Implementation of balanced scorecard for performance evaluation of construction department of phutho tourist limited company

MMVCFB PROGRAMME DE MAITRISE EN MANAGEMENT VIETNAM-COMMUNAUTE FRANCAISE DE BELGIQUE HOANG VAN BA IMPLEMENTATION OF BALANCED SCORECARD FOR PERFORMANCE EVALUATION OF CONSTRUCTION DEPART

MMVCFB PROGRAMME DE MAITRISE EN MANAGEMENT VIETNAM-COMMUNAUTE FRANCAISE DE BELGIQUE

HOANG VAN BA

IMPLEMENTATION OF BALANCED SCORECARD FOR

PERFORMANCE EVALUATION

OF CONSTRUCTION DEPARTMENT

OF PHUTHO TOURIST LIMITED COMPANY

MASTER DEGREE THESIS IN MANAGEMENT

MMVCFB 6

HO CHI MINH CITY

TABLE OF CONTENTS

Page Pledge

Acknowledgement

Comments of Professors

Abstract i

Table of Contents ii

Abbreviations viii

List of Figures ix

List of Tables xi

List of Appendices xi

INTRODUCTORY CHAPTER A General 1

B Problem statement 1

C Objective of research 2

D Methodology of research 3

E Scope of research 3

CHAPTER 1 LITERATURE REVIEW 1.1 Organization Strategy Management 5

1.1.1 Strategy 5

1.1.2 Strategic planning 6

1.1.3 Control 6

1.1.4 Management Control 8

1.2 Management Control system 10

1.2.1 Management Control System and Organizational Goals 10

1.2.2 Designing Management Control System 12

1.2.2.1 Working with the Organization Structure 12

1.2.2.2 Identification of responsibility centers 13

1.2.2.3 Development of measures of performance 13

1.3 Balanced score card: 14

Strategic and performance management system 1.3.1 Balanced scorecard –BSC 14

1.3.1.1 The origin and meaning of BSC 14

1.3.1.2 Why enterprise need the BSC 15

1.3.2 Strategic management system 15

1.3.3 Measurement and evaluation 17

1.3.4 Performance management system 18

1.3.4.1 Performance management cycle 18

1.3.4.2 Performance Management Technique 19

CHAPTER 2 METHODOLOGY & OBJECTIVE OF RESEARCH 2.1 Methodology 23

2.1.1 General 23

2.1.2 Methodology framework 23

2.1.3 Corporate vision and strategy clarification 26

2.1.5 Business unit strategy clarification 26

2.1.6 Business unit KPI development 27

2.1.7 Business unit KPI validation 28

2.1.8 Preparation of data collection 28

2.1.9 Business unit KPI data collection 28

2.1.10 Business unit KPI evaluation 28

2.1.11 Business unit performance analysis 29

2.1.12 KPI concept evaluation 29

2.1.13 Conclusion 29

2.1.14 Recommendation for further study 29

2.2 Construction Department - Phu Tho Tourist 29

2.2.1 Introduce 29

2.2.2 Summary of business actives 30

2.2.2.1 Main product 30

2.2.2.2 Result of business activities 30

2.2.3 Organization Chart 31

2.2.4 Existing problems 31

2.2.5 Construction department 32

CHAPTER 3 CORPORATE STRATEGY FORMULATION, KEY PERFORMANCE INDICATOR, ANALYSIS AND EVALUATION PERFORMANCE 3.1 Corporate Strategy Formulation 33

