2018-0886 IJOI http://www.ijoi-online.org

DESIGNING A BALANCED SCORECARD FOR

Endang Dhamayantie Faculty of and Universitas Tanjungpura, Indonesia [email protected]

Abstract

Cooperative conditions in Indonesia are generally still weak, both internal and external conditions. Cooperatives face similiar challenges as business . To strengthen institutions, cooperative performance measurement may adopt the performance measurements of business organization in the same indus- try. One of the measurement systems is balanced scorecard. Cooperatives can imple- ment it as a tool to monitor, measure, and track the alignment of financial and nonfi- nancial performance. Balanced scorecard makes cooperative business strategy more concrete and measurable. This paper aims to develop indicators of cooperative per- formance measurement which are relevant and suitable with cooperative charac- teristics in Kubu Raya District based on four perspective approaches of balanced scorecard. The study is conducted through literature study and interview on coopera- tive . This research shows the indicators of cooperative performance measurement based on four perspectives of balanced scorecard which are comprehen- sive, coherent, balanced, and measurable. Various performance measurement indica- tors are identified through strategic objectives from four perspectives that describe future conditions. Such conditions can be realized along with some stages used to measure the achievement of strategic objectives.

Keywords: Performance Measurement, Balanced Scorecard, Cooperative.

Introduction economy, job creation, and poverty alleviation. Cooperatives are generally Cooperative as a popular econ- weak, both their internal conditions omic institution has spread all over (such as capital, management, organ- Indonesia. Cooperatives can create ization, , business networks) economic, social, and cultural values to and external conditions; thus, cooper- empower the poor. However, atives are required to work more in its development, cooperatives in efficiently and effectively. Indonesia have not been able to sig- nificantly contribute to national 220 The International Journal of Organizational Innovation Volume 11 Number 2, October 2018

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Cooperatives face similar chal- Balanced Scorecard concept was lenges to business in developed by Kaplan & Norton (1992) developing strategies for survival and and intended to make business strategy development (Beaubien & Rixon, more measurable and concrete. Balanc- 2012). Comprehensive cooperative ed scorecard has evolved. Based on the development is needed in order to deal literature review, Perkins et al . (2014) with environmental changes to grow classified three generations of balanced and develop, particularly because 361 scorecards that can be used by mana- active cooperatives in Kubu Raya gers to describe the scorecard better. District in 2016 have not showed Balanced scorecard is an organiza- significant performance and tended to tional strategy management be stagnant. This condition is worri- based on the measurement and evalu- some, as the members, mostly micro ation of performance by a series of and small business, may abandon optimistic parameters reflecting all them. Those urgently need aspects of the organization, both an institution to protect their business financial and nonfinancial (Boiko, activities to increase their leverage and 2013). The balanced scorecard bargaining power in the market struc- framework allows organizations to ture. To strengthen cooperative’s monitor, measure, and track the align- institution as a business entity, it ment of financial and nonfinancial should be able to combine the performance aligned with their strate- application of cooperative principles gies and visions (Mehralian et al ., and modern . More- 2017; Wake, 2015). Balanced score- over, it should be able to choose card demonstrates relationship between appropriate the measurement of organizational which supports the development of performance in four major perspec- economic activities and can be adopted tives, namely financial, customers, to its environment. One of the internal business process, and learning contemporary strategies, which can and growth. Each perspective is based assist the management of cooperatives on lagging and leading indicators and to improve their performance, is bal- contains preventive actions to achieve anced scorecard. Balanced scorecard predetermined targets. can be used to measure cooperative performance from both financial and In most literatures, balanced nonfinancial perspectives. Based on scorecard has been widely tested and the description, this study aims to adapted to various types of large describe the development of per- business organizations and public formance measurement indicators for sectors with varying degrees of cooperatives based on balanced application; however, it pays a little scorecard, by reorganizing balanced attention to cooperatives. A research scorecard’s standard model to be ap- by Porporato et al . (2017) in health plied for cooperatives. care sector in Canada indicated some benefits of implementing balanced scorecard to improve performance. Literature Review Research by Kollberg & Elg (2011) on three health care organizations in Sweden showed that balanced score-

