Measuring the Balanced Scorecard in Saudi Arabian Banks Essay

MEASURING THE BALANCED SCORECARD IN SAUDI ARABIAN BANKS by MEASURING THE BALANCED SCORECARD IN SAUDI ARABIAN BANKS ABSTRACT ABSTRACT The purpose of this paper is to measure the Balanced Scorecard in Saudi Arabian banks. More specifically, the research examines the performance in three different banks and would the Balanced Scorecard improve the productivity. Having critically reviewed the debate on how best to performance measurement, the Balanced Scorecard instrument developed by Kaplan and Norton is selected as the most appropriate tool in measuring the performance.

The main part of this project is based on the annual report for each bank and a survey carried out in banks as well as the analysis and discussion of the results. Based on the results analysis, the emerging strengths and weaknesses of the banks are discussed, followed by a sequence of recommendations as to how Saudi banks could improve in areas that are not up to the market and consumer’s expectations. The various insights gained and the suggestions put forward should result in an improvement in the Balanced Scorecard at Saudi banks.

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MEASURING THE BALANCED SCORECARD IN SAUDI ARABIAN BANKS by 2005 Dissertation submitted to the Bradford University School of Management in partial fulfilment of the requirements of the degree of Masters of Art in Finance, Accounting and Management. PREFACE In today’s highly competitive business environment, the notion of performance measurement has become increasingly important for all types of organisations. This is due to the fact that service and product quality are the means of establishing customer satisfaction levels.

Customer satisfaction, in turn, is achieved through a thorough understanding and appreciation of the customer needs and is crucial to firms if they are to obtain repeat business and generate positive word of mouth communication. Moreover, understanding customer needs as the basis of the design of a new service concept, which is different from competitive offerings, is highly appreciated by target customers and therefore creates a differential advantage. The literature suggests that a growing importance is placed on the measurement of Balanced Scorecard and this importance is reflected in this project.

Knowing how consumers perceive the quality of products and services and how those perceptions affect consumers’ purchase decisions is also an issue the importance of which is further explored in this research. The project went well with the full support from three different banks on the market, providing me with all the necessary material. I am also grateful to Dr. Mohammad Hudaib, my supervisor at Bradford University School of Management, for his speedy replies, all his support and stimulating insights and discussions.

Finally, I would like to dedicate this project to my parents and for all my brothers and sisters; I would like to say big thanks to them for their continuing and enthusiastic encouragement for me to end this important stage in my life. Thanks for the love, care and great upbringing. STATEMENT OF AUTHENTICITY I have read the University Regulations relating to the plagiarism and certify that this dissertation is all my own work and does not contain any unacknowledged work from any other sources. Signed: Date: 5/3/2006 WORD COUNT:18,653 1. CHAPTER ONE: THE INTRODUCTION1 1. INTRODUCTION5 1. 2BACKGROUND OF RESEARCH5 1. 3SAUDI BANKS INTRODUCTION6 1. 4RESEARCH OBJECTIVES7 1. 5RESEARCH QUESTIONS8 1. 6SCOPE OF STUDY8 1. 7OVERVIEW OF RESEARCH METHODOLOGY8 1. 8RESEARCH STRUCTURE9 1. 9IMPORTANCE OF THE RESEARCH10 1. 10SUMMARY11 2. CHAPTER TWO: SAUDI ARABIA ECONOMY12 2. 1INTRODUCTION12 2. 2SAUDI ARABIA OVERVIEW ECONOMY12 2. 3THE OIL SECTOR14 2. 4THE NON-OIL SECTOR15 2. 5THE FISCAL BUDGET16 2. 6TREAD AND BALANCE OF PAYMENT16 2. 7SAUDI BANKING SECTOR17 2. 8JOINING THE WORLD TRADE ORGANISATION (WTO)19 2. 9SUMMARY20 3. CHAPTER THREE: LITERATURE REVIEW22 3. INTRODCUATION22 3. 2HISTORCIAL VIEW22 3. 3THE BALANCED SCORECARD23 3. 3. 1FINANCIAL PRESPECTIVE25 3. 3. 2CUSTOMER PERSPECTIVE30 3. 3. 3INTERNAL BUSINESS PROCESS33 3. 3. 4LEARNING & GROWTH36 3. 4THE BALANCED SCORECARD AS STRATEGIC MANAGEMENT SYSTEM41 3. 5STRENGTHS AND WEAKNESSES OF THE BALANCED SCORECARD44 3. 5. 1The Balanced Scorecard has certain strengths which are:44 3. 5. 2The Balanced Scorecard has certain weaknesses which are:45 3. 6SUMMARY46 4. CHAPER FOUR: RESEARCH DESIGN47 4. 1INTRODUCTION47 4. 2RESEARCH DESIGN AND RESEARCH METHODOLOGY47 4. 3RESEARCH PURPOSE49 4. 3. EXPLORATORY49 4. 3. 2DESCRIPTIVE50 4. 3. 3EXPLANATORY51 4. 4RESEARCH APPROACH51 4. 4. 1POSITIVISM VERSUS PHENOMENOLOGY52 4. 4. 2QUANTITATIVE VERSUS QUALITATIVE54 4. 4. 3INDUCTION VERSUS DEDUCTION56 4. 5RESEARCH STRATEGY57 4. 5. 1SURVEYS58 4. 6DATA SOURCES AND DATA COLLECTION METHODS59 4. 6. 1SECONDARY DATA60 4. 6. 2PRIMARY DATA60 4. 6. 3THE INSTRUMENT OF DEVELOPING THE QUESTIONNAIRE61 4. 7SUMMARY62 5. CHAPTER FIVE: DATA ANALYSIS AND DISCUSSION63 5. 1INTRODUCTION63 5. 2SECONDARY DATA ANALYSIS63 5. 3PRIMARY DATA ANALYSIS68 5. 3. 1DESCRIPTIVE ANALYSIS69 5. 3. 2BANK (A)73 5. . 3BANK (B)74 5. 3. 4BANK (C)75 5. 3. 5OVERALL VIEW77 5. 4DISUSSION OF FINDINGS79 5. 5SUMMARY80 6. CONCLUSION AND RECOMMEDATION81 6. 1INTRODUCATION81 6. 2RESEARCH CONCLUSION81 6. 3LIMITATION OF THE STUDY83 6. 4RECOMMEDATION84 6. 4. 1FINANCIAL PRESPECTIVE84 6. 4. 2CUSTOMER PRESPECTIVE84 6. 4. 3INTERNAL BUSINESS PROCESS85 6. 4. 4LEARNING & GROWTH PRESPECTIVE85 6. 5SUMMARY85 7. BIBLIOGRAPHY AND REFERENCE87 8. APPENDIX A92 9. APPENDIX B102 10. APPENDIX C108 LIST OF FIGURES Page Figure 1: The Balanced Scorecard Four Perspectives24 Figure 2: The Management Strategy Framework42

