performance measurement by applying balanced scorecard the case of maritime banks branches

TABLE OF CONTENTS ACKNOWLEDGMENTS i ABSTRACT ii TÓM TẮT .iv LIST OF FIGURES viii LIST OF TABLES ix ABBREVIATION x INTRODUCTION 1 Rationale Research objectives Research questions Data collection Research process Data processing Research scope Thesis structure Limitation CHAPTER 1: LITERATURE REVIEW 1.1 Performance measurement 1.1.1 The importance of performance measurement 1.1.2 Performance measurement classification 1.1.3 Performance measurement level 1.1.4 Performance measurement models 1.1.5 Deciding the right metrics 1.2 Balanced Scorecard Model 10 1.2.1 Financial perspective 14 1.2.2 Customer perspective 17 1.2.3 Internal Business Perspective 20 vi 1.2.4 Learning & Growth Perspective 22 1.3 The Balanced Scorecard: Measurement System 24 1.4 The Balanced Scorecard development 30 1.5 The Balanced Scorecard implementation 36 CHAPTER 2: FINDINGS & DEVELOPMENTS 40 2.1 Introduction about MSB 40 2.1.1 Establishment and development history 40 2.1.2 MSB’s Vision 41 2.1.3 MSB’s Mission 42 2.1.4 MSB’s Core values 42 2.1.5 MSB’s organization chart 43 2.2 Analysis of findings & developments 44 2.2.1 Findings 44 2.2.2 Developments 48 2.3 Finding summarization 52 2.3.1 General review 52 2.3.2 Perspectives review 62 CHAPTER 3: RECOMMENDATION 70 3.1 Key results 70 3.2 Recommendation 70 3.2.1 BSC Performance measurement 70 3.2.2 Recommendation 72 REFERENCES 75 APPENDIXES 78 vii LIST OF FIGURES Figure 1.1: Four perspectives 13 Figure 2.1: MSB’s Organization Chart 43 Figure 2.2: Relation with the bank 54 Figure 2.3: Qualification 55 Figure 2.4: Age 56 Figure 2.5: Gender 57 Figure 2.6: Income 58 Figure 2.7: Experience 61 viii LIST OF TABLES Table 1.1: Commonly Used Financial Measures 15 Table 2.1: Result of Questionnaire 45 Table 2.2: Variables and indicators of BSC 49 Table 2.3: The significance of the answers 52 Table 2.4: Cronbach’s Alpha Result 52 Table 2.5: Relation with the bank 53 Table 2.6: Qualification 54 Table 2.7: Age 55 Table2.8: Gender 56 Table 2.9: Income 57 Table 2.10: Relation with the bank * Income Crosstabulation 58 Table 2.11: Experience 60 Table 2.12:Relation with the bank * Experience Cross tabulation 61 Table 2.12: Customer perspective 62 Table 2.14: Internal business perspective 64 Table 2.14: Learning and Growth perspective 66 Table 2.15: Financial perspective 69 Table 3.1: BSC performance measurement 71 ix ABBREVIATION BSC: Balanced Scorecard CV: Curriculum Vitae FI: Financial Institution HR: Human Resource HSB: Hanoi School of Business LC: Large Corporation MSB: Maritime Joint Stock Bank of Vietnam PBSC: Personal Balanced Scorecard SLA: Service Level Agreement SME: Small and Middle Enterprise x INTRODUCTION Rationale Performance measurement is always the most interesting topic of all managements in every industry Building a relevant indicator system to monitor and evaluate the performance of a company is a critical job that requires the managers to spend their efforts to fulfill Maritime Bank (MSB) is one of the first joint stock banks in Vietnam, with more than 20 years developing With strategic consulting from McKinsey Company, MSB is expecting to become one of the biggest banks in Vietnam in 2013 Performance measurement is one of the most important initiatives which they must revise to achieve the objective Performance measurement of Maritime Bank is assigned in the annual shareholder meetings It almost likes financial factors, such as: ROE (return on earning), ROA (return on asset), EPS (earning per share), asset/credit improving, bad debt rate, etc Based on these factors, the CEO will divide to branches of the bank This measurement is not useful, because it is not reflect the non-financial factors of the bank like human resources, customer thinking, etc and not align with the strategy of the bank From 2010, MSB started new strategy with consulting from McKinsey (a famous company in United State), so many initiatives have been implemented But we can see the fact that, all initiatives almost has a general term: clear Key