What are the practical applications of BSC in enhancing microfinance performance? This research reveals that while Gulu District MFIs indirectly utilize Balanced Scorecard principles, significant gaps in learning and innovation hinder optimal service delivery, reshaping our understanding of effective performance measurement.
CHAPTER 2 – LITERATURE REVIEW
2.1 – Introduction
Globalisation, constant innovations, and well-informed customers have made modern business environments dynamic and complex. Organisations with their ever-changing business models, are striving to improve the quality of their products and services.
Several management theories such as; Total Quality Management (TQM), Just in Time (JIT), Benchmarking, Lean Management, Balanced Scorecard and Six Sigma have evolved (see Appendix E for brief definitions). Each concept with its own life span, its share of popularity and level of acceptance has the same basic goal – improvement in quality by measuring performance.
The arguments presented in this report are based on a combination of general literature research on the performance measurement, balanced scorecard, microfinance institutions, strategic management, and corporate planning.
The researcher was able to make use of the library and an extensive use of the internet as the basic sources for the literature review, and what the researcher learnt from lectures.
The researcher was not able to find any published research or article directly related to this particular topic of research. However, articles on the evaluation of performance of other institutions or individuals were obtained, although balanced scorecard was not comprehensively used in the evaluation of performances of those institutions or individuals.
2.2 – Performance Measurement
Performance measurement can be defined as « evaluating how well organisations are managed and the value they deliver for customers and other stakeholders » (Moullin, 2002). An interesting implication of this is that, since performance measurement is itself part of how an organisation is managed, performance measurement also needs to be cost-effective and to deliver value.
It is an ongoing monitoring and reporting of program accomplishments, particularly progress towards pre-established goals. It is typically conducted by program or agency management.
Performance measures or indicators are measurable characteristics of products, services, processes, and operations that the company uses to track and improve performance. The indicators should be selected to best represent the factors that lead to improved customer, operational, and financial performance.
A comprehensive set of measures or indicators tied to customer and/or company performance requirements represents a clear basis for aligning all activities with the company’s goals. Through the analysis of data from the tracking processes, the indicators themselves may be evaluated and changed to better support such goals.
Performance measures may address the type or level of program activities conducted (process), the direct products and services delivered by a program (outputs), and/or the results of those products and services (outcomes). A « program » may be any activity, project, function, or policy that has an identifiable purpose or set of objectives (GAO, May 2005).
Establishing a successful performance measurement process, can be quite a challenge for any organization. However, the following best practices can make an organization successful in developing and maintaining its performance measurement process (ESCC, 2006).
First, it requires an executive involvement because leadership commitment to the development and use of performance measures is critical in the success of an organization’s performance measurement process.
An organization usually implements a performance measurement process, when there is an urgency of need due to a potential threat to the organization’s survival. One of several scenarios may precede initiating a performance measurement system within an organization, such as a newfound leadership commitment to performance measurement; the desire of a high-performance organization to keep its competitive edge; the need to link organizational strategy and objectives with actions; or the resultant outcome of current quality programs.
Secondly, performance measurement systems succeed when the organizations strategic and business performance measures are related and in alignment with the overall organizational goals. Top leaders convey the organization’s vision, mission, and strategic direction to employees and external customers clearly, concisely, and repeatedly.
The organizational objectives are shared with employees in several different formats, both visual and verbal. For example, one partner published and distributed a booklet to show each employee what matters at the corporate level, what affects the division level, and how everything aligns within the corporation.
This information sets the stage for the development of useful performance measures, since the more clearly the goals are communicated, the easier it is for employees to see and decide on what needs to be accomplished.
Thirdly, an organization’s performance measurement system should be integral to its overall management process and directly support the achievement of the organization’s fundamental goals. In fact, in some cases, the performance measurement system is its management process.
Examples of the conceptual frameworks for organizing measurement systems include the use of balanced set of measures, matrix systems, target setting, benchmarking, objective-setting workshops, and Malcolm Baldridge National Quality Award criteria
Fourth, communication is crucial for establishing and maintaining a performance measurement system. It should be multidirectional, running top-down, bottom-up, and horizontally within and across the organization.
Internal communication can be in one of the following ways: interactive, group-oriented mechanisms (general staff meetings, business update meetings, and focus groups); various forms of print media (newsletters, reports, and publications); advanced computer technology (e-mail, video conferencing, and on-line Internet/intranet systems), and other highly visible means, such as the routine placement of progress charts in appropriate work areas.
Finally, employee involvement is one of the best ways to create a positive culture that thrives on performance measurement. When employees have input into all phases of creating a performance measurement system, buy-in is established as part of the process.
As with other concepts described here, the level and timing of employee involvement is individually tailored by the partners depending on their size and structure.
In summary, to undertake performance measurement successfully, an organization must be committed to measure performance, and get started. You just need to start and do not expect it to be perfect. Treat performance measurement as an ongoing process.
An organization’s commitment to performance measurement is a tacit agreement to continually build, change, improve, and tailor the process to your organization. An organization must develop performance measures that complement its culture, size, mission, vision, organizational level, and management structure as well as its goals and objectives.
Frequently Asked Questions
What is the Balanced Scorecard framework in microfinance?
The Balanced Scorecard (BSC) framework is a performance measurement tool that blends financial and non-financial metrics to evaluate the effectiveness of organizations, including microfinance institutions.
How do microfinance institutions in Gulu District use the Balanced Scorecard?
Microfinance institutions in Gulu District were found to be indirectly using BSC principles, which proved effective for performance measurement.
What weaknesses were identified in the performance of microfinance institutions?
Weaknesses were identified in the learning, growth, and innovation perspectives, which affected overall service delivery and performance levels.