Figure 3: Position of research methodology within Research De48 Figure 4: Research Approaches54 Figure 5: Deductive approach56 Figure 6: Inductive approach57 Figure 7: The age classification in all banks70 Figure 8: The nationality classification in all banks71 Figure 9: The experience classification in all banks71 Figure 10: The education classification in all banks72 Figure 11: Bank (A) balanced scorecard73 Figure 12: Bank (B) balanced scorecard75 Figure 13: Bank (C) balanced scorecard76 Figure 14: Overall balanced scorecard77 LIST OF TABLES Page

Table 1: Advantages and disadvantages of Positivism and Phenomenology53 Table 2: Qualitative vs. quantitative approach55 Table 3: Relevant Situations for Different Research Strategies58 Table 4: Each bank respondents69 Table 5: Respondent age69 Table 6: Respondent nationality70 Table 7: Respondent experience71 Table 8: Respondent education72 Table 9: Bank (A) outcome73 Table 10: Bank (B) outcome74 Table 11: Bank (C) outcome76 Table 12: Overall outcome77 1. CHAPTER ONE: THE INTRODUCTION 1. 1INTRODUCTION This chapter is the first chapter in the research, which will indicates brief background of the research.

Then, a short view about Saudi banks, and in addition of that the research objective follows. Next, the research question, and shows which methodology the researcher going to use. Last but not least, the scope of the study, and the important of the research. 1. 2BACKGROUND OF RESEARCH Historically, performance measurement has been done by using traditional accounting measures such as the operating margin or return on investments. As the investors emphasised the use of financial measures, the companies applied the same measures for internal guidance.

The need for non-financial measures has been acknowledged more extensively since the 90’s especially (Kaplan and Norton 1992; Kaplan and Norton 1996) Balanced Scorecard (BSC) has brought non-financial performance measurement to wider knowledge. The design and implementation of performance measurement systems is a topic of current interest for both academics and practitioners. Yet, the Scorecard dose not translated easily to the investment community. The Scorecard makes sense primarily for business units and divisions with a well defined strategy.

However, most companies have several divisions, each division with its own mission and strategy, whose Scorecard can not be aggregated into an overall corporate Scorecard. Nevertheless, if the Scorecard dose indeed provides a transparent vision into a unit’s strategy, then the information, even the measures being used, might be highly sensitive data that could reveal much of value to competitors. But most important, as a relatively recent innovation, the Scorecard would benefit from several years of experimentation within companies before it becomes a systematic part of reporting to external constituencies.

Once again, (Kaplan and Norton 1996) have introduced the Balanced Scorecard at an enterprise level. Their fundamental premise is that the evaluation of a firm should not be restricted to a traditional financial evaluation but should be supplemented with measures concerning customer satisfaction, internal processes and the ability to innovate. The results achieved within these additional perspective areas should assure future financial results and drive the organisation towards its strategic goals while keeping all four perspectives in balance.

However, the Balanced Scorecard can be applied to the financial institution, and in addition of that this research going to measure the Scorecard in some Saudi banks. 1. 3SAUDI BANKS INTRODUCTION Saudi Arabian has currently eleven local banks, those together operating more than 1,200 branches around the Kingdom, with other three foreign banks, which are the National Bank of Bahrain, the UAE’s Emirates Bank International and the National Bank of Kuwait. However, those eleven banks have different in their size and structures. The major banks are: 1. National Commercial Bank 2. Samba Bank . Riyad Bank 4. Al Rajhi Banking & Investment Corporation 5. Saudi British Bank 6. Al Bank Al Saudi Al Fransi 7. Arab National Bank 8. Saudi Hollandi Bank 9. Saudi Investment Bank 10. Al Jazira Bank 11. Al Bilad Bank All above banks are controlled by the central bank, The Saudi Arabian Monetary Agency (SAMA). It’s begun operating in 1952 and operates in accordance with the Royal Decree of 15 December 1957 and the Banking Control Law of 1966. However, the National Commercial Bank was opened in 1953, while Riyad Bank started operation 1957 and Arab National Bank in January 1958.

Now a day, the banking system remains strong and profitable. All banks posted higher profits during the first three quarters of 2004. On 30 September 2004, the total assets of Saudi banks, excluding Al-Jazira Bank, and Al Bilad stood at more than $155. 5 billion, 12. 5 percent more than during the same period in 2003. 1. 4RESEARCH OBJECTIVES The purpose of the research is to measure the Balanced Scorecard on some Saudi banks, and in addition of that the research itself has some objectives which can be listed: •To evaluate the implementation of using Balanced Scorecard in Saudi Arabian banks. To explore the benefit of implementing Balanced Scorecard in Saudi Arabian banks. •To find the strength and the weakness in Balanced Scorecard at Saudi Arabian banks. 1. 5RESEARCH QUESTIONS Does Balanced Scorecard improve the productivity? Key questions: 1. How the customers see the bank? 2. Why the banks implement new technology? 3. What is the growth percentage? 4. How does the internal environment works? 1. 6SCOPE OF STUDY The research project focuses on the application of Balanced Scorecard model at three difference Saudi banks.

However, there are eleven banks operating in the Kingdom, and three banks have selected in justified way as is going to explained on methodology chapter. In addition, the population of the study includes the employees at those banks, beside the annual report. 1. 7OVERVIEW OF RESEARCH METHODOLOGY The research methodology is based on quantitative approach which involves collection of research data and interpretation of results using statistical tools. The secondary research data was collected from the annual report for each bank.

The primary research data was collected using the questionnaire tool. The scope of research was on Saudi Arabia banks industry. The questionnaire was distributed to three difference banks out of eleven on the market. Each bank had 14 questionnaires; those were filled by bank employees. 42 of the responses were received which were then analysed and the findings were discussed. Literature search was done using the secondary data in the form of articles published in international journals performance measurement, Balanced Scorecard and others.

Electronic journals in the library resources, such as, Emerald, were intensively used for collecting secondary data for literature review. In addition, books and publications from leading authors on Balanced Scorecard were also used for literature review 1. 8RESEARCH STRUCTURE The research has been divided into six sections which are as following: Chapter one: covers general introduction, which is indicating the research question, research objectives, the importance of the research, and the research structure.

