by: caroline wachuka karim i · performance measures to rewards, the balanced scorecard ensures...
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BALANCED SCORECARD AS A STRATEGY IMPLEMENTATION TOOL AT
TOYOTA EAST AFRICA LIMITED
BY:
CAROLINE WACHUKA KARIM I
A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF
BUSINESS ADMINISTRATION, SCHOOL OF BUSINESS, UNIVERSITY OF
NAIROBI
NOVEMBER, 2011
D E C L A R A T IO N
STUDENT’S DECLARATION
I declare that this project is my original work and has never been submitted for a degree
in any other university or college for examination/academic purposes.
Signature:
Date:
CAROLINE W. KARIMI
D61/70293/2007
SUPERVISOR’S DECLARATION
This research project has been submitted for examination with my approval as the
University Supervisor.
Signature...,
\ ^ R . JEREMIAH KAGWE
.D ate...l.4 .|.|.|.|* J= ?.U ....................
LECTURER: UNIVERSITY OF NAIROBI
11
D E D IC A TIO N
I dedicate this work to my wonderful family. Most special thanks to my husband Lucas
for his unconditional support and love throughout this long process. Also to our daughter
Meagan and sons Austin and Ethan who are the joy of our lives.
I must also that my parents for their continual encouragement to reach for the stars and
inculcating the value of education, diligence, hard work and self believe over the years.
in
A C K N O W L E D G E M E N T S
I take this opportunity to give thanks to the Almighty God for seeing me through the
completion of this project.
The work of carrying out this investigation needed adequate preparation and therefore
called for collective responsibility of many personalities. The production of this research
document has been made possible by invaluable support of many people. While it is not
possible to name all of them, recognition has been given to a few. I am greatly indebted
to my supervisor Mr. Jeremiah Kagwe, for his professional guidance, advice and
unlimited patience in reading through my drafts and suggesting workable alternatives, my
profound appreciation to you.
The entire staff of Toyota East Africa Limited cannot pass without my special
acknowledgement for taking time off their busy schedule to provide me with all the
information I needed in the course of the research. Without their immense cooperation 1
would not have reached this far.
I would also wish to extend my sincere gratitude to all the MBA students, staff, lecturers
and the entire University of Nairobi fraternity for changing me from what I was to what l
am.
Thank you all. May the Almighty God bless you abundantly.
IV
ABSTRACTThe balanced scorecard is a performance measurement and strategic management tool
that translates an organization's mission and strategy into a balanced set of integrated
performance measures. The purposes of the balanced scorecard are to guide, control and
challenge an entire organization towards realizing a shared conception of the future. This
study sought to determine the use of balance score-card as a strategy implementation tool
and determine the challenges of implementing the balanced scorecard at Toyota East
Africa Limited.
The study used a case study since the unit of analysis was one organization. Primary data
was collected using an interview guide while secondary data was collected through desk
research. Content analysis and descriptive analysis were employed in data analysis. The
content analysis was used to analyze the interviewees’ views about the effectiveness of a
balance score card as strategy implementation tool.
The study further revealed that the stages of BSC implementation process at Toyota East
Africa Limited include organizational BSC, divisional BSC, departmental BSC and then
the individual BSC. The study also deduced that for successful implementation of the
balanced scorecard, everyone must be involved and must understand the meaning and
objectives, all the quadrants in BSC should be balanced, there should be well defined
KPIs that arc aligned to each other and staff training.
The study recommends that for successful implementation of the balanced scorecard,
everyone must be involved and must understand the meaning and objectives, all the
stages must be aligned towards achieving the organizational objectives, all the quadrants
in BSC should be balanced, there should be clear understanding of the business,
objectives should be built around company strategy, there should be well defined KPIs
that are aligned to each other and staff training.
v
TABLE OF CONTENTS
DECLARATION............................................................................................................... ii
DEDICATION.................................................................................................................. iii
ACKNOWLEDGEMENTS............................................................................................. iv
ABSTRACT........................................................................................................................ v
CHAPTER ONE: INTRODUCTION.............................................................................. 1
1.1 Background of the Study........................................................................................... 1
1.1.1 The Concept of Strategy Implementation......................................................2
1.1.2 The Concept of Balance Score Card...................................................................3
1.1.3 Balanced Scorecard as a Strategy Implementation Tool....................................3
1.1.4 The Automobile Industry in Kenya....................................................................4
1.1.5 Toyota East Africa Limited...........................................................................5
1.2 Research Problem...................................................................................................... 6
1.3 Objectives of the Study.............................................................................................. 8
1.4 Value of the Study..................................................................................................... 8
CHAPTER TWO: LITERATURE REVIEW.................................................................9
2.1 Introduction................................................................................................................ 9
2.2 Strategy Implementation.......................................................................................9
2.3 Concept of Balance Score Card.......................................................................... 10
2.4 The Balanced Scorecard Approach to Strategy....................................................... 11
2.5 The Balanced Scorecard and Strategy Implementation..................................... 12
CHAPTER THREE: RESEARCH METHODOLOGY.............................................. 15
3.1 Introduction.............................................................................................................15
vi
3.2 Research Design...................................................................................................... 15
3.3 Data Collection........................................................................................................ 15
3.4 Data Analysis........................................................................................................... 16
CHAPTER FOUR: DATA ANALYSIS RESULTS AND DISCUSSION..................17
4.1 Introduction.............................................................................................................. 17
4.2 Background Information.......................................................................................... 17
4.3 Balanced Scorecard (BSC) Implementation Process............................................... 18
4.4 Challenges of Implementing the Balanced Scorecard............................................. 19
4.5 Discussion................................................................................................................ 20
5.1 Introduction..............................................................................................................24
5.2 Summary of Findings..............................................................................................24
5.2.1 Implementation Process....................................................................................24
5.2.2 Challenges of Implementation..........................................................................25
5.3 Conclusion...............................................................................................................26
5.4 Recommendations Policy and Practice....................................................................27
5.5 Limitations of the Study..........................................................................................28
5.6 Recommendations for Further Research.................................................................29
REFERENCES................................................................................................................30
Appendix I: Interview guide.......................................................................................... 35
vii
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
There are various tools and techniques that have been developed to assist executives in
the implementation of strategy. Of all these tools, it is notable that the balanced scorecard
is gaining more acceptances because of its ability to track both financial and non financial
measures. The balanced scorecard is a complementary strategic model that considers
financial and non-financial measures. Johnsen (2001) defines the balanced scorecard as a
management model that translates the organizational mission and strategy into a
collection of performance measures (Kaplan and Norton, 2001a). The balanced scorecard
is also an integrated management system consisting of three components: strategic
management system, communication tool, and measurement system (Niven, 2003). The
balanced scorecard is applicable to any organization, including public and non-for-profit
organizations (Kaplan 2001; Niven 2003). However, each accounting and management
model should be adapted in the context that they operate. A uniform approach of the
balanced scorecard in business may lead to dysfunctional consequences (Johnsen 2001b).
