Abstract
 
Performance evaluation has been widely used in enterprises. However, the results and effects in the process of execution are not very satisfying, owing to the fact that unsystematic methods and theories of performance evaluation which include concepts of short-term, transactional and local were chosen by enterprises. Accordingly, problems, such as the evaluation indicators, are incomplete. Most evaluation results are not unified with the enterprise strategy determined. Consequently, the dissertation intends to study how to set up a performance evaluation that is strategically supported, entirely balanced and associated with long and short system.
 
BSC is one of the systems to assess performance. The dissertation, guided by BSC theory and also involving with other correlative management theories such as KPI and MBO, aimed at setting up a panoramic, strategy-oriented and feasible BSC performance appraisal system so as to improve the traditional performance evaluation system in enterprises.
 
The dissertation firstly analyzes the BSC theory as well as other correlative performance assessing theories, and then seeks out their advantages and disadvantages. Moreover, compatibility among them will also be covered. Finally, a strategy-oriented BSC performance evaluation system will be set up by mainly adopting the theory of BSC, also involving theories of KPI and MBO.#p#分頁標(biāo)題#e#
 
Based on the above-mentioned theory, the BSC performance assessing system has been implemented at the Chemical Bank. The import process was designed and operated at first. Next, the tracking observation and investigation were practiced. As a result, the system has been improved constantly.
 
Besides, the dissertation also drew attention to the general defect of Chinese performance evaluation methods, and made a comparison among different theories. And on account of the BSC, a performance evaluation system that tentatively fits Chinese enterprises will be established. Above all, theoretically, the study tries to integrate different systematic performance evaluation methods, and on this basis, establish a practical system; in practice, through a case study, it explores how to promote the performance evaluation level of Chinese enterprises by using systematic evaluation tools.
 
Key words: BSC, Performance evaluation system, KPI, CSF
 
Acknowledgement
 
Taking this opportunity, I would like to express my gratitude to everyone who gave me assistant and influenced me during the process of my dissertation. My deepest gratitude goes first to my supervisor, Dr. Vicky Kiosse, for everything she did for me, especially her guidance and encouragement. During the whole period of the dissertation, Vicky gave me a lot of assistant and always be there when I need her. During the whole process of the dissertation, she gave me feedback of draft and inspiring advice instantly. I feel much appreciated of her patient and expert guidance. Without this, I cannot complete my dissertation in time.
 
Besides my supervisor, I am also appreciated to my roommates Haoyu Xu, Guanying Jiang, Zheng Liu. They have been with me for nearly one year, and we encouraged each other and we work together. We got in the same major, but we chose different modules in the second term. However, we always communicated with each other and shared our information. In the process of my dissertation, I found some information I got from my roommates was very helpful, for example, when I wrote the third part of my dissertation, literature review, I met some problems in finding reference books which is relevant to tiny details of balanced scorecard, Haoyu told me one useful scholar website to search the special information. I really felt that my friends gave me a lot of help. They are all great friends supporting me all the time.
 
Last my thanks would go to my beloved parents. During the time I took the internship in my homeland, my parents always help me and told me their experience in how to develop a good dissertation and how to combine my own internship experience with my dissertation. They also took care of my daily life and their love company me each moment. No matter how tied I am, once I feel their love, I become a superwoman and full of strength to continue. During the resubmitting period, my parents also gave me a lot of encouragement and they help me to re-build my confidence.#p#分頁標(biāo)題#e#
 
I really feel appreciated of these friends and families. All of them help me a lot during my dissertation term, including the re-submitting term.
 
Author’s Declaration
 
I declare that the work in this dissertation was carried out in accordance with the Regulations of the University of Bristol. The work is original except where indicated by special reference in the text and no part of the dissertation has been submitted for any other degree.
 
Any views expressed in the dissertation are those of the author and in no way represent those of the University of Bristol.
 
The dissertation has not been presented to any other University for examination either in the United Kingdom or overseas.
 
SIGNED: DATE:
 
Content
 
Chapter 1 Introduction. 5
 
1.1 Research background. 5
 
1.2 Research aims and objectives. 6
 
1.3 Research method. 6
 
Chapter 2 Literature Review.. 8
 
2.1 Performance evaluation theory. 8
 
2.2 Traditional performance evaluation methods. 9
 
2.2.1 Management by Objective. 9
 
2.2.2 Key Performance Indicator. 11
 
2.3 The balanced scorecard theory. 12
 
2.3.1 Introduction of balanced scorecard. 12
 
2.3.2 Evolution and Application of the balanced scorecard. 15
 
Chapter 3 Balanced scorecard performance management system.. 20
 
3.1 Analysis of Alternatives to BSC.. 20
 
3.2 Overview of balanced scorecard performance management system.. 21
 
3.2.1 The birth of balanced scorecard performance management system.. 21
 
3.2.2 Significance of balanced scorecard performance management system.. 23
 
3.2.3 The substantive characteristics of performance evaluation and BSC.. 26
 
3.2.4 The cause-and-effect analysis on BSC.. 29
 
3.3 The problems and solutions in performance evaluation and balanced scorecard system.. 30
 
3.3.1 The limitations of the BSC performance evaluation system.. 30
 
3.3.2 Recommendation on improvement of the BSC.. 31
 
Chapter4 the construction of balanced scorecard performance evaluation system.. 33
 
4.1 The construction of balanced scorecard performance evaluation system.. 33
 
4.2 Preparations for construction. 34
 
4.3 Construction module Balanced scorecard performance evaluation system.. 36
 
Chapter 5 Case Study：Application of BSC in American Chemical Bank. 47
 
5.1 Background Information. 47
 
5.2 Chemical Bank’s Balanced Scorecard. 48#p#分頁標(biāo)題#e#
 
5.3 The application effect of the balanced scorecard. 51
 
5.4 Recommendation. 52
 
Chapter6 Conclusion. 54
 
Bibliography. 55
 
Chapter 1 Introduction
 
1.1 Research background
 
Performance evaluation is a process of evaluating the employee’s performance according to work goals and performance criteria, which serves as a basic function of an enterprise. Practically, an outstanding performance evaluation system helps enterprises to become more competitive. Business managers, especially HRs and management researchers, has been laying great emphasis on performance evaluation for decades.
 
Approaches of launching performance evaluation can be mainly divided into two groups, unsystematic and systematic evaluation. The unsystematic group, as a traditional approach, began to develop since 1920s. It can be subdivided into several types, including employee’s characteristic-based method, behavior-based method, effects-based method and etc. Most of the enterprises would adopt one or more methods; however, the results are far from expectation. Management often deviates from the corporate strategy. Many companies are of inadequate mechanisms and capacities to put the strategic vision into practical action. The reason is that the unsystematic performance evaluation methods generally focus on employees individually, which will inevitably result in narrow views. The result is disjointed from the performance of the team or even the whole company.
 
The systematic methods had emerged in recent years. Conversely, it takes the enterprise as a whole and sticks to principles of systematic management, strategic management and contingency management. The representative methods include KPI, BSC and MBO. The BSC has developed into one of the most appreciated methods due to its effects on long-term development. However, the BSC performance evaluation system has not been widely adopted by extensive enterprises due to a variety of reasons, mainly involving inadequate implementation experiences and high costs. Furthermore, conservatives in the enterprise are always reluctant to change, and the method is not valued enough by top rank managers.
 
Since the business competition has become increasingly severe, the BSC performance evaluation is embraced widely as a powerful tool to lead to long-term and strategic development. But materials concerning the implementation of the BSC are insufficient. This dissertation aims at finding the practical implementation process to encourage enterprises to replace the unsystematic methods with the advanced BSC methods.
 
1.2 Research aims and objectives
 
Based on literature reviews of performance evaluation and balanced scorecard, the main aim is to help companies build a comprehensive, effective and strategy-orientated performance evaluation system. The performance evaluation system is constructed and combined with key performance indicators. Eventually the paper will create a scientific and efficient indicator system for performance evaluation. After achieving that, the system, on the one hand, can solve the problems that enterprises are faced in establishing and implementing the performance evaluation system. On the other hand, it will improve the enterprise performance level by constantly combining performances of each departments and the enterprise.#p#分頁標(biāo)題#e#
 
The objectives of this dissertation are as follows:
 
1. To briefly discuss performance evaluation system.
 
2. To discuss in detail the evolution of the BSC, its main features, and the problems associated with it as well as solutions identified in the literature.
 
3. Based on the above points, the dissertation will include introduction of the BSC performance assessing system into the Chemical Bank. Additionally, the author has personally devised and puts the BSC performance assessing system in practice, and tracks it down for a period of time to monitor and enhance its function. The case of the Chemical Bank is used to demonstrate the module and the specific operating steps of the BSC performance assessing system. From the case we can find that the BSC performance assessing system is helpful for companies to obtain core competitiveness to some extent, and there are certain reference value and practical significance for other enterprises to establish performance evaluation system.
 
1.3 Research method
 
Compatible with the research framework, this research method will adhere to the combination of the theoretical analysis and practical application, mainly uses the case study methodology. The case study methodology is suitable for research questions such as "how" and "why", especially for extremely complex and specific issues in a comprehensive study, to find out new concepts and ideas, and even create new theories.
 
Meanwhile, compared with the exploratory research, case study method has the advantage of obtaining rich, detailed and in-depth information(Yin, 1994). In general, the case study includes single case studies and multi-case studies. Single case study is more applicable for the following three conditions: (1) critical case, the aim is to challenge or verify existing theory; (2) special case, with a feature of uniqueness, tends to establish new theoretical models or expands the capacity of analogy of the old theories; and selecting a typical case is a common practice based on case study research methods (Eisenhardt, 1989); (3) complementary case refers to the fact that the previous studies had failed to observe some important phenomena due to certain reasons and now have the opportunity to observe and supplement the deficiency of the past research.
 
As the fourth largest bank in Michigan, the American Chemical Bank was facing the operational difficulties (Wang, 2003). In order to solve those problems, the Bank decided to build a new performance evaluation system. The formed balanced scorecard performance evaluation system requires a practical test through the introductive activity to continuously revise the system, to form an effective and practical evaluation system at the end, and to continue to promote the development and perfection of the system.
 
Chapter 2 Literature Review
 #p#分頁標(biāo)題#e#
2.1 Performance evaluation theory
 
Performance evaluation is the process of evaluating employee’s performance according to work goals and performance criteria that were made scientifically. It is an important part of human resource management. For example, it provides difficult targets in fields of compensation and promotion, and improves the core competitiveness of the company. Performance evaluation is a system of three layers, including the definition, measurement and information feedback of performance.
 
The study mainly centered on the definition and measurement. The behavioral scientists have been focusing on how to enhance the effectiveness of performance evaluation from the 1920s. They tried to describe and summarize employee’s behavior, and also developed many related measuring methods, such as BOS and CTI. In 1973, David Clarence McClelland demonstrated that their ability and quality were more effective than the potential behavior in order to decide the discretion of people’s work performance.
 