Chapter two: covers an over view about Saudi Arabia economy and a historical view about Saudi Arabia banks. Chapter three: covers the literature review which describes the evolution and history of Balanced Scorecard model. In addition, importance of the Balanced Scorecard and shows the weakness and the strength of that model. Chapter four: covers the Research Design which describes the philosophy, strategy, and approach of research project and the process of data collection. Chapter five: presents the analysis of data and discussion of findings.

Chapter six: includes the conclusions based on the analysis of research data and recommendations for enhancing performance measurement. 1. 9IMPORTANCE OF THE RESEARCH During the past few years, the commercial banks witnessed remarkable expansion in the operation and use of modern banking technology, including telephone banking services and the internet. Yet, this enable banks to serve their customers and the domestic economy through the provision of an integrated modern range of banking services with high technology which competes with their counterparts in advanced countries.

Now a day, Saudi Arabia is entering the world trade organisation agreement (WTO). Before joining that agreement there were eleven local banks were operating on the Kingdom. The level of competition was not very strong, and all banks generating a quite high profits. In addition, the foreigner investors had only 40% from bank equity. Therefore, by the Kingdom accessioning (WTO) the current equity will increase up to 60%, with additional flexibility on equity limitations on a case-by-case basis. More importantly, U. S. nd other foreign banks will be afforded the right to establish direct branches, on the basis of worldwide capital of the parent bank; thus securing the full credit backing of the parent bank, attracting clients through the parent’s reputation and access to the managerial and technical support of the parent bank. Moreover, the Kingdom’s cross-border commitments are comparable or superior to those of OECD countries. These commitments secure national treatment in all financial services sub-sectors. Saudi Arabia also provides assurances regarding management control.

Under Saudi commitments, asset management and financial advisory services may be offered through banks or non-bank financial institutions. Foreign financial institutions will be able to provide pension funds supplementary to the public pension scheme at the same time as Saudi financial institutions are permitted to do so. All in all, it become very important to Saudi banks and financial institution be aware about the threat that they going to face soon. 1. 10SUMMARY The chapter covered the introduction and background of research, identifying the need for a study to measure the Balanced Scorecard on some Saudi banks.

The objective of the research is to measure the performance, and services that provide to their customer, then analyse the productivity using Balanced Scorecard model. Yet, the research employs quantitative approach using survey of banks employees. 2. CHAPTER TWO: SAUDI ARABIA ECONOMY 2. 1INTRODUCTION In this chapter the researcher will gives the overview about Saudi Arabia economy and then develop the overview information to look in more detail the oil sector performance, non-oil sector performance, fiscal budget, and tread and balance of payment.

In addition of that, a historical view about Saudi bank industry, and what is their position on the market. However, the Saudi Arabia is about to make two major steps to the future. First, it is expected to allow the foreign people to trade directly in the market. Second, joining the world trade organisation WTO is one of the government targets which it hopes to be undertaking in the next year. 2. 2SAUDI ARABIA OVERVIEW ECONOMY Saudi Arabia is the largest free market economy in the Middle East and North Africa by 25% share of the total Arab Gross Domestic Product (GDP).

It has a good geographic location that provides easy access to export markets in Europe, Asia and Africa. Saudi Arabia is continuously expanding domestic market due to the rising population. It has an annual growth of 3. 5 percent, adding to a young and consuming population with strong buying power (Appendix, B 1). The best indicator of Saudi Arabia’s economic growth is the increase in the (GDP), from $20 billion in 1970 to $248. 82billion in 2004. In 2003 and 2004, Saudi Arabia was given credit ratings by ‘Standard and Poor’s’ for long term local and foreign currency.

This was based on the Saudi Arabia macroeconomic stability and substantial external liquidity(Bank 2005). However, that was due to the political and military problems in neighbouring Iraq, Saudi economy is witnessing a period of relatively high growth and economic progress; this is based upon a very strong oil sector which is furnishing the government with record oil revenues; this is allowing the Kingdom to increase its spending and to grow its infrastructure and welfare spending to match the increasing needs of the Saudi population.

Turning to the non-oil private sector is feeding off this activity in the public sector government debt is falling, allowing greater liquidity for the private sector, business and consumer confidence is flourishing, the stock market continues on a strong upward trend as corporate profits still record high double digit increases, and these higher profits act as yet another source of funding(Prepared by the Economic Advisor of The Saudi British Bank 2004). Today, Saudi Arabia is the world’s 25th largest importer/exporter, with foreign trade of $78 billion.

In 2003, trade between Saudi Arabia and the United States in total was more than $22 billion. Saudi Arabia has the biggest oil reserves in the world (25 percent). Saudi Arabia is the world’s largest oil exporter and has the largest proven oil reserves with 25% of the world reserve, and the largest spare production capacity (Appendix, B 2). In addition, it has other natural resources including a wide range of industrial raw materials and minerals such as bauxite, limestone, gypsum, and iron-ore. Ministry of foreign affaires, 2005) However, the Kingdom has utilised oil revenues to expand and diversify the Saudi economy to reduce its dependence on oil, which has resulted in impressive gains in the non-oil sector (Appendix, B 3). In 2004, the non-oil industrial sector is estimated to have grown by 6. 4%; the construction sector by 7. 5%; the electricity, gas and water sector by 4. 5%; transportation and communications sector by 7. 8%; and retail, restaurants, and hotels sector by 4. 9% in real prices. Ministry of foreign affaires, 2005). According to Deputy Governor of the Saudi Arabian Monetary Agency (SAMA) Muhammed Al-Jasser made in a speech in 2004 state to that Saudi Arabia had about 470 industrial plants with investments estimated at $2. 7 billion in 1975. By 2001, the total number of factories in the Saudi Arabia exceeded 3,300 with a total investment of more than $90 billion. 12 The role of the private sector has increased substantially with its GDP rising 28-fold in real terms from 1973 to 2002.

Over that period, non-oil exports increased from $26 million to over $10 billion. However, all of this above amounts it’s indicate a healthy economy situation in the country, indeed the beginning of 2003 with oil revenues and government spending at robust levels, the non-oil sector enjoying a period of relatively rapid growth, the fiscal situation as impressive as it has ever been, inflation continuing at record lows, if not negative rates and the Current Account Surplus above $26. 7billion/year.

These are the kind of fundamentals that any economy would be delighted to witness; the only thing is not going right, which the government is tackling, is the level of unemployment which for the Saudi workforce has grown from 8. 1% in 1999 to 9. 7% by end-2002, out of a total labour force of 6. 2 million. Nor surprisingly non-Saudi unemployment is only 0. 8% (Appendix B 4) As a consequently, the investment environment in the Saudi Arabia reflects traditions of liberal, open private market enterprise policies and its new plan, Foreign Investment Law that allows 100 percent foreign ownership of projects and real estate.

