09513551211224234

International Journal of Public Sector Management
Using the balanced scorecard to manage performance in public sector organizations:

Issues and challenges
Deryl Northcott, Tuivaiti Ma'amora Taulapapa,
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IJPSM
25,3 Using the balanced scorecard to
manage performance in public
sector organizations
166
Issues and challenges
Received 3 March 2010
Revised 12 May 2011
Deryl Northcott
Accepted 25 May 2011 Department of Accounting, AUT Business School,
The Auckland University of Technology, Auckland, New Zealand, and
Tuivaiti Maamora Taulapapa
Manukau Institute of Technology, Auckland, New Zealand
Abstract
Purpose This paper aims to examine the use of the balanced scorecard (BSC) as a performance
management tool in the public sector. Drawing on a New Zealand study of local government organzations
(LGOs), it seeks to identify issues and challenges in implementing the BSC in public sector contexts.
Design/methodology/approach A postal questionnaire was used to solicit public sector
managers views on the usefulness of the BSC and the factors that support or impede its
implementation in practice. Follow-up interviews with selected respondents allowed for more in-depth
exploration of managers experiences of BSC use and outcomes.
Findings The findings reveal low rates of BSC adoption amongst the studied LGOs. Further,
perceived BSC utility is dominated by performance measurement and reporting, while the
performance management role of the BSC remains relatively under-exploited. This study identifies
users perceptions of the key challenges impeding BSC implementation in the public sector, and
highlights their significance for both practice and theory.
Research limitations/implications This paper highlights the need for improved theorisation on
several issues that present particular challenges in public sector BSC practice: modifying the BSC
dimensions, designing measures that capture important qualitative outcomes, identifying the
customer and/or achieving a genuine multi-stakeholder approach, and mapping BSC causality
relationships.
Practical implications Improved awareness of the factors perceived to lead to successful and
unsuccessful BSC implementation may enhance the uptake and utility of the BSC for measuring and
managing performance in public sector organisations.
Originality/value This study examines BSC use in local government, where it has been relatively
under-researched. It adds to prior studies by specifically examining the factors that support and
impede the effective implementation of the BSC in public sector contexts.
Keywords Public sector, Balanced scorecard, Performance management, Local government,
New Zealand, Public sector organizations
Paper type Research paper
International Journal of Public Sector

Management 1. Introduction
Vol. 25 No. 3, 2012
pp. 166-191 In the decades since the new public management (NPM) reforms of the late 1980s and
q Emerald Group Publishing Limited early 1990s, public sector organisations around the world have faced increasing
0951-3558
DOI 10.1108/09513551211224234 pressure to demonstrate effective performance management (Hood, 1995; Boston et al.
1996). As governments have demanded greater transparency and accountability in Using the BSC
regard to the use of public funds, public sector organisations have turned to private to manage
sector performance management practices as potential means of improving and
demonstrating their own performance and accountability (Hood, 1995; Jackson and performance
Lapsley, 2003; Perera et al., 2003; Lapsley and Wright, 2004). In particular, there has
been a move towards specifying strategic goals, which then form the basis for setting
published performance targets against which public sector organisations must report. 167
One tool widely advocated as having the potential to support these performance
management aims is the balanced scorecard (BSC) (Aidemark, 2001;
Bilkhu-Thompson, 2003; Modell, 2004). In particular, the BSC is thought to present a
multi-dimensional view of performance across different objectives and stakeholders, as
is required for many public sector organisations. Further, the BSCs focus on key
performance indicators (KPIs) directs managerial attention to important drivers of
organisational results, and informs performance management by linking these KPIs in
causal relationships with desired outcomes. Yet, despite this apparent match between
the BSC and public sector performance management aims, very little of the growing
body of empirical literature on the use and outcomes of the BSC concerns public sector
applications. In particular, there have been few studies to examine the issues and
challenges that exist in public sector BSC implementation.
This paper reports an empirical study of BSC use in a public sector context. It has
dual aims, the first being to extend the examination of BSC use into a relatively
under-researched area of the public sector, local government. Local government
organisations (LGOs) are responsible for achieving multiple goals on behalf of diverse
local stakeholder groups and have, like other public sector organisations, been under
pressure to improve performance outcomes and accountability (Poister and Streib,
1999; Wisniewski and Olafsson, 2004). Since the BSC is potentially well-placed to
support these performance management aims, it is appropriate to examine the use and
outcomes of the BSC in local government contexts. A second aim of this study is to
examine the factors that support and impede the effective implementation of the BSC in
public sector contexts.
The remainder of this paper is structured as follows. First, we review the literature
addressing the perceived benefits, issues and challenges of implementing BSCs in
public sector organisations. The knowledge gaps revealed by this review provide a
basis for developing the motivation for this paper and the key research questions. We
then outline our New Zealand study, providing a contextual background to the
performance management expectations placed on LGOs and describing the research
methods employed. The subsequent section presents findings drawn from both the
postal questionnaire and follow-up interviews and discusses them in relation to the key
research questions. Implications for practice and theory are then discussed, with a
focus on the new insights to emerge from this study. Conclusions and suggestions for
further research are then presented.
2. Literature review: the BSC in the public sector

