International Journal of Science and Research (IJSR)
ISSN: 2319-7064
SJIF (2019): 7.583
Balanced Scorecard Model in the Banking Sector
Viktorija Stojkovski1, Blagoj Nenovski2
1
Independent Researcher, North Macedonia
stojkovskiviktorija[at]gmail.com
2
Faculty of Law, University “St. Kliment Ohridski” - Bitola, North Macedonia
blagoj.nenovski[at]uklo.edu.mk
Abstract: The performance measurement system aims to keep the individuals and organizational units in the company in line with the
previously established plan. In order to set a long-term strategy of the company that will enable competitive success, it is necessary to
use a tool or approach that will enable performance measurement and will provide a clear picture of the overall operation of the
company for both financial and non-financial purposes. Hence the subject of this research, and that is the Balanced Score Card model,
through which executives in the company use it for communication, information and leraning system. The purpose of this research is
through analytical method to make a descriptive analysis of the balanced score card model, ie its application in the banking sector by
proposing appropriate strategic activities, goals and key performance indicators for each of the perspectives.
Keywords: balanced score card, performance, banking sector, strategy
1. Introduction financial performance, the application of the BSC is
involved in many areas and there is variety of research
"What you measure is you get," said Robert Kaplan and available for its application.
David Norton, noting that organizational systems for
measuring performance strongly influence the behaviour of In the field of banking sector, research has been done from
managers and employees. Lord Kelvin, on the other hand, different aspects, as follows: Tariq, Ahmed, Rafi and
said: "When you can measure what you say and express it Ahmed, S (2014) conducted research on the impact of
numerically, then you can really be sure that you know Balanced scorecard on business performance, based on the
something about it." banking sector and according to them the financial
perspective of balanced scorecard has the most important
Balanced Scorecard as a tool for measuring organizational role of all the performance of the banks, which positively
performance was first introduced to the world public in 1992 contributes to the achievement of the goals set by the bank.
by Robert S. Kaplan and David P. Norton and according to Apart from the financial perspective, their emphasis is also
the Harvard Business Review Balanced Scorecard it is one on setting standards for consumer preferences, which with
of the 75 most influential ideas of the 20th century with their the development of a balanced scorecard model related to
concept reflecting the balance between short-term and long- consumers increases consumer satisfaction. Dave, Sagar and
term goals, but also between financial and non-financial Dave, Swati (2012) conducted research on the application of
measures and between indicators that reflect the past and BSC in the Indian banking sector and emphasized the
future-oriented indicators. importance of the intangible aspects as a tool for measuring
the performance of the banking sector. According to them,
Like all organizations, banking institutions need to find an designing a BSC in the banking sector and its
effective way to align their strategies with corporate goals implementation is not only difficult but also complicated.
based on performance analysis. The structural analysis of the Nevertheless, according to them, BSC is an effective tool
evaluation model that connects the strategic goals becomes that covers the various aspects of banks' performance and
an important issue for the banking institutions if they want helps to understand the complementarities between the
to maintain their competitive advantage (Jafari, Roudabr, various performance indicators for the bank and therefore be
Kamifiroozi, 2013). Given that banks often measure able to more effectively design and implement the strategic
financial performance, omitting non-financial performance process. Al-Najjar and Kalaf (2012) designed a BSC model
which is an important part of their overall operations and for measuring the performance of Large Local Bank in Iraq,
have a direct impact on financial performance, the purpose and their research showed that the bank focused most of its
of this paper is to present the BSC performance financial perspective on measuring its performance, while
measurement framework and strategic map of the four BSC intangible perspectives remained neglected. Ozturk and
perspectives that can be implemented in the banking sector. Coskun (2014) presented the strategic approach to
First, this paper will theoretically address the four performance management in banks using BSC, using
perspectives of BSC and the strategic map proposed by examples from different regions of the world and according
Kaplan and Norton, and then a BSC model for banking to them the successful implementation of BSC consists of 9
institutions will be developed. steps.
