Setting up a key performance indicators to measure business strategy objectives using the balanced scorecard method - In the case of the northern Electricity corporation, Vietnam

Setting up key performance indicator (KPI) applying Balanced scorecard method (BSC) to measure an enterprise‟ business strategic objectives is one of an important management tools helping enterprise to analyze, monitor and measure strategy targets so that its resources are allocated efficiently. The first part of the paper presents a brief summary of the methodology for establishing a key performance indicators for measuring strategic objectives using balanced scorecard method. Based on that, the main content of the article focuses on the application of the North Power Corporation (EVNNPC) based on four perspective such as (i) Financial, (ii) Customer Relation, (iii) Internal Business Process (iv) Learning and Growth.

SETTING UP A KEY PERFORMANCE INDICATORS TO MEASURE BUSINESS STRATEGY OBJECTIVES USING THE BALANCED SCORECARD METHOD - IN THE CASE OF THE NORTHERN

ELECTRICITY CORPORATION, VIETNAM

Dr Vu Hung Phuong:

phuongvh@neu.edu.vn School of Banking - Finance, National Economics University, Hanoi, Vietnam

Abstract

Setting up key performance indicator (KPI) applying Balanced scorecard method (BSC) to measure an enterprise‟ business strategic objectives is one of an important management tools helping enterprise to analyze, monitor and measure strategy targets so that its resources are allocated efficiently The first part of the paper presents a brief summary of the methodology for establishing a key performance indicators for measuring strategic objectives using balanced scorecard method Based on that, the main content of the article focuses on the application of the North Power Corporation (EVNNPC) based on four perspective such as (i) Financial, (ii) Customer Relation, (iii) Internal Business Process (iv) Learning and Growth

Keywords: Balanced Scorecard, Key Performance Indicators, Northern Power

Company, Strategy Map

1 Introduction

Northern Power Corporation (EVNNPC) is one of the three power distribution companies under the Electricity of Vietnam Group (EVN), a leading enterprise in the field

of electricity distribution and distribution business Together with the Electricity of Vietnam, Northern Power Corporation plays the leading role of a key economic sector in the task of ensuring national energy security The corporation has 50 affiliates with over 27 thousand employees, operating in 27 provinces and cities in the North of Vietnam

In the process of development, when state-owned enterprises in which EVN's enterprises such as EVNNPC are faced with some of the following challenges (i) Pressure from improving production efficiency in the regional and world economic integration environment; (ii) Pressure from customers to improve the quality of their services to meet customer service standards; (iii) Expanding pressure, seeking new business opportunities to diversify operations and serve the strategic purposes of the corporation (iv) The pressure from the restructuring of state-owned economics groups under the direction of the Government and direct guidance from EVN led to the development strategy and governance system need to be adjusted to keep pace with changes in terms of size and speed of development

Robert S Kaplan & David P Norton (1996) noted that how managers can use the Balanced Scorecard tool to mobilize resources to accomplish a corporate mission The Balanced Scorecard is also a system for transferring the ability, ability and knowledge of

employees throughout the organization to achieve long-term strategic goals In addition to these measures in four perspective: Financial; Customer; Internal process scenarios Learning and Growth which are to connect individuals, departments, and identify new processes that meet the needs of our customers and stakeholders

David Parmenter (2007) studied the integration of KPIs with balanced scorecard scenarios to help enterprises grow steadily and sustainably through the linkage between Kaplan and Norton scorecard models applying of performance measurement in an enterprise

Luu Truong Van, Kim Soo-Yong, Cao Huu Loi, Park Young-Min (2008) integrated the scorecard into the SWOT matrix to evaluate the strategic completion of the major contractors in Vietnam and the Construction Company built An Giang (ACC) as the case study to verify this approach Develop BSC in the direction of SWOT matrix to shape ACC's short and long term strategy Use benchmarking to assess the completion of ACC and find out best practices of competitors to improve

2 Methodology

2.1 The concept of Balanced Scorecard

Balanced Scorecard is a modern management approach based on the objective that the development orientation of the enterprise is reflected in the goals and objectives developed by the organization in a harmonious way, based on important priorities of the organization

This system helps to orient the behavior of all systems in the organization - helping all members move towards the common goal as well as the sustainable development of the enterprise and also serving as the basis for the management and job evaluation system

Balanced Scorecard is a system that transforms the organization's vision and strategy into specific goals and metrics by establishing a performance metrics system in an enterprise across four perspectives

Figure 1 Balanced Scorecard Model1

1

The balance is expressed between short-term and long-term goals, between financial and non-financial measures, between performance indicators and effective performance indicators and between edge performance and peripheral performance

The balance sheet is structured throughout the organization's mission, values, vision and strategy through strategic maps that clearly show the Balanced Scorecard in four perspective of financial, customer, operational internal business, learning and development corresponding to goals, measures, indicators and initiatives

