Situation analysis of large corporate banking of maritime bank details a case study

KPIs and its role for organization in performance appraisal...15 1.1.1 Performance appraisal...15 1.1.2 Key Performance Indicators its role for organization in performance appraisal...17

I would like to thank the numerous friends, colleagues,classmates and professors that have contributed to help me conductthis thesis

Firstly, I would like to show my deep gratitude towardsAssociate Prof, Dr Nguyen Thanh Ha, my thesis tutor for his timespending on zealous guidance and kind encouragement whilewriting the thesis

Secondly, my thankful attitude is expressed for all teachers ofthe EMBA program at Business School of National EconomicsUniversity as well as Board of Director and staff who teach memuch valuable knowledge including literature and analysis to apply

to the work and life

Especially, I also have honor of appreciating all my colleagues

at Maritime Bank; whose contributions have supported the data,intelligent research and knowledge involving the studying areas ofthis research

Finally, I acknowledge the motivation of my family anddearest friends who have always been besides me to understand andhelp me during the writing period

TABLE OF CONTENTS

ACKNOWLEDGMENT 1

TABLE OF CONTENTS 2

ABBREVIATIONS 4

LIST OF TABLES 5

LIST OF FIGURES 6

EXECUTIVE SUMMARY 8

INTRODUCTION 10

CHAPTER 1: LITERATURE REVIEW 15

1.1 KPIs and its role for organization in performance appraisal 15

1.1.1 Performance appraisal 15

1.1.2 Key Performance Indicators its role for organization in performance appraisal 17

1.2 The balanced scorecard by R Kaplan and D Norton 20

1.3 12- Step Model by David Parmenter 27

CHAPTER 2: SITUATION ANALYSIS 30

2.1 Maritime Bank Review 30

2.1.1 Maritime Bank profile 30

2.1.2 Objectives and strategy 34

2.1.3 Operations and results 35

2.2 System of measurement and appraisal of Maritime Bank

38

2.2.1 System of measurement by KPI 39

2.2.2 Some results in building KPIs in Maritime Bank 44

2.2.3 Advantages and disadvantages of KPI system in Maritime Bank 50

2.2.4 The need of KPIs for Product Development Department of Large Corporate Banking 51

CHAPTER 3: KEY PEFORMANCE INDICATORS FOR PRODUCT DEVELOPMENT DEPARTMENT OF LARGE CORPORATE BANKING 55

3.1 Strategy, plan and objectives of Product development department 55

3.2 Job description 56

3.2.1 Product Manager 58

3.2.2 Advanced Executive 59

3.2.3 Senior Executive 60

3.2.4 Executive 61

3.3 Identify main indicators and their weights 61

3.3.1 Identify indicators 62

3.3.2 Indentify weight 73

3.4 Form for evaluating 75

3.5 Some recommendations to apply KPIs successfully 75

CONCLUSION 78

LIST OF REFERENCES 79

APPENDIX 81

LIST OF TABLES

Table 2.1: Maritime Bank’s financial highlights 2007-2011

36Table 2.2: Ranking system definition

41Table 2.3: Guide of evaluating some indicators of Large Corporate

Banking (LCs) 42Table 2.4: Scale of customers’ satisfaction indicator

43Table 2.5: Positions are evaluated by KPIs

45Table 2.6: Format of a KPIs form

47Table 2.7: Effectiveness of new product at Large Corporate

Banking 52Table 3.1: Staff of Products development department of LCs

56Table 3.2: Indicator groups and indicators

62Table 3.3: Measure define/ Outcome measurement

63Table 3.4: Explanation for Indicator of colleagues’ satisfaction

65

Table 3.5: Explanation for Indicator of RM‘s satisfaction

67Table 3.6: Explanation for Indicator of customers’ satisfaction

69Table 3.7: Explanation for Indicator of direct manager‘s appraisal

70Table 3.8: Weight of indicators for Product Manager, Advanced

Executive and Senior Executive 74

LIST OF FIGURES

Figure 1.1: Main reasons for measuring performance

22Figure 1.2: Strategic Alignment Pyramid

26Figure 1.3: Four business perspectives of Balance Scorecard

33Figure 1.4: Cause-effect relationship in four perspectives

35Figure 1.5: Managing strategy: Four process

36Figure 2.1: Rapid growth of Maritime bank over the development

