balanced scorecard implementation in jordan: an ... - Semantic Scholar

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International Journal of Electronic Business Management, Vol. 9, No. 3, pp. 196-210 (2011)

BALANCED SCORECARD IMPLEMENTATION IN JORDAN: AN INITIAL ANALYSIS Fawzi Al Sawalqa*, David Holloway and Manzurul Alam Murdoch Business School Murdoch University Perth (6150), Western Australia

ABSTRACT This paper analyses the state of implementation of the balanced scorecard (BSC) among Jordanian industrial companies. From an economic perspective, Jordan is an exemplar of an advanced developing nation in the Middle Eastern region. The paper is part of a wider investigation into the usage of Western developed performance measurement diversity techniques in the Jordanian context. A quantitative survey of 168 companies provided insight into the level of implementation, diffusion and purposes for the use of the BSC approach among medium and large industrial companies. The results showed that 35.1% of the surveyed companies used the BSC approach. The finding also indicated that approximately a further 30% of the responding companies were either considering or currently implementing the BSC approach. The results revealed some inconsistency in terms of the types and number of BSC perspectives used. Companies that had implemented the BSC used different perspectives in their BSC with a greater focus on the original four perspectives as suggested by the original authors Kaplan and Norton. Keywords: Balanced Scorecard, BSC Methodology, Developing Country, Jordan

1. INTRODUCTION

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The BSC approach is a well-known approach that complements traditional financial measures of business unit performance. The term “balanced” relates to the balance between financial and non-financial performance measures, between lagging and leading indicators and between internal and external perspective of performance measurement [31]. The BSC contains various performance measures, including financial and non-financial measures. A significant amount of literature (for example, Anand et al. [3]; Franco-Santos et al. [17]; Ismail [28]; Ittner et al. [29]; Joshi [30]; Jusoh et al. [31]; Kald and Nilsson [32]; Othman, 2006 [52]; Rigby [58]; Speckbacher et al. [63]) has been published on the BSC approach. The findings of these studies differ from one country to another. In the context of Jordan, there are only a small number of published studies [1,2]. Speckbacher et al. [63] argued that many studies were deficient because of methodological shortcomings such as bias with respect to the selected samples of companies, low response rates or unreliable estimates. This study follows an effective methodology by identifying the actual users and discussing the state of BSC usage in a sample spread across all industrial companies in Jordan. Furthermore, *

Corresponding author: [email protected]

two questions were used to determine the number and type of perspectives that were included in the BSC of each company and to identify the companies that actually use the BSC approach. In addition, many procedures were taken to increase and enhance the response rate and quality of the research. The study, therefore, not only contributes to the BSC literature, but also opens avenues for further research in Jordan and other countries to systematically investigate the BSC approach.However, there is a need for further research into the BSC to analyse more deeply its spread, content and implementation [63]. This study aims to address some of these limitations by assessing the extent of diffusion, implementation stages and contents of BSC and identify the main purposes for using the BSC approach among Jordanian companies. The next section identifies the aims and the contributions of this paper followed by a review of the extant literature. Section four details the research methodology that was utilized. The empirical results are analysed in section five. Section six discusses the limitations and opportunities for future research and finally, section seven summarizes and concludes the study.

2. AIMS AND CONTRIBUTIONS As a developing country, Jordan suffers from a limitation of publications about management

F. A. Sawalqa et al.: Balanced Scorecard Implementation in Jordan: An Initial Analysis accounting research in general. This study contributes to the further development of knowledge in management accounting and provides a basis for further research in Jordan and other Middle East developing countries. The study has followed an effective approach to identify the BSC users by considering the actual users of BSC approach were only those companies which chose “used” or “used extensively” from a six-point scale to measure the implementation stages of BSC and use two or more perspectives in their BSC concurrently. This paper aims to add a series of valuable insights and findings into the extent of the use of the BSC approach in a developing nation (in this case Jordan) in the Middle East that will be relevant to other nation states in this region of the globalised economy. The results that emanate from this paper also require some more profound analysis utilising a mixed methodology of qualitative and quantitative approaches in further studies to analyse the outcomes in greater breadth and depth both within the Middle East region and in other developing regions in different economic contexts. Using financial and non-financial measures does not necessarily imply that the companies are BSC users. Jordanian organisations need to put more emphasis on the BSC approach by extending its usage to other organisations with more focus on the main assumptions that build on the idea of linking performance measures to business strategy and associated cause-and-effect relationships. The users of the BSC are also encouraged to use more perspectives in their BSC model other than the original four perspectives taking into account their business strategies and the overall competitive market. This is because the BSC has been criticized for not being comprehensive enough to consider the other important perspectives such as employees, community, and environment.