Those theories focus on employee’s individual behavior and quality. Until 1993, Borman and Motowidlo took the organization performance into consideration. While since 1980s, with the rapid development of the global economy and increasing competition among enterprises, managers have been increasingly in need of stringent requirements of performance evaluation, and paid more and more attention to assessments in levels of organization and group. The evaluation system should be equipped with relatively broad perspective, multi-dimensional inspection capabilities, improved self-renewal mechanism and should be able to support enterprise’s long-term strategic development. New theories are proposed. The MBO (Management by Objectives), KPI (Key Performance Indicators), and BSC (Balanced Scorecard) among them are widely discussed and used.
 
Professor Mike Wright from University of Nottingham defined the management philosophy of MBO in 1980. The MBO pays special attention to employee’s contribution to the organization. The focus of the evaluation process shifted from the employee's work attitude to job performance, and the evaluator is a consultant instead of an overseer; in addition, the role of employee conversed from passive bystanders into active participator. Key Performance Indicators are based on business performance management system. The biggest contribution is that performance indicators must be linked to corporate and business strategy, which is a significant development on evaluation theory.
 
In 1992, Kaplan and Norton proposed the Balanced Scorecard (BSC) performance management theory, which is distinctively different from traditional methods. Traditional performance evaluation had some shortcomings, such as it focuses on financial measure and ignores external stakeholders, it depends on historical accounting data and emphasizes short-term control, in additional, it attaches no importance to critical aspects as intangible and intellectual assets. Kaplan and Norton (1996) held the opinion that traditional financial accounting model can only measure what has happened in the past (the behind factors), but cannot evaluate the forward-looking investment of the company (the leading drivers). In the information era, the traditional performance evaluation system is not comprehensive enough. The company must rely on integrated evaluation of customers, suppliers, employees, business processes, technologies and innovative investments to achieve the goal of sustainable development. The BSC builds up a framework for a clearer indicator system in four dimensions, including financial, customer, process and learning and innovation indicators (Kaplan and Norton, 1996). It combines the results of the static (financial indicators) and dynamic (non-financial indicators) behaviors of the process. Furthermore, it combines strategy and performance evaluation system, not only stresses the performance of daily management, but also reflects the implementation of enterprise’s strategy for further development. So the strategy is no longer out of reach for employees, employees can feel the influence of their efforts on the strategic implementations and even come up with recommendations t. Compared to the traditional methods such as MBO, KPI and etc., the BSC can meet the requirements of flexibility and durability.#p#分頁標(biāo)題#e#
 
2.2 Traditional performance evaluation methods
 
Traditionally, different enterprises would adopt different performance evaluation methods according to their individual situations. In general, there are several methods available, such as management by objective, process evaluation, key performance indicator, and etc.
 
2.2.1 Management by Objective
 
Management by Objectives was first introduced by Peter Drucker in his book The Practice of Management in 1954 where he proposed the idea of “Management by object and Self Control”. Drucker believes that the goal can determine one’s work rather than the work determines his goal, so the mission and the task in corporation must be translated into the target (Drucker, 1973). The common elements in target management and traditional management are as follows, clear goals, decision-making, the prescribed period, and the feedback performance. Compared with traditional management methods, it has more distinctive characteristics that can be summarized as:
 
1) Establishing goal chain and goal system. Management by objectives decomposes the organization’s objectives into unit target, then to sectorial objective, and finally to personal goal. These goals are towards the same direction and interlocked with each other, which eventually form a coherent target system and contribute to the overall goal of the entire enterprise (Odiorne, 1965).
 
The target setting in the MBO is opposite to the traditional one, which is a one-way method from the higher to lower levels. The target in MBO is based on a participatory approach. The target transformation process is from top to bottom and also from bottom to top (Drucker, 1973).
 
2) Focusing on results. The MBO takes goal setting as a starting point and the completed performance of the target as the end. Result of the work is regarded as the standard that measures the completion degree of the target. The personnel evaluation and awards assessment have been taken as the only indexes of staff appraisal and award system respectively.
 
3) Time limit. Each target has a clear time deadline in the MBO, such as a single quarter, one year, five years or any other appropriate periods (Drucker, 1973).
 
The MBO is a program or process that enables superiors and subordinates in the organization to get together and determine the overall goal in that specific time according to the organization’s mission (Odiorne, 1965). It takes the enterprise as a whole, but is more systematic and advanced than other old theories. Also it links the performances of individuals with the strategy through goals setting and target decomposition. Management by Objectives quickly spread over the United States since it has been proposed.
 
The MBO has some major deficiencies as listed below:
 
1) Emphasizing on short-term goals. Most of the target management objectives are short-term goals: annual, quarterly, monthly and etc (Odiorne, 1965). Relatively specific short-term goals are easy to break down and can be achieved rapidly, while long-term goals are more difficult to be obtained. Therefore, organizations have a tendency to emphasize short-term goals.#p#分頁標(biāo)題#e#
 
2) Goal-setting is difficult. It is truly difficult to set targets for assessment, particularly when the organization is actually an output of the commonwealth; its output is a combination that cannot be easily separated. Sometimes an organization's goals can only be described qualitatively, although we hope that the target can be measured.
 
3) Lacking of flexibility. The target cannot be altered in the process of implementation to avoid organizational chaos (Odiorne, 1965). Its inadequate flexibility makes it difficult to swiftly react to the change of the external environment.
 
2.2.2 Key Performance Indicator
 
Key Performance Indicator is a tool that decomposes strategic goals of the enterprise into operational job objectives. The KPI helps department managers to understand the main responsibilities of the department and the performance indicators of sector members clearly (David, 2007).
 
Compared with other indicators, characteristics of the KPI are:
 
1) The KPI measures key business activities, not the entire system of operations. Therefore, this will help improving the efficiency of performance management, reducing cost, and enhancing core competitiveness.
 
2) The KPI reflects the traction of performance appraisal by establishing target indicators according to the practical situation, which means it will be adjusted monthly or annually.
 
3) The KPI assessment indicators are controllable (David, 2007). Indicators of performance appraisal are designed to constitute a controllable part of the performance measure, as far as possible to reflect the employee’s direct control effect, and to remove other effects caused by other people or the environment.
 
4) The KPI comes from the decomposition of the company’s strategic goals (David, 2007). This means that key performance indicator is a major driving factor of the company’s strategic goals.
 
Concerning about the shortcomings of the KPI, there are several aspects:
 
1) Just like the MBO, the KPI neither provides a complete guide with specific operation indicator framework system, nor pays much attention to questions like “how to test” and “who to consider” (David, 2007). Hence, other assessment method must be combined with it to achieve fairly good results.
 
2) The KPI is identified as layer upon layer decomposition, which can easily be led to the category of unscientific indicators (David, 2007).
 
3) KPI is an objective assessment method, but some of the indicators are not quantitative, so it must be combined with some qualitative assessment methods.
 
2.3 The balanced scorecard theory
 
2.3.1 Introduction of balanced scorecard
 
In 1992, David P. Norton and Robert S. Kaplan issued The Balanced Scorecard-Measures That Drive Performance in the Harvard Business Review. This is the first article about the balanced scorecard. The article puts forward that it should begin from the four dimensions of financial, customer, internal business process and learning and growth to evaluate the enterprise performance instead of only evaluate the performance of a business from financial indicators.#p#分頁標(biāo)題#e#
 
In 1993 September/October they issued another piece called “Putting the Balanced Scorecard to work” in the Harvard Business Review, the paper introduces four new processes that enable companies to link long-term goals with short-term actions. In 1996, the first monograph The balanced scorecard: translating strategy to action (Kaplan and Norton) was published, marking the maturity of this theory. The performance will be measured by a balanced scorecard tool into a strategic implementation tool. At present, the book has been translated into 21 languages.
 
In 2000, the two authors published a new work named The Strategy Focused Organization: How Balanced Scorecard Companies Thrive in the New Competitive Environment.
 
In this book, the two authors argue that the balanced scorecard will exert enormous influence on competitive and profitability of strategy-centered organizations. Through adopting the Balanced Scorecard, organization integrates the company’s capabilities and resources, strives to achieve and exceeds the company's long-term strategic goals (Kaplan, 1992).
 
In the past decade, the balanced scorecard experienced a great development both in theory practice. There are increasing numbers of companies who start to recognize its importance. At present, Kaplan and Norton will continue to be committed to create a perfect balance scorecard management system, and conduct further research on the measurement of intangible assets as well as organizational processes. At the same time, their scope of application of balance score card was developed to some new forms, including non-profit organizations, public utilities, health care, venture capital, and the board of the directors (Heinz, 2000).
 
The balanced scorecard links the enterprise’s vision, mission, and development strategy and performance evaluation system together, shifts the mission and strategy into specific target and measured indicators, so as to fulfill the organic combination of strategy and performance. Based on the enterprise strategy, it integrated various measured methods of an organic entity, and absorbed the future drive factors to smooth over the defects caused by financial measure indicators.
 
The balanced scorecard objectives and measures are derived from the Organization’s vision and strategy. Through analyzing the four dimensions of finances, customers, internal business processes, learning and growth to assess an organization’s performance (Kaplan, 1993).
 
The Figure 2-1 shows framework of the four dimensions of the balanced scorecard. (Kaplan, 1993)
 
1. Financial Perspective
 
Although financial indicators have many limitations, the BSC treats financial indicator as a dimension of a succession of traditional performance management systems (Kaplan and Norton, 1992). There are three main reasons: first, as the main participators in the market, the enterprise must take profit as the foundation of survival and development. All of the improvement should eventually be financially targeted. Second, the financial indicators reflect the ultimate and comprehensive performance of an enterprise (Kaplan and Norton, 1992). Third, financial indicators reflect business benefits of all stakeholders.#p#分頁標(biāo)題#e#
 
In the BSC performance management system, the main financial indicators are as follows: 1) Profitability, the typical indicators are profit margins, which return on the investment and net cash flow; 2) Income increases, the typical indicators are sales growth and market share (Heinz, 2000); 3) Costs reduction and productivity improvement, the typical indicators are unit costs and effectiveness of costs; 4) Assets operational efficiency, the typical indicators are assets turnover ratio, operating cycle (or cash flow period) and etc.; 5) Business and financial risks, the typical indicators are operating leverage, current ratio, debt ratio and so on (Kaplan and Atkinson, 1998).
 
It is notable that the financial indicators of the BSC are not isolated. On the one hand, it is closely related to the business strategy and embodies its realization comprehensively. On the other hand, as the final results and standards of the other three non-financial aspects, it connects the company’s financial performance and non-financial performance motives to form a vertical chain of causation, which runs through the four aspects of the BSC (Heinz, 2000).
 
