Erformance measurement by applying balanced scorecard the case of maritime bank’s branches

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS Vu Viet Dung PERFORMANCE MEASUREMENT BY APPLYING BALANCED SCORECARD THE CASE OF MARITIME BANK’S BRANCHES Major: Business Admini

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

Vu Viet Dung

PERFORMANCE MEASUREMENT BY APPLYING

BALANCED SCORECARD THE CASE OF MARITIME BANK’S BRANCHES

Major: Business Administration

1.1.3 Performance measurement level

1.1.4 Performance measurement models

1.1.5 Deciding the right metrics

1.2 Balanced Scorecard Model

1.2.1 Financial perspective

1.2.2 Customer perspective

1.2.3 Internal Business Perspective

1.2.4 Learning & Growth Perspective

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

1.5 The Balanced Scorecard implementation

CHAPTER 2: FINDINGS & DEVELOPMENTS

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PERFORMANCE MEASUREMENT BY APPLYING

BALANCED SCORECARD THE CASE OF MARITIME BANK’S BRANCHES

Vu Viet Dung

MBA Candidate, 2008 - 2010 Hanoi School of Business - Vietnam National University, Hanoi

Supervisor: PhD Dao Thi Thanh Lam

INTRODUCTION

1 Rationale

Performance measurement is always the most interesting topic of all managements in every industry Building a relevant indicator system to monitor and evaluate the performance of a company is a critical job that requires the managers to spend their efforts to fulfill

Maritime Bank (MSB) is one of the first joint stock banks in Vietnam, with more than 20 years developing With strategic consulting from McKinsey Company, MSB is expecting

to become one of the 5 biggest banks in Vietnam in 2013 Performance measurement is one of the most important initiatives which they must revise to achieve the objective

Performance measurement of Maritime Bank is assigned in the annual shareholder meetings It almost likes financial factors, such as: ROE (return on earning), ROA (return

on asset), EPS (earning per share), asset/credit improving, bad debt rate, etc Based on these factors, the CEO will divide to branches of the bank This measurement is not useful, because it is not reflect the non-financial factors of the bank like human resources, customer thinking, etc and not align with the strategy of the bank

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From 2010, MSB started new strategy with consulting from McKinsey (a famous company in United State), so many initiatives have been implemented But we can see the fact that, all initiatives almost has a general term: clear Key Performance Indicator (KPI) for each personal and unit MSB’s ambition is becoming top 5 of the largest banking in Vietnam at 2014 and more professional

After seeing through the actual situation of MSB and reading reference sources, author recommended MSB managers that they should apply Balanced Scorecard – a complete tool for performance which has applied successfully in world banking sector like Scotia Bank, Bank Niaga, Barclays, Bank of Tokyo-Mitshubishi, Bank of Bahrain & Kuwait, Ithmaar Bank…

Early in 1990's, a new approach to strategic management was developed by Robert Kaplan and David Norton They named the system "Balanced Scorecard "

Working through the BSC process enables management to define those key perspectives that will drive the business to success, as well as to define how to measure them The BSC helps organizations align multiple strategies, from various units to the organizational strategy by linking their deliverables to these key perspectives that drive the business Balanced Scorecard provides a clear understanding of the company's strategy, and how it

is supported by the commitment to objectives from divisions and functions and functional units of the organization (Balanced Scorecard Institute, 2006)

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

“Performance Measurement by applying Balanced Scorecard – The case of

Maritime Bank’s Branches” is useful for research

2 Research objectives

From the fact, MSB has being had an un-useful performance management system and lacked of perspectives, this thesis has flowing objectives:

 Which performance measurement literature can be applied?

 How to analyze and find solutions?

 What are the recommendations?

