(LUẬN VĂN THẠC SĨ) Applying the balanced scorecard (BSC) to develop key performance indicators (KPIs) at TTT corporation

The nature of which is a system transforming the vision and strategy of an organization into specific objectives and measurements by establishing a measurement system of work performance

PHAN THỊ HỒNG THI

APPLYING THE BALANCED SCORECARD (BSC)

TO DEVELOP KEY PERFORMANCE INDICATORS (KPIS)

AT TTT CORPORATION

ỨNG DỤNG MÔ HÌNH THẺ ĐIỂM CÂN BẰNG ĐỂ XÂY DỰNG

HỆ THỐNG CHỈ SỐ CHÍNH ĐO LƯỜNG KẾT QUẢ CÔNG VIỆC TẠI CÔNG TY CỔ PHẦN XÂY DỰNG VÀ THƯƠNG MẠI TTT

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI - 2019

KHOA QUẢN TRỊ VÀ KINH DOANH

-

PHAN THỊ HỒNG THI

APPLYING THE BALANCED SCORECARD (BSC)

TO DEVELOP KEY PERFORMANCE INDICATORS (KPIS)

AT TTT CORPORATION

ỨNG DỤNG MÔ HÌNH THẺ ĐIỂM CÂN BẰNG ĐỂ XÂY DỰNG

HỆ THỐNG CHỈ SỐ CHÍNH ĐO LƯỜNG KẾT QUẢ CÔNG VIỆC TẠI CÔNG TY CỔ PHẦN XÂY DỰNG VÀ THƯƠNG MẠI TTT

Chuyên ngành: Quản trị kinh doanh

Mã số: 60 34 01 02

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: TS ĐỖ XUÂN TRƯỜNG

HÀ NỘI - 2019

The author confirms that the research outcome in the thesis is the result of author’s independent work during study and research period and it is not yet published in other’s research and article

The other’s research result and documentation (extraction, table, figure, formula and other document) used in the thesis are cited properly and the permission (if required) is given

The author is responsible in front of the Thesis Assessment Committee, Hanoi School of Business and Management, and the laws for above-mentioned declaration

Hanoi, March 15, 2018

During my study and research at Hanoi School of Business and Management (HSB)

of Vietnam National University, Hanoi (VNU), I have been paid much attention and many instructions from teachers, much encouragement from my family and friends

To date, I have completed my master’s thesis to finish my process I would like to send my sincere thanks to the School Board of VNU in general, teachers at HSB in particular for their support to facilitate me in learning, accumulating and improving

my knowledge

I also kindly send the most sincere and profound thanks to my instructor, PhD Do Xuan Truong for his dedication and enthusiasm during the time guiding me to complete my thesis

In addition, I would like to express my grateful gratitude to the Board of Directors and my colleges at TTT Corporation for their help in facilitating me to complete this thesis

Finally, let me send my respectful words to my family and friends for their support during my study

Hanoi, March 15, 2018 Phan Thi Hong Thi

INTRODUCTION 2

1 The necessity of the study 2

2 Objectives of the study 7

3 Subjects and scope of the study 8

4 Methodology 8

5 Thesis structure 8

Chapter 1: Theoretical background on the balanced scorecard model and its application into the establishment of a measurement system of key performance indicators 10

1.1 Theoretical background on the balanced scorecard model 10

1.2 Barriers in making and putting into execution to business strategies 10

1.2.1 Introduction of the Balanced Scorecard model (BSC) 12

1.2.2 Advantages of the BSC model 15

1.3 Definition and roles of KPIs 16

1.2.1 Definition and classification of KPIs 16

1.2.2 Benefits of developing KPIs in the organization 20

1.4 Study overview of the BSC application for the development of KPIs 21

Chapter 2: Current situation of Key Performance Indicators (KPIs) at TTT Corporation during 2015- 2017 35

2.1 General Information of TTT Corporation 35

2.1.1 Overview of TTT Corporation 35

2.1.2 Analysis of the business strategy applied by TTT Corporation 45

2.1.3 Assessment on the current business strategy of TTT Corporation 57

2.2 The existing situation of key performance indicators at TTT Corporation 59

2.2.1 Survey of conditions to apply BSC and KPI 59

2.2.2 Assessment on deployment possibility of BSC and KPI at the Corporation 60

Chapter 3: Proposals of key performance indicators at TTT Corporation

during 2018-2020 66

3.1 Key performance indicators at TTT Corporation during 2018-2020 66

3.1.1 Development objectives of TTT Corporation during 2018-2020 66

3.1.2 Apply BSC and KPI to evaluate work performance at TTT Corporation 67

3.2 Some solutions to propose BSC/KPIs for staff performance assessment at TTT Corporation 86

CONCLUSION 89

REFERENCES 90

ANNEX I: STAFF SURVEY 92

ANNEX II: LEADER SURVEY 94

ANNEX 3: ASSESSMENT REGULATIONS ON WORK PERFORMANCE 96 BASED ON BSC/KPIS 96

LIST OF SYMBOLS AND ABBREVIATIONS

BSC Balanced Scorecard KPI Key Performance Indicator BSC/KPI BSC and KPI

KRI Key Result Indicator

PI Performance Indicator

Table 2-3: Statistical table of human resources at TTT Corporation 39

Table 2-4: Personnel structure based on working age at TTT

Table 2-5: Comparison table of Marketing – Management capacity

between TTT Corporation and its rivals 47

Table 2-6: Comparison table of design capacity between TTT

Table 2-7: Production capacity of TTT Corporation compared with

Table 2-9: Summary and survey of personnel’s opinions on

Table 2-10: Summary and survey of leaders’ opinions on application

Table 3-4: Assessment of capabilities and work performance based

LIST OF FIGURES

Page Figure 1.1: The model of Balanced Scorecard (Kaplan & Norton) 10 Figure 2.1: The organization chart of TTT Corporation 32 Figure 2.2: The matrix combining activities of TTT Corporation 52 Figure 3.1: The procedure applying BSC/KPI into an organization 64 Figure 3.2: The strategic map of TTT Corporation 69

ABSTRACT

This title is designed to evaluate the current work performance and apply the Balanced Scorecard (BSC) model to the practical measurement system of TTT Corporation at the period of 2014-2017 The BSC model consists of four aspects like as the original published by Kaplan & Norton in 1996 and integrated with some others

