Exploring the effectiveness of Performance Management Systems (PMSs...

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The purpose of this paper is to investigate the effectiveness of Performance Management Systems (PMSs) in improving performance in the context of Nigeria financial services firms. The recent global macroeconomic crisis has generated national and regional fiscal recommendations for immediate and short-term measures toward reforming the financial systems in the Western and African economies. In Nigeria, the global threat to the financial industry' reputation has been elevated by the issue of confidence, compelling government's responses that focus more on transparency and accountability, and raising the responsibilities of the nation's corporate affairs managers of banks who must now plan more strategically to earn the understanding and trust of their key stakeholders - both commercial enterprises or individual investors - as a condition for managing, sustaining and expanding their market share (Pratt, 2010).

The revelation that many Nigeria's bank officials had loan-disbursement practices, such as investment of bank's fund in high-end real-estate ventures and offer excessive large loans, that violated basic financial ground rules and strict federal regulations in their industry had contributed to a loss of stakeholder confidence. For some leaders of the banking industry, this was yet another sting on their diminishing tenuous reputation of propriety. After this revelation, on August 14, 2009, the Central Bank of Nigeria (CBN) dismissed the Chief Executive Officers (CEOs) of five premier commercial banks, namely: Oceanic Bank, Union Bank, Afribank, Intercontinental Bank and FinBank. It became mandatory for all Nigeria's bank to fully adopt the International Reporting Standard, which require quarterly and annual reports that is consistent with the best international practices. The CBN took these measures to ensure the return and maintenance of international community's confidence in Nigeria's banks.

Pratt, et al., (2010) outlines five normative actions that can be undertaken in the Nigeria's banks and financial industry to enhance its key constituents' perception of organisational factors (responsibility, reliability, trustworthiness and credibility), that are crucial in building strong and favourable corporate reputation; maintaining loyalty and promoting profits in the long run. These actions are explained briefly as follows:

Personalised the stakeholders' experience - This is facilitated by the use of experiential communications to ensure that customers have a seamless experience that is unique to each customer; is both direct and mediated; and serves simultaneously as strategic expression of customer's self-identity and emotion or effect. Slogan such as "In your best interest" (Zenith Bank) seeks to appeal to customer's personal experience as reason for becoming associated with the bank.

Integrate ethic into the workplace and communications - Ethic can stimulate favourable customer support in that customers tend to associate strong, reliable financial institutions to those for which ethic is central to their operations.

Use brandstanding expansively and integratively to accomplish behaviour change through creating and implementing awareness campaigns, ensuring mutual understanding and fustering customer-organisation relationship commitment. Sky Bank for instance identifies cause to provide health care for all Nigerians, promote civil obedient, and support the government to accomplish "Vision 20:2020", by which Nigerians strive to become one of the 20-largest economies in the world by 2020.

Participate in rigorous training sessions in applied ethics - The use of role-play, simulation and case studies in courses can help to facilitate participants' commitment to improving business ethics in Africa.

Conduct rigorous outcomes assessments and disseminate result widely among stakeholders - It is required that measuring the expected outcomes of corporate communication programmes is crucial in ascertaining and ensuring objectives are attained, changes are justified and resources are deployed effectively.

It can be seen from this analysis of the Nigeria's financial sector that firms are required to address strategic issues that are indirectly related to their ultimate strategic aim - wealth creation (financial) for its funders. It then follows that firms need to formulate key strategic priorities, particularly non-financial, and implement them in an effective way as part of strategic recovery measures to ensure safe delivery of their commitment to the organisation's principals. This situation further confirms the importance of non-financial measures in improving firm's competitive performance. The last normative action highlights the crucial role of outcome assessment process, not only in the scheme of recovery strategy, but also in all other types manegarial process.

Organisations would adopt PMSs in their drive to improve performance. Such systems are generally expected to shape beliefs, actions and thinking in favour of predetermined aspirations. From a system perspective, PMSs require definitive input, well defined process of the input through structured analysis and clear specified output that meet all the qualities of good and valuable information. An important element of the PMSs is the performance measurement which seats right in the heart of the PMSs. Many take the view that PM is a critical aspect of organisational effectiveness (Cardy, 2004). It is the key process through which tasks are achieved, it is considered important in effective management of human capital and should be given considerable priority by organisation's principals. In actuality, less than one third of employees believe that their company PMSs help them to improve their performance (Palukos, 2009). The effectiveness of PM is undermined in any organisation where this view holds.