3.1.1 General 33

3.1.2 Corporate vision and strategy clarification of Phu Tho Tourist 33

3.1.2.1 Planning 33

3.1.2.2 Implementation 34

3.1.2.3 Result 34

3.1.2.4 Evaluation 35

3.1.3 Selecting Business unit 36

3.1.4 Construction department strategy clarification 36

3.1.4.1 Planning 36

3.1.4.2 Implementation 36

3.1.4.3 Result 37

3.1.4.4 Evaluation 38

3.2 Key performance indicator development 38

3.2.1 General 38

3.2.2 KPIs development of construction department 38

3.2.2.1 Planning 38

3.2.2.2 Implementation 38

3.2.2.2.1 Translate strategy of construction department 38

3.2.2.2.2 Develop Construction Department Strategic map 40

3.2.2.3 Develop business unit KPI 41

3.2.2.4 Planning 43

3.2.2.5 Implementation 44

3.2.2.5.1 Finalize construction objective 46

3.2.2.5.2 Finalize construction department KPIs 51

3.2.2.5.3 Develop KPIs weighting 52

3.2.2.6 Evaluation 58

3.3 Performance evaluation, analysis 58

3.3.1 General 58

3.3.2 Preparation of data collection 59

3.3.2.1 Planning 59

3.3.2.2 Implementation 59

3.3.3 Business unit KPIs data collection 62

3.3.3.1 Planning 62

3.3.3.2 Implementation 62

3.3.3.3 Result 62

3.3.4 Business unit KPIs Evaluation 63

3.3.4.1 Planning 63

3.3.4.2 Implementation 64

3.3.4.3 Result 64

3.3.5 Construction department performance Analysis 64

3.3.5.1 Planning 64

3.3.5.2 Implementation 65

3.3.5.3 Calculation technique and result 68

3.3.5.4 Construction department performance analysis 73

3.3.6 KPI concept evaluation 79

3.3.6.1 Planning 79

3.3.6.2 Implementation 80

CHAPTER 4

CONCLUSIONS AND RECOMENDATION

4.1 Summary of implementation process 82

4.2 Results and provident recommendation 82

4.2.1 Results 82

4.2.2 Improvement recommendation 83

4.3 Investigation of balanced scorecard implementation problem 84

4.4 Recommendation for BSC concept implementation problem 85

4.5 Recommendation for further study 89 References

LIST OF ABBREVIATIONS

ABBREVIATIONS MEANING

¬ Construction Dept Construction Department

¬ Phu Tho Tourist Phu Tho Tourist limited company

LIST OF FIGURES

Figure 1.1 Management process 7

Figure 1.2 Element of the Control Process 8

Figure 1.3 Frameworks for Strategy Implementation 9

Figure 1.4 The Management control system 10

Figure 1.5 Managing Strategy: Four Processes 17

Figure 1.6 The Stages of Performance Management 19

Figure 1.7 The Balanced Scorecard Links Performance Measures 21

Figure 1.8 Cause and effect relation in balanced scorecard 22

Figure 2.1 Methodology Frameworks 25

Figure 2.2 Organization chart of Phu Tho Tourist 31

Figure 3.1 Corporate vision and strategies 35

Figure 3.2 Strategies of Construction Department 37

Figure 3.3 Translation Construction Department Strategy 40

Figure3.4 Preliminary Business Unit Strategic Map 41

Figure 3.5 KPIs valuation process 43

Figure 3.6 Business unit strategic Map 47

Figure 3.7 KPI weighting 58

Figure 3.8 Finance perspective performance scale 73

Figure 3.9 Customer perspective performance scale 75

Figure 3.10 Internal business process perspective performance scale 76

Figure 3.11 Learning and Growth perspective performance scale 78

Figure 3.12 Overall performance scale of construction department 79

LIST OF TABLES

Table 2.1 Revenue in past five years 30

Table 3.1 Preliminary Business Unit KPIs 42

Table 3.2 Summary result from KPIs validation 45

Table 3.2 Summary result from KPIs validation (continue) 46

Table 3.3 Construction dept goal and objective due to finance perspective 48

Table 3.4 Construction dept goal and objective due to customer perspective 49

Table 3.5 Goals and objective due to internal business process perspective 50

Table 3.6 Goal and objective due to Learning and Growth perspective 51

Table 3.7 Construction department KPIs 52

Table 3.8 Summary of KPIs weighting 57

Table 3.9 Construction department KPIs Source of data 60

Table 3.9 Construction department KPIs source of data (continue) 61

Table 3.10 Summary result collecting data of KPIs 63

Table 3.11 Result KPIs Evaluation 66

Table 3.11 Result KPIs Evaluation(continue) 67

Table 3.12 Performance scale calculation 71

Table 3.12 Performance scale calculation (continue) 72

Table 3.13 Finance perspective performance scale 73

Table 3.14 Customer perspective performance scale 74

Table 3.15 Internal business process perspective performance scale 76

Table 3.16 Learning and Growth perspective performance scale 77

Table 3.17 Overall performance scale of construction department 79

Table 4.1 The summary of Problem Identification and Recommendation 88

LIST OF APPENDICES

Appendix A: Validation of KPIs of Construction Department

Appendix B: The result of validation of KPIs of Construction Department Appendix C: Weight analysis of KPIs of Construction Department