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2018-0886 IJOI http://www.ijoi-online.org card is used as a tool to enhance in Thailand. Thakkar et al . (2007) internal capabilities and support developed a balanced scorecard in food organizational development. Northcott sector companies in India. While & Taulapapa (2012) found that Bigliardi & Dormio (2010) developed balanced scorecard’s adoption rates in and verified a general model of public sectors are still low in 73 city balanced scorecard to measure the and district councils in New Zealand. performance of research and devel- Greiling (2010) explored the imple- opment (R & D) activity in an Italian mentation of balanced scorecard in 20 automotive company. The develop- German nonprofit organizations in the ment of an effective performance early stages of its implementation. Not measurement system is an important only in large organizations, it is also task in every organization to face implemented among small and competition (Thakkar et al., 2007). medium enterprises (SME) (Manville, However, empirical evidences indicate 2007). that development of cooperative’s performance measurement based on Although it has been widely balanced scorecard still has not adapted to various types of organ- received attention. izations, implementation of balanced scorecard does not necessarily lead to Methods organizational success. Yongvanich & Guthrie (2009) reported that Thai This study aimed to develop Stock Exchange firms declare that some indicators for cooperatives’ balanced scorecard implementation performance measurement based on does not automatically result in high balanced scorecard, which were financial performance. Moreover, 70 tailored to the characteristics of percent of balanced scorecard cooperatives in Kubu Raya District. implementations are considered fail Aligned with such objectives, the study (Neely & Bourne, 2000), because some was conducted through a combination factors (i.e. management skills) are not of literature study and interviews with considered in their implementations six cooperative managers, including (Chavan, 2003; Johanson et al ., 2006; Agricultural Cooperative, Business Yongvanich & Guthrie, 2009). Some Cooperative, and Savings and Loans did not consider how to apply it Cooperative in Kubu Raya District. effectively in the context of their Meanwhile, literature analysis was organizations (Kollberg & Elg, 2011). conducted by identifying cooperatives Balanced scorecard is a powerful tool performance indicators based on four which provides significant benefits to perspectives of balanced scorecard, an organization if it is implemented namely financial perspective, customer appropriately (Perkins et al ., 2014). / member perspective, internal business

process perspective, and learning and Furthermore, balanced scorecard growth perspective. All perspectives is also developed to measure per- were relevant and aligned with formance. Moe et al . (2007) designed a cooperatives characteristics in Kubu performance measurement using Raya District. These indicators were balanced scorecard approach on then confirmed through an interview natural disasater management process with cooperative

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2018-0886 IJOI http://www.ijoi-online.org to obtain inputs and suggestions for most critical processes to create performance indicators based on values for customers and their balanced scorecard. A second round shareholders. The internal business interview was conducted to validate process’ model which is performance indicators of cooperative employable by cooperatives are in- based on balanced scorecard. Finally, novation, operational, and service; data analysis was conducted using 4) Growth and learning perspective: to descriptive analysis. achieve their visions, how should cooperatives sustain their abilities to Results change and improve over the years? From this perspective, the cooper- Balanced scorecard provides a atives consider that infrastructures framework to measure performance which enable goal achievement in from four perspectives, covering both three other perspectives shall be ac- financial and nonfinancial perspectives complished. There are three impor- (Kaplan & Norton, 1992,1996). Those tant categories in this perspective, perspectives are listed as follows: namely employee competence, technology infrastructure, and co-

1) Financial perpsective: to succeed operative culture. financially, how should coop- eratives present themselves to their Kaplan & Norton (1996) shareholders? The cooperative explained that balanced scorecards makes financial perspective as the should include various performance focus for strategic objectives and measures to represent all organiza- other perspectives, which are meas- tional dimensions. It is better for coop- ured in-balanced scorecard. From erative to use existing benchmark of this perspective, cooperatives focus business firms in the same industry to on maximizing capital owners’ evaluate performance (Beaubien & (members) and outside investors’ Rixon, 2012), while still considering satisfaction for equity participation some important criteria decided by in cooperative business; each cooperative. Therefore, develop-

2) Customer perspective: to achieve ment of cooperative performance their visions, how should coop- measurement based on balanced eratives present themselves in front scorecard is conducted by modifying of customers? From this perspec- relevant and suitable concepts to the tive, the cooperatives must identify cooperatives’ characteristics in Kubu customer targets and market seg- Raya District. Analysis results for the ments. Then, they should under- development of cooperative per- stand and satisfy consumers’ needs. formance measurement with balanced For cooperatives, their owners are scorecard approach are displayed in the consumers; Table 1.