2.1 The BSC as a public sector performance management tool
The balanced scorecard (BSC) has gained widespread acceptance as a useful
performance management tool for business organisations (Kald and Nilsson, 2000;
Malmi, 2001; Rigby, 2001; Brignall, 2002; Hallman, 2005). Initially, the BSC was
IJPSM proposed as a multi-dimensional performance measurement tool (Kaplan and Norton,
25,3 1992), but its focus soon shifted to performance management (Kaplan and Norton,
2001a, 2001b). The performance management potential of the BSC is predicated on the
assumption that causal links exist between its four dimensions innovation and
learning, internal business processes, the customer, and financial (Brignall, 2002;
Inamdar and Kaplan, 2002; Ittner and Larcker, 2003; Nrreklit, 2003; Davis and
168 Albright, 2004). According to Kaplan and Norton (1996a, p. 65), an entire chain of
cause-and-effect relationships can be established as a vertical vector through the four
balanced scorecard perspectives (see Figure 1 for a simplified representation of their
BSC model and its causal assumptions). These causal links suggest that managerial
action directed at improving outcomes on the leading indicators (in the first three
dimensions) will ultimately drive performance improvement in the fourth, lagging
dimension (i.e. financial outcomes).
Clearly, this conceptualisation locates financial objectives as the endpoint of the
BSCs performance management aims, which appears inconsistent with the aims of
most public sector organisations. However, Kaplan and Norton (2001b, p. 98) suggest
that, while originally conceived for profit making firms, the BSC can be readily adapted
for use in public sector organisations simply by rearrang[ing] the scorecard to place
customers or constituents at the top of the hierarchy (Kaplan and Norton, 2001b, p. 98;
see also Niven, 2006). Suitably restructured, they argued the BSC can serve a dual role
in public sector contexts as a measurement instrument to guide performance, and a
means of enhancing democratic accountability and responsibility (Kaplan and Norton,
1992). This view is supported by others who suggest the BSC has utility in the public
sector due to its multi-dimensionality in capturing the non-financial aspects of
performance (Forgione, 1997; Aidemark, 2001; Bilkhu-Thompson, 2003) and its
identification of a limited number of KPIs that provide a clear focus for achieving
organisational strategy in spite of a complex operating environment (Chow et al., 1998;
Modell, 2004).
However, other researchers have expressed reservations about the efficacy of
transplanting management tools like the BSC into complex public sector contexts
(e.g. Arnaboldi and Lapsley, 2004; Pidd, 2005). Notably, Griffiths (2003) identified
problems with demonstrating causal relationships in public sector BSCs, suggesting
that the necessary rearranging of the BSC may not be straightforward in practice and
may impair its performance management potential. However, few studies have
examined how the rearrangement of the standard BSC model works in practice, and
whether the absence of clear financial goals presents a challenge for applying the BSC
Figure 1.
The standard BSC model
and its assumed causal
relationships
to public sector performance management. This paper considers that issue, along with Using the BSC
others that impact BSC implementation in public sector contexts. As background, we to manage
first turn to a brief review of what is known about public sector BSC practice from the
findings of prior research. performance
2.2 The BSC in practice: evidence from the public sector 169
Much of the empirical BSC literature concerns its private sector adoption (e.g. McCunn,
1998; Hoque and James, 2000; Ahn, 2001; Williams, 2001; Lipe and Salterio, 2002; Davis
and Albright, 2004). While there have been far fewer studies of BSC applications in the
public sector (Yeung and Connell, 2006; Greatbanks and Tapp, 2007), recent evidence
suggests that public sector use of the BSC has met with varying degree of success
(Niven, 2005, 2006). Yet the reasons for BSC success or failure in the public sector have
not been well examined. Only a few studies have identified factors that practitioners
perceive as critical to the successful implementation of public sector BSCs, or see as

resulting in unsuccessful or non-implementation (e.g. Radnor and Lovell, 2003; Chan,
2004; Yeung and Connell, 2006). Success factors include: top management commitment;
employee buy-in; an emphasis on performance excellence; adequate training; a simple
BSC; clear organisational strategy and goals; links to incentive schemes; and adequate
resourcing. Key reasons for non-implementation include inadequate information
systems, inadequate sponsorship of the BSC by senior managers and a lack of time,
while unsuccessful implementations are attributed to poor linkage to employee
rewards, uncertainty about the choice of suitable KPIs, and organisational resistance to
change. However, many of these suggested reasons for BSC success or failure in public
sector organisations are relatively non-specific since they could apply equally in the
private sector. A knowledge gap appears to exist in regard to the factors that impede
BSC implementation specifically in the public sector, therefore.
Further, some areas of the public sector have been examined more than others. In
the healthcare area, for example, studies of BSC implementation have been conducted
in a variety of countries, including the UK, Canada, the USA, Australia, Sweden, The
Netherlands, Singapore, Afghanistan, and New Zealand (Chang et al., 2002; Chow-Chua
and Goh, 2002; Zelman et al., 2003; IPART, 2003; Ten Asbroek et al., 2004; Northcott
and France, 2005; Chan, 2004; Peters et al., 2007; Aidemark and Funck, 2009). Yet, other
public sector areas have been relatively neglected. Local government the context for
this study is one of them.
A handful of prior studies have pointed to positive outcomes from BSC use in LGOs,
such as: clarifying strategic goals; integrating goals across departments; setting
performance measures within a more strategic context; narrowing measures to those
most meaningful and manageable; complementing financial measures of past
performance with operational measures that drive future performance; and providing a
link between the organisations mission and strategy (Kloot and Martin, 2000; Chan,
2004; Niven, 2006). However, it has also been noted that local government BSC
implementations face challenges, such as poor information systems, poor measures,
and problems with defining the customers and their needs (McAdam and Walker, 2003;
Wisniewski and Olafsson, 2004). Given the significant size of many nations local
government sectors, these findings appear scant and further research into BSC
implementations and outcomes in LGOs seems warranted.
IJPSM In New Zealand (the context for this study), despite the public sector being at the
25,3 forefront of international managerial reforms (McCulloch, 1993; Wallis and Dollery,
2002), most prior studies of BSC implementation have focused on the private sector
(Beechey and Garlick, 1999; Blundell et al., 2003; Lord et al., 2005; McJarrow and Cook,
2000a, 2000b; Rawlings et al., 2000). Only a handful of empirical studies have examined
BSC use in the New Zealand public sector (Griffiths, 2003; Beechey, 2005; Northcott and
170 France, 2005; Greatbanks and Tapp, 2007) and almost nothing is known about BSC use
in LGOs. While Greatbanks and Tapp (2007) studied the use of the BSC in one
department of a single City Council and Beechey (2005) hinted at a general awareness
of the BSC in LGOs, neither of these studies provides a comprehensive view of the
issues, challenges and outcomes of BSC usage in New Zealand LGOs.
2.3 Motivation for this study and research questions