Appendix D: Data collection form

Appendix E: Result of KPIs valuation

Appendix F: Performance scale

PLEDGE

I pledge that this thesis is my research work The data and results which

were presented in the thesis are absolutely honest

Hoang Van Ba

ACKNOWLEDGEMENTS

I wish to express my profound gratitude and great appreciation to my Guidance Counselor Dr Nguyen Cong Thanh for his valuable guidance, advice and encouragement throughout the research study

Taking this opportunity, I would also like to thank all professors, coordinators, tutors in Vietnam - Belgium Master in Management programme, and my classmates for their assistance and co-operation during my two-year’s time at the course

A grateful acknowledgement is extended to general director board, managers of construction department, managers of other departments, director of subsidiaries and my colleagues at Phu Tho Tourist limited company for assistance, providing

me with materials needed for the research

I remain indebted to my beloved family, relatives and friends for their valuable encouragement and unceasing supports in my academic pursuits

Hoang Van Ba

ABSTRACT

To manage business function of company is one of the most difficult tasks because each business function has unique character Since now, there is no proper and effective system for managing performance of business unit of Phu Tho Tourist limited company This study is conducted in order to identify the most appropriate business function for applying the performance measurement system focused balanced scorecard concept, to identify relevant and appropriate Key Performance Indicators (KPIs) and to implement investigate and recommend the concept implementation problem The balanced scorecard is an appropriate tool to identify KPIs because it integrates four critical perspectives such as financial, customer, internal business process, and learning and growth perspectives The construction department of Phu Tho Tourist company, was selected as business unit for the concept implementation To ensure the practicality of KPIs, the management team of company and the construction department performed the KPI validation Therefore, the completed sets of KPIs with weight are systematically developed Thereafter, the performance of construction department was evaluated based on the information of projects of the company in 2006 As the results, the study developed the recognition areas for the concept implementation problem as well as the recommendations The most critical factor for the concept implementation is the commitment from all participants Therefore, appropriate KPIs can be used as an effective performance management system of the construction department

INTRODUCTORY CHAPTER

A General

Vietnamese economy has been in the context of developing and integrating process with the world economy In order to exist and grow in the tense competition, companies has to formulate the right vision and strategy, to tranfer them to real activities of the company To identify how the trategy be excuted, and if it be well done, the companies has to conduct measuring the performance

of the strategy

Performance measurement is one of the essential factors for organization management However, managers see the importance of performance measurement, but more concerned on planning and performing this strategy Due to ability to sustain in the situation of high and rapid change in competitive market, organization must adopt effective tool for measuring and evaluating their performance continuously (Dacharin, 2001) Therefore, performance measurement is the process of organization determining how successful organizations or individuals have been in achieving their objectives

B Problem statement

All of companies have faced to problems in operation process However, almost those problems have warning sign at the first stage of them If we can carry out diagnosing or measuring, we will discover them before they become serious and out of our control We could put forward the correlative solutions to them

If companies conduct to measure and diagnose during management cycle continuously, they can understand better of using resources The result of

company The performance measurement will help to increase the operation effect of company

Due to the importance mentioned above, strategy of organization should be revised or designed accordingly However, companies may not have any effective technique to manage or modify their strategy due to the changing of business environment Moreover, they are lack of an effective method to evaluate their strength and weakness, which can be used to identify their standing position in the market Thus, making some improvement in the organization will be very difficult and ineffective As the result above, the organization is lacking of ability to sustain in the competitive market Therefore, organization performance evaluation tool must be appropriately designed

2 Apply the performance measurement system focused Balanced Scorecard

in the business unit in order to investigate implementation problem Therefore, recommendation for the problem solving could be formulated The following programs are included:

• Verification of business strategy and corporate vision

• Development of the business unit Key Performance Indicators (KPIs): selected business unit