3. BACKGROUND LITERATURE This section reviews the literature related to the general BSC framework as identified by Kaplan and Norton [33], the original four perspectives of BSC, the effectiveness and also the limitations of the BSC approach. 3.1 The BSC Framework The BSC is a measurement system, which helps organisations to translate their vision and strategy into action, and provides a comprehensible overview of organisational performance. Introduced by Robert Kaplan and David Norton in 1992, the BSC is a system that measures both the current performance of an organisation and drivers for future performance. In particular, BSC as Kaplan and Norton [33] reported provides answers to the following four questions:

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1. How do customers see us? 2. What must we excel at? 3. Can we continue to improve and create value? 4. How do we look to shareholders? Therefore, the BSC allows managers to look at their business from four important perspectives including the financial perspective, customer perspective, internal business perspective, and innovation and learning perspective. Thus, the BSC approach combines traditional financial measures with non-financial measures of customer, internal business processes, and organisation innovation and learning [23]. Kaplan and Norton summarize the outcomes of this combination as follows: By combining the financial, customer, internal process and innovation, and organisational learning perspectives, the balanced scorecard helps managers understand, at least implicitly, many interrelationships. This understanding can help managers transcend traditional notions about functional barriers and ultimately lead to improved decision making and problem solving. The BSC keeps companies looking - and moving - forward instead of backward (1992, p.79). Braam and Nijssen [7] detailed the development stages of the BSC approach. Initially, they argued that Kaplan and Norton in 1996 stressed the importance of aligning the scorecard information with the business strategy. Therefore, to translate strategic goals efficiently into tangible objectives and measures, they suggested four interrelated management processes: clarifying and translating vision and strategy; communicating and linking strategic objectives and measures; business planning and target setting; and, enhancing strategic feedback and learning. Finally, this was extended in 2001 when Kaplan and Norton introduced five principles to keep strategy as the focus of organisational management processes: translate the strategy into operational terms; align the organisation to the strategy; make strategy everyone’s everyday job; make strategy a continued process; and, mobilize change through executive leadership. Thus, the use of a BSC means putting a handful of strategically critical measures together in a single report, in a way that makes cause-and-effect relationships transparent and keeps managers from focusing too much on improving one measure at the expense of others [21]. This process as Ittner et al. [29] indicated is a good method for using financial and non-financial measures to communicate the multiple, linked goals that an organisation must reach to achieve its long-term objectives. In their study, Speckbacher et al. [63] identified three types of BSC: 1. Type one: a specific multidimensional framework for strategic performance measurement that

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combines financial and non-financial strategic measures. 2. Type two: a Type one BSC that additionally describes strategy by using cause-and-effect relationships. 3. Type three: a Type two BSC that also implements strategy by defining objectives, action plans, results and connecting incentives with the BSC. However, Ittner et al. [29] pointed out that BSC models enhance performance by translating strategy into specific objectives and measures that are linked in a causal chain of leading and lagging indicators covering the four scorecard perspectives. 3.2 The Key BSC Perspectives An essential core element of BSC is the number of perspectives used [63]. However, the number of perspectives used differs from one company to another because it depends on the strategy and the competitive market for each company [13]. Thus, the number of perspectives used is situational in that a company may employ only two perspectives or even more than the original four perspectives [29,63]. Therefore, advocates of the BSC approach suggest that each unit in the organization should build and use its own scorecard [44]. Kaplan and Nortan [33] initially identified four categories of measures. These four categories, as Tapanya [64] indicated, represent the views of four essential stakeholders in any firm. Kald and Nilsson [32] pointed out that the four perspectives of the BSC should be balanced against each other: that is, no one perspective should be allowed to predominate over the others. In order not to lose focus; one should limit the number of measures to approximately 20, since the BSC is a system used mainly to evaluate organisational performance. However, Otley and Fakiolas [53] argued that the use of the BSC approach is proving popular and this had led to an adoption of a wider measurement framework than that of earlier accounting and traditional financial performance measures. Financial perspective This perspective identifies how the business wishes to be viewed by its shareholders [51]. Financial measures are the oldest and still most commonly used measurement tool in management accounting [64]. These measures focus on what has happened in the past and include mainly those measures dealing with organisational profitability. In their study, Hoque and James [21] suggested the following financial measures: operating income, sales growth and return on investment (ROI). Maltz et al.[47] suggested the following financial measures: profit margin, revenue growth, cash flow, net operating income, ROI, revenue per employee, profit per employee, stock price/market capitalisation,

economic value added (EVA), earnings per share (EPS), return on equity (ROE), and growth in common equity. These measures differ from one company to another, which means there is no standard set of financial measures applicable across different contextual organisational frameworks and environments. Customer perspective This perspective represents the relationship between an organisation and its customers [47]. Customers’ concerns as Kaplan and Norton [33] first pointed out tend to fall into four key categories: time, quality, performance and service measures and their cost. Lead time measures the time required for the company to achieve its customers’ needs. Quality measures the defect level of incoming products as measured by the customer. The combination of performance and service measures how the company’s products or services contribute to creating value for its customers. Kaplan and Norton [37] summarized the importance of the customer perspective as follows: The core of any business strategy is the customer – value proposition, which describes the unique mix of product, price, service, relationship, and image that a company offers. It defines how the organisation differentiates itself from competitors to attract, retain, and deepen relationships with targeted customers. The value proposition is crucial because it helps an organisation connect its internal processes to improved outcomes with its customers (p.93). The focus of this perspective is on customer satisfaction and the resulting changes in market share, new customer acquisition, customer retention, and customer profitability [38,69]. Michalska [49] pointed out that customer measures refer to the degree of meeting the customer’s needs and include the price level, customers’ rankings, matching of deliveries with orders, time of the realization of orders, participation in the market, percentage of new customers, percentage of customers kept, customers’ satisfaction, and acquaintance with the brand. In their study, Hoque and James [21] used the following customer measures: survey of customer satisfaction, number of customer complaints, market share, percentage of shipments returned due to poor quality, on-time delivery, warranty repair cost, customer response time, and cycle time from order to delivery. To sum up, the customer perspective captures the ability of the organisation to provide high quality products and services. It is also a very important perspective in helping organisations to improve their financial results by connecting the business processes with customers [31]. Internal business process perspective The internal business process measures should focus mainly on the internal processes, which will