1.2 Background of the Research

In the present time, most firms, if not all, operate in highly intense competitive environment. The financial services sector is no exception. The competition experienced by national firms is no different from the nature of competition faced by most multi-national companies. The free flow of information, brought about by technological advancement has meant previously regional or national players are not only competing locally but also compelled to compete globally. Globalisation is the process which integrates world economies, culture, technology and governance. There are other non-economical dimensions to globalisation such as social, religion and environmental which are also important, but it is the economic aspect that is considered to be at the heart of the globalisation process. Economic globalisation relates to the process that of change towards greater economic integration through exchange of technology and information, trade financial flow and human capital mobility (Obadan, 2005).

The integration of financial markets is the most significant aspect of the globalisation process. International financial integration affect the whole economy, raising issues with regards to banking, capital markets, contractual savings and legal regulatory structures. One major driver of financial globalisation has been the domestic and international financial liberation. Financial liberation not only relaxed, but also removed regulation restricting the operation of domestic financial markets as countries move away from policies of financial repression (Obadan, 2005). The models of market globalisation maintain that organisations operate in increasingly competitive, global environment (Harvey et al., 2001). Organisations in this operating environment therefore require world-class management process that offers real promise for the attainment of their carefully drawn up strategic priorities. Such management process would have the innate ability to facilitate organisational learning, which constitutes the means to acquire, interpret, diffuse and store information and outcomes of organisational experiences (Chenhall, 2005).

The idea of world-class management process has two aspects to it. The first is the construction of credible strategic priorities. In this specific context, interests of the organisation's stakeholders take the centre stage. While there exist numerous and divergent interests, it is the responsibility of the management to coherently repackage these stakeholders' expectations. It is around these harmonised stakeholders' interests that the business derives it second level strategic goals. The goals are basically, things that the business aspires to achieve if it were to fulfil its stakeholders' interests. For the stated priorities, a suitable (organisation) structure is needed through which management and employees implement the strategy. There is another structure required. This structure should provide the intelligence that informs the formulation of credible strategic priorities. Its roles are to constantly gauge the adequacy and consistency of the strategy priorities, and help shape the development of corporate initiatives in the light of the development in operating environment including perhaps, evolving stakeholders' interest and power.

The second aspect to the world-class management is the navigation of all enterprise efforts toward the realisation of the organisation's strategic goals. This navigating process is supported by a crucial endeavour that compares outcomes of actions against predetermined or desired results. Thus all actions (or inaction) having little or no strategic value should be curtailed or undertaken at a bare minimum possible cost/scale. On the other hand, businesses should reinforce its competencies in delivering operations that contribute toward the strategic goals (i.e having greater strategic value).

The two aspects explained clearly paint the picture of the integral roles played by PM in the global management of modern organisations, the key forces driving the nature of PMSs in an establishment and to some extent, need to understand the factors that determine the effectiveness of PM. It can be noted that performance is the potential for future successful implementation of actions in order to achieve the goals. It then follows that a performing organisation is one that will accomplish the goals set by the managing coalitions. However, measures can, by definition, only relate to past. This relationship highlights the subtle contradiction that exist and that has to be resolved in conducting performance measurement.

1.3 Research Objectives and Approach

The forgoing sections identified PMSs as important tool in delivering high quality management information about the emerging properties of the firm's discrete and linked activities. This information influence and facilitate decision making process that in turn impact on organisation operation and ultimately, influence results. This paper therefore set out to explore the following elements:

the major approaches to performance measures and assess their values to improving performance generally;

the key drivers of a good PMSs and impact on firm's communication strategy;

how PMSs actually influence attitudinal, behavioural and knowledge and awareness of people in the organisation;

the process involved in the development of effective PMSs.

It is the outcome of these four elements that would form the basis for identifying and specifying the properties of performance measures that constitute effective PMSs.

The investigative work starts with critical review of the traditional approach to performance analysis, and then explores alternative methods as represented by measures based on 'economic profit' and the modern performance measurement regime with specific emphasis on non-financial performance measures. This initial review will cover the importance of performance measurement in relation to Performance Management (PM), examine the operation of the systems established to monitor and control business performance and their limitations. The research would then move on to the study of PMSs in the United Bank of Africa. The focus of the study would entail:

examination of existing PMS;

staff's perceptions and views of the current and future system;

the use of PMS by the bank's mangers;

identification of strengths and weaknesses of PMS;

Propose development and enhancement to the PMS with the view of improving performance.