history 45Figure 2.2: Ranking by total assets of top Vietnamese banks

45Figure 2.3: Overall structure Maritime Bank

47Figure 3.1: Business Areas

83

LIST OF CHART

Chart 2.1: Top 10 banks by total assets, in billion USD (2010)

53Chart 2.2: Top 10 banks by net profit, in billion USD (2010)

54Chart 2.3: Staff‘s general satisfaction of KPIs

72Chart 2.4: Staff‘s belief in KPIs

72Chart 2.5: Staff‘s belief in fitness of indicators

73Chart 2.6: Contribution of new product in volume

77Chart 2.7: Contribution of new product in profit

78

EXECUTIVE SUMMARY

Key Performance Indicators is a quite new concept inmanagement but many organizations all over the world haverecognized as a useful tool In recent years, organizations inVietnam started to use KPIs for managing their targets andoperation Especially in human resource management, KPIs areoften used to appraisal employee‘s performance

This research provides an analysis and evaluation of KeyPerformance Indicators system which supporting personnelappraisal activities of Maritime Commercial Join Stock Bank(Maritime Bank), and then develops Key Performance Indicators foremployees at Product development department of Large CorporateBanking of Maritime Bank

The research idea was formed when the researcher monitoredand summarized results of personnel appraisal in Maritime Bank.Based on the fact of Maritime Bank’s rapid growth in recent years,knowledge about usefulness of Key Performance Indicators inemployee appraisal, and current situation that employees at Productdevelopment department of Large Corporate Banking (MaritimeBank) haven’t evaluated by Key Performance Indicators system yet,researcher chose this thesis The main target is to develop a moreeffective appraisal system for employees of Product developmentdepartment by using KPIs

Method of research is analysis, comparisons, synthesis toexamine both primary data and secondary data

The report found the necessary of having KPIs for employees

of Product Development Department to improve their activities, anddeveloped a pilot

The writer also recommended some factors to apply KPIssuccessfully in Maritime Bank:

Improve plan activity and flexibly adjust target if necessary

Use tools such as dashboard meeting and working diary tomonitor, record and calculate performance more exactly

Closely attach KPIs to income, promotion and financialencouragement

Use information technology applications to reduce KPIappraisal costs

Update and improve KPIs frequently

Learn and apply 12-step Model of David Parmenter whenimplementing KPI

 Rationale of the research

Key Performance Indicators, also known as KPIs are essential

in helping organizations better define and measure progress towardsorganizational goals and objectives Once an organization hasidentified its specific objectives and key stakeholders in support ofthose objectives, it is better prepared to develop a systematicapproach to measure progress towards those predetermined goals.The main benefit of KPI is to keep the entire organizationworking toward common goals People work only on meaningfulprojects and eliminate useless activity A company is also morelikely to accomplish its objectives if it has clearly defined them.The importance of KPIs is that they help companies to assesshow it is doing in terms of the targets that it has set itself, andthey can act to incentivize superior performance Often KPIs arelinked to staff review appraisals - e.g if the customer supportteam meets its customer satisfaction KPI, then its members gettheir yearly bonus

Many organizations measure KPI For some organizations, theprocess of measuring data serves as an exercise in futility measuring it without using it to reach strategic goals When usedcorrectly, KPIs become an important part of a company’s strategy.For the small business owner, measuring the right KPIs and creating

actionable items from the data can elevate a company above thecompetition.