The study method used in this thesis is collecting, synthesizing and analyzing data

to seek the consensus when developing KPIs

The research results have formed the BSC system including the strategic map of TTT Corporation during 2014-2017 The BSC at the corporate level with 22 objectives and KPIs measures strategic objectives of the Corporation The BSC at departments is allocated according to four aspects of the BSC model The author has proposed the application of research results for TTT Corporation The research has also shown the limitations of the title and the next study direction

The thesis structure consists of the introduction, three main chapters and the conclusion The introduction presents the reason why the study has been made, thereby identifying the study objectives, limiting the scope, objects and method of the study and the practical meaning of the title Chapter 1 presents the basic theory related to study problem solving, including the BSC theory applied in work performance measurement, strategic management and KPI theory

Chapter 2 introduces TTT Corporation and evaluates the current performance measurement system Chapter 3 presents the steps and results of building up the BSC model at TTT Corporation to form a strategic map, KPIs and the BSC at the corporate, department and staff level, proposing the application of research results The conclusion generally evaluates the execution progress, the results while pointing out the study limitations and the next direction as recommended

INTRODUCTION

1 The necessity of the study

The Balanced Scorecard is an organizational performance measurement model developed by Norton and Kaplan in 1990 The nature of which is a system transforming the vision and strategy of an organization into specific objectives and measurements by establishing a measurement system of work performance in an organization based on four aspects including finance, customer, internal business, learning and development The selected measurement system becomes a tool for managers to communicate with employees and stakeholders about the orientation

of results and work performance that help the organization achieve its strategic goals In addition, the system also helps to direct the behavior of all individuals and departments within the organization towards the common goal Thus, through the application of the balanced scorecard model, it is possible to develop a measurement system of key performance indicators, which is the basis for the management and evaluation process of employees’ performance In fact, according

to Bain & Company's survey in 2014, the balanced scorecard model has been applied by more than half of enterprises in the list of 1000 highest revenue US companies (Fortune 1000) since 1996

In fact, after 30 years of renovation, reform and integration, the Vietnamese economy has won many great achievements, per capita income in Vietnam has risen more than 5 times from 438 USD (1986) to 2,200 USD (2016) and expected

to reach 3,000 USD by 2020 Along with improved living standards,the demand

on houses and resorts has increased This not only expands great market opportunities but also poses a competitive challenge among companies offering architectural, interior and construction design consultancy products Therefore, every enterprise must establish a suitable business strategy to make competitive advantages in the market TTT Corporation founded in 1992 is one of the leading companies running in the fields of: (i) Design - Construction - Interior decoration; (ii) manufacture and supply of furniture; (iii) Execution of "Turnkey" projects on a variety of projects such as hotels, resorts, high-end apartments and offices 2016 was considered as an important turning point of TTT Corporation with

fundamental changes in business strategies The new context requires the management board of the Corporation to clarify new vision and strategies as targets and a system of key performance indicators for each department in the organization

In terms of both theoretical and practical aspects, therefore, it is pointed out that the application of the balanced scorecard model aiming to materialize new vision and strategies into goals and a system of key performance indicators at TTT Corporation is an urgent issue today Thus, with my knowledge and learning experience in the Corporation, I choose the topic "Application of the balanced scorecard model to establish a measurement system of key performance indicators

at TTT Corporation"as my master thesis

 Overview of both global and domestic study on the Balanced Score

In the world, there have been many researches on applying card balance to balance BSC in strategic management One of the three basic functions of BSC is application in strategic management Since forming the concept of BSC model, there have been many important research projects that make the application of The

BSC in strategic management more effective These studies are mostly based on the viewpoint of that: The implementation of the strategy is very important However, in practice, the leaders are too focused on developing strategies that lack attention to implementation, leading to unproductive and ineffective strategies To solve this problem, researchers began to find out what factors influence BSC application in strategic management at the enterprise? To what extent can BSC solve problems in strategic management? How can BSC support the integration of organization and control mechanisms? Find out how an operational management system in an organization is used is also an important aspect of research and this will be linked to important factors that are thought to be relevant successful strategic management In addition, the question of whether or not to use BSC will achieve the level of coordination and integration of necessary elements for successful strategic management or the support of some other support tools however, BSC cannot help strategic management miraculously organizations still offer a roadmap from the current starting point to the point that the organization wants to be in the future, BSC can provide means for the team officials can go to that future

The BSC began to enter Vietnam in the 2000s and was quickly known and mentioned in many workshops on deploying applications of business administration models and some articles introducing it After that, a number of foreign and domestic consulting companies such as Deloit and MCG began to see the potential of this model and started investment activities to implement training and consulting activities

- In practical terms, some companies in Vietnam have started pioneering in applying this model such as FPT Corporation, Kinh Do Company, Phu Thai Group, Garni but the results are achieved not high, not as expected initially

- In study terms, according to the author's research, it is still quite limited The research results only stop at the research level in a narrow range Studies mostly stop at the scope of a company, some essays, dissertations and mostly scientific papers Some of the following research products include:

Doctoral thesis in Business & Management by Tran Quoc Viet (2012): In May

2012, Doctor Tran Quoc Viet successfully defended his doctoral thesis with the topic "Factors affecting the level accept the balanced score card model in strategic management in Vietnamese enterprises "at the National Economics University In the thesis, the author used qualitative research methods through in-depth interviews and research Quantitative research by collecting survey questionnaires

206 surveyed Vietnamese enterprises on the factors affecting the acceptance of Balanced Scorecard (BSC) in strategic management , the thesis has discovered a new scale for the dependent variable "BSC acceptance level in management." strategy ”: measured by three items according to 3 levels of BSC use in enterprises: (1) application of BSC's ideas; (2) wide application of BSC functions, and (3) application Using information technology to improve the efficiency of using BSC, this scale is more suitable for Vietnamese enterprises than the scale of previous studies

In addition, the study has confirmed six factors affecting the level of acceptance of BSC in strategic management at enterprises in the context of the transition economy in Vietnam, namely: (1) the level participation of senior leaders; (2) concentration level; (3) the power of the finance department; (4) standardization; (5) internal communications and (6) market dynamics - products The impact level

of each factor is different and has been determined specifically In which, there are