Toyota East Africa Limited has been operating in a turbulent business environment since
it was established in 1999 whilst registering impeccable performance. The company has
been the leading motor vehicle distributor in Kenya for the last seven years enabled by its
it’s strong hands-on leadership from the CEO and the management team which has been
neatly networked with the Kaizen champions' team. A participatory team approach in
developing the: vision, mission and values for TEAL are evident and have helped in
entrenching staff commitment to the firm’s goals. The company uses the balanced score
card to align the functional strategies with the overall corporate strategy and its of interest
to determine how this has contributed to its current position and how it can be enhanced.
In sum, the implementation of the balanced scorecard methodology in the banking sector
implies that it is necessary to adjust the language, framework and approach to the
performance management and to the social mission that characterizes these organizations
(Niven 2003). Scholars theorize a change in the order of the perspectives in the balanced
scorecard where the financial perspective is replaced by the customer perspective and1
other non-financial measures. Each organization should adapt the balanced scorecard to
its own mission, strategic goals, values and culture, to assure a successful implementation
(Joyce, 2000).
1.1.1 The Concept of Strategy Implementation
Strategy implementation involves organization of the firm's resources and motivation of
the staff to achieve objectives. The environmental conditions facing many firms have
changed rapidly. Today's global competitive environment is complex, dynamic, and
largely unpredictable. To deal with this unprecedented level of change, a lot of thinking
has gone into strategy formulation. Strategic management is about managing the future,
and effective strategy formulation is crucial, as it directs the attention and actions of an
organization. The assessment of strategy formulation processes becomes crucial for
practitioners and researchers alike in order to conduct and evaluate different formulation
processes (Otley, 1999).
Historically, numerous researchers in strategic management bestowed great significance
to the strategic formulation process and considered strategy implementation as a mere by
product or invariable consequence of planning (Wright, Mcmahan and McWilliams,
1994). Fortunately, insights in this area have been made recently which tamper our
knowledge of developing strategy with the reality of executing that which is crafted
(Smith, 2005). However, as strategy implementation is both a multifaceted and complex
organizational process, it is only by taking a broad view that a wide span of potentially
valuable insights is generated.
The fatal problem with strategy implementation is the de facto success rate of intended
strategies. In research studies it is as low at 10% (Johnsen, 2001). Despite this abysmal
record, strategy implementation does not seem to be a popular topic at all. In fact, some
managers mistake implementation as a strategic afterthought and a pure top-down-
approach. Research emphasizing strategy implementation is classified by Brunsson and
Olson (1998) as part of a first wave of studies proposing structural views as important
facilitators for strategy implementation success. Beyond the preoccupation of many
2
authors with firm structure, a second wave of investigations advocated interpersonal
processes and issues as crucial to any marketing strategy implementation effort (Noble,
1999). Conflicting empirical results founded upon contrasting theoretical premises
indicate that strategy implementation is a complex phenomenon. In response,
generalizations have been advanced in the form of encouraging: early involvement in the
strategy process by firm members (Hansson. 1998); fluid processes for adaptation and
adjustment (Camp. 1994); and, leadership style and structure (Atkinson and Brandcr,
2001).
1.1.2 The Concept of Balance Score Card
The balanced scorecard is a performance measurement and strategic management tool. It
translates an organization’s mission and strategy into a balanced set of integrated
performance measures. It complements the traditional financial perspective with other
non-financial perspectives such as customer satisfaction, internal business process as well
as learning and growth. It also mixes outcome measures, the lagging indicator, with
performance drivers, the leading indicator; because outcome measures without
performance drivers do not communicate how the outcomes are to be achieved (Kaplan
and Norton, 1996). By selecting appropriate performance drivers and outcome measures
to fit in the theory of business in a chain of cause and effect relationship, the organization
will have a better idea of how to achieve its potential competitive advantage.
The balanced set of performance measures also tells a concise yet complete story about
the achievement and performance of the organization toward its mission and goals. It
provides a holistic view of what is happening in the organization. By tying these
performance measures to rewards, the balanced scorecard ensures that employees will do
what is best for the organization.
1.1.3 Balanced Scorecard as a Strategy Implementation Tool
Implementing the balanced scorecard (BSC) as the strategic management tool of choice is
a trend that is well on its way in many organizations worldwide. Initially introduced in
3
the early 1990s as a tool to help companies translate their corporate mission to all levels
organization, the BSC is widely acknowledged to have moved beyond this ideology. It is
now become as a strategic change management and performance measurement process.
According to Hussein (2009) more than 50 percent of the large companies are using some
form of balanced scorecard. This is reflective of the power and simplicity of the BSC to
provide direction for all levels and areas of the organization. The balanced scorecard,
developed by Kaplan and Norton (1996), is a management system that gives business
people a comprehensive understanding of business operations. But still after more than
15 years it is surprising that there arc still many business people unconvinced about the
utility and effectiveness of the balanced scorecard. And even more surprising about the
number of organizations giving up on it through their own misapplication or misuse of
the tool.