Maritime Bank is one of the first commercial banks in Vietnamand targets to become one of the biggest commercial banks inVietnam To the end of 2011, Maritime Bank’s chartered capital is

at the level of 8,000 billion VND and total assets reach over115,000 billion VND From only 16 branches in 2005, it hasextended to 230 branches and transaction points

Since 2009, Maritime Bank started a new strategy, with thegoal to become the best commercial bank in Vietnam MaritimeBank has a new business orientation that directs toward customers’satisfaction and success by providing high quality product So thatproduct development activity is always emphasis

However up to now, Maritime Bank has not got a KPI system

to evaluate performance of this activity As we know, productdevelopment, especially in service sector likes banking is difficult toappraise because products’ effectiveness is not only measuredimmediately by revenue or profit that the products bring toorganization

Now employees in product development department are stillappraised by the old method Each employee, from executive tostaff, self-appraisal with a common form which containedabsolutely quantitative and general criteria, and then result in

“Excellent”, “Good” or “Standard” Because of formality reason,

the results hadn’t got differences between individuals alsodepartments, sometimes thanks to their relationship with leadersevaluating them

Moreover, Maritime Bank‘s strategic partners such as VietnamPost and Telecommunication, Vietnam Maritime Administration,Civil Aviation Authority of Vietnam required to develop KPIsystem for employees This was expressed in resolutions of GeneralAssembly of Shareholders 2012 and Maritime Bank’s orientation ofhuman resources of Talent Management Division

With such rapid development requirement and ambitious target,Maritime Bank really needs a practical tool as KPIs to measurebusiness and operation performance of employees in productdevelopment department

 Objectives of the research

The general goal of the research is to develop KPIs foremployees of product development department To do this, writerdescribed and analyzed the development of Key PerformanceIndicator for appraising employees in Maritime Bank from itsinception to date This is primarily to enable writer myself to reviewall aspects of KPI, in order to revise what need to change andimprove the existing KPI systems of Maritime Bank to achievemore efficient employee assessment

The following research objectives have been defined:

 Identify criteria that KPIs should have when used to

 Scope and limitation

The utilities of KPIs are very extensive They are used in everysector for evaluating annual business result, project effectiveness,human resource appraisal, etc

However, in limited condition of time, data and… this researchgave attention to develop KPI system for employees in Productdevelopment department The research built KPI for four positions:Product Develop Manager, Advanced Executive, Senior Executiveand Executive

This research analyzed KPI system Maritime Bank: the way tobuilt up it, which positions were evaluated by KPI up to now,advantages and disadvantages of present KPI After that, based onframework in literature review, researcher developed KPI for abovepositions with expectation of having a KPI that pushes theadvantages and limits the disadvantages of the present system

Secondary data is the data within two years (2010 – 2011)

 Research Methodology

This research has been carried out in Large Corporate Banking

of Maritime Bank The researcher used some methodologies such as

statistics, analysis, comparisons, synthesis to examine both primarydata and secondary data.

a Primary data: The primary data was gathered by using thefollowing data collection methods: survey and in-depth interview

Survey

- The purpose of survey was to review the present KPI inMaritime Bank throughout opinion of some employees that wasevaluated by KPI

- The way to conduct survey: send questionnaire through email

- Content of questions were focused on finding whatemployees think about their KPI: it was suitable, fair, reliable ornot; how qualitative indicators and quantitative ones reflect theirresponsibility; effect of KPI on compensation and promotion ofemployee

- Survey was carried out with 100 employees, mainly RM andCSO Researcher received replies for all 100 questionnaires sent

- Survey include five (5) Yes- No questions, two (2) questionscomparing KPI with previous methods, three (3) questions thatexpress the level of employees’ satisfaction and one (1) openquestion through which employees make other recommendations.But not as expected, there are only few people answering thisquestion

In – depth interview

- In – depth interview with: 3 Product Manager and 4 Product

Development Officer

- List of interviewees:

1 Tran Huy Phuong Product manager (Deposit Product)

2 Hoang Viet Phuong Product manager (Credit Product)

3 Nguyen Thi Hang Product manager (Trade finance

Product)