The study would be conducted within a structured framework considered appropriate in the light of United Bank of Africa organisational setting.

Chapter Two

2.1 Introduction to Review of Performance Management

Performance management can be described as management endeavours devoted to ensuring goals are consistently being met in an effective and efficient manner. Performance management can relate to performance of organisation, of department, human capital, or even process to build products or services, as well as many other aspects of an establishment. It is a systematic process of getting better results from organisations, teams and individuals by understanding and managing performance within an agreed structure of carefully drawn up targets and competencies requirements. The process exist for establishing share understanding of what is to be achieved, and managing and developing people in a way that improve the chance that it will be attained. The process of PM begins with the organisation's leaders specifying the primary objectives which are expressed as designations of the way in which value is to be created for owners, managers, employees and customers. The key managerial decision is to determine which objectives are important and therefore to be pursued.

Historically, firms have relied on accounting-based performance assessment such as net interest margin, earnings compare to targets as well as other financial measures, in managing results. However accounting-based measures are argued to provide less relevant historical and backward looking information, inevitably encourage short-run orientation, reward short-term or incorrect behaviour and often cause management frustration and employee resistance. These views strongly associate accounting-based performance measures with dysfunctional and narrow tunnelling. These perceived inadequacies in the traditional accounting approach led to the development of alternative approach which focuses on improving the financial performance measure. One example of performance measure that emerged was the economic profit measures with heavy bias toward creation long term value for the shareholders. Another line of development has focused on using both financial and non-financial performance measures to communicate the multiple aspects of strategy that firm must attained to reach its goals. The alternative performance measures help to ensure that managerial interests and employees' behaviour are aligned to the strategic priorities of the organisation (Chenhall, 2005). The link between interests of the constituents of the organisation and the strategic priorities of the organisation should facilitate effective strategy implementation and improve performance.

2.2 The Importance of Performance Measurement

The core aim of performance management is to foster the high-performance in which individuals and teams take responsibility for continuous improvement of business processes and their own skills in contributing to the course of the organisation. Performance measure is the brigde that provide the link between individual objectives and the organisational objectives. It defines the expectations to be agreed in terms of responsibilities, accountabilities and behaviour. This process is important in developing the capacity of individuals and teams to meet and exceed expectations and to attain their full potential to the good of themselves and organisation. Performance measurement, through share understanding of corporate priorities, empowers and ignites the energy to realise those priorities and provides credible basis for employee rewards.

Performance management is a continuous process and when allowed to be flexible, involves managers and those whom they manage acting as partner within a structure that set the engagement rules to attained stated goals. If based on the principle of management by contract the process should enhance greater corporation and consensus among organisation's constituents. Performance management centres on future performance planning and improvement rather than retrospective appraisal of past results. Its function as a continuous and revolutionary process is crucial to performance improvement over time and provides the forum for regular and frequent dialogues between managers and staff about performance and improvement need.

A psychological contract is system of beliefs that underlie the actions of individuals believe are required of them and what response they expect in returns from their superior. A positive psychological contract is one in which the employee and employer or manager agree on mutual expectations and pursue courses of actions that increase the probability of that expectation to be realised. Psychological contract should be taken seriously because it is linked to higher-level commitment to the organisation, better employment relations and employee satisfaction. Performance management play a significant role in developing positive psychological contract (Armstrong, 2006). Performance management can be can help to communicate expectations in form of targets, standards, required competencies, core values and help to defined the level of support to be exercised by managers.

2.3 Traditional Performance Measures

Firms have traditionally relied almost exclusively on the accounting-based measures to measure performance. Traditional accounting has had the primary function in developing performance measures to assist managers in planning and controlling their organisation. The focus performance measures in the early times was to evaluate the divisional and managerial performance through the use of standard costing and variance analysis to control certain parts of the operating costs as well as Return on Investment (RoI) to assess managerial efficiency. Within a decentralised corporate environment, the criteria for selecting divisional performance measures were corporate optimality, independence and controllability (Chenhall, 2007).

