Business strategy, environmental uncertainty, balanced scorecard and performance among Malaysian small and medium enterprises

Abstract

The Balanced Scorecard (BSC) initially a tool for measuring performance is now recognised as an approach for strategy implementation. Based on literature reviewed, previous studies have mainly been carried out on the use of BSC in large businesses. However, research on its usage in small and medium size enterprises (SMEs) is very limited. Businesses must have a well-developed strategy to implement BSC, but SMEs tend to have poor strategic planning. Besides that, SMEs suffer from scarcity of financial resources and are vulnerable to external environment and cannot influence the market. Being responsive to the market is a positive characteristic for SMEs but this can be problematic when applying BSC, because changes in strategy due to market dynamism is one of the main causes of BSC failure. The objectives of this study are to discover how BSC implementation is affected by SMEs’ business strategy and environmental uncertainty, and to determine the influence of this relationship on SMEs’ performance. This study utilised the contingency theoretical framework to evaluate the relationship between SMEs’ strategy, environmental uncertainty, BSC implementation and SMEs’ performance. Moreover, the influence of financial resources as a component of internal environment on business strategy of SMEs was investigated based on resource-based theory. Data were collected from a survey among 300 Malaysian SMEs. Partial least squares (PLS) technique was employed to analyse the data. The findings indicated that BSC, as a strategy implementation system enhanced SME’s performance and its effectiveness was influenced by the SMEs’ business strategy. On the other hand, firms’ financial resources significantly influenced the business strategies of SMEs. Having access to adequate financial resources enabled SMEs to develop a clear business strategy. SMEs with a clearer organisational approach was more successful in BSC implementation and consequently had better performance. The results suggested that BSC implementation acts as a mediator between SMEs’ strategy and SMEs’ performance. Additionally, successful implementation of BSC depends on the level of environmental uncertainty. Based on the findings, a distinctive BSC should be designed to suit SMEs’ business strategy and market environment especially in developing countries such as Malaysia.