LUẬN văn THẠC sĩ performance measurement by applying balanced scorecard the case of maritime banks branches

VIETNAM NATIONAL UNIVERSITY, HANOI HANOI SCHOOL OF BUSINESS Vu Viet Dung PERFORMANCE MEASUREMENT BY APPLYING BALANCED SCORECARD THE CASE OF MARITIME %$1.¶6%5$1&+ ES Major: Master

VIETNAM NATIONAL UNIVERSITY, HANOI

HANOI SCHOOL OF BUSINESS

Vu Viet Dung

PERFORMANCE MEASUREMENT BY APPLYING

BALANCED SCORECARD THE CASE OF MARITIME %$1.¶6%5$1&+ ES

Major: Master of Business Administration Code: 60 34 05

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor: PhD Dao Thi Thanh Lam

Hanoi ± 2012

to complete this thesis successfully

Special thanks to all of the lectures and staff at Hanoi School of Business I am very grateful for my time at the school There is not enough word to describe their excellent works

, DP GHHSO\ JUDWHIXO WR 0DULWLPH %DQN¶V PDQDJHUV DQG DOO VWDII IRU WKH WUXVW DQGsupport that they sent me the opportunities to carry out this research, and for their

interest in my writing I am also highly thankful to the Maritime Bank people for their valuable insights and perceptive comments It has been really interesting to apply the knowledge learnt in school in a real case scenario

The last but not the least, I want to say thanks for my friends, my families, who have participated in this MBA course with me, for their encouragement and invaluable assistance

Hanoi, August 2012

Vu Viet Dung

ii

ABSTRACT

PERFORMANCE MEASUREMENT BY APPLYING

BALANCED SCORECARD 7+(&$6(2)0$5,7,0(%$1.¶6%5$1&+(6

Vu Viet Dung

MBA Candidate, 2008 - 2010 School of Business Vietnam National University, Hanoi Supervisor: PhD Dao Thi Thanh Lam

August 2012, 90 pages

Performance measurement is always the most important thing in banking management The assessment and measurement the working result of a bank is made from each individual to the departments, and especially the branches which make profits for the bank

The assessment associated with the personal/branch ranking Especially, with employees, it relates to salaries and bonuses, which are always the most they expected every end of the year

At Maritime Bank, one of the 12 largest banks Vietnam at present, a bank has been having the large and significant steps forward, the evaluation are highly valued

However, like some other banks in the market, the assessment at MSB just stop in the evaluation of business indicators, financial indicators, but not emphasis on non-financial indicators such as: people, business processes, training and customer So the assessment was not really objective and accurate It has not been shown to be in accordance with the core values that banks are pursuing For this reason, the study

of this subject is the need to fill gaps in the assessment at Maritime Bank

The second chapter includes: brief introduction about MSB after conducting discussions with a number of key personnel related to the assessment at MSB, in order to get their opinions on the current system and proposals that should or should not apply BSC for MSB From the results obtained after discussion, the writer made the criteria corresponding to the four aspects of BSC, then conducted survey

in 02 branches of MSB and analyzed data, evaluated and proposed the most appropriate criteria

Third chapter provides the results, the suggestions of the writer and eventually a new system of assessment criteria based on the BSC model

iv

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%6&P{KuQKÿѭӧc áp dөng trong viӋc thӵc hiӋQÿӅ tài này

&KѭѫQJWKӭ hai bao gӗm: giӟi thiӋXVѫOѭӧc vӅ 06%VDXÿyWLӃQKjQKWUDRÿәi vӟi

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ÿѭӧFÿiQKJLiFӫa hӑ vӅ hӋ thӕng hiӋn tҥi cӫa hӑÿӅ xuҩt nên hay không nên áp

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chӍ WLrXWѭѫQJӭng vӟi 4 khía cҥnh cӫD%6&VDXÿyWLӃn hành tә chӭc survey tҥi 02 chi nhánh cӫa MSB và phân tích các sӕ liӋu gӱi, tӯ ÿy SKkQ WtFK ÿiQK JLi Yj ÿӅxuҩt các chӍ tiêu phù hӧp nhҩt

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QKӳQJWLrXFKtÿiQKJLiPӟLGӵDWUrQ mô hình BSC

vi

TABLE OF CONTENTS

ACKNOWLEDGMENTS i

ABSTRACT ii

TÓM TҲT iv

LIST OF FIGURES viii

LIST OF TABLES ix

ABBREVIATION x

INTRODUCTION 1

1 Rationale 1

2 Research objectives 2

3 Research questions 2

4 Data collection 3

5 Research process 3

6 Data processing 3

7 Research scope 3

8 Thesis structure 4

9 Limitation 4

CHAPTER 1: LITERATURE REVIEW 5

1.1 Performance measurement 5

1.1.1 The importance of performance measurement 5

1.1.2 Performance measurement classification 5

1.1.3 Performance measurement level 6

1.1.4 Performance measurement models 7

1.1.5 Deciding the right metrics 9

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

vii

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

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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

viii

LIST OF FIGURES

Figure 1.1: Four perspectives 13

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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

ix

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

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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

MSB: Maritime Joint Stock Bank of Vietnam

PBSC: Personal Balanced Scorecard

SLA: Service Level Agreement

SME: Small and Middle Enterprise

1

INTRODUCTION

1 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 5 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 MS%¶V DPELWLRQ LV EHFRPLQJ WRS 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

³Performance Measurement by applying Balanced Scorecard ± The case of 0DULWLPH%DQN¶V%UDQFK es´is useful for research

x Which performance measurement literature can be applied?

x How to analyze and find solutions?

x What are the recommendations?

3

4 Data collection

x 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

x 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 2 ways:

- Questionnaire & interviewing to assess the current performance and knowledge

of line managers about BSC;

- Survey with employees in 2 branches of MSB to analyze and develop new performance measurement based on BSC

5 Research process

Research process

LITERATURE REVIEW

SELF RESEARCH

DEEP INTERVIEW RECOMMENDATION DISCUSSION

SURVEY QUESTIONAI

- Geography: two branches in Hanoi, Vietnam

- Timing: at the end of 2011 and 2010

8 Thesis structure

Introduction

Chapter 1: Literature Review

Chapter 2: Findings & Developments

Chapter 3: Recommendation

9 Limitation

The study has several potential limitations:

- The study was conducted only with 2 branches and may not representative of the bank;

- The questionnaire and survey was answered by officers and manager in 2 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

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

- Quantitative or objective - When measures are derived from physical measurements or countable units

- Attribute - When a characteristic, such as a defect, is measured as either being present or not

- Variable or continuously variable - When the degree or extent of a variable is measured on a continuous scale The dimensions of a table top are variables; dents are attributes since they are counted as either being present or not

Anything can be measured to a useful degree, especially in a business environment

If something can't be measured directly, it must have an effect, which can be measured If a process has no intended effect, it is clearly not worth measuring in the first place (Kaydos, 1999: pp 19-20)

1.1.3 Performance measurement level

Performance measurement has 3 levels: Organizational, Team/Unit and Individual/Personal level

To distinguish with Organization/Unit level, below are some characteristics of Personal level based on Balanced Score Card (Personal Balanced Scorecard ±PBSC):

- Personal BSC is a method to complement traditional indicators with ILQDQFLDODQGQRQILQDQFLDORQHVWRPHDVXUHWKHLQGLYLGXDO¶VOLIHUHVXOWV