The Balanced Scorecard as a tool for measuring the performance of public and nonprofit organizations
by Ms Maria Pateraki, Doctoral Candidate
Extant research shows a lack of acceptable performance measures of organizational effectiveness that can be applied in both profit and nonprofit organizations (Rainey & Steinbauer, 1999). This is due to the different nature of each type of organization. Government and nonprofit organizations play an important role as service providers in societies, their purpose is to serve the general good and they are usually politically driven (Parhizgari and Gilbert, 2004). The reduced government funding and the demand for greater accountability and results prompt public organizations to adopt performance management tools that can contribute in imposing the necessary control, while aiding in the improvement of the organizationís performance by introducing the necessary reforms and strategic changes. To assess the efficiency and effectiveness of these organizations, there is a need to invoke multiple perspectives and multiple KPIs (Barney, 2010).
The BSC consists of four well-known aspects of organizational performance, namely, the financial, customer, internal process and the learning and growth perspectives. Kaplan & Norton (1992) argue that the BSC presents an effective framework to measure overall performance since it provides a balance between short term and long term objectives, financial and non-financial measures, lagging and leading indicators and internal and external performance attributes. As such, the BSC can present management with an overarching view of the organizationís performance and can serve as a management and control system for strategy implementation. Although the initial focus of the BSC was on measuring and controlling performance of for-profit organizations, it can present several improvement benefits for nonprofit and state owned organizations (Atkinson and McCrindell, 1997; Kloot and Martin, 2000), if correctly adjusted to fit these types of organizations (Ahn 2001; Kaplan & Norton, 2001; Niven, 2003).
Niven (2003) provides an adaptation of the BSC framework that is suited for public and nonprofit organizations. He argues that in the public sector the mission and strategy remain at the core, while the four perspectives are accordingly modified to fit the public nature of the organization. He also posits that the ultimate importance is on the customer perspective, giving emphasis on who are defined as customers and how the public organization creates value for them. In this context, the financial perspective reflects the ability of the organization to control its operating costs, while the internal business dimension is focused on business process excellence. Finally, the learning and growth perspective reflects the ability of the organization to grow and change.