2 factors that have negative impact (opposite direction): centralization and systematization, the remaining 4 factors positively affect (positive direction) This result has opened up a research direction on BSC in countries that have just started applications

From the research results, the thesis has proposed some suggestions for effective application of this model in Vietnam, specifically: (1) Enterprises need to consider and evaluate the influencing factors before deciding implement BSC model; (2) Need to focus on improving the factors affecting the successful application of BSC model; (3) Consider the type and scale suitable for deploying BSC model

The thesis of Tran Quoc Viet contributed to strengthening the theoretical framework for the widespread application of BSC model for enterprises in

Vietnam This study has overcome the limitations of previous studies on BSC model in Vietnam such as research scale, research scope The results of the research have opened new research directions on the effectiveness of application

in general or in different fields of BSC model in Vietnam In addition, the thesis also opened a research direction to apply BSC model in the specific conditions of economies of other countries in the world

Article: "Applying a balanced scorecard at Vietnamese service enterprises" by Dang Thi Huong published in a scientific journal, Hanoi National University, Economics and Business Administration 26 (2010) 94 -104 In the study, the author Dang Thi Huong gave 5 advantages for the implementation of BSC in

Vietnamese service enterprises, including: (1) The initiative in innovation, access

to management tools modern; (2) Awareness of the role of strategy and strategy implementation; (3) Implementing the goal management (MBO); (4) Hardworking, intelligent workforce and (5) The development of information technology and science

Besides, the author also gave 5 difficulties including: (1) Lack of awareness and commitment from leaders; (2) Difficulties in applying the process according to the balanced scorecard; (3) Limited education and management capacity of leaders; (4) The culture of enterprises has not focused and (5) Financial difficulties The

author makes the above statements, but not to mention the scientific basis and arguments The article also introduced an overview of BSC model to help readers better understand this model

However, the article has not mentioned the differences in the process of applying BSC in the service sector in general

Master's thesis in economics by Bui Hai Van (2009): In November 2009, the master's thesis in economics by Bui Thi Hai Van studied about "Factors affecting the intention to apply BSC model into Vietnamese small and medium enterprises” successfully protected at Ho Chi Minh City University of Technology By

quantitative analysis method, the author has pointed out three factors (1) perceived benefits on the organization side, (2) perceived ease of use and (3) general

attitude has a positive influence on plan to use BSC The author also excluded the

perception of personal interests

Although at the level of a master's thesis, Van's research is highly appreciated by the method that the author has done as well as the results achieved Based on a number of theories as a foundation and the results of qualitative research, the author has produced a quite stable research model Quantitative research with the support of SPSS software is a bright spot of research However, this study also has many limitations on sample size limited to small and medium enterprises in Ho Chi Minh City so it is low representative The level of research is still limited in the scope of a topic at the master level so there is a lack of depth Therefore, the results of this study have opened some new research directions for the authors later

2 Objectives and tasks of the study

 Objectives

On the basis of studying the scientific theory of Balanced Scored Card (BSC) and KPIs, my thesis has been done to specifically aim at: (1) Building up a strategic map combining strategic objectives of the Company at the period of 2014-2020 based on aspects of the Balanced Score Card model (2) Building up the Balanced Score Card at company and department level to measure the performance of TTT Corporation in the future

- Study and systematize the theoretical basis of the balanced scorecard model and apply it to the development of a measurement system of key performance indicators

- Survey and summarize collected data to analyze and assess the current status of a measurement system of key performance indicators at TTT Corporation

- Propose a new system of key performance indicators at TTT Corporation

3 Subjects and scope of the study

Regarding subjects of the study, my thesis focuses on the application of the balanced scorecard model in the establishment of a measurement system of key performance indicators at TTT Corporation

Survey participants are the Board of Directors, Heads of Departments at TTT Corporation

In terms of scope of the study, my thesis focuses on researching in space and time range as follows:

- Space: In my thesis, I focus on the system of key performance indicators at TTT Corporation

- Time: My thesis focuses on collecting, researching and using data related to business strategies, objectives and the system of key performance indicators at TTT Corporation in the last 3 years, from 2015 to 2017 The KPI system is built

to the level of departments at the Corporation The Corporation’s internal data used for analysis is mainly taken from data within 2015 to 2017

4 Methodology

Data collection and summary method: For research purposes, I determine to collect primary and secondary data sources In which, secondary data is collected from internal and external sources of TTT Corporation such as company strategies, financial statements, key performance indicators, etc Primary data is collected through the sociological survey with managers of TTT Corporation The sample size is expected to be 40 samples (equivalent to 40 employees at the Corporation) The sociological survey is conducted through questionnaires with the purpose of assessment: (1) current basic conditions for the application of BSC

at TTT Corporation (the availability of human resources, the standardization level

of working procedures, and the completeness of the database system); (2) assess the work completion level under current KPIs

Data analysis method: Based on primary and secondary collected data, I will use the statistical and summary method to process and analyze

5 Thesis structure

The expected thesis structure is as follows:

No Content Remark/Results

The introduction includes: the necessity of the study, objectives, subjects, the scope and the method

of the study, etc

In addition, the thesis consists of the list of tables, abbreviations and figures

Chapter 1: Theoretical basis on the BSC model and the application in developing Key Performance Indicators (KPIs)

1.1 Theoretical basis on the BSC

1.2 Theoretical basis on Key Performance Indicators (KPIs) - Clarify basic issues on KPIs

1.3 Apply the BSC model in developing KPIs

- Clarify how to apply the BSC model in developing KPIs

Chapter 2: The current situation of KPIs at TTT Corporation during 2015- 2017

2.1 General information about TTT Corporation

- The income statement

- The business strategies that TTT

Corporation has applied

- Evaluate changes in the business

Chapter 3: Propose KPIs at TTT Corporation during 2018-2020

3.1 KPIs at TTT Corporation during 2018-2020 3.2 Propose deployment schedule of KPIs into the practice

CHAPTER 1: THEORETICAL BACKGROUND ON THE BALANCED SCORECARD MODEL AND ITS APPLICATION INTO THE ESTABLISHMENT OF A MEASUREMENT SYSTEM OF KEY