2. Literature Survey Jafari-Eskandari, Roudabr and Kamifiroozi (2013) presented
the methodology for linking the key performance indicators
As the Balanced scorecard is a widely accepted management in the so-called BSC strategic map for banking institutions.
tool that enables the measurement of both financial and non- Rostami, Goudarzi and Zaj (2015) define the aspects of BSC
Volume 10 Issue 3, March 2021
www.ijsr.net
Licensed Under Creative Commons Attribution CC BY
Paper ID: SR21325045250 DOI: 10.21275/SR21325045250 1627
International Journal of Science and Research (IJSR)
ISSN: 2319-7064
SJIF (2019): 7.583
in the banking sector, using the FAHP approach, with the 3) BSC financial perspective in the banking sector
first priority being the consumer aspect. Balkovskaya and Because the basic function of banks as financial institutions
Filneva (2016) address the BSC strategic map for banking is to collect money from the population in the form of
institutions using the example of the Russian Regional Bank. deposits and loan approvals and thus appear as
In this research, the key indicators are related in a strategic intermediaries between depositors and loan applicants, in
map which is of great importance when prioritizing the order to make a profit for their shareholders, we started
strategic steps. Zhang and Li (2009) explained in their paper designing the BSC for the banking sector from a financial
how to use BSC as a tool that can be applied in the perspective. Financial measures convey the economic
performance management system of commercial banks and consequences already taken by organizations and focus on
present their governance mechanism for BSC. Wu (2012) profitability measures and according to which shareholders
presented the structural evaluation methodology for linking confirm the profitability of their investments (Al Najjar,
key performance indicators in a BSC strategic map for Kalaf, 2012). Profitability is actually a reflection of the
banking institutions using the DEMATEL method. quality of the bank's management team, their implemented
strategies and policies based on which the bank operates, the
1) The four perspectives of the Balanced Scorecard behaviour of shareholders, as well as the efficiency of their
operations and the ability to manage risks. The income of
Robert S. Kaplan and David P. Norton introduced the the banks, being a source of finance, is especially important
concept of balanced scorecard in 1992, after recognizing the for them to be able to perform their work efficiently and is a
need for companies to develop the ability to use intangible precondition for the future growth of the bank. Better
assets versus the ability to invest and manage physical profitability means better prospect of raising additional
assets. The introduction of this concept did not replace the capital and therefore investors having more confidence in its
financial measures, but only supplemented the process of financial strength.
measuring the performance of companies, so that in addition
to financial perspectives, companies will be able to Table 1: Financial perspective of the banking sector
emphasize non-financial perspectives such as consumers, Strategic Key Performance
Goal
internal business processes and learning and development. activity Indicators - KPI
Increasing the
Return on Equity
utilization of Efficient use of funds
(ROE)
funds
Increasing
Increase profits through interest Return on Assets
revenue
income and commissions (ROA)
opportunities
Reducing the costs of financial
Improving the Net interest
intermediation of the bank and
cost structure margin (NIM)
increasing efficiency
To assess financial performance, among the most commonly
used indicators used by banks are return on equity (ROE),
return on assets (ROA) and net interest margin (NIM).
Return on assets (ROA), as a measure of banks' profitability,
shows the earned profit per unit of assets and is a reflection
Figure 1: The four perspectives of the BSC of the ability of management to use the financial and real
Source: Robert S.Kaplan, David P.Norton, Using the investment resources of the bank to make a profit. Return on
Balanced Scorecard as a Strategic Management System, equity (ROE), on the other hand, reflects the effective work
Harvard Business Review of the bank's management in terms of using the funds
available to them from the shareholders. This indicator
According to Norton and Kaplan, the financial parameters shows the return realized by the bank as compensation for
will increase, if the other performance of the companies is the investment of the shareholders' capital in that bank. If the
improved. If the preferences and expectations of return on assets shows the ability of management to use the
shareholders, consumers, employees, suppliers and society bank's financial resources to make a profit, the return on
are internalized, in the long run the value of shareholders equity shows how successful the bank's management is in
will be optimized. maximizing shareholder wealth. The indicator of net interest
margin refers to the costs of financial intermediation of the
2) Balanced Scorecard in the banking sector bank and its efficiency, which gives an idea of how
In today's business environment, organizations are efficiently the bank is run and what is the yield rate that the
constantly competing to meet the needs of consumers and interest-bearing assets accomplish.