Saudi Arabia has an impressive record of political and economic stability and has a modern world-class infrastructure. (SAMA 2004) 2. 3THE OIL SECTOR Once again, the starting point for Saudi economy must always be the state of the oil market. Whilst the Kingdom now has a non-oil sector which contributes around 60% of GDP, the oil sector value added last year was $89. 9 billion from a GDP of $214. 4 billion.

This is very important because the non-oil sector still ‘feeds off’ the oil sector. However, not only does it provide 75% or more of total government revenues from oil exports, which in turn determine the buoyancy of government spending, but both business and consumer confidence are in large part reflecting the strength of the oil market; also of course, the level of public sector contracts offered to the private sector is largely determined by government funding availability(Bank 2005).

Even though, oil production of over 8 million barrels daily (mbd) (Appendix B 5), Saudi oil reserves remain at 260 billion barrels, over one quarter of the World’s proven oil reserves the highest level ever, indicating that discoveries of new reserves are outstripping current production levels (Appendix B 6). Even if no new oil discoveries emerge, reserves are sufficient to produce 8 (mbd) for the next 90 years. Unlike many other oil producing regions, Saudi Arabia does not have a problem of oil reserve exhaustion in the short-term.

Nevertheless, 2004 was an exceptional year for the oil market even by the standards of last year which itself saw very high production of oil and relatively high price levels (Appendix B 7). 2. 4THE NON-OIL SECTOR The development government plan has emphasis the growth of the private sector and government sector in non-oil part, and from the plan they hope of they switch resource more to the private sector. Therefore, between 1999-2002 public sector growth did average much less than other sectors of the economy at around 2. 1%, but even this exceeded the growth target of only 1. % in the government Plan (Appendix B 8). However with major growth in government spending, public sector growth picked up to 6. 2% in 2003 and is expected to exceed 4% for both 2004 and 2005; especially given the kinds of initiative that the Government has announced in relation to welfare and infrastructure projects(Bank 2005). 2. 5THE FISCAL BUDGET The fiscal situation in Saudi Arabia is healthier than it has been for over 20 years. The premium of oil revenues from both high oil prices and export levels will generate a fiscal surplus in 2004 well above expected levels (Appendix B 9).

Some economical forecast for 2004 was based upon predictions for average oil prices and production. Where as OPEC forecast when a rise in Saudi oil export revenues of 13%; at that time oil production was 8. 8 (mbd) it has since grown to 9. 5 (mbd). In 2003 Government oil revenues were approximately $66. 7 billion 13% growth would take oil export revenues to $75. 5 billion and total government revenues in 2004 to approximately $86. 7 billion. Given recent trends in oil prices and production since the OPEC June forecast it is reasonable to forecast total government revenues of $90. billion for 2004. Certainly also government spending will go above the budgeted figure of $61. 4 billion; the estimation is $69. 4 billion, though it may well creep above this level (Appendix B 10). 2. 6TREAD AND BALANCE OF PAYMENT One major beneficiary of strong oil exports is the Current Account of the Balance of Payments. The provisional figures for 2003 show a Current Account surplus of $29. 66 billion following on from a surplus of $11. 87 billion the year before. Given the ever stronger oil market for 2005, a surplus of over $34. billion can be anticipated. This is a very welcome turn of events from the 1990s when recurrent deficits put devaluation pressure upon the Riyal exchange rate. Therefore, current account surpluses have rarely reached such high levels, the exception being the Gulf War period; even during the height of the oil price adjustments in the 1970s, surpluses remained consistently below $26. 7 billion/year (Appendix B 11). However foreign trade developments continue to be very dynamic; after a period of relatively slow import growth averaging only 2. % between 1996 and 2002, growth has accelerated alongside the increase in government spending, private sector activity and record oil exports. Thus, in 2003 visible imports rose from $32. 27 billion to $36. 8 billion or by over 14%. It’s appeared a strong correlation between the growth of exports and visible imports. Alongside, oil exports which reached $84 billion in 2003 and are expected to be higher in 2004 and 2005, non-oil exports have been very buoyant; they have doubled in value between 1999 2003, growing by 28% in 2003 alone to a figure in excess of $10. 94 billion.

Although similar growth rates are not expected in 2004 and 2005, non-oil exports could exceed $12 billion by end 2005. 2. 7SAUDI BANKING SECTOR Saudi banks have significant weight in the Gulf and Middle East regions. There are eleven local banks operating in the Kingdom, ten of which are publicly listed and with other three foreign banks, which are the National Bank of Bahrain, the UAE’s Emirates Bank International and the National Bank of Kuwait which are not listed. However, the National Commercial Bank (“NCB”) is the only Saudi privately owned bank but is expected to be listed soon.

The Ministry of Finance and National Economy, operating through the Saudi Arabian Monetary Agency (“SAMA”), which was established in 1952 and acts as the central bank of the Kingdom, regulates the banking sector. Saudi nationals own 100% of the shares of four banks, whereas strategic foreign partners hold shares in the remaining seven banks. Foreign shareholdings in Saudi banks range from a low of 5. 8% to a high of 40% (Appendix B 12). 1. National Commercial Bank 2. Samba Bank 3. Riyadh Bank 4. Al Rajhi Banking & Investment Corporation 5. Saudi British Bank 6. Al Bank Al Saudi Al Fransi 7.

Arab National Bank 8. Saudi Hollandi Bank 9. Saudi Investment Bank 10. Al Jazira Bank 11. Al Bilad Bank (has opened recently) Dutch Trading Company (presently the foreign partner of the Saudi Hollandi Bank) was the first bank to operate in the Kingdom. Established in 1926, the Company operated through a representative office in Jeddah to serve pilgrims arriving from the East Indies (presently Indonesia) then under Dutch rule. The bank, as the only financial institution operating in the Kingdom then, played the role of a Central Bank and acted as depository for the Kingdom’s gold reserves.

The first oil related operations were conducted through the bank. The second entry to the banking sector came in 1948 with, the French Indochine Bank setting up a branch in Jeddah. Two years later, the Saudi government outsourced issuing its own golden currency to the French Indochine Bank. The bank later merged with Suez Company to form the Indo-Suez Bank, which is presently the foreign partner of Banque Saudi Fransi. The first entirely Saudi bank to be established in the Kingdom was the National Commercial Bank.

Established in 1950, the bank operated as a partnership until 1997 when it was converted to a joint stock company. However, the shares of NCB remain to be listed on the Saudi stock market. The Public Investment Fund, the government’s investment arm, recently acquired a 70% stake in NCB. The General Organisation of Social Insurance (“GOSI”) owns 10%, while the remaining shares are held by a small group of shareholders. The first bank to be established as a joint stock company was Riyad Bank in 1957. It is worth noting that establishment of any new Saudi bank is very unlikely now.