4 Tran Thi Ha Advanced Executive

5 Pham Hoang Ha Advanced Executive

6 Nguyen Thi Hong

- The content of interview included questions to learn moreabout job responsibility, job requirement of positions In which,focusing on clarifying main tasks of each position, the importance

of tasks, percentage of working time for each task, criteria can beused for evaluating performance of each task

- The interviews were held in April and May 2012 Theduration of each interview was an average of 1 hour The interviewswere conducted in Vietnamese and translated main content intoEnglish by writer

b Secondary data: The secondary data was collected basing onthe desk research method The following data resources werecollected:

- The textbook from EMBA program and other sources

- Searching information from: internet, professionalmagazines

- Company’s annual business reports, finance reports, policies…from 2010 – 2011

 Research Structure

This thesis comprised 3 chapters as bellows:

Introduction: presents the background, problem statement,

scope and limitation of the research as well as methodology

Chapter 1: Literature review - provides the theory information

of concepts of Balance Scorecard, Key Performance Indicators

Chapter 2: Situation analysis of large-corporate banking of

Maritime Bank details a case study: Large-corporate banking ofMaritime Bank with the analyses about current situation appliedfrom theory This part also draws out the problem based oncollected data from observation, books, internets, research, andinternal documents, in dept interviews with officers, managers whodirectly compose and apply new products

Chapter 3: Proposed KPIs for employees in product

development department of large-corporate banking of MaritimeBank

Moreover, third chapter contains the recommendation forproblem draw out.

Conclusion: Summarizes the main points pointed out from thethesis

CHAPTER 1 LITERATURE REVIEW

1.1 KPIs and its role for organization in performance appraisal 1.1.1 Performance appraisal

Performance appraisal is one of important contents in managinghuman resource of any organizations Performance appraisal is asystematic and periodic process that assesses an individualemployee’s job performance and productivity in relation to certainpre-established criteria and organizational objectives

Performance appraisal includes the identification, measurementand management of human performance in organizations

 Identification means determining what areas of work the

manager should be examining when measuring performance.Rational and legally defensible identification requires ameasurement system based on job analysis The appraisal system,then focus on performance that affects organizational success ratherthan performance irrelevant characteristics such as race, age, orgender

 Measurement, the centerpiece of the appraisal system,

entails making managerial judgments of how “good” or “bad”employee performance was Good performance measurement must

be consistent throughout the organization That is, all managers inthe organization must maintain comparable rating standards

 Management is the overriding goal of any appraisal system.

Appraisal should be more than a past-oriented activity that criticizes

of praises workers for their performance in the preceding year

Rather, appraisal must take a future-oriented in the organization.

This means that managers must provide workers with feedback andcoach them to higher levels of performance

The reason why we measure performance in organizations isoften reduced to simple homilies, such as you can’t manageanything unless you measure it or what gets measured gets done.The three main reasons for measuring performance are:

 To learn and improve

 To report externally and demonstrate compliance

 To control and monitor people

Of these three the first is the most important, the second issomething organizations just have to do and the third one can causemajor problems

Measuring Performance

Measuring Performance

Learning and Performance Improvement

Learning and Performance Improvement

External Reporting and Compliance

External Reporting and Compliance

Controlling and Monitoring People

Controlling and Monitoring People

Figure 1.1: Main reasons for measuring performance

Source: Bernard Marr (2010), How to design key performance indicators, Advanced performance institute, BWMC Ltd., June 2010

Today managers have a wide array of appraisal formats fromwhich to choose The most common and legally formats can beclassified in two ways: (1) by the type of judgment that is required(relative or absolute), and (2) by the focus of the measure (trait,behavior, or outcome)

Relative judgment is an appraisal format that asks supervisors

to compare an employee’s performance to the performance of otheremployees doing the same job

Absolute judgment is an appraisal format that asks supervisors

to make judgments about an employee’s performance based solely

on performance standards

Trait appraisal instrument is an appraisal tool that asks asupervisor to make judgments about worker characteristics that tend

to be consistent and enduring

Behavioral appraisal instrument is an appraisal tool that asksmanagers to assess a worker’s behavior

Outcome appraisal instrument is an appraisal tool that asks

managers to assess the results achieved by workers.