• Development of KPIs implementation

D Methodology of research

Methodology of study combines many methodologies which become unifying methodology Basing on balanced scorecard concept, collecting data, figure, interviewing managers, quantitative analysis, form the steps of study as following:

Step 1: Clearing the corporate the vision and strategy

• Clearing the vision and strategy

• Selecting business unit to survey

• Verification the selected business unit

Step 2: Developing key performance indicators- KPIs

• Developing key performance indicators - KPIs: to deploy business unit strategy into balanced scorecard aspects, strategic relation map, key performance indicators

• Quantify, develop key performance indicators of business unit

Step 3: Development of key performance indicators implementation:

• Preparing and collecting data of KPIs

• Quantifying KPIs

• Analyzing performance of business unit

• Evaluating the performance through KPIs

Stage four: Conclusion and Recommendation

• Conclusion

• Recommendation for the further study

E Scope of research

Study focus on balanced scorecard to evaluate the performance of Construction department – Phu Tho Tourist limited company

• Persons who involve the research are general director board, managers of business unit

• Company address: 2 street 15 Lu gia housing compound, ward 15, district

11, HCMC

• Data be collected in 2003 -2006

• Data using to benchmark be collected from document of control of investing construction of government promulgated

CHAPTER 1 LITERATURE REVIEW

1.1.1 Strategy

Strategy is defined as a comprehensive plan of action that set a critical direction and guides the location of resources to achieve long-term organization objectives Michael E.Porter (1996) stated three conceptions about strategy First, strategy is creation of valuable position involving different actions Second, strategy is choice, exchange in competition The core point is to discriminate necessary things and vice versa Third, strategy makes the suitability between activities of company The success of strategy replies on good performance, integration and unify of activities

In practice, the choice of strategy is a complex and even risk task Any strategy defines the direction in which an organization intends to move in a competitive environment It is the choice that specifies how managers plan to match the organization’s strengths and weaknesses with opportunities and threats in the environment (John R, 1996) The goal of strategy is to seek the opportunity, in other word, to increase chances and get competitive position (Nguyen Thi Lien Diep, 2003)

In addition to the definition mentioned above, strategy also involves goal setting and the planning need to attain goals It also involves translating plans into programs and monitoring programs to make sure that remain goal directed Strategy is pertinent to two levels within the enterprise: the corporate level and

1.1.2 Strategic planning

Strategic plan is a plan that set the overall goals and objectives of the organization The strategic plan leads to long-range planning, which produces forecasted financial statements for five to ten-year period The financial statements are estimated of what manager would like to see in the company’s future financial statements Decisions made during long-range planning include addition or deletion of product lines, design and location of new plants, acquisition of buildings and equipments, and other long-term commitments Long-range plans are coordinated with capital budget which details the expenditures for facilities, equipments, new products, and other long-term investments Long-range plans and budgets give the company direction and goals for the future, while short-term plans and budgets guide day-to-day operations (Horngren et al., 1999)

Structured planning is an effective management control system Through planning, managers anticipate the inherent risks in their activities and set up methods to mitigate the effects of these risks (David, 1999)

The Strategic Planning Process is the process of converting the Business Objectives and the Appreciation of Business Risk into a set of strategic objectives, scenarios, plans, or the like to serve as guidance for the organization over some planning horizon greater than one year (David and Georges, 1999) 1.1.3 Control

Controlling refers to implementing plans and using feedback to attain objectives Feedback is crucial to the cycle of planning and control Planning determines action, action generate feedback, and feedback influences further planning

Planning (Deciding)

Action (Implementing

Evaluation (Feedback)

Controlling

Function of controlling are measurement and adjustment in implementation task,

in order to ensure goals and plans be fulfilled

Controlling process includes three steps:

- Establishing criteria

- Measuring performance following those criteria

- Adjusting the difference between criteria and plans

Any control system has at least four elements:

- A detector or sensor, which is a measuring device that identifies what is actually happening in the process being controlled

- An assessor, which is a device for determining the significance of what is happening Usually, significance is assessed by comparing the information

on what is actually happening with some standard of expectation of what should be happening