2. Customers Perspective
 
In order to obtain long-term financial performance, an enterprise must provide high quality products and services customer for the satisfaction of customers. Balanced Scorecard gives the two levels of performance evaluation indicators, the first level is that the goals set by company must be prepared to achieve the customer expectation, which includes market share, customer retention, customer acquisition rate, customer satisfaction, etc (Kaplan and Atkinson, 1998). As for the second level, it is the segment of the first level target to select the specific evaluation and format specific performance evaluation scale. In this dimension, it mainly answers what customers expect from us.
 
3. Internal process Perspective
 
This is the most significant features where the balanced scorecard performance evaluation breaks through the imperfection of traditional ones. Although traditional performance evaluation with the production in advanced period and the product quality evaluation indicators, it often refers to the performance of a single department (Qin, 2009). The only method is to help organization survive by rebuilding these indicators rather than to gain unique organization competitive advantage. From the perspective of satisfying the needs of investors and customers, and analyzing the internal business process of the value chain, the balanced scorecard puts forward four kinds of attributes including quality oriented evaluation, time-based evaluation, flexible oriented evaluation and cost indicator evaluation (Kaplan and Norton, 1996). In this dimension, it mainly answers what we must be good at.
 
4. Learning and growth perspective
 
It provides the means to achieve performance breakthroughs in other areas. The purpose and characteristics of the implementation of the balanced scorecard is to avoid short-term behavior, and emphasize the importance of investing in the future, but it is not limited to the upgrading of traditional equipment (Kaplan and Norton, 2001). It lays more attention on investment in employee systems and business processes, focuses on analyzing the gaps between demands and the existing capacity. These gaps may be tackled through staff training, technological innovation, high quality products and services. Related indicators of new product development include cycle sales, ratio time, and process of improvement efficiency and so on. In this dimension, it mainly answers whether we can continue to improve and create value.#p#分頁標(biāo)題#e#
 
The strategy is at the center position of the balanced scorecard (Kaplan and Norton, 1996). It breaks down into different objectives according to the overall strategic objectives of the company, and in the meanwhile establishes specific indicators of performance evaluation, and it also promotes employees to spare no efforts to achieve these goals through linking employees’ compensations with the evaluation indicators. This would organically combine the long-term strategic goals with short-term action of the company, and also enable the various units to be consistent with the strategic management system of the company. “The Balanced Scorecard is not merely a measurement system, but also a strategic management tool which is conducive to help enterprise to obtain competitive performance.” (Qin, 2009, pp 58-59) Besides, it can be further seen as the cornerstone of a new strategic management system.
 
Kaplan and Atkinson (1998) claimed that the theoretical framework and performance dimensions of the balanced scorecard, in particular, the measurement principle of strategy dominant, combined with the overall balance of long and short term business performance evaluation, laid the theoretical and practical foundation to construct systematic performance evaluation system.
 
2.3.2 Evolution and Application of the balanced scorecard
 
The balanced scorecard has been coined and accepted for more than ten years, in which development mainly went through three stages: the stage of performance assessment, the stage of strategic management and the stage of establishing strategy-focused organization. The process of the development of the balanced scorecard from 1990 to 2002 is as follows:
 
1. The first stage: the balanced scorecard was used for performance assessment
 
In 1990, Nolan Norton Institute of America set up a one-year program devoted to studying the development of a new performance test model. There were 12 companies involved, in which the CEO of Nolan Norton David Norton acted as the leader and professor Robert Kaplan from the Harvard Business School as academic adviser. The project team created “balanced scorecard” theory, and established concepts of finance, customer, process and learning/growth.
 
In 1992, Kaplan and Norton published their first paper the Balanced scorecard—Performance Drive Index about the Balanced scorecard in the Harvard Business Review. This paper is based on the empirical data that obtained in the program in 1990 with the participation of 12 companies who used the tool to conduct the performance management. Basically, the article emphasizes the fact that traditional financial accounting performance evaluation methods can only measure the previous issues (the result of factors behind), but cannot conduct forward-looking assessment of the company’s investment (the leading drivers), so you must use a group of four views structure consisting of performance indicators to evaluate the organization’s performance, which reflects the vision of an organization.#p#分頁標(biāo)題#e#
 
On the one hand, it keeps the traditional financial indicators to measure the previous performance. On the other hand, it measures the factors that contribute to the financial targets. The enterprise can interpret its policy in a clear and rigorous way, link the output (Outcome) to performance drivers (Performance Driver), transform the mission and strategy into a coherent system of performance appraisal measure, and shift the complex general concepts into precise objectives. Therefore, it is possible to seek a balance between financial and non-financial measures, short-term and long-term objectives, backward and onward indicators, external and internal performances.
 
2. The second stage: the balanced scorecard was used for strategic management and performance assessment
 
In 1993, Kaplan and Norton extended the application of the Balanced Scorecard to the field of strategic management. In the first practice, Kaplan and Norton found that the Balanced Scorecard can pass the company’s strategy. They believed that the Balanced Scorecard is not just the performance appraisal tool of a company, but more importantly, a corporate strategic management tool.
 
Subsequently, Kaplan and Norton published their second paper entitled In practice: The Use of the Balanced Scorecard in the Harvard Business Review. In this article, they clearly pointed out that the selection of performance evaluation indicators should be based on key successful factors of strategy implementation.
 
Since the BSC was extended to the strategy management system, it has been widely accepted by global business circles, even been applied to non-profit organization.
 
In 1996, Kaplan and Norton published the third paper on the Harvard Business Review, elaborating the framework of the BSC as a strategic performance management tools with functions of goal setting, preparation of action plans, budgets allocation, performance guiding and feedback and incentive pay connection and so on. In the same year, they published the first monograph named Balanced Scorecard.
 
The strategic map is also described as "balanced scorecard" and "individual strategic action plan table".
 
"Strategy map" means group strategy. The SBU strategy and functional strategies will require hundreds of visual pages of a strategic planning to be described clearly. It is an integration platform to describe a group strategy. The "balanced scorecard" itself is a form of further explaining the "strategic map". It consists of strategic objectives and themes, the core indicators, the strategic targets (3-5 years), and an individual strategic action plan table. "Individual strategic action plan table" is an Action Plan of the "balanced scorecard", boosting the implementation of “nebulous strategy” gradually by decomposing into action plan of operational monitoring, a clear time node, accountability, and resource scheduling.#p#分頁標(biāo)題#e#
 
3. The stage of establishing strategy-focused organization
 
In 2001, Kaplan and Norton published their second balanced scorecard work Strategic Center Type of Organization. This book had tackled a lot of problems occurred in the process of designing the Balanced scorecard to correspond with enterprise strategic and had introduced methods to implement the Balanced scorecard strategy. In this article, the authors explain that they found a new form of strategic organization which can enable enterprises to successfully implement the balanced scorecard. These enterprises use the balanced scorecard according to their own enterprise strategy so as to establish internal organization.
 
Paul Niven published the book The Specific Steps of Implementing the Balanced Scorecard in 2002. Niven was the project leader of the balanced scorecard at Novia Scotia Power (a power generation company in Canada). Niven has successfully showed people how to use the balanced scorecard step by step, firstly developing the balanced scorecard of the company, then deepening into the company’s management system, and finally maintaining the acquired improvement effects.
 
After experienced the three stages of the performance management and strategic assessment, for the need of the actual application, the balanced scorecard experienced certain theoretical improvements by some researchers, such as Canada scholars Olve N • Roy and Weter N put forward the BSC causality chain "Z" in 1999, in which the key points are: (1) the four dimensions views of the BSC in the life cycle of the whole organization are very important; (2) the BSC’s four dimensions views are easily designed for members to understand the causality chain: innovation and learning dimension/internal process dimension/customer dimension/financial dimension. They thought that the BSC was not the company’s strategy management performance of simple hodgepodge in four aspects of dimensions as finance, customer, internal process, innovation and learning, but was designed according to the company's long-term development strategy and through the process of a series of internal causality chains running into the whole company management performance evaluation system. These improvements were restricted in order to meet the need of practice at that time and people now are still using Kaplan and Norton’s theory of the balanced scorecard (James, 1999).
 
The Balanced scorecard at present is mainly applied in the adjustment of long-term performance and in the aspect of strengthening enterprise strategic information of an enterprise. The adjustment of the enterprise long-term performance takes the balanced scorecard as a programming tool rather than a method to control. It uses the index designed of the balanced scorecard to adjust the "long" of the company performance, instead of promote business transformation. It is the balanced scorecard that measures the output in order to propose and execute a plan. One way to strengthen the strategic information of an enterprise is to take the balanced scorecard as the treasure house to store strategic information. The strategic information provides convenience for long-term trend analysis and performance test of the enterprise planning.#p#分頁標(biāo)題#e#
 
In many countries, the field of the balanced scorecard application is very extensive, and the BSC is used not only for service providers, but also for productions of manufacturer as traditional financial service enterprises, high-tech enterprises, and even governments. According to Gartner Group, more than 55% of top 1000 companies in Fortune have used the balanced scorecard. Brain Company research also points out that more than 50% of the North American enterprises have adopted it as the internal performance evaluation tool of the enterprise, and the financial assessment methods revealed by the balanced scorecard are widely used in the companies for design and implementation of the employee bonus plan (Kenneth, 1992).
 
Chapter 3 Balanced scorecard performance management system
 
3.1 Analysis of Alternatives to BSC
 
The performance measurement is very significant to enterprises as it shows the enterprises’ position and is helpful to improve performance. However, traditional performance measure ‘restricts it to considering only financial performance’. (Otley, 1999)
 
According to Kaplan and Atkinson (1988), DuPont and General Motors Company have developed a model for the return-on-investment (ROI) at the start of the twentieth-century, and this model was widely used in integration management in many companies. Additionally, Sven Modell (1995) thought restructure was required by enterprises, as their businesses grew and they need to keep manageable; then through decentralization and a metric, enterprises aimed to measure the performance of decentralized divisions---in this case, ROI met this requirement. The test of using ROI seems successful, so the enterprises were stressful because of more expectation from stakeholders. At that time, even modification of depreciation policies were used to reach the ROI targets. However, during the using process of ROI, its limitations came to the surface. As enterprises faced more stress on the financial performance and more competitive environment, it seems very dangerous to continue to use ROI as a measure of performance. In 1990s, Sven Modell (1995) argues that with the constant expansion of the company’s financial system, performance management began to involve in financial measurement methods that were relevant to shareholder value, and in the subsequent has produced the economic-value-added (EVA) management mode. According to Qin (2009), EVA, as an improved financial measure, assumes that only the cost of capital less than the economic profit, there will be an increase in the economic value; moreover, Stern Stewart suggested more than 160 adjustments to transfer accounting profit to economic profit. For instance, Stern Stewart argued that the purpose of EVA is to maximize shareholder wealth (Vic & Errol, 2007). However, according to Sven Modell (1995), EVA is too complex to be understood especially for employees on the bottom level who felt very difficult to impact corporate EVA.#p#分頁標(biāo)題#e#
 
However, in the environment of knowledge competition, many companies began to realize that even the best financial system is not capable of covering all the dynamic characteristics, or managing the behavior process. ROI and EVA did not take the value of some intangible assets, such as high-quality-services and skilled employees, into consideration. However, not only financial performance but internal process, human resource, customers, etc are very significant to the process of business management. According to Kaplan and Norton (1992), ROI and EVA only considered financial performance and could not evaluate the performance of the whole business. Additionally, “Accounting figures do not emphasize the elements which will lead to good or poor future financial results” Wang (2003) Said. Except for taking financial measures to tackle those troubles, the company had begun to pay close attention to some non-financial factors that influenced its survival and development, and by improve these deficiencies to perfect the performance and financial conditions of the company (Miller, 2000).
 
