Balanced Scorecard In Hsbc Bank Accounting Essay

CHAPTER 1

In the past decades, many organizations were facing intensive pressures for changes in strategies and structures without a proper human resource management and performance management model (Weng, 2011). It has been a challenge to many managers to measure and appraise their human capital with an increasing and constantly changing volume of employees across the organization at different levels as well as across different geographic locations with high consistency and standards. Therefore, it is crucial that organizations have a strategic management tool. Much debate has been taken to find the most effective way of measuring not only a company’s financial performance but also how the company satisfies its customers and employees (Kocakulah and Austill, 2007). Then in 1992, Kaplan and Norton introduced a BSC model. Their concept of BSC has opened a new field in the literature of management control (Franco and Bourne, 2003). Since then, BSC has been an interesting topic that many academic authors choose to write. The reasons why the researcher is interested to write about BSC are as following.

First, it is essential that performance measurement be of great significance to an organization, playing as a tool in conveying the company’s strategies to individual’s objectives (Smith and Kim, 2005). Drucker (1954) also highlighted that all employees, from a big boss to a junior clerk, should have personal performance objectives that aligns strongly to the company’s strategy. Therefore, the application of BSC really helps organizations to depict such objectives evidently. According to Kocakulah and Austill (2007), when structural changes and job specifications become more complex, it is required to develop a methodology and formula that can align the organizational strategies and main principles with performance measurement and management indicators. Kaplan and Norton (1992, cited in Kaplan, 2010) recognized that any comprehensive measurement and management system has to link operational performance improvements to customer and financial performance.

Second, BSC was presented as the most practical and comprehensive performance measurement model and has then become a popular strategic tool amongst managers all over the world (Sanayei et al., 2011). In recent years, the BSC has been a comprehensive model when looking at management issues for financial and non-financial purposes and has been very popular as it attracts a lot of attention (Norreklit, 2000). It has been widely used by many companies and has gained worldwide acceptance as a useful tool for management. From 1992 to 2000, more than 200 companies adopted the BSC method (Kaplan and Norton, 2001 cited in Kocakulah and Austill, 2007). In 2001, David Norton estimated that about 50 percent of large organizations in the United States were using the BSC, about 45 percent in Europe; and about a third of the large organizations in Australia used the BSC (Weber et al., 2001 cited in Kocakulah and Austill, 2007). Another recent study by Bain & Company indicated that 57 percent of firms worldwide use the balanced scorecard, including 75 percent of large firms and 64 percent of firms in North America (Rigby and Bilodeau, 2005). The Harvard Business Review in 1997 listed it as one of the 75 most influential ideas of the 20th century (Bible et al., 2006).

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Apparently, BSC has become the leading strategic management system of the 21st century. Organizations use the scorecard to create an entirely new performance management framework that puts strategy at the centre of key management processes and systems (Kaplan and Norton, 2001).

Third, BSC has been chosen by many financial and banking institutions as a key to achieving a successful execution of their strategic plans (Frigo et al., 2000), whereas Aranda and Arellano (2010) stated that it is for strategic development and performance measurement. As a result, BSC was chosen by HSBC Bank to put into use in its early stage of starting business in Vietnam. Throughout all these stages, BSC has always been used at all levels as (i) a strategic tool to connect organizational goals with 1500-employees’ targets and (ii) a standard performance measurement system to drive individual performance, evaluate their achievements and create values (HSBC Vietnam, 2011).

HSBC Bank, a member of HSBC Holdings Group, is one of the world’s largest financial institutions and the biggest foreign bank in Vietnam. It established the first full-service branch in Ho Chi Minh City in 1995 and then expanded to 17 branches and offices across the nation. It strategically focuses on Premier Centers with a purpose of delivering world-class international services to high-profile customers. Currently there are one Premier Centre in Hanoi (the North) and one in Ho Chi Minh City (the South) (HSBC Vietnam, 2012) serving a number of 6,000 Premier customers.

