Erformance measurement by applying balanced scorecard the case of maritime bank’s branches

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS Vu Viet Dung PERFORMANCE MEASUREMENT BY APPLYING BALANCED SCORECARD THE CASE OF MARITIME BANK’S BRANCHES Major: Business Administration Code: 60 34 05 MASTER OF BUSINESS ADMINISTRATION THESIS SUMMARY Supervisor: PhD Dao Thi Thanh Lam Hanoi – 2012 TABLE OF CONTENTS ACKNOWLEDGMENTS ABSTRACT TÓM TẮT TABLE OF CONTENTS LIST OF FIGURES LIST OF TABLES ABBREVIATION INTRODUCTION 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 1.2.1 Financial perspective 1.2.2 Customer perspective 1.2.3 Internal Business Perspective 1.2.4 Learning & Growth Perspective 1.3 The Balanced Scorecard: Measurement System 1.4 The Balanced Scorecard development 1.5 The Balanced Scorecard implementation CHAPTER 2: FINDINGS & DEVELOPMENTS 2.1 Introduction about MSB 2.1.1 Establishment and development history 2.1.2 MSB’s Vision 2.1.3 MSB’s Mission 2.1.4 MSB’s Core values 2.1.5 MSB’s organization chart 2.2 Analysis of findings & developments 2.2.1 Findings 2.2.2 Developments 2.3 Finding summarization 2.3.1 General review 2.3.2 Perspectives review CHAPTER 3: RECOMMENDATION 3.1 Key results 3.2 Recommendation 3.2.1 BSC Performance measurement 3.2.2 Recommendation REFERENCES APPENDIXES PERFORMANCE MEASUREMENT BY APPLYING BALANCED SCORECARD THE CASE OF MARITIME BANK’S BRANCHES Vu Viet Dung MBA Candidate, 2008 - 2010 Hanoi School of Business - Vietnam National University, Hanoi Supervisor: PhD Dao Thi Thanh Lam 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 SELF RESEARCH QUESTIONAI RE 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 1.9 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 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 long-term decisions (Arveson, 1998) 1.1.1 The importance of performance measurement Performance metrics play a crucial role in four of the most significant leadership activities: Reporting, Making decision, Implementing strategy, Improving performance 1.1.2 Performance measurement classification Performance measures can be put into the following categories: Qualitative or subjective; Quantitative or objective; Attribute; Variable or continuously variable 1.1.3 Performance measurement levels There are levels of performance measurement: individual, unit/team and organizational level 1.1.4 Performance measurement models Introduce some models in performance measurement: traditional model, total quality management, performance prism, service quality model 1.1.5 Deciding the right metrics The author introduced three different models to be used in specifying the measures that matter the most: logic model, process flow, causal analysis 1.2 Balanced Scorecard Model 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, and alignment, it would 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) Financial perspectives Are we meeting the expectations of our Shareholder? Internal Process Perspective Are we doing the right things? And doing things right? Customer Perspective Are we delighting ( or at least satisfying) our customers? Learning and growth Perspective Are we prepared for the future? 1.2.1 Financial perspective Financial performance measures indicate whether a company’s strategy, implementation and execution are contributing to bottom-line improvement" (Kaplan, 1996a: p.25) 1.2.2 Customer perspective In the customer perspective of the balanced scorecard, managers identify the customer and market segments in which the business unit will compete and the measures of the business unit's performance in these targeted segments "This perspective typically includes several core or generic measures of the successful outcomes from a wellformulated and –implemented strategy 1.2.3 Internal Business Perspective In the Internal Process Perspective of the scorecard, we identified the key process at which the organization must excel in order to continue adding value for customers Our task in this perspective is to identify those processes and develop the best possible measures with which to track our progress 1.2.4 Learning & Growth Perspective The question which Kaplan and Norton (1992) suggested to measure this perspective is: Can we continue to improve and create value? Hence the targets for success keep changing in an intense global competition, it requires that the companies make continual improvements to their existing products and processes and have the ability to introduce entirely new products with expanded capabilities 1.3 The balanced scorecard: measurement system 1.4 The balanced scorecard development 1.5 The balanced scorecard implementation CHAPTER FINDINGS AND DEVELOPMENTS 2.1 Introduction about MSB 2.1.1 Establishment and development history Maritime Bank (MSB) was formally established under the license number 0001/NH-GP dated June 08, 1991 of the Governor of the State Bank of Vietnam On July 12, 1991, MSB officially opened and put into operation in Hai Phong port city, right after the Ordinance on Commercial Banks, Credit establishment and Finance Corporation became effective At that time, the debates on joint stock bank model were still not settled but MSB still became one of the first joint-stock