Accounting performance measures have many characteristics that help explain their prominent roles in performance evaluation and compensation. The accounting process that generates the information used in the evaluation is usually subject to rigorous internal controls that enhance their reliability. The financial reports represent integration of all internal activities into coherent financial measures, thus facilitating effective communication and understanding of implication of firm's operations. While the accounting-based measures are continued to be used in the performance evaluation, it has been debated that the dysfunctional impact of these measures on decision making can be corrected by combining profit-based measure with non-financial measures. The role of short-term performance measures had been undermined by rapid change in technology and innovation in business processes. The reduced reliance on (direct) labour, increased contribution made by intellectual capital, expansion in service economy and other intangible resources made it invalid to rely on traditional method of matching revenue to costs and consequently short-term measure of profit as a measure of performance.

2.4 Economic Value Measures

The economic profit method focused on improving the traditional financial measures. This approach is based on the principles that organisation primary objectives must be presented in terms of economic profit in order to align firm's goals with shareholder value (Rappaport. It was argued that the economic profit approach would enable movement in shareholder wealth to be tracked more closely than the traditional accounting methods and should be preferred for goal setting and compensation purposes.

The basic tenets of economic profit measures are residual income and cash flow concepts. The efficiency measures developed under this approach include Economic Value Added (EVA), shareholder value added or cashflow return on investment and other variations. EVA is computed by taking the spread between the rate of return on capital employed and the cost of capital, and them multiplying by the value of capital committed in the business. The return on capital is expressed as by dividing the firm's Net Operating Profit After Tax (NOPAT) by the total capital employed in the business. NOPAT is determined in a way that it reflects a more realistic cash yield for fund providers.

The economic profit measure is considered to be useful tool, not only for measuring how well an organisation is doing, but also as a predictor of future share price. However, Koller, (2005), argued that it is important to also realise that economic profit remains an historic income measure and does not constitute complete surrogate for predictor of future share price. This approach has been commonly favoured and adopted by many finance practitioners. This is because it is less susceptible to accounting manipulation through objective adjustments to the accounting data, more transparent and reliable unit of measurement. However, some of the economic profit measures, particularly the EVA are subject to inflation deduced distortion (Warr, 2004). The main benefit of economic approach is that it takes into the account the opportunity cost capital. It therefore focuses on the profitable use of capital. For example, when maximising EVA, activities which result in positive profits but return less than the costs of capital are halted, even though this reduces the overall profits subsequently.

Economic profit measures can be viewed as strategic but its focus still remain on single outcome - economic profit - rather than on the underlying objectives that must be accomplished to realise this outcome. As such, the approach offers little guidance with regard to trade-off between financial performance demands and growth opportunities. But it is clear that it prevents dysfunctional and ensures management are committed to creation of value for the shareholder. Opponents of the economic profit measures state that economic profit metrics still compel managers to focus on short-term performance to the detriment of long-term investment in customers innovation and employees capability (Kaplan, et al., 2001). One reason for this conflicting argument is related to the length of the performance evaluation period. It then follows that if economic profit, or for that matter, any accounting based performance measures, is computer over a longer time horizon, say three to five years, it may be actually consistent with (long term strategic) growth priority of the firm. The issue of using long time horizon in incentive compensation was emphasised in the message of the proponents of the economic profit. Rappapot (2006) recommends that the rewards of senior executives should be linked to long term returns in excess of peer group's result and that the compensation of the operating unit executives should be tied to multi-year SVA-metrics.

The concept of 'bonus bank' could be applied to the incentive reward scheme to guard against the possibility of gamming and at the same time motivate managers to deliver sustainable value to firm's owners. With 'bonus bank' annual bonus awards are not paid in full, but instead are banked forward and held 'at risk', with full payout contingent on continued successful results. Each year bonus award is carried forward from previous year and only a fraction, say one forth, of the whole sum is paid out, with the remainder banked into the next year. As such, the bonus paid in anyone year is an accumulation of bonuses earned over time, therefore the distinction between short term and long term in bonus plan become irrelevant. However there is empirical evidence that suggests few companies actually use the 'bonus bank' system (Malmi and Ikaheimo, 2003). In the absence such or similar long term performance evaluation schemes, the adoption of economic benefit measures will amount to short term, financial orientation.

It is demonstrated that value based performance management is far superior compare to the traditional accounting methods and should in actuality replace the accounting based measures (Ittner and Larcker, 2001). But the regulatory requirement to use accounting measures, such as earnings, means that companies would complement (rather than replace) these measures with the economic profit to take into account the cost of capital, given the amount of total resources used to generate the profits. The value based management approach builds on the residual income practice ( to provide an integrated framework for measuring and controlling business operations, with the explicit objectives of creating superior long-term value for shareholders. Ittner et al., (2001) outlined the main focus of a typical value based framework as follows:

identifying and implementing strategies that provide the highest opportunity for shareholder wealth creation or enhancement.

implementing information systems focused on value creation and the underlying drivers of value across firm's operation units, products (including services), and customer segments.

aligning managerial processes such as business planning and resource allocation.

designing performance evaluation system and incentive compensation plan that reflect value creation.

