ISBN 978-952-5726-00-8 (Print), 978-952-5726-01-5 (CD-ROM)

Proceedings of the 2009 International Symposium on Web Information Systems and Applications (WISA09)
Nanchang, P. R. China, May 22-24, 2009, pp. 206-209

Study on Balanced Scorecard of Commercial

Bank in Performance Management System
Yansheng Zhang1, Longyi Li2
1,2

South China University of Technology, Guangzhou, China

1
Zhang.ys01@mail.scut.edu.cn
2
lyli@scut.edu.cn

AbstractPerformance management of commercial banks is

an important aspect of banking business management. this
paper makes study about how to use the Balanced
Scorecard as a tool, which is applied to commercial banks
performance management system, and points out that it
breakthrough the defects in the traditional single
application of financial indicators which measures
performance. And it raises the value of performance
management appraisal system based on the introduction of
customer factors, internal business processes, employee
learning and growth and financial factors. This paper also
makes study about the commercial banks in the
performance of the Balanced Scorecard Management
System mechanism, the strategy of application, application
limitations, and outlook on the future of commercial
banking services model based on the above points.

meet the banking needs of strategic development.

Specific performance:
Put emphasis on the financial indicators, and
ignore the non-financial indicators. Traditional
performance management ignored the nonfinancial factors, with the result that the
conclusion can not be fully reflected the overall
operations of the bank. At the same time,
financial indicators can only reflect the
performance of banks in the past and does not
reflect the bank's future operating conditions.
Put emphasis on internal evaluation of operating
conditions, while neglecting external factors. In
the rapid and complicated changing of business
environment, banks are facing with challenges
from the external environment. If the banks did
not correctly analyze the external environment
and reflect what it is during the process of
performance management, banks can not give an
accurate analysis of their own strengths and
disadvantages, it can not understand the
opportunities and threats facing either, so it is
difficult to win in the fierce competition[3].
Put emphasis on traditional assets, and neglet
intangible assets. Bank of fixed assets are
important, but the banking sector is a knowledgeintensive industries, and financial knowledge,
intellectual resources and other intangible assets
of banks are more important.

Index TermsBalanced Scorecard, commercial banks,

performance management

I. INTRODUCTION
The introduction of performance management of
commercial banks have some important roles in the
commercial banks. Since the Balanced Scorecard was
invented in 1990s, it was received a wide range of use
and promotion in the global business community, and
some of the major international banks have successfully
used the Balanced Scorecard, which makes its
performance increase greatly. China Domestic banks
should learn from successful experience of international
large banks, and establish a comprehensive performance
evaluation system which meets self-demanding[1].
In recent decades, in the context of constant innovation
of global financial products, especially in the United
States in 2008 financial crisis triggered by global
financial turmoil, how to manage the banking
performance effectively? In response to this problem and
the current problems of commercial bank performance
management, this paper makes research about how to use
the Balanced Scorecard as a tool, which is applied to
commercial banks performance management system[2].

. BALANCED SCORECARD AND PERFORMANCE

MANAGEMENT SYSTEM OF COMMERCIAL
BANKS
A. The basic content of the Balanced Scorecard
BSC (balanced score card,)was presented in the
"balanced scorecard: a good performance evaluation
system",by Harvard Business School professor Robert S.
Kaplan and the rejuvenation of the Global Strategy
Group's founder and president, David P. Norton Balanced
Scorecard showed the great vitality since it appeared. It
can effectively help enterprises give solution on two
major problems: performance evaluation and the
implementation of the strategy. In 1,000 companies in the
world which "Fortune" magazine published, 70% of
which used the Balanced Scorecard system; "Harvard
Business Review" sees it as the most influential strategic
management tool in 75 years.

II.THE PROBLEMS IN PERFORMANCE

MANAGEMENT OF COMMERCIAL BANKS
In the rapid development of financial markets,
commercial banks are facing with intense competition.
The traditional performance management appears to be
inadequate in how to measure all-round performance to

2009 ACADEMY PUBLISHER

AP-PROC-CS-09CN001

206

financial success in organizations must be

translated into the ultimate success. Only to
translate the improvements of product quality,
time to omplete orders, productivity, new product
development and customer satisfaction into
increased sales, reduction of operating cost and
improvement in asset turnovercan bring benefits
for the organization.