PERFORMANCE INDICATORS

1.1 Theoretical background on the balanced scorecard model

1.2 Barriers in making and putting into execution to business strategies

Theoretically, making and carrying out strategies plays an important role in the existence and development of businesses Through the strategy, it will help administrators to use and allocate existing resources optimally and efficiently coordinate functions of the organization to achieve common goals as required Besides, analyzing and making business strategies not only helps enterprises clearly recognize their strengths and weaknesses, but also identify the opportunities and challenges happening in the present and future Since then, enterprises can make full use of their strengths to seize these opportunities, prevent and minimize risks, helping them have competitive strength to win in the market However, the implementation of the company's strategies is always difficult In fact, according to a study by Aberdeen Research (The Balanced Scorecard Collaborative 1999/2001), there are nine out of ten companies failed to implement their strategies, in which, four barriers pointed out by this study, leading to such failure in the strategy execution include: (1) the vision barrier that only about 5% employees know and understand the company's strategies; (2) the resource barrier that 60% organizations do not connect their budget to the corporate strategies; (3) The managerial barrier that nearly 85% executives taking less than one hour per month to discuss about their company's strategies; and (4) finally, the human barrier that only about 25% managers giving out their ideas matching with strategies

Similarly, according to Robert S Kaplan and David P Norton ("Using the Balanced Scorecard as a Strategic Management System" January-February, 1996), there are four barriers leading to the effective implementation of the company's strategies, particularly:

First, the vision barrier and the strategy can not be transformed into an action Indeed, one of the important roles of the strategy is to help businesses clearly see their goals and orientation in the development of their business activities It shows chief executives how to consider and determine where their organizations would like to go and when they will achieve their desired results Therefore, if enterprises cannot turn their vision and strategies into understandable criteria that can be transformed into actions, their organization will lack consent and clarity, making different groups to carry out different action programs - quality, regular improvement, redesign, empowerment - in their own way of thinking about the vision and strategy According to Aberdeen Research (The Balanced Scorecard

Collaborative 1999/2001), only about 5% employees know and understand the company's strategies

Second, strategies are not linked to the purposes of departments, groups and individuals Accordingly, the second barrier appears when the long-term strategic requirements of business units are not transformed into goals for each department, group and individual Instead, the work performance of departments remains to focus on meeting the established financial budget And groups and individuals in each department only associate their purpose with the accomplishment of the short-term tactical goals of their department, leading to the exclusion of capacity building enabled for completion of the long-term strategic objectives According

to Kaplan and Norton, 74% of their senior executives have their bonuses associated with the organization's annual goals and only about 10% middle executive and junior staff have their rewards associated with the long-term strategy of the company

Third, strategies are not linked to resource allocation: Linking action plans and resource allocation with long-term strategic priorities is one of the barriers to effective strategy implementation of enterprises Theoretically, strategy implementation will be effective when it helps administrators use and allocate existing resources optimally However, each organization has its own procedures for establishing the annual long-term strategy and short-term budgets Consequently, the arbitrary allocation of funds and capital is often not related to strategic priorities

Fourth, it is the tactical feedback instead of strategic one According to Ngo Thi Kim Thanh (Strategic Management Textbook – Publishing House of NEU 2011), strategy implementation requires inspection, assessment and response to adjust business strategies in line with changes of market fluctuations, making the basis for research and development activities of enterprises However, most of management systems today provide only short-term performance feedbacks, and the majority of responses focus only on financial measurements, usually by comparing actual results with monthly and quarterly budget There is almost no time for testing indicators related to the deployment and the success as well of the strategy The survey in groups made by Robert S Kaplan and David P Norton found that 45% companies did not spend their time in periodical performance meetings to evaluate or make strategic decisions This gap may be due to lacking

of information, as well as the tactical assessment process organized and executed

by Vice President in charge of Finance As a result, there was no way for businesses to get feedbacks on their strategies

1.2.1 Introduction of the Balanced Scorecard model (BSC)

Starting from the barriers impacting to the strategy implementation based on traditional administration models, Kaplan and Norton developed a Balanced Scorecard (BSC) model in the early 1990s which was considered as one of the 75 most influential business ideas of the XX century by Harvard Business Review magazine Currently, this model has been applied very strongly in the world and in

Vietnam The BSC model is construed as a system transforming the vision and strategies of an organization into specific goals and measurements by establishing

a system of key performance indicators in an organization on four perspectives, including: finance, customers, internal business, study and development

According to Niven (2009), key indicators selected for measurement will be used

by leaders in communicating to employees and outside stakeholders about the results and the performance drivers, thereby, the organization will achieve its mission and strategic goals Thus, building up a measurement system of key performance indicators is one of the outcomes of applying the Balanced Scorecard (BSC) model

According to Kaplan, four prospects in the BSC model are arranged according to

the cause and effect principle, in which, emphasizing that strong and sustainable financial results are highly dependent on customer satisfaction Meanwhile, the customer satisfaction depends on the ability to create products and services meeting the demands of customers This also depends on the quality and implementation of internal processes and its efficiency And for internal processes

to be effective, it is subjected to great impact on the ability to develop knowledge and skills of human resources, organizational and information capacity In short,

the application of the BSC model to develop key performance indicators on full four aspects has a cause and effect relationship with each other and closely follows the organizational strategy implementation

Figure 1.1 The Balanced Scorecard model (Kaplan & Norton)

Source: Robert S.Kaplan & David P.Norton - Harvard Business Review (January -

February, 1996)

Based on Figure 1.1, it can be seen that the use of the vision and strategy as a guideline, identifying core issues needed to guide for each scope of activities, establishing related objectives, then proposing measures of work performance,

particularly:

- Finance: including traditional financial indicators that can be measured

towards achieving strategic goals, providing financial information to stakeholders as expected Kaplan and Norton did not disregard the need of traditional financial data However, if the organization focuses too much on financial issues, it will lead to an imbalance in relation to other prospects in the BSC model