The concept of value based management and other residual income approach can be applied to other aspects managerial process such as capital budget, valuation and incentive compensation.

2.5 Nonfinancial Measures

Non-financial performance measures are as important as financial measures in assessing the success of an organisation. Financial measures provide tangible immediate and easy-to-digest information necessary to appraise the effectiveness of firm's operation. They are useful in presentation of monetary implications of past performance in a convenient way. Financial measures are appeals to wider range of stakeholder and therefore still play a crucial role in facilitating communication between the organisation and the public. The developments (such as prohibition of 'reserve accounting', eradication of extraordinary items as well as other rule preventing 'window dressing') in accounting standards have enhanced the information value contained in most financial reports. These developments are intended to improve the quality of accounting estimates, valuations, provisions and other (subjective) measurements. Accounting information more accurately reflect the substance of all transactions a firm has undertaken (over a period) than two decades ago. The result is that performance measures based on this set of accounting information are to great extent reliable and provide useful insight into the effect of managerial actions, in tangible way, on the overall business financial objectives.

One of the limitations with financial figures is that the financial consequences of uncompleted chain of actions often extend beyond the time measurement. Thus, financial results are too aggregated to be used alone in supporting the managerial process. Although useful, the problems of financial performance measures have long been recognised. The nature of the operating environment of many firms means that attention has focused on strategy implementation, Total Quality Management (TQM), customer satisfaction, intellectual capital and employee development, which causes problems in most organisations where performance measures are dominated by financial performance. Heavy reliance of financial measures could easily leads to digression of business's day-to-day actions from the firm's strategic aspirations. Financial performance measures are not designed to be able to handle assessment of aspects of organisational operations (such as quality) and strategic implementation (customer satisfaction) that drive the realisation of the ultimate strategic goals. These interrelated problems have led to the development of diverse mix of non-financial measures that are expected to capture key strategic performance dimensions that are not reflected in accounting measures (Ittner, 2003).

Non-financial measures can be described as those measures that provide information in non-monetary terms. Measures such as market share, service level, employee turnover, innovation and more are the subject of non-financial performance evaluation that cannot be adequately reflected in the traditional accounting-oriented measures. The proponents of non-financial measures argue that this approach to performance management helps firm's to enhance the alignment between strategic objectives and their performance measurement system as it increase measurement diversity which reduces dysfunctional effects of accounting performance measures (Kaplan and Norton, 2001).

2.6 Balanced Scorecard

Since early 1980s, researchers have examined the increasing irrelevance of the traditional control. The failure to link performance measure with the strategic initiative of the organisation and an emphasis of external reporting to the detriment of information useful for internal decision making characterised the existing system. The growing importance of service industries and increased global competition has further intensified the need for alternative performance measuring systems. One of the revolutionary performance management and control system that emerged in the 1990s was the Balance Scorecard (BSC). BSC arose out of the requirement to improve planning, control and performance management function of the management accounting.

BSC is an effective management tool that integrates both financial measures and non-financial performance measures while improving the alignment between strategy and what the firm does to harness the achievement of that strategy. The primary tenet of BSC is that success must first be attained on core non-financial measures before realising success on key financial measures. Adopting the BSC method supports managers in specifying key non-financial measures that are matched to the success of key financial measures. Where there exist a sound causal connection between the key non-financial measures and financial indicators, focusing on the leading indicators should result in improved performance on the selected financial performance

It brings together concepts and important practices from different theories and disciplines into single performance model for the purpose of improving overall performance. The BSC translates goals that are contained in the corporate mission statements into strategic roadmap for the employees and managers to follow. Through detailing specific actions and formulating cause-and-effect relationships between those actions and key financial objectives, the BSC is not only a valuable tool for performance evaluation, but also a powerful aid for communicating long-term strategic initiatives to business units and achieving sustained long-term financial success.

