within the company. This stratification will be carried out according to each aspect. For example, the financial aspect at the company level has a target of revenue growth, when decentralized down, it can be specified into domestic revenue (belonging to the domestic business department), export revenue (belonging to the export department). Domestic revenue can be further divided down to each market area and to each individual or group in charge, etc.
1.2. The development process of the balanced scorecard theory
1.2.1. History of formation and development
In 1990, the Nolan Norton Institute, a division of KPMG, sponsored a study on a new measurement system. David Norton was a consultant and CEO of Nolan Norton, and Professor Robert Kaplan was the head of the research team at Harvard Business School. Research from many different companies showed that relying solely on financial metrics could lead to poor decisions. The team tested many solutions and finally settled on the idea of a scorecard, a tool that emphasizes performance measures and captures activities throughout the organization: customer issues, internal business processes, employee activities, and shareholder concerns. Kaplan and Norton named this new tool the “ Balanced Scorecard ” and summarized the results of this research in the article “ The Balanced Scorecard – Metrics That Drive Performance” published in 1992 in the Harvard Business Review [42].
The BSC concept was continuously developed by the authors Robert S. Kaplan and David Norton in a series of subsequent studies. The development of the BSC from a tool for measuring performance to a system for managing strategy implementation began with considering strategy as the center of the performance measurement process. This new performance measurement system used changed the strategic thinking of organizations, moving from short-term financial-related strategies to value-added and customer-oriented strategies. The connection between performance measurement systems and strategy is shown in two articles by Kaplan
and Norton published in Harvard Business Review, “ Putting the BSC to work ”, 1993 [43] and “ Using the BSC as a Strategic Management system”, 1996 [45]. BSC began to be used as a model for basic management processes such as strategy interpretation, communication and linking strategy with the goals of departments and individuals in the organization, business planning, budget planning, resource allocation, managing the strategy implementation process to have timely adjustment activities. This is a major development of the BSC concept from a mere performance measurement tool.
The use of BSC as a strategy implementation management system was demonstrated in the first book by Robert S. Kaplan and David Norton in 1996, “ The BSC, translating strategy into action” [44]. This book is a synthesis of the results drawn from the author's research and experiences related to the BSC concept, and also provides instructions on how to apply BSC. Until now, this can be considered a classic book on applying BSC in strategy implementation.
In the industrialization period, successful companies are those that effectively exploit business scale, using technology to turn raw materials into finished products. However, to be successful in today's information technology era, businesses not only rely on technological level, management level of tangible assets but also need to know how to effectively use and promote intangible assets such as relationships, customer loyalty, marketing ability, suitability of products and services for customers, efficiency of operating processes, skills of employees, etc. These assets are even more important than other tangible assets, mentioned in the BSC model as non-financial factors, combined with financial factors, creating sustainable development of the business.
After studying many companies applying the BSC model, Kaplan and Norton increasingly realized that the BSC is an effective tool for implementing and monitoring the strategy implementation process. To be able to implement the strategy effectively,
To be effective throughout the organization, strategy must be concretized into a series of activities, these activities are linked together by cause and effect relationships. This relationship is called a strategic map by Kaplan and Norton in the article "Having trouble with strategy? Then map it", 2000 [40]. The strategy map plays an extremely important role in the BSC, helping all employees in the organization understand how their work contributes to the common goal, motivating employees to coordinate with each other to work towards achieving the common goal. In a broader scope, the strategy map shows how the organization uses to turn activities, resources, including intangible assets such as organizational culture and employee qualifications, into tangible results.
Today, BSC is widely used in many types of businesses in different industries, educational organizations, medical organizations, non-profit organizations, government organizations in most countries around the world. According to the results of 12 studies by Bain and Company conducted over 16 years in nearly 10,000 companies in 70 countries on the management tools used, the level of use of BSC increased the fastest with an average rate of 14% compared to other management tools [23]
In 2008, according to a survey of 1,400 companies by Bain and Company, BSC ranked 6th in the 10 most commonly used management tools, used in 53% of companies and the average satisfaction level of companies using this tool was 3.83 with the highest satisfaction scale being 5 (see table 1.1).
