Extent of Balance Scorecard Implementation and Its Effect on the Financial Performance of Small and Medium Enterprises in Nairobi County

Abstract

The finding on the relationship between implementation of the balance scorecard and financial performance is ambiguous. The study established balance scorecard implementation and financial performance of SMEs in Nairobi County. The purpose of the study was to establish the extent of balance scorecard implementation and its effect on the financial performance of Small and Medium Enterprises in Nairobi County. A descriptive survey was done with 14,732 SMEs registered in Nairobi County targeted. 67 SMEs in Nairobi County selected through stratified random sampling. 67 owners were selected through purposive sampling. The data was collected through a structured questionnaire. Regression and descriptive analysis was done through SPSS v20. Findings were presented through tables and graphs. The SMEs were found to have implemented the financial, customer, internal business and innovation and growth perspectives with financial perspective being the most implemented. The implementation of balance score card was found to lead to increased profitability of the firms. Majority indicated that implementation of the balance score card is positively related to financial performance of their firms. Financial performance was indicated as a key challenge in the firms. The study established that revealed that balance score card implementation, capital structure, access to credit and firm sizes affect financial performance of the firms to a great extent. The study further established that financial performance of their firms is satisfactory and the liquidity of their firms has been rising in the last three years. The study concludes that SMEs in Nairobi County experience financial performance issues. The study further concludes that the SMEs in Nairobi have implemented mainly the financial perspective of the balance score card. The study also concludes that profitability and liquidity of SMEs in Nairobi County has been rising with the financial performance satisfactory. The study recommends review of the four pillars of the balance scorecard to ensure support by firms’ employees and management. The deliverables of the four pillars of the balance scorecard should be reviewed often to ensure to that all the firms’ employees are comfortable that the tool measures the performance effectively. The study was limited by lack of will to fill the questionnaires by the respondents, the variables under investigation, delay by respondents, and sensitivity of the data. The research should also be done to involve all employees to establish consistency and complete understanding among the employees and the owners of the companies.