In fact, there is a current consolidation trend in the banking sector to create larger banks that can compete against foreign banks, which are expected to enter the market as soon as the Kingdom joins the World Trade Organisation (“WTO”). Mergers in the sector began in 1997 with the Saudi-Cairo Bank merger with the Saudi United Bank. Later in 1999, the Saudi United Bank merged with the Saudi American Bank. Currently, there is strong speculation regarding a merger between currency exchangers in the Kingdom to form a new commercial bank. In addition, in erms of total assets, the national commercial bank (NCB) comes first with total assets of $28. 45 (SR106. 7) billion, representing 22% of the aggregate assets of Saudi banks, followed by SAMBA at $20. 38 (SR76. 4) billion and Riyadh Bank with $17. 92 (SR67. 2) billion (SAMA 2002) (Appendix 13). 2. 8JOINING THE WORLD TRADE ORGANISATION (WTO) Saudi Arabia is one of the largest economies outside the World Trade Organisation WTO. Recent steps towards privatisation and market liberalisation are aimed at accelerating Saudi Arabia into the WTO.

Accession to the World Trade Organisation WTO is a fundamental component of any long-term Saudi economic reform program. All applicants to the WTO must bring their trade laws and practices into conformity with WTO obligations and negotiate acceptable schedules of market access commitments in goods, services and agriculture. Membership in the WTO can bring a wide range of benefits to Saudi Arabia. Among other things, accession will require Saudi Arabia to remove protectionist barriers; place ceilings on tariffs, further open key services sectors to foreign participation and improve intellectual property rights protection.

These changes will result in an open, transparent and rules based trade regime. The resulting enhanced competition should introduce new efficiencies and growth to the economy, which will attract capital from both foreign and domestic investors. This approach is fully in line with Custodian of the Two Holy Mosques King Abdullah’s strong endorsement of economic reform and the creation of a more attractive investment climate in Saudi Arabia. The United States views Saudi Arabia’s accession to the WTO as a positive achievement for Saudi Arabia and for the global economy. EUSA, 2004) In the accession process, SA is negotiating bilateral agreements with current WTO members while adopting the organisations various trade rules. Joining the WTO and obtaining the membership will be useful for Saudi Arabia. It will protect the SA from discriminatory trade policies of other countries by fostering greater interdependence and invoking the use of settlement procedures to resolve trade disputes with other countries. Also, SA will no longer be subjected to anti dumping measures or countervailing duties except within the framework of WTO guidelines.

Instead, Saudi exports to WTO members will be given Most Favoured Nation status (MFN). The mere process of negotiating WTO membership will help accelerate privatisation and attract foreign direct investment. In addition, the accession process will institute greater efficiency and cost cutting measures into the SA economy (SBC, 2004). The Kingdom of Saudi Arabia and the European Union signed a bilateral agreement on August 31, 2003, guaranteeing free access to goods and services.

Saudi Arabia has signed 35 bilateral trade agreements with other members of the WTO. In 2004, the Council of Saudi Chambers of Commerce and Industry (CSCCI) announced plans to set up a centre that will provide technical and support services to Saudi businessmen in preparation for the Kingdom’s accession to the WTO. (Mansor, 2003) 2. 9SUMMARY This chapter had provided the Saudi Arabian economy. It has started with overview about Saudi economy, and then it had looked for the oil sector performance and how this sector has a significant effect for the economy.

Next, was about the non-oil sector and how the government is concerned to increase this sector performance, in addition of that, brief information about the fiscal budget and the tread and balance of payment. After that, historical view about Saudi banks, and how is the size of those banks. Finally, discuss the next step that the government would take of Joining the World Trade Organisation (WTO). 3. CHAPTER THREE: LITERATURE REVIEW 3. 1INTRODCUATION In this chapter will cover the literature review of this researcher, starting with historical view about the Balanced Scorecard model.

Then, explaining the four Balanced Scorecard perspectives. After that, shows how the Balanced Scorecard is a strategic management system. Finally, gives the strength and weakness of this model. 3. 2HISTORCIAL VIEW The Balanced Scorecard was found by Kaplan and Norton over 10 years ago, at (Kaplan and Norton January-February 1992). It is proposed as an approach to performance measurement that combined traditional financial measures with non-financial measures to provide managers with richer and more relevant information about organisational performance, particularly with regard to key strategic goals (Kaplan and Norton 1992).

By encouraging managers to focus on a limited number of measures drawn from four perspectives (i. e. financial, customer, internal business process, and learning and innovation), the original Balanced Scorecard aimed to encourage clarity and utility. Therefore, providing feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. Therefore, it is used to addresses a serious deficiency in traditional management systems, their inability to link a company long-term strategy with their short-term actions.

According to Balanced Scorecard Report in estimate that 40-50 percent of large organisations has begun implementing this concept. However, Balanced Scorecard it is still not well understood by many. For example, Claude Lewy from the Free University of Amsterdam claims that 70% of Scorecard implementations fail. Professor Lewy together with Lex du carried out some research, using seven European companies, those companies had successfully rooted Scorecards in their reporting and control processes (McCunn December 1998). The message was clear that Balanced Scorecard most likely to succeed.

Therefore, the companies that they had not succeed in implementing the Scorecard, because they had succeeded in raising awareness of the importance of non-financial measures. 3. 3THE BALANCED SCORECARD Balanced Scorecard was built around the idea that companies can no longer gain sustainable competitive advantage solely by developing tangible assets. To phrase it differently, the ability of a company to build its intangible assets or intellectual capital has become a critical success factor in creating and sustaining competitive advantage.

The four perspectives of the Balanced Scorecard will enable companies to follow financial results and simultaneously monitor progress in building the capabilities that are necessary for acquiring the intellectual capital or intangible assets needed for future business growth and for providing keener competition provide further discussion on the Balanced Scorecard (Kaplan and Norton January-February 1996). However, the implementation process can be divided into four stages: •Translating the vision and gaining consensus. Communicating the objectives, setting goals and linking strategies. •Setting targets, allocating resources and establishing milestones. •Providing feedback and learning (Kaplan and Norton 1996). Many firms have fund Balanced Scorecard useful tool for focusing and sustaining their continuous improvement efforts. It is emphasis on translating strategy into a linked set of financial and non-financial measures. The financial part traditionally focused on sales growth, profits, return on investments and cash flows.