At its roots, the BSC is designed to give companies the information they need to
effectively manage their business strategy tactically. The scorecard is similar to a
dashboard in a car. As you drive you can glance at the dashboard to obtain real-time
information such as how much fuel remains, the speed you are traveling, the distance you
have traveled, etc. The BSC provides similar information to all levels of the organization
through performance measures connected to specific business areas in the same manner.
The scorecard communicates to managers in clearly defined terms how well the business
is meeting its strategies and goals (Kaplan and Norton, 1996).
The current business climate requires managers having a balance between financial and
non-financial measure to develop effective solutions in arriving at proper decisions.
1.1.4 The Automobile Industry in Kenya
The Automobile industry in Kenya is primarily involved in the retail and distribution of
motor vehicles. There are a number of motor vehicle dealers operating in the country',
with the most established being Toyota (East Africa), Cooper Motor Corporation,
General Motors East Africa Ltd, Simba Colt and DT Dobie. There are also three vehicle
4
assembly plants in the country, which concentrate on the assembly of pick-ups and heavy
commercial vehicles (Pricewaterhouse Coopers, 2008). The industry is faced with
constant changes in the environment. The motor vehicle dealers operating in Kenya have
continuously been coming up with strategies including use of Balanced score card to
ensure successful strategy implementation.
1.1.5 Toyota East Africa Limited
Toyota East Africa Limited is the sole distributor of Toyota and Yamaha products in the
East African region. Toyota East Africa Limited was established in 1999 as a sole
distributor of Toyota vehicles in Kenya and Uganda, with 100% share owned by Toyota
Tsusho Corporation which is the trading arm -o f Toyota Motor Corporation. The
company’s vision is to be the number one respected Company through value delivery to
all our stakeholders with values that include customer for life, challenge with passion and
self managed people. It’s Head Office is in Nairobi has branches in Mombasa and
Lokichogio. It also has a regional dealer representation in Nyeri, Nanyuki, Kisumu,
Nakuru and Kcricho which increases the company’s footprint in retailing the Toyota and
Yamaha brands as well as offering after sales support.
Toyota's business philosophy of Kaizen is to realize a stable, long term growth by
working hard to strike a balance between the requirements of people and society. As the
competitive edge boundaries between global car brands blur - and as consumers become
more brand-savvy and demanding - Toyota has adopted a smarter and more aggressive
marketing approach for each of its market segments.
According to statistics released by the Kenya Motor Industry the company has been
registering strong growth year on year and especially in the last seven years. On the
maiden participation in the company of the year (COYA) awards in 2010 the company
managed to attain the OPI Bronze Standard at 5.995. The organization has generally
performed very well falling below the silver mark by paltry 0.005. In addition it also
emerged the best company in business results in COYA 2010.
5
The balanced scorecard is an application specifically designed to provide the company
executives with a comprehensive framework to define and measure the strategic
objectives of the organization. It is a third generation management tool, designed to both
measure the performance of strategic initiatives as well as drive strategies. The balanced
scorecard allows the company to better analyze its data within weeks allowing the
company personal to focus on core business improvement. BSC has become part of
quarterly reviews and also used for long term planning, but still some middle and lower
level management have not embraced the process entirely and thus it is still evident that
the effectiveness of the balanced scorecard needs to be investigated. The balanced
scorecard has been in use for over five years now with gradual acceptance as it is
cascaded down to the functional areas as well as the employees to align strategy.
1.2 Research Problem
While strategies which have been effectively implemented bring their organizations
success, unsuccessful ones can be a recipe for failure (Waal, 2003). The Balanced
Scorecard has emerged as an extremely effective tool for implementing strategy. The
balanced scorecard performance management tool, although deficient in empirical testing
of its benefits, is arguably the dominant framework in performance management (Smith,
2005). It has been offered by its' inventors as the cornerstone of a new strategic
management system (Kaplan and Norton, 1996b), positively linking an organization's
long-term strategic intentions with its short-term, operational actions.
The purposes of the balanced scorecard are to guide, control and challenge an entire
organisation towards realizing a shared conception of the future (Waal, 2003).
Organizations are recognizing that a different approach to strategic management and
organizational development, one that could respond to these challenges, was needed
(Kaplan and Norton, 2001). On the strategic level the balanced scorecard translates an
organization's mission and strategy into a comprehensive set of performance measures
that provides the framework for a strategic measurement and management system. A
successful Scorecard programme demands a high level of commitment and time. The
BSC is designed to give companies the information they need to effectively manage their
6
business strategy tactically. According to Gumbus and Lyron (2002) being able to satisfy
customer needs is fundamental to practically all organisations. Each business unit in the
organization develops its own balanced scorecard measures to reflect its goals and
strategy. While some of these measures are likely to be common across all subsidiaries or
units, other measures will be unique to each business unit (Kaplan and Norton, 2001).
Toyota East Africa has not been efficient in the implementation of balance scorecard as a
strategic management tool. This can be attributed to a lack of understanding of how the
strategy should be implemented; customers and staff not fully appreciating the strategy;
unclear individual responsibilities in the change process, a top-down/laissez-faire senior
management style; unclear strategic intentions and conflicting priorities; an ineffective
senior management team; poor vertical communication; weak co-ordination across
functions, businesses or borders and inadequate down-the-line leadership skills
development.
Locally, Kamau (2006) did a study on the application of the balanced scorecard in
implementation of strategy at KRA. Renato (2007) conducted a study on the application
of the balanced scorecard in strategy application at Barclays Bank, Njiru (2007)
conducted a study on the use of balance scorecard in strategy implementation by quoted
companies in the NSE, Kiplangat (2007) carried out a study on the implementation of the
Balance Scorecard at UNDP-Somalia, while Kiragu (2005) surveyed on the adoption of
the balanced score card by selected companies in Kenya while Hussein (2009) did a study
on the application of the balanced scorecard in strategy formulation and implementation
at Telkom Kenya Limited. None of these studies has focused on the effectiveness of
balance score card as a strategic management tool with a special focus on Toyota East
Africa Limited. This is despite the fact that BSC is very important and embedded in
TEAL's budgeting/planning, reviews, projects and start ups among other strategic
practices. This research focusing on implementation of balance score card and its
effectiveness as a strategic management tool is a modest attempt to bridge the existing
gap. It is an effort to bring to light the influence and insights into effectiveness of balance
score card as a strategic management tool where Toyota East Africa Limited will be the
context of focus.