The application BSC invariable assist management in the construction of robust key indicators by viewing the organisation from four perspectives:

financial

customer

internal processes

learning and growth

Financial Perspective:

Kaplan and Norton did not discard the importance of timely and accurate funding traditional financial data. In actuality there is equal level of emphasis on the handling and processing of financial information. A well developed financial database is expected to enable greater centralisation and automation of the financial operation. Financial perspective includes profitability measure like operating income, sales growth, return on capital employed, free cash flow or economic value added as well as risk assessment data.

The corporate financial objectives of banks are often derived from their existing bonus payout program. The objectives are usually specified for each branch and are deemed to be important success indicators. The branch performance against the indicators forms the basis for incentive compensation. Management places various weights on the measures for each branch, given the particular branch's strategic focus and peculiar competitive landscape. It is common practice to have the more than one financial objective for each branch. If for example there are six selected key financial objectives specified for each branch, these six financial performance measures are further combined into a composite key financial measure to evaluate the branch's overall performance level. The composite financial measures are comparable measures across branches because each key financial measure for each branch is placed on a scale with performance levels adjusted for individual branch's potential, size, market, and other operating conditions that have impact on it performance. The rationale for this approach is rooted in the perception of most banks that improving the composite key financial measures is critical to the success of the branch and that bonus plan are often linked to the branch's attained composite key performance measures.

In the case of banking industry the following measures are commonly observed:

loan volume - the outstanding loan balance of the bank (in monetary term).

non-interest deposit volume - the balance of all deposits by customers upon which the bank pays no interest to the depositor

cost of fund % - the average interest rate the bank pays on customer deposit

net charge-offs - the monetary amount of loans determined non-collectible or written off by the bank net, of course, of any retained collateral recoveries

document exceptions - the percentage of the total outstanding loan balance with covenant violation.

revenue / salary expenses - the total revenue of a branch divided by salary expenses including benefits.

loan yield % - the portfolio of interest rate earned by the branch for outstanding loan. This measure is closely and inversely related to the loan volume key financial measure since the cost of borrowing money affects the number of loan made by the branches.

Customer Perspective:

The view encompasses measures such as customer acquisition, customer retention, customer satisfaction, customer profitability, market share and customer response time. The recent management philosophy has revealed an increasing importance of customer focus and customer satisfaction in any organisation. These are generally called leading indicators in that if customers are not pleased with service level, they will eventually move to another suppliers who can better meet their need. Thus poor performance from this perspective is a leading indicator of future decline (even when the current financial indicators are favourable). In designing metrics for satisfaction, customer can be analysed by their kinds or/and processes for which the firm is providing services or product to those customers.

The ability to render banking services in a small town with high level customer service is the hallmark of bank's strategy. The focus is often on building customer relationship and customer base expansion. At the branch level, measures of quality of customer service can be instituted by means of periodic branch-by-branch customer surveys and secrete-shoppers programs. These measures represent the outcomes indicators of customer perspective. Building customised customer service for each customer can facilitate higher customer satisfaction at each branch. Measurable scorecard activities encompasses greeting each client by name (assess by secrete choppers), calling/texting/emailing customers with new product update, sending thank-you cards (including complementary gifts) to clients, and providing high quality advise to new and existing clients.

Internal Business Process Perspective:

The management focus on improving the business processes that source input, transform input and distribute the output to the users or beneficiaries. Metrics in this perspective will ideally be carefully developed by domain expert or those that understand the process inside-out. The measures should indicate to the process owners how well their business is running. Business processes can be strategic management processes, mission-oriented processes and support processes.

Within the banking business the focus could be on improving the cross-sell or the referral process. In situation where certain bank employee are not allow to sell some product (for example bank cahiers are not allowed to sell loan), cahiers may refer clients to loan representative. Thus a cross-sell occurs when a client buys a bank product at the recommendation of a bank employee. So as new of existing customers interact with bank staff, opportunity to cross sell or to refer customer to other staff on the branch arise. The outcome measures for this perspective includes the number of cross-sell/referral attempts as well as successful cross-sell or referral.

Learning and Growth Perspective:

This perspective relates to employee training and corporate cultural attitudes that reinforce personal development and corporate self improvement. Kaplan and Norton emphasised that 'learning' goes beyond training and that it involve such things as mentoring, coaching and tutoring.

The focus is on how well employees, information systems and organisational procedures to control process and adapt to changes. Training program that are designed to educate and empower employee for example may aids the achievement of objective of other perspectives. Employees could receive training in customer service, office automation, product offering and so on. As employee ability to interact and recognise customer needs improve, cross-sell and referral should also improve. Measurable scorecard in this case may include the number of training hours per month or scores on in-house tests.

