IMPLEMENTING A BALANCED SCORECARD AT A SOFTWARE

DEVELOPMENT COMPANY
G. Ioannou, A. Papalexandris, G . P. Prastacos and E. Soderquist
{ ioannou, alexp, gpp, soderq@aueb.gr}
Management Sciences Laboratory, Athens University of Economics & Business
47A Evelpidon & 33 Lefkados Street, Athens 113 62, Greece

AbsfrabIn this paper we develop a specific Balanced specific BSC model, and present the experiences from
Scorecard (BSC) model, and present the experiences its real-life implementation at a large software
from its real-life implementation at a large software development company. The proposed approach is
development company. The propoxd approach is based based on the Kaplan-Norton model, takes into account
on the Kaplan-Norton model, and takes into account the the particular characteristics of the software industry,
particularities of the software industry. Via the
discussion of the actual implementation in a technology and provides special attention to the human resource
driven and oriented company, we illustrate the effect involvement in the deployment of the model.
that the dynamic environment and the increased
concerns about intellectual capital have on business
Strategy and the performance metrics inherent in the
BSC model. In this context we also identify and evaluate
some critical success factors and shortcomings of the
particular project in order to derive guidelines for
similar implementations.

I. INTRODUCTION

In the early 90s Kaplan and Norton, realizing the

lack of a proper management system that would
incorporate all quantitative and qualitative measures
of true importance to an enterprise, developed the
concept of tbe Balanced Scorecard (BSC) which aims
at providing a framework that translates strategy into
action [I].
The BSC is developed along four perspectives,
which provide a holistic view of any company, i.e.,
Financial, Customer, Internal Business Process and
Learning and Growth. These perspectives allow a
balance between short- and long-term objectives,
between outcomes desired and the performance
drivers of these outcomes, and between hard objective
measures and softer, more subjective measures. Fig. 1
illustrates the BSC perspectives and their building
blocks. By monitoring the metrics within each
perspective and by maintaining a balance between all
four perspectives, management is able to control the
strategy implementation process, not just for the
realization of short-term financial outcomes but also
for developing long-term competitive capabilities.
The litenture describes in great detail the concepts
of the BSC and offers insight into the benefits a
company can reap as a result of the implementation
and subsequent use of this management system.
However, few articles offer detailed, impartial and
practical information concerning the actual
implementation of a BSC. In this paper we develop a
Fig 1. The BSC Perspectives and Building Blocks
11. THE SOFTWARE DEVELOPMENTCOMPANY
The Software Development Company (SDC) is a
Strategic Business Unit (SBU) of a multinational
enterprise with a turnover greater than 500 million
and more than 400,000 employees worldwide. SDC
was established in the late 1980s with the objective
of developing integrated solutions for communication,
information technology and security systems. Its
customer base is concentrated in Greece and the
Balkans, while some customers come from other
European and non-European countries.. SDC employs
150 people that are almost equally split between three
divisions, each one with the task of developing
different technology software, and aims at reaching
200 people within the next two years.
In the last few years, SDC had experienced
significant changes and rapid growth and the future is
expected to be even more dynamic. At the same time,
increasing tumover was affecting the cost required to
recruit, hire and train the employees and was making

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on the job training more and more difficult, while
placing the quality of the deliverables at risk. Under
the volatile business and intemal conditions,
management wanted to:
a) Specify the most important drivers of business
performance and focus the companys effort
and resourcesto common goals.
b) Capitalize on the main strengths of SDC and
depict the areas for improvement.
c) Implement a measuring system which would
not rely solely on financial measures, and by
which the performance of the whole business
unit would be rated upon.
Given these circumstances, an effective and
efficient management system like the BSC, being a
fairly easily understood concept which enhances
bottom-up flow of information [2], appealed to top
management and was considered to be the most
appropriate tool for the particular situation.
111. APPLICATION OF THE BSC AT SDC
In designing the BSC the implementation
methodology framework provided by Kaplan and
Norton 131 and Vital et al. [4] was mainly followed,
with appropriate enhancements and changes where
necessary. Even though Kaplan and Nortons four
perspectives should not be used as a straightjacket [ 5 ]
and many articles and books alter or add perspectives
to the BSC model [6], in this BSC application the
four-perspective model was kept unchanged. Thus,
the selected human resources objectives and measures
were incorporated in the intemal process and the
learning and growth perspectives.
The project of preparing, designing and
implementing the BSC for SDC comprised seven
distinct phases as follows:
The first phase involved the project preparation,
which mainly comprised visioning, scoping and
planning for the project, as well as developing
techniques to avoid resistance to change and to
achieve commitment from the company. In order to
gain the necessary commitment from the whole
organization, which had been recently involved in a
time consuming and of disputed benefit project, it was
important to present the major factors constituting the
need for change in the particular business unit and to
demonstrate the added value of a BSC
implementation. This step was followed by the
assembly of the project team, which consisted of nine
SDC key employees who had the skills and the
commitment to participate and actively contribute as
project team members.