This literature review has identifed several under-developed areas of the literature
regarding BSC implementation in public sector contexts. First, few studies have
examined how the BSC is modified in practice to suit public sector contexts.
Associated with this is the question of whether reorientating public sector BSCs
away from financial goals complicates the understanding of causality between KPIs
within its four dimensions, thus reducing its utility as a performance management
tool. Second, there has been relatively little attention to practitioners views on the
factors leading to the successful, unsuccessful or non-implementation of public
sector BSCs. In particular, few of the suggested success (or failure) factors seem to
reflect issues and challenges specific to the BSCs use in public sector contexts.
Third, the local government sector is under-represented in studies of BSC practice.
This is despite the fact that LGOs might be expected to benefit from BSC use
because they are obliged to specify strategic goals that balance multiple aims and
stakeholders, and to be accountable for achieving related KPIs. Finally, despite New
Zealand being at the forefront of public sector reform since the 1980s, there have
been few studies of public sector BSC use in that country, and none examining
LGOs.
These knowledge gaps motivated the development of four key research questions
that underpinned our study of BSC use:
(1) Do New Zealand LGOs use the BSC as a performance management tool?
(2) What benefits do managers perceive the BSC to have as a performance
management tool?
(3) What factors contribute to successful BSC implementation?
(4) What are the barriers to successful BSC implementation?
The next section outlines the context for this study and the methods used to explore
these research questions.
3. The New Zealand study: background and methods

This section briefly outlines the local government reforms in New Zealand that created
the conditions for BSC adoption in LGOs. We then describe the research methods
employed to examine the BSC usage that has since ensued.
3.1 Background: performance management in New Zealand LGOs Using the BSC
In 1987 the New Zealand Minister of Local Government announced a comprehensive to manage
programme of reforms, which were based on the key principle that clear and strong
accountability mechanisms should be encouraged (Basset, 1988). The resultant New performance
Zealand Local Government Act 1989 (and its subsequent amendments) followed the
model established in central government by embracing new public management
principles, such as requirements to engage in appropriate performance measurement 171
and accountability (Scott et al., 1990; Boston et al., 1996; Pallot, 2001). Also, the release
of the 2002 Auditor Generals report Local Government Looking Back and Looking
Forward highlighted the importance of non-financial reporting for the effective
discharge of accountability and expressed the Auditor Generals disappointment
with overall standards of non-financial reporting by LGOs (Macdonald, 2002). These
changing expectations of LGOs increased pressure to adopt contemporary
performance management and reporting tools to aid them in navigating towards
public goals and expectations (Pallot, 1997; 2001).

The LGOs that manage New Zealands towns and cities were now required to
include in their annual plans: the intended significant policies and objectives to be
achieved; the nature and scope of the significant activities to be undertaken to achieve
outcomes; and performance targets for each output, against which they would report.
Performance management became a key concern for New Zealand LGOs, therefore, and
the stage was set to introduce the BSC as a tool considered useful for this purpose.
Since then, there has been no local government-wide examination of the extent to
which the BSC has been implemented in New Zealand LGOs, its perceived benefits, or
the practical issues and challenges that shape its implementation. Guided by the four
research questions identified above, this study examined these issues using the
following research methods.
3.2 Research methods