Balanced Scorecard is a new ideas in performance

management and apply to the department's evaluation
team. Its core idea is implementation of organizational
strategy tool, which through finance, customer, internal
processes and learning and development indicators in
four are to show a relationship between the organization's
strategic track to achieve performance appraisal performance improvement, as well as the implementation
of the strategy - the strategic objectives process of the
strategy amended, and raise the status of performance
appraisal organizations to the strategic level[4].

C. Bank of the value of performance management system

evaluation system
Based on the above, commercial banks Bank of
evaluation index system based on the Balanced Scorecard
performance management is divided into four angles:
customers, business processes, financial and enterprise
sustainable competitive edge. Figure 2 lists the four
indicators, as well as its sub-index[5].
With the evaluation index, it is necessary to determine
the weight of the indicators. In general, the indicators will
be between the weight of significant differences in order
to avoid the average weight distribution ratio. But in
general the indicators weight not more than 30%, which

B. The application model of Balanced Scorecard in

performance management system
Balanced Scorecard is not only an indicator of
appraisal system, but also a strategic management system.
The use of the Balanced Scorecard breaks the traditional
single-use financial indicators methods which measure
performance.It adds the future drivers in the financial
indicators, which is customer factors, internal business
processes and employee learning and growth. They are
said in Figure 1 above.

financialbenefits Information technology brings to the company

customer
benefits Information technology
brings to the customer

Information system performance:

Efficiency improvement which
Information systems for the bank

Internal business
benefits Information technology
brings to the internal business

learning and growthbenefits Information technology brings to growth of company

Figure 1. Mutual relations of BSC

to prevent the emergence of "putting emphasis on the

large and deregulating the small" which means the
smaller of the weights of indicators are not concerned
about into the situation , which leads the examination
results to lose their impartiality.

Customers. The managers confirm the

competition's customers and market segments
which the organization will take part in, and turn
the goal into a set of indicators. Such as market
share, customer retention rate, the rate of
customers, customer satisfaction, customer
profitability level.
Internal business process. In order to attract and
retain the target customers and meet the
requirements of shareholders about financial
returns, managers need to focus on customer
satisfaction and those internal processes, and
establish measurable indicators. In this regard,
BSC is not only paying attention to a simple
process to improve the existing operators, but to
confirm the request of customers and
shareholders as a starting point, and to satisfy
customers and shareholders.
Learning and growth.It confirmes an investment
which the organization must be carried out in
order to achieve long-term performance in the
future, including the ability of employees,
organization information system and so on. The

D. Balanced Scorecard performance management in

commercial banks System Mechanism
When it develops BSC, the commercial banks should
turn organizational and operational strategies into a series
of objectives and measurable indicators. At this time,
bank manager needs to re-examine and modify the
strategy, and BSC provides the opportunity and means of
communication about business strategy on the specific
meaning and the implementation. At the same time,
because the process of the strategy formulation and
implementation of the strategy is an interactive, the bank
manager can test and adjust the strategy after using BSC
and knowing about implementation of the strategy.
Balanced Scorecard reflects the balance of many
aspects, such as the financial and non-financial measure,
long-term goals and short-term goals, external and
internal, results and the process, and management
207

Deposit and loan business

assessmentGuest structural

Profitability
assessmentExpand the

Improve

assessmentAssessing the quality

employee

of servicesthe development of
electronic banking

engagement
Examination
retention

intermediate business

rate

Raise the level of interest

rates and lending quality
improve cost-efficiency
Strengthen the capacity of
the loan proceeds, and

Market share target number of

obtaining customers Customer
attentionthe growth rate of customer
of
complaint

Innovative
services

Assessment

optimize loan
Employee
SatisfactionStaff
violation rateStaff

customer

violation ratepass
rate of Status

Economic Value

ExaminationThe

Added Bank
profitsThe per

operational capacity

Sustainable
competitive

financial

capital profit

of standard rate
Professional

Non-interest

Development

incomeNet
interest
income

ProgramStaff
training
satisfaction

Business process

Marketing cost
income ratio
Office
expensesLabor
costsLoan

Assessment of new
Product and service innovationNew

products and

products and services revenueThe new

completion of tasks

non-performing loan rate and the rate of

Control newly-issued

increaseThe number of internal

credit riskStrengthen

regulationsResponsibility for the

internal controls

accident rateThe incidence of major

Figure 2.

