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Daryush Farid, Mehran Nejati, Heydar Mirfakhredini, Balanced scorecard application in universities and higher education institutes: Implementation guide in an iranian context / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 31-45


Close compete of universities and higher education institutes in recent year in order to offer high quality services and achieve higher national and International rank, has led to an increase in their demand for a customized approach for assessing and improving their performance. This paper studies the application of Balanced Scorecard (BSC), as a powerful measurement and assessment system, in universities and higher education institutes. Reviewing the existing literature, the paper also provides an implementation guide for BSC in an Iranian perspective. Eventually, the performance indicators for measurement purposes of the introduced case study are proposed. Keywords: Balanced Scorecard, BSC, Performance Assessment, Higher Education, Universities, Iran.

Introduction In today’s world of global competition, providing quality service is a key for success, and many experts concur that the most powerful competitive trend currently shaping marketing and business strategy is service quality (Abdullah, 2006, p. 31). Institutes of higher education are also focusing on ways to render high quality education to their educators and have a better performance. Higher education institutes are facing new challenges in order to improve the quality of education. There is a pressure for restructuring and reforming higher education in order to provide quality education and bring up graduates who become fruitful members of their societies. Therefore, these institutes are trying to recognize the dimensions of a quality education and define strategies to reach their pre-defined standards and goals. The purpose of this article is to examine the concept of quality education within higher education institutes and universities, and explore the use of performance models and goal-setting in universities as a means for higher education excellence. The article discusses the most practical models for universities' performance enhancement, and proposes an improved Balanced Scorecard model to improve quality in

Yazd University, Iran.

Daryush Farid, Mehran Nejati, Heydar Mirfakhredini – Balanced scorecard application in universities and higher education institutes: Implementation guide in an iranian context / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 31-45

higher education. It also suggests the related performance indicators as well as quality improvement approaches for higher education institutes.

Quality in higher education Quality in higher education is a complex and multifaceted concept and a single appropriate definition of quality is lacking (Harvey and Green, 1993). As a consequence, consensus concerning “the best way to define and measure service quality” (Clewes, 2003, p. 71) does not as yet exist. Every stakeholder in higher education (e.g., students, government, professional bodies) has a particular view of quality dependent on their specific needs. O'Neill and Palmer (2004, p. 42) define service quality in higher education as “the difference between what a student expects to receive and his/her perceptions of actual delivery”. Guolla (1999) shows that students' perceived service quality is an antecedent to student satisfaction. Positive perceptions of service quality can lead to student satisfaction and satisfied students may attract new students through word-of-mouth communication and return themselves to the university to take further courses (Marzo-Navarro et al., 2005; Wiers-Jenssen et al., 2002; Mavondo et al., 2004; Schertzer and Schertzer, 2004). Zeithaml et al. (1993) distinguish between three types of service expectations: desired service, adequate service, and predicted service. Customers have a desired level of service which they hope to receive comprising what customers believe can be performed and what should be performed. Customers also have a minimum level of acceptable service as they realize that service will not always reach the desired levels; this is the adequate service level. Between these two service levels is a zone of tolerance that customers are willing to accept. Finally, customers have a predicted level of service, which is the level of service they believe the company will perform.

The balanced scorecard Robert S Kaplan and David P Norton (1992) first introduced the concept of balance scorecard in their Harvard Business Review article “The Balance Scorecard – Measures that Drive Performance”. Focusing on the fact that managers needed a balanced presentation of both financial and operational measures they propounded four perspectives as the drivers of future financial performance: (1) Customer perspective – how do customers see us?