The second phase involved the clarification of the
vision and the identification of the SDC strategy and
included workshops and interviews with the project
team and with other intemal and external stakeholders
using structured questionnaires. After the distribution
of questionnaires and the interviews, the following
activities were performed: filled questionnaires were
collected and data were analyzed, summaries were
compiled and wrap-up workshops were run, to devise
vision and strategy and to classify the strategy into
themes. All outcomes were reported to the
management committee for approval. The result of the
first round of interviews and workshops of the current
phase was the identification of the three most
representative strategic themes of SDC, i.e.:
a. Increase value added to the group. The
ultimate goal of SDC was to increase the added value
to the group through the pursuit and investment in
technologies with large profit margins and pull out of
technologically saturated markets.
b. Offer high quality services to valued
customers. A segmentation of SDCs clients showed
that even though they were rather large and few, they
still abided to the 80 I 2 0 Pareto Principal. Given this
segmentation, SDC aimed at placing more attention to
its highest value customers.
c. Add, retain and develop the intellectual
capital. This strategic theme was twofold. First, due
to the importance of the intellectual capital, especially
to tbese types of companies, SDC was committed at
ensuring that the employees were properly motivated
and satisfied. Second, it was important for SDC to
increase the competency of its employees by
adequately training them so that they would be able to
compete effectively in such a Global and rapidly
changing market.
The third phase involved the identification and
prioritization of strategic objectives (goals). Within
this phase, the linkages of SDC to other SBUs had to
be established so as to form an understanding of the
corporate and business unit objectives. The selection
of the strategic objectives commenced with the
financial and proceeded to the goals in the other
perspectives by posing the question: If I succeed
with my vision and strategy, how will my
performance differ for stakeholden, for customers for
intemal business processes and for my ability to grow
and improve? [7]. In order to depict the most
appropriate objectives for the company, the project
team ranked each strategic objective according to the
enterprise-wide significance, the improvement
potential and the feasibility of implementation. The
result of this phase was the design of the strategy
map, which entailed all the chosen strategic objectives
and their cause and effect linkages categorized
according to the strategic theme and the perspective
they most closely represent. This phase ended with
the presentation and explanation of the strategy map
and other findings to the selected stakeholders.
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 The fourth phase involved the selection of the
measures for monitoring the strategic objectives
(Table 1). The selection of the measures was based
on the closeness and ease of monitoring of each
potential measure to each strategic objective. When
deciding on the measures that were going to be used
the following true statement was kept in mind:
Complexity is the enemy[8]. Taking into account
that one of the main advantages of the BSC is that it
can be used as a communication tool, we were
looking to identify the measures that not only
represented but could also communicate more
effectively each strategic objective to the whole
company. In order to identify these measures, the first
step was to review existing performance measures and
to check whether they had a close linkage to strategy.
Incorporating these measures in the BSC capitalized
on the effort already allotted in measuring
performance and contributed in depicting some
measures that were familiar and commonly
understood by employees.
TNILE. 1
EXAMPLEOFABSC STRATEGIC GOALBREAKDOWN
Frequency
Meuore owner Mr.Smith
Tnrga Increase by4%
Initiatives Intensify and improve markctine. campaign
I Contact c u m with dormant accolults
Budget I 300.000
Afler having examined existing performance
measures and since the financial and customer
measures are mostly common to all companies, efforts
focused and considerable time was spent reaching
consensus on the leading key performance indicators.
In defining these measures, the different types of
culture (national culture, occupational culture and
organizational culture) that existed within the
organization [9] had to be taken into account,
especially considering that the project was performed
at a large multinational company with employees
from all over the world, coming from different
cultures and with different educational backgrounds.
Defining the appropriate measures was not an easy
task. Some of the main strategic objectives of the
SDC, like the quality of the software produced or the
employee development, productivity and satisfaction,
were difficult to be translated into appropriate
measures. In addition, most of the performance
indicators were not currently available and data
collection was necessary. However, this was not a
limiting factor since it is a known fact that
measurement oflen focuses on easily quantifiable
criteria such as cost, profitability and productivity,
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while neglecting other criteria which are of the same
if not of more importance to competitive success
[~01,[111.
