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Performance Measurement - The Balanced Scorecard Perspective

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 Revista Tinerilor Economiºti Year V No. 8, April 2007
Journal indexed, from 2006, in the C category by T HE N ATIONAL U NIVERSITY R ESEARCH C OUNCIL from R OMANIA , with the code 731.

The Young Economists Journal

SELECTION FROM CONTENTS

Institutions, policies and efficiency 7
in economies

Corporate governance and financial 11

globalization

Constituent dimensions of customer 40

satisfaction: a study of nationalised
and private banks

Performance measurement - the balanced 48

scorecard perspective

Divergences and similarities in the 64

evolution of the human resources
function in the western part of the
Mediterranean Sea
An analysis of the brand loyalty based 83
consumer typology

Measurement and evaluation of 133

intellectual capital

Erp and e-business 153

YEAR V – NO. 8, APRIL 2007
 REVISTA TINERILOR ECONOMIŞTI
ISSN 1583-9982
http://stat257.central.ucv.ro/rte
Editor in Chief
Assoc. Prof. Ph.D. Costel Ionaşcu
University of Craiova, Faculty of Economy and Business Administration, Romania
Editorial Board
Assoc. Prof. Ph.D Anca Băndoi Lect. Ph.D Raluca Drăcea
University of Craiova, Faculty of Economy and University of Craiova, Faculty of Economy and
Business Administration, Romania Business Administration, Romania
Assoc. Prof. Ph.D Cerasela Bolnăvescu Lect. Ph.D Cristi Drăgan
University of Craiova, Faculty of Economy and University of Craiova, Faculty of Economy and
Business Administration, Romania Business Administration, Romania
Prof. Ph.D Adriana Burlea-Şchiopoiu Lect. Ph.D Laura Giurcă Vasilescu
University of Craiova, Faculty of Economy and University of Craiova, Faculty of Economy and
Business Administration, Romania Business Administration, Romania
Assist. Ph.D student Daniel Cîrciumaru Lect. Ph.D Ramona Gruescu
University of Craiova, Faculty of Economy and University of Craiova, Faculty of Economy and
Business Administration, Romania Business Administration, Romania
Assoc. Prof. Ph.D Mirela Cristea Assist. Ph.D student Radu Ogarcă
University of Craiova, Faculty of Economy and University of Craiova, Faculty of Economy and
Business Administration, Romania Business Administration, Romania
Assoc. Prof. Ph.D Sorin Domnişoru Assoc. Prof. Ph.D Carmen Radu
University of Craiova, Faculty of Economy and University of Craiova, Faculty of Economy and
Business Administration, Romania Business Administration, Romania
Lect. Ph.D Laurenţiu Dragomir Assoc. Prof. Ph.D Cristi Spulbăr
University of Craiova, Faculty of Economy and University of Craiova, Faculty of Economy and
Business Administration, Romania Business Administration, Romania
Academic Review Board:
Ph.D Prof. Buşe Lucian Ph.D Prof.Conway Lackman
University of Craiova, Faculty of Economy and Duquesne University, Pittsburg, SUA
Business Administration, Romania Ph.D Prof. Pedro CRUZ
Ph.D Assist. Prof. Goran Petrevski Business Administration Department, Instituto
SS Cyril and Methodius University, Faculty of Poliécnico de Viseu, Portugal
Economics, Skopje, Macedonia Ph.D Assoc. Prof. Timothy A. Woods
Ph.D Assist. Prof. Daniel Stavárek University of Kentucky, Lexington, SUA
Silesian University, School of Business Ph.D Prof. Himayatullah Khan
Administration, Karviná, Czech Republic Agricultural University, Peshawar,
Ph.D Prof. Olivier BACHELARD Institute of Development Studies
Ecole Superieure de Commerce Saint Etienne and COMSATS Institute of Information Technology,
Saint Etienne, France Abbottabad, Pakistan
Ph.D Prof. IGALENS Jacques Ph.D Prof. Vasilescu Nicolae
Responsable Département GRH University of Craiova, Faculty of Economy and
Université 1 Toulouse Sciences Sociales, France Business Administration, Romania
Paddy Gray Ph.D Prof. Burdescu Dumitru Dan
Director of Housing Management Programmes, University of Craiova, Faculty of Automatics,
University of Ulster, Northern Ireland Computers and Electronics, Romania