3) Internal processes perspective: to Discussion satisfy their shareholders and customers, in what kind of business, Cooperatives and other business cooperatives shall excel? From this perspective, they must identify the

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Table 1 . Key Performance of the Cooperatives Based on Balanced Scorecard

Perspective Strategic Objectives Measures Financial Liquidity Current ratio Perspective Solvability . Total debt to total asset ratio . Owner’s equity to total assets ratio . Capital adequacy ratio Profitability . Return on asset (ROA) . Return on equity (ROE) . Return on investment (ROI) Operational efficiency BOPO ratio Growth of assets Ratio of current assets to assets last year Growth of revenue Ratio of current revenues to revenue last year Growth of SHU Ratio of current SHU to SHU last year Decrease in nonperforming Ratio of current NPF to NPF last year financing (NPF) Customer Member welfare . SHU percentage to gross participation Perpsective . Member economic ratio Member satisfaction . Customer satisfaction index . Ratio of member complaints Member retention Ratio of outgoing members to total members Member acquisition Ratio of adding new members to total mem- bers Service efficiency Service efficiency ratio Internal Superior product develop- Ratio of current superior product to superior Process ment product last year Perpsective Process of becoming a Manufacturing efficiency cycle member Service speed Manufacturing efficiency cycle Improvement of facilities Percentage of additional facilities and infra- and infrastructure structure Growth and Employee satisfaction Satisfactory survey Learning Employee retention Ratio of outgoing employees to the number Perpsective of employees Employee productivity Revenue per employee Development of employee . Ratio of employee participation in training competency to the number of employees . Learning capability index Improvement of information Percentage of information technology im- technology provement Improvement of cooperative Organization culture health index (OCHI) culture (References: developed authors from various sources) organizations require ability to develop environment. Cooperative management business performance in order to sur- can and operate performance vive amidst competitive business measurement systems by applying

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2018-0886 IJOI http://www.ijoi-online.org balanced scorecard. Balanced score- ments through strategic objectives cards can expand cooperative per- which are formulated in order to formance, from financial perspective to achieve their visions and missions. The nonfinancial perspective. It even ex- measurements are also employed to tends to customer perspective, internal calculate the achievement of strategic operation process perspective, and objectives. Strategic objectives include learning and growth perspective. four perspectives which describe aspir- Developing cooperative performance ing future conditions. A clear descrip- measurement using balanced scorecard tion of strategic objectives aspired by approach is basically derived from co- the cooperatives shall facilitate operative needs to build a compre- appropriate measures to calculate the hensive, coherent, balanced, and achievement of strategic objectives. measurable performance measurement system to survive amidst competition. The use of cooperative perform- ance measurement framework During its development, cooperatives developed in this study should be can adopt the measurement for busi- based on: ness organization performance in the 1) Understanding the visions and mis- same industry (Beaubien & Rixon, sions described in cooperative ob- 2012). Meanwhile, balanced scorecard jectives; approach can help decision-makers to 2) Understanding relationship between selected strategic objectives; visualize and evaluate the overall 3) Analyzing measurements employed objectives of an organization through in selected strategic objectives. performance measurement. In turn, it shall develop confidence in modifying For successful implementation of logical facts which may lead to balanced scorecard, it must be pre- organizational performance and cisely done by considering encourage understanding of organizational needs (Perkins et al ., 2014). In implementing performance internal/external stakeholders' based measurement systems, according concerns, values, and objectives of to Thakkar et al . (2007), organizations organizational priorities (Thakkar et (in this case especially cooperatives) al ., 2006). should do the following:

Based on the characteristics and 1) To analyze internal and external or- conditions of the cooperatives in Kubu ganization’s environmental changes Raya District, some comprehensive, (e.g. market trends, consumer pref- coherent, balanced and measurable erences, competitors); 2) To use various techniques to de- cooperative performance measure- velop measurements, such as group ments are developed based on four discussion, nominal group tech- balanced scorecard perspectives. The nique, SWOT (Strength, Weakness, study analyses depicted in Table 1 Opportunity, Threat) analysis, PEST explain the identification of (Political, Environmental, Social cooperative performance measure- and Technological) analysis, and fi-

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nal review with top management. Beaubien, L., & Rixon, D. (2012). Key Those measures aim to obtain pa- performance indicators in rameters accordingly, considering cooperatives: directions and that this model uses subjective principles, Journal of judgments about four balanced Cooperative Studies , 45 (2), 5- scorecard perspectives; 15. 3) To consider the possible use of software in setting strategic Bigliardi, B., & Dormio, A.I. (2010). A objectives in order to produce the balanced scorecard approach for correct comparison; R&D: Evidence from a case 4) To understand the use of causal study, Facilities , 28 (5/6), 278- principles in balanced scorecard. 289.