Corresponding to each aspect of the equilibrium scorecard there are goals, metrics for each goal, metrics for the measure, action plan for each goal, and budget for implementing the action plan The budget is set by the company executive board to implement action plans for targets based on metrics with specific targets The objective is

to identify the strategic statements to be achieved; a measure of whether the establishment

of a Key Performance Indicator (KPI) to measure achievement of a goal; Indicators indicate the level of results to be achieved and initiatives that show action programs to achieve the goal

2.2 Key Performance Indicators

Key Performance Indicators (KPIs) evaluate the effectiveness and growth of activities within an enterprise which were designed18

KPIs help enterprises shape and track their operations and growth against business goals Once the enterprise has formed a mission, identifying the factors that influence and set goals, the business needs to measure growth against the set goals KPIs are a measures

of this growth

2.3 Differentiate KPIs and some performance Indicator

There are 3 types of performance indicators as follows (Figure 2)

- Key Result Indicators (KRIs) are indicators of what a business has accomplished with a single indicator

- Performance Indicators (PIs) are indications of what the business needs to do

- Key Performance Indicators (KPIs) are an indicator of what a business should do

to improve performance

Therefore, many performance metrics are mixtures of the three types of indicators2

2

Efficient measurement indicators‖, David Parmenter, Nguyen Thị Kim Thuong translation, 2009, pp 17

Figure 2 Three Types of Performance Efficiency

2.4 Criteria for Setting up KPIs

As a tool used to evaluate the performance of the business, so when building the KPI system should focus on SMART criteria:

- S - Specific: Helps employees know what they must do to achieve the desired performance

- M- Measurable: can be quantified by different units, not just in monetary form For example: market share, customer satisfaction and return on investment

- A - Achievable - Feasibility: It is necessary to set realistic goals in order to reach the target

- R - Realistic: KPIs are indicators for current and future, closely linked to strategic goals and clear action

- T – Time bound - Specific deadlines: KPIs must have specific time limits to know how long to complete

3 Setting up Key Performance Indicators for Measuring Strategic Objectives

at the Northern Power Corporation

3.1 Factors Influencing the Setting up Key Performance Indicators for

Measuring the Strategic Objectives of the Northern Power Corporation

EVNNPC's business activities will be based on the strategy and business orientations set by the EVN and the Corporation The development of a strategic indicator system (BSC - KPI) for the Corporation will be influenced by several factors:

3.1.1 EVNNPC‟s Strategy

EVNNPC's strategy is one of the important factors affecting the development and implementation of BSC-KPIs Strategic business plans and goals will be the basis for the structural design as well as the identification of KPIs of the balance scorecard

3.1.2 Commitment of leaders of the Northern Power Corporation

Commitment of the Board of Directors and the leadership team who has high professional level and easily adapt to change with new management This is one of the favorable conditions when developing and deploying BSC - KPIs at EVNNPC

3.1.3 Corporate Culture

With the slogan "EVNNPC for Community Development" The corporation has

created the unique culture of the enterprise but still ensures the activities of public interest, social and oriented to the core values:

Quality-Trust; Devotional-Intellectual; Cooperation-Sharing; Creativity-Effectiveness

3.1.4 Staff capacity

In the past time, the training and professional training has been implemented well from the Corporation to the units Units have implemented on time the implementation of the training plan that the Corporation has contributed to improve the capacity of employees

in the corporation

3.1.5 Information Technology

EVNNPC operates on a fairly modern information technology platform, both in hardware and software, in compliance with international standards and practices IT infrastructure connects from the corporation to 100% of member companies in provinces and to 88.8% of the units in districts

From the above analyzes, it can be seen that the Corporation has achieved four basic elements for the development and application of the BSC- KPIs system Therefore, the implementation and application of the BSC - KPIs system at the Corporation is perfectly appropriate

3.2 Setting up key performance indicators for measuring strategic objectives at the Northern Power Corporation

3.2.1 Setting up Strategic mapping at Northern Power Corporation Based on

Balanced Scorecard (BSC)

Based on the review of the core cultural values and the strategic objectives of EVNNPC mentioned above, the authors develops a strategic map for EVNNPC

The operation of the electricity sector is a special type of service, consisting of a variety of activities, targets that are not aggregated to the standard aspects of the BSC

The strategic objectives of EVNNPC for the period 2016 - 2020 are as follows:

"BECOME A POWER CORPORATION KEEP PACE WITH ELECTRICITY

COMPANYIN THE REGION IN 2020"

and expressed in four perspectives: (i) Financial Target; (ii) Customer Relationship Target; (iii) Internal Business Process Target; (iv) Learning and Growth target