A combination of a postal questionnaire and follow-up interviews was used to gather
data for this study.
3.2.1 The postal questionnaire. To ensure the generalisability of the studys
findings, data on BSC usage was sought from the entire population of New Zealand
LGOs in December 2007. At that time there were 73 city and district councils in NZ.
Regional councils are excluded from the population as their functions and purposes are
geared specifically towards the environment rather than the multiplicity of
responsiblilties faced by city and district councils. The postal questionnaires were
addressed to the Chief Executive Officers/City Managers of every city or district
council. These individuals were selected because they, rather than the elected
councillors, are really the managerial decision-makers within a council. Also, they
should be aware of all the management initiatives employed in their respective
organisations, whether on an organisational or departmental basis. The findings of this
study should, therefore, reflect BSC implementation on an organisational as well as
departmental level. However, a limitation of the survey method is that the
questionanire completion task may be delegated to other personnel less knowledgeable
about the subject matter.
In an effort to maximise the response rate, the questionnaire was limited to 13
questions with a combination of short, closed-ended questions and some open-ended
IJPSM questions that invited respondents to make comments where appropriate (see the
25,3 Appendix (Figure A1)). Since LGOs annual financial statements must be finalised and
audited by the end of November, the questionnaire was sent out during the quieter
post-November period.
Of the 73 local government bodies surveyed, 48 provided usable responses,
representing an excellent response rate of 65.8 per cent (see Table I).
172 The percentage mix of usable responses by type of council was consistent with the
number of local government organisations surveyed. Therefore, no particular type of
council dominated the usable responses received, although the response rate for city
councils was slightly higher than for district councils.
3.2.2 Follow-up interviews. A small number of follow-up interviews were conducted in
early 2008 to clarify points raised in the questionnaire survey and to further explore
managers perceptions and experiences of using the BSC in their LGOs. These face-to-face,
semi-structured interviews were conducted with the CEOs of four city councils who had
indicated their willingness to be contacted for interview[1]. Three of these LGOs were
current BSC users and one was a non-user. Attempts were made to interview the one
survey respondent who indicated their LGO was a previous BSC user, but the request was
declined. The questions used to guide these semi-structured interviews were constructed
after preliminary analysis of the questionnaire responses. The interviews lasted
half-an-hour to one hour and were tape recorded for later transcription. During the
interviews, the interviewer took notes and asked questions about relevant matters arising
from interviewees replies. Analysis of the interview transcripts was via thematic
analysis, i.e. identifying and coding the main themes evident from the interviews.
4. Findings
The findings from the questionnaire and follow-up interviews are presented below in
relation to the four key research questions that guided this study.
4.1 Do New Zealand LGOs use the BSC as a performance management tool?
General awareness of the BSC amongst LGO managers is very high at 91.67 per cent,
with slightly more awareness amongst district councils (94.60 per cent) compared to
city councils (81.81 per cent). However, amongst the 48 responding councils, only eight
(16.67 per cent) are current BSC users. One council no longer uses the BSC, while 39
councils have never used it. Of the four LGOs who participated in follow-up interviews,
two have used the BSC for more than four years while one had implemented it within
the past year (the fourth was a non-user). Two used the BSC throughout the LGO while
one used it within selected business units only.
Table II shows that current BSC use is dominated by city councils (27.3 per cent
usage compared to 13.5 per cent for district councils). One reason for this may be the
increased resources available to undertake such initiatives in the (generally larger) city
Responded Usable
Surveyed n % n %
Table I.
Questionnaire City councils 16 13 81.3 11 68.8
respondents by council District councils 57 37 64.9 37 64.9
type Total 73 50 68.5 48 65.8
councils. This is consistent with Chan (2004), who found that over two-thirds of USA Using the BSC
respondents using the BSC were relatively large municipalities, which were better to manage
resourced for the adoption of new management tools. However, open-ended
questionnaire responses from district council respondents also suggested that performance
smaller LGOs may be less likely to perceive themselves as needing a strategic
approach to performance management. For example:
We never looked at it as an option because we are not a leading edge type of organisation 173
(District Council).
We are a small organisation (60 staff) and tend to focus on day to day operations. There has
not been much, if any, focus on strategic direction (District Council).
The requirements of the Local Government Act have increased our responsibilities, so our
time is spent on meeting these requirements rather than on strategy as such (District Council).
Much of the achievement of outcomes rests primarily with external organisations,

particularly government ministries (District Council).
These comments suggest that the perceived degree of strategic orientation may, along
with resourcing, be a size-related driver of BSC adoption. Also, a perceived lack of
strategic orientation may be more common in the public sector, where no competitive
market exists and many longer-term operating requirements are imposed by
legislation or policy rather than directed by management. This finding points to a
potential reason why BSC implementation may be perceived as less beneficial in public
sector contexts.
4.2 What benefits do managers perceive the BSC to have as a performance management
tool?
Only eight of the 48 surveyed LGOs indicated current use of the BSC, so their views
form the basis for identifying its perceived benefits. When asked to rate the overall
usefulness of the BSC to their organisations (with 1 being not useful and 5 being
very useful) these eight respondents varied somewhat in their ratings (see Table III).
The mean rating of 4 provides a strong indication that current BSC users perceived
the BSC to be highly useful in their organisations. Open-ended survey responses and
interview comments support this view:
The BSC provides focus and clear lines of accountability . . . [and an] ability to measure the
achievement of agreed outcomes (District Council).
The BSC gives management a concise set of information to gauge performance and direct
improvements. It enables more comprehensive reporting to our stakeholders [and] informs
staff as to how successful the organisation has been (City Council).
Current Previous
users users Non-users
Usable responses n % n % n %
City councils 11 3 27.3 1 9.1 7 63.6 Table II.

District councils 37 5 13.5 0 0.0 32 86.5 BSC usage by council
Total 48 8 16.7 1 2.1 39 81.3 type
IJPSM
Current users Ratings
25,3
D26 3
D02 4
D33 4
D36 4
174 C05 4
C43 4
C46 4
D10 5
Total 32
Table III.
Perceived usefulness of Notes: Mean rating 32/8 4; the respondent identification codes indicate whether they are District
the BSC Councils (D) or City Councils (C)
It is designed to fit i.e. local government does not try to produce a return on investment as
a company. However, there are huge benefits from local government, which while
identifiable, are hard to quantify. BSC as a multiple stakeholder perspective management tool
can help clarify key measures which can tell if a strategy is working (City Council).
Respondents open-ended survey responses also revealed performance measurement to
be the main perceived benefit of BSC use, followed by strategic management and
reporting. The following quotations illustrate:
The main purpose is to track our performance over all critical activities over time (District
Council).
It helps with a more genuine understanding of the different dimensions of strategic decision
making (District Council).
Targets were set that directed our performance towards achieving our organisations
objectives in areas beyond simple financial outcomes (City Council).
In the follow-up interviews, all three BSC users noted its usefulness for measuring the
performance of staff as well as unit/divisional performance. Some questionnaire
responses also indicated that staff performance measures are built into LGO BSCs.
This accords with Greatbanks and Tapp (2007), who found that the introduction of
individual performance scorecards was supported by staff since these scorecards
provided clear goals as to what activities are viewed by management as important and,
where linked to bonus payments, facilitated an understanding of bonus performance
expectations. Chan (2004) also noted that a lack of linkage between the BSC and the
employee reward system contributed to BSC failure. The use of staff performance
scorecards by some LGOs appears to be a positive step in securing the BSCs
successful implementation, therefore.
The dominant use of the BSC as a performance measurement tool its most simple
form is in line with the use of the first generation BSC (Cobbold and Lawrie, 2002).
However, the intended evolution of the BSC from performance measurement to
performance management is evident in the literature (e.g. Birchard, 1996; Epstein and
Manzoni, 1997; Kaplan and Norton, 1996b; Kaplan and Norton, 1996c; Cobbold and
Lawrie, 2002). This evolution comes with experience in BSC application over time
(Griffiths, 2003) and the maturity of the organisations strategy. The findings of these Using the BSC
prior studies suggest that the longer an organisation has used the BSC, the more to manage
experienced it becomes and the more comprehensively it can utilise the BSC. Of the
three city councils using the BSC, two have used it for more than four years and one performance
implemented it less than one year ago. Of the five district council users, three indicated
they had used it for more than four years, one had used it between three and four years
and one had used it for one to two years. The varying experience of these organisations 175
with the BSC may account for their different focuses on performance measurement and
management.
Using the BSC to facilitate reporting requirements was another implementation
reason cited by current users. According to Griffiths (2003), as an external reporting
tool, the BSC has greater applicability to local government organisations that often
operate in the absence of competitive markets. The BSC has the potential to improve
transparency and accountability, and Wallace (1998) noted that it could be used as the
basis of reporting to central government or to the public. The reporting requirements on

