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2018-0886 IJOI

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DESIGNING A BALANCED SCORECARD FOR COOPERATIVES


Endang Dhamayantie
Faculty of Economics and Business
Universitas Tanjungpura, Indonesia
edhamayantie@yahoo.com

Abstract

Cooperative conditions in Indonesia are generally still weak, both internal and
external conditions. Cooperatives face similiar challenges as business organization.
To strengthen cooperative institutions, cooperative performance measurement systems
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 management. 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, technology, 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
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The International Journal of Organizational Innovation
Volume 11 Number 2, October 2018
2018-0886 IJOI
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Cooperatives face similar chal- Balanced Scorecard concept was


lenges to business organizations 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 system
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 businesses 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 business model. More- 2017; Wake, 2015). Balanced score-
over, it should be able to choose card demonstrates relationship between
appropriate strategic management 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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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 projects
process with cooperative managements

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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’ value chain 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 cost 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 design and operate performance
vive amidst competitive business measurement systems by applying

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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, Accounting,
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.
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performance measurement needs to be Using the balanced scorecard as
statistically tested. a strategic management system,
Harvard Business Review, 74
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