Forth, the role of BSC in HSBC has been strongly recognized by either employees or managers at all levels. At Group and business level, it supports the implementation of the business strategy, ensuring that all aspects that contribute to its success are taken into account. At a team level, it helps managers align their objectives with those of the business and focus their efforts and resources on what is most relevant. Individually, it helps an employee understand how her/his work links with and affects the success of the organization (HSBC Vietnam, 2011).

The effects of performance measurement and management at HSBC Vietnam have been evaluated through surveys conducted bank-wide to collect employees’ feedback and response. Such surveys then supported management’s strategic analysis and improvement plan (HSBC Vietnam, 2011). However, there has been little empirical research into whether the balanced scorecard actually works in practice (Neely, 2008). Moreover, as pointed out by Hung-Yi Wu (2012), most of the BSC-related studies have focused mainly on performance measures rather than the causal relationships between key performance indicators for the purpose of strategy implementation. This is the first time a research is conducted in HSBC (Vietnam) Ltd. at a more focused level with specific attributes directly related to individual BSC’s perspectives and potential relationships as well as their impacts. Accordingly, the author chooses to study on the below topic:

“BALANCED SCORECARD IN HSBC BANK (VIETNAM) LTD.

PREMIER CENTERS: POSITIVE AND NEGATIVE EFFECTS”

1.2. SIGNIFICANCE OF STUDY

The initial purpose of this study is to gain further understanding of BSC and its role as a performance management tool in an organization. Many studies by Gates (1999), Lingle and Schiemann (1996) suggested that organizations managed through ‘balanced’ performance measurement systems perform better than those that are not. Therefore, the research can help figure out positive results on a specific organization using the scorecard to support those ideas.

Besides, it will serve as a guide to business strategy planning. According to Davis and Albright (2004) and Littler et al. (2000), banks can save an enormous amount of time and money if they understand which measures, financial or non-financial, are best suited to their needs. As such, it is expected that the study can indicate whether the current BSC applied in HSBC is ideal in a way that an appropriate mix of performance drivers and outcome measures has been tailored to the business unit’s strategy (Frigo et al., 2000).

In addition, the study reemphasizes the important role and positive effects of BSC on an organization’s strategy implementation. As mentioned by Hung-Yi Wu in his 2012 work, banking institutions must develop an effective way to align their strategies with corporate goals based on performance analyses if they are to sustain their competitive advantages. Such effective way is recommended to be the BSC model, which is proved to be a useful and efficient tool in communicating organization’s goals and targets to all bank staff and in performance measurement (Bible, et al., 2006). Moreover, the research is to identify good points related to BSC in both academic publications and real-world experiences of an organization.

Apart from that, the research helps the author and readers analyze the difference of BSC from theoretical to practical perspectives based upon feedback of surveyed employees. Accordingly, it is good to understand how BSC has been adapted and implemented in the context of HSBC in Vietnam, which is, as pointed out by Burney and Swanson (2010), integral to the development of systems that will effectively obtain organizational goals. The research will definitely give more insights of the bank’s BSC implementation process and effectiveness.

Furthermore, the research will reveal HSBC employees’ satisfaction level and specific feedback on the bank’s BSC system and increase understanding of its strategic link and potential relationships between BSC measures in practice. It allows the business to stay competitive and profitable (Zeng and Zhao, 2005) in sustainable development.

However, apart from the positive effects of BSC on HSBC’s execution of strategy, the research also helps to figure out some gaps and areas for attention and improvement that will be analyzed in the following chapters. In case its results are appreciated and draw the attention of higher management then it can make further contribution to the development and acknowledged effectiveness of BSC in HSBC Vietnam. This article may help the management to focus on the need to complete the implementation of BSC system to maximize its benefits and minimize the negative effects. The disclosure of the shortcomings, if any, is crucial as it will entice organizations to search for measurement systems that support them better in the challenging business environment (de Waal and Counet, 2009).

With these above reasons, the author strongly believes that the topic “Balanced Scorecard in HSBC Bank (Vietnam) Ltd. – Premier Centers: positive and negative effects” will help the readers get more into the research.