3.2 Overview of balanced scorecard performance management system
 
On the one hand, balanced scorecard performance management system depends on the historical evolution of performance management systems in the past century; on the other hand, it relies on the arrival of the information society. The performance management system for the information society has raised many new requirements, which is an inevitable certainty for balanced scorecard performance management system.
 
3.2.1 The birth of balanced scorecard performance management system
 
With the rapid development of the global economy and the increasing severity of market competition, survival of the enterprise environment is undergoing dramatic changes. In order to accommodate to this change, more and more enterprises are paying attention to performance management, hoping to effectively manage the organization and staffs at all levels through setting up a set of comprehensive and scientific performance management system, and ensuring the successful implementation of the strategy and the objectives (Kaplan and Norton, 1996).
 
Finance scholars who devoted themselves to the implementation effect of performance management systems through an empirical studies found that: compared with the enterprises which did not implement performance management system, the enterprises which paid attention to the implementation of performance management system were much superior in the financial performance; and on the same home enterprise is concerned, there was a greater change of financial performance after implementing performance management (Motowidlo, 1994).
 
The so-called performance management system, as its name implies, is the system of managing organization and employees’ performance. The key to understand its definition is to have a clearly demarcation of the meaning of performance. Up to now, there are three views on performance in the field of academic. In accordance with the order of evolution, they are as following:#p#分頁標(biāo)題#e#
 
(1) Viewed as an output theory. It argued that performance is the eventual behavior of effect of the organization and staffs. Performance management system based on this view mainly focuses on results management;
 
(2) Viewed as a behavior theory. It argued that performance is a series of behavioral characteristics of organizations and staffs which lie in the process of completion and implementation of performance targets. Performance management system from this perspective mainly focuses on the process of behavior management;
 
(3) Viewed as a comprehensive theory. It argued that performance is an integration of behavior processes and outputs results of organization and staffs, and it is not comprehensive to only stress any single aspect (Otley, 1999). Performance management system from this perspective not only focuses on outputs and target completed degree, but also on the management of target completed process. This makes the enterprise to implement its planned target in a correct and more natural way.
 
Corresponding to the evolution of the meaning of performance, performance management systems also had undergone a development process of historical evolution. In this process, performance management transits from the initial results management gradually to process management, and organically combines the two and eventually they would be integrated into long-term development strategies of the company.
 
In this context, Professor Robert S. Kaplan from the Harvard University proposed the balanced scorecard in 1992 on the basis of the successful implementation of performance management system in twelve large-scale enterprises. Balanced scorecard performance management system is a new type of performance management system, organically combining the static results (financial indicators) with the dynamic behavior of processes (non-financial indicators), aiming at overcoming the defects caused by financial indicators for the core of performance management systems and helping companies to improve business performance and stay away from trouble.
 
Through propaganda and application of the balanced scorecard, some companies have begun to regard customer as the centre, constructing market-oriented organization and establishing customer relationship management system; Some companies have started to choose and develop their own core competitiveness or reengineer their businesses; Some companies have converted to focus on strategic human resource management and gradually integrated the performance management system and strategy as a whole. From the evolution process of performance management system, it can be seen that each factor is critical to business. Factors as the finance, quality, customer, core competitiveness, process, human resources and system, each plays an important role in enterprise value creation processes while each only represents an integral part of management activities and process (Kaplan and Norton, 1996).#p#分頁標(biāo)題#e#
 
According to Kaplan (2001), the most basic purpose of performance management for a company is to maintain a continuous and excellent performance, so enterprises should pay attention to every aspect in the process of performance management. If certain aspects of the performance management are not properly covered, they will hinder the enterprise strategy to achieve its long-term objectives. Therefore, the enterprise must stand in the height of the strategy and take a comprehensive view to select measures.
 
That is to say that enterprise should raise the status of performance management to a strategic level.
 
3.2.2 Significance of balanced scorecard performance management system
 
As mentioned above, the balanced scorecard that uses the non-financial indicators to remedy deficiencies of the financial indicators is the latest development of the enterprise performance management system (Kaplan and Norton, 1996). Like other management mode, balanced scorecard system is an inevitable production when the productivity has developed to a certain stage and the society evolved attained a certain degree. In other words, performance evaluation and balanced scorecard system is the ultimate outcome of the information society. It is also a kind of adaptation to the information society, self-improvement and self-development (Porter, 1996).
 
Compared to industrial society, information society is the society with a higher degree development of information, industry, technology and resources. It has three main characteristics, summed up "3Cs", which include customer, competition and change (Porter, 1996). That means information society is based on the buyer’s market and the customer plays a core role in the market. Competition in the industry society has gradually shifted into the information society, the content and the method of competition has increasingly diversified, competition degree is increasingly fierce (Kaplan and Norton, 2001). Thing are always changing in the information society. The management environment is also experiencing an unprecedented change. Innovation has become an inevitable choice for enterprises to survive and develop. Specifically, performance evaluation and the balanced scorecard system is the outcome of the information society (Porter, 1996). Reasons are mainly reflected from the following two aspects:
 
On the one hand, in the information society, traditional performance management with financial indicators cannot meet the requirements of the successful implementation of the enterprise strategy. Enterprises are facing larger numbers of uncertainty environment factors which require enterprises to respond quickly, establish conductive development strategy, and modify and improve on the existing strategy timely in order to enhance internal and external environment adaptability. After developed the right strategy, the next task is to implement it. The implementation of the strategy requires an effective performance management system that differs from the traditional. This is because traditional enterprise performance management system is mainly dependent on the financial indicators for management. Although financial indicators can be quantitative and maneuverable, its methodology development has been quite mature. There are still many insufficiencies in practice as follows: first, financial indicators are laggard and focus on ex-post evaluation, which can only tell the enterprise whether the adopted strategy are successful or creating value. It can neither inform the enterprise what factors contributed to the success of the enterprise strategy, nor predict which aspects should be perfected and improved in the future (Porter, 1996); second, it is impossible to include some important qualitative indicators and non-monetary quantitative indicators for financial indicators are monetary indicators, and thus cannot provide managers with strategic information that is vital for management and decision-making. Taking deficiencies of the traditional performance management system into consideration, it is unable to meet requirements of the strategy for successful implementation, so it needs to be improved.#p#分頁標(biāo)題#e#
 
On the other hand, in order to win the competition in the information society, enterprises must have the ability to develop intangible assets, and establish the appropriate performance evaluation indicators and management system to assess ability of creating value for intangible assets (Porter, 1996). In this case, managers should start to look for the key factors to increase enterprise value, while continue to strengthen the management of tangible assets. Their attentions are gradually transformed to the development application and intangible assets management, it is because they aware that the intangible asset can obtain lasting competitiveness and achieve strategic goals for the enterprise. Advantages of intangible assets are as follows:
 
1. Help enterprises to maintain well relationships with customers, gain trust from the existing customers and attract more new customers to expand the market scope, thus improve market share;
 
2. Develop new products and provide quality services according to the different demands of customers in order to meet their requirements;
 
3. Conducive to healthy internal operating process, due to the low cost and high quality of internal process of offering quality products;
 
4. Improve employees' skills and work efficiency, and constantly emphasize the quality of the operating process;
 
5. Improve information system of the enterprise to get sufficient information timely, and adjust strategies to enhance competitiveness.
 
To sum up, the information society not only requires perfect traditional performance management system, but also in return enriches and develops it. Therefore, performance evaluation and balanced scorecard system are proposed. This kind of performance management system attaches importance to the integration of financial and non-financial indicators. On the basis of balancing short-term and long-term interests, it always monitors the implementation of enterprise strategy, avoids mistakes in strategic execution, and thus integrates the performance management into the process of enterprise strategic goal management (Porter, 1996). Meanwhile, it lays special emphasis on the cultivation and management of intangible assets of enterprises, in order to evaluate the capability of creating value for intangible assets with non-financial indicators that have enriched and developed the traditional performance management system.
 
Totally, performance evaluation and balanced scorecard system satisfy the new requirements for the information society, and is the inevitable outcome of the information society.
 
3.2.3 The substantive characteristics of performance evaluation and BSC
 
As a new performance management system that meets the needs of the information society, comparing to the traditional performance management system, the substantive characteristics of performance evaluation and balanced scorecard system are mainly reflected in the following four aspects:#p#分頁標(biāo)題#e#
 
1. Centre on strategy
 
The balanced scorecard performance management system not only provides a new framework, but also offers an idea and method for establishing links between strategic management and performance evaluation system, which is mainly through the combination of CSF (critical success factors) and KPI (key performance indicators) to set the performance management system, and describe enterprise strategic framework (Kenneth, 1992). Through the interaction with four aspects as finance, customer, internal business process, learning and growth, track of the strategic management of the organization could be seen so as to achieve the purpose of performance assessment and strategic implementation and amendment, which are described below.
 
Figure 3-1 the relationship between balanced scorecard and strategy (Kenneth, 1992)
 
From the graph above, it can be clearly seen that strategy is put at the central position of performance management process, and other corresponding performance indicators are decomposed to carry out the enterprise strategies. So, to a certain extent, the balanced scorecard is not only a performance management system, but also a strategic management system.
 
2. Same importance of process management and target management
 
Another essential characteristic is that it pays great attention both to the management of complete level of business target and the management of realization process. In the past, the main financial indicators of performance management systems were focusing primarily on the completion of short-term objectives of management, while ignoring the management process of target realization (Kenneth, 1992). This kind of performance management system tends to give this unit of such a guide, namely, no matter what form it takes, they should be able to complete the objectives and tasks assigned based on it. This orientation will result in business units taking non-affiliated “right” way to accomplish its short-term goals, which will hurt the long-term interests, hinder implementation and adjustment of overall strategy. So, is it right to ignore the degree of completion of the management of the target, and only focus on completing the goal? Is it better to complete “correct process natural produce good results” management?
 
Kenneth said the answer is uncertain. Some scholars found a large number of business process indicators satisfactory; however, the completion degree of goal is unpleasant (Kenneth, 1992). There are two main reasons for this situation: first, the process used to manage indicators is incomplete for describing business activities; second, the process indicators, which are closely related, are not necessarily good indicators of the process which can generate fairly good results.
 
