From IT to BSC: the importance of culture in implementing a performance measurement system in Croatia.

Sinkovic, Giorgio ; Currie, David M. ; Bevanda, Vanja 等

Abstract

This article consists of a case study describing the problems encountered when implementing a BSC in a public utility in Croatia. The authors were approached by managers of the utility for assistance in purchasing a computerized management information system. After examining the utility's management practices, it became obvious that the problem was not a lack of computerization, but a lack of a management information system. The article describes the problems encountered when a performance management system such as the BSC is implemented in the culture of a developing country. Managers need to be aware of the problems if they are to be successful in implementing modern management techniques.

I. INTRODUCTION

This article explores the application of the Balanced Scorecard to a government agency in Croatia. Like many innovations in management, the Balanced Scorecard emanated from a developed country. It has been adopted by managers in other developed countries and is beginning to be adopted by managers in less developed countries such as Croatia.

However, it is not clear that innovations such as the Balanced Scorecard can be applied in the cultural context of a less developed country. The attempt to do so may encounter a variety of problems that occur when any performance measurement system (PMS) is applied in a different cultural context. The PMS may not be designed to include all aspects of culture that influence individual and organizational behavior in the less developed country. Even if the PMS is designed appropriately, managers may not understand its importance or how to implement it. Even when managers understand its importance, they may be unwilling to act according to the incentives and constraints of the PMS because of individual or cultural bias. Finally, managers in less developed countries may be unable to implement a PMS in an organization consisting of people who have never operated under such a system.

Because of these potential difficulties, the implementation of performance measurement systems such as the Balanced Scorecard in diverse cultural environments is beginning to receive attention from researchers. This article adds to the few studies relating to implementing a PMS in a less developed country. The article is based on a case study of a government agency in Croatia that initially wanted to purchase information technology software, but discovered that it did not have a performance measurement system on which to base the software.

The paper is divided into four sections. In the first section, we review the literature relating to cultural and managerial conflicts encountered during implementation of a PMS in developing countries. In the second section, we describe the Balanced Scorecard and its extension to government agencies. In the third section, we describe the process of implementing the BSC in a government agency in Croatia and the problems encountered during implementation. In the fourth section, we draw lessons for managers planning to implement a PMS in a developing country.

II. LITERATURE REVIEW

In this article, we use performance measurement system (PMS) as a generic term to describe any process that evaluates the performance of an organization. The Balanced Scorecard (BSC) is one of several performance measurement systems. Because we discuss only the BSC, we may use the terms interchangeably except when discussing particular aspects of the BSC.

To appreciate how much remains to be studied when implementing a performance measurement system in a different cultural environment, consider a popular textbook such as Anthony and Govindarajan (2004) Management Control Systems. The authors cover challenges to implementation due to cultural differences in one chapter. They state that culture "has a profound bearing on management control" (p. 756), then allocate slightly more than one page explaining Hofstede's four dimensions of culture. In one paragraph, they point out that reward systems and budget processes may differ between cultures, then they spend the balance of the chapter covering accounting aspects of transfer prices and exchange rates. So much for attention to culture!

Bourne, et al., discovered implementation problems even in the United Kingdom, another developed country. In particular, they found that the BSC is not always implemented throughout the organization, a process known as cascading. Strategy mapping, one of the more sophisticated techniques of the BSC, is not widely used. Financial measures still tend to be the most frequently used measures of performance, particularly when performance is related to individual compensation.

DeWaal (2006) examines the influence of behavioral and national cultures in setting up a performance measurement system (PMS) in a Dutch multinational. Factors that influence performance-driven behavior include: (a) structural factors that affect the nature and content of the PMS, (b) behavioral factors that affect the use of the PMS, (c) evaluation and reward systems, and (d) organizational and national cultural factors. DeWaal points out that measuring performance has no value if the results are not used by managers.

In a review of BSC implementation issues in Italy and Australia, Farneti and Guthrie (2008) point out that until recently, Italy's government was highly bureaucratic and operated with little information about revenues and expenses. These characteristics persist in Croatia today. In Italy, the government passed a law requiring application of modern managerial principles, as if changes in management practice could be legislated. However, Croatia frequently follows the practice of passing legislation to promote modernity in fields such as management and education.

