ISBN 978-952-5726-00-8 (Print), 978-952-5726-01-5 (CD-ROM) Proceedings of the 2009 International Symposium on Web Information Systems and Applications (WISA’09) Nanchang, P. R. China, May 22-24, 2009, pp. 206-209 Study on Balanced Scorecard of Commercial Bank in Performance Management System Yansheng Zhang1, Longyi Li2 1,2 South China University of Technology, Guangzhou, China 1 Zhang. [email protected] scut. edu. cn 2 [email protected] edu. cn Abstract—Performance management of commercial banks is an important aspect of banking business management. his paper makes study about how to use the Balanced Scorecard as a tool, which is applied to commercial banks performance management system, and points out that it breakthrough the defects in the traditional single application of financial indicators which measures performance. And it raises the value of performance management appraisal system based on the introduction of customer factors, internal business processes, employee learning and growth and financial factors.
This paper also makes study about the commercial banks in the performance of the Balanced Scorecard Management System mechanism, the strategy of application, application limitations, and outlook on the future of commercial banking services model based on the above points. Index Terms—Balanced Scorecard, commercial banks, performance management I. INTRODUCTION The introduction of performance management of commercial banks have some important roles in the commercial banks.
Since the Balanced Scorecard was invented in 1990s, it was received a wide range of use and promotion in the global business community, and some of the major international banks have successfully used the Balanced Scorecard, which makes its performance increase greatly. China Domestic banks should learn from successful experience of international large banks, and establish a comprehensive performance evaluation system which meets self-demanding. In recent decades, in the context of constant innovation of global financial products, especially in the United States in 2008 financial crisis triggered y global financial turmoil, how to manage the banking performance effectively? In response to this problem and the current problems of commercial bank performance management, this paper makes research about how to use the Balanced Scorecard as a tool, which is applied to commercial banks performance management system. II. THE PROBLEMS IN PERFORMANCE MANAGEMENT OF COMMERCIAL BANKS In the rapid development of financial markets, commercial banks are facing with intense competition.
The traditional performance management appears to be inadequate in how to measure all-round performance to meet the banking needs of strategic development. Specific performance: • Put emphasis on the financial indicators, and ignore the non-financial indicators. Traditional performance management ignored the nonfinancial factors, with the result that the conclusion can not be fully reflected the overall operations of the bank. At the same time, financial indicators can only reflect the performance of banks in the past and does not reflect the bank’s future operating conditions. Put emphasis on internal evaluation of operating conditions, while neglecting external factors. In the rapid and complicated changing of business environment, banks are facing with challenges from the external environment. If the banks did not correctly analyze the external environment and reflect what it is during the process of performance management, banks can not give an accurate analysis of their own strengths and disadvantages, it can not understand the opportunities and threats facing either, so it is difficult to win in the fierce competition. Put emphasis on traditional assets, and neglet intangible assets. Bank of fixed assets are important, but the banking sector is a knowledgeintensive industries, and financial knowledge, intellectual resources and other intangible assets of banks are more important. ?. BALANCED SCORECARD AND PERFORMANCE MANAGEMENT SYSTEM OF COMMERCIAL BANKS A. The basic content of the Balanced Scorecard BSC (balanced score card,)was presented in the “balanced scorecard: a good performance evaluation system”,by Harvard Business School professor Robert S.
Kaplan and the rejuvenation of the Global Strategy Group’s founder and president, David P. Norton Balanced Scorecard showed the great vitality since it appeared. It can effectively help enterprises give solution on two major problems: performance evaluation and the implementation of the strategy. In 1,000 companies in the world which “Fortune” magazine published, 70% of which used the Balanced Scorecard system; “Harvard Business Review” sees it as the most influential strategic management tool in 75 years. 206 © 2009 ACADEMY PUBLISHER AP-PROC-CS-09CN001
Balanced Scorecard is a new ideas in performance management and apply to the department’s evaluation team. Its core idea is implementation of organizational strategy tool, which through finance, customer, internal processes and learning and development indicators in four are to show a relationship between the organization’s strategic track to achieve performance appraisal performance improvement, as well as the implementation of the strategy – the strategic objectives process of the strategy amended, and raise the status of performance appraisal organizations to the strategic level.
B. The application model of Balanced Scorecard in performance management system Balanced Scorecard is not only an indicator of appraisal system, but also a strategic management system. The use of the Balanced Scorecard breaks the traditional single-use financial indicators methods which measure performance. It adds the future drivers in the financial indicators, which is customer factors, internal business processes and employee learning and growth. They are said in Figure 1 above. financial success in organizations must be translated into the ultimate success.
Only to translate the improvements of product quality, time to omplete orders, productivity, new product development and customer satisfaction into increased sales, reduction of operating cost and improvement in asset turnovercan bring benefits for the organization. C. Bank of the value of performance management system evaluation system Based on the above, commercial banks Bank of evaluation index system based on the Balanced Scorecard performance management is divided into four angles: customers, business processes, financial and enterprise sustainable competitive edge.
Figure 2 lists the four indicators, as well as its sub-index. With the evaluation index, it is necessary to determine the weight of the indicators. In general, the indicators will be between the weight of significant differences in order to avoid the average weight distribution ratio. But in general the indicators weight not more than 30%, which financial:benefits Information technology brings to the company customer: benefits Information technology brings to the customer Information system performance: Efficiency improvement which Information systems for the bank
Internal business: benefits Information technology brings to the internal business learning and growth:benefits Information technology brings to growth of company Figure 1. Mutual relations of BSC • • • Customers. The managers confirm the competition’s customers and market segments which the organization will take part in, and turn the goal into a set of indicators. Such as market share, customer retention rate, the rate of customers, customer satisfaction, customer profitability level.