Yet, the non-financial measures are important as the financial measures, and financial measures have led many organisations to switch to and put greater emphasis on forward looking non-financial measures such as customer satisfaction, employee learning and innovation (Bourne 2002). Nevertheless, in order to start successful improvement actions, the information about business performance needs to be predictive and to focus on the causative factors of performance.

To achieve their goal, the organisation needs better approach to information management in order that they and their staff can get well informed decisions which move the organisation towards its vision for future and strategic objectives. The financial information alone will be not help the company to evolve rapidly. Better knowledge is required of how the company is performing across a whole series of dimensions (see figure 1) (Niven 2002). Figure 1: The Balanced Scorecard Four Perspectives Source: Kaplan & Norton 3. 3. 1FINANCIAL PRESPECTIVE

Balanced Scorecard realise it is not completed without the financial measures of there performance. Those were recognised by the scorecard practitioners, and they actually consider financial measures to represent the most important section of the scorecard. One of recent study indicated that 49% of organisations give financial measures higher important that any other indicators (Niven 2002). Yet, the financial measures objectives can be differ significantly at each stage for a business’s life cycle. However, there are several different strategies that theory suggests.

Therefore, the financial performance can be simplified by identifying just three different stages: Rapid Growth: They are businesses at the early stages of their life cycle. They may have to make considerable investments to develop and enhance new products and services. The financial objectives for rapid growth stage will emphasise sales growth; sales in new markets and to new customers; sales from new product and services; maintaining adequate spending levels for product and process development, systems, employee capabilities; and establishment of new marking, sales, and distribution channels (Kaplan and Norton 2001).

Sustain: Probably the majority of business units in a company will be in the sustain stage, where they still attract investment and reinvestment, but are required to earn excellent returns on their invested capital. These businesses are expected to maintain their existing share and perhaps grow it somewhat from year-to-year. Investment projects will be more directed to relieving bottlenecks, expanding capacity, and enhancing continuous improvement.

The financial objectives in the sustain stage will emphasise traditional financial measurements, such as return on capital employed (ROCE), operating income, and gross margin (Kaplan and Norton 2001). Harvest: In this stage the business reached its matured phase of their life cycle, where the company wants to harvest the investments made in the earlier two stages. These businesses no longer warrant significant investment-only enough to maintain equipment and capabilities, but not to expand or build new capabilities.

The main goal is to maximise cash flow back to the cooperation. The financial objectives for the Harvest businesses will stress cash flow. Any investments must have immediate and certain cash paybacks. The goal is not to maximise the return on investment, which may encourage managers to seek additional investment funds based on future return projections. Virtually no pending will be done for research or development or on expanding capabilities, because of the short time remaining in the economic life of business units in this phase (Kaplan and Norton 2001). •Risk Management

In effective financial management they should address the risk as well as the return. The objectives relating to growth, profitability, and cash flow emphasise improving returns from investment. However, businesses should balance expected returns with the management and control of risk (Kaplan and Norton 2001). 3. 3. 1. 1Strategic Themes for the Financial Perspective From the previous three strategies growth, sustain, and harvest. There are three financial themes that drive the business strategy: •Revenue growth and mix •Cost reduction/ productivity improvement Asset utilisation/ investment strategy •Revenue growth and mix The most common revenue growth measure, both for growth and harvest stage business units, would be sales growth rates and market share for targeted regions, markets, and customers (Kaplan and Norton 2004). New Products: growth stage businesses will usually emphasise expansion of existing product lines or offering entirely new products and services. A common measure for this objective is the percentage of revenue from new products and services introduced within a specified period (Kaplan and Norton 2004).

New Applications: developing entirely new products can be very costly and time consuming for companies, especially those in the pharmaceutical and agricultural chemical industries, with long product development cycles, and whose products must through stringent governmental regulatory approval processes (Kaplan and Norton 2004). New Customers and Markets: taking existing products and services to new customers and markets also can be a desirable route for revenue growth. Measures such as percentage of revenues from new customers, market segments, and geographic regions would emphasise the importance of investigating this ource of revenue enhancement (Kaplan and Norton 2004). New Relationships: some companies have attempted to realise synergies from their different strategic business units by having them cooperate to develop new products or to sell projects to customers. Whether the company strategy is to increase technology transfer across divisions or to increase sales to individual customers from multiple business units within the company, the objective can be translated into the amount of revenue generated from cooperative relationships across multiple business units (Kaplan and Norton 2004).

New Product and Service Mix: extending this idea, businesses may choose to increase revenues by shifting their product and service mix. For example, a business may feel that it has a substantial cost advantage in selected segments, where it can win business away from competitors by offering significantly lower prices. If they are following low cost strategy, it should measure the growth of sales in the targeted segments (Kaplan and Norton 2004).

New Price Strategy: finally, revenue growth especially in mature, perhaps harvest stage business units, may be realised by raising price on products, services, and customers where revenues are not covering costs. Such situations are now much easier to detect as companies implement activity based cost (ABC) systems that trace costs, profits, and even assets employed down to individual products, services, and customers (Kaplan and Norton 2004). •Cost reduction/ productivity improvement In addition to establishing objectives for revenue growth and mix, a business may wish to improve its cost and productivity performance.

Increase revenue productivity: business units in the growth stage are unlikely to be heavily focused on cost reduction. Efforts to reduce costs through dedicated automation and standardised processes may conflict with the flexibility required to customise new products and services for new markets (Kaplan and Norton 1996). Improve channel mix: some organisations have multiple channels by which customers can conduct transactions with them. For example, retail banking customers can transact manually with the branch tellers, through automatic teller machines (ATMs), and electronically by phone and computer (Kaplan and Norton 1996).

Reduce operating expenses: many organisations are now actively trying to lower their selling, general, and administrative expenses. The success of these efforts can be measured by tracking the absolute amount of these expenses or their percentage to total costs or revenues. For example, if managers feel that their support spending is too high relative to competition and relative to the customer benefits being generated they could set objectives to reduce, administrative expenses as a percentage of sales, or distribution or marketing and selling expenses (Kaplan and Norton 2001). •Asset utilisation/ investment strategy

Objectives, such as return on capital employed, return on investment, and economic value-added, provide overall outcome measures of the success of financial strategies to increase revenues, reduce cost, and increase asset utilisation. However, companies may also wish to identify the specific drivers they will use to increase asset intensity (Kaplan and Norton January-February 1996). Cash to cash cycle: working capital, especially accounts receivable, inventory, and accounts payable, is an important element of capital for many manufacturing, retail, wholesale, and distribution companies.