Daryush Farid, Mehran Nejati, Heydar Mirfakhredini – Balanced scorecard application in universities and higher education institutes: Implementation guide in an iranian context / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 31-45

(2) Internal perspective – what must we excel at? (3) Innovation and learning perspective – can we continue to improve and create value? (4) Financial perspective – how do we look to stakeholders? The scorecard provides executives with a comprehensive framework that translates a company’s strategic objectives into a coherent set of performance measures. It represents a fundamental change in the underlying assumptions about performance measurement and helps focus the strategic vision. The financial and customer perspectives describe the desired outcomes sought by the organization. However, these measures may contain many lagged indicators of performance. The internal processes and internal growth perspectives, on the other hand, show how the organization creates these desired outcomes. In this way, managers can identify a causal chain from the performance drivers to financial outcomes. From the top of the chain on down, desired financial outcomes can only be accomplished only if customers are satisfied. To realize the customer value propositions, internal processes must be created and delivered. Finally, the internal processes must be supported by an organization’s learning and growth. As Kaplan and Norton (2004, p. 42) explain “Aligning objectives in these four perspectives is the key to value creation, and, hence, to a focused and internal consistent strategy”. In developing a structure that links from cause to effect, Kaplan and Norton (2004) created a tool called the strategy map. The strategy map is a visual representation of an organization’s strategy that describes the logic of the strategy by representing the objectives for the critical internal processes that create value and the organizational learning and growth that support those processes. These objectives are then translated by the balanced scorecard into targets and measures. The internal processes most critical to creating the customer’s value propositions are referred to as strategic themes.

BSC for non-profit organizations The BSC has been widely used in manufacturing organizations, service organizations, non-profit organizations, and governmental organizations with excellent effects (Kaplan and Norton, 2001b). Kaplan and Norton (2001a) have pointed out that financial measurement alone does not reflect the organizational mission of governmental and non-profit organizations; rather the mission of government or non-profit organization should be placed at top of the BSC in measuring whether such an organization has been successful. This can also help to keep the long-term mission of organization clear and precise. Hence, the


Daryush Farid, Mehran Nejati, Heydar Mirfakhredini – Balanced scorecard application in universities and higher education institutes: Implementation guide in an iranian context / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 31-45

greatest difference between businesses and non-profit organizations lies in the achievement of the mission. To do this, both the financial perspective and the customer perspective must be used to enhance the perspectives of internal processes and learning and growth. Although financial performance is not the main target of most governmental and non-profit organizations, the original sequence of the BSC perspectives can be rearranged with the customer perspective moving to the top (Kaplan and Norton, 2001b) (cited in Chen et al., 2006) (Fig. 1). The BSC can thus be adjusted according to the individual circumstances of any case. Indeed, some organizations focus on their key strategies to set up another perspective (Kaplan and Norton, 2001a). For example, some public sector organizations institute a social responsibility perspective or a cultural perspective.

Fig. 1. BSC for non-profit organizations (Source: Kaplan and Norton, 2001a)

With respect to the implementation of the BSC in non-profit organizations, Kaplan and Norton (2001a) reported that United Way of Southeastern New England (UWSENE) was the first non-profit organization to introduce BSC. In doing so, UWSENE focused on the financial and customer perspectives treating donors as target customers’. According to Kaplan and Norton (2001b), non-profit organizations tend to structure their BSC with mission as the top perspective, followed by the customer perspective, the internal process perspective, the learning and growth perspective, and finally the financial perspective. However, Lawrence and Sharma (2002) have pointed out that the BSC constructed by a corporate university, the DXL University, was based entirely


Daryush Farid, Mehran Nejati, Heydar Mirfakhredini – Balanced scorecard application in universities and higher education institutes: Implementation guide in an iranian context / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 31-45

on a BSC that had mission and strategic targets on the top, followed by the financial perspective, and then other concepts. Wilson et al. (2003) observed that the BSC established by the Canada National department of British Columbia Buildings Corporation (BCBC) changed a financial perspective into a shareholder perspective, and placed this BSC system on the same level as the customer perspective. Wilson et al. (2003) also noted that three national departments, the Norwegian Directorate of Public Construction and Property, the US General Service Administration (GSA), and the Nation Property Board of Sweden (NPB), all had BSC or strategic map as business type (with the financial perspective at the top), but Wilson et al. (2003) did not explain that the BSC established by these three departments might have been related to the organizational culture of these departments which expected them to emphasize financial performance management as do corporations. The above literature review reveals that the four major perspectives of the BSC can be adjusted according to the individual needs of the organization. Nevertheless, some public sector and non-profit organizations adopt a similar BSC structure to that of business organizations.