The industries with the highest levels of BSC usage are chemicals and metals, food and beverages, and consumer goods. The highest levels of satisfaction with BSC usage are concentrated in the healthcare, services, pharmaceutical, and biotechnology industries.
Management tools | Level use | Level dragon |
Benchmarking (management standards) | 76% | 3.82 |
Strategic planning (strategic planning) | 67% | 4.01 |
Mission & Vision Statements | 65% | 3.91 |
Customer Relationship Management (customer relationship management) client) | 63% | 3.83 |
Outsourcing | 63% | 3.79 |
Balanced scorecard | 53% | 3.83 |
Customer Segmentation | 53% | 3.95 |
Business Process Reengineering business) | 50% | 3.85 |
Core Competencies | 48% | 3.82 |
Mergers and Acquisitions | 46% | 3.83 |
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Table 1.1: BSC ranking among the most commonly used management tools worldwide
Source: Darrell Rigby and Barbara Bilodeau, Management Tools and Trends 2009
During the development of BSC, many researchers around the world have tried to develop this model in the direction of promoting its effectiveness in applying it to different fields, types of businesses, geographical areas or countries with different characteristics. However, in general, the research process of applying BSC follows two main directions: (1) applied research in non-profit organizations and (2) applied research in profit organizations.
1.2.2. Research on applying BSC model in non-profit organizations
Review some typical studies: (1) Research on applying BSC in the US and Canadian governments by Yee - Ching Lilian Chan (2004) of Mc Master University, Hamilton, Canada published in The International Journal of Public Sector Management [65] ; (2) Research on applying BSC in the government
Italy and Australia by Federica Farneti (2008), of the University of Bologna, Forli, Italy and James Guthrie of the University of Sydney, Australia published in the Journal of Human Resource Costing & Accounting [26] ; and (3) a comprehensive study of the application of BSC in non-profit organizations in general in Germany (2010) by Dorothea Greiling of the Institute of Management Accountants and Johannes Kepler of the University of Linz, Linz, Austria [25]. These studies show that the BSC model is ineffective in non-profit social service organizations due to the characteristics of the strategic model, the causal linkages and the four aspects that are not suitable for the special environment of social service organizations. This statement is confirmed in the latest research by Eric Kong, University of Sourthern Qeensland, Australia (2010) after analyzing the studies of authors related to the application of BSC in non-profit social service organizations [26].
Kaplan and Norton have acknowledged that the BSC model in non-profit and public organizations is different from that in business organizations because the ultimate goal of the organization is not profit but to bring services according to the organization's mission to the community [46][47]. The BSC model changes in non-profit organizations as follows:
Customer and competitor factors : are the main factors related to strategy that are still shown in the BSC model of non-profit organizations, but the concept of customers and competitors is generally not accepted in these organizations [25]. In the business world, customers are those who buy products or services to satisfy their needs, in the public administration sector, social needs such as roads, schools, public support are mostly paid for by tax money. Both customers and taxpayers are the final consumers and play an important role in evaluating the quality of the products and services they receive. However, the concept of customers is controversial in non-profit organizations, where the beneficiaries of social services are different from the material supporters, usually third parties, such as the Government or donors, who buy the services of non-profit organizations, and the poor, unfortunate, disabled people... are the ones who are
users of the service. Thus, these organizations have service recipients, not customers. Although some have suggested that the BSC model could be applied to non-profit organizations related to health [17] or education [64] because of the many factors related to customers as payers, the application of this model in non-profit social service organizations has not been confirmed.
