is the balanced scorecard or shortly BSC.

Successfully applied in the practice by the American companies, Balanced Scorecard method relies on main orientation of operational activity of the company. Hence, the balanced scorecard may be seen as a complex system providing the collection, the systematization and the analysis of the information necessary making strategically managerial decisions. The main purpose of this system is to render a balanced set of financial and non-financial indicators for the company's administration [1, p. 242].

Balanced Scorecard concept represents more than a technique of performance assessment, retaining traditional financial indicators. The financial indicators reflect previous events, an appropriate approach of companies from the industrial era, in case of which the investments in sustainable capabilities and the relations with the clients are not decisive for obtaining success. Although, these financial indicators are not always adequate for the direction and the assessment of the effort that have to be undertaken by the companies of information era in order to achieve values by investment in clients, suppliers, employees, processes, technology and innovation.

The main principle of the balanced scorecard is that the established objectives realize only if there are numerical indicators. Therewith, these indicators exclude the contradictions. In this system, the non-finan- cial elements are primordial as they provide the realization of the strategy and the achievement of optimal financial results.

The balanced scorecard has four main directions: finances, clients, internal processes, staff training and development. The mains structure of BSC relies on the cause-effect relationship, presented in illustration 1.

Illustration. 1. Basic structure of balanced scorecard [1, p. 242]

The direction of Finances is one of the basic constituents of the balanced scorecard. Usually, the specific purposes of the finances direction are the increase of production profitability, the profitability of own capital, net profit and others.

There are determined in the limits of the direction clients the key segments of the market to which the company intend to orient its efforts in order to promot and to realize the products. The main propellers of this orientation are the satisfaction of consumers needs, the loyalty of clients, the conquest of new clients etc.

The direction of internal processes identifies the main processes on which found the improvement and sustainable development of the company in order to strengthen the competitive advantages.

The forth direction of the system has an increasing role and determines the infrastructure that the company has to create in order to provide the training and the sustainable development. This development is the result of the combination of three main factors: human resources, organization system and procedures. In order to assure a life-long existence, it has to invest resources in increasing the employees qualification, information technologies etc.

In practice, depending on the type of company and the conditions of the external environment, the number and the sense of the orientation modify. The difficulty of applying the balanced scorecard determines the insufficiency of information regarding some parameters. The quality indicators are difficult to measure and the process of monitoring is quite tough. Despite the difficulty of applying the Balanced Scorecard, an increasing number of companies elaborates the model of management based on this methodology [3, p. 57].

The application of the managerial method is oriented toward the elaboration of multidimensional managerial system that includes:

- increasing efficiency of managerial decisionmaking;

- establishment of relations between strategy and budget system;

- assessment of subdivisions activity in the limits of accomplishing the strategic purposes of the company;

- elaborating an efficient motivation system.

It is necessary within the balanced scorecard to differentiate the indicators measuring the achieved results and the indicators reflecting the processes contributing to the achievement of results. The both categories have to interconnect mutually. The implementation of the balanced scorecard means the reformation of the process of realizing the organization strategy. However, it has to take into account that this method is not a process of elaborating a strategy, but a process that supposes the existence of already formulated strategy in the company.

The author considers more rational the implementation of simple systems for SMEs, which uses only a part of BSC tools. For example, there is the possibility to elaborate a BSC based on financial analysis. This fact demonstrates that the elaboration of anti-crisis management system for SMEs is possible.

In order to manage the anti-crisis of SMEs sector, the balanced scorecard has the structure presented in illustration 2.

Illustration 2. Balanced scorecard for anti-crisis administration of SMEs [1, p. 243]

The author mentions the reasons that mobilize the company for the elaboration and the implementation of this sustainable development system of SMEs. They might be:

- elaboration of new strategy of the organization;

- business crisis;

- need of transmitting the information and staff training;

- training new leaders;

- need of unique direction regarding the rational initiative.