Application of BSC in education It is evident that the BSC has been widely adopted in the business sector but the education sector has not embraced the BSC concept widely as indicated by the dearth of published research on this topic (Karathanos and Karathanos, 2005). Cullen et al., (2003) proposed that BSC be used in educational institutions for reinforcement of the importance of managing rather than just monitoring performance. Sutherland (2000), (cited in Karathanos and Karathanos, 2005) reported that the Rossier School of Education at University of Southern California adopted the BSC to assess its academic program and planning process. Also Chang and Chow (1999) reported in a survey of 69 accounting department’s heads that they were generally supportive of the BSC applicability and benefits to accounting education programs. Ivy (2001) studied how universities in both UK and South Africa use marketing to differentiate their images in the higher education market. At a time when higher educational institutions around the globe face declining student numbers and decreasing funding grants it becomes imperative for them to determine their images in the eyes of their various publics. Karathanos and Karathanos (2005) describe how the Baldrige Education Criteria for Performance Excellence has adapted the concept of BSC to education and discuss significant differences as well as similarities between BSC for Business and BSC for education.


Daryush Farid, Mehran Nejati, Heydar Mirfakhredini – Balanced scorecard application in universities and higher education institutes: Implementation guide in an iranian context / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 31-45

In higher education as in business there are acceptable conventions of measuring excellence. Rather than emphasizing financial performance, higher education has emphasized academic measures. As in the case of business the demands of external accountability and comparability, measurement in higher education has generally emphasized those academic variables that are most easily quantifiable (Ruben, 1999). These measures usually are built on and around such aspects as faculty/ student numbers (ratios), demographics; student pass percentages and dispersion of scores; class rank, percentile scores; graduation rates; percentage graduates employed on graduation; faculty teaching load; faculty research/publications; statistics on physical resource (see library, computer laboratories etc.). Ruben (1999) indicates that one area deserving greater attention in this process of measurement is – the student, faculty and staff expectations and satisfaction levels. He opines that in most higher education centers very little attention is paid to systematically measuring students’, faculty and staff satisfaction despite sharing the widely accepted viewpoint that attracting and retaining the best talent/people is the primary goal and critical success factor for institutions of higher learning. In a study conducted by Ewell, (1994) (cited in Ruben, 1999), the measures used in 10 states in the USA in performance reports of higher education institutions, were: • Enrolment/graduation rates by gender, ethnicity and program. • Degree completion and time to degree. • Persistence and retention rates by gender, ethnicity and program. • Remediation activities and indicators of their effectiveness. • Transfer rates to and from two and four year institutions. • Pass rates on professional exams. • Job placement data on graduates and graduates’ satisfaction with their jobs. • Faculty workload and productivity in the form of student/faculty ratios and instructional contact hours. Armitage and Scholey (2004) successfully applied the BSC to a specific master’s degree program in business, entrepreneurship and technology. Karathanos and Karathanos (2005) have compared the Baldrige Award and BSC criteria in the context of education and have come out with measures closely aligned amongst both the instruments.


Daryush Farid, Mehran Nejati, Heydar Mirfakhredini – Balanced scorecard application in universities and higher education institutes: Implementation guide in an iranian context / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 31-45

Balanced scorecard implementation guide in universities and higher education institutes Educational institutes are just beginning to view themselves as part of a service industry, and many are doing so reluctantly (Gold, 2001) (Cited in Banwet and Datta, 2003), often as a result of an enrollment crisis (Wallace, 1999). Canic and McCarthy (2000) suggest that for many years, the notions of service quality and higher education seemed about as compatible as oil and water and decades-old institutions were not readily amenable to continuous quality improvement initiatives. Low (2000) notes that the provision of quality service to students on campus is a key element in attracting and retaining students. Failure to attract or satisfy students, would negatively impact student enrollment and retention, funding, job security and viability of a university or educational institute. Finally, service quality can lead to excellence in business education (LeBlanc and Nguyen, 1997). Introduction of the BSC in an educational institution requires faculty staff to work together. It begins with senior supervisors who are responsible for policy making and execution in a top-to-bottom hierarchy. In the ultimate, the introduction of the BSC will create a cause-and-effect linkage involving feedback from staff members and communication among corresponding functions. Five basic principles are involved in the establishment of the BSC as part of the strategic core of an organization (Kaplan and Norton, 2001a, c): (1) (2) (3) (4) (5) Translating the strategy to operational terms. Aligning the organization to the strategy. Making the strategy part of everyone everyday job. Making strategy a continuous process. Mobilizing change through leadership.

