A comparative analysis of microfinance reveals that while institutions in Gulu District utilize Balanced Scorecard principles, significant gaps in learning and innovation hinder their performance. This research uncovers critical insights that challenge conventional beliefs about microfinance effectiveness, reshaping our understanding of performance measurement in the sector.
2.5 – Evaluation of the Balanced Scorecard
There are two broad streams in literature: one acknowledges and advocates BSC through success stories and the other stream seeks scientific evidence of whether balanced scorecard implementation is actually linked to improved organisational performance. Kaplan and Norton have included some glowing success stories in their 1996 book, Translating Strategy into Action – the Balanced Scorecard.
They mentioned that, the four perspectives of the scorecard offer a balance between short-term and long-term objectives, between outcomes desired and performance drivers of those outcomes, and between hard objective measures and softer, more subjective measures. They also claim that BSC has a great impact when deployed to drive organisational change (Kaplan and Norton, 1996, p. 13).
The authors further argue that the emphasis on « cause and effect » in constructing a scorecard introduces dynamic systems thinking (Kaplan and Norton, 1996, p. 15).
A few uncritical proponents (Gumbus and Lyons, 2002; Latshaw and Choi, 2002; Berkman, 2002) agree that BSC is an effective performance measurement tool. Several others acknowledge that along with successful implementations, there are many unsuccessful implementations (Venkatraman and Gering, 2000; Olve et al., 2004; Pforsich, 2005; Dent, 2005).
In these journal articles, the unsuccessful implementations are implied to be a result of one or more of these factors: selection of inappropriate or excessive measures, inefficient implementation by the management, delay in feedback or over-emphasis on financial measures.
A survey conducted by the Hackett Group (2004) and an article published by Logistics Today (2005) conveys the same. Ho and Mckay (2002) examine the implementation of BSC within two organisations and find that one of them was extremely satisfied with BSC, while the other found BSC an ineffective management tool and discarded it.
The authors imply that delay in feedback and an unmanageable number of parameters selected by the second organisation might have contributed to discarding BSC.
In a review of BSC 12 years after its introduction, Olve et al. (2004) suggested that BSC is an effective tool for communication and leads to strategic alignment. By contrast, an empirical study conducted by Malina and Selto (2001) found that effective communication is neither associated with nor causes strategic alignment, effective motivation or positive outcomes.
The same study finds that effective management control using the BSC appears to cause positive outcomes indirectly through strategic alignment. Bourne (2002) points out that BSC is designed to implement the chosen strategy, but fails to ask the question whether the chosen strategy is the right strategy for the business.
Some of the criticisms directed at BSC are that people and suppliers are excluded and regulators and competitors are ignored or that environmental and community or social issues/aspects are missing (Bourne, 2002; Brignall, 2002; Marr and Adams, 2004).
Kaplan and Norton include the term « people » under learning and growth perspective (Kaplan and Norton, 1996, pp. 12, 127). They further highlight that the « employee perspective is certainly incorporated within the learning and growth perspective » (Kaplan and Norton, 1996, pp. 34-5).
The learning and growth perspective of a BSC has been considered its weakest aspect for a long time, a fact admitted by the authors themselves (Marr and Adams, 2004).
Kaplan and Norton (1996) argue that the supplier should be incorporated within the internal process perspective. However, in today’s business environment, awareness about suppliers and competitors is vital to survival and their mere incorporation within internal process perspective might not be sufficient.
On including environmental and social aspects, Kaplan and Norton explicitly specify, « There is no mathematical theorem that exists, to assert that the four perspectives are both necessary and sufficient » (Kaplan and Norton, 1996, p. 34). This clearly means that more perspectives can be added as per requirements.
Adding more perspectives however, will merely lead to more measures and increased complexity, which invariably affects the cost of implementation. In this regard, automation of BSC cannot be overlooked.
One of the other criticisms is that BSC is static in nature (Neely et al, 2003), despite Kaplan and Norton’s claim that the emphasis on « cause and effect » in constructing a scorecard introduces dynamic systems thinking (Kaplan and Norton, 1996, p. 15).
This causal relationship however, is criticized as overly simplified and challenged by academics and practitioners (Brignall, 2002; Nürreklit, 2003). Neely et al. (2004), point out the most important criticism that, there is no empirical or scientific evidence that implementation of BSC leads to improved performance.
However, recent research published in the journal Advances in Accounting (Crabtree, & DeBusk, 2008), provides further evidence that the BSC is an effective strategic management tool that leads to improved shareholder returns.
Researchers used a long-horizon event study methodology to examine the relationship between BSC adoption and shareholder returns. Using a matched pair design with various matching criteria, they found that: First, the BSC firms performed statistically better than firms under other controls, for matches based on market value of equity, book-to-market ratios, and net assets.
Secondly, over the three-year post-adoption period, BSC adopters outperformed their industry counterparts who chose not to adopt the BSC by 27–30 percentage points. Thirdly, there was also evidence that firms earned greater excess returns after adoption of the BSC than before.
2.6 – Definition and Status of Poverty
Poverty has been traditionally conceptualized in terms of income, with the poor defined as those living below a given income level. However, poverty has been increasingly recognized as a multidimensional phenomenon that encompasses not simply low income, but also lack of assets, skills, resources, opportunities, services and the power to influence decisions that affect an individual’s daily life.
Poverty also frequently overlaps with and reinforces other types of social exclusion, such as those based on race, gender, or ethnicity. This more comprehensive understanding of poverty also better captures how the poor themselves define their situation (Maes & Foose, 2006).
The complex and multidimensional nature of poverty makes it a challenge to measure.
For the sake of simplicity, an income-based measure of poverty is used most widely, as it permits comparisons between regions and countries. The World Bank, for example, defines extreme poverty as an income of less than US$1 a day, seen as the minimum amount necessary for survival.
To calculate extreme poverty in an individual country, the dollar-a-day measure is converted to local currency using the purchasing power parity (PPP) exchange rate, based on relative prices of consumption goods in each country.
Based on such calculations, the World Bank estimated that 1.2 billion people were living in extreme poverty in 2003, roughly 23.3 percent of the population of all low and middle-income countries (Maes & Foose, 2006).
Frequently Asked Questions
What is the Balanced Scorecard framework in microfinance?
The Balanced Scorecard (BSC) framework offers a balance between short-term and long-term objectives, between outcomes desired and performance drivers of those outcomes, and between hard objective measures and softer, more subjective measures.
How effective is the Balanced Scorecard for performance measurement in microfinance institutions?
Findings indicate that MFIs were indirectly using BSC principles, which proved effective for performance measurement through its blend of financial and non-financial metrics.
What weaknesses were identified in the Balanced Scorecard implementation?
Weaknesses were identified in learning, growth, and innovation perspectives, affecting overall service delivery and performance levels.