Based on this, a good performance management system should equally emphasize both process management and management by objectives (Kenneth, 1992). On the one hand, the balanced scorecard performance management system has managed the objectives through the financial aspects of the indicators; on the other hand, the targets for achieving the process of the chain of causation were set based on non-financial indicators such as customers, internal business processes and learning and growth. Besides, it can complete process management, and then reach process management and objective management of the equal effect.#p#分頁標(biāo)題#e#
 
3. The coexistence of financial indicators and non-financial indicators
 
Decided by the traditional accounting assumptions and basic principles, financial indicators inevitably have the defects of lagged, one-sided and short-term (Wang, 2006). By relying solely on traditional financial indicators, the performance management system was unable to adapt to the information society. In the absorption of the original performance management system and based on the advantage of increased customer, internal management process and learning and growth of financial indicators, the balanced scorecard performance management system uses non-financial indicators to supplement the financial indicators in order to compensate for its shortcomings.
 
On the one hand, from the financial perspective, the coexistence of financial and non-financial indicators can help enterprises to keep paying attention on short-term performance; On the other hand, from the non-financial perspective, it clearly reveals how companies achieve their long-term strategic development objectives. In the process of the financial information analysis, the enterprise can also take this opportunity to find out the root cause of dissatisfactory financial performance (Wang, 2006). Because of these financial and non-financial assessment indicators that derived from corporate strategic goals, they can work as a future financial performance drive.
 
4. Balance between short-term and long-term goals
 
Some enterprises are not good at the analysis of internal and external environment. Based on the analysis of their own strategic objectives, they used to look into the short-term business goals. For some other enterprises, they are generally able to create the right strategic objectives, and clearly know in what way the enterprise should be managed. However, they failed to transform strategy into concrete actions and break long-term strategic goals down to short-term goals. Since the Balanced Scorecard performance management system uses non-financial indicators and the chain of causation, it can help companies find the key factors that leaded to its success (CSF) and the corresponding key performance indicators (KPI). Thus, companies can manage to determine the long-term strategic goals which are not divorced from reality, feasibility. Through the chain of causation, it will break down long-term goals into short-term goals, which does not deviate from the long-term goals.
 
So when the enterprise completed short-term goals through the decomposition of the top-down management, it is virtually a closer step to long-term strategic goals. Therefore it can be concluded that the balanced scorecard performance management system overcomes a single short-term financial indicators and its one-sidedness, to give consideration to the short-term and long-term targets, and keep the balance between the two.
 
3.2.4 The cause-and-effect analysis on BSC#p#分頁標(biāo)題#e#
 
The background of the emerging of the BSC determines the cause and effect of internal relationships among its four aspects. One of key purposes of the BSC is to clearly define a development strategy through identifying the aims formulated by higher managers (Norreklit, 2000). The purpose is designed to familiar people with those aims so as to understand relationships among them. Through analyzing causes and effects of all these aims, further development strategy can be established accordingly. Besides, such causes and effects analyses is the first step of implementing the BSC. All aims are produced through using the method to combine appropriate hypothesis or result factors with the leading factor that drives the performance (Norreklit, 2000). Besides, on whichever aspect of the four points, at least one or several performance indicators should be intermingled into those aims. Although the financial aim is usually hypothetic as a result assessment factor, the design should take financial aims and requirements as starting-points. And then orderly finish the other cause and effect analysis to realize the former key financial aim in the other three aspects. In addition, the results of different indicators may also occur at different moments (Norreklit, 2000).
 
According to Qin (2009), by examines the causality critically, because the effect can only be presented empirically but not be inferred in a cause-and-effect issue, it should be pointed out that the relationships among measures tend to be logical rather than causal. Moreover, Norreklit pointed out that there would not be a delay between when the cause occurred and when the effect happened if the BSC measures the cause-and –effect issue at the same time (Norreklit, 2000). Additionally, “the causality is used when breaking strategies into measures and maybe not still old when the logic is reversed” (Qin, 2009). By taking the relationship between customer satisfaction and profit as an example, Norreklit (2000) proved that “profitability is neither a necessary outcome nor a highly possible one of customer satisfaction, it depends on financial calculus”. Kaplan and Norton (1996) said that when the reliability of the cause-and-effect issue was mentioned, the BSC is regarded as a strategic feedback system, and it could modify the causality inlaid in strategy.
 
Additionally, some empirical critics also should be thought. According to Kaplan and Atkinson (1998), When the BSC is showed as a single strategy, the quantity of the measures, which becomes irrelevant, could be incorrect as exceeding measures lead to over-complexity of the causality. This argument was also considered by Schneiderman (1999): “The cause-and–effect assumptions are indeed unreasonable to some extent, probably because the BSC, especially the causality is poorly defined”.
 
3.3 The problems and solutions in performance evaluation and balanced scorecard system
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3.3.1 The limitations of the BSC performance evaluation system
 
A comprehensive and effective ideal model which combines long-term development strategy and daily operation and management of enterprise also has some theoretical and practical limitations as follows:
 
1. The central assumption of cause-and-effect relationship
 
1) Some authors questioned the theory of the central assumption. Norreklit pointed out that time-lag between cause and effect in Cause-and-effect relationship exists. But the cause and effect happen simultaneously in the Balanced Scorecard, and there is no time dimension in the whole system. In addition, different results of indicators may also occur at different moments (Norreklit, 2000).
 
2) The relationship of indicators in the Balanced Scorecard is not clear, the analysis focused mainly on the causation of the last two parts, namely the improvement of customer satisfaction and improvement of financial results. Norreklit criticized that this relationship should be a logical relationship rather than causation; because it can only be reached by reasoning and cannot be verified by empirical work (Norreklit, 2000). lttner and Larcker proposed that the relationship between customer satisfaction and accounting and stock market performance also depends on the situation of the industry (lttner and Larcker,1998). Laitinen also believed that there are problems in the selection of four dimensions of the Balanced Scorecard and their relationship is so close in practice (Laitinen, 2005).
 
2. Strategic management tool
 
1) The Balanced Scorecard handled external stakeholders’ relationship in a dissatisfactory way. Atkinson (2006) pointed out that the balanced relationship of companies’ activities among various stakeholders is not clear.
 
2) The Balanced Scorecard failed to deal with internal stakeholders. Its difficulties rooted in the aspects of the staff, for the process of implementing the Balanced Scorecard is controlled by top managers while local employees are meant to respond rather than take initiative actions. It is uneasy for the top-down model to respond to the varying environment.
 
3. Other shortcomings
 
1) Balancing the cost and benefit is required when developing and applying the BSC
 
It costs a lot to develop the most suitable BSC and applying it.
 
2) Major difficulties lie in setting aim and weight for each dimension
 
Some indicators such as employee satisfaction are hard to be measured. Therefore, Jensen (2001) thought that, only with the clear weight of each indicator can the BSC be balanced.
 
3) The application range of the BSC is limited
 
Meanwhile, the compatibility of the BSC is not controllable, and it may create conflicts with the original management tool.
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3.3.2 Recommendation on improvement of the BSC
 
In the background of economic globalization, adoption of the BSC leaves much to be desired. As for the significance and limitations of the BSC, solutions and suggestions are put forward as below:
 
1. Evaluate the feasibility before carrying out the BSC in a business unit. This enables the company to conform to the fact as much as it can, and thus obstruction can be avoided or eliminated.
 
1) Never underestimate the costs on management and operating that brought by the BSC. Under this kind of condition, full length of mental preparation must be made and it is vital to understand that the investment can be drawn back through improving the financial indexes.
 
2) A wholesome enterprise culture, a perfect management system, and an advance information system are the basic conditions to successful implement the BSC. So it is necessary to examine those qualifications before implementation. Make sure the process is going to improve the transparency of the organization and the flexibility to change. Therefore, all levels of managers and other staff should keep the BSC ideas in mind and practice them routinely.
 
3) Another main factor is to make sure that there are enough supports from top managers. It is not enough to make the implementation of the BSC only Human Resources Manager’s responsibility. Because balanced scorecard increases the transparency of management, some managers will resist it for they feel threat.
 
2. Combine the BSC with other management systems such as the KPI, 360-degree evaluation, the MBO and stakeholder theory, etc., and integrate them into the management activities. The theories are not incompatible, but oppositely, they may be complementary for each other. Therefore the right combination helps to avoid weaknesses and make the system more comprehensive. For example, the BSC does not take all shareholders into consideration, while the stakeholders’ theory can make up this defect.
 
Improve the CSF and KIP of BSC regularly to make it fit for the enterprise. With the improved CSF and KPI, the BSC will be easier to put into use and gain better results. In a word, each enterprise must develop the BSC by combining it with its distinctive characteristics and superiority.
 
Chapter4 the construction of balanced scorecard performance evaluation system
 
4.1 The construction of balanced scorecard performance evaluation system
 
In order to overcome weaknesses and theoretical limitations of the traditional performance evaluation system, new performance evaluation techniques and methods need to be introduced. In contrast, the balanced scorecard ideas and tools have the characteristics of forward-looking, strategic, and balancing (Wang, 2006) . It can diagnosis and solve problems in a deeper level and reconstruct the enterprise performance evaluation system. This study uses the balanced scorecard theory as the guiding ideology, combining it with KPI, MBO and other theories, to help enterprises to construct a performance evaluation system with strategic orientation and execution, to maintain a sense of balance among various evaluation indicators, and to assess the overall and the individual workable. This evaluation system is known as the Balanced Scorecard performance evaluation system.#p#分頁標(biāo)題#e#
 
There are plenty of questions over this kind of system. How effective is the balanced scorecard performance evaluation system? Is the system a combination of corporate strategy and financial and non-financial assessment method? Can the system improve the enterprise’s financial status, and finally give the enterprise a blueprint for the future and the target of the strategy? The idea of establishing an effective balanced scorecard performance evaluation system is based on the company’s long-term development strategy. In accordance with its inherent requirement (the chain of causation), four dimensions of strategic objectives through the process of can be set up, including finance, customer, internal processes and learning and growth (Schuler, 1990). Then through definition and description of the strategic goal in the corresponding critical success factor (CSF) and key performance indicators (KPI), and change the qualitative assessment of the strategic objectives into specific indicators (KPI), then construct a balanced scorecard performance evaluation system, which is the coexistence of the core target indicators and process indicators “the integration of non-financial indicators and financial indicators, and the combination of long-term and short-term indicators, the aspects of overall and comprehensive important evaluation indicators” (Schuler, 1990).
 
4.2 Preparations for construction
 
Before starting to build the balanced scorecard, the enterprises should firstly conduct feasibility analysis based on the enterprise’s basic situation, and then determine the suitability of promoting the BSC performance evaluation system. Next, the right people should be chosen to promote and dissemination the BSC performance evaluation system in the enterprise, increasing awareness and reducing resistance.
 