Performance Indicator (KPI) for each personal and unit MSB’s ambition is becoming top of the largest banking in Vietnam at 2014 and more professional After seeing through the actual situation of MSB and reading reference sources, author recommended MSB managers that they should apply Balanced Scorecard – a complete tool for performance which has applied successfully in world banking sector like Scotia Bank, Bank Niaga, Barclays, Bank of Tokyo-Mitshubishi, Bank of Bahrain & Kuwait, Ithmaar Bank… Early in 1990's, a new approach to strategic management was developed by Robert Kaplan and David Norton They named the system "Balanced Scorecard " Working through the BSC process enables management to define those key perspectives that will drive the business to success, as well as to define how to measure them The BSC helps organizations align multiple strategies, from various units to the organizational strategy by linking their deliverables to these key perspectives that drive the business Balanced Scorecard provides a clear understanding of the company's strategy, and how it is supported by the commitment to objectives from divisions and functions and functional units of the organization (Balanced Scorecard Institute, 2006) I believe that BSC will make an optimistic change in Maritime Bank, the thesis “Performance Measurement by applying Balanced Scorecard – The case of Maritime Bank’s Branches” is useful for research Research objectives From the fact, MSB has being had an un-useful performance management system and lacked of perspectives, this thesis has flowing objectives:  To review relevant literature about performance measurement and balance scorecard;  To apply reviewed literature to analyze the strengths and weaknesses of performance measurement of MSB’s branches;  To recommend a new performance measurement indicator for MSB’s branch based on Balanced Scorecard approach Research questions  Which performance measurement literature can be applied?  How to analyze and find solutions?  What are the recommendations? Data collection  Secondary data: the author has depended on the following data resources: - Books and references about the Balanced Scorecard; - Periodicals, articles, published papers and referred previous studies in different countries which have been conducted on the same subject; - The Internet sites and the available electronic versions  Primary data: as the 2nd data was not enough, the primary data was collected by interviewing line managers of MSB (08) to give comments by ways: - Questionnaire & interviewing to assess the current performance and knowledge of line managers about BSC; - Survey with employees in branches of MSB to analyze and develop new performance measurement based on BSC Research process Research process LITERATURE REVIEW DISCUSSION QUESTIONAI RE SELF RESEARCH DEEP INTERVIEW ANALYZING RECOMMENDATION SURVEY Data processing Data would be analyzed in quantitative by Microsoft Excel, Statistical Package for the Social Sciences – SPSS to measure variable, reliability (Cronbach’s Alpha >=0.7) and qualitative – the main method to analyzing findings Research scope - Objective: Propose new performance measurement by applying BSC - Geography: two branches in Hanoi, Vietnam - Timing: at the end of 2011 and 2010 Thesis structure Introduction Chapter 1: Literature Review Chapter 2: Findings & Developments Chapter 3: Recommendation Limitation The study has several potential limitations: - The study was conducted only with branches and may not representative of the bank; - The questionnaire and survey was answered by officers and manager in branches: Hanoi branch and Dong Da branch, so their perceptions may or may not reflect the actual situation - The other possible limitation of the study may be that the indicators in the questionnaire and survey are not easy to understand for some respondents, so the answers might be not correct CHAPTER 1: LITERATURE REVIEW 1.1 Performance measurement Performance measures or indicators are measurable characteristics of products, services, processes and operations which the