local government were further clarified during the interviews, in which LGO managers
talked about the Local Government Act 2002 requirement to issue a Statement of
Service Performance as part of their annual financial statements. The purpose of this
statement is for the council to report against the Long Term Council Community Plan on
an annual basis in terms of objective achievements. The findings of this study suggest
the BSC offers a useful tool for supporting these reporting requirements.
4.3 What factors contribute to successful BSC implementation?

The survey responses and follow-up interviews revealed two key factors as
contributing to successful BSC implementation: modifying the BSC to fit the
organisations needs; and appropriate learning, both prior to implementing the BSC
and while using it.
The need for organisation-specific modification of the BSC is well recognised in the
literature, but is a particularly challenging issue in the public sector where singular,
profit-orientated objectives are absent. Chan (2004) noted that public sector BSCs can
be modified to include performance perspectives not included in the original
framework, while Kaplan and Norton (2001a) themselves suggested expanding the
customer perspective to account for the multiplicity of services, users and stakeholders
in public sector contexts (see also: Wisniewski and Olafsson, 2004; Niven, 2006).
However, there has been little empirical research into how such modifications to the
BSC framework are effected in the public sector.
The eight respondents whose LGOs were using the BSC noted that modifications
had been made to their BSC systems to reflect the general nature of local government
services and aims. These organisations appear to have built their BSCs around Long
Term Community Council Plans and annual plans, both documents that LGOs are
required to produce. As one City Council manager noted:
LGA (The Local Government Act) 2002 required local government to identify outcomes and
then monitor achievement of outcomes for reporting. The BSC which we have revised to
apply to local government seemed the best way to achieve this.
The names of the BSC perspectives were sometimes modified; for example, one LGO
had BSC quadrants labelled people, customers, process and finance. Another
IJPSM noted that their LGO was considering redesigning the BSC to add a fifth dimension to
25,3 capture leadership and governance aspects of council performance. This finding that
all of the BSC-using LGOs have made modifications to the traditional BSC model
suggests that this may help to secure a successful and sustained implementation.
The follow-up interviews with three current BSC users revealed that each LGO is
continuing to develop its BSC system as it become more experienced in its use,
176 suggesting that the BSC provides a platform for future learning, rather than
necessarily offering an immediate, complete performance management solution. For
example, one LGO began to use the BSC in a single unit or directorate then took an
incremental approach to implementing the BSC so it could learn from each stage and
transfer those lessons to other directorate applications. This LGO has since spread its
BSC use to six directorates and, at the time of the interview, was considering moving to
council-wide use. It also appeared that this LGOs managers felt some ownership of the
BSC system as it had been in use for several years.
The LGO that had implemented the BSC within the past year, on the other hand,
was better placed at the outset of their implementation to learn from prior cases of BSC
use in public sector settings. This included looking at local adoptions as well as
overseas examples such as the City of Charlotte (USA) and the City of Melbourne
(Australia), which are well documented. The initial decision to implement the BSC in
this LGO was the result of an organisational review to look at what framework to
adopt to give a robust basis for reporting and monitoring (Interviewee, City Council).
The interviewee referred to a circuit breaker team that was set up to research the BSC
and to benchmark best practice to see what approaches other LGOs were using. In
addition to this pre-implementation learning, a post-implementation review was
conducted. It appears that this council took a careful approach to its BSC
implementation, with strong support from top management.
This incremental, learning-based approach by both the early adopter and the recent
adopter LGOs appears to have contributed to successful BSC implementations. This
suggests that learning strategies such as researching previous BSC implementations,
benchmarking against best practice, attending seminars, holding training meetings,
and seeking assistance from consultants could be usefully employed by other councils
who are contemplating BSC use.
4.4 What are the barriers to successful BSC implementation?