Objective of employee satisfaction is also associated with learning and growth perspective. Implementing BSC helps increase employee satisfaction, retention, loyalty and productivity. Specifically, increased training, employee participation in the development of BSC, upward evaluations where employees evaluate their superiors, 3600 appraisal where a person is evaluated by peers, managers and staff and other BSC initiatives increase employee retention ratings. BSC can also be developed for certain individual staff member and staff's performance on his or her BSC can be used as the basis to annual pay review. It is also not uncommon among bank branched to have a small incentive scheme that has the mixture of recognition at a weekly meeting and quarterly monetary reward.

An important theme in the BSC model is the causal links among the scorecard measures. This can be represented as strategic alignment perspective to the development of a BSC. This process entails discussing the BSC program with the employees and elicits help in the scorecard development. The corporate mission statement is broken into business unit goals and employees are educated about their contribution to realising the business unit goals. Existence of linkage essentially creates the opportunity to establish quantifiable measures that are contained in the BSC.

Monitoring the Four Perspective

Kaplan and Norton stipulate that there are four things to be assessed when monitoring each perspective of the BSC.

Objectives - These should outline the major objective to be sought.

Measures - These are observable parameters that would be used to measure the progress toward reaching the identified objectives.

Targets - These are the specific target values for the measures.

Initiatives - These include any projects, program, and other schemes that might be necessary for reaching the objective.

The scores in the BSC must require metrics to be developed. This follows the saying: 'you can't improve what you can't measure'. These metrics must be closely linked to the priorities of the strategic plan, which represent the key business drivers. Then a process need to be established that collect information relevant to this metrics and transform them to numeric for storage, display and analysis. Managers then examine the outcome of the measures and initiatives and track results to guide the company..

Metrics are useful because of their ability to provide factual basis for identifying:

strategic feedback that show the current status of the organisation from many perspective for decision makers.

trend in performance over time.

diagnostic feedback into various processes to guide improvement on a continuous basis.

Quantitative inputs for forecast process and decision support systems.

The aim of measuring performance is to enable managers to see their organisation clearly from diverse perspectives thereby equipping them with the capacity to make wiser long term decision.

Limitations of Balanced Scorecard

We have so far examined the most of the benefits that accompany BSC and it correction of the inadequacies highlight in the financial performance measures. However, there are some drawbacks that are associated with BSC framework:

There are considerable mixtures of non-financial and financial measures which may constitute complexity and drain manager cognitive ability in the process of performance management.

The application of BSC framework can result in goal incongruence due to potential conflicting measures, particularly among the objectives in the financial perspective and customer perspective.

There may exist complications and greater challenges in assigning appropriate weights to the different aspect of the scorecard, which may result in organisation friction.

2.6 Evolution of Balance Scorecard

In the 2001 book 'The Strategic-Focused Organisation', Kaplan and Norton transform their BSC. In 1992 they introduced BSC in the Harvard Business Review as system of performance measure; now they change it to a strategic management system. Most of the transformation has been dominated by emphasis on the so called strategic map.

Essentially strategic maps are diagrams that illustrate how organisation can create values through the explicit connection of strategic objectives in a cause-and-effect relationship with each other via customer perspective, financial perspective, internal process perspective and learning and growing perspective. Finally, performance indicators are defined for each strategic objective along with their characteristics Strategic maps form the strategic part of BSC model of strategies for value creation.

Quezada, et al., (2009) proposed a methodology for determining strategic objective through the following steps:

Definition of Vision and Mission - The organisation has to establish it organisational identity (i.e vision) and where it wants to go (i.e mission)

Identification of Strategic Themes - Themes provide vertical links through the four perspectives of the BSC, viewing the strategy as a parallel and complementary. It is important to have a small number of strategic themes in order to reduce the probability of losing the focus pursued by the organisation. Methods such as Critical Success Factors (CSFs) can be applied to organise themes in order of importance.

Definition of General Objectives - They are derived from the vision and mission statement.

Internal and External Analyses - These are strategic process conducted through strength, weakness, opportunity and threat analysis (SWOT analysis). Once the strengths, weaknesses, opportunities and threats are identified, they should be used to form the strategic objectives using a modified SWOT matrix. The entries in the SWOT matrix usually correspond to strategies of the organisation, but here they are the strategic objectives. Subsequently these objectives are then classified according to the four perspectives of the BSC.