company uses to track and improve performance The goal of making measurement permits managers to see their company more clearly, from many perspectives, and hences to make wiser longterm decisions (Arveson, 1998) 1.1.1 The importance of performance measurement Since it is not possible to improve what is not measured, metrics must be developed based on the priorities of the strategic plan, which provides the key business drivers and criteria for metrics that managers most desire to watch (Arveson, 1998) Performance metrics play a crucial role in four of the most significant leadership activities: Reporting: Reports are prepared for different work areas to show consumed resources and the created value and ensure that people in the company get full credit for what they have accomplished Making decision: It enables the manager to practice fact-based management Implementing strategy: The performance metrics must be directly based on the organization's strategic direction Improving performance: It is one of the most important components of the leader's job, so it is necessary to exploit metrics to specify the right tasks and align efforts behind them (Frost, 2000: pp 14-16) 1.1.2 Performance measurement classification Performance measures can be put into the following categories: - Qualitative or subjective - When numbers on a scale are assigned by human judgment This does not necessarily imply there is any bias in the measure Articles (Published & Internet) Arveson, Paul (1998) “What is the balance scorecard?”, (Electronic Version), www.balancedscorecard.org, Retrieved April 2000; Arveson, Paul (1999), “Deployment of the Balanced Scorecard measurement system”, (Electronic Version) www.Balancedscorecard.org, retrieved, Oct.2006; Arveson, Paul (2004) "The Revolution in Strategic Planning", Retrieved April 2006, from www.balancedscorecard.org; Balanced Scorecard Institute, (2006) "Frequently asked questions about Balanced Scorecard", (Electronic version), Retrieved April 2006 from www.balancedscorecard.org; Bruce W.Harber (2006) "Working together for success", Peel memorial hospital (PMH), pbVIEWS www.balancedscorecard.org, retrieved 9/7/06; Kaplan, R.S and Norton, D.P (1993) “Putting the Balanced Scorecard to work” HBR Sep/Oct; Kaplan and Norton, (2000) "Having a trouble with your strategy? Then Map It" HBR, Sep/Nov; Kaplan, R.S and Norton, D P (2004) "Measuring The Strategic Readiness of Intangible Assets" HBR, Feb 2004; Kaplan, R.S and Norton, D P (1996(b)) “Using BSC as a strategic Management System) HBR, Jan/Feb; 10 Kaplan, R.S and Norton, D.P (1992) "Balanced Scorecard: Measures that Drive Performance", Harvard Business Review, Jan Feb pp.71-79; 11 Creating a Balanced Scorecard for financial services, Naresh Makhijani and James Creelman, 2008; 76 12 The Balanced Scorecard: Structure and use in Canadian companies, Marvin Soderberg April 2006; 13 Performance Measurement with the Balanced Scorecard - A Practical Approach to Implementation within SMEs, Stefano Biazzo and Patrizia Garengo, 2006; 14 The Balanced Score Card, Matt H.Evans, 2002; 15 Performance Measurement of Banks: An Application of Balanced Scorecard, Kanchan Kumar Purohit and Bidhan Chandra Mazumder, 2007 16 Creating your Personal Balanced Score Card by Elena Salazar L 77 APPENDIXES Appendix 1: BẢNG CÂU HỎI THỰC TRẠNG VIỆC ĐÁNH GIÁ KẾT QUẢ THỰC HIỆN KẾ HOẠCH CỦA CHI NHÁNH TẠI MARITIME BANK QUESTIONAIRE ACTUAL SITUATION OF PERFORMANCE MEASUREMENT AT MARITIME BANK’S BRANCHES Kính gửi: Dear: Với mục đích nghiên cứu xây dựng hệ thống đánh giá kết thực kế hoạch Chi nhánh Maritime Bank, anh chị vui lòng dành vài phút để điền trả lời trung thực, xác số câu hỏi sau With purpose of research and building a new performance measurement of branches at Maritime Bank, please spend a few minutes to fill in and answer exactly some questions below: I Thông tin cá nhân / Personal information Họ tên / Fullname: Chức vụ / Position: Phòng ban / Department: Ngày trả lời / Date: II Câu hỏi vấn / Questions: Anh chị có biết tiêu đánh giá kết hàng năm chi nhánh? Nếu có vui lòng tiêu đánh giá cụ thể? Do you know criterias of performance measurement annualy of branches? If yes, please list in detail: 78  Có/ Yes (chỉ rõ/deatal):  Không/ No Theo anh chị tiêu có gắn kết chặt chẽ với định hướng mục tiêu kinh doanh chung MSB nói chung chi nhánh nói riêng? As your opinion, are those criteria sticked with business objective of MSB and branches?  