The authors have the entire responsibility for the content of the articles
and only they will support all legal consequences generated by violation
of the copyright.
 TABLE OF CONTENT
EDITORIAL
INSTITUTIONS, POLICIES AND
EFFICIENCY IN ECONOMIES
Assist. Prof. Pavel Stoynov
Sofia University “St. Klimet Ohridski”
Faculty of Economics and Business
Administration
CORPORATE GOVERNANCE AND
FINANCIAL GLOBALIZATION
Lect. Ph.D Laura Giurcă Vasilescu
University of Craiova
Faculty of Economy and Business
Administration, Craiova, Romania
BETWEEN THE CONTROL
PERCENTAGE AND INTEREST
PERCENTAGE IN ASSURING A FAIR
IMAGE OF THE GROUP OF
ENTITIES
Assoc. Prof. Ph.D Sorinel Domnişoru
Lect. Ph.D Valeriu Brabete
Assist. Ph.D Student, Daniel Goagără
University of Craiova,
Faculty of Economics and Business
Administration
WHAT MOTIVATES EMPLOYEES OF
BANKING SYSTEM
Prof. Ph.D Popescu Jenica
University of Craiova
Faculty of Economy and Business
Administration
Craiova, Romania
CONSTITUENT DIMENSIONS OF
CUSTOMER SATISFACTION: A
STUDY OF NATIONALISED AND
PRIVATE BANKS
Lect. Ph.D Jitendra Kumar Mishra,
Prestige Institute of
Management&Research, Indore, India
PERFORMANCE MEASUREMENT -
THE BALANCED SCORECARD
PERSPECTIVE
Ph.D Student Gică Oana Adriana
Assist. Ph.D Student Moisescu Ovidiu
Ioan
Babeş-Bolyai University
Faculty of Economics and Business
Administration,Cluj-Napoca, Romania
3 THE FORMING SYSTEM IN
ROMANIAN PUBLIC
ADMINISTRATION
Lect. Ph.D Cristina Manole
55
7 Assoc. Prof. Ph.D Colesca Sofia Elena
Academy of Economic Studies
Faculty of Management
Bucharest, Romania
DIVERGENCES AND SIMILARITIES
IN THE EVOLUTION OF THE HUMAN
11 RESOURCES FUNCTION IN THE
WESTERN PART OF THE
MEDITERRANEAN SEA
Ph.D Student Lucas Dufour 64
AER à Euromed Marseille, France
Assoc. Prof. Ph.D Soufyane
Frimousse
ATER à l’Université de Corse, France
ADVERTISING AND INTELLECTUAL
21 PROPERTY RIGHTS – A KEY TO
COMPANIES’ COMPETITIVENESS
Assist. Ph.D Student Cătălina Radu
Academy of Economic Studies
Faculty of Management 75
Bucharest, Romania
Ph.D Student Alina Cătăneţ
Media University
Faculty of Management of Affairs
29 Bucharest, Romania
AN ANALYSIS OF THE BRAND
LOYALTY BASED CONSUMER
TYPOLOGY
Assist. Ph.D Student Moisescu Ovidiu
40 Ioan 83
Ph.D Student Gică Oana Adriana
Babeş-Bolyai University
Faculty of Economics and Business
Administration, Cluj-Napoca, Romania
DEVELOPMENT DIRECTIONS OF
SERVICES AND PRODUCTS IN
48 INSURANCES
Lect. Ph.D Mitu Narcis Eduard 89
University of Craiova
Faculty of Economy and Business
Administration, Craiova, Romania
5