through their satisfaction and loyalty target to make higher
profits. Banks that aim to offer a high level of quality of 4) BSC Consumer Perspective in the Banking Sector
services, but also to offer new products and make a profit Banks customers are their source of profit so meeting the
through efficiency and economy in their operations are not needs of the customers is their ultimate goal. From this
excluded from this competitiveness. Banks, like other perspective, the banks management identifies target
organizations, need to evaluate their performance and assess customers and market segments, and then monitors the
the achievement of their goals. performance of the operating segments' operating units (Wu,
Lin, Tsai, 2011).
Volume 10 Issue 3, March 2021
www.ijsr.net
Licensed Under Creative Commons Attribution CC BY
Paper ID: SR21325045250 DOI: 10.21275/SR21325045250 1628
International Journal of Science and Research (IJSR)
ISSN: 2319-7064
SJIF (2019): 7.583
Table 2: Consumer perspective of the banking sector 6) Learning and development - BSC perspective in the
Strategic
Goal
Key Performance banking sector
activity Indicators - KPI From a learning and development perspective, managers
Increase customer Degree of customer need to identify goals to answer the question "How do we
Quality
satisfaction satisfaction maintain the ability to constantly change and improve to
Availability Increasing market share Market coverage rate achieve our vision?". This perspective actually refers to the
Continuous customer Ability to retain
Service organization employees and measures its efforts to enable
retention customers
the growth and learning of the employees in their domain.
Attracting new New customers growth
Selection According to Kaplan and Norton, the measures for this
customers rate
Increase per customer Realized profit per perspective are the most difficult to choose and they propose
Functionality as measures for this perspective: strengthening the
profit customer
knowledge of the employees, the motivation of the
According to Wu, the key performance indicators that need employees, the abilities of the employees and the
to be included in the consumer perspective for performance capabilities of the information systems.
evaluation in the banking sector are the degree of customer
satisfaction, the market coverage rate that can be obtained Table 4: Learning and development perspective of the
when the sales volume of products and services is divided banking sector
by the total market sales, the ability to retain customers, the Strategic Key Performance
Goal
growth rate of new customers and the realized profit per activity Indicators - KPI
customer that is obtained when the profit after tax will be - Continuous
professional - Number of professional
divided by the total number of customers (Wu, 2012).
development of trainings
Human capital employees - Employment stability
5) Internal business processes - BSC perspective in the - Increasing employee - Number of bonuses and
banking sector satisfaction and rewards per employee
The purpose of this perspective is to satisfy shareholders and motivation
customers through good execution of business processes that Number of employees
Development and
have the greatest impact. In determining the goals and participating in the
Information improvement of
measures for this perspective, it is necessary to incorporate development and
capital information
value chain analysis, as the operating process needs to be maintenance of programs
technology
adjusted to the financial and consumption goals, while (IT)
responding to current and future consumer needs. According Organizational Improving the - Teamwork of employees
capital organizational culture - Knowledge management
to Wu, the internal value chain consists of three main
business processes: innovation, operability and after-sales
service (Wu, Lin, Tsai, 2011). 3. Conclusion and Future Work
The efficiency of the transactions can be seen by the banks From the analysis made for BSC in the banking sector it can
through the average time spent on solving the problems that be concluded that the financial perspective has the most
arise during the transactions, while the clients' significant role of all banks' performance with the greatest
dissatisfaction with their services and products is perceived impact on the other three perspectives and thus is the main
by the banks through the total number of complaints from causal factor. The strategic activities covered by this
their clients (Wu, 2012). perspective are increasing the utilization of funds, increasing
the opportunities for income and improving the cost
Table 3: Internal business processes - perspective of the structure, and the goals of the bank from a financial point of
banking sector view are the efficient use of funds, increasing profits
Strategic Key Performance through interest income and commissions. and reducing the
Goal cost of financial intermediation and increasing efficiency.
activity Indicators - KPI
- Increased transaction efficiency - Transaction
- Improving the efficiency and efficiency The consumer perspective is the main consequence factor
effectiveness of sales - Sales and is most influenced by all the other three perspectives.