- Effectors, which are a device that alters behavior if assessor indicates the

- A communication network transmits information between the detector and the assessor and between the assessor and the effectors

These basic elements of a control system are as shown in Figure 1.2

Control device

Entity being control

3 Effectors,

behaviour alteration, if need

2 Assessor,

comparison with standard

1 Detector,

information about what

is happening

1.1.4 Management Control

Management control is one of several types of planning and control activities that occur in the organization Management control fits between strategy formulation and task control in several aspects

Management control is the process by which managers influence other members

of the organization to implement the organization’s strategies Management control involves many activities such as: (1) planning what the organization should do, (2) coordinating the activities of several parts of the organization, (3) communicating information, (4) evaluating information, (5) deciding what action should be taken, and (6) influencing people to change their behavior Management control anticipates what conditions are going to be in the future The purpose of management control is to ensure that strategies are carried out so that the organization’s objectives are attained

Although systematic, the management control process is by no means mechanical The process involves interactions among individuals Managers have personal goals, and the central control problem is to induce them to act so that when they seek their personal goals, they will help to attain the organizational goals The goals of individual members of an organization should

be consistent with the goals of the organization

Management control systems aid management in moving an organization toward its strategic objectives Management controls are the tools that managers use in implementing desired strategies As indicated in Figure 1.3, strategies get implemented through management control, organization structure, human resource management, and culture Organization structure specifies toe roles, reporting relationships, and responsibilities that shape decision making within organizations Human resource management deals with selection, training, development, evaluation, promotion, and firing employees Culture refers to the organization’s set of common beliefs, attitudes, and norms that explicitly or implicitly guide managerial actions

Culture

Management control

Human resource management

Organization

Strategy

Implementation Mechanism

1.2 Management Control system

1.2.1 Management Control System and Organizational Goals

A well-designed management control system aids and coordinates the process of making decisions and motivates individuals throughout the organization to act in concert It also facilitates forecasting revenues- and cost-driver levels, budgeting, and measuring and evaluating performance (Horngre et al., 1999) The first and most basic component in a management control system is the organization’s goals As shown in Figure 1.4, setting goals, objectives and performance measures, and targets, manager reviews these goals on a periodic basis, usually once a year, but normally they do not change them These goals provide a long-term framework around which an organization will form its comprehensive plan for positioning itself in the market As Figure 1.4 shows, goals answer the question, “What do we want to achieve?” However, goals without performance measures do not motivate managers

Monitor, Report

Set Goals, Measures, Targets

Evaluate, Reward

Plan and

Execute

Feedback and Learning

What do we want to achieve?

H ow do we set the direction?

How much progress are we making?

The purpose of performance measures is to set direction and to motivate managers Targets for goals are specific quantified levels of the measures

As we can see, goals and their related performance measures are very broad In fact, they are often too vague to guide managers and employees As a result, top managers also identify critical processes and key success factors

A critical process is a series of related activities that directly affects the achievement of organizational goals The next step in goal setting is for both top managers and the managers of the critical processes to develop sub goals or key success factors and related performance measures Key success factors are actions that must be done well in order to drive the organization towards its goals

Although, key success factors and related performance measures give managers more focus than do overall, organization-wide goals, they still do not give lower-level managers and employees the direction they need to guide their daily actions To set this direction, critical process managers work with lower-level mangers within the appropriate business unit to establish objectives-specific tangible actions (activities) that can be observed on a short-term basic

Balancing the various objectives is an important part of management control Sometimes the management control system ignores critical success factors or inadvertently emphasizes the wrong factors Managers often face trade-off decisions For example, a sales manager can increase the “employee satisfaction” measure (a survey of employees) by setting lower standards for responding to customer inquiries This action may improve the employee satisfaction measure of the manager but result in unsatisfied customers Management control systems play an important part in the perception of risk

The strong controls give the impression that risk is minimized, when in fact only the consequences are minimized (David, 1999)

1.2.2 Designing Management Control System

To create a management control system that meets the organization’s needs, designers need to recognize existing constraints, identify responsibility centers, weigh costs and benefits, and provide motivation to achieve goal congruence and managerial effort (Horngre et al., 1999)