Johnson and Beiman (2007) state that the "BSC is the most widely adopted methodology in use today for the measurement and management of performance both in the corporate world and in the nonprofit and government sectors." In a publication for the Asian Development Bank, they report that in China, the senior executive's commitment to and Support for implementation of the BSC was the most important factor for success.

Beiman and Sun (2003) identify six factors contributing to successful implementation of the BSC in China:

1. Top management commitment and involvement

2. Management commitment to overcoming implementation hurdles

3. Using the BSC methodology to overcome functional silos

4. Establishing linkages to competency development and variable pay

5. Infrastructure to communicate the strategy, track performance and make adjustments based on results

6. Elevating human resources to the status of a strategic partner to line management.

In one of the few studies of performance measurement in Eastern Europe, Rejc Buhovac and Slapnicar (2007) address the issue of whether PMSs actually improve profitability. They surveyed eight Slovenian companies (like Croatia, Slovenia was one of the Yugoslav republics) and found that performance improved even in companies without a BSC-type management system. One factor they point out is that the PMS should be designed for the context in which the company operates, implying that a system arising from a developed country must be adapted in a developing country. Like DeWaal, they emphasize that measures are without value if managers don't act on the results, again highlighting a potential shortcoming in Croatian management.

Meyer-Sahling (2008) points out in an article dealing with public administration in Eastern Europe, that under the communist system, career progression depended on political and ideological reliability rather than on technical or managerial competency. This theme recurs in Croatia, where senior managers of public agencies frequently are appointed due to party affiliation rather than for any particular managerial competency.

Perhaps the most comprehensive examination of the BSC in developing countries is by Holmes, Gutierrez de Pineres and Kiel (2006). They argue that implementing the BSC in developing countries is difficult due to lack of resources, politicization of public administration, and corruption. Although these problems appear in Croatia, they may not be the most difficult problems encountered during implementation. Holmes also states that the "ultimate administrative goal is democratic societies is to create transparent, professionalized, rationalized, decentralized, and participatory institutions with administrative processes that are accountable, credible, and objectively measured." It would be dangerous to ascribe this goal to public administration in Croatia, where the management culture is not transparent, professional, rational, decentralized, or participatory, and where employees may not wish to have their performance measured, nor be accountable for results.

One notable feature of the Holmes article is that it provides references concerning the implementation of performance measurement systems in numerous developing countries. Holmes also summarizes the public administration challenges in developing countries, including subjective promotion and hiring practices, a hierarchical bureaucracy, corruption, a lack of strategic planning, and a lack of responsiveness to citizens' needs. All of these problems are encountered in Croatia.

We derive several conclusions based on analysis of the literature:

1. Implementing a performance measurement system such as the Balanced Scorecard faces challenges wherever it is attempted.

2. Implementing the system in a developing country may encounter problems that are not encountered in developed countries.

3. The problems faced when implementing the system in a developing country have not been widely studied.

4. It is possible that the assumptions underlying the system may be antithetical to the managerial culture of the developing country.

III. BALANCED SCORECARD

Robert S. Kaplan and David P. Norton proposed the Balanced Scorecard in 1992, largely to overcome a bias toward exclusively financial measures of an entity's performance. They proposed that broader measures such as customer satisfaction, organizational learning, and process improvement were necessary to complement financial results. Combining these four perspectives would help managers measure an organization's performance more broadly.

Holmes (2006) puts the four perspectives into the following questions when applying the BSC to the public sector:

1. Financial: Is the Agency maintaining it fiduciary responsibility to the citizenry by spending its allocation in ways consistent with the organizational mission and public law?

2. Citizen Service: Is the organization meeting the mandated needs of the citizenry as defined by its mission?

3. Internal Work Processes: Are work processes constructed and continuously improved in an effort to ensure efficiency and quality service to citizens?

4. Learning and Growth of Employees: Are employees receiving the training and support requisite to develop the human capital, and thus the supportive infrastructure, of the organization?"

Since its introduction, the BSC has been expanded beyond simple performance measurement and has become a framework for implementing strategy and aligning the organization toward the strategy's fulfillment. Implementing the BSC as a strategic methodology consists of a number of steps:

1. Determine the organization's mission, vision and strategic plan

2. Identify objectives for each of the BSC perspectives

3. Develop measures of the organization's performance toward each objective 4. Cascade the BSC throughout the organization, including across business units

5. Periodically review the BSC as a means of process improvement and strategic planning

A more thorough exposition of the modern approach to the BSC and guidelines for implementation in the public sector can be found in a book such as Niven (2008). Coincidentally, Niven's book is available in Croatian translation.