TOURISM, PART OF EUROPEAN
POLICY
Lect. Ph.D Gruescu Ramona
Assoc. Prof. Ph.D Mitrache Marius
Lect. Ph.D Nanu Roxana
University of Craiova
Faculty of Economics and Business
Administration
LINKS BETWEEN
MACROECONOMIC KEY
VARIABLES AND EMPLOYMENT
LEVELS IN ROMANIA
Assist. Ph.D Student Bocean Claudiu
Ph.D Student Mimi Petrişan
University of Craiova
Faculty of Economics and Business
Administration, Craiova, Romania
PERSONAL VERSUS MASS
COMMUNICATION
Assoc. Prof. Ph.D Girboveanu Sorina
University of Craiova
Faculty of Economy and Business
Administration, Craiova, Romania
THE PRESS RELEASE – THE MEDIA
INSTRUMENT FOR INCREASING
COMPETITIVENESS
Ph.D Student Alina Cătăneţ
Media University
Faculty of Management of Affairs
Bucharest, Romania
Assist. Ph.D Student Cătălina Radu
Academy of Economic Studies
Faculty of Management
Bucharest, Romania
STRATEGIC CONTROLLING IN
ROMANIA-SUPPORT OF
MANAGERIAL DECISIONS
Lect. Ph.D Valentina Oargă
Prof. Ph.D Emilia Novac
Lect. Ph.D Student Denisa Pop -
Abrudan
West University of Timişoara
Faculty of Economics
Management Department
CHILD LABOUR IN PAKISTAN AND
OTHER DEVELOPING COUNTRIES
Prof. Ph.D Himayatullah Khan
Institute of Development Studies (IDS)
93 NWFP Agricultural University, 121
Peshawar,
Department of Development Studies,
COMSATS Institute of Information
Technology, Abbottabad, Pakistan
MEASUREMENT AND EVALUATION
OF INTELLECTUAL CAPITAL
Assist. Ph.D Student Stănescu Aurelia
Academy of Economic Studies 133
Faculty of Management
99 Bucharest, Romania
THE ECOLOGIC BALANCE IN THE
EQUATION OF THE DURABLE
DEVELOPMENT
Assoc. Prof. Ph.D Boncea Amelia 137
Lect. Ph.D Rabontu Cecilia Irina
University “ Constantin Brancusi” of Tg-
Jiu, Faculty Of Sciences Economic
105 TV MEDIA IN THE REPUBLIC OF
MACEDONIA – CURRENT
SITUATION AND PERSPECTIVES
Assist. Prof. Anita Ciunova-Suleska 143
University “Ss. Cyril and Methodius”
Faculty of Economics
Skopje, Republic of Macedonia
ERP AND E-BUSINESS
Assist. Prof. Ph.D Pulevska-Ivanovska
111 Lidija,
153
University “Ss. Cyril and Methodius”
Faculty of Economics
Skopje, Macedonia
CURRENT ACCOUNT DEFICIT
ANALYSIS. THE PATTERN BASED
ON ADJUSTING COST OF
INVESTMENTS
Assist. Ph.D Student Radu Criveanu
Assoc. Prof. Ph.D Marian Siminica 165
Assist. PhD. Candidate Daniel
115 Circiumaru
University of Craiova
Faculty of Economics and Business
Administration, Craiova
6
Revista Tinerilor Economişti

PERFORMANCE MEASUREMENT - THE BALANCED SCORECARD PERSPECTIVE

Ph.D Student Gică Oana Adriana

Assist. Ph.D Student Moisescu Ovidiu Ioan
Babeş-Bolyai University
Faculty of Economics and Business
Administration
Cluj-Napoca, Romania

Abstract: The transition from the industrial to the informational age sets
new rules of competition. The competitive success is based more and
more on the intangible assets like skills, systems and values. Companies
are finding that performance measurement systems that worked in the
past are not effective in this new context. There is a need for performance
measurement systems linked to the strategy that combines financial
indicators of the past performance with the drivers of future success. The
Balanced Scorecard translates a firm’s strategy in a comprehensive set of
performance measures in four perspectives: financial, customer, internal
processes, learning and growth.

Keywords: performance measurement, Balanced Scorecard.

Introduction
The old adage “You can’t improve what you can’t measure” is certainly true for
firms. A report by the Conference Board of Strategic Performance Management in 1998
found that companies using performance measurement were more likely to achieve
leadership positions in their industry and were almost twice as likely to handle a major
change successfully (B. L. Adams, 2003). Firms need to develop an entire system of
meaningful performance measures to become and then remain competitive (Wisner et
al., 2005, pg.433).
Peter Drucker (in Niven, 2002), suggests that few factors are as important to the
performance of an organization as measurement, and measurement is among the
weakest areas in management today. In today’s highly competitive environment and
due o the rapid changes that occur, organizations need to devote significant time,
energy, and human and financial resources to measuring their performance in achieving
strategic goals.
Although measuring performance requires the substantial effort and high costs,
a 2001 survey by the American Institute of Certified Public Accountants and Lawrence
S. Maisel, found that only 35 percent of respondents rated their performance
measurement systems as effective or very effective.
Increasingly, organizations are reaching the conclusion that while measurement
is more crucial than ever, their systems for capturing, monitoring, and sharing
performance information are critically flawed. While the methods of modern business
have transformed dramatically over the past decades, the systems of measurement have
remained firmly mired in the past.