Designers should recognize the side effects and backlash that their designs will occasion, and should make appropriate adjustments (Kenneth, 2000)

1.2.2.1 Working with the Organization Structure

Every management control system needs to fit the organization’s goals As shown in Figure 1.4, developing plans and then executing them is the second major function of a management control system One of the primary purposes of planning (budgeting) is to encourage managers throughout the organization to take actions that aim to achieve overall organizational goals To achieve this, the management control system must fit into the organization’s structure (Horngre

et al., 1999)

The model should be complete It should describe all of the important elements

of the system and its relationships It is necessary to conceptually leap out of an existing situation if one is to envisage a new system or radically redesign an existing system It should structure orientation of the group and the follow-up design to achieve mutual appreciations of cognitive maps within the groups (Kenneth, 2000)

1.2.2.2 Identification of responsibility centers

In addition to organizational structures, designers of management control system must consider the desired responsibility centers in an organization

Before designing measures of the financial responsibility of managers, should consider the strategy and structure of the company (Richard, 1973)

Responsibility for the design of management control system rests inescapably on top management For one thing, it is top management that decides on the strategy and organization structure of a business For another, the control system is a major tool for implementing those decisions effectively (Richard, 1973)

Thus, system designers apply responsibility accounting to identify what parts of the organization have primary responsibility for each objective, develop performance measures and targets to achieve, and design reports of these measures by organization subunit or responsibility center Responsibility centers usually have multiple objectives that the management control system monitors Responsibility centers usually are classified according their financial responsibility as cost centers, profit centers, or investment centers (Horngre et al., 1999)

1.2.2.3 Development of measures of performance

Many methods, techniques of financial measurement have been used since 1925

In 1950, those techniques made manager un-satisfied After many years relying

on financial measurement, in 1989 Keengan introduced performance measurement matrix system basing on costing and no costing scale Maskell (1989) used word class manufacturing – WCM scale to evaluate performance involving quality, time, flexibility of organization Dixon (1999) achieved

Performance Measure Questionnaire – PMQ to survey performance measurement, etc

In 1990, Kaplan and Norton introduced balanced scorecard theory as a tool to measure performance including four aspects: finance, customer, integration business process, learning and developing These aspects were developed according to company’s strategy Balanced scorecard theory then continuously was grown and become strategic management system

Besides what mentioned above, having European foundation for quality management – EFQM module in Europe, Malcolm Baldrige National Quality Award module in United State of America (USA), and Deming Prize in Japan

1.3 Balanced score card: strategic and performance management system

1.3.1 Balanced scorecard -BSC

1.3.1.1 The origin and meaning of BSC

BSC came into being in 1990, and was the production of Nolan Norton Institute

in the USA after the completion participating by twelve American firms This project was directed by Harvard professor Robert Kaplan and David Norton, CEO of Nolan Norton The project lasted for one year, with the main purpose being to discuss “an evaluation system for the organization in the future” In the beginning, people tended to assume that BSC was simply another kind of evaluation system However, after continuous research and discussion it yielded outstanding results The BSC is a strategic management system consisting of four components

Kaplan and Norton strongly emphasized that the BSC is a strategic management system, which could help companies translates strategy into actions The system includes financial, customer, internal business process and learning and growth

aspects But why balance? This is because there is a balance between short and long term goals, between leading indicators and lagged behind indicators, and between internal performance and external performance The focus of BSC is to find the key indicators for the business performance of the firm and to translate strategy to daily operation, therefore becoming the task of everyone

1.3.1.2 Why enterprise need the BSC

The performance measurement system of the organization affects the behaviors

of employees both internally and externally In an intensely competitive environment, enterprises need to measure their respective performance under strategy orientation in order to survive and grow Unfortunately, many firms put their efforts into pursuing customer oriented strategy, and simply measure the financial result as performance evaluation This can not combine strategy and performance evaluation and hence cannot move towards the goals for the set strategic direction The BSC system uses financial measurement as the base, but

at the same time includes customers, internal business processes, employees and long-term achievements in the measurement The method can help attain the set strategic goals and overall vision Therefore, Kaplan and Norton suggested that it

is critical enterprises to use BSC

1.3.2 Strategic management system

The studies reported that the ability to execute strategy was more important than the quality of the strategy itself Therefore, management theorists, consultants, and the business press have focused on how to devise strategies that will generate superior performance (Kaplan and Norton, 2001)