One measure of the efficiency of working capital management is the cash to cash cycle, measured as the sum of days cost of sales in inventory, days sales in accounts receivable, less days purchases in accounts payable (Kaplan and Norton 1992). Improve asset utilisation: other measures of asset utilisation may focus on improving capital investment procedures, both to improve the productivity from capital investment projects and accelerate the capital investment process so that the cash returns from these investments, in effect a eduction in the cash to cash cycle for investments in physical and intellectual capital (Kaplan and Norton 1996). In summary, financial objectives represent the long term goal of the organisation to provide superior returns based on the capital invested in the unit. However, the Scorecard enables senior executives of business units to specify not only the metric by which the long term success of the enterprise will be evaluated, but also the variables considered most important to create and to drive the long term outcome objectives. 3. 3. 2CUSTOMER PERSPECTIVE

In the customer perspective of the Balanced Scorecard, managers identify the customers and market segments in which the business unit will compete and the measures of the business unit performance in these targeted segments. The customers’ perspective typically includes several generic measures of the successful outcomes from a well-formulated and implemented strategy. The generic outcomes measures include customer satisfaction, customer retention, new customer acquisition, customer profitability, and market and account share in targeted segments.

While these measures appear to be generic across all types of organisations, they should be customised to the targeted customer groups from whom the business unit expects the greatest growth and profitability to be derived (Kaplan and Norton 1996). 3. 3. 2. 1Market and Account share Market share, especially for targeted customer segments, reveals how well a company is penetrating a desired market. For example, a company may temporarily be meeting sales growth objectives by retaining customers in non-targeted segments, but not increasing its share in targeted segments.

The measure of market share with targeted customers would balance a pure financial signal (sales) to indicate whether an intended strategy is yielding expected results (Niven 2002). When companies have targeted particular customers or market segments, they can also use a second market- share type measure: the account share of those customers’ business (some refer to this as the share of the “customers’ wallet”). The overall market share measure based on business with these companies could be affected by the total amount of business these companies are offering in a given period.

That is, the share of business with these targeted customers could be decreasing because these customers are offering less business to all their suppliers. Companies can measure customer by customer or segment by segment how much of the customers’ and market segments’ business they are receiving. Such a measure provides a strong focus to the company when trying to dominate its targeted customers’ purchases of products or services in categories that it offers (Kaplan and Norton 1992). 3. 3. 2. 2Customer Retention

Clearly, a desirable way for maintaining or increasing market share in targeted customer segments is to retain existing customers in those segments. Research on the service profit chain has demonstrated the importance of customer retention. Companies that can readily identify all of their customers for example, industrial companies, distributors and wholesalers, newspaper and magazine publishers, computer on-line service companies, banks, credit card companies, and long-distance telephone suppliers can readily measure customer retention from period to period.

Beyond just retaining customers, many companies will wish to measure customer loyalty by the percentage growth of business with existing customers (Kaplan and Norton 2004). 3. 3. 2. 3Customer Acquisition Companies seeking to grow their business will generally have an objective to increase their customer base in targeted segments. The customer acquisition measure tracks, in absolute or relative terms, the rate at which a business unit attracts or wins new customers or business.

Customer acquisition could be measured by either the number of new customers or the total sales to new customers in these segments. Companies such as those in the credit and charge card business, magazine subscriptions, cellular telephone service, cable television, and banking and other financial services solicit new customers through broad, often expensive, marketing efforts. These companies could examine the number of customer responses to solicitations and the conversion rate number of actual new customers divided by number of prospective inquiries. They could measure solicitation cost per new customer cquired, and the ratio of new customer revenues per sales call or per dollar of solicitation expense (Kaplan and Norton 2001). 3. 3. 2. 4Customer Satisfaction Both customer retention and customer acquisition are driven from meeting customers’ needs. Customer satisfaction measures provide feedback on how well the company is doing. The importance of customer satisfaction probably can not be over emphasised. Recent research has indicated that just scoring adequately on customer satisfaction is not sufficient for achieving high degrees of loyalty, retention, and profitability.

Only when customers rate their buying experience as completely or extremely satisfying can the company count on their repeat purchasing behaviour (Kaplan and Norton 2001). 3. 3. 2. 5Customer Profitability Succeeding in the core customer measures of share, retention, acquisition, and satisfaction, however does not guarantee that the company has profitable customers. Obviously, one way to have extremely satisfied customers (and angry competitors) is to sell products and services at very low prices.

Since customer satisfaction and high market share are themselves only a means to achieving higher financial returns, companies will probably wish to measure not just the extent of business they do with customers, but the profitability of this business, particularly in targeted customer segments. Activity-based cost (ABC) systems permit companies to measure individual and aggregate customer profitability. Companies should want more than satisfied and happy customers: they should want profitable customers.

A financial measure, such as customer profitability, can help keep customer focused organisations from becoming customer obsessed (Kaplan and Norton January-February 1992). The customer profitability measure may reveal that certain targeted customers are unprofitable. This is particularly likely to occur for newly acquired customers, where the considerable sales effort to acquire a new customer has yet to be offset from the margins earned by selling products and services to the customer. In these cases, lifetime profitability becomes the basis for deciding whether to retain or discourage currently nprofitable customers. Newly acquired customers can still be valued, even if currently unprofitable, because of their growth potential. But unprofitable customers who have been with the company for many years will likely require explicit action to cope with their incurred losses (Kaplan and Norton January-February 1996). In summary, the customer perspective enables business unit managers to articulate their unique customer and market based strategy that will deliver superior future financial returns. 3. 3. 3INTERNAL BUSINESS PROCESS

In the internal business process perspective, executives identify the critical internal processes in which the organisation must excel. The critical internal business processes enable the business unit to deliver on the value propositions of customers in targeted market segments, and satisfy shareholder expectations of excellent financial returns (Kaplan and Norton 1996). The measures should be focused on the internal processes that will have the greatest impact on customer satisfaction and achieving the organisation’s financial objectives.

The internal business process perspective reveals two fundamental differences between traditional and the Balanced Scorecard approaches to performance measurement. Traditional approaches attempt to monitor and improve existing business processes. They may go beyond just financial measures of performance by incorporating quality and time-based metrics. But they still focus on improving existing processes. The Balanced Scorecard approach, however, will usually identify entirely new processes at which the organisation must excel to meet customer and financial objectives (Kaplan and Norton 2004).

The internal business process objectives highlight the processes most critical for the organisation’s strategy to succeed. •The internal business process value chain Each business has a unique set of processes for creating value for customers and producing financial results. Therefore, this model encompasses three principal business processes: •Innovation •Operations •Postsale service 3. 3. 3. 1The innovation process Some formulations of a business unit’s value chain treat research and development as a support process, not a primary element in the value creation process. However, innovation was realised to be the critical internal process.