F. A. Sawalqa et al.: Balanced Scorecard Implementation in Jordan: An Initial Analysis have the greatest effect on customer satisfaction and financial objectives of an organisation. In other words, the critical business processes enable an organisation to deliver on the value propositions of customers in targeted market segments and satisfy shareholders expectations of high financial results [34]. Furthermore, Thompson and Mathys [65] indicated that internal processes are central to getting things done in an organisation because, once managers identify the relevant products and services that influence customer satisfaction or financial performance, the next step is identifying the key processes that influence these outcomes. On this aspect, Michalska [49] identified three groups of processes. Firstly, innovative processes in which the company focuses mainly on meeting the apparent and hidden needs of its customers. Secondly, operational processes in which the company creates the product and delivers it to its customers. Finally, processes of after-sale service in which the company tries to increase the value of the work. In general, the key indicators of this perspective are: material efficiency variance; ratio of good output to total output at each production process; manufacturing lead time; rate of material scrap loss and labour efficiency variance [22]. Maltz et al. [47] reported that the most frequently selected process measures include: time to market for new products and services, quality of new product development and project management processes, quantity and depth of standardized processes, quality of manufacturing processes, and quality initiative processes. In their study, Chow and Van der Stede [10] used the following ten measures: production volume, labour productivity, machine productivity, material usage, setup efficiency, manufacturing cycle time, inventory levels, product defects, new product introductions, and new product design efficiency. This perspective is a critical perspective in the BSC model since it is one of the key drivers of customer satisfaction, which in turn is a key driver of financial performance. Learning and growth perspective Learning and growth comes from three principle sources: people, systems, and organisational procedures. These three sources represent the infrastructure that any company must build in order to create and maintain long-term growth and improvement because intensive global competition requires that companies continually improve and enhance their abilities for delivering value to customers and shareholders by increasing investments in these three sources [34]. Learning and growth activities focus on translating strategies into action to enhance the ability of the organisation, through its employees, to compete in the future and to achieve its current and long-term goals [65]. This perspective includes the tools that identify the development of the company such as:

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rotation of workers; expenses outlaid on new technology; expenses of employees’ training; and, time to introduce innovation into a market [38,49]. Learning and growth measures, in general, focus on factors that facilitate continuous improvement in the company such as employee satisfaction, employee suggestions per year, store computerization, hours of training invested in brand managers per year [5]. In their study, Hoque et al. [22] used the following learning and growth common measures: number of new patients, number of new product launches, time-to-market new products, and employee satisfaction. Finally, this perspective enables managers to build a complete strategy map in their companies by defining the employee capabilities and skills, technology, and corporate climate needed to improve and support an effective strategy [37]. 3.3 Effectiveness of the BSC Approach The BSC is a system of measurement used mainly to assess and evaluate organisational performance. Nevertheless, the BSC approach has many other benefits. Michalska [49] summarize the main advantages of the BSC as follows: It is important to underline that the balanced scorecard being the useful tool in supporting management processes, it permits the estimation of a firm through different perspectives (financial, customer, internal processes, knowledge and development) - through which are equalized many aims and options. This method is unique, mostly due to two elements: it brings all workers closer to a strategy and permits the estimation of the degree of realization of this strategy and firm’s working not only through the financial results. The card makes possible obtaining the measurable results of activities of these areas, which up to now could not be seized in numbers. These advantages strongly speak for the BSC and encourage its implementation and by this, the systematic monitoring of the firm’s successes" (p. 758). The fundamental concept of the BSC, as Sedera, Gable and Rosemann [61] pointed out, is to derive the objectives and measures from the overall corporate vision and strategy and to use the four perspectives of the BSC to monitor and achieve these objectives. A good BSC should have a mix of core outcome measures, such as profitability, market share, customer satisfaction, customer retention, and employee skills. This should also include performance drivers such as cycle times in order to communicate how the outcomes are to be achieved. Evans [15] reported that a good BSC includes both leading and lagging measures. Lagging measures (outcomes) tell us what has happened. Leading

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measures (performance indicators) predict what will happen. For example, a customer survey is considered to be a leading indicator for customer retention while customer retention is itself a lagging indicator. Papalexandris et al.[55] pointed out that a typical BSC is composed of a balanced blend of 15-25 measures. These measures are split into two groups. Firstly, performance drivers, which are leading indicators of performance. Secondly, performance outcomes which represent lagging measures of performance. However, Papalexandris et al. [55] encouraged companies to incorporate more measures in the leading perspective (learning and growth and internal process) than in the lagging (financial and customer) perspectives. Moreover, the BSC must still maintain a strong emphasis on financial results, for example sales growth, return on investment, or economic value added [34]. Similarly, Sedera et al. [61] argued that a properly developed BSC should represent both financial and non-financial measures from all levels of the organisation. The BSC should maintain equilibrium between external measures and internal measures. Also, past performance measures and future performance measures are incorporated and finally, objective measures and subjective measures of performance. These measures are elements in a chain of cause-and-effect relationships that communicate the meaning of the company’s strategy. In this context, Kaplan and Norton [35] argued that the use of a cause-and-effect relationship linkage between the strategic goals and performance measures enables employees to operationalise and achieve their company’s mission. The BSC is an effective managerial tool to help managers make sound and fast organisational decisions [42]. In this context, Michalska [49] advocates that implementing the BSC permits monitoring of the degree of a goal’s realization, and also permits quick detection and response within the worked out strategy. Thus, the BSC becomes an important management accounting tool for the estimation of the effectiveness of the whole organisation. This is simply because it contains drivers of future financial performance [37]. In this context, Leung et al.[43] argued that the presence of a broad set of non-financial measures in the measurement system; means that the BSC capture not only an organisation’s current performance but also the drivers for its future performance. By using the BSC, a company can monitor the results achieved in four perspectives and estimate the effectiveness of the overall strategy in the light of successes that have been realised [49]. The BSC provides a comprehensive approach for translating a company’s strategic objectives into a set of financial and non-financial measures. The BSC satisfies several managerial needs by collecting together, in a single report, the different strategies of a company (for

