Luận văn erformance measurement by applying balanced scorecard the case of maritime bank’s branches

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 Universi

Major: Business Administration

Code: 60 34 05

MASTER OF BUSINESS ADMINISTRATION THESIS SUMMARY

Supervisor: PhD Dao Thi Thanh Lam

Hanoi — 2012

1.1.1 The importance of performance measurement

1.1.2 Performance measurement classification

1.1.3 Performance measurement level

1.1.4 Performance measwrement models

1.1.5 Deciding the right metrics

1.2 Balanced Scorveard Model

1.2.1 Financial perspective

1.3.2 Customor perspoctive

1.2.3 Internal Business Perspective

1.3.4 Leaming & Growth Perspective

1.3, The Balanced Scurecard: Measurement System 1.4 The Balanced Scorecard development

1.5, The Balanced Scorecard implementation

CHAPTER 2: FINDINGS & DEVELOPMENT,

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, Lanai

Supervisor: PhD Dav Thi Thanh Lam

INTRODUCTION

1 Rationale

Performance measurement is always the most interesting topic of all managements in every industry Building a relevant indivator sysicm 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 Vietwam, with more than 20 years developing With strategic consulting from McKinsey Company, MSB is expecting

to become one of the 5 biggest banks in Victnam it 2013 Performance measurement 13

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 eaming), ROA (retum

on assel), EPS (caring per share), asset/credit, improving, bad debt rale, elc 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 nol align wilh the strategy of the bank

From 2010, MSB started new stratogy with consulting from McKinscy (a famous

company in United State), so many initiatives have been implemented But we can see

the {act that, all mniliatives almost bas a general tenn: clear Key Performance Tndivator (KPI) for each personal and unit MSB’s ambition is becoming top 5 of the largest banking in Vietnam at 2014 and more professional

Alter 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 applicd successfully in world banking sector hke Scotia

Bank, Bank Niaga, Barclays, Bank of ‘Tokyo-Mitshubishi, Bank of Bahrain & Kuwait,

THhmậr Bank

Tổarly 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 cnables management to define those key porspectives

that will drive the business fo success, as well as to define how to measure them ‘The

BSC helps organizations align multiple strategies, from various umlsto 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 lo objectives (rom divisions and functions and [unclional

‘units of the organization (Balanced Scorecard Institute, 2006)

T believe that BSC will make an optimistic change in Maritime Bank, the thesis

“Performance Mcasurement by applying Balanced Scorecard — ‘Ihe case of

Maritime Bank’s Branches” is useful for research

2 Research objectives

From the fact, MSH has being hed an ui-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 MSI3’s branches;

« To recommend a new performance measurement indicator for MSB’s branch

based on Balanced Seoreeard approach

3 Research questions

* Which performance measurement literature can be applied?

* How to analyze and find solutions?

© What are the recommendations?

4, Data collection

® Sceondary data: the author has dependd on the following data resources:

+ Books and references aboul the Balanced Scorecard;

- Periodicals, articles, published papers and referred previous siudies in

diffcrent countries which have been conducted on the same subject:

- The Internct sites and the available clectronic versions

« Primary data: as the 2 data was not enough the primary data was collected by

interviewing line managers of MSB (08) to give comments by 2 ways:

- Quosliotmaire & inlorviewing to assess tle maorent 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

Data would be analyzed in quantitative by Microsoft Excel, Statistical Package for the

Social Sciences — SPSS to measure variable, rehabihty (Cronbach’s Alpla > 0.7) and

qualitative the main method to analyzing findings

7 Research scope

- Objective: Propose new performance measurement by applying BSC

- Geography: two branches in Hanoi, Vietzam

- 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 2 branches and may not representative of

the bank;