Below, we try to help the reader comprehend the BSC method as a management strategy and understand each strategic theme as it relates to initiatives, targets and measurement for a management department. We apply the BSC to the authors’ own department, in Yazd University, a public university in Iran. We begin with our mission statement, in which we set out the general goals and purpose of the organization: To prepare students to become managers and leaders who will add value to their organizations and communities and create sustainable development in society through:


Daryush Farid, Mehran Nejati, Heydar Mirfakhredini – Balanced scorecard application in universities and higher education institutes: Implementation guide in an iranian context / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 31-45

• Offering high quality graduate and undergraduate programs. • Training creative and innovative entrepreneurs and managers. • Supporting research. Based on this mission, the BSC strategy map will develop a strategy map like the one shown in Fig. 2 (Adapted from Kaplan and Norton, 2004, p. 51) (cited in Papenhausen and Einstein, 2006, p. 18).


Daryush Farid, Mehran Nejati, Heydar Mirfakhredini – Balanced scorecard application in universities and higher education institutes: Implementation guide in an iranian context / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 31-45

Fig. 2. BSC strategy map


Daryush Farid, Mehran Nejati, Heydar Mirfakhredini – Balanced scorecard application in universities and higher education institutes: Implementation guide in an iranian context / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 31-45

After the strategy map is drawn, the next step is the development of a balanced scorecard showing multiple goals and measures for each perspective. Even though the number of measures in each perspective varies, it is important that each measure aligns with the organization’s strategy. The measurements used are adapted from Bailey et al. (1999) (cited in Papenhausen and Einstein, 2006), but were tailored to apply to our specific management department. Financial perspective The financial perspective contains the tangible outcomes in traditional financial terms. Table 1 is an overview of the financial perspective’s goals and measurements.
Table 1 Overview of the financial perspective’s goals and measurements Type Fund Raising Goal Building endowment/fund raising/ annual giving Increased research grants Revenue from operations Increased state appropriation Increased student fees Increase teaching productivity Measurement Size/growth of endowment Donor support for new initiatives Total funds raised Volume and number of research grants received % of funding relative to others in system % of contribution cost Student/faculty ratio Balanced budgets Extend budget submissions cover all essential requirements Cost per unit of production relative to peers Market growth Rate of increase in fee-paying students

Financial management

To be financially sound

To financially succeed

Stakeholder perspective Value propositions are created to meet the needs of each stakeholder. These value propositions are those that hold the greatest value to each stakeholder and represent outcomes of the college’s internal processes. Satisfactory realization of the value propositions translate into financial outcomes outlined in the financial perspective. Table 2 is an overview of the stakeholder perspective’s goals and measurements.


Daryush Farid, Mehran Nejati, Heydar Mirfakhredini – Balanced scorecard application in universities and higher education institutes: Implementation guide in an iranian context / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 31-45

Table 2 Overview of the stakeholder perspective’s goals and measurements Stakeholder Goal Measurement No. and quality of students Persistence rate Applications to programs % admitted Market share Geographic draw area Quality of teaching and advising Department GPA Starting salaries Quality and no. of on-campus recruiters Internship programs Ability to get access to “needed” courses Ease in getting “good” job Student evaluations of faculty/ courses Graduate exit surveys Employer survey rating graduates’ effectiveness No. of faculty involved in community/business service Encouragement given faculty to engage in development activities Effectiveness of orientation and inculcation process for new faculty Availability of well-defined personnel policies and procedures available to faculty Office space and computer availability Adequacy of participation in campus-wide activities Quality of relationships with other elements on campus Corporate evaluation of curriculum Qualifications of faculty Focus on up-to-date teaching practices Quality of students admitted Quality of faculty Accreditation status No. of faculty publications/ citations in ISI Journals No. of faculty publications/ citations in other International research journals No. of faculty publications/ citations in national research journals No. of faculty members’ presentations and speaks in International conferences No. of faculty members’ presentations and speaks in national conferences