Đồng ý / Agree  Không đồng ý / Not agree Theo anh chị tiêu có đánh giá xác, đầy đủ khía cạnh tình hình hoạt động phát triển chi nhánh? As your opinion, are those criteria accessed exactly, enough all perspectives about business and development of branches?  Đồng ý/ Agree  Không đồng ý / Not agree Anh chị nêu điểm mạnh điểm yếu hệ thống đánh giá chi nhánh tại, theo anh chị tiêu cần thay đổi nào, cần thêm bớt tiêu nào? Please talk about strengths, weaknesses of current performance measurement Does it need to adjust?  Điểm mạnh / Strengths:  Điểm yếu / Weaknesses:  Đề xuất thay đổi / Adjusting proposal: Anh chị nghe đến Balance Scorecard, có xin chuyển câu tiếp theo? Have you ever heard about Balanced Scorecard model? If yes, move to next question  Không/ No  Có / Yes 79 Đánh giá anh chị hệ thống BSC: Your comment about Balanced Scorecard model:  Không tốt /No good  Trung bình/ Average  Tốt/Good Theo anh chị hệ thống BSC áp dụng việc đánh giá kết thực công việc MSB? As your idea, can BSC model apply in performance measurement in MSB’s branches?  Không/No  Không ý kiến / No idea  Có /Yes Trong BSC tiêu quan trọng nhất? Which is the most important perspective?  Financial /Tài  Customer / Khách hàng  Learning & Growth / Đào tạo Phát triển  Internal Process / Quy trình nội  All / Tất III Đề xuất người trả lời / Other comments Xin chân thành cảm ơn ý kiến đóng góp quý báu anh chị! Trân trọng! Thanks for your contribution! 80 Appendix 2: SURVEY IMPROVEMENT OF THE PERFORMANCE MEASUREMENT IN MARITIME BANK’S BRANCHES BY APPLYING BALANCED SCORE CARD MODEL BẢNG CÂU HỎI Nâng cao việc đánh giá kết thực kế hoạch Chi nhánh Maritime Bank thông qua việc áp dụng mô hình Thẻ điểm cân This survey aims to recognize the Performance Measurement of Maritime Bank’s Branches using Balanced Scorecard approach Your cooperation is highly appreciated and will support the scientific research and development in Vietnam Bảng câu hỏi dung để đánh giá kết thực Chi nhánh Maritime Bank thông qua áp dụng mô hình Thẻ điểm cân Sự hợp tác anh chị việc trả lời trung thực, xác bảng câu hỏi đóng góp lớn cho việc nghiên cứu phát triển Việt Nam Your input information will be treated confidentially and will not be disclosed for any other purpose Thông tin bảng câu hỏi sử dụng tuyệt đối bảo mật không công bố mục đích khác Please kindly answer the following questions/ Vui lòng trả lời câu hỏi sau: Part I: PERSONAL INFORMATION Phần I: Thông tin cá nhân Tick the suitable answer Tích vào câu hỏi phù hợp 81 Your relation with the bank / Mối quan hệ với Ngân hàng  Manager/ Quản lý  Senior Officer/ Chuyên viên  Officer / Chuyên viên, Nhân viên Qualification / Trình độ  Less than High School / Dưới Phổ thông Trung học  High School / Phổ thông Trung học  Bachelor / Cử nhân  Master / Thạc sĩ  Post Master / Tiến sĩ Age / Độ tuổi  20 - 30 years / 20-30 tuổi  41 - 50 years/ 41-50 tuổi  31 - 40 years / 31-40 tuổi  > 50 years / >50 tuổi Gender / Giới tính  Male / Nam  Female / Nữ Income per month / Thu nhập tháng  < Mil / < triệu  from 15 - 25 Mil / 15-25 triệu  from - 15 Mil / – 15 triệu  > 25 Mil / >25 triệu Experiences / Kinh nghiệm  < years / 10 years / >10 năm Part II: THE BALANCED SCORE CARD 82 Phần II: Thẻ điểm cân Specify the cell you agree with / Chọn đáp án bảng sau: Strongly Disagree/ ID/ Indicators/ STT Chỉ tiêu Disagree/ Average/ Agree/ Rất không đồng ý Customer Perspective / Khía cạnh khách hàng The number of new and active accounts Số tài khoản hoạt động The number of new and active Master card Số lượng thẻ Master hoạt động The number of customer complaint cases Số lượng khách hàng khiếu nại The number of products per customer Số lượng sản phẩm/khách hàng 83 Không Bình Đồng đồng ý thường ý Strongly Agree/ Rất đồng ý The customer