Operational - Increased degree of performance The goals set for this perspective are to increase customer
process systematization of documentation - Rationalized satisfaction, increase market share, maintain continuous
management and software forms and
customer retention, attract new customers and increase per
- Increase the effectiveness, processes
efficiency and quality of each of - Performance customer profit.
the goals and routine tasks management
Customer- The perspective of internal business processes aims to
Number of satisfy shareholders and customers and includes three
oriented
Minimize customer complaints customer
process strategic activities, namely operational process management,
complaints
management customer-oriented process management and innovative
Number of new processes, and for each of the activities appropriate goals are
Innovative Innovation of products and
services and set. Thus, for the strategic activity management of
processes services
products operational processes the following goals are set: increased
transaction efficiency, improvement of efficiency and
effectiveness of sales, increased degree of systematization of
Volume 10 Issue 3, March 2021
www.ijsr.net
Licensed Under Creative Commons Attribution CC BY
Paper ID: SR21325045250 DOI: 10.21275/SR21325045250 1629
International Journal of Science and Research (IJSR)
ISSN: 2319-7064
SJIF (2019): 7.583
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[4] Bobáková, I.V, “Raising the Profitability of
Commercial Banks”. BIATEC Volume XI, 2003 p. 21- Dr. Viktorija Stojkovski is a bank officer in NLB
25, Banka AD Skopje and has three years of experience
http://www.nbs.sk/_img/Documents/BIATEC/BIA04_ in the banking sector and is specialized in working
03/21_25.pdf with physical entities. She has graduated at the
Faculty of Administration and Management of
[5] Dave, S, Dave, S, Applying Balanced Scorecard in Information Systems at the University St. Kliment Ohridski, Bitola
Indian Banking Sector: An Empirical Study of the and got a Bachelor of Science in manager- engineer of Information
State Bank of India, Pacific Business Review systems. Later, she has got Master’s degree in Business
International Volume 5 Issue 6, December 2012 Administration and Management at the Faculty of Economics at the
[6] Ефтимов, Љ, Управување со резултати, Економски University St. Kliment Ohridski, Bitola. She holds PhD in
факултет –Скопје, 2013 Management from Faculty of Economics at University St. Kliment
[7] Hassan, M. K., & Bashir, A. H. M. , Determinants of Ohridski, Bitola. Her focus of research is in the field of
Islamic banking profitability., 10th ERF Annual management, business and information systems.
Conference, Morocco, 2003
Blagoj Nenovski, Faculty of Law, University “St.
[8] Ilioska, N, “Analysis of the banks profitability in Kliment Ohridski”, North Macedonia. Dr. Blagoj
Macedonia“, Nenovski is Assistant Professor at the faculty of Law,
http://www.nbrm.mk/WBStorage/Files/WebBuilder_A University “St. Kliment Ohridski” in Bitola. He
nalizanaprofitabilnostanabankite_NadicaIloska.pdf received his PhD with an average grade 10.00 at the faculty of
[9] Jafari, M, Roudabr, N, Kamifiroozi, M, Banks’ Information and Communication Technologies at University “St.
Performance Evaluation Model Based on The Kliment Ohridski” with his thesis on “Application of augmented
Balanced Scorecard Approach, Fuzzy DEMATEL and reality for time related spatial exploration”. He has published and
Analytic Network Process, International Journal od reviewed multiple papers at international journals and conferences.
Information, Security and System Management, 2013, He is Technical Editor and IT Consultant for an international
scientific conference. Blagoj Nenovski is also member at multiple
p.191-200 faculty and university commissions and has designed and
[10] Kaplan, R, Conceptual Foundations of the Balanced developed multiple ICT solutions that have academic
Scorecard, Harvard University, 1992 implementation. He’s fields of interest include: cyber security,
[11] Kaplan, R, Norton, D, Strategy Maps, Harvard cyber safety, legal tech. He is a coordinator at the ICT department
Business School, 2004 for Lawyers.
Volume 10 Issue 3, March 2021
www.ijsr.net
Licensed Under Creative Commons Attribution CC BY
Paper ID: SR21325045250 DOI: 10.21275/SR21325045250 1630