Knowing how the different areas of the business are performingcan help organizations to assess where the business is strong, where

it is weaker and factors they can change for the better This shouldhelp them to manage their performance proactively and efficiently.However, organizations need to make sure that they measurethe correct areas of their business so they get the correctinformation They should focus on specific factors that are easy tomeasure and show the areas where their business is successful whencompared to the rest of the market These are known as keyperformance indicators (KPIs)

1.1.2 Key Performance Indicators its role for organization in performance appraisal

Most authors agree that KPIs are quantifiable measurementsthat estimate the outcome of CSF (Critical Success Factor), goal,objective or performance Furthermore, Hyman (2004) firmly linksKPIs to effective performance management systems, argued that bymeasuring correctly; managers will obtain the right information.Key Performance Indicators (KPIs) help organizations understandhow well they are performing in relation to their strategic goals andobjectives In the broadest sense, a KPI can be defined as providingthe most important performance information that enablesorganizations or their stakeholders to understand whether theorganization is on track or not

According to David Parmenter, “KPIs represent a set ofmeasures focusing on those aspects of organizational performancethat are the most critical for the current and future success of theorganization”1.

Indicators identifiable as possible candidates for KPIs can besummarized into the following sub-categories:

- Quantitative indicators which can be presented as a number

- Practical indicators that interface with existing companyprocesses

- Directional indicators specifying whether an organization isgetting better or not

- Actionable indicators are sufficiently in an organization's control

to effect change

- Financial indicators used in performance measurement

KPIs are commonly used by an organization to evaluate itssuccess or the success of a particular activity in which it is engaged.Sometimes success is defined in terms of making progress towardstrategic goals, but often, success is simply the repeatedachievement of some level of operational goal (for example, zerodefects, 10/10 customer satisfaction, etc )

KPIs are useful in many areas For example, in marketing wecan use some indicators: new customers acquired; demographicanalysis of individuals (potential customers) applying to become

1 Key Performance Indicators – developing, implementing and using winning KPIs,p.3

customers, and the levels of approval, rejections, and pendingnumbers; status of existing customers; customer attrition; turnovergenerated by segments of the customer population; outstandingbalances held by segments of customers and terms of payment;collection of bad debts within customer relationships; profitability

of customers by demographic segments and segmentation ofcustomers by profitability

Roles of KPI for organization can be summarized into thefollowing contents:

- Quantify criteria to appraisal staff Criteria that aremeasurable ensure the appraisal activity clearly and fairly, so thatavoiding from employees’ argument or dissatisfaction

- Staff and managers can use day-by-day updated KPIs toknow “the gap” between their plan and recent result, then lookingfor solutions to get plan This makes KPIs linking to organization’sgoals and vision

- KPI system has alignment with strategic direction oforganizations

Figure 1.2: Strategic Alignment Pyramid

Source: Beuer K., KPIs- The metrics that drive performance management, DM Review 2004:63

Because of the need to develop a good understanding of what isimportant, performance indicator selection is often closelyassociated with the use of various techniques to assess the presentstate of the business, and its key activities These assessments oftenlead to the identification of potential improvements; and as aconsequence, performance indicators are routinely associated with

“performance improvement” initiatives A very common way forchoosing KPIs is to apply a management framework such as thebalanced scorecard