profit per product meet the target as planned Lợi nhuận từ khách hàng/sản phẩm đạt tiêu kế hoạch The average time between the two purchases of the same customer Thời gian xử lý trung bình hai khách hàng The level of customer satisfaction (refer to the data in Marketing Department) Mức độc hài lòng khách hàng (số liệu từ Phòng Marketing) The number of transactions per customer Số giao dịch/khách hàng The total operating income per customer Tổng thu nhập khách hàng Internal Business Perspective / Khía cạnh quy trình nội 84 The average number of noncompliance issues that are identified by Compliance Department Số lượng vấn đề phát sinh phát Phòng Pháp chế The new proposals/policies/procedures are approved in time as planned Số lượng Tờ trình/Quy định/Quy trình phê duyệt theo kế hoạch The number of customer complaint cases on the time and quality of service delivery Số lượng thắc mắc khách hàng chất lượng giải The percentage of compliance with internal SLA (Service Level Agreement) (refer to Quality Department results) Phần trăm tuân thủ theo Cam kết chất lượng dịch vụ nội (số liệu từ Phòng Quản lý 85 Chất lượng) The new programs/ campaigns are introduced in time as planned Các Chương trình kinh doanh tiến hành theo kế hoạch The bank responds to the customer's complaints on the first contact Phản hồi thắc mắc, phàn nàn Khách hàng từ lần đầu gặp gỡ The procedures of affording the newly created services and products are fast Quy trình, thủ tục có đủ khả tạo sản phẩm, dịch vụ phù hợp The bank introduces the products/services to the market at suitable time Giới thiệu sản phẩm/dịch vụ Ngân hàng thị trường thời điểm Using the new technology 86 does not cause any in the cost and price of the service Sử dụng công nghệ không làm ảnh hưởng tới giá thành sảm phẩm dịch vụ Learning & Growth Perspective / Khía cạnh Đào tạo Phát triển The training program is implemented as planned with the passed test result ratio is above x % Chương trình đào tạo thực theo kế hoạch với tỷ lệ đạt kiểm trả x % The staff satisfaction ratio (refer to the survey result conducted by HR department) Mức độ hài lòng khách hàng (số liệu từ phòng Nhân sự) The staff turnover ratios meet the target as planned Tỷ lệ nhân viên nghỉ việc theo kế hoạch The staff retention ratio meet the target as planned 87 Tỷ lệ nhân viên giữ lại theo kế hoạch The A (excellent) ranking staff ratio (refer to the data in HR department) Tỷ lệ nhân viên đánh giá xếp loại A (Xuất sắc) (số liệu từ Phòng Nhân sự) The ratio of staff satisfaction with the personal goal achievement Mức độ hài lòng nhân viên với thành tích cá nhân đạt The Research and Development expense Chi phí cho việc Nghiên cứu Phát triển chi nhánh The number of ethics violation cases Số lượng bị kỷ luật lao động Financial Perspective / Khía cạnh Tài Deposits meet the target as planned 88 Huy động vốn đạt kế hoạch đề Credits meet the target as planned Cho vay đạt kế hoạch đề The nonperforming loan (bucket 3-5) meet the target as planned Tỷ lệ nợ xấu đạt kế hoạch đề (loại 3-5) The income before tax meet the target as planned Doanh thu trước thuế đạt kế hoạch đề The cost meet the target as planned Chi phí đạt kế hoạch đề The earning per share Lãi theo kế hoạch đề The growth in sales revenue Tăng trưởng kinh doanh The return on investment Tỷ suất sinh lời vốn đầu 89 tư The revenue per employee Lợi nhuận nhân viên 10 The return on equity Lợi nhuận tổng tài sản Thanks for your contribution! Trân trọng cảm ơn thông tin quý báu anh chị! 90 [...]