48
 Finances - Accounting
Most performance measures used by firms today continue to be the traditional
cost-based and financial statistics reported to IRS and to shareholders in the form of
annual report, balance sheet and income statement data. These systems were perfectly
suited in the industrial era, but they are ill-equipped to capture the value creating
mechanisms of today’s modern business organization. Intangible assets such as
employee knowledge, customer and supplier relationships, and innovative cultures are
the key to producing value in today’s economy. According to a survey implemented by
the Institute of Management Accountants’ Cost Management Group, only 6 percent of
its members were using customer satisfaction as an organizational performance
measure (Wisner et al., 2005, pg.433).

The Characteristics of an Effective Performance Measurement System

The role of strategy is more important today than it has ever been. The
necessity of effectively executing strategy is crucial in an era of globalization, customer
knowledge, and rapid change. But the sobering fact is that about 9 out of 10
organizations fail to implement their strategies.
What is needed is a measurement system that balances the historical accuracy
and integrity of financial numbers with today’s drivers of economic success, and in so
doing allows the organization to beat the odds of executing strategy.
Performance measurement provides the link between strategies and action.
Inappropriate measures lead to actions incongruent with strategies, however well
formulated and communicated. Appropriate measures should provide and strengthen
this link, and both lead to attainment of strategic goals and impact on the goals and
strategies needed to achieve them (Dixon et al., 1990). Effective performance
measurement systems link current operating characteristics to these long-term strategies
and objectives (Wisner et al., 2005, pg.433).
As many of the world’s businesses respond to increased competitive pressures
by attempting to develop and maintain a distinctive competitive advantage, the need to
develop effective performance measurement systems linking firm strategy to operating
decisions increases. Performance criteria that guide a firm’s decision making to achieve
strategic objectives must be easy to implement, understand, and measure; they must be
flexible and consistent with the firm’s objectives; and they must be implemented in
areas that are viewed as critical to the success of the firm. Thus, an effective
performance measurement system should consist of the traditional financial information
for external reporting purposes along with tactical-level performance criteria used to
assess the firm’s competitive capabilities while directing its efforts to attain other
desired capabilities. Finally, a good performance measurement system should include
measure of what is important to customers. These measures will vary by company and
through time as strategic changes occur to the firm, its products.
Creating an effective performance measurement system involves the following
steps ( Nicholas, J.,M.,1998; Wisner & Fawcett,1991):
- identify the firm’s strategic objectives;
- develop an understanding of each functional area’s role an the required
capabilities for achieving the strategic objectives;
- identify internal and external trends likely to affect the firm and its
performance over time;
- for each functional area, develop performance measures that describe each
capabilities;
49
Revista Tinerilor Economişti
- document current performance measures and identify changes that must be
implemented;
- assure the compatibility and strategic focus of the performance measures to be
used;
- implement the new performance system;
- periodically reevaluate the firm’s performance system as competitive strategies
change.
A feature of the leading organizations is that they successfully use performance
measurement not only to obtain information and to make judgments about the
organization and the effectiveness and efficiency of its programs, processes, and
people, but also they use performance measurement to drive improvements and
successfully translate strategy into action (The Procurement Executives’ Association,
2006, pg.3).
Various groups including the National Partnership for Reinventing Government
and the Center for Advanced Purchasing Studies suggest the following attributes of a
successful performance measurement and management systems (The Procurement
Executives’ Association, 2006, pg.6-8):
• A conceptual framework is needed for the performance measurement and
management system. Every organization needs a clear and cohesive
performance measurement framework that is understood by all levels of the
organization and that supports objectives and the collection of results.
• Effective internal and external communications are the keys to successful
performance measurement. Effective communication with employees, process
owners, customers, and stakeholders is vital to the successful development and
deployment of performance measurement and management systems.
• Accountability for results must be clearly assigned and well-understood. High-
performance organizations clearly identify what it takes to determine success
and make sure that all managers and employees understand what they are
responsible for in achieving organizational goals.
• Performance measurement systems must provide intelligence for decision
makers, not just compile data. Performance measures should be limited to
those that relate to strategic organizational goals and objectives, and that
provide timely, relevant, and concise information for use by decision makers—
at all levels—to assess progress toward achieving predetermined goals.
These measures should produce information on the efficiency with which
resources are transformed into goods and services, on how well results compare to a
program’s intended purpose, and on the effectiveness of organizational activities and
operations in terms of their specific contribution to program objectives.
1. Compensation, rewards, and recognition should be linked to performance
measurements. Performance evaluations and rewards need to be tied to specific
measures of success, by linking financial and nonfinancial incentives directly
to performance. Such a linkage sends a clear and unambiguous message to the
organization as to what’s important.
2. Performance measurement systems should be positive, not punitive. The most
successful performance measurement systems are learning systems that help
the organization identify what works—and what does not—so as to continue
with and improve on what is working and repair or replace what is not
working.
50
 Finances - Accounting
3. Results and progress toward program commitments should be openly shared
with employees, customers, and stakeholders. Performance measurement
system information should be openly and widely shared with an organization’s
employees, customers, stakeholders, vendors, and suppliers.