example, becoming customer oriented, reducing response time, improving quality, emphasising teamwork, reducing new product launch times and directing managers, actions towards the achievement of long-term goals). The BSC enables managers to make trade-offs between different measures by getting them to consider all the important operational measures together [14]. Thus, the BSC is an integrated system of planning and control since it ties strategy, process and managers together and can provide senior management with a way of testing a sophisticated model of cause- and-effect. This in turn provides managers with a sound basis to manage results [4,23]. Michalska [49] identified many uses for the BSC including: construction of firms strategy, monitoring; translating the aims of each division, cell, team and individual worker of the firm’s strategy, analysis of cause-effect relationships and motivation. Key studies have examined performance impacts of BSC usage [5,7,11,12,21,29,67]. For example, Crabtree and DeBusk [11] found that the BSC is an effective strategic management tool that leads to improved shareholder returns. Their findings from different industries show that BSC firms outperform non-BSC firms by 27.12% in the market value of equity sample, by 30.17% in the book-to-market sample, and by 27.58% in the net assets sample. Similarly, Jusoh et al. [31] found evidence that the use of multiple performance measures via overall BSC measures contributes to a more positive outcome. However, the balance of the evidence indicates that there is some connection between the use of the BSC approach and more positive financial outcomes and performance. However, further studies will be necessary to clarify the situation. 3.4 Limitations of the BSC Kaplan and Norton [36] promoted the BSC as a strategic management tool to compete with other PMS, and argued that: A properly constructed Scorecard should tell the story of the business unit’s strategy. The measurement system should make the relationships (hypotheses) among objectives (and measures) in the various perspectives explicit so that they can be managed and validated (p. 65). Kaplan and Norton argued that BSC construction and application needs a linkage between performance measures and organisational strategy. Furthermore, their arguments tell us that the application of a BSC approach is not easy. In this context, Paranjape et al. [56] argued that the implementation of a BSC model is operationally difficult. Chang [8] argued that it is difficult for an organisation to implement the BSC effectively, since its four perspectives may be

F. A. Sawalqa et al.: Balanced Scorecard Implementation in Jordan: An Initial Analysis different from the strategic model in terms of what senior management wants to achieve. In respect to the main assumptions of the BSC approach, Nørreklit [51] argued that if a cause-and-effect relationship requires a time lag between cause and effect, then this is problematic since the time dimension is not part of BSC. For example, it is difficult to identify when the financial effect of an action will occur. Therefore, the lack of a time lag in the BSC obscures both the difference and the relationship between operations and development. However, the findings of Nørreklit’s [51] study indicated that the BSC has problems with some of its key assumptions. First, there is not a causal but rather a logical relationship among the areas analysed. Customer satisfaction does not necessarily yield good financial results. Assessing the financial consequences of increased customer satisfaction requires a financial calculus. Chains of action which yield a high level of customer value at low costs lead to good financial results. Therefore, the BSC makes invalid assumptions, which may lead to the anticipation of performance indicators which are faulty, resulting in sub-optimal performance. Second, the BSC is not a valid strategic management tool, mainly because it does not ensure any organizational rooting, but also because it has problems ensuring environmental rooting. Consequently, a gap must be expected between the strategy expressed in the actions actually undertaken and the strategy planned. Therefore, presenting the BSC as ‘the’ strategic management tool has attracted increasing criticism [8,54]. In addition, Speckbacher et al. [63] found that many firms do not see the cause-and-effect assumption as a prerequisite for a BSC-based reward system. Ismail [28] surveyed Egyptian private sector companies to examine performance evaluation measures and to identify obstacles that may limit the adoption of the BSC. The survey respondents were asked to express their thoughts on reasons why BSC usage may be limited. An inadequacy of information systems was identified as the most significant obstacle. This is followed by: lack of information to adopt BSC, management’s attitude that non-financial measures have less importance in performance evaluation than financial measures, the high cost of acquiring and maintaining such systems of performance evaluation, ambiguities within the company’s strategies, and a lack of software packages supporting the BSC. In the same context, Thompson and Mathys [65] identified four problems occurred that negated the effective use of the BSC. Firstly, there was a lack of understanding of the importance of processes within organisation. Secondly, there was ignorance about the need for alignment between items within the BSC. Thirdly, organisations did not understand the need for appropriate metrics. Finally, there were misunderstandings about the relationship between the