- Customers: including goals related to the customers' perceptions in your

business It can comprise of criteria such as the level of customer satisfaction, the number of potential customers or the ability to enter the market, etc At present, in the strong competitive environment, strategic activities of the organization must be oriented to customers and ensure their satisfaction It is very important to set up specific objectives and measures

to evaluate the customer satisfaction

- Internal process: covering main business procedures of an enterprise such

as production, distribution or sales and then establishing related objectives such as quality, time/efficiency and cost reduction The establishment of indicators in this prospect shows managers the level of business performance of the company, and the level of correspondence to products and services requested by customers

- Study and development: consisting of the assessment criteria related to the

professional development of employees, the spirit of dedication to the enterprise and opportunities to practice skills In addition, we can consider the criteria for research and development The focus here is identifying issues needed to be continuously improved and preserving the values created by using human resources most effectively in the organization The causal relationship between 4 respectives in the balanced scorecard model (BSC) is described in Figure 1.2:

Figure 1.2: The causal relationship in BSC model

1.2.2 Advantages of the BSC model

Currently, the widely used traditional management model has mainly still relied on financial indicators However, this model has revealed a disadvantage that did not allow enterprises to react immediately to the market changes, so the management decision was often ineffective Overcoming weaknesses of the traditional management model, the BSC model allows more integration of key non-financial indicators on aspects or prospects of customers, internal process, study and development Thus, the application of the BSC model to the development of key performance indicators will enable managers to attach operational goals at all levels with strategies, focusing on key success factors, reasonable resource allocation Finally, it also helps managers to have a fair look between activities of the organization, ensuring objectivity and equity in evaluating their employees’ results

In addition, the application of the BSC model also helps overcoming the barriers

of the effective strategy implementation, specifically:

First, the BSC model overcomes the vision and strategic barriers that cannot be transformed into actions Through the strategic map and target system, BSC helps making the company's strategy more intuitive and connect the strategic orientation with operational objectives

Second, the BSC model overcomes the strategic barriers that are not connected to

Internal process perspective:

To satisfy customers, which business process should be strengthened?

Training and Development perspective:

To obtain and remain competitive position, which content does the Company need to improve and train?

the goals of individuals, groups, and departments Through the strategic map and target system, the BSC model helps to achieve goals in a balanced and harmonious way between objectives related to the final result and the ones making such result This avoids over-focusing on short-term financial goals but ignoring the long-term goals based on planned strategies This, finally, will help the company grow harmoniously and sustainably for the long time

Third, the BSC model overcomes the strategic barrier not linked to the allocation

of resources Through the target system, the BSC model helps making a basis for establishing and evaluating performance criteria for departments and individuals Therefore, it helps leaders make a basis in human resource planning based on the strategy and objectives set by the company

Fourth, the BSC model overcomes tactical feedbacks Based on the strategic matrix, it will help managers see the cause and effect relationship between different prospects and objectives in running the organization towards strategic goals as planned Therefore, any factor or objective not meeting the requirements set out will have an impact on others, thus helping managers avoid providing tactical feedbacks

In summary, the use of the BSC model not only helps business managers improve the strategic efficiency of the company, but also helps them build up a measurement system of key performance indicators of departments and individuals

in the organization

1.3 Definition and roles of KPIs

1.2.1 Definition and classification of KPIs

According to David Parmenter (Performance Indicators – General Publishing House of Ho Chi Minh City, 2013), performance measures are the system of key indicators measuring and evaluating work performance in the organization through data, ratio and quantitative targets to reflect the work performance of organizations

or functional departments and individuals In other words, they are objectives in work that individuals, teams/groups, departments, organizations need to obtain to meet the general requirement It has been developed on the basis of the company's strategic objectives, product and service characteristics, and become a modern tool for managers to transform leadership strategies into management objectives and specific action plans for each department and staff (Ms.Nguyen Thi Nam Phuong,

"The role of BSC in deploying business strategies" - Keieijuku Conference November, 2012)

Many companies have been applying indicators to measure, monitor and evaluate the work performance of employees However, not all enterprises are clear about types of indicators According to David Parmenter (2013) there are three types of performance indicators, namely: (1) Key Result Indicators (KRIs); (2) Performance Indicators (PIs); (3) Key Performance Indicators (KPIs)

a KRIs (Key result indicators)

KRIs are indicators reflecting how the organization is well managed and measured

by the board of management to assess the efficiency of general management decisions Therefore, KRIs are usually reviewed in a relatively long period, usually by a month or a quarter According to David Parmenter (2013) in the measurement system of key performance indicators, enterprises should only build

up 10 to 12 KRIs And, it usually includes:

- Financial indicators such as Return on equity (ROE), Earning before tax (EBT), etc;

- Customer indicators such as customer satisfaction, profitability of customers, etc;

- Indicators of study and development prospect such as employee satisfaction, etc

b PIs (Performance indicators)

PIs are indicators showing the employees what to do PIs tend to more focus on smaller targeted areas than KRIs but less powerful than KPIs PIs are performance indicators in a specific area with both tactical and strategic characteristics They represent a more focused range of activities than KRIs, but may not necessarily be important for the general strategy execution.For example, PIs may include:

- Profitability of 10% of top customers;

- Net profit per specific product group;

- The rate of sales increase in a specific area;

- The rate of participation of employees in training programs;

c KPIs (Key performance indicators)

KPIs are the key indicators measuring the work performance of employees They are considered not as a tool for evaluating work performance of employees but also helping managers know what to do to increase their employee performance It

is the result of an action, and directly related to a strategic goal In addition, KPIs are direct indicators of strategic management decisions; they are the most important measures of significant improvement for the company It is also the result of a direct action making contribution to the strategic goal and measured at very short intervals: hours, days, weeks, and months Thus, the establishment of KPIs within an organization requires starting from strategies and objectives of the organization Through the use of the BSC model, the organization will be able to develop KPIs for evaluating work performance based on four prospects, cause and effect relationship and matching with strategic goals of the organization

According to David Parmenter (2013), KPIs have the following basic characteristics:

- KPIs must link responsibility to teams and individuals;

- As a tool for work performance assessment, KPIs must ensure SMART goals including: Specific, Measurable, Achievable, Realistic, and Timebound

 Bases for KPIs development

Step 1: Identify the department / builder of KPIs

The departments / sections / departments to build their own KPIs: can be created

by the departments / departments / departments directly building the KPIs system for positions in that department / department / department based on the guidance, methodological assistance of professionals (human resources department, professionals)