1. Feasibility analysis of application
 
Relative to the previous non-systemic performance evaluation, the balanced scorecard is a more advanced system (Schuler, 1990). Therefore its effective implementation requires some environment prerequisites and basic conditions. Usually, concerning the existence of chaotic situation, urgent affairs such as inconsistent views among enterprise managers and focuses on performance management, restructured development emphasis, and bad financial situation, need to be handled by managers immediately. It is unreasonable to pin the hope on introducing a new performance appraisal system and wish all these bad situations to disappear. Because in this case, it will not lead to success with fundamental changes of performance evaluation system and some contradictions will intensify the contradictions.
 
Therefore, according to Schuler (1990), feasibility analysis needs to be conducted after determining the designer of balanced scorecard performance evaluation system and before introducing and constructing it, in order to assure that the environmental conditions and enterprise conditions are suitable for the implementation of balanced scorecard performance evaluation system. The feasibility analysis of construction and implementation of balanced scorecard performance evaluation system are mainly aimed at the ten following questions:#p#分頁標(biāo)題#e#
 
1) Whether the enterprise managers have recognized that the existing performance evaluation system was flawed;
 
2) Whether the enterprise managers are willing to improve the performance evaluation system actively;
 
3) Whether the condition of the enterprise is stable;
 
4) Whether the working atmosphere is harmonious;
 
5) Whether the enterprise understands the demands of customers well, and did the company adapt to the changing market and know its position in the market clearly;
 
6) Whether the corporate strategic objectives are clear;
 
7) Whether the enterprise is familiar with the business operation process, organization structure and the relationships of various departments;
 
8) Whether the enterprise have enough resources for improvement of the performance evaluation system;
 
9) Whether the other aspects of the reformation are conducive to the improvement of the performance appraisal system enterprise at present;
 
10) Whether the information feedback system is in perfect condition to fulfill top-down and bottom-up communication.
 
Only when the above ten problems are answered with relatively satisfactory results can the designers consider to construct and implement the balanced scorecard performance evaluation system. Otherwise, the results may not be very satisfactory (Schuler, 1990).
 
2. Choose personnel to design and promote balanced scorecard performance evaluation system
 
If the enterprise intends to build the balanced scorecard performance evaluation system to improve performance and financial situation, the first thing is to choose the right person to construct balanced scorecard (Kaplan and Norton, 2000). According to the founder of the balanced scorecard Kaplan and Norton’s experience, they believed that the design personnel should be clear and familiar with the framework and theory required to successfully establish the balanced scorecard, and in the meanwhile has certain powers of management. In General, designers should be designated by the senior managers who are responsible for strategy formulation, strategy planning, business development, quality management or the finance management.
 
3. Training and promoting the balanced scorecard theory and thought
 
After the feasibility analysis of the construction and implementation of the balanced scorecard, the next important work is to propagandize the balanced scorecard in an organized way in the whole enterprise. The main consideration is to regard the balanced scorecard as a set of strategic performance evaluation system rather than just something that relates to managers or one department (Kaplan & Norton, 1996). All departments and employee performance will be integrated into the balanced scorecard performance evaluation system. Only by involving all related personnel can they truly understand the balanced scorecard, and sincerely support the establishment of balanced scorecard performance evaluation system. This is very important to the successful implementation of it.#p#分頁標(biāo)題#e#
 
Generally, promotion of the system can be divided into two levels. One is to spread the importance of establishing the balanced scorecard at all levels of management of the enterprise, obtaining a consensus and support on this issue. That is because managers at all levels are main executors to implement the balanced scorecard (Kaplan & Norton, 1996). With the balanced scorecard as the core, the formation and implementation of the strategy is relying on united forces of all levels of management. If managers don’t understand or unwilling to participate in the construction of the balanced scorecard, they will keep on focusing on the short-term financial goals, ignore the strategic intention of balanced scorecard. In the end, the balanced scorecard can’t successfully be established.
 
Second, it is vital to propagandize the balanced scorecard to all employees in the enterprise to gain their understanding and support (Kaplan & Norton, 1996). The emphases of the propaganda mainly are: 1). pay attention to the basic knowledge of publicity, let employees know what is the balanced scorecard; 2). Inform them of the main purpose of the implementation of the balanced scorecard performance assessment, enhance the understanding of business strategy, and make them to know their position of the enterprise strategy clearly. After the propaganda, it can motivate them effectively, stimulate their enthusiasm and creativity, and eventually create a solid foundation for the realization of the enterprise strategic target.
 
4.3 Construction module Balanced scorecard performance evaluation system
 
The construction of balanced score card performance evaluation system is divided into five modules: determine enterprise development strategies, develop CSF and KPI, figure out the weights of indicators, and establish personal balanced scorecard evaluation form, implementation and evaluation (Kaplan & Norton, 1996). Through combining those five modules, the design and implementation of balanced scorecard performance evaluation system can be completed.
 
1. Determine the enterprise development strategy
 
Before this module, we shall know that the balanced scorecard is not a strategy formulation system, but a strategic management system that is responsible for the formation of strategy implementation, feedback and revision. Kaplan, an expert in management, believes that strategy is the implementation result of the outcome of motivation cause-effect relationship between a series of assumptions (Kaplan & Norton, 1996). Therefore, it needs a clear business strategy at this stage of constructing balanced scorecard performance evaluation system. First of all to strengthen the strategic management and then the series of assumptions need to be addressed to specific causality chain.
 
The establishment of the causality chain may help the enterprise transform its strategy accurately into a series of evaluation indicators of the balanced scorecard. Meanwhile, it helps to convey the enterprise strategy smoothly to the subordinate unit and employees, and changes enterprise strategy target accurately into subordinate unit and staff, keeps consistent among them, and then affects their behavior, which is conducive to realize enterprise strategy direction.#p#分頁標(biāo)題#e#
 
There are two kinds of indicators for causality chain, results indicators and process indicators (Kaplan & Norton, 1996). Results indicators are used to measure results, usually reflects a strategic financial indicators. The process indicators are more tactical. They exert important impacts on final performance which was reflected by result indicators and enable the enterprise to know the likely outcome.
 
In the balanced scorecard performance evaluation system, the causality chain exists throughout the process. It can be further subdivided into two kinds in a whole. One is the internal factors causality chain of the balanced scorecard, and another is the chain among the various factors.
 
1) Causality chain among the various factors
 
The causality chain of the balanced scorecard first exists among various factors. The balanced scorecard of an enterprise contains four dimensions as finance, customer, internal business and learning and growth. The following figure illustrates the causality chain among the four dimensions:
 
Figure 4-1 Causality among the various factors of the balanced scorecard (Malina & Selto, 2001)
 
The causality chain among the various factors of the balanced scorecard describes the main line of the enterprise strategy.
 
It can see from figure 4-1 that the enterprise’s strategic goal is to improve the return of investments. If the enterprise wants to achieve this goal, it should adopt the expanded income and drive factors to expand the revenue to improve customer satisfaction and loyalty. Therefore, these two indicators became the main indicators from customer’s perspective.
 
Similarly, in order to improve customer satisfaction and loyalty, enterprise needs to improve product quality, condense production cycle, and improve delivery efficiency. The internal business improvement requires staff to have a high level of knowledge and business process improvement abilities, so these two indicators constitute the main content of learning and growth perspective.
 
2) The causality chain of internal factors
 
Causality chain exists not only among the factors, but also in the internal factors (Malina & Selto, 2001). Suppose a company designed non-financial indicators of the balanced scorecard from learning and growth perspective, the factors basically include staff training expenses, employee skills, employee satisfaction, employee motivation, employee retention and employee productivity and so on. The causality chain of these indicators as shown in Figure 4-2:
 
Figure 4-2 the causality chain between internal factors (Malina & Selto, 2001)
 
This causality chain indicates that if an enterprise increases staff training expenses, employee skill level will be improved and satisfaction will also be increased, then employee motivation and retention enhance, and that will lead to staff production efficiency.#p#分頁標(biāo)題#e#
 
Based on causality chain of the balanced scorecard, the enterprise can assess and monitor the implementation of corporate strategy and find the weak point quickly and accurately in the process of implementation through learning from the assessment of process indicators (Malina & Selto, 2001). Thus it can be improved to ensure the smooth realization of strategic objectives.
 
2. Develop CSF and KPI of all levels
 
The center step or module to construct the balanced scorecard performance evaluation system successfully is to develop the business critical success factors (CSF) and the key performance indicators (KPI). The key success factors (CSF) is the qualitative description to a strategy that plays the decisive role in the success of an enterprise. The Key performance indicator (KPI) is a quantitative indicator and an effective performance evaluation tool, usually expressed as a percentage or ratio, which can measure the CSF.
 
Suppose that the strategy of an enterprise is to provide high quality products, strategic objectives was set to enhance the supervision of the production, the strategic key success factors (CSF) is the product quality, the strategic key performance indicators (KPI) are defective products rate, return times. The relationship between CSF and KPI is shown in Figure 4-3.
 
Figure 4-3: the relationship between CSF and KPI
 
Qin (2009) thought that the application of the CSF and the KPI makes strategic objectives of the enterprise accord with the actual strategy and can be measured, and also makes the company’s strategic objectives controllable. If the indicators of measurement and evaluation strategy for the implementation of the targets were not included in the performance appraisal system, then the company will not know whether its strategic objectives are fulfilled.
 
According to Wang (2006), the CSF can be divided into two categories: one is to track achieved goals or key business activities results, which is often called the results CSF; the other one is the track of achieved targets or critical business activities that are key to the CSF, which is often referred to as process CSF. Determined by the essential characteristics of the balanced scorecard, the results CSF and process CSF must be applied at the same time. Usually, it will use at least a result CSF, at most two process CSFs and the corresponding KPI to measure the strategic goals. General, businesses are run by multiple departments or affiliates to ensure the smooth realization of strategic objectives. Business goals will be broke down to each level, and to carry out the responsibility to the departments and agencies. Correspondingly, the CSF and the KPI also need to develop classification Wang (2006). According to its target, CSF and KPI can mainly be divided into three categories: one is the company-level strategic CSF and KPI, the second is departmental CSF and KPI and the third is the operating system CSF and KPI. Figure 4-4 shows how to develop the CSF and KPI under the frame of BSC:#p#分頁標(biāo)題#e#
 
Figure 4-4 how to develop the CSF and KPI under the frame of BSC
 
1) Corporate strategy
 
Corporate strategy is a concerned of the entire enterprise, serving as direction and blueprint of its future development (Qin, 2009). For every company, their corporate strategy, tasks need to be accomplished and missions require to be fulfilled should all be clearly defined.
 
Process of the strategy planning will not be described in this essay, but attentions should be drawn to the fact that top managers should collect business-related information through various channels, try to listen to the views of the subordinate units, and give subordinate the opportunity to participate in the formation process of the corporate strategy, so that the strategy is consistent with the actual situation. Qin (2009) claimed this lays a good foundation for the smooth implementation of communication of the future strategy.
 