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espoused organisational strategy and the BSC scorecard. The BSC has also been criticized for not being comprehensive enough to consider the other elements, internal and external, important to an organisation. These include elements vital to an organisation such as employees, competitors, suppliers, community, regulators, future, technology and environment [8,19,24,27,47,50,51]. Nørreklit [51] argued the BSC did not presuppose any continuous observations of competitors’ actions and results or the monitoring of technological developments, which makes it static rather than dynamic. This may affect the sustainable improvement of an organisation since it has not the ability to respond to any unexpected events. The BSC measures both cause and effect at the same time without considering any time lag. This means that the time dimension is not incorporated into the BSC. For example, it is difficult to identify when the financial effect of an action will occur. Therefore, the lack of a time dimension in the BSC obscures both the differences and the relationship between operations and development [51]. The BSC is a complex and costly measurement system. Therefore, one important issue in the BSC approach is a cognitive difficulty associated with using the set of common and unique measures of the BSC. It is important to understand how cognition affects use of the BSC in order to understand how managers’ cognitive capabilities may limit the BSC’s potential benefits. The better managers continually evaluate the different parts of an organisation within a short time frame, based on both common and unique features. The cognitive difficulty appears when people use common and unique measures differently [44]. In this context, Booth [6] argued that the BSC is a complex system and it is not easy to construct a mixed set of measures and produce an effective BSC. Thus, Booth [6] lists the common faults in building a BSC as follows: (1) a reliance on generic measures that could apply to any company, (2) a weak learning perspective with people factors being treated superficially and corporate learning being deficient, (3) an absence of leading measures, and (4) no view on how the various measures interact. It is necessary to conclude that the BSC is a potentially powerful management tool that may help organisations to improve their competitive position and reach organisational objectives but management needs to carefully plan and manage its implementation and use [7].

4. RESEARCH METHODOLOGY This section focuses mainly on the procedures used in selecting the study sample of Jordanian companies, developing the main questionnaire and identifying the BSC users.

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4.1 Sample Selection and Data Collection The sample frame for this study includes those industrial companies with 50 employees and above to ensure that the sample companies have formal performance measurement systems ([25,57,66]]). The proposed sampling frame consisted of 372 industrial companies. The questionnaires were aimed at financial managers or those in a similar position such as the head of the accounting department, assistant financial manager or management accountant. Each company was contacted by telephone before sending out the questionnaire to give them some idea of the study's objectives, to invite them to participate in the study and to check the accuracy of postal address details. Based on the results of the telephone calls, the questionnaires were then sent to respondents in the first half of 2010 who had agreed to participate with a covering letter and a prepaid self-addressed return envelope. Twenty-seven companies refused to participate in the study. The main reasons for not participating in the study were either management policy of non-participation or a lack of time. Another six companies were eliminated from the original sample because the phone number was disconnected. Thus, the questionnaire was sent out to 339 companies. The questionnaires were left with the respondent for about ten days to enable them to fill them out. Follow-up telephone calls were made. A total of 179 questionnaires were returned including 168 usable questionnaires resulting in a response rate of 49.6%. Details of the number of employees, sales turnover and sector classification of the respective companies are presented in Table 1. Table 1a: Profile of the responding firms Industry classification Textile, clothing and footwear Electrical appliances Plastic and rubber products Food products Typing, paper and packing Furniture and wooden products Oil and gas industry Chemical/pharmaceutical industry Mining and quarrying Tobacco and cigarettes Iron, steel and aluminium industry Building materials and construction Others include IT, automotive products… Total

Frequency

Percentage

12

7.1

7 18 27 11

4.2 10.7 16.1 6.5

13

7.7

1

0.6

24

14.3

4 3

2.4 1.8

20

11.9

16

9.5

12

7.1

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Table 1b: Profile of the responding firms Total number of employees 50-149 150-249 250-499 500-999 1000 or greater Total Annual sales (in Jordanian Dinar) Less than 1 million 1-less than10 millions 10-less than 20 millions 20-less than30 millions 30-less than 40 millions 40-less than 80 millions 80-less than160 millions 160-lessthan320 millions 320-less than 640 millions Above 640 millions Unspecified Total

Frequency 70 35 41 15 7 168

Percentage 41.7 20.8 24.4 8.9 4.2

23 51 23 24 10 18 9 4 1 2 3 168

13.7 30.3 13.7 14.3 6.0 10.7 5.3 2.4 0.6 1.2 1.8

The questionnaire was initially pre-tested using a pilot study with fifteen academics and financial managers of industrial companies in Jordan. The first two sections of the questionnaire included some demographic questions about the organization itself and the respondent. The third section of the questionnaire covered the extent of usage of a diverse set of financial and non-financial measures of performance by Jordanian industrial companies. This section of the questionnaire investigated the extent (i.e. frequency) of usage of a broad set of financial and non-financial measures across six perspectives (i.e. financial, internal business process, innovation and learning, customer, community and environment) including thirty measures drawn from the extant literature [16,18,21,22,27,29,31,41,43,47,62,68]. The choice of these measures was also dependent on some of the criteria of the King Abdullah II award for excellence in private sector [39]. Additionally, the choice of the final measures used in the instrument was revised as a result of the pilot study. The respondents of the pilot study were given the opportunity to omit and suggest these measures depending on their actual usage. Furthermore, to cover all the measures that an organisation uses, space was included for the part participants to list and rate other measures that they used but had not been included in the original questionnaire [27,68]. The fourth section included ten questions investigating the different aims for using performance measures. These questions were adapted from Franco-Santos [16], Malina and Selto [45] and Verbeeten and Boons [67]. Only the answers of actual users of the BSC were used to identify the main purposes for using the BSC approach.