Internal business process. In order to attract and retain the target customers and meet the requirements of shareholders about financial returns, managers need to focus on customer satisfaction and those internal processes, and establish measurable indicators. In this regard, BSC is not only paying attention to a simple process to improve the existing operators, but to confirm the request of customers and shareholders as a starting point, and to satisfy customers and shareholders.
Learning and growth. It confirmes an investment which the organization must be carried out in order to achieve long-term performance in the future, including the ability of employees, organization information system and so on. The 207 to prevent the emergence of “putting emphasis on the large and deregulating the small” which means the smaller of the weights of indicators are not concerned about into the situation , which leads the examination results to lose their impartiality.
D. Balanced Scorecard performance management in commercial banks System Mechanism When it develops BSC, the commercial banks should turn organizational and operational strategies into a series of objectives and measurable indicators. At this time, bank manager needs to re-examine and modify the strategy, and BSC provides the opportunity and means of communication about business strategy on the specific meaning and the implementation.
At the same time, because the process of the strategy formulation and implementation of the strategy is an interactive, the bank manager can test and adjust the strategy after using BSC and knowing about implementation of the strategy. Balanced Scorecard reflects the balance of many aspects, such as the financial and non-financial measure, long-term goals and short-term goals, external and internal, results and the process, and management Deposit and loan business assessment? Guest structural assessment? Assessing the quality Profitability assessment? Expand the intermediate business?
Raise the level of interest rates and lending quality? improve cost-efficiency? Strengthen the capacity of the loan proceeds, and optimize loan Employee Satisfaction? Staff customer Economic Value Added Bank profits? The per capital profit? Non-interest income? Net interest income? Marketing cost income ratio? Office expenses? Labor costs? Loan Product and service innovation? New products and services revenue? The new non-performing loan rate and the rate of increase? The number of internal regulations? Responsibility for the accident rate? The incidence of major Assessment of new products and completion of tasks?
Control newly-issued credit risk? Strengthen internal controls??? Business process financial Sustainable competitive violation rate? Staff violation rate? pass rate of Status Examination? The operational capacity of standard rate? Professional Development Program? Staff training satisfaction??? Market share ? target number of obtaining customers ? Customer attention? the growth rate of customer of complaint ? Innovative services??? of services? the development of electronic banking??? Improve employee engagement? Examination retention rate? Assessment Figure 2.
The four indicators of commercial banks Bank of evaluation index system performance and operating results. Hence it can reflect the integrated operation of organizations, so that it can balance and perfect the performance evaluation, and is conducive to long-term development of the organization. ?. THE PRACTICALITY OF THE BALANCED SCORECARD TO PERFORMANCE MANAGEMENT SYSTEM OF COMMERCIAL BANKS In essence the commercial banks are comprehensive, multi-function financial enterprises which is in terms of profits and operats financial assets and financial services as a target.
In the current financial innovation would be difficult to produce differentiated, so the service relationship is the direction the bank want to lead to. The Balanced Scorecard can provide support in this regard: Commercial banks should not only focus on quantitative analysis about the financial profitability, liquidity and safety but also on effective qualitative analysis about bank risk control, internal management, customer service levels when it takes performance accessment.
Qualitative analysis can not be used with quantitative analysis, but it is exactly what the banks need to do to safeguard the healthy operation, which requires qualitative and quantitative analysis to be closely integrated. Balanced Scorecard can consider such a qualitative analysis to reveal the potential risks of operations. Balanced Scorecard has great foresight for the future development of the bank, and takes the long-term development into account, which makes banks have a high degree of adaptability and long-term strategy when 208 Bank Management Committee Key Performance Indicators Working Group
Report performance results BSC Management Group Report Design of key performance indicators Overall support Responsible person of BSC BSC Support Group Figure 3. Governance mechanism for the Balanced Scorecard they are in the face of rapidly changing business environment. In addition to taking internal operational process into account, the external environment factors should be also considered at the same time, such as the Balanced Scorecard customer level. By considering the bank’s market share, customer acquisition rates, and customer satisfaction.
It takes market competition factors into the performance of management, to achieve a more truly reflecting on the bank’s operations and development. ?. CONCLUSION The establishment of the governance mechanism for the Balanced Scorecard is shown as Figure 3. In the Balanced Scorecard governance mechanism, it requires banks to set up bank management committee and sees it as core. It owns the final right of approval of the BalancedScorecard framework, content and design of, so as to ensure the accordance between implementation point of the business and banks strategy.
The establishment of performance goals assessment and feedback processes. The process includes two aspects: First, to understand the strategic objectives implementation by checking the completion of the indicators in the Balanced Scorecard system of the banks; on the other hand, to check the operation of the Balanced Scorecard in order to balance Scorecard design and feedback and review processe. With constantly updating of information technology, commercial banks will inevitably change in service model, in order to adapt to the trend of social development.
Of course, that will depend on improvement of information security technologies, so that banks can continue to innovative financial products, and enhance core competitiveness. New model of banking services is based on the connotation of the knowledgebased economy and oriented in enhancing the traditional service level of knowledge and cultural grade. and will promote the services of thinking and mode. To update mode of banking services can broaden the field of financial services, and improve the quality and the efficiency of financial services.
To achieve innovation model, it is necessary to improve the “Smile” services, personal mechanism and incentive mechanism. We should speed up the reform of financial supervision, improve the level of financial supervision in order to adapt to the development of the new banking services model and respond to changings in financial innovation. The banking industry should also accelerate the transformation of service delivery model to accelerate the pace of mixed services to enhance international competitiveness. REFERENCES  G. Eason, B. Noble, and I.
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