2) Strategic objectives
 
Strategy is usually abstract. A series of strategic objectives are needed to make the strategy concrete. The so-called strategic objective refers to achievements of business activities so as to realize the corporate strategy (Qin, 2009). Compared with strategy, strategic objective is a concrete concept that can be measured and predicted. By forming one or more strategic objectives, companies will understand what measures and means should be taken to implement the strategy. In the process of constructing the balanced scorecard performance evaluation system, the strategic objectives cannot be confined to the traditional financial dimensions, but according to Kaplan (1996), it should be based on the internal logic of corporate strategy (causality chain) to establish its strategic objectives from four dimensions as the finance, customer, internal processes and learning and growth. For example, a company lists the following four strategic objectives according to the mission and strategy: (1) high growth (the financial dimension); (2) customer as the center (customer perspective): (3) focus on cost (internal process dimension); (4) personnel effectiveness (learning and growth dimension).
 
3) Strategic CSF and KPI
 
Strategic CSF and KPI are developed according to the strategic objectives, which mean that each strategic objective generally has their corresponding CSF and KPI. The strategy in the process of development of CSF and KPI, all members that involved in the development of corporate strategy and strategic goals should actively participate to prevent the strategic CSF and KPI separating from strategic goal (Qin, 2009).
 
Take the above strategic objectives of corporate financial dimension “high growth” for example, the results CSF of the strategic objectives is the sales growth (rate). The key factor to achieve strategic objectives successfully is to pay close attention to the sales growth (rate) of the company who can develop appropriate KPI through the CSF. However, according to Atkinson (2006), results CSF is not enough, it also needs to define the process CSF to achieve sales growth in the process of planning and monitoring. According to the actual situation it should be identified as “successful new products”, they can develop appropriate KPI through the process CSF. The steps can be expressed in Figure4-5:#p#分頁標(biāo)題#e#
 
strategic objective: High growth
 
Results CSF: Sales growth (rate)
 
KPIDefinitionReport times
 
sales growthSales difference between Current and previous periodMonthly
 
Market shareThe change of the market shareQuarterly
 
Process CSF: Successful new products
 
KPIDefinitionReport times
 
New productsThe number of new productsQuarterly
 
New product salesNew product sales ratio of total salesMonthly
 
Successful new productsSuccessful new products accounted for the proportion of the total number of new productsYearly
 
Figure4-5 the development of Results CSF and Process CSF
 
4) Sectional objectives, sectional CSF and KPI
 
The above strategic objectives and strategic CSF and KPI are applicable for the whole enterprise. As a company is more or less constituted by different business units and departments, so the corporate strategic objectives might need to be broke down and adopted to business units and departments, or even to the specific objectives of specific employees. In this way, it can be taken as a starting point to develop the CSF and KPI of departments and employee, and to implement the balanced scorecard performance evaluation system smoothly (Qin, 2009). When changing the corporate strategic objectives into specific department objectives, special attentions should be paid to the consistency of corporate and department strategic goals and make sure they were generated from the strategic goal of the company. And develop the sector-specific goals with the specific functions of various departments and the actual situation. This is mainly because of the fact that goal is “the guidance of action” (Kaplan and Atkinson, 1998, pp28). Inconsistent objectives will inevitably lead to inconsistent actions. Failure is unavoidable if the whole enterprise is not working towards a common goal. Business management departments should continue to monitor whether the objectives are in consistency with the overall strategic objectives (Atkinson, 2006). If not (or no longer qualifies), departmental objectives must be reformulated to ensure the company's strategy synergy.
 
The completion of the department goal can be monitored and tested by departmental KPI and CSF. Take the R&D department of an enterprise as an example, firstly, to break strategic goals into the department goal top-down, then according to the department’s target, to develop the sector CSF and KPI, the development process with a flowchart as follows in Figure 4-6:
 
Figure 4-6: development of sector CSF AND KPI
 
From the Figure 4-6, it showed that corporate strategic objectives aim to develop products with more humanization, and then break them down into departmental goals “to strengthen enterprise technology innovation research” according to specific functions of the research and development department. The internal logical consistency between the department and enterprise strategic target is that strengthening technological innovation research is vital to develop more humanistic products (Atkinson, 2006). Associated with the department goal, two key performance indicators as new products sales and new product (the proportion of total product) can be used to monitor the completion of the objectives.#p#分頁標(biāo)題#e#
 
5) Critical business activities, operational CSF and KPI
 
In addition, Qin (2009) pointed out that the enterprise also focused on monitoring the critical business activity. The so-called critical business activities refer to the business activities that enterprise has to do in the daily operation, regardless of the corporate mission and strategy. If the critical business activities are out of the question, the enterprise survival will be faced with challenges, let alone the strategy implementation. The critical business activities are monitored by operational CSF and KPI. The following Figure 4-7 will demonstrate how to develop the operational CSF and KPI.
 
Figure 4-7: how to develop the operational CSF and KPI
 
Each enterprise shall reasonably utilize resources to avoid products of high price, and then affect sales and profits of products. Therefore, the effective use of resources and improvement of the production efficiency are the enterprise’s critical business activities. Furthermore, in order to realize effective use of resources and improve productivity, it must make full use of the performance of existing assets that constitutes the CSF of critical business activities. The KPIs such as machine utilization and people utilization efficiency can be used to measure and monitor the CSF.
 
3. Determination the four dimension of BSC and the weights of indicators
 
The corporate strategic focus will be different when the enterprise is in a different life cycle. The four dimensions of the balanced scorecard and its corresponding weight and priority indicators should also be changed (Atkinson, 2006). In order to determine their importance, various aspects and the importance of each indicator should be compared throughout the survey, and then values should be assigned to individual indicators, and finally calculate weights of each indicator.
 
4. Establish personal balanced scorecard with MBO
 
KPI focuses on establishment of networked indicators system, and indicators can also be carried out on individuals by adopting the approach that each person develops his target according to the indicators. How to manage these indicators combined with the people? How to achieve the goals set by these indicators that the KPI technology does not address? Odiorne (1965) stated the MBO is a management technology which is concerned about the goal and realization process of objectives, view results and to promote development, growth, goals to workers. During the decomposition of balanced score card to employee level MBO can be used to carry out the KPI indicators, as shown in Figure 4-8.
 
Figure 4-8 Performance evaluation system management
 
After scientific decomposition of enterprise strategy and strategic objectives, through development of enterprises and departments of the CSF and KPI and determination the weight, a balanced scorecard performance appraisal form that is applicable to individuals can be established under the guidance of the MBO (Qin, 2009). It is based on the guiding ideology of the BSC method, exploded four dimensions with the KPI method, and applied by the MBO. It shows as the table 4-1.#p#分頁標(biāo)題#e#
 
Table 4-1 personal balance scorecard performance form
 
Position Jobs Numbers
 
Name Performance period
 
perspectivesKPIMeasurement ObjectivesCalculation methodWeightsData sources
 
Financial
 
Customers
 
Internal business
 
Learning and growth
 
5. Implement and evaluation on the balanced scorecard performance evaluation system
 
After establishing causality chain, developing the KPI and the CSF, and setting up employees of the BSC performance evaluation form, it is time to begin to implement the balanced scorecard performance assessment system.
 
The main work to implement balanced scorecard performance evaluation system includes the following:
 
1). Convert the KPI target into the operation plan and allocate resources for the realization of the KPI through the budget;
 
2). Measure the KPI regularly, and report results;
 
3). Compare the results with the target (plan or budget value), analysis the reason, and pay attention to combine the reward system of enterprise with the evaluation indicators, which can ensure the smooth implementation of evaluation system.
 
In addition, “the process of the implementation of the balanced scorecard is actually a process of revising and improving continuously” (Qin, 2009, pp 163). Managers do not hold the opinion that the balance scorecard performance management system can put into use only if it is constructed perfectly, because change does exist all the time in the information society, even at the time it was the perfect design. However, after carrying out, it maybe not fitting anymore due to changes of goals of CSF and the KPI, and development conditions.
 
So, it is a right approach to make up the defects of the balanced scorecard through practicing. After using the balanced scorecard over a period of time, it needs to assess the situation of implementation and evaluate the effectiveness of this system. The assessment may lead to the adjustment of strategy, target, causality chain, CSF and KPI, KPI target, report form, and etc., which makes it more conducive to the development of the enterprise. Evaluation also should be done regularly, at least once a year, and the best interval is to do it every year in the process of strategic planning, so that the balanced scorecard can be “in accordance with business strategic plan” (Qin, 2009,pp 172).
 
The implementation of balanced scorecard performance management system is not isolated. It has to be combined with the enterprise control management system and the integration of strategy formation, objectives, the budget management, variance analysis, and punishment and reward management feedback.
 
Chapter 5 Case Study：Application of BSC in American Chemical Bank#p#分頁標(biāo)題#e#
 
5.1 Background Information
 
“The American Chemical Bank is the fourth largest bank in Michigan, with total assets for $3 billion; it has 129 branch offices throughout Michigan. The bank is in operation of the retail banking for individuals, namely savings, financial and credit business.” (Wang, 2006)
 
1. The background and reasons of introduction of balanced scorecard
 
In the 20th century, it was the time when retail bank in United States were in fierce competition. Over the past ten years, banks in United States reduced from 14,000 to 10,000, which are expected to boost from 4,000 to 5,000 at the beginning of the 21st century (Markham, 2002). The formation of such a situation is mainly for the following reasons: (1) lower-interest rate; (Wang, 2003) (2) savings to other non-bank institutions (such as mutual funds); (3) changing of customers' needs who start to demand banks to adopt new technologies to provide services through a new channel, a new way and or a new project. Besides, traditional service mode of market share is shrinking; (Wang, 2006) (4) in order to cater to the needs of customers, banks need to offer a lot of investment and increase the operating expenses, which will undoubtedly increase the management risks of the enterprise.
 
2. Reunification of the bank’s strategic objectives
 
Facing the above situation, Chemical Bank’s top managers recognized the need of urgent transformation (Wang, 2006). Specifically, the retail bank must shift the traditional business model of emphasizing effective collection and savings into market-oriented model. So it was turned into a financial services enterprise that can provide financial services for customers. Looking for a suitable strategy implementation tool will be the first job for senior managers of the Chemical Bank. Ted Frank Williams was the director of Chemical Bank. By the middle of 1992, he took part in a week-long training about the balanced scorecard (Markham, 2002). According to Wang (2006), after understanding the basic concept and satisfying with the balanced scorecard, he immediately realized that the balanced scorecard can make the strategic objectives clearly, which was consistent with four aspects as the finance, customer, internal business process, learning and growth. He then accurately broke them down into the departmental goal and personal goal to have an appropriate measurement. It was found rather a useful method for reformation of the Chemical Bank. After getting aware of this, Frank William authorized Tony, a deputy manager of strategic plan and the finance department, to lead the intermediate managers to establish the balanced scorecard for the Marketing Department in New York (Wang, 2006).
 