Afler having selected 35 performance measures
that would effectively represent each strategic
objective and having verified the cause and effect
relationships, each measure was ranked and the most
appropriate ones for tbe BSC were selected. This was
made possible by examining the interrelations of
performance measures (e.g. redundancy) and factors
like applicability, communication potential and
measurement and improvement feasibility. Finally, to
further reduce the measures, the project team was
asked to vote on the measures it considered most
suitable and applicable and a final selection of 20
measures (4 to 5 for each perspective) was performed.
The fifih phase involved the target setting and
scheduling for the measures. The main aim of this
phase was to decide on a goal (target) for each
objective and to determine the measurement
frequency (Table 1). In this phase it was important to
assure that managers would establish ownership of the
measurements so that the measurement schedules
would be kept and the BSC would continue to be used
as the main measurement and management system
&er the completion of the implementation. Thus a
measure owner, who would be capable of monitoring
and performing fine-tuning activities to improve
performance in the particular measure, had to be
selected. For leading indicators, the owner was also
held accountable for the overall performance of SDC.
Assuming Theory Y [I21 applied, whereby employees
are motivated by rewards and incentives associated
with goals they helped determine, the establishment of
an owner for each measure and the involvement of all
employees in the contribution of possible initiatives
for these goals, would lead to increased motivation
and effort towards achieving the goals and improving
the measures that were selected.
Setting the appropriate targets for the measures
required a deep knowledge of the particular industry
and of the competitive environment the company was
operating in. It also required examination of best
practices and benchmarking against leading
companies in Greece and abroad. The final decision
about the appropriate targets however, was always
taken after direct input from the owner of the
measure, to make certain that hdshe would be
committed to the improvement of the measure hdshe
assigned to.
Along with the targets, the frequency of the
measurements was also defined. Milestones were set
for each target according to the most appropriate
measurement period. Financial measures, due to their
measuring periodicity nature, were taken every 6
months to one year, depending on the measurement
feasibility; all other measurements, which were not
affected by seasonality and other factors that would
make the results misleading, were examined at shorter
intervals. The mangers were also prompted to set
sub-milestones for the targets in order to monitor the
performance of the measures and to avoid diverging
from the target. Due to the lack of experience of
managers with the target setling procedure for the
selected measures, the targets were frequently altered
towards more feasible ones, during the course of the
implementation of the BSC. However, practice and
experience in this field resulted in more precise and
appropriate target-setting procedures as time
progressed.
The sixth phase involved the development of
strategic initiatives for achieving the targets (Table 1).
This entailed outlining the way in which targets, set in
the previous phase, would be attained. The project
team and the process owners derived the strategic
initiatives that were believed to contribute in
achieving the targets that had been set, with the help
of benchmarking. The initiatives focused on the
leading indicators since the performance outcomes
(lagging indicators) are to a great extent dependent on
the leading indicators [13],[14]. Significant attention
was placed on the learning and growth perspective
measures, since these were the most important ones
for SDC and would mostly affect all other measures.
A SWOT analysis for SDC was also used in this
phase in order to depict the areas for improvement
where the initiatives would be focused. As prompted
by Kaplan and Norton [IS], the process of coming up
with the initiatives was one where most of the
employees of the business unit actively participated
and contributed. The number of initiatives that the
employees provided was overwhelming, as is the case
in several BSC implementations [16]. All the
suggestions that were offered were then examined
with regard to their feasibility and the expected
contribution in achieving the goal. They were also
ranked and prioritized according to their improvement
potential in a project team workshop, which resulted
in the documentation of all the proposed initiatives.
The process of developing the initiatives for attaining
the targets resulted also in the final adjustment of the
targets themselves, based on the feasibility and the
perceived effectiveness of the initiatives. Finally, a
strategy budget was appointed for the strategic
initiatives that were proposed in order to protect long-
term objectives from the pressures to deliver short-
term financial performance [17].
After the design of the BSC for the business unit,
the final phase included the formulation of the
implementation plan for SDC, which involved both
the communication and breakdown of measures to all
the levels of the organization and the selection of the
IT support necessary to monitor the companys
performance. Given that 44% of the 57 organizations
responding to a Survey by Towers Penin [I81
experienced serious to major problems in developing
the information systems needed to support the BSC, it
was imperative to select the software solution that was
the most appropriate for monitoring the performance
measures and to depict a way in which the
information would be extracted from the database and
presented both effectively and efficiently. Many BSC
software solutions have recently been developed.
These range from expensive, complete solutions of
large software manufacturing and ERP systems
development firms, like the Oracle and the SAP
Balanced Scorecard solution, to very cheap solutions
which serve only as a representation medium for the
measures and the targets that have been set. For SDC,
a middle range solution was chosen where data could
be fed directly from the database of the company but
some manual input was also required. The main
reason for choosing not to proceed with a full-blow
integrated IT solution was the attempt to promptly
initiate use of the BSC by SDC s employees.