* Proponents of the BSC argue that it has advantages over traditional processes for measuring performance because the BSC includes:

* Nonfinancial as well as financial measures

* Measures external and internal to the organization

* Short term as well as long term measures

* Lead as well as lag indicators.

Proponents also point out that a major value of the BSC lies in the linking of strategy to measures of organizational performance. Establishing links between measures and the four performance perspectives is one of the ways that the BSC becomes operational.

The BSC has been extended to developing countries. In the process, it has become one of the most widely adopted methodologies for strategic planning in modern management. Kaplan (2005) identifies six potential obstacles to implementing the BSC in the public sector:

1. Poor oversight because public officials, legislative bodies, citizens and interest groups do not coordinate effectively with each other in monitoring performance.

2. Lack of strategy because public organizations do not always have a strategy or may not have an incentive to take a long-term perspective.

3. Too much transparency in developed countries because public agencies may not with to make failures part of the public record.

4. Incentive compensation typically is not part of public organizations' salary system.

5. Causal linkages are difficult in the public sector, where it may take years to realize the effect of policy changes.

6. Some public sector problems are treated by multiple agencies, so it is difficult to integrate across agencies.

It goes without saying that Kaplan points out these difficulties in the United States, a developed country. The problems may not exist in developing countries; Croatia, for example, hardly suffers from too much transparency in the political system. Or the problems may be magnified; compensation based on performance is a concept almost totally foreign to Croatians. One of the purposes of this article is to describe the problems that arise when implementing the BSC in a developing country so that others are aware of them and can plan accordingly.

Beiman (2006) points Gut difficulties when implementing the BSC in China. Beiman notes that a planned economy creates a culture in which employees and managers tend to wait for orders issued from someone higher in authority and to avoid risk by obeying authority, even in circumstances when the authority is wrong. These problems are frequently encountered in government entities in Croatia, perhaps because they have never faced competition and have benefited from political protection.

Holmes summarizes the challenges encountered when implementing the BSC in developing countries. The list in Table 1. appears in Holmes' article, but it could easily summarize several of the issues encountered in Croatia.

IV. ISTRA UTILITIES

Istra Utilities (IU) is a large public utility in Croatia that is owned by the local government. The name is disguised to preserve confidentiality. IU provides a variety of services to citizens on behalf of the government, but it also does external contract work for non-government customers. The variety of services has been handed down through history as agencies have been added to or removed from Istra Utilities' responsibility by the county government. At present, Istra Utilities consists of five divisions: public areas maintenance, road maintenance, sanitary sewage, horticulture and chimney sweeping. The divisions are based on historical practice and the way of doing business in each divisional silo, rather than on purposeful organization design.

Croatia is an independent country that once was one of the republics of Yugoslavia. Unlike many Eastern European countries that adopted Soviet-style directed economies after the Second World War, Yugoslavia adopted a model that became known in the West as 'market socialism'. The 'indicative planning' process allowed many economic decisions to be made by the market, while the government indicated the general direction of development. The system has been compared most frequently to the dirigisme system of France.

Politically, there was only one party, a close relation between government and business and labor, and a significant role for government ministries. Because IU had a long tradition as a public agency, it was not exposed to market forces and faced little pressure for business results. These may have helped create a climate in which family or political nepotism thrived, and in which employees were not motivated to achieve business objectives, particularly when the objectives are not well defined. Yugoslavia, India, and Egypt let the global effort at establishing the association of 'non-aligned nations' that advocated independence from both the Soviet and Western blocs.

PROCESS

The general manager of IU approached the principal of the consulting group for assistance in purchasing a computerized system for recording and reporting IU's performance. IU selected the principal because of his experience as the former manager of one of Croatia's largest shipyards and because he now teaches information systems at a local university.

After initial consultation with IU management, the consultants quickly realized that the problem was not a lack of computerization of the management information system, but a lack of a management information system, IU did not have a systematic process for measuring the entity's performance, did not have a system of controls to guide performance toward strategic objectives, and in fact did not have strategic objectives.