1.3 RESEARCH OBJECTIVES AND QUESTIONS

According to Varkevisser, Pathmanathan & Brownlee (2003), the objectives of a research project summarize what is to be achieved by the study. It is advised by Ababa (2005) that if specific objectives are properly formulated, they will facilitate the development of research methodology and will help to orient the collection, analysis, interpretation and utilization of data. Therefore, these objectives should be closely related to the research problem (Saunders et al., 2009). Furthermore, objectives should be logical, coherent, feasible, realistic and considering local conditions as well as being defined in operational terms that can be measured and phrased to clearly meet the purpose of the study (Ababa, 2005). With the topic: “Balanced Scorecard in HSBC Vietnam Ltd. – Premier Centers: positive and negative effects”, six objectives of the study are determined as following.

To understand the concept of BSC and its perspectives as a performance measurement tool,

To identify positive and negative effects of BSC in HSBC Vietnam,

To measure if HSBC BSC model is different compared to an ideal model,

To evaluate the relationship between employee understanding of the organization’s objectives with a well-performing organization,

To analyze the causal relationships (if any) amongst four perspectives of BSC, and

To identify the weakest one of the four perspectives to improve.

With these research objectives, the study is to be conducted to clearly answer the questions relevant to the topic as below.

What is the Balanced Scorecard and its four components?

What are HSBC BSC positive and negative effects?

What is an ideal BSC model and what is HSBC BSC compared to it?

How do HSBC employees understand the organization’s objectives and its relationship with a well performing organization?

Are there any relationships amongst four perspectives?

Which one among the four perspectives needs more focus?

1.4 BOUNDARY OF THE STUDY

Due to the limitation of time and scope of work, this research only focuses on a small group of employees, hereinafter mentioned as those working at two Premier Centers in Hanoi and Ho Chi Minh City, but not extended to the entire number of about 1500 employees bank-wide. Two Premier Centers have a number of 60 staff including Premier Center Managers, Sales Managers, Relationship Officers, Services Managers, Services Assistants, Counter Officers and tellers. As such, the findings and results are only representative of part of the real figures and possibly not completely accurate.

In addition, the research is only conducted at employees’ level or a single group of employees’ point of view rather than on the senior management’s stand point, then there will be some imbalanced justifications and explanation after the survey.

It is hoped that once the research methodology is proved to be trustworthy enough to the representative sample, it will be supported to apply to the whole bank with full participation of employees at all levels including senior managers to get a broader view and more precise results.

1.5 OUTLINE STRUCTURE

This paper consists of five main chapters.

Chapter 1: Introduction

This 2389-word section is an introduction to the research, serving as an explanatory background to what leads the author to the chosen topic and why to choose the topic. In addition, it is followed by a brief summary of significance of the study and key issues that the research work intends to address. The scope of study is also included in the first chapter in order to narrow the boundary and put the focus on the research area.

Chapter 2: Literature Review

This 4836-word chapter is the theoretical background of the study focusing on the relevant literature and theories on performance measurement, balanced scorecard and its perspectives. It helps to demonstrate an understanding of the research topic and its surrounding content. At this stage, it is important to critically review many academic authors’ points of view on the research topic and related issues. From those literatures, specific hypotheses are developed as a foundation to start the research.

Chapter 3: Methodology

In this part, the research philosophy, strategy, method and approach used in this study are described. It also presents the process of gathering data, sampling method, implementation of questionnaires and techniques of analysis. Some ethical issues when conducting this research in a banking organization like HSBC are also mentioned. 3836 is the number of words in this chapter.

Chapter 4: Data Analysis and Discussion

This section outlines the findings and results of information collection at HSBC as conducted in chapter 3. Feedback from its employees will be revealed through a list of figures and tables. The proposed hypotheses will be further discussed based on the results. There are 3897 words for this chapter.

Chapter 5: Conclusions and Recommendations

This is a summary of the main conclusions of this research and feasible recommendations to the research issues. Some limitations and suggestions for next researches are also included.