Table II reveals that 81.3 per cent of the LGOs responding to the questionnaire had
never implemented the BSC. This finding suggests that barriers to implementation are
important determinants of public sector BSC practice that warrant further
examination. When asked why their LGOs had not implemented the BSC,
respondents answers fell into two categories. The first comprised perceived barriers
already recognised in prior studies of both public and private sector BSC
implementations. These included:
.
Use of alternative systems: many respondents indicated that their organisation
had either developed its own, non-BSC performance measurement system or
used other available tools.
.
Small organisational size: some respondents cited the small size of their
organisations as a reason for not implementing the BSC.
.
Resourcing problems: any BSC relies on appropriate systems to capture the Using the BSC
relevant information. A lack of resources to support this information gathering to manage
was seen as an obstacle to implementing the BSC, therefore.
.
Lack of time: some managers considered themselves too busy with more
performance
immediate operating concerns to spend time on developing a BSC.
.
Lack of top management support: necessary for promoting the BSC, encouraging
others to engage with it, and providing the resources to sustain its use. 177
While these findings serve to confirm those of prior research on BSC implementation,
of greater interest are those barriers that are especially significant in the public sector,
since they offer new insights into this under-researched domain. Two key issues to
emerge in this second category of responses were: difficulties in adapting the BSC
structure to a public sector context; and problems with identifying and incorporating
meaningful causal relationships between KPIs within the various BSC dimensions.
4.4.1 Problems with adapting the BSC to suit public sector organisations. The need to
modify the structure and terminology of the BSC to suit public sector organisations has
been noted in the literature (Griffiths, 2003; Kaplan, 2001; Niven, 2006), but the
practical challenges of achieving this are rarely noted. The findings of this study
revealed that, although all the BSC-using LGOs had modified the BSC to fit their
organisations, significant difficulties had been encountered in doing so. At one level,
this problem manifested itself in regard to adapting to the managerial philosophy
behind the BSC:
It required a move from an inputs focus to an outcomes focus, which brought into effect
advanced management ideas and the removing of traditional management philosophies
(Questionnaire response: District Council).
The shift from in-theory thinking to in-practice implementation was difficult
(Questionnaire response: City Council).
The development of strategy maps at an organisational and business group level was a
valuable exercise for considering how we undertake delivery of our products and services.
However, the BSC does not lend itself to describing the what as well as the how, which is a
requirement of comprehensive business planning . . . [so] it sort of breaks down at that point
(Interview: City Council).
At another level, managers struggled with how to construct a BSC with dimensions
and measures suited to the aims and activities of their organisations:
In our game [local government], what is a measure, objective, KPI, input, output, outcome,
leading measure, lagging measure? Working this out is a problem for the overall use of the
tool as an improvement mechanism (Questionnaire response: City Council).
The breadth of the perspectives is limiting. For example, product and service outputs are
addressed, but not leadership and governance, which are just as important to local
government (Interview: City Council).
We found difficulties in applying it [the BSC] in the local government sector. Its just not the
same as a business (Questionnaire response: District Council).
In particular, the definition of the customer and the identification of appropriate
customer-related KPIs proved challenging in practice:
IJPSM Who are our customers? Our revenue is from ratepayers, so we have to convince them we are
doing the right things. But, some of our services are targeted at subsets of the community, so I
25,3 guess you could say that different activities have different customers . . .? Im not sure
(Interview: City Council).
The councils approach to performance in [the pre-BSC] days was very much of a financial
nature, so it was difficult to suddenly define and focus on customers. Deciding what
178 performance indicators to use was a nightmare! (Interview: City Council).
Like these managers, several others noted the challenge of identifying appropriate
performance indicators for inclusion in a BSC designed to meet the organisations
needs. Kaplan and Norton, (1992, 1993) suggested that the selection of measures is a
key activity that should focus on information relevant to the implementation of
strategic plans. The number of measures should be limited, therefore. In the public
sector context often characterised, as it is in LGOs, by a multiplicity of activities,
outputs and objectives a particular concern is how to keep the number of KPIs down
to an appropriate level while still representing the diversity of organisational aims:
Because our operations are very broad and diverse, it was difficult to agree a concise set of
measure that covered all our key objectives (Questionnaire response: City Council).
We have too many measures. We are not picking up measures that track performance as
others see us (Questionnaire response: District Council).
You could have brilliant identical objectives for staff, but the services the staff are working on
might be parks, libraries, [or] resource consents, so these services have different attributes
that need to be measured. How can you include all of that? (Interview: City Council).
The findings of this study reveal that modifying the BSC to suit the public sector is far
from straightforward in practice. Local government managers struggled to adapt to the
BSCs outcomes-based philosophy, define their customer, identify appropriate BSC
dimensions, and select a workable number of useful KPIs all necessary steps in
translating the BSC to suit their organisations needs. Many of these challenges are
specific to the public sector, created by its lack of defined customers and clear financial
goals. Others, such as selecting appropriate KPIs, are a concern for any organisation
implementing a BSC, but are made more problematic by the complexities of the public
sector context. The challenge of adapting the BSC framework needs special
consideration in public sector organisations, therefore.
4.4.2 Problems with mapping causality. The second key practical challenge revealed
by this study is how to identify and incorporate causal relationships within a public
sector BSC. Cause-and-effect links amongst performance measures are central to the
performance management role of the BSC, allowing managers to focus on leading
indicators which facilitate prediction, learning and innovation (Kaplan and Norton,
1992; Malina and Selto, 2004). Some comments from LGO managers confirmed that
they recognised the importance of BSC causality for directing managerial attention to
key activities that drive desired outcomes. For example:
[Using the BSC], management can focus on performance improvement of specific target areas
that contribute to achieving strategic objectives . . . and on being proactive rather than
reactive (Questionnaire response: District Council).
However, identifying these causal relationships and building them into the BSC were Using the BSC
seen as significant challenges in practice, as the following quotations illustrate: to manage
The alignment of measures to strategic direction was not an easy task (Questionnaire performance
response: City Council).
It was difficult to create causal connections between outcomes, outputs and inputs
(Questionnaire response: District Council). 179
What causes something else? How can we tell? Theres so much going on so many
influences on our outcomes, including some we cant control that the cause and effect is just
a guess, really (Interview: City Council).
This problem is not unique to the public sector. Indeed, previous research has revealed
that many organizations, both public and private, implement the BSC without due
consideration of causal effects (e.g. Malmi, 2001; Griffiths, 2003; Speckbacher et al.,
2003; Ittner et al., 2003; Othman, 2006). However, the previously described challenges in
constructing BSCs to suit public sector environments undoubtedly exacerbate this
problem. While empirical studies have pointed to the existence of at least some causal
links in implemented BSCs (e.g. Hoque and James, 2000; Davis and Albright, 2004;
Malina et al., 2007), none have done so in public sector contexts. The findings of this
study suggest that BSC causality remains especially opaque to public sector managers,
and point to the need for further research into this barrier to successful BSC
implementation.
5. Implications: the BSC in the public sector

