The parameters of CSR are not clearly defined. There is a lack of financial indicators when measuring CSR compared to other assessments. This may affect the results of the study.
c. Measuring social responsibility achievements through the index assessing the level of social responsibility information disclosure
According to this method, the index measuring CSR performance is assessed by the level of CSR disclosure in corporate reports. This index assesses the information published related to social issues in the mass media of the enterprise (Wu, 2006). It can include a simple number of words, lines or sentences related to social information, or the quality of information analyzed in the Sustainability Report, or the annual report of the enterprise. Content analysis has been used by Ullmann (1985); Patten (1991); Roberts (1992); Gray et al. (1995); Hackston & Milne (1996); Tsang (1998); Ruf et al. (2001); Deegan et al. (2002); Velde et al. (2005); Murray et al. (2006); Fiori et al. (2007); Lu & Abeysekera (2014), Rahman & Blake (2021).
This measurement method has the advantage of being quite simple to implement, and the data source is easy to collect because business reports are often widely published. Data can be collected over many years, which is convenient for analyzing chain data (panel data). This is the basis for assessing the impact and relationship of CSR to other quantities in the long term, helping the analysis to be more accurate. However, the content analysis method does not truly reflect the CSR achievements in cases where some CSR activities are carried out but not published.
Thus, through the synthesis of previous research documents, the method of measuring CSR through activities demonstrating CSR of enterprises can assess the implementation of CSR comprehensively and accurately. In the case of Vietnam, the disclosure of CSR is regulated in Circular 155/2015/BTC, however, the published contents are still quite simple, not reflecting CSR activities. Moreover, the disclosure of CSR is often of interest to listed joint stock companies. For
For other types of enterprises, this issue has not been paid attention to. Therefore, it is necessary to conduct research to measure CSR by surveying and collecting opinions from relevant parties to reflect the reality of CSR activities in Vietnamese enterprises.
1.2. Business performance
1.2.1. Concept
Performance measurement system plays an important role in organizations because it affects the success of organizations and is a source of information to convert financial information into internal business activities. Usually, financial information sources are provided in balance sheets, income statements, and cash flow statements (Yeniyurt, 2003). Organizations also use ratios as a method of evaluating financial performance. To achieve their goals, organizations mainly depend on performance measures to control and improve processes and compare departmental performance and evaluate employees. Reviewing previous research literature, although performance is a vague and difficult-to-define term (David, 1999), some authors have proposed concepts of performance.
Previously, performance was simply viewed as business efficiency, which is the comparison between output and input factors to evaluate labor productivity and business profits (Georgopoulos & Tannenbaum, 1957). Developing with the need for management, the concept of performance expanded, not only stopping at evaluating business efficiency but also paying attention to the ability to access resources and use resources effectively to improve the management process (Yuchtman & Seashore, 1967). In the 80s and 90s, researchers were interested in many different aspects of business operations, so the concept of performance continued to expand in scope and content. Business performance is the overall result of using financial and non-financial resources such as customers, innovation, internal production processes, or the environment.
employee work... to ensure the interests of businesses and information users (Adam, 1994).
From the concepts of performance, many discussions about the performance measurement system of an enterprise have been given. Kaplan (1984) defined a performance measurement system as an information system that aims to provide financial information to help management make decisions. In this statement, Kaplan was mainly concerned with financial information. Later, Marshall et al. (1999) gave a more general view of the performance measurement system that is to identify and develop indicators and collect data to describe, report and analyze performance. Giving a definition related to the components, methods and procedures of implementing a performance measurement system, Lohman et al. (2004) stated that the performance measurement system includes:
- A performance indicator is a variable that represents the effectiveness or efficiency in a quantitative way or both, of a part or the whole process or system of defined indicators and goals.
- Performance measurement is the activity of measuring results and performance using indicators.
- A performance measurement system is a system (software, databases, and procedures) that implements measurements consistently and completely.
In a transitional, internationalized economy, performance focuses on the capacity and ability to exploit existing resources such as finance, human resources, innovation, creativity, meeting customer needs... to achieve business goals and strategies. Performance is the result of using financial and non-financial resources to evaluate business efficiency and compare with the goals of the enterprise, aiming to ensure the interests of stakeholders (Lebans & Euske, 2006). Performance is "dynamic", with a causal relationship expressing current activities that can affect future results. Therefore, performance evaluation must consider leading and trailing indicators; at the same time
timely, providing useful information for managers in analyzing and forecasting business performance (Omar & Zineb, 2019).
1.2.2. Development of performance measurement system
Ghalayini & Noble (1996), Alosani et al. (2020) indicate that the development of performance measures goes through two stages:
- The first stage began in the late 1880s and lasted through the 1980s. During this stage, the emphasis was mainly on traditional financial metrics such as profits, productivity, and return on investment.
- The second phase began in the late 1980s arising from the market changes. Organizations began to face high levels of competition through quality and low cost. Therefore, organizations began to change their strategic priorities to cope with the high levels of competition. Organizations also began to implement new techniques in technology such as Just in time (JIT) and Total Quality Management (TQM). During this phase, organizations began to use non-financial indicators to evaluate performance such as quality, time and delivery, and flexibility.
Kennerley & Neely (2002) emphasize that many organizations have redesigned their performance measurement systems to ensure that they reflect their business environment and strategy. Therefore, the next section will discuss corporate performance measurements.