Conclusion Boiko, I.(2013). Instruments of implementing the enterprises’ Cooperatives need to design strategy, Economics & performance measurement using Sociology , 6 (2), 71-81. business organization’s benchmarks in the same industry. One of performance Chavan, M. (2009). The balanced measurement systems which can scorecard: a new challenge, improve cooperatives’ performance Journal of Management significantly is balanced scorecard. Development , 28 (5), 393-406. This study develops cooperative per- formance measurement with balanced Greiling, D. (2010). Balanced scorecard approach based on four scorecard implementation in perspectives which are adapted to the German nonprofit organisations, cooperatives’ characteristics and International Journal of conditions in Kubu Raya District. Productivity and Performance Using standard parameters from Management , 59 (6), 534-554. balanced scorecard, the cooperatives are expected to implement a good work Johanson. U., Skoog, M., Backlund, plan with clear strategic objectives, A., & Almqvist, R. (2006). measurement of achievement of Balancing dilemmas of the strategic objectives, and integration balanced scorecard, , between perspectives. In addition, Auditing & Accountability cooperatives can use performance Journal , 19 (6), 842-857. measurement as a tool to control cooperative performance. Future stud- Kaplan, R., & Norton, D. (1992). The ies can develop more specific per- balanced scorecard: measures formance measurements, which are that drive performance, Harvard relevant to the characteristics and Business Review , 70 (1), 71-79. conditions of each type of cooperative. In addition, the validity of cooperative Kaplan, R., & Norton, D. (1996). performance measurement needs to be Using the balanced scorecard as statistically tested. a strategic , Harvard Business Review , 74 References (1), 75-85.

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International Journal of Kollberg, B., & Elg, M. (2011). The Productivity and Performance practice of the balanced score- Management , 63 (2), 148-169. card in health care services, International Journal of Porporato, M., Tsasis, P., & Vinuesa, Productivity and Performance L.M.M. (2017). Do hospital Management , 60 (5), 427-445. balanced scorecard measures reflect cause-effect relationships? Manville, G. (2007). Implementing a International Journal of balanced scorecard framework in Productivity and Performance a not for profit SME, Management , 66 (3), 338-361. International Journal of Productivity , 56 (2), 162-169. Thakkar, J., Deshmukh, S.G., Gupta, A.D., & Shankar, R. (2007). Mehralian, G., Nazari, J.A., Development of a balanced Nooriparto, G., & Rasekh, H.R. scorecard: An integrated ap- (2017). TQM and organizational proach of Interpretive Structural performance using the balanced Modeling (ISM) and analytic scorecard approach, Inter- Network Process (ANP), national Journal of Productivity International Journal of and , Productivity and Performance 66 (1), 111-125. Management , 56 (1), 25-59.

Moe, T.L., Gehbauer, F., Senitz, S., & Wake, N.J. (2015). The use of the Mueller, M. (2007). Balanced balanced scorecard to measure scorecard for natural disaster knowledge work, International management projects, Disaster Journal of Productivity and Prevention and Management , 16 Performance Management , 64 (5), 785-806. (4), 590-602.

Neely, A., & Bourne, M (2000). Why Yongvanich, K., & Guthrie, J. (2009). measurement initiatives fail, Balanced scorecard practices Measuring Business Excellence , amongst Thai companies: 4 (4), 3-7. perfromance effects, Pasific Accounting Review , 21 (2), 132- Northcott, D., & Taulapapa, T.M. 149. (2012). Using the balanced scorecard to manage per- formance in public sector organizations, International Journal of Public Sector Management , 24 (3), 166-191.

Perkins, M., Grey, A., & Remmers, H.(2014). What do we really mean by “balanced scorecard’?

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