The problem thus became how to introduce modern management practices into an organizational culture that had never utilized them. In fact, not only had the organization never used modern management practices, but the practices frequently were antithetical to the organization's culture.

The director assigned the consulting team two tasks: (1) review the organization's management system to verify who makes decisions throughout the organization, and (2) install a formal strategic planning system throughout the organization, using the BSC approach.

The consulting team followed a process similar to that described in Figure 1, which comes from Papalexandris (2005). The process in Papalexandris is similar to the process presented in Niven (2007), which features the benefit of a Croatian translation of the BSC approach. Thus, there was available a guidebook describing the BSC and the process of implementation in the language of the director.

IU created a working group of ten employees that would constitute an implementation group. In the eight months that the implementation group has existed, it has had three different leaders. The first resigned from the group after three months. The second left the company two months after being appointed. The third is currently in the position and may be the best qualified to lead the effort.

The working group decided that its first efforts would be directed toward (1) measuring process effectiveness and efficiency with a goal of improving processes, and (2) finding out the flow of information to improve both the quality of information and the flow processes to improve decision making.

The working group established a set of assumptions that would guide its work:

1. The group would collect information from other organizations concerning theoretical and practical knowledge about organizational control and adapt that knowledge to the IU culture. Some general principles of management should be respected, regardless of IU culture.

2. Both autocratic and democratic management styles have features that can be good or bad, depending on the circumstances. In practice, there may be different combinations of the two styles. The group will recommend changes in management approach so that democratic styles can be implemented where it is possible and desirable.

3. The structure of the organization will be influenced by its management style. In an autocratic organization, we expect an octopus with a strong head and weak legs; in a democratic style, expect stronger legs and a weaker head.

4. A good organization will achieve planned results and strive to improve the ratio between standardized approaches and creative, one-off approaches. Creative approaches are subject to personal abuse and lack of control, while standardized approaches can be monitored and controlled more effectively. The ratio between standardized and creative approaches may vary according to the activity of that division of the organization.

5. The group will not attempt to dictate processes for all activities because they may depend on professional requirements. Instead, the group will focus on improving the organization's superstructure so that improvements can be properly managed.

6. Division of the organization into five areas of activity will not be changed, although management and processes within those areas may be changed where appropriate.

We point out that the working group immediately realized that it may be difficult to implement modern management techniques in the culture of a developing country. Even without the advice of organizational theorists, the group addressed the issue of corporate culture.

The consulting team next met with senior managers to discuss the BSC, determine relevant perspectives, and define IU's vision and mission. IU managers adopted the following mission statement, the first one in the organization's history: "We strive to improve the quality of life for today and future generations in our city, by continuous and qualitative maintenance of cleanness and waste disposition in an environmentally acceptable manner, by maintenance of public areas and providing other activities in the environment where we work, taking care of the satisfaction of our employees and all our customers. All this represents the backbone of the management system of the company for today and in the future."

Management also adopted the following vision statement:

"We want to be the best (higher quality) provider of communal services in Istria County, well known in all Croatia for the application of best practices and technology developed worldwide, while appreciating principles of environmental protection. The success of our business depends on customer satisfaction and fulfillment of their expectations regarding maintenance and cleanness of public area in the city of Pula and providing all necessary communal services of appropriate quality and environmentally acceptable level. Management and all employees will build a climate of collaboration, confidence and affiliation to the company that is based on care for the needs and interest of the workers, and stimulation of employee participation in creation of business processes and other activities of the Company. We will enhance our position in the business environment by building close relations with our customers and suppliers, while attempting to take care for the environmental issues."

Based on the mission statement and management's recognition of perspectives, the consulting team prepared a strategy map (Figure 2.) showing objectives relating to each of the perspectives and how the objectives linked to one another.

The lead and lag performance indicators in Table 2. derived from the strategy map. The twenty indicators address each of the four quadrants (customer, finance, internal processes, and learning & growth) and are slightly fewer than the maximum number of indicators suggested for a successful BSC. We should point out that these indicators represent the first time that IU has attempted to measure performance, so they represent a major step for the organization.

At this point, the project is continuing. It is too early in the process to evaluate the BSC's success, but it is not too early to describe some of the findings of the consulting team.

V. FINDINGS

1. Customer focus

IU did not have any measures of customer satisfaction. Paying attention to the customer means paying attention to the market. Managers and employees are learning to pay attention to customers, which are external to the organization and not in the decision-making hierarchy.