The four indicators of commercial banks Bank of evaluation index system

Commercial banks should not only focus on

quantitative analysis about the financial profitability,
liquidity and safety but also on effective qualitative
analysis about bank risk control, internal management,
customer service levels when it takes performance
accessment. Qualitative analysis can not be used with
quantitative analysis, but it is exactly what the banks
need to do to safeguard the healthy operation, which
requires qualitative and quantitative analysis to be closely
integrated. Balanced Scorecard can consider such a
qualitative analysis to reveal the potential risks of
operations.
Balanced Scorecard has great foresight for the future
development of the bank, and takes the long-term
development into account, which makes banks have a
high degree of adaptability and long-term strategy when

performance and operating results. Hence it can reflect

the integrated operation of organizations, so that it can
balance and perfect the performance evaluation, and is
conducive to long-term development of the organization.
. THE PRACTICALITY OF THE BALANCED
SCORECARD TO PERFORMANCE MANAGEMENT
SYSTEM OF COMMERCIAL BANKS
In essence the commercial banks are comprehensive,
multi-function financial enterprises which is in terms of
profits and operats financial assets and financial services
as a target. In the current financial innovation would be
difficult to produce differentiated, so the service
relationship is the direction the bank want to lead to. The
Balanced Scorecard can provide support in this regard:

208

Report performance
results

Bank Management Committee

Key Performance Indicators Working
Group

BSC Management Group

Report
Design of key performance indicators
Overall support

Responsible person of BSC

Figure 3.

BSC Support Group

Governance mechanism for the Balanced Scorecard

they are in the face of rapidly changing business

environment.
In addition to taking internal operational process into
account, the external environment factors should be also
considered at the same time, such as the Balanced
Scorecard customer level. By considering the bank's
market share, customer acquisition rates, and customer
satisfaction. It takes market competition factors into the
performance of management, to achieve a more truly
reflecting on the bank's operations and development.
. CONCLUSION
The establishment of the governance mechanism for
the Balanced Scorecard is shown as Figure 3. In the
Balanced Scorecard governance mechanism, it requires
banks to set up bank management committee and sees it
as core. It owns the final right of approval of the
BalancedScorecard framework, content and design of, so
as to ensure the accordance between implementation
point of the business and banks strategy.
The establishment of performance goals assessment
and feedback processes. The process includes two aspects:
First, to understand the strategic objectives
implementation by checking the completion of the
indicators in the Balanced Scorecard system of the banks;
on the other hand, to check the operation of the Balanced
Scorecard in order to balance Scorecard design and
feedback and review processe.
With constantly updating of information technology,
commercial banks will inevitably change in service
model, in order to adapt to the trend of social
development. Of course, that will depend on
improvement of information security technologies, so that
banks can continue to innovative financial products, and
enhance core competitiveness.New model of banking
services is based on the connotation of the knowledgebased economy and oriented in enhancing the traditional
service level of knowledge and cultural grade. and will
promote the services of thinking and mode.

209

To update mode of banking services can broaden the

field of financial services, and improve the quality and
the efficiency of financial services. To achieve innovation
model, it is necessary to improve the "Smile" services,
personal mechanism and incentive mechanism. We
should speed up the reform of financial supervision,
improve the level of financial supervision in order to
adapt to the development of the new banking services
model and respond to changings in financial innovation.
The banking industry should also accelerate the
transformation of service delivery model to accelerate the
pace of mixed services to enhance international
competitiveness.
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