7
1.3 Objectives of the Study
The objectives of the study were to:
j Determine the use of balance score-card as a strategy implementation tool at
Toyota East Africa Limited.
jj Determine the challenges of implementing the balanced scorecard at Toyota East
Africa Limited
1.4 Value of the Study
This study would be important to the policy makers in the automobile industry as they
would be able to know for certain the role of balanced scorecard as a strategy
implementation tool and how it can be employed by an organization to gain and retain
competitive advantage. The results will contribute to a better understanding on the role of
balanced scorecard as a strategy implementation tool.
Further, the study would be important to the motor industry managers as it would help
them understand the role of balanced scorecard as a strategy implementation tool and
organizations can use it to ensure successful strategy implementation. The study would
also help other managers know and apply this method to ensure successful strategy
implementation.
The results of this study will also be invaluable to researchers and scholars, as it will
form a basis for further research. The students and academics will use this study as a
basis for discussions on the role of balanced scorecard as a strategy implementation tool
in Kenya. The results of this study would also be invaluable to researchers and scholars,
as it would form a basis for further research. The students and academics would use this
study as a basis for discussions on the role of balanced scorecard in strategy
implementation. The study w'ould be a source of reference material for future researchers
on other related topics; it would also help other academicians who undertake the same
topic in their studies.
8
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
This section reviews studies that have been done by other authors on effectiveness of a
balance score card as strategic management tool in organizations. The main sections
includes; concept of balance score card, process of a balance score card, purpose of
balanced score card, the balanced scorecard approach to strategy and balanced scorecard
and strategy implementation.
2.2 Strategy Implementation
Strategy implementation has attracted much less attention in strategic and organizational
research than strategy formulation or strategic planning. Beer and Eisenstat (2000)
suggest several reasons for this: strategy implementation is less glamorous than strategy
formulation, people overlook it because of a belief that anyone can do it, people are not
exactly sure what it includes and where it begins and ends (Elefalk, 2001). Implementing
strategies successfully is about matching the planned and the realizing strategies, which
together aim at reaching the organizational vision. With firms evolving in terms of
structure it follows that the style of strategy implementation will differ depending on the
style of organization and management that exists in the firm. In general terms the types of
leadership style can play a critical role in overcoming barriers to implementation
(William, 2004).
Review of literature on strategy implementation shows that there is evidence of some
recurring themes, including coordination which is essential to ensure that people across
the organization know what to do and to ensure that they stay focused on the key targets
under the everyday pressures. Research emphasizing strategy implementation is classified
by Njiru (2007) as part of a first wave of studies proposing structural views as important
facilitators for strategy implementation success (Niven, 2003). Beyond the preoccupation
of many authors with firm structure, a second wave of investigations advocated
interpersonal processes and issues as crucial to any strategy implementation effort
(Noble. 1999).9
The concept of the balanced scorecard (BSC) was first presented in the early 1990s. In
only ten years, the idea of the balanced scorecard has certainly made its mark (Gadenne,
?000). It is a system of linked objectives, measures, targets and initiatives that
collectively describe the strategy of an organisation and how that strategy can be
achieved. As well as a framework, it is a process that a company uses to foster consensus,
alignment and commitment to the strategy by the management team and the people
within the organisation at large. It is a tool designed to enable the implementation of an
organization's strategy by translating it into concrete and operational terms which can be
measured, communicated and drive decision making and action. The balanced scorecard
emphasizes that financial and nonfinancial measures are all part of a system that gives
information to every part of the organisation (Brewer and Speh, 2000).
2 } Concept of Balance Score Card
They arc part of a top down driven process, driven by the mission and strategy of the
Business Unit. The measures are a balance between external measures for customers and
shareholders and internal measures of business processes, innovation and learning and
growth. A balance must also be struck between measures of past performance and
measures that drive future performance. It is possible to use the balanced scorecard as a
strategic management system to manage strategy over the long run (Tenant and Tanoren,
2005). Kahihu (2005) adds that the measures selected for the scorecard present a tool for
leaders to use in communicating to employees and the external stakeholders the outcomes
and external drivers by which the organization will achieve its mission and strategic
objectives.
Financial measures are lag indicators; they report on outcomes, the consequences of past
actions. Exclusive reliance on financial indicators promoted short-term behaviour that
sacrificed long-term value creation for short-term performance. The balanced scorecard
approach retained measures of financial performance, the lagging indicators, but
supplemented them with measures on the drivers, the lead indicators, of future financial
performance (Andersen et al. 2001).
10
2.4 The Balanced Scorecard Approach to Strategy
Of all the frameworks for performance measurement and strategic implementation, it is
the balanced scorecard (BSC) approach that has gained wide acceptance, particularly in
the United States. A survey of its members by the American Institute of Public
Accountants and Maisel (2001), for example, revealed that 43 per cent were utilizing the
technique. This is due perhaps not only to its intrinsic value to businesses, but also
because the concept has been aggressively marketed.
BSC presents a tool for translating an organization's mission (embodied in its strategy)
into more tangible measurable goals, actions and performance measures. The technique is
documented in four papers (Kaplan and Norton, 1992, 1993, 1996a. b) and in greater
detail in two books by the same authors (Kaplan and Norton, 1996a, b, c, 2001). The later
works shifted the emphasis from a system of performance measurement towards a system
for managing and implementing strategy. Many other authors, such as Hoffecker and
Goldenberg (1994), have helped to disseminate the technique's features. Additionally, a
number of case studies documenting early successful adoption (Jensen and Gerr, 1994/5)
helped to spread the BSC approach's appeal.