A performance indicator or key performance indicator (KPI) isindustry jargon for a type of performance measurement KPIs arecommonly used by an organization to evaluate its success or the

success of a particular activity in which it is engaged Sometimessuccess is defined in terms of making progress toward strategicgoals, but often success is simply the repeated achievement of somelevel of operational goal (for example, zero defects, 10/10 customersatisfaction, etc.) Accordingly, choosing the right KPIs is reliantupon having a good understanding of what is important to theorganization 'What is important' often depends on the departmentmeasuring the performance - the KPIs useful to finance will be quitedifferent than the KPIs assigned to sales, for example Because ofthe need to develop a good understanding of what is important,performance indicator selection is often closely associated with theuse of various techniques to assess the present state of the business,and its key activities These assessments often lead to theidentification of potential improvements; and as a consequence,performance indicators are routinely associated with 'performanceimprovement' initiatives A very common way for choosing KPIs is

to apply a management framework such as the balanced scorecard

A KPI can follow the SMART criteria This means the measurehas a Specific purpose for the business, it is Measurable to really get

a value of the KPI, the defined norms have to be Achievable, theimprovement of a KPI has to be Relevant to the success of theorganization, and finally it must be Time phased, which means thevalue or outcomes are shown for a predefined and relevant period.This research uses two models to demonstrate researcher’s

point They are Balance Scorecard (BSC) by Robert Kaplan andDavid Norton; and 12-step Model by David Parmenter that ismentioned in his book “Key Performance Indicators – developing,implementing and using winning KPIs”(2007) The Balancescorecard is basic for choosing criteria and 12-step model supportfor recommendations when implementing KPI in Maritime Bank.

1.2 The balanced scorecard by R Kaplan and D Norton

The balanced scorecard was first designed by Harvard businessprofessor Robert Kaplan (Harvard Business School) and DavidNorton In 1990, R Kaplan and D Norton led a research of 12companies to investigate new methods in productivity measurementand they have come up the concept of the Balance Scorecard Then

in 1996, they established “Using the Balanced Scorecard as a

Strategic Management System” to review the definition and research

about it Up to now, many organizations have applied the balancescorecard and received good results

Organizations have used systems consisting of a mix offinancial and non-financial measures to track progress for quitesome time One example of such a system was created by ArtSchneiderman in 1987 at Analog Devices, a mid-sized semi-conductor company; the Analog Devices Balanced Scorecard wassimilar to what is now recognized as a "First Generation" BalancedScorecard design Subsequently Art Schneiderman participated in

an unrelated research study in 1990 led by Dr Robert S Kaplan in

conjunction with US management consultancy Nolan-Norton, andduring this study described his work on performance measurement.Subsequently, Kaplan and David P Norton included anonymousdetails of this use of Balanced Scorecard in their 1992 article onBalanced Scorecard Kaplan and Norton's article wasn't the onlypaper on the topic published in early 1992 but the 1992 Kaplan andNorton paper was a popular success, and was quickly followed by asecond in 1993 In 1996, they published the book The BalancedScorecard These articles and the first book spread knowledge of theconcept of Balanced Scorecard widely, and has led to Kaplan andNorton being seen as the creators of the Balanced Scorecardconcept.

While the "Balanced Scorecard" terminology was coined by ArtSchneiderman, the roots of performance management as an activityrun deep in management literature and practice Managementhistorians such as Alfred Chandler suggest the origins ofperformance management can be seen in the emergence of thecomplex organization - most notably during the 19th Century in theUSA More recent influences may include the pioneering work ofGeneral Electric on performance measurement reporting in the1950s and the work of French process engineers (who created thetableau de bord – literally, a "dashboard" of performance measures)

in the early part of the 20th century The tool also draws strongly onthe ideas of the 'resource based view of the firm' proposed by Edith

Penrose However it should be noted that none of these influences isexplicitly linked to original descriptions of Balanced Scorecard bySchneiderman, Maisel, or Kaplan & Norton.