CHAPTER 2

LITERATURE REVIEW

2.1 Introduction

This chapter will cover the literature on performance measurement, strategy map, balance scorecard and its role in aligning organizational goals to the strategy. By studying related literature on BSC, it is seen that BSC really plays a significant role in the success of an organization and that it helps to measure the success of the strategy (Kaplan and Norton, 2001). Schneiderman (1999) stated that balanced scorecards that did not have a sound foundation would fail. Therefore, this chapter will summarize the positive and negative effects of BSC collected from many studies and elaborate hypotheses to predict the effects of BSC in practice of a specific organization. Additionally, it is learnt from this chapter that the four perspectives of BSC are inter-related, and that even though financial results are very important, delivering long term value and success will require a focus on non-financial factors including high performing people, efficient processes and effective customer services (Kaplan and Norton, 1996). The following part is related conceptualization on the research content.

2.2 Performance Measurement

2.2.1 Definition

Performance measurement is defined by Lebas (1995) as a system by which a company monitors its daily operations and evaluates whether it is attaining its objectives. Meanwhile, Lichiello and Turnock (1999) define it as the selection and use of quantitative measures of capacities, processes, and outcomes to develop information about critical aspects of activities, including their effect on the public. Basically, it is considered part of a performance management system (Sanayei et al., 2011) and is set aligned with the organization’s strategy.

According to Hronec (1993), performance measurement system is a tool for balancing multiple measures (cost, quality, and time) across multiple levels (organization, processes and people). While it was suggested by Green et al. (1991) to “target the value-added activities of the company”, Kaplan (1991) suggested that an effective performance measurement system “should provide timely, accurate feedback on the efficiency and effectiveness of operations”. In fact, organizations always plan to build an effective tool to help them manage the performance and well achieve the targets.

2.2.2 The role of performance measurement

According to Christian C. Johnson (2007), it is important to understand why measuring an organization’s performance is both necessary and vital.

… An organization operating without a performance measurement system is like an airplane flying without a compass, a Formula One race car driver guiding his car blindfolded, or a CEO operating a company without a strategic plan…

The purpose of measuring performance is not only to know how a business is performing but also to enable it to perform better. The ultimate aim of implementing a performance measurement system is to improve the performance of an organization so that it may better serve its customers, employees, owners, and stakeholders.

Basically, a performance measurement system enables an enterprise to plan, measure, and control its performance according to a pre-defined strategy (Johnson, 2007). Many authors including Atkinson and McCrindell (1997), De Toni and Tonchia (2001), as cited in Pongatichat and Johnston (2008), have identified its benefits as a tool to (i) communicate the organization’s strategic direction, strategic priorities, (ii) create a shared understanding, (iii) monitor and track the implementation of strategy, (iv) align short-term actions with long-term strategy, (v) make clear the links between performance of individuals and sub-units, and sub-units and overall organizational performance, (vi) promote integration among various organizational processes, (vii) focus change efforts, and (viii) facilitate organizational learning.

2.2.3 Different performance measurement models

Many researches on banking performance measurement used traditional measures like statistical analysis (Arshadi & Lawrence, 1987; Devlin & Gerrard, 2005), structural equation models (SEM) (Collier, 1995), multi-criteria classification methodology (PARCLAS) (Kosmidou et al., 2006) and DEA (Giokas, 2008). In the meantime, Wu et al. (2011), Chen et al. (2008), and Meyer and Markiewicz (1997) chose to adopt the four BSC perspectives, including both financial and non-financial indicators. In their 1992 work, Kaplan and Norton also described performance measurement as a way to review an organization’s financial and non-financial goals. Figure 2.1 summarizes the selection indicators of banking performance measurement that have been investigated in several important studies, along with their main analytical methods (Wu et al., 2011).

According to Weber et al. (2001) and Bible et al. (2006), traditional measures no longer worked effectively because those measures relied so strongly on financial indicators and did not sufficiently cover other critical factors like skills, competencies, and motivation of employees; customer and supplier relationships; innovative product development; databases and information technologies; efficient and responsive operating processes; innovation in products and services; customer loyalty and relationships; and political, regulatory, and societal approval. Meanwhile, the BSC can cover all these measures in a more specific and appropriate way that supports management in implementing organizational goals.