- The person who builds KPIs is usually the Head / Department / Department - who understands and generalizes the tasks and requirements of positions in the department In case of department / department / department is too big, building KPIs should be undertaken by lower level managers

- Division of human resources, professionals: different from the above method, this method ensures objectivity and science of the method However, the proposed KPIs may not be realistic, can not show the functions and tasks of the department / department / department

- To overcome this problem, after being built, the KPIs system needs to have comments, appraisal and evaluation of the functional department

Step 2: Identify the department's KRAs (Keys Result Area) (functions / tasks of

the Department)

Each part of the organization has specific functions / responsibilities specific to the department / department / department and the system of built KPIs must be associated with the characteristics, functions and tasks of the department

Step 3: Define position titles and key responsibilities of position titles

- For each position, the developer of the KPIs should point out some of the main responsibilities that the person in charge of this job must perform (job description) These key responsibilities are the basis for building the KPIs, so the responsibilities set out must be clear, specific and achievable

Step 4: Identify KPIs (evaluation index)

a Department KPIs: based on the functions and tasks of each department / department / committee who build the KPIs system will build common KPIs that characterize the whole department These KPIs are the basis for building KPIs of each position

b KPIs for each position:

- Build KPIs for employees to follow the description and work requirements Therefore, KPIs are built on the basis of the main responsibilities of the above positions and KPIs of each department

- KPIs must ensure SMART criteria and there must be sources of information that businesses are applying or will apply in the near future

- Evaluation period: The assessment period is usually applied in months, quarters and years Depending on each KPI index, the content of each individual indicator

Step 5: Determine the score level for the achieved results

- Usually the score is divided into 2 - 5 levels of score corresponding to the level

of work completion according to the results

- The more the score level, the more objective the assessment is However, if the score levels are broken down, the final evaluation and the final score determination will be difficult to determine the score

Step 6: Contact between KPIs assessment results and salaries and bonuses

For each specific score frame, the person who builds the KPIs system will determine the relationship between the evaluation results and specific remuneration levels

Depending on each title, field of operation managers make building flexible KPIs in steps and should hire experienced consultants to combine with employees

in the Company to targets put into use promote high efficiency and consistent with the general management objectives of the Company, especially the goal in human resource management

1.2.2 Benefits of developing KPIs in the organization

As analyzed in Section 1.2.1, the development of KPIs does not only serve to assess the work performance of employees, but also offers other benefits, namely:

- It helps all levels in the company define objectives, how to do and measure results based on performance indicators;

- It measures the work performance in the past, present and future of all levels in the organization, facilitating instant overcome and directing appropriate steps to successfully execute the strategy;

- It measures key elements of the organization to ensure current success, the future and sustainable development;

- The measures themselves are guides attracting and encouraging people to

make continuous improvements If these measures are aimed at carrying out the strategy, they will be a powerful tool for effective strategic management;

- It overcomes the limitations, including long measurement period, delay in improvement and unclear issues, of traditional methods such as performance and financial management

- Mainly addressing four major barriers to strategy execution which are key reasons for the failure of strategic management, comprising of: vision, human, resource and management barriers

- From scoring KPIs results to accurately evaluate the achievements obtained

by each level, it is possible to make timely and appropriate reward and treatment policies

- Create the scientific basis for the planning and development of intangible assets such as: (1) training strategies, knowledge development of enterprises; (2) optimize the value of management elements of internal processes; (3) Exploitation of possible values from customers It is the foundation for financial success

1.4 Study overview of the BSC application for the development of KPIs

The application of the BSC model in developing KPIs has become popular in enterprises worldwide in general and in Vietnam in particular Within the scope of this topic, I will list several studies together with important research results as the basis for my study Some specific studies include:

a Applying the Balanced Scorecard model to assess business strategy at project department of Phu My Hung Joint-venture Company by Prof

Le Kieu, MSc Luu Truong Van and MSc Le Minh Khanh on

Construction Economics Magazine, No 1/2007

Originating from the increased globalization and competitive business environment, the study indicated that measuring work performance in an enterprise has become more and more important for its success However, assessment on work performance based on only financial indicators has not satisfied managers because financial measures only showed events that occurred in the past In the information technology era today, businesses must

create the future value through investment in customers, suppliers, employees, working methods, engineering and innovation The inadequacy between the measurement system through financial indicators and non-financial measures is the basis for these authors to select the use of the balanced scorecard (BSC) model in determining and quantifying Key Performance Indicators (KPIs) of businesses, in accordance with four prospects, including:

- Finance: The typical financial goals of an organization are profit, rate of

return, growth and relevant values;

- Customers: Customer criteria will include output measures such as

customer satisfaction, customer retention, and acquisition of new customers;

- Internal process: The measures used in the internal process will be factors

most influencing customer satisfaction and achievement of the financial goals Factors affecting customer satisfaction can include product lifecycle, product quality, employee skills and labor productivity;

- Study and development: Study and development criteria define the

organization's infrastructure to create long-term development and improvement, meanwhile determine employee satisfaction, retention and training to improve organizational competitiveness

In addition, the study also pointed out construction and measurement procedure of KPIs with application of the BSC model, particularly:

Table 1.1: Construction and measurement procedure of KPIs with

application of the BSC model

- Make a survey at departments

- Define strategies of departments Step 2 Develop KPIs - Develop KPIs for departments

- Quantify for departments Step 3 Develop the application of - Prepare and collect data

KPIs - Collect data of KPIs from

departments

- Qualify KPIs for departments

- Analyze the completion of departments

In contrast to the traditional performance assessment method that was based on only financial indicators, the application of Balanced Scorecard (BSC) integrated non-financial measures on customers, internal process, study and development Therefore, the BSC application to the development of key performance indicators will enable managers to link operational objectives at all levels with strategies, focusing on key success factors and reasonable resource allocation Finally, it also helped managers have a balanced look between organizational activities, ensuring objectivity and equity in evaluating work performance of employees