Kaplan and Norton's first book, The Balanced Scorecard,remains their most popular The book reflects the earliestincarnations of Balanced Scorecard - effectively restating theconcept as described in the second Harvard Business Review article.Their second book, The Strategy Focused Organization, echoedwork by others (particularly in Scandinavia) on the value of visuallydocumenting the links between measures by proposing the

"Strategic Linkage Model" or strategy map Since then BalancedScorecard books have become more common - in early 2010Amazon was listing several hundred titles in English which hadBalanced Scorecard in the title

The balanced scorecard is a strategic planning and managementsystem that is used extensively in business and industry,government, and nonprofit organizations worldwide to alignbusiness activities to the vision and strategy of the organization,improve internal and external communications, and monitororganization performance against strategic goals According to byDrs Robert Kaplan and David Norton, balanced scorecard is aperformance measurement framework that added strategic non-financial performance measures to traditional financial metrics togive managers and executives a more 'balanced' view of

organizational performance

The balanced scorecard has evolved from its early use as asimple performance measurement framework to a full strategicplanning and management system The balanced scorecardtransforms an organization’s strategic plan from an attractive butpassive document into the "marching orders" for the organization on

a daily basis It provides a framework that not only providesperformance measurements, but helps planners identify what should

be done and measured It enables executives to truly execute theirstrategies

Kaplan and Norton describe the innovation of the balancedscorecard as follows:

"The balanced scorecard retains traditional financial measures.But financial measures tell the story of past events, an adequatestory for industrial age companies for which investments in long-term capabilities and customer relationships were not critical forsuccess These financial measures are inadequate, however, forguiding and evaluating the journey that information age companiesmust make to create future value through investment in customers,suppliers, employees, processes, technology, and innovation."2

The balanced scorecard allows organization to select criteria

in each of the four key perspectives – Financial, Customer,Internal Process, and Learning and Growth – to develop a

2 The balanced scorecard, p.7

realistic view of employee contribution Manager will consider hisemployee requirements from each of the four business perspectives:

Financial:

 Good steward of financial resources: Percentage of projectscompleted within budget or number of months department operatedwithin budget

 Appropriate compensation for responsibility level: Variancefrom company’s historical salary for comparable position orvariance from industry standard for comparable position

Customer:

 Successful relationships with internal customers(coworkers, subordinates, superiors): Number of complaintsreceived or number of positive responses on employee satisfactionsurveys

 Successful relationships with external customers (clients,vendors, business associates): Number of positive responses insatisfaction surveys for those customers employee interacts with

Internal Processes:

 Completes tasks effectively: Percentage of projectscompleted by deadline or number of days operating withoutfailure or injury

 Uses resources efficiently: Waste-to-production ratio indepartment or by assigned project

Learning and Growth:

 Makes continual effort to improve skills andknowledge: Number of training opportunities participated in

 Actively looks for ways to promote company growth:Number of suggestions given to supervisor

Figure 1.3: Four business perspectives of Balance Scorecard

Source: Robert S Kaplan and David P Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review (January-February 1996):76

To create a Balanced Scorecard, an organization’s managementteam translates the mission, vision, and strategy of the firm into ascorecard The scorecard measures should represent both long-termand short-term success in the execution of the strategy Themeasures are arranged in the four perspectives The scorecard

should contain both outcome measures that indicate excellent priorperformance, along with the performance-drivers that createsuccessful future performance.

The four perspectives are understood as typical relationshipbetween means and ends in organization activities (see Figure 1.4),and is called a “vertical” cause-effect relationship

Figure 1.4: Cause-effect relationship in four perspectives

Source: Robert S Kaplan and David P Norton, The strategy focused organization, Harvard Business Press, 2001.

Kaplan & Norton assert four steps as being part of the BalancedScorecard design process:

Return on Capital Employed

Customer Loyalty New customers

Consultancy

Process quality on consultancy products

Developed consultancy products

Trained employees for consultancy

Experienced consultants

 Translating the vision into operational goals;

 Communicating the vision and link it to individualperformance;

 Business planning; index setting

 Feedback and learning, and adjusting the strategyaccordingly

Figure 1.5: Managing strategy: Four process

Source: Robert S Kaplan and David P Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review (January-February 1996)

The latest refinement of this concept developed from theexperiences of companies implementing the Balanced Scorecardinto their strategic management processes Kaplan and Norton found

that implementation of strategy is as important as the development

of strategy They propose that successful strategy implementationincorporates the following five strategic management principles(Kaplan & Norton, 2001):