commercial banks in Vietnam It results from the collective strength and consciousness of renewal of its founding shareholders including: Vietnam Maritime Group, Vietnam Post and Telecommunication Corporation, Department of Civil Aviation of Vietnam, etc 2.1.2 MSB’s Vision Maritime Bank strives to be a leading commercial stock bank in providing professional multi-financial services that meet the international standards With the commitment for sustainable development, Maritime Bank keens to become a leading national commercial stock bank in modernizing, creation and faithfulness in business operations 2.1.3 MSB’s Mission The mission which MSB would like to bring to customers will consist of following: firstly, to create effective relationship with financial group in main industries such as maritime, telecommunication, aviation, investment, insurance, etc.; secondly, to maintain sustainable development, trustworthy partner for small and medium business customers; thirdly, to provide high quality banking services for all customers and finally, to build effective partnership with international and domestic financial institutions 2.1.4 MSB’s Core values There are four main core values that MSB build up: firstly, focus on satisfying customer by service quality; secondly, gain effective results in all business operations; thirdly, learning and creating to reach perfectness and finally, cooperation and creditworthiness the motivation to success 2.1.5 MSB’s organization chart 2.2 Analysis of findings & developments 2.2.1 Findings After interviewed with manager of MSB, I had a result as below: Order Question Answer Do you know the factors for annual Yes performance measurement of MSB’s branches? If yes, please tell No #:08 %:100% Do they align with MSB’s business Yes No target and MSB’s branches? With MSB’s business target #: 08 %: With MSB’s branches 01 #: #: %: 100% 12.5% Can they reflect all about operations Yes and development of the branches? %: What are the strengths #: and Strengths weaknesses of current factors? Enough 10 87.5% No %: 07 08 100% Weaknesses financial Lack of non- factors financial factors, processes, etc What are needed to adjust? Need to add other non-financial factors Do you know Balanced Scorecard Yes system? #: %: No What is your idea about this system? What is the most important factor? 08 100% Bad: 0% Good: 37.5% Very Good: 62.5% Financial: 0% Customer: 0% Learning and 0% Growth: Internal Process: 0% All: 100% Can it be applied to performance Not sure: measurement in MSB? Yes: 11 14.3% 85.7% 10 Other comments - Apply BSC in branches as pilot to reflect more reality; - Improve another performance measurement 2.2.2 Developments Based on literature and comments of manager, I conducted a table of criteria by applying BSC model: Variables Customer Perspective ID Indicators The number of new and active accounts The number of new and active Master cards The number of customer complaint cases The number of products per customer The customer profit per product meet the target as planned The average time between the two purchases of the same customer The level of customer satisfaction (refer to the data in Marketing Department) Internal The number of transactions per customer The total operating income per customer 10 The average number of non-compliance issues that are Process Perspective identified by Compliance Department 11 The new proposals/policies/procedures are approved in time as planned 12 The number of customer complaint cases on the time and quality of service delivery 13 The percentage of compliance with internal SLA (Service Level Agreement) (refer to Quality Department results) 12 14 The new programs/campaigns are introduced in time as planned 15 The bank responds to the customer's complaints on the first contact 16 The procedures of affording the newly created services and products are fast 17 The bank introduces the products/services to the market at suitable time 18 Using the new technology does not cause any in the cost and price of the service 19 passed test result ratio is above (%) Learning and Growth The training program is implemented as planned with the 20 The staff satisfaction ratio (refer to the survey result conducted by HR Department) Perspective 21 The staff turnover ratios meet the target as planned 22 The staff retention ratio meet the target as planned 23 The A (excellent) ranking staff ratio (refer to the data in HR Department) 24 The ratio of staff satisfaction with the personal goal achievement 25 The Research and Development expense 26 The number of ethics violation cases Financial 27 Deposits meet the target as planned Perspective 28 Credits meet the target as planned 29 The non-performing loan (bucket 3-5) meet the target as planned 30 The income before tax meet the target as planned 31 The cost meet the target as planned 32 The earning per share 33 The growth in sales revenue 13 34 The return on investment 35 The revenue per employee 36 The return on equity 2.3 Finding summarization 2.3.1 General review By using SPSS in analyzing the reliability of collected data, I had Cronbach’s Alpha over 0.7 per each perspective Over 0.7 is acceptable 2.3.2 Perspectives review I had reviews each perspectives, analyzed