A new point in this study was the clear distinguishment of key indicators, in accordance with the four prospects of BSC, referred to as KPIs including: (1) KPI is defined as the Key Performance Indicator; (2) KRI is defined as the Key Result Indicator; (3) and PI is defined as Performance Indicator Basically, these measures at four differient prospects added each other by a mutual relationship making contribution to achieving the organization's strategic goals And each organization should not use more than 10 KPIs, 10 KRIs and 80 PIs (David Parmenter, 2009)

In addition, the study also pointed out that, in order to successfully apply BSC

in developing KPIs, the following conditions must be met, namely:

First, the availability of human resources for deploying BSC model Successful

deployment of BSC requires enterprises to organize internal communication

activities on the purpose and benefits of BSC and KPIs as well; Set up a key team to implement BSC and KPIs Especially, managers at all levels need to be ready to provide resources and solve problems during execution

Second, the standardization level of working procedures in the organization

This implies that all major activities of the enterprise must be formalized for the execution to be consistent, in which, employees follow the issued

procedure and ready to change to adapt with a new assessment system

Third, the level of sufficiency and consistency of the database system in the organization This implies that the enterprise has to set up a unified

measurement system from the organization, departments to individuals In addition, the measurement system as well as assessment results must be kept scientifically so that it is easy to access, retrieve, adjust and supplement as well

Table 1.2: Basic conditions to apply BSC into successful development of

KPIs

The availability of human resources for deploying the BSC application

1 You clearly understand the meaning, purpose and determine to deploy the application of BSC into the development of KPIs

2 You are ready to provide resources and solve problems when applying BSC into the development of KPIs

3 You are ready to take part in setting up internal communication activities on applying BSC into the development of KPIs

4 You are ready to employ consultants to apply BSC into the development of KPIs

5 You can select a key team to participate in applying BSC into the development of KPIs

6 You are ready to empower your subordinates for them to actively carry out their work

7 You are totally supportive of applying BSC into the development of KPIs to serve evaluating work performance of employees

Standardization level of working procedures in the organization

8 All main activities of the company are based on procedures and done consistently

9 You have done according to the issued process/procedure

10 You will quickly adapt with a new assessment system

Sufficiency and consistency of the database system

11 The mission, vision and strategy of the company are materialized as indicators

12 Key success factors of the company are fully determined

13 You have a clear and specific job discription

14 Data is fully collected to apply BSC into the development of KPIs

15 You find difficulties in collect data to evaluate work performance of employees

Assessment results are made by Likert scale from 1 to 5 levels, in which, the first level shows full disagreement and the fifth level indicates total agreement

c Applying the Balanced Scorecard (BSC) to develop KPIs for Mai Linh Logistics Joint-stock Company by PhD Nguyen Van Minh, 2014

A new point in this study of the author was recommendation of 07 steps to apply the BSC model to develop KPIs in the organization, specifically:

Step 1 is the objective formation Objectives are always described in some

form and exist in every company Clearly understanding and agreement with common tasks for the company is the first and necessary step in developing BSC

Step 2 is to define the prospects or direction for indicators In this step, it is

necessary to identify the direction of action required to carry out strategic objectives In this case, the four prospects recommended by Kaplan and Norton may

be used

Step 3 is to identify the tasks that need to be addressed to achieve the goals and allocate them to the areas of activity This step requires a further refinement of

tasks leading to the achievement of key objectives

Step 4 is to build a strategic map Building up a strategic map is the

establishment of a cause and effect relationship and affecting factors between goals

and tasks Ideologically, this is the most important step, in which, it is necessary to clarify the impact to performing tasks to achieve the goal and the relationship between tasks Identification of affecting factors helps to put tasks and goals into a single system and completing the phase of building up a strategic map

Step 5 is to identify KPIs, the targeted measurement tool The performance of

each strategic and general objective should be measured by certain indicators and expressed in numbers Within the BSC framework, performance indicators are defined for each task Each indicator has a standard value indicating that the target can be reached in the required time based on indicators and standard values, as well

as the permitted deviation limit of the targeted value forming the indicator map

Step 6 is to develop a program based on the target and tasks coordinated with middle managers The targeted program is designed to make a necessary change on

the most problematic operations of the company, where the indicators can not be significantly improved in the management of current activities

Step 7 is to integrate the BSC into the management system Based on the

indicators built up, distribute human and financial resources, set up the responsibility to perform the tasks BSC is integrated into the planning, budgeting and management reporting system of the company

The research results of the author have shown that the BSC model can be applied to develop a measurement system of key performance indicators within an organization To deploy the application of the BSC model, it is required starting from the strategic study and general objectives drafted by the company Since then, the BSC model is applied to develop a strategic map with the aim at making a cause and effect relationship and affecting factors between goals and tasks Finally, based

on agreed objectives, it will help the company build up a measurement system of key performance indicators

Vietnam by MSc Ngo Quy Nham, 2011

At present, the BSC application as a management tool is not only popular among the leading companies in the world but also in Vietnam In his study, MSc.Ngo Quy Nham listed some lessons learned during the deployment of BSC in Vietnam Accordingly, for successful application of BSC, it is required:

First, the commitment and understanding of BSC from the management board

According to the author, the commitment and determination of the senior leaders is

a prerequisite for successful deployment of the BSC project Such deployment of the BSC project involves promoting all business departments to participate However, most of managers in Vietnam are not aware of the importance of the BSC model, so they tend to consider programs or projects as not directly relevant to their tasks In fact, many enterprises in Vietnam had to cancel the BSC projects, reasons

of which were caused by senior leaders who did not commit to the end Therefore, raising awareness of senior leaders on the BSC model and its benefits is one of the most important conditions

Second, the business strategy is an important basis, making contribution to the success of BSC application Indeed, the BSC is a strategic planning and

management system designed with the focus on connecting the work performance management process with the strategy of the organization, so that the deployment of BSC will be impossible if the enterprise does not make a comprehensive strategy Through the strategy, it will help managers select targets and measures in each prospect of BSC For example, in the financial perspective, if the enterprise selects the growth strategy (sales), the important goal will be expanding product/service lines, increasing new applications, customers and markets In the customer perspective, the enterprise can only determine the value diagram to measure if they previously identified the targeted customers/market Similarly, the business strategy must determine which core competencies are the driving forces to make competitive advantages and the goals and targets in the internal process perspective must focus

on measuring changes of procedures creating such core competencies Thus, the business strategy plays a very important role in the success of BSC application in enterprises