Attract high-quality students


Develop highquality students Graduate highquality students

Student satisfaction Community – employers, alumni, parents

Business community (employer)


Faculty satisfaction


Service to the university Teaching quality Academic excellence

General Quality research contributions


Daryush Farid, Mehran Nejati, Heydar Mirfakhredini – Balanced scorecard application in universities and higher education institutes: Implementation guide in an iranian context / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 31-45

Internal process The internal process perspective describes the critical internal processes that drive the stakeholder satisfaction and the college’s financial outcomes. Internal business processes deliver the value proposition to stakeholders and drive the financial effectiveness. Table 3 illustrates this perspective’s strategic themes (critical internal processes), goals, and measurements.
Table 3 Overview of the internal process perspective’s goals and measurements Strategic theme Goal Measurement Student satisfaction Employer satisfaction Teaching awards Course evaluations Peer and outside reviews Grade point standards Pass rates on professional exams Opportunities for writing and oral presentations Assessments by course No. of students going to graduate/professional schools Advancement of alumni in profession Degree of deployment of technology in learning experience No. of new courses developed Degree of innovation Degree to which curriculum is up-to-date with educational, business, and commercial trends Program internationalization Periodic review of each program on a rolling schedule Concept to implementation time Timeliness of delivery of new products Faculty credentials Faculty appraisals Endowed chairs Faculty development plans Contacts with business and industry Utilization rate of multimedia in classroom % of students completing undergraduate program in 4 years % of students completing graduate program in 2 years Teaching costs/student Administrative costs/student % of budget dedicated directly to learning Type and no. of services provided Time required to register Availability of internships – co-ops

Teaching excellence Teaching/ learning excellence

Excellence in developing learning and learning skills

Curriculum/ program excellence and innovation

Curriculum excellence and innovation Introduction of new programs/ innovations Quality faculty

Quality and currency of faculty

Currency of faculty and classroom material/ experiences Production efficiency

Efficiency and effectiveness of service

Student services effectiveness


Daryush Farid, Mehran Nejati, Heydar Mirfakhredini – Balanced scorecard application in universities and higher education institutes: Implementation guide in an iranian context / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 31-45

Learning and growth perspective The learning and growth perspective identifies the sets of skills and processes that drive the college to continuously improve its critical internal processes. The learning and growth areas that feed into internal processes subsequently drive stakeholder satisfaction and ultimately financial outcomes. Table 4 is an overview of this perspective’s goals and measurements.
Table 4 Overview of the Learning and growth perspective’s goals and measurements Type Goal Faculty development Measurement Rials (Iranian Currency) for research, travel, library, computer hardware/software Teaching assessments Student and faculty satisfaction Degree to which technology is used in specific courses Expenditures on hardware/software Development of assessment device/ technique for each innovation Evaluation of measuring and reward system in college Evaluation of strategic planning Adequacy of classroom and equipment facilities for providing globally relevant management education

Teaching/learning excellence and innovation

Technology leadership (use, development, application)

Teaching/learning innovations Measure, reward, and evaluate goal attainment Establish broad-based and continuous strategic planning process Adequate physical facilities

Mission-driven processes and reward system

Quality of facilities

It must not be forgotten that support from senior administrators is critical to implementing a successful BSC in any organization. Conclusions The development of the balanced scorecard is a fundamental process that enables continuous improvement and enhancement. It is better to start to improve than wait for a perfect solution before the implementation of the strategy. The experience of authors shows that organisational change does not happen at one point in time, but is a continuous management process. The


Daryush Farid, Mehran Nejati, Heydar Mirfakhredini – Balanced scorecard application in universities and higher education institutes: Implementation guide in an iranian context / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 31-45

implementation of a strategy requires active contributions by everyone in the organization. Each member of the college needs to understand this strategy and, beyond that, to conduct day-to-day business in ways that contribute to the success of the strategy. This paper aimed to provide investigate the application of BSC in universities and higher education institutes and propose an implementation guide for BSC implementation in an Iranian context.


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Daryush Farid, Mehran Nejati, Heydar Mirfakhredini – Balanced scorecard application in universities and higher education institutes: Implementation guide in an iranian context / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 31-45

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