Generation of Specific Objectives - Specific objectives are derived through from a modified SWOT analysis. However, a review should take place that ensure consistency between the specific objectives with the organisation strategy and the general objectives derived from the organisation's vision and mission.

Generation of Strategic Maps - The map is generated by establishing cause-and-effect relationship among the general objectives and the specific objectives.

Creation of Performance Indicator - Generate performance indicator for each strategic objectives.

The strategic map is characterised (Kaplan and Norton, 2002) as follows:

All information pertaining to organisation mission, strategic objective and their interrelationships are contained in a single diagram representation; this enable relatively easy strategic communication.

There are four perspectives to the overall strategy and strategic objectives.

The financial perspective focus on creating long term value for the shareholders and uses productivity strategy of improving the cost structure and asset utilisation and growth strategy of expanding opportunities and enhancing customer value.

The client dimension contains objectives that are formulated to support the last four elements of the financial perspective. The objectives include price, quality, availability, selection, functionality, service, partnerships and brand.

The internal process perspective focus on operation processes and customer management processes that help make the product and service attributes. In addition there are innovation, social and regulatory processes that help with relationships and image.

All of these processes are supported by allocation of human capital. Organisational capital and information capital. Organisational capital comprise of culture, leadership, alignment and teamwork

Finally, connecting arrows are describing cause-and-effect relationships.

The basic principles embedded in strategic maps are as follows:

strategy is based on simultaneous, complementary themes.

strategic alignment determines the value of intangible assets.

strategy balances contradictory forces.

strategy is based on differentiating customer value proposition.

Limitations of Strategic Maps

Although the map establishes cause-and-effect among strategic objectives, it does not state the way to establish and quantify those relationships.

The BSC framework is inflexible and incapable of facing the changes in the external environment and changes in behaviour within the organisation.

2.7 Performance Prism

Performance prism is an innovative performance measure and performance management framework. The benefit of performance prism is that it covers all the organisation's stakeholders namely: investors, customers, suppliers, employees, regulators and communities. It focus is to identify reciprocal relationships that emanate when considering on the one hand what the needs and wants are of the stakeholders and on the other hand, uniquely, what the organisation wants and needs from its stakeholders. The underlying philosophy of performance prism is that all organisations that want to be successful in this current tough economic climate must have an exceptionally clear understanding of who their stakeholders are and what they want. This framework challenges the notion: 'derive your measures from your strategy' and emphases that any suitable performance measure design should begin with the stakeholders and what their needs are.

There are five perspectives to the measurement design:

shareholders satisfaction - the recognition of the key stakeholders and what do they wants are the consideration in this perspective. There are often dynamic and subtle tensions among the wants and needs of the organisation coalition.

strategy - this is about determining the required strategies to satisfy the wants and needs of the identified key stakeholders.

processes - design critical processes (product development, demand generation and demand fulfilment) needed to execute the strategies.

capabilities - the focus is to determine what organisational practices, technology and infrastructure to operate and enhance the processes that create value for the stakeholders

stakeholder contribution - What contribution does the organisation need in order to maintain and develop its capabilities.

Performance prism illustrates the hidden complexity of corporate world. One dimensional, traditional framework picks up on the elements of this complexity. This framework offers a single uni-dimensional perspective on performance but performance is not uni-dimensional. In order to understand it entirety, it is important to view performance from multiple and interlinked perspective offered by performance prism.

2.8 Summary of Performance Management Review

Performance management has been an increasing field of research for both organisations and academics alike in the last 10 - 15 years. In the past accounting-based measures dominated the performance evaluation process. This approach can be associated with the firm theory that place greater emphasis on profitability at the detriment of other objectives such as quality. This view suggests that firm exist purely to maximise profit and no more, no less. The view became less valid in the face of increased competition and advancement in technology. Profit maximisation would no longer be a sufficient financial objective. Organisations are compelled to plan and formulate credible strategy in order to survive in their various competitive environments. This change in managerial process required more sophisticated performance measure techniques.

This development led to the improvement to the so call traditional accounting measures. The perceived inadequacies motivated several academics and practitioners to suggest a variety of alternative performance measures ranging from 'improved' financial metrics such as the economic profit, value-based approach, and non-financial measures to the more integrated performance framework - BSC. While there has been substantial coverage on the effective of BSC, it should be recognised that researcher do not dwell too long on solution designed for past problem.

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