BSC w'as derived following the realization that no single performance indicator could
fully capture the complexity of an organization's performance (Epstein and Manzoni,
1998). In modem business, increasingly dominated by services, where assets are often
intangible and organisations are mindful of the demands of a range of stakeholder groups,
the measurement of competitive performance becomes more complex. A body of
literature, whilst not questioning the importance of financial measures, nevertheless
argued that such measures alone were inadequate in evaluating a company’s competitive
position (Eccles, 1991; Kaplan and Norton. 1992). This is particularly true of the service
sector, with its focus on human resources, intangible assets, and difficulties with regard to
delivery of consistent product standards (Sherman, 1984).
The BSC approach, which can be applied at different levels (total organisation, strategic
business unit, individual operational units or even to individuals), involves identifying11
key components of operations, setting goals for them, and finding ways to measure
progress towards their achievement. Traditional financial measures, viewed as lagging
indicators of performance, are balanced with non-financial measures, which arc lead
indicators and serve to drive future performance. The measures are not to be viewed
nierely as a collection of various metrics (Kaplan and Norton, 2001), but instead they are
selected to show cause and effect in the implementation of the company's mission and
organizational strategy. An important preliminary step prior to choosing the scorecard
goals and measures is to map the strategy in detail, a process that Kaplan and Norton
(2001) describe in some detail. Further, Gekonge (2004) views the BSC as a performance
measurement tool which can help management in strategy formulation and
implementation.
A typical scorecard would include at least four components, for each of which the
organisation has to identify a number of goals and measures for gauging the degree of
goal attainment.
2.5 The Balanced Scorecard and Strategy Implementation
On the strategic level, the Balanced Scorecard translates an organization's mission and
strategy into a comprehensive set of performance measures that provides the framework
for a strategic measurement and management system. A successful Scorecard program
demands a high level of commitment and time. External consultants or knowledgeable
internal practitioners can play a critical role in launching a successful program (Kaplan
and Norton 1996). Lynch and Cross (1995) identify three criteria that must be met by
performance management systems if they are to effectively mediate between an
organization’s strategy and its day-to-day activities. These necessary conditions
comprise: that the system must explicitly link operational targets to strategic goals; it
must integrate financial and non-financial performance information; and the system
should focus business activities on meeting customer requirements. It is asserted that the
balanced scorecard model fundamentally meets all of these criteria by providing a truly
strategic control system (Mooraj et al., 1999) that puts strategy and vision at the centre
(Kaplan and Norton, 1992).
12
Successful strategy implementation, it is suggested, requires sound mechanisms for
directing activity and behaviour Goold (1991), especially including effective
communication systems as well as appropriate strategic and management controls. The
importance of enabling sound two-way communications within organisations is seen as
fundamental to the effective implementation of strategy (Alexander, 1985), with a
particular emphasis on facilitating useful feedback and bottom-up messages (Otley,
1999). The process of creating an organizational balanced scorecard essentially
commences with a full strategic appraisal and the clear articulation of the organization's
strategic vision and objectives (Kaplan and Norton. 1992; Mooraj et ah, 1999; Atkinson
and Brander Brown, 2001). This process can in itself build consensus and engender
learning which can be of enormous value (Neely et ah, 2000). Through this process of
definition and communication of core values throughout an organisation, moreover, the
Balanced Scorecard provides an effective boundary control system (Mooraj et ah, 1999).
Then, as the balanced scorecard approach makes explicit the cause and effect of a
strategy, it also usefully converts strategic aims into tangible objectives and measures
(Brander Brown and McDonnell, 1995; Kaplan and Norton, 1996b). This stage,
moreover, if the scorecard is implemented participative with measures identified and
targets set cooperatively rather than imposed (Decoene and Bruggeman, 2006), actively
supports organizational learning and reflection, which encourages interactive control
through the testing of cause and effect relationships (Mooraj et ah, 1999). This also
enables front line managers to have a basis for selecting among the diverse opportunities
they might face (Bartlett and Goshal, 1996, p. 39) and resisting the distraction of other
activities (Alexander, 1985).
In addition to substantially meeting Lynch and Cross' (1995) necessary conditions, the
balanced scorecard appears to offer a range of additional attributes that may also support
successful strategy implementation. It has been shown that the keys to enabling such
communications are an organization's middle managers who have been shown to play a
pivotal role (Aaltonen and Ikavalko, 2002) and are viewed as strategic actors (Bartlett
and Goshal, 1996) playing an important role in strategic transformation. The scorecard
approach encourages the establishment of co-ordinate scorecards at every level of an13
organisation which, when implemented properly, engage middle managers. Such a
process not only necessitates considerable active communication involving everyone
within an organisation (Alexander, 1985; Aaltonen and Ik&valko, 2002), it also permits
the useful integration of such scorecards with management and employee incentive
programmes (Huckstein and Duboff, 1999), potentially involving the development of
individual/personal scorecards which can be positively utilised to align personal and
organisation goals and encourage ownership (Kaplan and Norton, 1996b; Mooraj et al.,
1999). Noble (1999) states that, the degree of involvement across the organisation
appears to be a predictor of implementation success. The scorecard facilitates this
involvement throughout the strategy implementation process.
It is further suggested that the balanced scorecard approach should be viewed as a
template not a strait-jacket (Kaplan and Norton, 1996a). Such a standpoint potentially
offers organisations a considerable degree of flexibility to address their unique
circumstances while still pulling management and employees in the core strategic
direction (Kaplan and Norton, 1992; Alin, 2001). In fact it is argued by some that strict
adherence to the scorecards four perspectives cannot be appropriate (Kenny, 2003). This
adaptive capacity also assists the balanced scorecard to address Goold and Quinn's (1990)
previously noted concerns regarding matching appropriate control mechanisms to
different levels of environmental turbulence and an organization’s ability to identify and
monitor its strategic objectives. In this regard. Van Veen-Dirks and Wijn (2002) further
propose that, additional flexibility (w'hich is needed in rapidly changing market
environments) can be provided by augmenting the balanced scorecard approach with
critical success factors (CSFs). The explicit incorporation of such factors not only keeps
attention focused on an organization's critical strategic objectives (Kaplan and Norton,
1996a), it also avoids the potential danger of management information overload (Geller,
1985a, b, c).
Although there are some criticisms and question marks concerning the balanced
scorecard approach, many of these seem to represent problems of practical application
rather than fundamental flaws.