The questionnaire and survey was answered by officers and manager in 2 branches: Ilanoi branch and Dong Da branch, so their perceptions may or

may not reflect the actual situation

The other possible limitation of the study may be that the indicators in the

questionnaire and survey are not easy to understand for some respondents, so

the answers might be not correct

CHAPTER 1 LITERATURE REVIEW

L1 Perfarmance 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 mcasurement permits managers to sce 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

aolivilios: Reporting, Making decision, implemouting strategy Luproving 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 3 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 Lo be uscd im specifying the measures thal

matter the most: logic model, process flow, causal analysis

1.2 Balanced Scorceard Model

The Balanced Scorecard is a system in which the procedure of applying it is a critical

part of al Some measures may give teal 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 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 well- formulated 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 ask in this perspective is to identify those processes and develop the best possible

measures with which to track our progress

1.2.4 Leaming & Growth Perspective

The question which Kaplan and Norton (1992) suggested to measure this perspective is: Can we continue lo improve and creale value? Hence the targets for success keop 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

cutirely new products with expanded capabilities

1.3 The balanced scorseard: measurement system

1.4 ‘the balanced scorecard development

1.5 The balanced scorceard implementation

CHAPTER 2 FINDINGS AND DEVELOPMENTS

2.1 Tnireduction about MSB-

2.1.1 Hstablishment and development history

Maritime Bank (MSB) was formally established wader the license number 0001/NH-GP

dated June 08, 1991 of the Governor of the State Bank of Vietnam On July 12, 1991,

MSR olficially opened and pul into operation in Hai Phong porl city, right alter 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 jomt-stock cammercial banks in Vietnam It results

from the collective swength and consciousness of renewal of its founding shareholders

including: Vietnam Maritime Group, Vietnam Post and Telecommumication Corporation,

Department of Civil Aviation of Vietnam, ete

2.1.2 MSB’s Vision

Maritime Bank strives to be a leading commercial stock bank in providing professional

muulti-financial services that meet the intemational standards

With the commitment for sustamable devclopmenl, Marilime Bank keers to become a

leading national comunercial stock bank in modemiuzing, creation and faithfulness in

business operations

2.1.3 MSP’s Mission

‘The mission which MSB would like to bring to customers will consist of following:

firstly, ta create effective relationship with financial group in main industries such as

maritime, Icleconmmunicalion, aviation, investment, insurance, ole., secondly, Lo maintain

sustainable development, trustworthy partner for small and medium business customers;

thirdly, to provide high qualiry banking services for all customers and finally, to build

effective partnership wilh iilermalional and domestic {mane inslitutions

2.1.4 MSB’s Core values

‘There are four main core values that MSL build up: firstly, focus on satisfying customer

by service quality; secondly, gain effective results in all business operations; thirdly,

Icaming and creating to reach perfoctness and finally, cooperation and creditworthiness -

the motivation to success

1 Do you know the factors for annual Yes No

performance measurement of MSR’s

#:08 branches’ If yes, please tell

% 100%

2 Do they align with MSB’s business Yes No

target and MSB’s branches?

3 Can they reflect all about operations Yes No

and development of the branches?

Enough — financial | Lack of non-

etc

5 What are needed to adjust? Need to add other

non-financial factors

10 Other comments - Apply BSC in branches as pilot to

reflect more reality;

- Improve another performance

1 ‘The number of new and active accounts

Custornes 2 ‘The number of new and active Master cards

Porspective Í 2 ah mmưmber of customer complaint cases

4 ‘the number of products per customer

3 The customer profit per product meet the target as planned

& The average time between the two purchases of the same

customer

Marketing Department)

8 The number of transactions per customer

9 The total operating income per customer

Perspective | 11 The new proposals/policies/procedures are approved in time

as planned

12 The mumber of customer complaint cases on the time and

quality of service delivery

13 The porcentage of compliance wilh iniernal SILA (Service

16 The procedures of affording the newly created services and

products arc [ast

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 Ihe serviee

19 The traming program is implemented as planned with the

Learning and passed test result ratio is above (%)

Growth 20 ‘The staff satisfaction ratio (refer to the survey result

Perspective conducted by HR Department)

21 The staff tumover ratios meet the targel as plarmed

22 The staff retention ralio meet the targel as planned

230 The A (excellent) ranking staff ralio (refer to the dala in HR

Department)

24 ‘The ratio of staff satisfaction with the personal goal

achievement

25 The Research and Development expense

36 0 The number of cltics violation cascs

Financial 37 Deposils mec the target as planned

Perspective 28 Crcdits meel the Larget as planned

29 The nomporlonming loan (bucket 3-5) moot the target as

planned

30 The income before tax meet the target as planned

31 ‘The cost meet the target as planned

32 The eaming per share

33 The growth in sales revere