Kaplan and Norton stated in1996 that the balanced scorecard introduces four new processes that help companies connect long-term objectives with short-term actions as follows (see Figure 1.5)

• Translating the vision, the process of scorecard helps managers build a

consensus around the company’s strategy and express it in terms that can guide action at the local level

• Communication and linking, the scorecard will let managers communicate

their strategy up and down the organization and link it to unit and individual goals Therefore, the scorecard gives managers a way of ensuring that all levels of the organization understand the long-term strategy and that both departmental and individual objectives are aligned with it

• Business planning, the process enables companies to integrate their

business and financial plans Therefore, they can undertake and coordinate only those initiatives that move them toward their long-term strategic objectives

• Feedback and learning, the scorecard gives companies the capacity for strategic learning such as gathering feedback, testing the hypotheses of selected strategy, and making the necessary adjustments Thus, the scorecard enables companies to modify strategies to reflect real-time learning

• Clarifying the

vision

• Gaining consensus

Translating the Vision

1.3.3 Measurement and evaluation

Most companies today operate in a dynamic business environment with complex strategies In the environment where new threats and opportunities arise constantly, companies must become capable of learning that produces a change

in people’s assumptions and theories about cause-and-effect relationships (Kaplan and Norton, 1996) In order to maintain an “output focus” organization have to provide criteria for measuring outcomes and results In order to ensure reaching organization’s destination, organization must have a good guidance system to indicate their current status Therefore, in order to maximize the effectiveness of teams, performance-measurement systems should be to help a

team gauge its progress, to empower team to lead role in designing their own measurement system, and to adopt only a handful of measures

1.3.4 Performance management system

1.3.4.1 Performance management cycle

Today’s quality management programs provide a new management approach and philosophy that involves respecting the people in the operation to the point where each and every one is viewed as part of the management team (Martin, 1993) Performance management system is seen as a closed loop control system, which shows policy and strategy, and obtains feedback from various levels due to managing the performance of the system (Kagioglou et al, 2001)

Therefore, the cycle of performance management process can be described as seven implementing steps as presented in Figure 1.6

As showed in the Figure 1.6, first, Awareness is the follows reflection at the end

of the previous wave Therefore, it is a new awareness of needs that have to be met to complete the next cycle Second, Development is the phase that focuses

on how organization can prepare, get ready and equip their selves for the performance that is expected Third, Performance is the time when organization uses all of their capability in order to take action in the best possible way Forth, Review is to identify what organization could do differently to improve their performance in the future Fifth, Coaching is aim to look for indications of good aspects of performance and to offer suggestions for improvement Therefore, the

important information is what to do differently to improve rather than telling

them what they are doing wrong Sixth, Appraisal phase is the point at which manager evaluate what company produce from their performance and look at and measure the outcomes And seventh, Reflection phase is to reflect on what

organization has learnt and how they are able to be different from the previous cycle

1.3.4.2 Performance Management Technique

The performance management technique called Balanced Scorecard (BSC) can

be used to translate the organization strategy to every function in organization by setting objective of each function with working toward to the organization strategy (Kaplan and Norton, 1993) As stated by Kaplan and Norton in 1992, this performance management technique translates organization vision through a key performance indicator (KPI), which can be used to evaluate and benchmark the performance of each function or very detail as each person perform

Awareness (Need)

Developing

Review (Understanding) Performance (Action)

Coaching (Growing)

Appraisal (Evaluation)

Reflection (Learning)

The balanced scorecard enabled companies to track financial results while monitoring progress in building the capabilities they would need for growth Therefore, the BSC allows managers to look at the business from four important perspectives and it provides answers to four basic questions as follows: (see Figure 1.7)

Financial performance measures indicate whether the company’s strategy, implementation, and execution are contributing to bottom-line improvement Therefore, typical financial goals have to do with profitability, growth, and shareholder value

• How do customers see us? (Customer perspective)