The senior executive is a recent political appointment from one party. Subordinate higher-level managers were from a competing political party. Because of the political differences, there may exist a lack of confidence between the director and his subordinates. However, the new senior executive does have market-oriented business experience, so may be trying to give new direction to the company. It is possible that appointing an outside consulting team is a tool for the executive to achieve this purpose.

[FIGURE 1 OMITTED]

[FIGURE 2 OMITTED]

The senior executive at IU traditionally makes most decisions and directs subordinates to implement them, an autocratic style of management. The senior executive controls all information flows external to the organization. He filters information about the organization's performance before providing the information to the owners. In this way, he influences public perception of the organization. The director makes internal decisions himself, with infrequent delegation. In doing so, he may rely on incorrect data that was prepared by subordinates with little incentive to worry about the consequences of the decision. He may make incorrect decisions as a result, and be blamed for errors made by other executives who do not bear responsibility for the decision. There is poor delegation of authority, and poor responsibility for the consequences of decisions.

Although there is much emphasis on planning, the plans focus on production rather than on strategy. Division managers develop plans that are submitted to the director, but the director seldom provides feedback. Consequently, the plans are neither approved nor denied, but are in limbo. Because the plans are not approved, division managers are not held accountable for results. There is no coordination of plans with the overall strategy of the organization, so IU tends to operate in silos corresponding to each of the five areas of operation.

2. Finance

In the accounting system, there are no direct costs. All expenses are charged as indirect costs (fixed expenses) to the organizational unit incurring the expense. Indirect costs are then allocated according to a process that managers do not understand. Because there are no direct costs, it is not possible to calculate the cost of performing various activities of the divisions. For some activities (such as when the maintenance department works on company cars), there is no documentation at all.

Because of the lack of direct cost information, it is not possible to determine actual costs of services performed for external clients. Although material costs are considered to be direct costs, labor costs are not. This may be due to Croatian accounting rules rather than practices within the organization.

The government sets salaries, and pay according to performance is not part of the compensation system. Managers and employees frequently develop ways to improve their standard of living at the expense of IU. Because the organization is used to improve personal situations, there is little incentive for managers or employees to adopt a system that would control costs. Efforts to control costs do occur, but they are for reasons other than improving organizational performance.

It is not yet clear to what extent senior management is committed to the idea of improving performance, much less to the idea of implementing a performance measurement system such as the BSC. The consultants suggested developing a process by which the director would approve plans of each business unit, then give division managers budgetary authority for revenues and spending up to the planned amounts. This has not yet been done, and it is not yet clear that the organization wants to install processes for controlling spending.

Although IU did not have a purchasing department when the consulting began, it created a purchasing department a few months into the project. Prior to the change, all purchasing requests above 100 kunas (approximately 18 US dollars) needed approval by the finance manager or division manager. The director wanted to improve the purchasing process, so he created a purchasing department and required unit managers to submit purchase orders to the purchasing department. The purchasing manager could withhold approval for a purchase, where before the unit managers were unconstrained. Of course, unit managers do not like the new system, but the practice continues. A purchasing department is important as the first step at obtaining information about direct costs so that they can be compared to the revenues obtained from performing a service.

IU had negative net income over the past few years, indicating that its operations required a subsidy from taxpayers. The exact reason for the losses cannot be identified because of shortcomings in the accounting system.

3. Process Improvement

The manager of each division controls the processes internal to that division, and the processes have not been extended to other divisions, a typical silo approach to management. Division directors do not make plans because they think (rightly or wrongly) that the plans would not be approved by senior management. Plans that ultimately are forwarded to senior management are actually 'wish lists' that do not represent a performance commitment by the division directors. Of course, there is no coordination of plans across divisions.

The consultants suggested implementing a work order process for each activity in an attempt to collect information about direct costs, then giving responsibility for controlling costs to the organizational unit performing the activity. Managers of the units opposed the process.

4. Learning & Growth

IU has a document that describes the knowledge, Skills and experience that are prerequisite for employment, but at this time there is no formal process for improving skills.

Lessons for Managers

In this section, we describe our findings relating to cultural aspects of implementing the BSC. Where possible, we relate our findings to those of other researchers. Based on the case study of Istra Utilities, we identify several challenges that might face a manager attempting to implement a modern performance management system such as the BSC in a developing country.