Causal Linkage : The chain of causal relationships is very important in the BSC model because it distinguishes it from other management models. However, in the context of NGOs, causal relationships are less convincing. Dissatisfied donors will cut funding, forcing organizations to cut services to the less fortunate, reduce staff, and reduce operating costs. On the other hand, satisfied service recipients do not mean that donors will give more money. The customer and donor aspects are placed on equal footing in the BSC model but there is no link between them. This is not in accordance with the principles of the BSC [25]
Consider the external environment : External factors play an extremely important role for non-profit organizations because they depend heavily on funding, volunteers, and community trust [26]. External factors for non-profit organizations seem to be even greater than customers and donors. These factors may include the satisfaction of volunteers, non-profit employees, individual and institutional donors, suppliers, governments, internal and external partners, the media, local communities, etc. Therefore, strategic choices in relation to the external environment of these organizations are more complex than those of business organizations. The BSC model in non-profit organizations seems to be an effective strategic management model for non-profit organizations because it does not consider external factors.
Human resource factor : The issue of human resource in non-profit organizations is perhaps very important because these organizations cannot survive without volunteers and staff. Breaking down the goals in the direction from
The top-down approach of the BSC seems to be at odds with the nature of non-profit organizations in assessing the contributions of employees and volunteers. Following the BSC practices strictly may reduce the ability of employees and volunteers to make decisions and create negative attitudes towards the overall goals of the organization. Furthermore, talented employees may not be interested in joining the organization because they feel that they are not important and their efforts are not recognized under the BSC model [25]. In short, the lack of focus on human resources in the BSC model is inconsistent with the structure and philosophy of non-profit organizations.
Measures : The BSC concept refers to financial and non-financial aspects, which are closely related to each other. Kaplan and Norton suggest that each aspect should have 4-7 measures. Therefore, a BSC can have 16-28 measures. The measures in the BSC model can limit the ability of leaders to take full advantage of useful information for the decision-making process. To solve this problem, many managers focus on financial indicators as performance measures. For example, a for-profit organization may focus on maximizing profits, a government organization may focus on minimizing costs. Non-profit organizations do not have similar financial goals to apply as a means of communicating the products and services they provide, their primary purpose is social rather than economic. Financial ratios are not indicators of the performance of these organizations [25]
The lack of resources in nonprofit organizations is not a shortcoming of the BSC model. But an effective strategic management model in nonprofit organizations must be appropriate to the unique environment in which those organizations operate. The biggest danger in applying the BSC model is choosing the wrong measures, consolidating them into four perspectives, and focusing the organization's resources on the wrong issues. Therefore, the effectiveness of the BSC model in nonprofit organizations is still a big question mark.
1.2.3. Research on BSC application in profit organizations
Unlike non-profit organizations, BSC is widely and popularly applied to profit organizations, more specifically, businesses. Research in this field is also very rich and diverse. Typical examples are studies applying BSC in businesses with the characteristics of different industries or studies in the context of different geographical spaces and national territories.
In 2005, Nigel Evan of Teeside Business School, University of Teeside, Middlesbrough, UK conducted a study on the possibility of applying the BSC model as a management tool in the hotel industry in the UK. The author used a questionnaire to survey and interview. The subjects were medium-sized and high-end hotels, from 3 stars and above in the North East of England, with hotel sizes from 30 to 200 rooms. The results of the study on the application of the BSC model in hotels with a scale of 30 to 200 rooms in the UK showed that most hotels were very interested in measuring daily or weekly operating sales, and measuring actual costs against plans by week or month. In the "customer" aspect, hotels all considered measures related to customer satisfaction, the number of customers complaining at a frequency of at least once a month. Surprisingly, hotels do not pay much attention to comparative measures such as guest reviews, repeat guests, or market share in the area. In the “internal processes” dimension, the measure of response time to customer feedback is of particular interest and is measured monthly. Employee turnover, an important criterion in the service industry, is mentioned but measured less frequently. In the “training and development” dimension , the five performance measures selected are: New markets discovered, employee evaluations, employees achieving goals, number of training courses/employee, number of improvement initiatives recorded. The key performance measures are considered and measured at least quarterly by most companies. The selection of measurement factors