 Translate the strategy to operational terms

 Align the organization to the strategy

 Make strategy everyone’s everyday job

 Make strategy a continual process

 Mobilize change through executive leadership

Within the five principles there are several elements These newelements add the following new sections to the theory:

 Strategy Maps – Strategy aligned with the value proposition

 Personal Scorecards – Strategy aligned with personalobjectives

 Balanced Paychecks – Incentive compensation aligned withteam-based goals (scorecard)

 Strategic & Operational Budgeting – Strategy funded

 Open Reporting – All employees get the information andmanagement meetings held to discuss performance

 Change Management – The Balanced Scorecard is a changemanagement program, enabled by the scorecard

The Balanced Scorecard is based on three general managementconcepts:

 Measurement and Goal Setting

 Communication, Motivation and Human Relations.

 Business Strategy

The Balanced Scorecard represents the natural evolution ofmanagement practices that began to take shape in the post-industrialera It is no longer sufficient to view company operations from astrict financial perspective, to not focus on concepts for growth or toview product defects as the root of the problem, rather than asymptom Over its relatively young lifespan, the Scorecard hasitself evolved from simply a management tool, to a strategicdevelopment tool, to a destination road map to be created andfollowed by all levels of an organization The Balanced Scorecardallows for companies to utilize all of its resources efficiently andcohesively to address its present and future needs

1.3 12- Step Model by David Parmenter

Davis Parmenter is a writer, facilitator and an internationalpresenter who is known for his thought provoking and livelysessions that have led to substantial change in manyorganizations He is a leading expert in the development ofwinning KPIs KPI characteristics and foundation stones guidingdevelopment and use of KPIs

In 2007, John Wiley & Son, Inc published his book named

“Key Performance Indicators- Developing, Implementing, andUsing Winning KPIs” By exploring the measurement indicators,David Parmenter has created an excellent instrument, connecting the

balanced scorecard of Robert Kaplan and David Norton withpractical application of performance measurement indicators in theorganization.

In this book, David Parmenter has defined seven KPIcharacteristics:

 Non-financial measures

 Measured frequently (e.g., daily or 24/7)

 Acted on by the CEO and senior management team

 Understanding of the measure and the corrective actionrequired by all staff

 Ties responsibility to the individual or team

 Significant impact (e.g., affects most of the core criticalsuccess factors (CSFs] and more than one BSC perspective)

 Positive impact (e.g., affects all other performance measures in

a positive way)

He also suggested that “Successful development and utilization

of key performance indicators (KPIs) in the workplace isdetermined by the presence or absence of four foundation stones”3.They are:

 Partnership with the staff, unions, key suppliers, and keycustomers

 Transfer of power to the front line

 Integration of measurement, reporting, and improvement of

3 Key Performance Indicators – Developing, implementing and using winning KPIs,p.19

 Linkage of performance measures to strategy

He recommended 12-step model to have winning KPIS fororganizations This model is based on the four foundation stonesabove The steps are:

 Step 1: Senior Management Team Commitment

 Step 2: Establishing a “Winning KPI” Project Team

 Step 3: Establishing a “Just Do It” Culture and Process

 Step 4: Setting Up a Holistic KPI Development Strategy

 Step 5: Marketing the KPI System to All Employees

 Step 6: Identifying Organization-Wide Critical SuccessFactors

 Step 7: Recording Performance Measures in a Database

 Step 8: Selecting Team-Level Performance Measures

 Step 9: Selecting Organizational “Winning KPIs”

 Step 10: Developing the Reporting Framework at AllLevels

 Step 11: Facilitating the Use of Winning KPIs

 Step 12: Refining KPIs to Maintain Their Relevance

This model doesn’t mention ways, instruments or methods todevelop KPIs such as how to find and collect indicators, how toidentify their weights or how to measure those indicators It gavehints and tips to apply a KPIs system successfully in anorganization The model is so useful for me to get recommendations