5.2 Chemical Bank’s Balanced Scorecard
 
1. Set the goals in the four aspects of BSC first
 
The team led by Tony in working process has realized that it was hard to push the executive standard into the top managers only by the group of intermediate managers. If they wanted to successfully establish and develop the balanced scorecard, participation and support from the general manager Michael and other senior managers were needed. “In May 1993, Michael attended the meeting of introducing the balanced scorecard. He was sure that the balanced scorecard would help the bank to establish the cultural shifts that he wanted. However, other senior managers of banks held a skeptical attitude toward it” (Wang, 2006).#p#分頁標(biāo)題#e#
 
David P. Norton, one of the authors of the balanced scorecard, also attended the meeting (Wang, 2006). He explained the balanced scorecard in details to senior managers. Through the explanation, everybody in meeting agreed to implement the balanced scorecard. The group of the balanced scorecard construction was divided into four subgroups; each of the subgroup was responsible for determining its corresponding objectives and targets according to the corporation strategy (Markham, 2002). In October 1993, the four aspects of the balanced scorecard strategic goal were all been created, specifically as follows (Wang, 2003):
 
? To improve the ability to use money and to make wealth. (Financial perspective)
 
? Take the customers as the center; convert the relationships between customer and profit. (Customer perspective)
 
? Improve the management efficiency and effectiveness. (Internal operation perspective)
 
? Create an organization with strong capability. (Learning and growth perspective)
 
2. Developing the corresponding CSF and KIP
 
After setting the goals, the next task was to develop the corresponding CSF (Critical Success Factors) and the KPI (Key Performance Indicator) for all aspects of the strategic objectives:
 
In the financial aspect, the strategic goal which the Chemical Bank determined is to improve the enterprise’s ability to use funds to create wealth (Markham, 2002). This strategic goal mainly aimed at the current situation of increasing operating costs in substantial investment which were coping with competition, to introduce a combination of high cost, high value and high return activities, and enhancing rate of return of each dollar. After completing this goal, the typical reflection in finance was the improvement of the efficiency of costs. Therefore the strategic goal of the CSF is cost effectiveness whole the corresponding KPI is cost rate of return. According to Wang (2006), in order to achieve this goal, the bank must succeed in the following key aspects: to increase income and to reduce costs and risks. Therefore, the strategic goals of the CSF were income growth, lower cost and risk reduction, while the corresponding KPI goals were enhancing income growth rate; savings service costs, paying business coverage rate, and etc.
 
In the customer aspect, the strategic goal of the Chemical Bank is to take the customers as the center, to convert the relationship between customer/profit, increase the number of customers and proportion of profit (Markham, 2002). Associated with the strategic objectives, the result is that the CSF focused on customer satisfaction and market share, while the corresponding KPI focused on customer satisfaction degree and market share rate. Accordingly, this strategic goal of CSF was customer retention, new customer acquisition, customer profitability, service quality and etc. The corresponding KPI were customer retention rate, new client acquisition rate, customer profitability and the times of customer complaints.#p#分頁標(biāo)題#e#
 
In terms of internal management, the strategic goal was to improve the efficiency and effectiveness. Associated with the strategic goals, the results were that CSF was per capita sales and per capita sales profits; the KPI was per capita sales income and per capita sales profits. Accordingly, this strategic goal of CSF were new product income, target customers, distribution and service efficiency and so on. The corresponding KPI were share of new products income, per capita income from sales of new products, new product market development, distribution channel combination, service pattern, service time and so on (Markham, 2002).
 
In terms of learning and growth, strategic goal that Chemical Bank established was to create an organization with capability (Wang, 2006). Associated with the strategic goals, the results were that CSF was employee satisfaction and employee ability. The corresponding KPI were employee satisfaction degree and employees work efficiency. Accordingly, this strategic goal of CSF was information system, employee training, and reward system and so on. The corresponding KPI was information processing and response time, information coverage ratio, employees training days, etc.
 
After confirming the results and CSF and the corresponding KPI for every strategic objectives, it should also formulate the definition of the KPI, this is a very important part of work. If you can’t make a high-quality and accurate definition, the Chemical Bank cannot be accurate and efficient enough to measure CSF in the balanced scorecard (Wang, 2006).
 
Based on the above results, the implementation of the balanced scorecard in the Chemical Bank can be explained in the table below:
 
Table5-1 Chemical bank balanced scorecard
 
strategic goalsCSFKPI
 
Financial perspective Ability to improve the use of funds to create wealthcost effectivenessreturn on expenses
 
Increase income; income growth rate
 
reduce costsavings service costs
 
reduce riskpay business coverage rate
 
Customer perspective
 
Customer-centered; convert the relationship between customer/profit.customer satisfaction customer satisfaction degree
 
market sharemarket share rate
 
customer retentioncustomer retention rate
 
new customer acquisitionnew client acquisition rate
 
customer profitabilitycustomer profitability
 
service qualitythe times of customer complaints
 
Internal operation perspective
 
Improve the management efficiency and effectiveness.per capita salesper capita sales income
 
per capita sales profitsper capita sales profits
 
new product incomenew products income, per capita income from sales of new products#p#分頁標(biāo)題#e#
 
target customersnew product market development
 
Distribution and service efficiencydistribution channel combination, service pattern, service time
 
learning and growth perspectivecreate a capable organizationemployee satisfaction employee satisfaction degree
 
employee abilityemployees work efficiency
 
information system reward systeminformation processing and response time, information coverage ratio
 
employee trainingemployees training days
 
5.3 The application effect of the balanced scorecard
 
After a series of application work, such as the reunification of the bank’s strategic objectives, development of key success factors and key performance indicators, and setting up of the working group for the implementation of the balanced scorecard, it began to apply the new performance management system inside the bank at the end of 1993 (Wang, 2006). Application of the balanced scorecard for the bank has brought good effects, specifically as follows:
 
1. The balanced scorecard promoted senior managers of the large enterprise to be together
 
The senior managers were clear about the bank’s strategy through active discussion at the meeting. They finally agreed to establish the new performance management system (Wang, 2006). The application of it can unite the bank and enhance its cohesive force.
 
2. The connection between action plan and strategy is accepted
 
With the implementation and application of the balanced scorecard inside the bank, all levels of management and staff can see the connection between action plan and strategy, which is beneficial to the strategic communication and for carrying out results.
 
3. Success factors which played decisive roles
 
Since the key step of establishing the balanced scorecard is to develop CSF and KPI, in this process, bank regulators begun to discuss matters of the bank’s business success factors that play decisive roles. The bank started to pay attention to the process indicators as well as results indicators by establishing performance drivers and key links in management (Wang, 2006).
 
4. The causal relationship between the financial goals and operation indicators
 
There is a causal relationship chain within the balanced scorecard. Its application in the bank makes people know and understand the causal relationship between the financial goals and operation indicators, which make people focusing on the causal relationship from the starting point of the chain and analyzing the problems. This shift means that banks began to focus on long-term goals, and not just to emphasize short-term performances, thus combined the short and long term goals effectively.
 
5. Effective communication
 
The application prompted top-down and bottom-up communication of the bank, ensured the correctness of decisions and actions of banks, and enhanced its competitiveness. Although the application of the balanced scorecard for bank brought many good effects, it cannot be applied straightforwardly without altering (Yin, 2004). Banks are constantly adjusting and improving the content and the balanced scorecard indicators in order to meet the bank’s actual situation.#p#分頁標(biāo)題#e#
 
5.4 Recommendation
 
This chapter takes the Chemical Bank who succeeded for example, uses the previous theory to prove the application of balanced scorecards, and demonstrates profound changes that the theory brought to management process of the enterprise. System execution and employee behaviors will also be included in details with an example. Case of the Chemical Bank helps to illustrate the module and the specific operating steps of the BSC performance assessing system. From the case we can find that the BSC performance assessing system is helpful for the company to obtain stronger core competitiveness, and it is of certain reference value and practical significance for other enterprises that are going to establish the performance evaluation system.
 
In a word, through analyzing the example of application of balanced scorecard in the Chemical Bank, we can learn that:
 
1. Through the process of understanding, accepting and setting up the balanced scorecard in the Chemical Bank, one of the vital factors is participation and support from the senior managers. Practice has told us that consistent understanding and unity of thoughts from managers have a positive effect on the establishment and implementation of the new performance management system. Therefore, the promotion of the enterprise balanced scorecard is a very important part of the job.
 
2. It was more than one year for the Chemical Bank to set up the balanced scorecard. In the process of implementing, the balanced scorecard also was in constant revision and complement, which showed that the reformation and improvement of performance management system is not an easy task. It takes time and requires joint efforts of the whole enterprise. Especially for the people who are directly responsible for designing and establishing the balanced scorecard, on the one hand, they need to understand the corporate strategy; on the other hand they need to clear enterprise business processes, and combine them together through the balanced scorecard.
 
3. In the process of implementation balanced scorecard, the Chemical Bank found that there is a gap between the target in the design and the reality, which influenced the effectiveness of the implementation of the balanced scorecard (Markham, 2002). So the premise of the balanced scorecard to play an active role is to guarantee the accuracy of contents and indicators, which requires the enterprise to have a perfect information feedback system to provide all kinds of useful and accurate information, to make the enterprise adjust strategy, target, decision-making, key success factors (CSF) and key performance indicators (KPI) according to the information (Wang, 2006).
 
4. Enterprise must have clear vision and strategic objectives. According to Wang (2006), only with clear vision and strategic objectives can the management team be persuaded to reach a consensus; moreover, it helps the BSC to be promoted better.#p#分頁標(biāo)題#e#
 
5. The measure indicators must be set closely according to the company strategy, and the number of the measure indicators must be proper.
 
6. Designating a suitable project leader to promote and supervise the program and implement the adequate training and communication. Only by doing this can the BSC be brought into force effectively and can the staffs be able to take an active part.
 
Chapter6 Conclusion
 
The thesis analyzes the study of performance evaluation in domestic and overseas markets firstly. It summarizes the shortcomings of the traditional performance management in enterprises and expounds the process of the application of the BSC. Through analyzing examples, the thesis summarizes their experiences and supplies some useful suggestions. This dissertation tries to find out preconditions and strategies for domestic enterprises to apply the BSC more effectively, basing on the analysis of the major practice problems.
 
As discussed in the paragraphs above, we may draw the conclusion that only by establishing a reasonable target management system and the performance appraisal system can the enterprises have a more clear understanding of their own development and future goals (Kaplan and Norton, 2001). The balanced scorecard as the main body of the performance evaluation system can help us to better grasp the strategic intention of enterprise (Norreklit, 2000), and it can be faithfully reflected in the case of the Chemical Bank, which can help enterprises to carry out right business plans and enable them to tackle key problems within limited time and budget, and therefore pursue maximum benefits (Wang, 2003). Through the analysis of the performance evaluation of the Chemical Bank, it put forward the significance of applications of the BSC.
 
In conclusion, balanced scorecard has become more and more popular as a strategic and performance management tool in the business world, gradually replacing other systems and becoming the mainstream tool.
 
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