Effects of the Implementation of the Balanced Scorecard Model on the Financial Performance of Companies in the Republic of Serbia

Abstract

The growing complexity and ambiguity of contemporary business environment imply the necessity for using holistic strategic performance measurement systems, such as the Balanced Scorecard Model (BSC Model). BSC has gained significant importance in recent years as a strategic management tool enabling organizations to align their business activities with the vision and strategy of the organization and improve their overall performance. For decades, measuring and evaluating organizational performance was limited to financial performance. In addition to lagging financial metrics, the BSC incorporated leading performance indicators from the perspective of customers, business processes, and learning and growth. A major assumption underpinning the use of BSC in companies is that it has a positive effect on overall performance. The paper aims to demonstrate the effects of the BSC model's implementation on financial performance, specifically on the profitability, i.e. ROA and ROE of companies. Although numerous studies have researched the impact of implementing the BSC on financial performance, these studies have predominantly focused on developed economies, while research in the Republic of Serbia is scarce. Therefore, the contribution of the paper is reflected in the fact that the designed model aims to fill the research gap by investigating the impact of BSC implementation on the financial performance of companies in the Republic of Serbia, i.e. on ROA and ROE, as the most significant measures of company's profitability. The research covered 11 companies in the territory of the Republic of Serbia. The internal consistency of the statements used to measure the variables of the developed model was calculated based on the Cronbach’s ? coefficient. The multiple regression analysis was used to test the main effects. The results of the empirical research show that there is a positive statistically significant impact of the implementation of the Balanced Scorecard on the ROA and ROE of companies. Our research offers meaningful implications for managers who wish to consider adopting and using BSC. We indicate that using the BSC represents an effective means of enhancing organizational performance and designs of managerial practices that might be suitable for pursuing specific strategic priorities. Managers should first align the objectives of the BSC model with the mission and long-term goals of the company. Bonuses, rewards, and promotions of employees should be linked to key performance indicators from the different perspectives of the BSC model that impact the company's profitability. From the customer perspective, the BSC model is used to enhance the value of the market offering. Also, through appropriately set goals from the internal process perspective, it is possible to increase profitability by reducing product and service realization times, improving inventory management, and automating production processes. Additionally, managers should continuously monitor the implementation of the BSC model to identify deficiencies, respond promptly, and adjust the goals of different perspectives to the current business situation. The research was conducted on a limited sample and within the territory of the Republic of Serbia, which means the results cannot be generalized or applied to employees from other countries. Accordingly, future models may include additional variables.