... give the same results of any traditional performance measurement model "Much of the success of the scorecard depends on how the measures are agreed, the way they are implemented and how they are acted upon So the process of designing the scorecard is just as important as the scorecard itself" (Bourne, 2002: p 12) Today, The complexity of managing an organization requires that manager is able to view performance. .. organization will be different The Balanced Scorecard is a system in which the procedure of applying it is a critical part of it Some measures may give real picture about the performance of the company If they have been designed by a team of planners without the contribution of the different levels of business units and departments and without using the scorecard as a mean of communication, cascading,... most of the writers să the intangible objectives as factors of improving the financial results and raising its indicators, but not something that the company may sacrifice on the account of its return ratio in order to reach its destination The owners of the business are the category of the stakeholder who should be aware of the dimensions of concentrating on the financial results, and be aware of their... perspectives of performance: Financial, Customer, Internal Process, and Employee Learning and Growth It is important here to indicate that measuring performance in each perspective means that the high score of one of them may drive to lower the others, but conversely the question is: How the high score of one of them would affect to raise the scores of the rest? "Kaplan and Norton rightly hypothesized... effective to attain the highest customers value by the lowest cost? These questions and many more ones could be asked from the very beginning of establishing a business It is all about the customer, the final user and the strict evaluator who can decide the firm’s success In the customer perspective of the balanced scorecard, managers identify the customer and market segments in which the business unit... 1.3 The Balanced Scorecard: Measurement System In 1992, after a study conducted on 12 companies at the leading edge of performance measurement, Robert S Kaplan and David P Norton suggested four sets of parameters, called Balanced Scorecard, which considered as a measurement tool lets the executives see whether they have improved in one area at the expense of another Knowing that, say the authors, will... way of measuring the success of an organization but go further in that they offer managers a "road-map" by which they can manage In particular they focus on the way in which a strategic vision can be realized (Evans, 2005) 1.2.1 Financial perspective Despite the important role of the intangible objectives and their effect on the longterm goals, many authors consider the financial objectives as the. .. categories: time, quality, performance and service, and cost 17 - Time could be measured by lead time which can be the time from receiving the order to the time the company actually delivers the product or service to the customer - Quality measures the defect level of incoming products as perceived and measured by the customer - The combination of performance and service measures how the company's products... following reminder: - The main goal of business is wealth creation, as measured by series of financial targets achieved - The purpose of financial targets is to galvanize the operating units to manage performance and gain competencies for future success - It is one of many other perspectives but the one that funds the mission and purpose of the organization - It is a lagging indicator of performance because... be appended to the scorecard via an isolated set of measures that managers must keep "in control." Other measurement and control systems can establish diagnostic and compliance requirements far more effectively than the Balanced Scorecard "The measures that appear on Balanced Scorecard should be fully integrated into the chain of causal event linkages that define and tell the story of the business unit's ... change in Maritime Bank, the thesis Performance Measurement by applying Balanced Scorecard – The case of Maritime Bank’s Branches is useful for research Research objectives From the fact, MSB... destination The owners of the business are the category of the stakeholder who should be aware of the dimensions of concentrating on the financial results, and be aware of their effect on the other... score of one of them may drive to lower the others, but conversely the question is: How the high score of one of them would affect to raise the scores of the rest? "Kaplan and Norton rightly hypothesized