Flexibility in Adopting Balanced Scorecard in Non-Profit Organization
The Balanced Scorecard framework was first developed within for-profit organizations, during the late 1980s. These firms wanted a more comprehensive view of organizational performance than was provided by financial measures alone. As the framework was popularized through the 1990’s, non-profit organizations began to apply the Balanced Scorecard. They concluded that a balanced view of performance might also help them to better manage their organizations’ performance (Can I apply Balanced Scorecard in a non-profit organization, 2008).
The move of a balanced scorecard idea from for-profit to nonprofit organizations is not always an easy one. The basic concepts behind creating a balanced scorecard are as suitable for nonprofits as they are for corporate businesses, but the execution needs to be modified in order to make it work effectively (Zimmerman, 2004). Because Balanced Scorecards provide a balanced view of organizational performance, nonprofit Balanced Scorecards need to reflect success for the organization in question. While the people, process and to some extent the customer perspectives of for-profit Balanced Scorecards translate well into non-profits, the top-level financial perspective does not by definition, non-profits do not have financial performance as a primary goal. Non-profits have to assure external stakeholders which are the complement of shareholders in the for-profit world. Understanding these opportunities and reflecting them in the non-profit Balanced Scorecard is necessary (Can I apply Balanced Scorecard in a non-profit organization, 2008).
For non-profits, these outside stakeholders’ expectations are usually a widespread set of mostly non-financial objectives addressing social, political, and economic issues. Stakeholders from political and social communities are not likely to be exclusively interested in the financial performance of the organization. As an added complication, the customers of the organization are often represented in the stakeholder group, like the customers of a government department are also the indirect funders of the department and so are likely to present demands to the non-profit altogether more complex and open ended than those faced by a private company (Can I apply Balanced Scorecard in a non-profit organization, 2008).
Non-profits function in an environment where political agendas activate regular changes to key stakeholders’ definition of success. Because of this, non-profit managers face a certain amount of variability not seen by their for-profit counterparts, for whom policy changes are normally based on economics. Changing stakeholder outlooks can diminish or cancel the importance of prior success criteria and action plans by introducing new, unplanned strategic objectives (Can I apply Balanced Scorecard in a non-profit organization, 2008).
One benefit of viewing an organization through the four Balanced Scorecard perspectives is that this approach reduces information overload by condensing critical data needed for decision-making. The Balanced Scorecard also meets managerial requirements by gleaning varied unrelated measures from multiple areas within the company into a single report and ensuring that managers are looking at all measures across the operation. This approach also brings in the protection that one measure is not improved at the expense of another. Developing organizational strategy through the Balanced Scorecard also minimizes participants’ subjectivity as they take part in the strategy-setting process and enhance managers’ ability to assess all programs for strategic impact without bias (Ronchetti, n.d.).
While financial and customer actions are defined and available in commercial organizations, the corresponding is less easily found in non-profits. A good measure is one that management can significantly control. Non-profit organizations goals are usually influenced by many influential factors and actors beyond its authority. Commercial Balanced Scorecards usually have a financial viewpoint at the peak of the strategic reason and mapping. For the non-profit, financial goals are not the end; they are part of the means. Customary practice is to push the finance viewpoint down to the bottom of the strategy map for non-profits, treating financials as input to the strategic representation. This is difficult because financially oriented goals are also sought after by non-profits. Consider value for money, cost reduction or funds raised, all are outcomes of some activity. From a process viewpoint, budget adherence, project funding spend, cash management and financial guideline observance may also be important to the non-profit, and may need to be reflected in a Balanced Scorecard (Can I apply Balanced Scorecard in a non-profit organization, 2008).
For-profit organizations are worried about the efficiencies of internal processes. They plan to function with a margin of profit which can simply slim down or disappear to cover the effects of less-than-optimal performance. In contrast, many nonprofits work on virtually no margin of error. A year of poor performance competence can result in striking cutbacks in staffing or program, since many nonprofits have no safety buffers built into their budgets. While the category is the same for both types of organizations, it is probably a more critical management issue for nonprofits (Zimmerman, 2004).
The final category in the traditional balanced scorecard scheme is called innovation and learning. The first three measurement groups’ focus on an organization as it is today, while the final category looks at the fact that organizations need to constantly grow, adjust, and improve. In most companies, future development is tied to the organization’s staff. Within nonprofits, innovation is not usually the persuasive market force that it is in the world of competitive, for-profit enterprise. For most nonprofits, developing the organization resources, in a literal sense, developing its employees (Zimmerman, 2004).
Can I apply Balanced Scorecard in a non-profit organization? (2008). Retrieved August 9, 2010,
from Web site: http://www.2gc.co.uk/pdf/2GC-FAQ08-090216.pdf
Ronchetti, Jan L. (n.d.). An Integrated Balanced Scorecard Strategic Planning Model for Nonprofit Organizations. Retreived August 9, 2010, from Web site:
Zimmerman, Joel. (2004). Using a Balanced Scorecard in a Nonprofit Organization. Retrieved August 9, 2010, from Web site:
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