The final phase resulted in the presentation of the
BSC implementation to all the employees of SDC.
The responsibilities of the employees, both in
achieving the targets and in constantly running and
proving their input for the BSC, were explained. A
plan was also created to reconfirm the validity of the
strategic objectives, the selected measures and the
chains of cause and effect, once a year. In the case
where a lack of correlation would be observed
between presumed driving factors and expected
results the cause and effect relations would be
reconsidered and fine-tuned.
In all phases, externally driven guidance and
support was mostly serving the role of a facilitator
rather than the implementer, placing the %urden of
the implementation on the SDC personnel. This way,
SDC employees developed a sense of ownership of
the project and at the same time, they acquired the
knowledge needed to alter any strategic objective and
the corresponding measures at any time where the
strategic priorities of the company would change.
IV. CRITICAL
OVERVIEW OF THE BSC
IMPLEMENTATION
A BSC may bring a company many short and
long-term improvements. Some of the obvious
improvements are documented in case studies and
include incremental changes in financial and customer
measures, such as increase in revenue and
profitability, decrease in cost, increased customer
satisfaction etc. However, Meyer [19] rightfully
argues that pre-set goals are almost always met, but
whether goals are achieved by improving performance
or by improving the measures without improving
performance can be difficult to determine. This is
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why, apart from the improvements in measures that
result from a BSC implementation, some of the main
advantages brought to a company by this tool are the
not so apparent intangible improvements.
In the particular implementation, apart from the
anticipated feedback and communication
enhancements, which are two of the main advantages
of the BSC and which have been thoroughly
documented in many BSC case studies, the use of the
direct input from all employees and the attempt to
incorporate their opinions and strategic initiatives in
the BSC, also had a positive effect on the employee
motivation and morale. This was evident from the
increasing score in the employee satisfaction
questionnaires, but could also be deduced indirectly
by the decreasing yearly turnover. In OUT opinion, this
was also the determining factor that conmbuted to the
overall improvement in all three strategic themes and
in most of the performance measures in the following
years of observation.
In general, however, apart from the various
improvements of the BSC, there are certain
weaknesses and shortcomings, which were evident
from the BSC implementation at SDC. The main
weakness lied in the complexity and time involved in
its development and periodic review. Especially, if
there is a need in representing different business units
and levels of the company, where the development of
a Scorecard for each level of the company is usually
advisable. In such cases, as Newing [20] argues, the
costs may well outweigh improvements in
organizational performance. This complexity might
also encourage organizations to attempt partial
application of the system, in which case the benefits
of the implementation will be limited. Furthermore,
since the selected measures are chosen in such a way
so as to he aligned with the strategic goals of a
company at any given time, there is a need for
frequent revalidation of the chain of relations and of
the measures that are going to be used each time the
strategic goals of the company change. Hence, a great
amount of time and resources is not only required to
develop the BSC but also to fine-tune it so that it will
be kept updated and effective.
V. CONCLUSIONS
A lot of academic research has been performed
conceming the usefulness and the value added to a
company by the implementation and use of the BSC.
Many articles have been written concerning the
apparent improvements and benefits to a company
from the implementation of this management tool.
Recent research [2l] also shows that more than half of
the companies using the BSC were satisfied and only
12% were not satisfied. This stands in contrast to
users of all performance measurement systems where
the survey discovered that only one third of all
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respondents were satisfied with their current
measurement system. Other research and documented
implementations, while agreeing about the usefulness
of this management tool, also point out and
anecdotally support some of the shortcomings to the
BSC [22],[23]. However, there are also articles that
question the overall concept of the BSC and oppose
its use as a performance management system [24].
After having implemented the BSC at a company
facing fierce competition and vast intemal instability,
and after having viewed both incremental
improvements in performance but also an important
range of intangible benefits resulting from the
implementation and use of the BSC by the company,
our view coincides with the views of Mooraj et al.
[25], who through a line of logical argumentation and
assumptions, establish that the BSC is a necessary
good for companies. However, like with most other
management tools, the BSC needs to be used in order
to realize its full value and usefulness as a strategic
communication and management tool. Its usefulness
and effectiveness, however, is critically dependent on
the sequence and content of the design process used to
deploy it [26], as well as on many other predictable
and unpredictable intemal and extemal company
factors that have not yet been fully rationalized and
documented.
in closing, we must note that the BSC is seen to
provide more value to a company when it is used as a
framework and a guideline for successful strategy
communication and implementation and as a system
for understanding what really creates value in the
company, than when it is used as originally proposed
by Kaplan & Norton[27], namely as a performance
measurement system The last statement should be
alx, complemented by the view of Schneiderman
[28], namely, that the BSC will fail if the company
does not use the information provided to drive
changes in the way it works.
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