Being effective, efficient, and timely in innovation processes is for many companies, even more important than excellence in day to day operating processes that have been the traditional focus of the internal value chain literature (Kaplan and Norton 1996). The relative importance of the innovation cycle over the operating cycle is especially noticeable for companies with long design and development cycles, such as pharmaceutical, agricultural chemicals, software, and high-tech electronics. In these companies if the products reach the manufacturing stage, operating gross margins may be quite high.

However, the innovation process consists two components. First, manager undertakes market research to identify the size of the market, the nature of customers, preferences, and price points for the targeted product or service. As organisations deploy their internal processes to meet specific customer needs, having accurate, valid information on market size and customer preferences becomes a vital task to perform well. The second step in the innovation process. During this step the organisations research and development group: •Performs basic research to develop radically new products and services for delivering value to customers. Performs applied research to exploit existing technology for the next generation of products and services. •Makes focused development efforts to bring new products and services to market (Kaplan and Norton 1996). 3. 3. 3. 2The operations process The operations process represents the short wave of value creation in the organisations. It starts with receipt of a customer order and finishes with delivery of the product or service to the customer. This process stresses efficient, consistent, and timely delivery of existing products and services to existing customers.

However, existing operations tend to be repetitive so that scientific management techniques can be readily applied to control and improve customer order receipt and processing, vendor, production, and delivery processes. Traditionally, these operating processes have been monitored and controlled by financial measures, such as standard costs, budgets, and variances (Kaplan and Norton 1996). 3. 3. 3. 3Postsale service The final stage in the internal value chain is postsale service. The postsale service includes warranty and repair activities, treatment of defects and returns, and the processing of payments, such as credit card administration.

Yet, companies that sell sophisticated equipment or system, like Otis Elevator and General Electric Medical Systems, know that any downtime on their equipment is extremely expensive and inconvenient to their customers. All these companies enhance the value of their equipment by offering rapid, reliable service to customers to minimise such disruptions (Kaplan and Norton 1996). All in all, the internal business process perspective, managers identify the critical processes at which they must excel if they are to meet the objectives of shareholders and of targeted customer segments.

Conventional performance measurement system focus only on monitoring and improving cost, quality, and time based measures of existing business processes. 3. 3. 4LEARNING & GROWTH The fourth Balanced Scorecard perspective, Learning & Growth, identifies the infrastructure that the organisation must build to create long-term growth and improvement. The customer and internal business process perspectives identify the factors most critical for current and future success. The businesses are unlikely to be able to meet their long-term targets for customers and internal processes using today’s technologies and capabilities.

Also, intense global competition requires that companies continually improve their capabilities for delivering value to customers and shareholders (Kaplan and Norton 1992). However, Organisational learning and growth come from three principal sources: •Employee capabilities. •Information systems capabilities. •Motivation, empowerment, and alignment. 3. 3. 4. 1Employee capabilities The role of organisational employees is had dramatic changes in management during the past 15 years.

In fact, nothing better exemplifies the revolutionary transformation from industrial age thinking to information age thinking and the new management philosophy of how employees contribute to the organisation. The emergence of giant industrial enterprises a century ago and the influence of the scientific management movement left a legacy where companies hired employees to perform well specified and narrowly defined work (Kaplan and Norton January-February 1992). However, companies use employee objectives drawn from a common core of three outcome measurements, which are: •Employee satisfaction Employee retention •Employee productivity •Measuring employee satisfaction The employee satisfaction objective to recognise that employee is morale and overall job satisfaction is now considered highly important by most organisations. Satisfied employees are precondition for increasing productivity, responsiveness, quality, and customer service. Yet, companies usually measure the employee satisfaction by annual survey, or a rolling survey in which a specified percentage of randomly chosen employees is surveyed each month.

The elements in an employee satisfaction survey could include: 1. Involvement with decisions 2. Recognition for doing a good job 3. Access to sufficient information to do the job well 4. Active encouragement to be creative and use initiative 5. Support level from staff functions 6. Overall satisfaction with company (Kaplan and Norton 2004) •Measuring employee retention Employee retention captures an objective to retain those employees in whom the organisation has a long term interest.

The theory underlying this measure is that the organisation is making long term investment in its employees so that mean any unwanted departures represent a loss in the intellectual capital of the business. However, long term loyal employees carry the values sensitivity to the needs of customers. Employee retention is generally measured by percentage of key staff of turnover (Kaplan and Norton 2004). •Measuring employee productivity Employee productivity is an outcome measure of the aggregate impact from enhancing employee skills and morale, innovation, improving internal processes, and satisfying customers.

The goal is relate the output produced by employees to the number of employees used to produce that output. Therefore, there are many ways in which to measure the employee productivity. The most useful measurement among those many is revenue per employee. This measurement represents how much output can be generated per employee (Kaplan and Norton 2004). 3. 3. 4. 2Information systems capabilities Employee motivation and skills may be necessary to achieve stretch targets for customer and internal business process objectives.

However, it could be unlikely sufficient. They need excellent information on customers, on internal processes, and of the financial consequences of their decisions. Therefore, front line employees should be informed about which segment an individual customer occupies so that they can judge how much effort should be expended not only to satisfy the customer on the existing relationship or transaction, but also on learning about and attempting to satisfy emerging need from that customer (Kaplan and Norton 2004). 3. 3. 4. 3Motivation, empowerment, and alignment

Even skilled employees, provided superb access to information, will not contribute to organisational success if they are not motivated to act in the best interests of an organisation or if they are not given freedom to make decisions and take actions. However, this the third objective of learning and growth focuses on organisation climate of motivation and initiative (Niven 2002). •Measure of suggestions made and implemented The widely used and simple to measure is the number of suggestions per employee. This measure captures the ongoing participation of employees in improving the organisation performance.

Such a measure can be reinforced by complementary measure, number of suggestions implemented, which tracks the quality of the suggestions being made, as well as communicating to the work force that its suggestions are valued and taken seriously (Kaplan and Norton 2001). •Measure of improvement The tangible outcome from successfully implemented employee suggestions does not have to be restricted to expense savings. Organisations can also look for improvements; say in quality, time, or performance, for specific internal and customer processes (Kaplan and Norton 2001). •Measure of individual and organisational alignment

The performance drivers for individual and organisational alignment focus on whether departments and individuals have their goals aligned with the company objectives articulated in the balanced scorecard. The process had two principal objectives: •Individual and organisational subunit goals, and reward, and recognition systems aligned with achieving business objectives •Team based measures of performance (Kaplan and Norton 2001) •Measure of team per

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