The study reported in this paper examined public sector managers views and
experiences on implementing the BSC as a performance management tool. It was
guided by four research questions developed in response to gaps in the extant
literature on public sector BSC use. The first of these questions was directed at
establishing the extent of BSC use amongst New Zealand LGOs the context for this
study since there are few prior international studies of BSC use in local government
and none in New Zealand. At this local level, the findings of this study provide a first
view of BSC use in New Zealand local government. With a usable response rate of 65.75
per cent, the representativeness of this research can be favourably compared to prior
studies (e.g. Chan, 2004; Beechey, 2005).
Having identified a low rate of BSC usage in New Zealand LGOs consistent with
international public sector studies (e.g. Jackson and Lapsley, 2003; Chan, 2004), the
remaining research questions were directed at the broader issue of understanding
public sector managers perceptions of potential BSC benefits and the factors that
support or impede BSC implementation in a public sector context. The findings to
emerge on these issues add to the international literature on public sector BSC use and
point to some implications for both practice and theory.
In this study, managers within BSC-using public sector organisations perceived it
as a useful performance measurement and management tool. It was also thought to
have utility as a reporting tool, supporting Griffiths (2003) view that the BSC can be a
useful external reporting tool for public sector organisations that operate in the
absence of competitive markets. However, despite the multiple perceived benefits of
BSC use, this study revealed its limited adoption in practice. In order for public sector
IJPSM managers to exploit the full potential of the BSC, greater attention must be given to the
factors that support or impede its implementation in practice.
25,3 In this study, several of the factors perceived to influence BSC adoption have been
previously noted in studies of both public and private sector BSC use. For example, key
implementation success factors included:
.
a participative pre-implementation decision process;
180 . learning from others BSC implementations and benchmarking best practice;
. strong management support;
.
adequate resourcing of BSC initiatives;
.
modifying the standard BSC model so that it matches the organisations context
and strategy (thus enhancing its acceptance as a relevant tool);
.
continuous in-use learning and training;
.
post-implementation review.
Some of the BSC implementation issues faced by public sector managers appear to be
universal in nature, therefore. However, this study has also highlighted three
implementation challenges of particular importance within the public sector.
First, the findings of this study suggest that a lack of a perceived strategic
orientation within public sector organisations may be a barrier to BSC adoption. Since
BSC design must flow from strategy, its effective use is predicated on an assumption
that the organisation is strategy driven. Some participants in this study did not
perceive this to be the case in their organisations. This points to a need for public sector
organisations to communicate strategy clearly to managers, so they see their roles and
activities as linked to key strategic outcomes and are therefore better placed to exploit
the potential benefits of the BSC as a performance management tool.
A second issue concerns the necessary modification of the BSC to suit an
organisations context. Adapting the BSC was considered particularly challenging
amongst the public sector organisations examined in this study. In particular,
managers cited problems with deciding on the appropriate dimensions to include in the
BSC, defining the customer, and identifying a manageable number of appropriate KPIs
given the range and complexity of organisational activities. In light of these concerns,
it would be useful for public organisations to start with a BSC template that has been
adapted for the characteristics of their sector (e.g. Niven, 2006, p. 12), rather than taking
the standard Kaplan and Norton (1992) model as a departure point. In this way,
potential BSC users are better guided in recognising that the BSC needs to look
different in the public sector, rather than trying to emulate business-like
management tools at the expense of organisational fit. Also, public sector managers
should seek to learn from other organisations that have developed (and perhaps
modified with experience) suitable BSC frameworks. This benchmarking needs to
concentrate on public sector exemplars, since concerns about BSC architecture will
differ in the private sector.
Third, a key finding of this study is that BSC causality may be particularly poorly
understood and under-developed in the public sector. While causal links between its
dimensions are considered crucial to the BSCs performance management role, Bukh
and Malmi (2005, p. 93) point to Kaplan and Nortons argument that performance
measures should be derived from assumed cause-and-effect relationships, and note
that these assumptions may ultimately prove to be wrong. In order to correct any Using the BSC
flawed assumptions, some researchers advise that organisations attempt to validate to manage
assumed causal relationships when performance data becomes available over time
(Stemsrudhagen, 2004; Bukh and Malmi, 2005; Chenhall, 2009). Others suggest that, in performance
practice, BSC users may simply believe in the assumed causal relationships without
ever testing them (Nrreklit and Mitchell, 2007), and that this belief alone may be
sufficient to underpin the BSCs motivational and attention-directing roles (Sundin 181
et al., 2010).
The findings of this study suggest that a simple belief in BSC causal relationships
may be harder to sustain in public sector contexts where managers feel their
organisation lacks a clear strategic direction and see organisational outcomes as
shaped by external forces beyond their control (e.g. legislation, policy and politics).
Without such belief, the power of the BSC as an attention-directing performance
management tool is undermined. Empirical testing of causal relationships may
therefore be necessary to sustain public sector managers engagement with the