data to find out of each for new performance measurement set 14 CHAPTER RECOMMENDATION 3.1.Key results The research is one of the academic studies on the practical topic: performance measurement The real indicators using Balanced Scorecard perception have been put in the survey to find out the relevant with MSB’s branches MSB can modify the indicators basing on the result of the research to drive the operation of the bank to align with the strategy The research has achieved the goals of analyzing the perspectives of Balanced Scorecard via the MSB’s branches case study as well as explaining the main factors affect to the performance of the bank Firstly, the research has gone through the theory of performance measurement and Balanced Scorecard standards, a typical example for practice Secondly, the research explained the perspectives of the Balanced Scorecard and the process of applying Balanced Scorecard for an institution Finally, the results of survey conducted by the author in MSB’s branch were analyzed to find out the important indicators that strongly support the perspectives in order to effectively measure the performance of the bank 3.2.Recommendation 3.2.1.BSC Performance measurement Based on finding summarization above, for each perspective I collected factors with highest mean to make suggested BSC performance measurement for pilot branches of MSB as table following: 15 Perspective Customer ID Indicators The number of new and active accounts The number of new and active Master card The number of customer complaint cases The customer profit per product meet the target as planned The average time between the two purchases of the same customer Internal The new proposals/policies/procedures are approved in time as planned Process The new programs/campaigns are introduced in time as planned The bank responds to the customer's complaints on the first contact The bank introduces the products/services to the market at suitable time 10 Using the new technology does not cause any in the cost and price of the service Learning 11 passed test result ratio is above (%) and Growth The training program is implemented as planned with the 12 The staff satisfaction ratio (refer to the survey result conducted by HR department) Financial 13 The staff turnover ratios meet the target as planned 14 The staff retention ratio meet the target as planned 15 The Research and Development expense 16 Deposits meet the target as planned 17 Credits meet the target as planned 18 The non-performing loan (bucket 3-5) meet the target as planned 19 The income before tax meet the target as planned 20 The growth in sales revenue 21 The return on equity 16 3.2.2 Recommendation a Location This performance assessment should be done in branches which did this research: Hanoi and Dong Da branch, because now branches have awareness about Balance Scored Card, so it will be easier to b Who: Because this is organizational level, so this performance measurement must be done by Branch Managers and approved by CEO c When: I recommend this performance measurement should be assessed periods: after month and annually as MSB After pilot in branches, author and Performance Department of HR and Finance Division have revised If the result is better than current performance measurement, I will recommend MSB to apply in the whole system Evaluation of result should be based on satisfaction of members in branches (via survey) with at least 80% of them agrees with the new result d Where: Data of this performance measurement should be supported and imputed from: - Branch Managers; - Financial data: Performance Management Department in Finance Division; - Learning and Growth data: from Human Resource Division; - Internal data: from Legal Division; - Customer data: from Business Analysis and Quality Management Department e Preparation - Propose to Board of Directors to get approval in applying new performance management pilot in branches; 17 - Build process to apply new performance measurement by applying BSC model Ranking of new performance measurement will have levels as current: A1 (Excellent), A2 (Good), A3 (Fair), A4 (Need to improve), A5 (Not good) f Implementation - Communicate with branches and guide on the new performance measurement to ensure they understand that It would be easier, when all the staff in branches had done the survey before; - Consolidate data and report as planned; - Pilot branches will assessments: new and current performance g Evaluation Compare with current performance management based on these factors to evaluate which is better, scale from 1-5: + Voice and satisfaction of employees about new and current performance assessment; + Voice and satisfaction of managers about new and current; + Adjusting question after having result above 18 ... 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... Recommendation 3.2.1 BSC Performance measurement 3.2.2 Recommendation REFERENCES APPENDIXES PERFORMANCE MEASUREMENT BY APPLYING BALANCED SCORECARD THE CASE OF MARITIME BANK’S BRANCHES Vu Viet Dung... operation of the bank to align with the strategy The research has achieved the goals of analyzing the perspectives of Balanced Scorecard via the MSB’s branches case study as well as explaining the