3.2.2 Deployment of the Strategic Map of Northern Power Corporation based on the Balanced Scorecard Model

The strategic map of EVNNPC was formed on the basis of integrating strategic objectives into the BSC structure and demonstrating the causal relationship between desired results in terms of finances, customers, internal processes and learning development These processes create and shift value to the target customers and contribute

to financial efficiency

Figure 3: Strategic map of Northern Power Corporation period 2016-2020

Source: Self-built authors based on EVN NPC's strategy

Table 1: Developing from Strategic Objectives to Performance Measurement in

EVNNPC

TT Key Performance Objective

FINANCE PERSPECTIVE (7F)

1 Increase the efficiency of

capital use and financial health

F1.1 Increase the efficiency of capital use

3 Improve labor productivity F2.1 Increase the output of commercial electricity

5 Increase revenue from

business activities, services

F3.1 Increase revenue from electricity business

CUSTOMER RELATION PERSPECTIVE (4C)

8 Improving the quality of

electricity supply

C1.1 Improved power supply reliability

10 Improving the quality of

customer service

C2.1 Improve service responsiveness

INTERNAL BUSINESS PROCESS PERSPECTIVE (12I)

12

Improve efficiency in

investment and repair work

I1.1 Improve efficiency in repair work and invest in new assets

15

Optimizing management of

production and business

activities

I2.1 Optimizing the operation of the grid

transmission systems

business

21 Improvement of

distribution network quality

I3.1 Reduce the power loss rate

TT Key Performance Objective

23 Improve the level of IT

application in business

I4.1 Improve the level of IT application in business

LEARNING & GROWTH PERSPECTIVE (9L)

24

Improve staff capacity

L1.1 Attract and retain high quality staff

26 Improve the efficiency of

information systems

L2.1 Strengthen the application of human resources management software

30

Capacity building of

Corporation

L3.1 To perfect the organizational structure and decentralization model

management for officials at all levels

and gender equality

4 Discussion and Conclusion

Developing KPIs using the Balanced Scorecard (BSC) in four perspectives: Finance, Customer, Internal Business Process, Learning & Growth at the Northern Power Corporation is a modern management tool that transforms the vision and strategy of an organization into concrete goals and actions at the departmental level Through the balance

of four perspectives: finances, customers, internal processes, and business learning and development, resources can be allocated to improve financial and non-financial measures helping businesses develop stable and sustainable

However, in order to operate the system of indicators for measuring these strategic objectives, in addition to the determination of the leaders of the Northern Power Corporation, the process of operating the BSC- KPI criteria and method of assessment

5 References

1 Report on the results of the implementation of the plan for 2015 and 2011-2015, the plan for the 5 year plan 2016-2020, the objectives and tasks of the 2016 plan of the Northern Power Corporation;

2 Summary report on the implementation of the project "Improving business efficiency and productivity in the period 2016 - 2020" of EVNNPC

3 Lưu Truong Van, Kim Soo-Yong, Cao Huu Loi, Park Young-Min, (2008),

Performance measurement of construction firms in developing countries, Construction

Management and Economics, Volume 26, Issue 4, 2008

4 Kaplan, R.S & Norton, D.P.,(1996), Translators: Duong Dinh Chi and Trịnh Thanh

Thuy (2011), Balanced Scorecard: From strategy to action, Youth Publishing House

5 Kaplan, R.S & Norton, D.P (2003), Translators: Phạm Thi Cong Minh & Vu

Minh Tu (2011), Strategy Map: From Intangible Assets to Tangible Assets, Youth

Publishing House

6 Jonghyeok Kim, Euiho Suh and Hyunseok Hwang, (2003), A Model for

Evaluating the Effectiveness of CRM Using the Balanced Scorecard, Journal of Interactive

marketing Volume 17, number 2

7 Heinz Ahn, (2001), Applying the Balanced Scorecard Concept: An Experience

Report Long Range Planning, Volume 34, Issue 4, Pp 441-461

8 Christopher D Itner; David F Larcker; Marshall W Meyer, University of

Pennsylvania, (2003), Subjectivity and the Weighting of Performance Measures: Evidence

from a Balanced Scorecard, the Accounting Review Vol 78, No 3, Pp 725–758

9 Parmenter, D., (2007), Nguyen Thi Kim Thuong (2009), Performance

Measurement Indicators: Building and Applying Critical Core Performance Indicators,

General Publishing House of Ho Chi Minh City

10 Decision No 177 / QĐ -EVN dated 02/10/2015 of EVN President approving the Project of Improvement of Business and Productivity Effectiveness in 2016-2020 of the Northern Power Corporation The

11 Decision No 4662 / QĐ-EVNNPC dated 08/12/2015 of the Chairman of EVNNPC on the re-establishment of the Board of Directors of the Northern Power Corporation;

12 Decision No 189 / QĐ-EVNNPC dated 27/01/2016 of the Chairman of EVNNPC on the promulgation of regulations on functions and duties of the Office and Departments of the Northern Power Corporation;