The process of creating a balanced scorecard of SMEs entrepreneurial structures has to initiate by the

determination of the company's purposes and the development prospects. These purposes may be the stable provision of profit, increase of net financial flow, restoration of solvency, increase of liquidity ratio, increase of business value. The purposes and the prospects of the company may fall in the direction “finances” of balanced scorecard.

The direction “clients” of the balanced scorecard applied to SMEs manifests by the monitoring of distribution channels, analysis of operational costs of channels and the benefits for the company. There is the danger, when creating and analyzing the matrix, of occurring some unprofitable channels that have to be excluded and the profitable channels on which the managers of the companies have to concentrate.

The creation and the analysis of production, its partition and assessment of each compound of the cycle correspond to the direction “internal process”.

It has to pay attention to the motivation system and the realization of organization changes within the direction “training and development”. Staff motivation represents the reward system referred to everyone. It has to be taken into consideration, when calculating the value of retributions, to the key indicators of performance determined by the position occupied by the employee within the company [2, p. 67].

In illustration 3 it is presented the management process model of small and medium entrepreneurial structures during economic decline and crisis.

According to the figure, during the first stage, when the crisis has not occurred yet and the enterprise functions profitably, it is very important that SMEs domain establish their strategic aims and to plan the activity's results. Usually, small and medium entrepreneurial structures establish their aims for a period of 2-3 years, fact that helps to determine the evident priorities of the activity and the perspectives in aiming the desired results.

That is why, it is necessary to establish initially a correct strategy of the enterprise, this will allow to the small entrepreneurial structures to concur and to survive on the market. Until the crisis phenomena emphasize, the enterprise is obliged regularly to elaborate a calculation of the main finance indexes, to monitor these indexes and to find out the “narrow” place of its activity.

Many enterprises pay a special attention to the external and internal monitoring, and the small and medium entrepreneurial structures rarely form groups in order to accomplish these aims, this happens because of the resources lack.

Illustration 3. Management process model of small and medium entrepreneurial structures during crisis

In practice, strategic management and operating administration tasks have to be changed permanently.

The monitoring system represents well-determined actions in order to prevent a possible crisis. This system is necessary in the identification of the crisis situation. Multilateral assessment and enterprise analysis are a significant link of the financial position monitoring system.

The aim of the analysis, first of all, consists of a concrete determination of the enterprise's financial resources, also of the risks' level provoked by a possible crisis. Enterprise analysis data make possible to adopt a decision regarding the reorganization or liquidation procedures of the enterprise. At this stage, the initial data are systemized in order to construct the anti-crisis management system, to identify and to formulate the enterprise problems.

The plenitude and the analysis high precision can be achieved only by a complex approach made on simultaneous analysis of the internal and external environment of the enterprise.

External and internal environment analysis makes possible the determination of the enterprise general situation and further development tendencies. The methodology regarding small and medium enterprise complex analysis proposed for crisis can be presented according to the following aspects:

a) Enterprise internal environment analysis

It is rational to start the analysis of the enterprise internal environment by the determination of the current aims and strategy. The following stage of the enterprise internal environment analysis is the analysis of the staff and functional-organizational structure made on four directions:

- Organizational structure analysis;

- Functional structure analysis;

- Internal normative base analysis;

- Staff assessment.

The analysis of these data is indicated in order to determine the current situation of the organizational structure, its correspondence with the organization's aims.

The following stage of the internal environment analysis is the current position analysis, which is made regularly according to the following consecutiveness:

- Analysis of fixed assets situation;

- Analysis of current assets;

- Analysis of financial position.

b) The enterprise external environment analysis supposes the analysis of micro-environment and macro-environment factors, which can influence the company's activity.

The enterprise micro-environment analysis is necessary for the elaboration and implementation of the anti-crisis management tools. This analysis is presented by several factors, as:

- Analysis of the suppliers' influence;

- Analysis of the consumers' influence;

- Analysis of the competitors' influence;

- Analysis of the intermediaries' influence.