4 Data collection

 Secondary data: the author has depended on the following data resources:

- Books and references about the Balanced Scorecard;

- Periodicals, articles, published papers and referred previous studies in different countries which have been conducted on the same subject;

- The Internet sites and the available electronic versions

 Primary data: as the 2nd data was not enough, the primary data was collected by interviewing line managers of MSB (08) to give comments by 2 ways:

- Questionnaire & interviewing to assess the current performance and knowledge of line managers about BSC;

- Survey with employees in 2 branches of MSB to analyze and develop new performance measurement based on BSC

DEEP

DISCUSSION

SURVEY QUESTIONAI

7 Research scope

- Objective: Propose new performance measurement by applying BSC

- Geography: two branches in Hanoi, Vietnam

- Timing: at the end of 2011 and 2010

8 Thesis structure

Introduction

Chapter 1: Literature Review

Chapter 2: Findings & Developments

Chapter 3: Recommendation

1.9 Limitation

The study has several potential limitations:

- The study was conducted only with 2 branches and may not representative of the bank;

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- The questionnaire and survey was answered by officers and manager in 2 branches: Hanoi branch and Dong Da branch, so their perceptions may or may not reflect the actual situation

- The other possible limitation of the study may be that the indicators in the questionnaire and survey are not easy to understand for some respondents, so the answers might be not correct

Performance metrics play a crucial role in four of the most significant leadership

activities: Reporting, Making decision, Implementing strategy, Improving performance 1.1.2 Performance measurement classification

Performance measures can be put into the following categories: Qualitative or subjective; Quantitative or objective; Attribute; Variable or continuously variable

1.1.3 Performance measurement levels

There are 3 levels of performance measurement: individual, unit/team and organizational level

1.1.4 Performance measurement models

Introduce some models in performance measurement: traditional model, total quality management, performance prism, service quality model

1.1.5 Deciding the right metrics

The author introduced three different models to be used in specifying the measures that matter the most: logic model, process flow, causal analysis

1.2 Balanced Scorecard Model

The Balanced Scorecard is a system in which the procedure of applying it is a critical part of it Some measures may give real picture about the performance of the company If they have been designed by a team of planners without the contribution

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of the different levels of business units and departments and without using the scorecard as a mean of communication, cascading, and alignment, it would give the same results of any traditional performance measurement model "Much of the success of the scorecard depends on how the measures are agreed, the way they are implemented and how they are acted upon So the process of designing the scorecard

is just as important as the scorecard itself" (Bourne, 2002: p 12)

Financial perspectives

Are we meeting the expectations of our

Shareholder?

Customer Perspective

Are we delighting ( or at least

satisfying) our customers?

Internal Process Perspective

Are we doing the right things? And doing things right?

Learning and growth Perspective

Are we prepared for the future?

1.2.1 Financial perspective

Financial performance measures indicate whether a company’s strategy,

implementation and execution are contributing to bottom-line improvement" (Kaplan, 1996a: p.25)

1.2.2 Customer perspective

In the customer perspective of the balanced scorecard, managers identify the customer and market segments in which the business unit will compete and the measures of the business unit's performance in these targeted segments "This perspective typically includes several core or generic measures of the successful outcomes from a well-formulated and –implemented strategy

1.2.3 Internal Business Perspective

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In the Internal Process Perspective of the scorecard, we identified the key process at which the organization must excel in order to continue adding value for customers Our task in this perspective is to identify those processes and develop the best possible measures with which to track our progress

1.2.4 Learning & Growth Perspective

The question which Kaplan and Norton (1992) suggested to measure this perspective is: Can we continue to improve and create value? Hence the targets for success keep changing in an intense global competition, it requires that the companies make continual improvements to their existing products and processes and have the ability to introduce entirely new products with expanded capabilities

1.3 The balanced scorecard: measurement system

1.4 The balanced scorecard development

1.5 The balanced scorecard implementation

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CHAPTER 2 FINDINGS AND DEVELOPMENTS

2.1 Introduction about MSB

2.1.1 Establishment and development history

Maritime Bank (MSB) was formally established under the license number 0001/NH-GP dated June 08, 1991 of the Governor of the State Bank of Vietnam On July 12, 1991, MSB officially opened and put into operation in Hai Phong port city, right after the