14
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction
This section covers the following subsections; research design, data collection and data
analysis.
3.2 Research Design
This was a case study since the unit of analysis is one organization. This was a case study
aimed at getting detailed information on balance score card use as a strategy
implementation tool. Kothari, (2004) noted that a case study involves a careful and
complete obsenation of social units.
3.3 Data Collection
The researcher used both primary and secondary data. Primary data was collected using
an interview guide while secondary data was collected by use of desk search techniques
from published reports and other company’s documents.
The interview guide had open-ended questions. The open-ended questions enabled the
researcher to collect qualitative data. The interview guide designed in this study
comprised of two sections. The first part includes the demographic and operational
characteristics designed to determine fundamental issues including the demographic
characteristics of the interv iewees. The second part was devoted to the use of balance
score card as a strategic management tool where the main issues of the study were put
into focus. The interviewees of this study were the senior management staff, who
includes top. middle and lower level managers across all departments working at Toyota
East Africa Limited. This is because the managers are the most conversant with the use of
balance scorecard as a strategic management tool at the company.
15
3.4 Data Analysis
Before processing the responses, the completed interview guides were edited for
completeness and consistency. Content analysis and descriptive analysis were employed.
The content analysis was used to analyze the interviewees views about the effectiveness
of a balance score card as strategy implementation tool. The data was then presented in a
continuous prose as a qualitative report on the Balance Scorecard as a strategic
management implementation at Toyota East Africa Limited.
16
CHAPTER FOUR: DATA ANALYSIS RESULTS AND DISCUSSION
4.1 Introduction
This chapter presents the data findings of the study. The data was gathered through an
interview guide and analyzed using content analysis. All the heads of department to be
interviewed were interviewed which makes a response rate of 100%. The commendable
response rate was achieved at after the researcher made frantic effort at booking
appointment with the heads of departments at Toyota East Africa Limited despite their
tight schedules and making phone calls to remind them of the interview.
4.2 Background Information
The study, in an effort to establish the interviewees' competence and conversance with
matters regarding Toyota East Africa Limited asked questions on the department they
worked in and found that the interviewees were from sales and marketing, Yamaha sales,
and parts departments and that they were all senior managers of their departments. The
study also sought to establish the interviewees total work experience. According to the
interviewees’ response, all of them had worked for at least thirteen years as most
promotions are based on the years of experience. The interviewees’ responses hence had
the advantage of good command and responsibility being that they headed departments,
had experience and aptitude owing to their years of experience. The interviewees
reported that their departments had an average of fifteen employees.
The interviewees agreed unanimously that their company uses the balanced scorecard as
a strategic management tool. They further added that all employees are involved in the17
implementation of the BSC at the company (Toyota East Africa Limited). The
interviewees were in accord that the company used a balance score card in strategy
implementation for about 8 years now.
4.3 Balanced Scorecard (BSC) Implementation Process
To the question on the approach used to implement the BSC by Toyota Fast Africa
Limited, the interviewee intimated that the company used BSC in Performance
Management Systems. They said that everything revolves around BSC from performance
objective setting for all employees, performance appraisal, and management reporting
e.t.c. They added that Toyota East Africa Limited uses four pillars to measure
performance, captured on monthly basis but reviews done half yearly and end year. The
interviewees further stated that at Toyota East Africa Limited, the long term strategy (for
example 2015 game plan) is broken down into midterm strategy (3years) then annual and
monthly budget. This is cascaded to each department, then to each team before getting to
the individual. This include aligning and cascading down the finance pillar (profits, turn
over, balance and absorption rate); customer (queries resolution, customer retention,
customer service index), processes (Kaizen ideas, SOPs, internal audit) and also the
people (training, career development plan).
The interviewees further said that the stages of BSC implementation process at Toyota
East Africa Limited include organizational BSC, divisional BSC, departmental BSC and
then the individual BSC, performance measures, evaluations and feedback. The study
proceeded to determine the requirements for successful implementation of the balanced
18
scorecard. The interviewees intimated that for successful implementation of the balanced
scorecard, everyone must be involved and must understand the meaning and objectives,
all the stages must be aligned towards achieving the organizational objectives, all the
quadrants in BSC should be balanced, there should be clear understanding of the
business, objectives should be built around company strategy, there should be well
defined KPIs that are aligned to each other and staff training.
According to the interviewees, the advantages of implementing the BSC are such as it
aligns individual actions to achieving the organizational objectives, addresses all the
critical aspects of running the organization, it measures performance objectively, helps
identify areas that require more attention, at glance (in one page) one is able to get the
full picture of say the business or individual employee’s performance, budgets are
defined where the company is heading to, strategy alignment, improved productivity, all
aspects of business are focused, allow interventions where there are gaps, ownership by
staff, used for reward and recognition, allow opportunity for dialogue and feedback and
easy to measure achievement.
The interview'ees said that the key factors that enable successful implementation of the
scorecard at Toyota East Africa Limited include involvement of all stakeholders, buy in
from top management and training of staff on BSC.
4.4 Challenges of Implementing the Balanced Scorecard
The interviewees were asked to state the main challenges that they face in the
implementation of the balanced scorecard at Toyota East Africa Limited. According to
19
the responses given, the main challenges in the implementation of the balanced scorecard
at Toyota East Africa Limited include understanding of the BSC by all employees,
subjectivity in evaluation of performance, lack of buy-in (resistance), poorly defined
objectives/unclear objectives, inefficient data collection, time consuming, defining
measurable KPIs, lack of a clear consequence action plan on the results, manual process
and personal biases.
The interviewees also reiterated that the strategies that the management uses in order to
overcome the BSC implementation challenges in the company include training of all staff
members, use of simple terminologies, use of figures as opposed to prose targets,
monthly performance reviews, a lot of resources have been put in staff training,
involvement, individual ownership, monthly update and automation
The study also proceeded to determine the possible solutions to the major implementation
challenges facing the company on which the interviewees said that they include the use of
Kiswahili in the PMS for staff who do not understand English, training and involvement
of all stake holder was key to successful implementation, setting of objective and goals,
clear and well defined measurement tools, fair reward and recognition on
implementation, demystifying the BSC concept, process documentation, following the
standard operating procedures and automation.