Many companies today have a corporate mission that focuses on the customer Therefore, how a company is performing from its customers’ perspective has become a priority for top management Most customers’ concerns tend to fall into four categories, which are time, quality, performance and service, and cost Therefore, at this perspective, customers’ satisfaction is measured based on the four categories

• What must we excel at? (Internal Business process perspective)

Customer-based measurement must be translated into measures of what the company must do internally to meet its customers’ expectation Therefore, managers need to focus on those critical internal operations that enable them

to satisfy customer needs The internal measures for the balanced scorecard should come from the business processes that have the greatest impact on customer satisfaction such as factors that affect time, quality, employee skills, and productivity

• Can we continue to improve and create value? (Learning and Growth

perspective)

Due to the rapidly change of business environment of competitive market, intense global competition requires that companies make continual improvements to their existing products and processes and have the ability to introduce entirely new products with expanded capabilities

How Do We Look to Shareholders?

Financial Perspective

Can We Continue to Improve and Create Value?

Innovation and Learning

(Kaplan and Norton, 1992)

The norms of four aspects from the chain of cause and effect, and reflects the relationship between measurement and out put result and motive force of fulfillment of task Cause and effect relation help managers to know if they could get improvement of an aspect from another

Employee be empowered and well trained

will improve the way of their working

Employee ‘s knowledge and skill is

foundation for innovation and growth

Customer

Internal Business Process

Learning and Growth Finance

(Kaplan and Norton, 1992)

CHAPTER 2 METHODOLOGY & OBJECTIVE OF RESEARCH

2.1 Methodology

2.1.1 General

The balanced scorecard is an effective tool due to its ability to view all four critical perspectives Therefore, it translates corporate strategy into functional level, which can ensure that performances of all business units are aligned with corporate strategy and can ensure the output contributing to organization value The following sections comprehensively describe the systematic methods to accomplish the objectives of this study

2.1.2 Methodology framework

The methodology framework of this study consists of three stages The first stage

is corporate strategy formulation The second stage is Key Performance Indicators (KPIs) development The third stage is KPIs implementation And the last stage is Conclusion and recommendation Therefore, the following is the phase of implementation according to each stage:

Stage one: Corporate strategy formulation

1 Corporate vision and strategy clarification

2 Business unit pre-survey

3 Business unit strategy clarification

Stage two: KPIs development

1 Business unit KPI development

Ü Translate business unit strategy

Ü Develop business unit KPI

2 Business unit KPI validation

Ü Finalize business unit strategic map

Ü Finalize business unit KPI

Ü Develop KPI Weighting

Stage three: KPIs development implementation

1 Preparation of data collection

2 Business unit KPI data collection

3 Business unit KPI evaluation

4 Business unit performance analysis

5 KPI concept evaluation

Stage four: Conclusion and Recommendation

1 Conclusion

2 Recommendation for the further study

The methodology framework is shown in Figure 2.1

Business unit strategy clarification

Business unit KPI

development

Problem analysis at the stage of the KPI development

Business unit KPI validation

Conclusion and Recommendation

Corporate vision and

strategy clarification

KPI concept evaluation

Business unit performance analysis

Stage One: Corporate strategy formulation

2.1.3 Corporate vision and strategy clarification

According to the balanced scorecard concept, the objective of this phase is to identify the corporate vision and strategy, which are agreed among company’s executives Therefore, at this phase, an interview with executive is conducted Executive are asked to meet together and discuss on their corporate vision and strategy During the meeting, the responsibility of researcher is to record the discussion of meeting, which is an updated corporate vision and strategy Therefore, the corporate vision and strategy are not only to clarify direction of the company, but also are used as the guideline to translate the corporate strategy into the functional level

2.1.4 Selecting Business unit

According to Kaplan and Norton’ statement at 1993, a balanced scorecard concept is appropriate for a business unit that has its own customers, distribution channels, production facilities, and financial performance measures

2.1.5 Business unit strategy clarification

According to the balanced scorecard concept, the objective of the business unit strategy clarification phase is to identify the business unit strategy The business unit strategy aligns with the corporate strategies Therefore, an interview is an implementation method for the researcher in order to clarify business unit strategy Management level of the selected business unit is invited for the interview The business unit strategy is used as a guideline for developing business unit KPI based on the balanced scorecard framework