1.2.3. Measuring business performance
a. Measuring financial performance
Financial performance is assessed by measures in the form of information expressed through monetary units, indicators - results from calculation methods. Therefore, these measures can be defined as performance measures expressed in monetary figures (e.g. profit, budget, ROI, market share), providing financial information. Most organizations rely solely on financial measures to determine managerial and economic performance such as profit, income (accounting), budget (Hoque & James, 2000; Neely, 1999, Matar & Eneizan, 2018). In a similar context,
Chenhall & Langfield-Smith (1998) point out that financial performance measures are of primary importance in many countries. For example, in the UK, a survey of the use of performance measures by board members and executives in 77 manufacturing companies found that financial measures such as capital and financial returns were of primary importance (CIMA, 1993).
The limitations of financial measures relate to an excessive focus on the short term through the use of measures such as profits, without considering long-term performance measures such as quality and customer satisfaction. Short-term financial measures based on accounting information are no longer adequate predictors of performance for manufacturing firms (Kaplan, 1984). In addition, other researchers have pointed out some limitations of traditional financial performance measures in the 1980s and early 1990s. Some of these limitations include the following:
- Financial performance measures are based on traditional management accounting systems. In fact, this traditional system encourages managers to focus on minimizing direct labor costs while ignoring other costs (Kaplan, 1983).
- The diversity in production strategies used by firms such as quality, flexibility, and customer satisfaction cannot be controlled or monitored using only traditional financial performance measures (Ghalayini & Noble, 1996).
- Traditional financial performance measures are lagging indicators because they are not useful for management accounting reports and performance evaluation (Eccles, 1991).
Furthermore, financial performance measures are not suitable for organizations to seek and improve competitive advantage (Neely et al., 1995; Cantele & Zardini, 2018). Traditional financial performance measures focus on past information such as revenue reports last week, last month or last year. Meanwhile, managers need predictive information about the future.
Another argument is that financial measures exclude non-financial information (Anthony et al., 1997; Cardinaels et al., 2010). Ittner et al. (2003) argued that traditional measures do not consider the cost of capital or external environmental factors. Wouters et al. (1999) argued that information on current earnings or other financial indicators only partially measure the impact of past and current performance. Other researchers such as Martinsons et al. (1999); Nørreklit (2000) have acknowledged that financial measures do not measure intangible assets.
In summary, Ghalayini & Noble (1996), Dmour et al. (2018) classified the limitations of financial performance measurement into two main groups: detailed and aggregate. Detailed ideas apply to specific performance measures such as productivity, costs or profits. Aggregate ideas apply to all traditional performance measures, these limitations are: (1) rely on traditional management systems and cost accounting systems, (2) provide information about past performance, (3) not integrated with business strategy, (4) not suitable for all different levels in the organization, (5) not useful to meet customer needs, (6) many improvements are difficult to quantify in financial information.
b. Measuring non-financial performance
To keep up with the changes in the business environment and develop appropriate operational strategies such as changing job characteristics, increasing competition, innovation initiatives, changing organizational roles and external demands, and the development of information technology (Eccles, 1991), managers need to apply new performance measurement methods. According to Otley (2001), the development trend is moving from a historical perspective to a future-oriented perspective, from control to planning, from an internal perspective to an external perspective, from cost to value, from production to marketing communications.
Kaplan & Norton (1996) assert that firms should exploit intangible assets such as high quality products, skilled employees and customer satisfaction. These factors help firms in the following activities:
- Develop customer relationships, retain customers or build customer loyalty and facilitate serving new customers effectively and efficiently.
- Introduce innovative products and services.
- Produce high quality products and services at low cost and short delivery times.
- Mobilize employee skills and motivation for continuous improvement.
- Development of information technology, databases and systems
Along with the new challenges facing organizations, the importance of using non-financial performance measures has been emphasized by researchers. For example, since the 1980s, Kaplan (1984) pointed out that non-financial performance measures of quality, productivity, delivery capability, and flexibility are needed to cope with global competition.
Non-financial performance measurement is the evaluation of information based on non-monetary units and indicators. The use of non-financial measures from the need for activity-based measures stems from the origins of management accounting systems.
Ittner & Lacker (1998) suggest the following reasons for using non-financial performance measures: (a) perceived limitations in the use of traditional financial measures, (b) increased competitiveness, and (c) implementation of other programs such as Total Quality Management.
Additionally, Medori & Steeple (2000) summarize the following advantages of using non-financial performance measures:
- Metrics are more timely than financial metrics.
- The measurements are easy to measure and accurate.
- Metrics that are meaningful to the workforce to help drive continuous improvement.
- Measures are aligned with the company's goals and strategies.
- Measurements are flexible and can change over time to suit changing market needs.
Other researchers have argued that non-financial measures are proposed as a means to overcome the limitations of traditional financial performance measurement methods (Eccles, 1991; Ittner & Lacker, 1998; Kaplan & Norton, 1992; Dobrovic, 2018).
These differences were identified and summarized by Ghalayini & Noble (1996) as Table 1.1.
Table 1.1. Comparison between traditional and modern performance measurement
Traditional performance measurement
Modern performance measurement | |
Mainly based on traditional accounting system system | Mainly based on business strategy career |
Mainly used for financial measurement | Mainly use non-financial measures |
Aimed at senior and junior managers central | Towards all employees |
Time-lagged index (weekly) or monthly) | Timely index (hourly or daily) |
Complex, confusing and misleading | Simple, accurate and easy to use |
Leads to employee frustration | Leads to employee satisfaction |
Not usable in production | Can be used in production |
Fixed format | There is no fixed format (depending on demand) |
No change between different locations each other | Change between different locations |
Unchanged over time | Changes over time as needs change change |
Aim for control of results | Aiming to improve results |
Not suitable for JIT, TQM techniques, FMS, … | Fit |
Impedes continuous improvement | Help continuous improvement |
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Source: Ghalayiniand Noble (1996), p. 68