4.5 Discussion
Toyota East Africa used BSC in Performance Management Systems. Everything revolves
around BSC from performance objective setting for all employees, performance
20
appraisal, and management reporting among other management activities. The Company
also used lour pillars to measure performance, captured on monthly basis but reviews
were done half yearly and end year. The study further established that at Toyota East
Africa Limited, the long term strategy (for example 2015 game plan) is broken down into
midterm strategy (3ycars) then annual and monthly budget. This was cascaded to each
department, then to each team before getting to the individual. This included aligning and
cascading down the finance pillar which include profits, turn over, balance and
absorption rate; customer (queries resolution, customer retention, customer service
index), processes (Kaizen ideas, SOPs, internal audit) and also the people (training,
career development plan). This is in line Kaplan and Narton (1992) who assert that BSC
presents a tool for translating an organization’s mission (embodied in its strategy) into
more tangible measurable goals, actions and performance measures. This enabled Toyota
East Africa to transform it into measurable objectives.
The study further noted that the stages of BSC implementation process at Toyota East
Africa Limited included organizational BSC, divisional BSC, departmental BSC and then
the individual BSC, performance measures, evaluations and feedback. The study also
established that for succcssfiil implementation of the balanced scorecard, everyone must
be involved and must understand the meaning and objectives, all the stages must be
aligned towards achieving the organizational objectives, all the quadrants in BSC should
be balanced, there should be clear understanding of the business, objectives should be
built around company strategy, and there should be well defined KPls that are aligned to
each other and staff training. This conforms to Lynch and Cross (1995) who identified
21
three criteria that must be met by performance management systems if they arc to
effectively mediate between an organization's strategy and its day-to-day activities.
These necessary conditions comprised: that the system must explicitly link operational
targets to strategic goals; it must integrate financial and non-llnancial performance
information; and the system should focus business activities on meeting customer
requirements. It is asserted that the balanced scorecard model fundamentally meets all of
these criteria by providing a truly strategic control system (Mooraj et al., 1999) that
puts strategy and vision at the centre (Kaplan and Norton. 1992). Toyota East Africa also
linked its operational targets to strategic goals with measurable targets.
1'he advantages of implementing the BSC are such as it aligns individual actions to
achieving the organizational objectives, addresses all the critical aspects of running the
organization, it measures performance objectively, helps identify areas that require more
attention, at glance as one is able to get the full picture of say the business or individual
employee's performance, budgets are defined where the company is heading to, strategy
alignment, improved productivity, all aspects of business are focused, allow interventions
where there are gaps, ownership by staff, used for reward and recognition, allow
opportunity for dialogue and feedback and easy to measure achievement.
The interviewees said that the key factors that enable successful implementation of the
scorecard at Toyota East Africa Limited include involvement of all stakeholders, buy in
from top management and training of staff on BSC. This is in line w'ith sCJoold (1991)
who asserted that successful strategy implementation, requires sound mechanisms for
directing activity and behaviour, especially including effective communication systems as
22
well as appropriate strategic and management controls. The importance of enabling sound
two-way communications within organisations is seen as fundamental to the effective
implementation of strategy (Alexander, 1985). with a particular emphasis on facilitating
useful feedback and bottom-up messages (Otley. 1999).
According to the responses given, the main challenges in the implementation of the
balanced scorecard at Toyota East Africa Limited include understanding of the BSC by
all employees, subjectivity in evaluation of performance, lack of buy-in (resistance),
poorly defined objectivcs/unclear objectives, inefficient data collection, time consuming,
defining measurable KPIs, lack of a clear consequence action plan on the results, manual
process and personal biases.
The interviewees also reiterated that the strategies that the management uses in order to
overcome the BSC implementation challenges in the company include training of all staff
members, use of simple terminologies, use of figures as opposed to prose targets,
monthly performance reviews, a lot of resources have been put in staff training,
involvement, individual ownership, monthly update and automation
The study also proceeded to determine the possible solutions to the major implementation
challenges facing the company on which the interviewees said that they include the use of
Kiswahili in the PMS for staff who do not understand English, training and involvement
of all stake holder was key to successful implementation, setting of objective and goals,
clear and well defined measurement tools, fair reward and recognition on
implementation, demystifying the BSC concept, process documentation, following the
standard operating procedures and automation.23
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction
This chapter presents the summary of findings, conclusions drawn from the findings and
recommendations made. The conclusions and recommendations drawn focus on the
purpose of the study. The objective of the study was to investigate the implementation of
balance scorecard as a strategic management tool at Toyota East Africa Limited.
5.2 Summary of Findings
Summary of the findings presents the brief of whatever that is contained in chapter four
data analysis. It presents summary on BSC implementation process and challenges of
BSC implementation.
5.2.1 Implementation Process
The study deduced that the approach used to implement the balance Scorecard at Toyota
East Africa Limited is Performance Management Systems. Everything revolves around
BSC from performance objective setting for all employed, performance appraisal,
management reporting e.t.c. It was further established that at Toyota East Africa Limited,
the long term strategy (for example 2015 game plan) is broken down into midterm
strategy (3years) then annual and monthly budget. This includes aligning and cascading
down the finance pillar (profits, turn over, balance and absorption rate); customer
(queries resolution, customer retention, and customer service index), processes (Kaizen
ideas, SOPs, internal audit) and also the people (training, career development plan).
24
The study further revealed that the stages of BSC implementation process at Toyota East
Africa Limited include organizational BSC, divisional BSC, departmental BSC and then
the individual BSC. The study also deduced that for successful implementation of the
balanced scorecard, everyone must be involved and must understand the meaning and
objectives, all the quadrants in BSC should be balanced, there should be well defined
KPIs that are aligned to each other and stall training.