F. A. Sawalqa et al.: Balanced Scorecard Implementation in Jordan: An Initial Analysis The last section had two questions used to identify the actual users of BSC approach and the type of perspectives included in the BSC. 4.2 Identifying the BSC Users The last section of the questionnaire was aimed at determining the extent of diffusion of the BSC approach among Jordanian industrial companies. This section had two questions. Based on the work of Ittner et al. [29] and Krumwiede [40], the first question was used to determine the actual companies that used the BSC approach by utilising a six-point scale to measure the implementation stages of BSC approach. Thus, the BSC users are those companies, which chose one of the following answer options: “used” or “used extensively” [29]. The number of perspectives in the BSC depends on the strategy and competitive market of each company [13]. Thus, companies might use more perspectives in their BSC [13,44,60]. Therefore, the second question was adapted from Speckbacher et al. [63] and Zuriekat [71] to determine the number of perspectives included in the BSC of each company. The users of the BSC approach were those companies who used two or more perspectives in their BSC. However, the questionnaire had six perspectives (i.e. financial, internal business process, innovation and learning, customer, community and environment) across thirty performance measures. The identified procedures above provide a new contribution to the methodology of published studies in the BSC literature since the methodology of BSC studies has been subjected to serious critique and identification of key weaknesses [63]. However, this study in using these revised procedures and methodology is able to identify BSC users, BSC implementation stages, BSC perspectives and the number of BSC perspectives used by the sample companies.

5. RESULTS AND DISCUSSION This section presents the results of the study in terms of diffusion and implementation stages of BSC, content and number of perspectives and purpose of usage. Based on the related literature, the section presents a detailed discussion for each finding. 5.1 Diffusion and Implementation Stages of the BSC Table 2 identifies that 59 Jordanian industrial companies used the BSC with a usage rate of 35.1% of the surveyed companies. The current study classified the users of BSC approach as those companies who chose “used” or “used extensively” [29]. The rationale for using only “used” and “used extensively” in the current research is because a

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previous study [48] claimed that 70% of the BSC implementations fail. A comparison with surveys in other developing and developed countries revealed different implementation rates between these countries. In the context of Jordan, Zuriekat and Al-Sharari [70] found that the usage of BSC is slightly popular (40.5%) in the banks and insurance companies in Jordan. Studies in India by Anand et al. [3] and Joshi [30] have reported an adoption rate of 45.3% and 40% respectively. In Malaysia, Othman [52] found that 44.7% of a sample of publicly listed companies started to adopt the BSC model from the year 2000 onwards. Another study conducted in Malaysia by Jusoh et al. [31] found that about 30% of Malaysian manufacturing companies had adopted the BSC as a PMS either wholly or partially. Based on a sampling of Egyptian private sector companies engaged in varied sectors of the economy, Ismail [28] found that 60.5% of them adopted a BSC approach. In respect to other countries, the adoption rate for the BSC was found to be 88% in Australia as reported by Chenhall and Langfield-Smith [9]. Kald and Nilsson [32] surveyed 236 Nordic multi-business companies and found that 27% of the surveyed companies used a BSC model and another 61% planned to adopt it within two years. Rigby [58] conducted a survey during the period 1993 to 1999 in 15 countries in North America, Europe, and South America and found that 43.9% of the respondent companies reported that they were using the BSC approach. Ittner et al. [29] found that 20% of the respondents of variety of USA financial service sectors used the BSC approach. Speckbacher et al. [63] surveyed 174 senior management executives from publicly traded firms in German-speaking countries (Austria, Switzerland, and Germany) and found that 26% of the surveyed firms used the BSC approach. Franco-Santos et al. [17] conducted a survey on different UK sectors and found that only 19% of the surveyed companies used the BSC. Another study conducted in UK [71] found an implementation rate of 30.1% among manufacturing companies. Thus, these results indicated that the extent of diffusion of BSC approach among Jordanian companies is not unexpected as it is located within a comparable range compared to other countries. Analysing the implementation stages of the BSC among Jordanian industrial companies also revealed that 33.3% of Jordanian industrial companies had not considered using the BSC approach in their PMS. One interesting finding indicates that 17.3% of the responding companies were implementing BSC approach and 12.5% considering it. Only 1.8% of the responding companies that had first implemented the BSC approach had then subsequently abandoned it. These results are a positive indicator about the trend

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for the future diffusion of BSC approach among Jordanian industrial companies. Table 2: Balance scorecard implementation stages Implementation stages Not considered Implemented and abandoned Considering Implementing now Used Used extensively Total

Frequency 56 3 21 29 47 12 168

Percent 33.3 1.8 12.5 17.3 28.0 7.1 100

The results of the study indicated that the use of the BSC is spread across both the medium and the large companies in Jordan. As shown in Table 3, 50.8% of the user companies are medium-sized (50-249 employees) companies and 49.2% are large-sized companies. Implementation of the BSC approach increased as the company size (employees' number) grew. Implementation rates were 24.3% for companies with less than 150 employees, 37.1% for companies with 150 to 249 employees, 43.9% for companies with 250 to 499 employees and 50% for companies with 500 employees and above. This finding is consistent with that of previous studies [21,63].