It is important to analyze the small and medium enterprises position in the conditions of a limited budget. Anyway, the micro-environment analysis has to be made permanently, because the factors are objective forces on whom the enterprise cannot influence. Hence, if the enterprise doesn't act in time at the modifications of the external environment, it appears the discordance danger between the demands of external environment and the enterprise activity.

According to the results of the external and internal environment analysis, we can conclude generally about the enterprise position. On conclusion, it is established the further strategic aims regarding:

* Position maintaining - when the enterprise production occupies on the market a large quota, and the strategy oriented on its extinction hasn't a positive effect. The enterprise is supposed to use the internal possibilities (unproductive expenditure reduction, cash flows increase);

* Limited increase - the acquisition of maximum incomes in the same business directions, whose development possibilities are limited or already out of stock;

* Reduction of certain activity directions - a certain business direction hasn't a positive cash flow and its investment possibilities are out of stock, the enterprise has to liquidate it or to sell it;

* Increase - if the complex analysis established that a certain business enterprise has evident competitive advantages, it has to be used for the access to these markets;

* Penetration - evaluating the enterprise development perspectives and its possibilities, even if there is the danger of a possible crisis, it has to be created conditions for a further increase of the company.

It is necessary to make a comparative analysis of the enterprise activity from previous periods. Absolute liquidity indices of the balance sheet have to be assessed quarterly, accomplishing the financial report. Because all the liquidity and financial stability indices depend on enterprise assets, they have to be also assessed quarterly.

The second stage of the management process algorithm of the small and medium enterprises consists of the crisis early prediction and the management during the preparation period to enter crisis.

The first task consists of financial indices selection and their criteria in order to assess the crisis development level. The indices optimal set, which reflect the most clearly the tendencies of the financial position, is elaborated individually by each enterprise.

It is recommended in case of recession to:

* Concentrate the attention and the efforts to improve the position;

* Analyze the organizational structure of the enterprise;

* Introduce a reporting system of the made decision in the main activity sectors;

* Reduce unproductive expenditure and to liquidate the problematic domains of the activity;

* Create an adaptation flexible system of the enterprise at the modifications of internal and external environment;

The third and the fourth stage of the anti-crisis management process of SMEs, which suppose the enterprise management in case of crisis and exit from crisis, require a special attention from the part of managers, because these stages can decide namely the further course of the enterprise and the succession of further actions. The elaboration and the application of the measures programs will allow to the enterprise to surpass the decline and to determine the directions for its sustainable development.

Conclusions of this reserach and perspectives

The balanced scorecard should not be applied totally. It is necessary to understand that the directions, based on which the indicators will be formed, may be three, four, five or some of them. It is important not only their quantity and their name, but the fact that these indicators offer the possibility to create a complex image regarding the situation of the company. Consequently, the application of this method in the activity of SMEs is not only simple, but also efficient.

The activity of the company is approached from the situation of choosing the methods of assessing the achievements. Therefore, the most indicated of the approaches regarding the creation of indicators system is the balanced scorecard of efficiency, based on main orientations of operations activity of the company.

The balanced scorecard as alternative method of managerial tool is often ignored or even unknown by SMEs of the Republic of Moldova in situations of decline.

Consequently, the balanced scorecard is a complex system providing the collection, systematization and the analysis of information needed for making decisions strategically. This method suggests to the administration to undertake the use of financial and non- financial balanced scorecard.

Bibliography

1. Butler A., Letza S., R. & Neale B. Linking the balanced scorecard to strategy. In: Long Range Planning, 1997, Vol. 30, No. 2, p. 242-253.

2. Hueng P. Process performance measurement system: a tool to support process-based organizations. In: Total Quality Management, 2000, Vol. 11, No. 1, p. 67-85.

3. Kaplan R., Norton D. How to implement a new strategy without dissrupting your organisation. In: Harvard Business Review, 2000, p.56-57.

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