According to the findings, the advantages of implementing the Scorecard are such as it
aligns individual actions to achieving the organizational objectives, addresses all the
critical aspects of running the organization, it measures performance objectively, helps
identify areas that require more attention, all aspects of business are focused, allow
interventions where there are gaps, ownership by staff, used for reward and recognition,
allow opportunity for dialogue and feedback and easy to measure achievement. Further,
the key factors that enable successful implementation of the scorecard at Toyota East
Africa Limited include involvement of all stakeholders; buy in from top management and
training of staff on BSC.
5.2.2 Challenges of Implementation
The study also found that the main challenges in the implementation of the balanced
scorecard at Toyota East Africa Limited include understanding of the BSC by all
employees, subjectivity in evaluation of performance, lack of buy-in (resistance), poorly
defined objectives/unclear objectives, inefficient data collection, time consuming,
defining measurable KPIs. lack of a clear consequence action plan on the results, manual
process and personal biases.
25
The study also deduced that the strategies that the management uses in order to overcome
the BSC implementation challenges in the company include training of all staff members,
use of simple terminologies, use of figures as opposed to prose targets, monthly
performance reviews, a lot of resources have been put in staff training, involvement,
individual ownership, monthly update and automation.
The study further revealed that the possible solutions to the major implementation
challenges facing the company include the use of Kiswahili in the PMS for staff who do
not understand English, training and involvement of all stake holder was key to
successful implementation, setting of clear objective and goals, clear and well defined
measurement tools, fair reward and recognition on implementation, demystifying the
BSC concept, process documentation, following the standard operating procedures and
automation.
5.3 Conclusion
From the findings the study concludes that Toyota East Africa Limited uses the balanced
scorecard as a strategic management tool and everything in the company revolves around
BSC. It was clear from the findings that implementing the Scorecard aligns individual
actions to achieving the organizational objectives, addresses all the critical aspects of
running the organization, it measures performance objectively and helps identify areas
that require more attention. Involvement of all stakeholders, buy in from top management
and training of staff on BSC enable successful implementation of the scorecard.
26
The implementation of the balanced scorecard in the company is mainly affected by
employees understanding of the BSC, subjectivity in evaluation of performance, lack of
buy-in (resistance), unclear objectives and personal biases. In order to overcome these
challenges, the management should employ the use of training of all staff members,
simple terminologies, figures as opposed to prose targets and conduct monthly
performance reviews.
5.4 Recommendations Policy and Practice
The study recommends that for successful implementation of the balanced scorecard,
everyone must be involved and must understand the meaning and objectives, all the
stages must be aligned towards achieving the organizational objectives, all the quadrants
in BSC should be balanced, there should be clear understanding of the business,
objectives should be built around company strategy, there should be well defined KPIs
that are aligned to each other and staff training. Toyota East Africa has applied BSC
effectively in transforming its strategic goals. The study therefore recommends that the
organization continues to use BSC in its strategy implementation so as to ensure a
cohenrent and smooth implementation their strategies. This will also help the
organization in the reduction of resistance to changes that may be posted by the
implementation of different strategies which may interfere with the status quo.
For Government and other policy makers, the study recommends that BSC be included in
the organization implementation strategies as one of the important variables to ensure
successful strategy implementation. This will help smoothen the process of strategy
27
implementation in organizations as it will ensure inclusivity in the implementation
processes.
The study further recommend that to overcome the challenges in the implementation, the
management should encourage the use of Kiswahili in the PMS for staff who do not
understand English, setting of clear objective and goals, clear and well defined
measurement tools, fair reward and recognition on implementation, demystify the BSC
concept, ensure process documentation and follow the standard operating procedures.
5.5 Limitations of the Study
Being that this was a case study on one organization the data gathered might differ from
the implementation of balance scorecard as a strategic management tool in other
companies. This is because different organizations adopt different strategies that
differentiate them from their counterparts. The study however, constructed an effective
research instrument that sought to elicit general and specific information on the
implementation of balance scorecard as a strategic management tool.
The study faced both time and financial limitations. The duration that the study w as to be
conducted wras limited hence exhaustive and extremely comprehensive research could not
be carried on the implementation of balance scorecard as a strategic management tool.
Due to limited finances the study could not be carried out on the other branches of Total
Kenya Limited. The study, however, minimized these by conducting the interview at the
organizations headquarter since it is where strategies are made and rolled out to other
branches that operate on the blue print.
28
5.6 Recommendations for Further Research
The study has investigated the implementation of balance scorecard as a strategic
management tool at Toyota hast Africa Limited. The study recommends that further
research should be done on the implementation of balance scorecard as a strategic
management tool at all the major players in the oil industry to allow for generalization of
results. A further study should be done on the implementation of balance scorecard as a
strategic management tool in public organizations. This is because the private and public
sectors have different strategic approach and thus allowing for comparison.
29
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Appendix I: Interview guide.THE USE OF BALANCE SCORECARD AS A STRATEGIC MANAGEMENT
TOOL AT TOYOTA EAST AFRICA LIMITED
Kindly answer the following questions by ticking in the appropriate box or filling the
spaces provided.
Part A: Background Information
1. Indicate
Gender.....................................................................................................
2. Indicate
Name.........................................................................................................
3. Name of department:
4. What is your designation?
5. What is your total work experience in years?
6. What is the total number of employees in your department?
7. Does your Company use the balanced scorecard as a strategic management
tool?
8. Who are involved in the implementation of the BSC at your company?
9. How long has the company used a balance score card in strategy
implementation........ ?
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Part B: Balanced scorecard (BSC) Implementation process
1. What is the approach used to implement the balance Scorecard Toyota East Africa
Limited?
2. What are the stages of BSC implementation process at your company?
3. What are the requirements for successful implementation of the balanced
scorecard?
4. What are the advantages of implementing the Scorecard?
5. What are the key factors that enable successful implementation of the scorecard at
How long has the company used a balance score card in strategy
implementation........
Part C: Challenges of implementing the balanced scorecard
6. What are the main challenges that you face in the implementation of the balanced
scorecard at Toyota East Africa Limited?
7. What strategies does the management use in order to overcome the BSC
implementation challenges in your company?
8. What are the possible solutions to the major implementation challenges facing
your company?
Thank You.
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