Table 3: Employees number of BSC users in comparison with total responses Employee number Frequency of BSC users Total responses Percent from total responses 50-149 employees 17 70 24.3 150-249 employees 13 35 37.1 250-499 employees 18 41 43.9 500-999 employees 8 15 53.3 1000 or grater 3 7 42.9 Total 59 168 Table 4 analyses the results of BSC diffusion across industries and shows the usage of the BSC is spread across all industrial companies in Jordan except for two small industries, namely, oil and gas

industry and tobacco and cigarettes industry. For example, 72.7% (8) of the typing, paper and packaging companies used the BSC as did 52% (14) of food companies.

Table 4: Industry classification of BSC users in comparison with total responses Frequency Percent from Industry type Total responses of BSC users total responses Textile, clothing and footwear 4 12 33.3 Electrical appliances 3 7 42.9 Plastic and rubber products 2 18 11.1 Food products 14 27 51.9 Typing, paper and packing 8 11 72.7 Furniture and wooden products 3 13 23.0 Oil and gas industry 0 1 0.0 Chemical/pharmaceutical industry 12 24 50.0 Mining and quarrying 2 4 50.0 Tobacco and cigarettes 0 3 0.0 Iron, steel and aluminium industry 6 20 30.0 Building materials and construction 4 16 25.0 Others such as IT, automotive products… 1 12 8.3 Total 59 168 5.2 Contents and Number of Perspectives in the BSC The number of perspectives in the BSC depends on the strategy and competitive market of each company [13]. Thus, companies might use more perspectives in their BSC [13,44,60]. The results of this study showed that the BSC companies did use different perspectives in their BSC although with more focus on the original four perspectives. In particular, Table 5 shows that all the BSC users used

the financial perspective. This result was expected since previous research [9,26,32] had found that the financial perspective is the most commonly used perspective in the BSC model. The results did show that the original four BSC perspectives as suggested by Kaplan and Norton (financial, internal business process, innovation and learning and customer) were the main components of the BSC model utilised by Jordanian industrial companies. In particular, the study findings indicated

F. A. Sawalqa et al.: Balanced Scorecard Implementation in Jordan: An Initial Analysis that 100% of the users used the financial perspective, 98.3% used the customer perspective, 95% used the innovation and learning perspective and 88.1% used the internal business process perspective. This result was partially consistent with Speckbacher et al. [63] and Zuriekat [71] who found that the BSC users focused highly on three perspectives including financial, customer and internal business process in UK and German speaking countries respectively. Table 5 shows that environment perspective was also used by 42.4% of the users. The community perspective was ranked at the bottom of the list as it was used only by 33.9% of the users. This diversity among the perspectives is normal because a company may employ only two perspectives or even more than the original four perspectives [29,63]. It should also be noted that Lipe and Salterio [44] suggested that each unit in the organization should build and use its own form of the BSC. Table 5: Type of perspectives included in the balanced scorecard Type of perspectives Frequency Percent Financial 59 100 Internal business process 52 88.1 Innovation and learning 56 95.0 Customer 58 98.3 Community 20 33.9 Environment 25 42.4 As indicated above, the number of perspectives used also differs from one company to another. Table 6 shows the number of perspectives used by the BSC users. The table shows that only one company used two perspectives, four companies used three perspectives, twenty seven companies used four

perspectives, eleven companies used five perspectives, and sixteen companies used six perspectives. An interesting finding is that 45.8% of the BSC users used four perspectives. This result was also consistent with the above reported result (see Table 5) which indicated that the majority of the BSC users utilised the original four BSC perspectives. Table 6: Number of perspectives included in the balanced scorecard Number of perspectives

Frequency

Percent

Two perspectives Three perspectives Four perspectives Five perspectives Six perspectives Total

1 4 27 11 16 59

1.7 6.8 45.8 18.6 27.1 100

5.3 Purpose(s) for Utilising the BSC The literature identifies a variety of purposes for BSC implementation (for example Malami [46]; Speckbacher et al. [63]). As illustrated in Table 7, most of the listed purposes in this study were ranked “to a great extent” or “to a very great extent” by approximately 70% of the respondent companies with a mean ranging from 3.92 to 4.53. The aims listed included: evaluate organisational performance (96.6%), comply with legal requirements (89.8%), evaluate managerial performance (88.1%), encourage improvement of business processes (88.1%), provide better understanding of the cause-effect relationship (86.4%), communicate strategy (86.2%), supervise managers' productivity (88.1%), reward employees (78%), manage operations processes (79.7%), and inform decision making (69.5%).