* Culture matters. One of the guiding principles of the working group was that the BSC would not challenge the existing autocratic style of management. This may have been a result of not wishing to embarrass the current administration, but it was sufficiently important that the group tried to frame its mission in culturally neutral terms.

* Some basic assumptions of the BSC, such as delegation of authority, employee empowerment and responsibility, and pay according to performance are directly contrary to the organizational and national culture of IU and Croatia. Whether these are sufficient to kill the effort to implement the BSC can only be determined through time.

* Although there is some evidence that organizational resources may be diverted for personal use, there is no evidence of extensive corruption. Likewise, there is evidence of political influence in the organization, but perhaps not beyond the level of senior administration. There is no evidence that a lack of resources is an impediment to implementing the BSC. Holmes, Gutierrez de Pineres and Kiel (2006) identified these as three challenges to implementing the BSC in developing countries.

* The list of twelve challenges to implementing the BSC identified by Holmes, Gutierrez de Pineres and Kiel (2006) appears in our Exhibit 1. We did not encounter all twelve challenges when implementing the BSC at IU, but we did observe the following:

1. There may not be a relation between personal improvement and pay, and pay probably is not linked to performance

2. The lack of strategic planning was one of the first things noted by the consulting team

3. IU experienced poor financial results

4. Cultural barriers exist and may be significant, but the barriers may not be those identified in Exhibit 1: a politicized bureaucracy, corruption, and a lack of political will

5. Customer satisfaction had not been one of the priorities at IU

* It is too early in the process to know whether there is commitment by senior management, a requirement emphasized by Johnson & Beiman (2007) and Beiman & Sun (2003). Although this effort at installing the BSC was directed by senior management, significant changes in the organizational culture have not yet been required. Only when major hurdles are encountered will it be possible to judge the commitment of senior managers.

VI. CONCLUSION

National and organizational cultures influence the degree of difficulty of implementing performance measurement systems such as the Balanced Scorecard. Exactly which cultural aspects and the degree that they create difficulty have only recently been studied in academic literature. This article is a case study of the implementation of the Balanced Scorecard in a public utility in Croatia. The consulting team identified several factors in common with previous studies, but also found that some factors identified in other studies did not play a significant role in Croatia.

References

Anthony, R. N. and V. Govindarajan (2004), Management Control Systems, 11th ed., New York: McGraw-Hill.

Beiman, I. (2006), Using the Balanced Scorecard Methodology to Execute China strategy, Cost Management, 20(4), p. 9.

Beiman, I. and Y. L. Sun (2003), Implementing a Balanced Scorecard in China: steps for success, China Staff http://www.accessmylibrary.com/coms2/summary_0286-9721132_ITM, accessed 7/8/09.

Bourne, M., Santos, M., Kennerley, M. and Martinez, V. (2005), Reflections on the Role, use and Benefits of Corporate Performance Measurement, Measuring Business Excellence, Vol. 9, No. 3, p. 36.

De Waal, A. A. (2006), The Role of Behavioral Factors and National Cultures in Creating Effective Performance Management Systems, Systemic Practice and Action Research, 19(1), p. 61.

Estrin, S. (1991), Yugoslavia: The Case of Self-managing Market Socialism, J. of Economic Perspectives, 5(4) p. 187.

Farneti, F. and Guthrie, J. (2008), Italian and Australian Local Governments: Balanced Scorecard Practices. A Research Note, J. of Human Resources Costing & Accounting 12(1) p. 4.

Holmes, J. S., S. A. Gutierrez de Pineres, and L. D. Kiel (2006), Reforming Government Agencies Internationally: Is there a Role for the Balanced Scorecard?, International J. of Public Administration 19(12), p. 1125.

Johnson, C. C. and I. Beiman (2007), Balanced Scorecard for State-owned Enterprises, Asian Development Bank.

Kaplan, R. S. (2000), Overcoming the Barriers to Balanced Scorecard use in the Public Sector, Balanced Scorecard Report, #B0011D.

Kaplan, R. S. and Norton, D. P. (1992), The Balanced Scorecard--measures that Drive Performance, Harvard Business Review, January-February, p. 71.