Ordinance on Commercial Banks, Credit establishment and Finance Corporation became effective At that time, the debates on joint stock bank model were still not settled but MSB still became one of the first joint-stock commercial banks in Vietnam It results from the collective strength and consciousness of renewal of its founding shareholders including: Vietnam Maritime Group, Vietnam Post and Telecommunication Corporation, Department of Civil Aviation of Vietnam, etc

2.1.3 MSB’s Mission

The mission which MSB would like to bring to customers will consist of following: firstly, to create effective relationship with financial group in main industries such as maritime, telecommunication, aviation, investment, insurance, etc.; secondly, to maintain sustainable development, trustworthy partner for small and medium business customers; thirdly, to provide high quality banking services for all customers and finally, to build effective partnership with international and domestic financial institutions

2.1.4 MSB’s Core values

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

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

After interviewed with 8 manager of MSB, I had a result as below:

1 Do you know the factors for annual

2 Do they align with MSB’s business

target and MSB’s branches?

With MSB’s business target

3 Can they reflect all about operations

and development of the branches?

%: 100%

4 What are the strengths and

weaknesses of current factors?

Strengths Enough financial

Weaknesses

Lack of

non-11

factors financial

factors, processes, etc

5 What are needed to adjust? Need to add other

non-financial factors

6 Do you know Balanced Scorecard

0%

100%

9 Can it be applied to performance

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10 Other comments - Apply BSC in branches as pilot to

reflect more reality;

- Improve another performance measurement

1 The number of new and active accounts

2 The number of new and active Master cards

3 The number of customer complaint cases

4 The number of products per customer

5 The customer profit per product meet the target as planned

6 The average time between the two purchases of the same customer

7 The level of customer satisfaction (refer to the data in Marketing Department)

8 The number of transactions per customer

9 The total operating income per customer Internal

21 The staff turnover ratios meet the target as planned

22 The staff retention ratio meet the target as planned

23 The A (excellent) ranking staff ratio (refer to the data in HR Department)

24 The ratio of staff satisfaction with the personal goal achievement

25 The Research and Development expense

26 The number of ethics violation cases Financial

27 Deposits meet the target as planned

28 Credits meet the target as planned

29 The non-performing loan (bucket 3-5) meet the target as planned

30 The income before tax meet the target as planned

31 The cost meet the target as planned

32 The earning per share

33 The growth in sales revenue

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34 The return on investment

35 The revenue per employee

36 The return on equity

The research has achieved the goals of analyzing the 4 perspectives of Balanced Scorecard via the MSB’s branches case study as well as explaining the main factors affect to the performance of the bank

Firstly, the research has gone through the theory of performance measurement and Balanced Scorecard standards, a typical example for practice

Secondly, the research explained the 4 perspectives of the Balanced Scorecard and the process of applying Balanced Scorecard for an institution

Finally, the results of survey conducted by the author in MSB’s branch were analyzed to find out the important indicators that strongly support the 4 perspectives in order to

effectively measure the performance of the bank

3.2.Recommendation

3.2.1.BSC Performance measurement

Based on finding summarization above, for each perspective I collected 5 factors with highest mean to make suggested BSC performance measurement for 2 pilot branches of MSB as table following:

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Customer 1 The number of new and active accounts

2 The number of new and active Master card

3 The number of customer complaint cases

4 The customer profit per product meet the target as planned

5 The average time between the two purchases of the same customer

Internal

Process

6 The new proposals/policies/procedures are approved in time as planned

7 The new programs/campaigns are introduced in time as planned

8 The bank responds to the customer's complaints on the first contact

9 The bank introduces the products/services to the market at suitable time

10 Using the new technology does not cause any in the cost and price of the service

13 The staff turnover ratios meet the target as planned

14 The staff retention ratio meet the target as planned

15 The Research and Development expense

Financial 16 Deposits meet the target as planned

17 Credits meet the target as planned

18 The non-performing loan (bucket 3-5) meet the target as planned

19 The income before tax meet the target as planned

20 The growth in sales revenue

21 The return on equity