Table 7: Specific purposes served by BSC Usage frequency Purpose of usage % % % rating 1 rating2 rating3 Evaluate organisational performance 0.0 0.0 3.4% Comply with legal requirements 0.0 0.0 10.2% Evaluate managerial performance 0.0 0.0 11.9% Encourage improvement of business 0.0 0.0 11.9% processes Provide better understanding of the 0.0 1.7% 11.9% cause-effect relationship Communicate strategy 0.0 0.0 13.8% Supervise managers’ productivity 0.0 0.0 11.9% Reward employees 0.0 5.1% 16.9% Manage operations processes 1.7% 0.0 18.6% Inform decision making 0.0 3.4% 27.1% Although Jordanian companies placed more emphasis on the usage of the BSC to evaluate organisational and managerial performance, they also used it for other purposes. The findings indicated that

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% rating4 and 5

M

S.D

96.6% 89.8% 88.1%

4.53 4.44 4.34

0.57 0.73 0.69

88.1%

4.31

0.68

86.4%

4.24

0.73

86.2% 88.1% 78.0% 79.7% 69.5%

4.21 4.19 4.08 3.97 3.92

0.74 0.63 0.88 0.74 0.82

about 86.4% of Jordanian industrial companies used the BSC mainly to provide better understanding of the cause-effect relationship and 86.2% to communicate organisational strategy. These results indicated that

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Jordanian companies used the BSC approach as a strategic performance measurement system [46]. This result does match Kaplan and Norton's [33] original intention for the intrinsic and extrinsic value of the BSC model.

6. LIMITATIONS AND DIRECTIONS FOR FUTURE RESEARCH The main limitation of the study is that it utilised medium and large industrial companies in Jordan and therefore may not be valid for small companies or other sectors. Further research could investigate the state of the BSC among the small industrial companies and other sectors such as service and trading sectors. Future research, using the Speckbacher et al. [63] framework, would be useful projects to cover several additional issues surrounding the implementation of the BSC approach among Jordanian companies. Motivation for implementing the BSC approach and other accounting innovations using a qualitative approach are also fruitful opportunities for future research. In addition, one could investigate how BSC users react to the main assumptions that are built into the idea of cause-andeffect relationships and linking performance measures to overall strategy. Future research may also develop a model to assess the impact of using BSC on organisational performance. In addition, further studies need to identify the key performance indicators in the different perspectives of the BSC and not to take these perspectives in aggregate form in order to overcome some of the limitations of previous studies which take the performance measures in aggregate form [59]. Opportunities exist for future research to test the relationship between strategic alignment and organisational performance in companies using the BSC approach. Future studies could discuss the problems and perceived benefits associated with BSC implementation using a qualitative approach (e.g. case studies or face-to-face interviews). Finally, there are several variables at work that may affect the implementation and usage of the BSC approach. These include for example organizational culture, strategic priorities, environment uncertainty, advanced technology and organization size. Future research could consider and investigate the effect of these contingent factors on the extent of BSC implementation and usage.

7. SUMMARY AND CONCLUSION

The primary aim of this study was to present a rich analysis of the implementation of the BSC approach among Jordanian companies. In particular, the study investigated and analysed the extent of the diffusion of BSC, its varied implementation stages, contents, the number of perspectives utilised by the sample companies and the main purposes for using the BSC approach in performance measurement systems. The results discovered that 35.1% (59) of the study sample used the BSC approach. This outcome was in line with that of findings in other countries. The study also revealed that about 30% (50) were considering or currently implementing the approach. The result of the study indicated that 50.8% of the users companies where located among the medium-sized companies and 49.2% within the large-sized companies. Jordanian industrial companies appeared to use the different perspectives of BSC with greater emphasis on the four original perspectives as initially suggested by Kaplan and Norton. Interestingly, the results indicated that 91.5% of the BSC companies used more than three perspectives with 45.8% having used four perspectives. The use of the BSC approach was spread across different industry sectors and usage increased with the size of the company. The study revealed that Jordanian industrial companies used the BSC for a range of different purposes. These included the evaluation of organisational performance, compliance with legal requirements, evaluation of managerial performance and encouraging improvement of business processes. In addition other purposes surfaced as well including the provision of better understanding of the cause-effect relationship, communicating organisational strategy, supervising managers' productivity, rewarding employees, managing operations processes, and last but not least informing decision-making.

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ABOUT THE AUTHORS Fawzi Al Sawalqa is a PhD student in Accounting in the Murdoch Business School at Murdoch University. David Holloway is an Associate Professor in Accounting in the Murdoch Business School at Murdoch University, Perth. His research interests focus on internal and corporate governance, leadership and organizational decision-making from a critical theory perspective and from a collaborative decision-making approach. Manzurul Alam is a Professor of Accounting at the Murdoch Business School. Prior to joining Murdoch University, he was Deputy Head of the Accounting & Finance Department at Monash University. Manzurul’s current research interests focus on management accounting change, strategic performance measurement and governance, public sector management accounting, and accounting issues in developing countries. (Received May 2011, revised August2011, accepted September2011)

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初探約旦企業的實施平衡計分卡 Fawzi Al Sawalqa*、David Holloway、Manzurul Alam 莫道克大學商學院 西澳大利亞珀斯市莫道克南街 90 號

摘要 本篇論文分析平衡計分卡於約旦企業的實施情形。從經濟的觀點，約旦是中東地區發展 中國家的模範代表。本研究利用西方所發展的績效衡量方法，調查約旦當地的應用情況。 本研究採用質化調查的方式調查了 168 家公司，檢視平衡計分卡在中型及大型公司的實 施效用及推廣情形。其中，有 35.1%的公司使用過平衡計分卡，另外有近 30%的公司表 示，他們目前正在實施或考慮要實施平衡計分卡。本研究發現與平衡計分卡構面的類型 及數量呈現不一致的結果，已實施平衡計分卡的公司較著重於使用四大類型的構面不同 於平衡計分卡的原作者 Kaplan 與 Norton 所提出的。 關鍵詞：平衡計分卡、平衡計分卡方法、發展中國家、約旦 （*聯絡人：[email protected]）