Third, properly building up numbers of key performance indicators In fact, in

the process of applying BSC to develop KPIs, managers tend to put many goals and targets due to the thought that if they do not appear on the BSC, they will not be interested or completed This mind will change the nature of BSC from a strategic control and management and tool to a traditional operational management one Consequently, it is possible to disperse the company's efforts and resources instead

of focusing on strategic priorities Therefore, according to the author's viewpoints, the numbers of BSC indicators are best in the range of 20 to 25, closely following the strategic priorities of the enterprise and it is needed to have creativity, not bounding to what the enterprise owns

Fourth, building up a performance monitoring system For KPIs built up on

the BSC to promote its role, the enterpise is required to establish a more system monitoring and updating KPI performance The tracking system can be built up for manual input, as simple as importing updated data of specific indicators at certain times such as at the end of the month, or in a semi-manual way based on spreadsheet tools such as Excel, periodical data input according to indicators, or a completely automatic way by building up a management software of KPIs

Finally, building up a payroll and bonus system to evaluate employees based

on their work performance Similar to building up a performance monitoring

system, for KPIs to play its role, it is required for businesses to build up a payroll and bonus system to evaluate employees based on their work performance According to the author, the salary and bonus mechanism is adjusted according to the level of goal completion of individuals, teams and groups The variable income rate (wages and bonuses) depends on the work nature and their responsibility for the strategic objectives The minimum incentive rate is 20% For managers or departments that are primarily responsible for strategic objectives, the variable income rate will be greater An achievement-based treatment system is an extremely important tool to direct the efforts of teams and employees to achieve strategic goals

of the enterprise

companies (case study: state-owned enterprises)” by Anindhyaguna Adhiprasangga, Anindya Prawita Sari, Talkah Widya Putra, Prof Dermawan Wibisono, Institute Technology of Bandung, Bandung, West Java, Indonesia

Kaplan and Norton (1996), revealed that the concept of the BSC is a system of measurement system organized in four perspectives (financial, customer, internal processes and learning and growth) that aims to build a real indicator of performance in all business functions, there are:

1 rigour in purpose;

2 rigour in measurement; and

to Kagioglou, Cooper and Aouad (2001), Organization of a company, it is important

to run a variety of purposes This is part of the company's internal and external factors, such as attractive future investment, retain and attract more customers, remain competitive and innovative in increasing profits and stock prices Along with the changing times, traditional financial measures are not enough to sustain the company to further grow due to lack of focus and failure strategy to provide quality data Performance measures are one important thing to choose the relevant steps as

an organization's strategic objectives and key performance results (Butler, Letza & Neale, 1997)

Balanced Scorecard component in addition to KPIs is strategy map Kaplan and Norton (1992), explains that the strategy map explains about the logic of the strategy to demonstrate clearly and objectives for critical internal processes that create value and intangible assets required supporting them The difference between performance measurement and the BSC is a performance measurement focus on controlling behaviour while according to Kaplan and Norton (2001a, 2001b), BSC affords opportunities to motivate organizational members to Achieve Reviews their goals that support the long-term vision By long-term strategic objectives with short-term actions, BSC plays an important role in integrating strategic management systems Bean and Geraghty (2003), suggested that in order to involve employees, communication approaches need to be well thought out Managers need to summarize the scorecard highlights successes and opportunities, and review a summary by employee To demonstrate the visual graphics from the ground up, how investments in employee training, information technology and innovation links

to internal processes and customer actions are then linked to the financial results of the use strategy map

f ”Balance Scorecard as a tool for human resources management in financial organizations” by Iveta Gabcanova

In this study, the author focused on some following issues:

First, the implementation of HR Balanced Scorecard (BSC) in the production plant

The implementation of HR scorecard in the production plant with a foreign stakeholder, accepted country’s local specifics but need to be aligned with overall

corporate strategy Need to implement corporate strategy - yes or no? That’s the

question which is handled by the local top management of the production plant in daily work From author's point of view when corporate top managers create strategy without respecting what local leaders think and sometimes approved decisions are not practical and useful for all daughters’ companies Local management considers corporate mission, vision and guidelines as an essential part

of the corporate policy as every employee should be aware of the fact why we are here, where we are going, and what our target is, how we want to get there and what road leads to the goals

The plant accepted a corporate strategy during HR scorecard implementation but local top leaders took into the consideration local conditions as well in order to set the principle in proper and required level

The creation and implementation of BSC on HR level in the production company is based upon competitive advantages of organization as flexibility in case

of undertrained time, employer's reliability, values of organization and corporate culture

 The strategic map on HR level

The strategy map is divided into four perspectives of Balanced Scorecard tool; however, it is concentrated only on human resources area At the same time, a strategy map shows even individual mutual interconnections among individual supportive HR activities which are directed to reaching HR strategic goals of organization Further the strategy map was created based upon the company’s

business strategy and mission - “Quality without compromise”, HR mission statement “To catch, to engage and to retain the uni que key factor - HUMAN CAPITAL” and on the several following plant's principles:

our team i e organization by professional approach

effectively use materials and machines

organized optimally We continuously support idea management

products

 Key Performance Indicators (KPIs) in the production company

KPIs in company production are defined according to HR strategic goals and

HR strategy map with aim to contribute to overall targets of the plant on one hand and to strengthen and enhance to develop the human capital on the other hand During the implementation core team assigned to each HR targets respective KPIs Each driver has different reporting and specifying target for each year depending on HR strategy When a KPI is not achieved, consequently “Root Cause Analysis” is worked out in order to determine the root cause of the deviation with the aim to answer the question: “What are the main reasons for not achieving the KPI target?”

Second, factors affecting HR management system in financial organizations

On the basis of described case study in production plant, human resources management focuses, besides HR cost management, mainly on leadership capabilities and multiprofession of own employees

In order to explore what plays key role within HR processes in financial organizations one of the goals of the research was to explore the factors which significantly influence the human resources management in financial sector

Furthermore, results from research will be taken into consideration when proposal of BSC implementation on HR level will be created

During the research the author applied the combination of two methods to fulfill the partial goal of the research, i.e structured interview and questionnaire