Mackay, A. (2004), A Practitioner's Guide to the Balanced Scorecard, London: Chartered Institute of Management Accountants.

Meyer-Sahling, J. H. (2008), Varieties of legacies: A critical review of public administration reform in East Central Europe, EUI Working Paper MWP No. 2008/39.

Niven, P. R. (2008), Balanced Scorecard: Step-by-Step for Government and Nonprofit Agencies, 2nd ed., New York: Wiley.

Niven, P. R. (2007), Balanced Scorecard Korak po korak, Poslovni dnevnik, Zagreb: MASMEDIA.

Papalexandris, A., et al. (2005), An Integrated Methodology for Putting the Balanced Scorecard into Action, European Management J., 25(2), p. 214.

Rejc Buhovac, A. and S. Slapnicar (2007), The Role of Balanced, Strategic, Cascaded and Aligned Performance Measurement in Enhancing firm Performance, Economic and Business Review for Central and South-Eastern Europe, 9(1) p. 47.

* Department of Economics and Tourism, University of Pula, Preradoviceva 1/1, 52100 Pula, Croatia, E-mail: gsinkov@efpu.hr

** Crummer Graduate School of Business, Rollins College, Winter Park, Florida, USA, E-mail: dcurrie@Rollins.edu

*** Department of Economics and Tourism, University of Pula, Preradoviceva 1/1, 52100 Pula, Croatia, E-mail: vbevanda@efpu.hr

Table 1
Public Administration Challenges And Goals In Developing Countries
(Holmes, 2006)

Challenges                          Goals

* Human resources--lack of          * Strategic planning
training, subjective promotion
and hiring practices, pay not
linked to performance or
productivity

* Hierarchical, non-                * Effective implementation of
participatory bureaucracy           policies

* State continuity                  * Increased flexibility and
                                    objectivity in performance
                                    evaluations

* Lack of strategic planning        * Open communication both within
                                    and between public agencies

* Rent seeking by bureaucrats       * Separation of political from
creates need for competitive        career appointments
sourcing

* Poor financial performance        * Increased use of contracts to
                                    improve continuity

* Performance tracking--training    * Performance and training linked
has no relation to career           to career development
development

* Cultural barriers--highly         * Participatory culture that
politicized bureaucracy             encourages creativity and
                                    innovation with in public
                                    agencies

* Corruption--part of the           * Citizen involvement in public
administrative culture              decisions

* Lack of political will--          * Customer satisfaction through
bureaucratic resistance due to an   efficient delivery of services
incestuous relationship between
politicians and bureaucrats

* Transparency--citizens not        * Reduce cost and increase
involved in public decision-        effectiveness in civil service
making,

* Customer Satisfaction--lack of    * Impartial bureaucracy
responsiveness to citizens needs

Table 2
IU List of Indicators (Developed by Authors)

Indicator                                        Lead/lag   Frequency

  I. Citizens perspective
     1. Citizen satisfaction measured by         Lead       Year
        questionnaire
     2. Citizen complaints                       Lag        Quarter
     3. Average time to respond to complaint     Lead       Quarter
 II. Finance perspective
     1. Ratio of actual vs. planned revenue      Lag        Half-year
     2. Revenue per capita                       Lag        Half-year
     3. Index of actual vs. planned expenses     Lag        Half-year
     4. Liquidity ratio (liquid assets /         Lead       Half-year
        liquid liabilities)
     5. Debt ratio (total debt / total assets)   Lead       Half-year
     6. Ratio of indirect expenses to total      Lag        Half-year
        revenue
     7. Contribution ratio (revenue / direct     Lag        Half-year
        expenses)
     8. Cost of repairing mistakes (cost of      Lag        Half-year
        repairs per incident)
III. Internal process perspective
     1. Revenue per hour of work                 Lead       Month
     2. Actual vs. planned contribution margin   Lag        Quarter
     3. Actual vs. planned days spent on a       Lag        Quarter
        project
     4. Inventory turnover                       Lag        Half-year
     5. Index of work injuries                   Lag        Year
 IV. Learning and growth perspective
     1. Number of hours of training per capita   Lead       Year
     2. Absence ratio                            Lag        Year
     3. Ratio of direct working hours to hours   Lead       Quarter
        available for month
     4. Workforce fluctuation [attrition /       Lead       Half-year
        (beginning work force + new hires)]