performance management role of the BSC. Achieving this would require an extended
period of commitment to BSC use so that changes in KPIs could be monitored and
causal relationships identified.
To summarise, several implications for public sector BSC practice emerge from this
study:
.
Organisational strategy must be clearly communicated to public sector
managers in order to raise their awareness of the BSCs performance
management potential.
.
Starting from a public sector-specific BSC template (e.g. Niven, 2006, p. 12),
rather than the standard Kaplan and Norton (1992) model, could assist in
achieving an adapted BSC design that meets organisational needs.
.
Managers should seek to learn from, and benchmark against, other public sector
organisations that have developed effective BSC frameworks.
.
Attention should be given to identifying expected causal relationships between
measures within the BSCs various dimensions, so that the BSC can fulfil its
potential as an attention-directing performance management tool.
.
Empirical testing of expected causal relationships may support the ongoing
development of, and commitment to, BSC use, since public sector managers may
be less likely to believe in the BSCs performance management potential in the
absence of such evidence. Sustained use of the BSC is necessary to collect the
longitudinal performance data required for such testing, so a period of
commitment to BSC development is required.
These suggestions for practice also point to some implications for BSC theory. First,
the literature is largely silent on the challenges of modifying the BSC to suit public
sector use. It is assumed in adaptations such as Nivens (2006, p. 12) that the BSC can
be readily re-orientated to locate customer-related measures as the ultimate, lagging
indicators of performance in place of financial outcomes. Yet, problems with executing
this reorientation in practice are perceived as a barrier to BSC implementation in the
public sector. Further, the findings of this study support prior observations that
practical difficulties exist in measuring intangible public sector outcomes
IJPSM (e.g. Cavalluzzo and Ittner, 2004; Wisniewski and Olafsson, 2004). Further empirical
25,3 studies and theoretical development are therefore needed in the area of BSC design if
useful guidance is to be offered to public sector managers seeking to harness the BSCs
performance management potential. In particular, BSC theory is currently weak on the
issues of when (and what) additional (or substitute) BSC dimensions might be
appropriate in public sector contexts, designing measures that capture important
182 qualitative outcomes, and steps for identifying the customer and/or achieving a
genuine multi-stakeholder approach.
Second, since mapping BSC causality is recognised as a particular challenge in
public sector practice, there is a need to develop empirical research and theorising in
this area. While concerns about the existence, nature and testing of BSC
cause-and-effect relationships is a matter of ongoing debate in the general BSC
literature (e.g. Brignall, 2002; Nrreklit, 2000, 2003; Davis and Albright, 2004; Bukh and
Malmi, 2005; Malina et al., 2007), it has not been examined in public sector practice,
despite the BSC being advocated as a useful performance management tool in this
context. Further research and theoretical development is required to inform this aspect
of BSC implementation in the public sector, therefore.
6. Conclusions and suggestions for further research

The potential for the BSC to support the performance management aims of public
sector organisations is well recognised in the literature. It was also acknowledged
amongst the managers who participated in this research. However, this study, like
others before it, has revealed low rates of BSC adoption amongst public sector
organisations. Further, the findings suggest that perceived BSC utility is dominated by
performance measurement and reporting, while the performance management role of
the BSC remains under-exploited by many of its users. The key to understanding this
disconnect between the BSCs perceived potential and its actual usage lies in
uncovering the challenges that impact its public sector implementation. This study has
identified challenges that appear particularly pronounced in the public sector and has
highlighted their significance for both practice and theory.
To date, empirical research on the BSC has been heavily orientated towards the
private sector. But, as public sector organisations increasingly seek ways to improve
their performance management practices, a growing need exists to understand the
issues and challenges of BSC implementation in that sector also. The findings of this
study point to several avenues for future research in this area. First, an implication of
this study is that where public sector organisations are perceived to lack strategic
direction, the potential for the BSC to support decision-making and performance
improvement may not be recognised. Future research could therefore examine the link
between strategic planning, communication of strategy, and the effective use of the
BSC in public sector organisations. Second, the general absence of commercial
sensitivities and competition amongst public sector organisations, coupled with the
BSCs potential to present a multi-dimensional picture of performance, means it is
perceived as a useful external reporting tool in this sector. Future studies could
therefore examine how BSC use impacts on reporting practices in the public sector.
Third, empirical studies of BSC architecture and adaptation could examine the key
implementation challenges identified by this study: what BSC dimensions might be
appropriate, how measures can be designed to capture important qualitative outcomes,
and steps for identifying the customer and/or achieving a multi-stakeholder Using the BSC
approach in public sector contexts. Also, this study revealed that the inability to to manage
incorporate useful causality relationships within public sector BSCs presents a barrier
to its efficacy as a performance management tool. The empirical identification and performance
validation of assumed BSC causality relationships is an important area for future
research in public sector contexts, therefore. Scholarly attention to these and other
under-examined aspects of practice is likely to enhance theory development and 183
provide guidance to public sector managers seeking to harness the performance
management potential of the BSC.
Note
1. No district council respondents were willing to be interviewed.
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Corresponding author
Deryl Northcott can be contacted at: deryl.northcott@aut.ac.nz
(The appendix follows overleaf.)

IJPSM Appendix. Research instrument: balanced scorecard questionnaire
25,3
188
Figure A1.
performance
to manage
Using the BSC
Figure A1.
189
25,3
190
IJPSM
Figure A1.
Using the BSC
to manage
performance
191
Figure A1.
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International Journal of Public Sector Management

Using the balanced scorecard to manage performance in public sector organizations:

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Manukau Institute of Technology, Auckland, New Zealand

International Journal of Public Sector

2. Literature review: the BSC in the public sector

perceive as critical to the successful implementation of public sector BSCs, or see as

2.3 Motivation for this study and research questions

3. The New Zealand study: background and methods

public goals and expectations (Pallot, 1997; 2001).

3.2 Research methods

Much of the achievement of outcomes rests primarily with external organisations,

City councils 11 3 27.3 1 9.1 7 63.6 Table II.

basis of reporting to central government or to the public. The reporting requirements on

4.3 What factors contribute to successful BSC implementation?

4.4 What are the barriers to successful BSC implementation?

5. Implications: the BSC in the public sector

therefore be necessary to sustain public sector managers engagement with the

6. Conclusions and suggestions for further research

2nd ed., John Wiley & Sons, Hoboken, NJ.

(The appendix follows overleaf.)

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