Ix The Balanced Scorecard and the Measurement of Performance

Developed by Robert Kaplan and David Norton, the Balanced Scorecard allows
an organization to translate its vision and strategies by providing a new framework, one
that tells the story of the organization’s strategy through the objectives and measures
chosen. Rather than focusing on financial control devices that provide little in the way
of guidance for long-term employee decision making, the Scorecard uses measurement
as a new language to describe the key elements in the achievement of the strategy. The
use of measurement is critical to the achievement of strategy.
In his book, Making Strategy Work, Timothy Galpin notes “measurable goals
and objectives” as one of the key success factors of making strategy work. While the
Scorecard retains financial measures, it complements them with three other, distinct
perspectives: Customer, Internal Processes, and Learning and Growth.
Organizations around the globe have rapidly embraced the Balanced Scorecard
and reaped swift benefits from its commonsense principles: increased financial returns,
greater employee alignment to overall goals, improved collaboration, and unrelenting
focus on strategy, to name just a few. To reap those rewards, however, an organization
must possess the tools necessary to craft an effective Balanced Scorecard.
The concept of balance is central to this system, specifically relating to three
areas ( Niven, 2002, pg 22- 23):
1. Balance between financial and nonfinancial indicators of success. The
Balanced Scorecard was conceived to overcome the deficiencies of a reliance
on financial measures of performance by balancing them with the drivers of
future performance.
2. Balance between internal and external constituents of the organization.
Shareholders and customers represent the external constituents expressed in the
Balanced Scorecard while employees and internal processes represent internal
constituents. The Balanced Scorecard recognizes the importance of balancing
the occasionally contradictory needs of all these groups in effectively
implementing strategy.
3. Balance between lag and lead indicators of performance. Lag indicators
generally represent past performance (customer satisfaction, revenue) that are
objective and accessible but lack predictive power. Lead indicators are the
performance drivers that lead to the achievement of the lag indicators. They
often include the measurement of processes and activities. On-time delivery
might represent a leading indicator for the lagging measure of customer
satisfaction. A Scorecard should include a mix of lead and lag indicators. Lag
indicators without leading measures do not communicate how targets will be
achieved. Conversely, leading indicators without lag measures may
demonstrate short-term improvements but don’t show whether these
improvements have led to improved results for customers and ultimately
shareholders.
Kaplan and Norton (Kaplan and Norton,1996) describe the steps in the design
of a balanced performance management system:
51
Revista Tinerilor Economişti
1. Translate strategy into action – the top management team has to translate the
strategy into specific objectives. Financial objectives must be set and then
customer, internal processes and core competences necessary to achieve those
objectives have to be established. After a consensus on the long-run objectives
is obtained, specific operational measures should be selected.
2. Select linked measures – every measure selected should be linked to a strategy.
There should be a cause-and- effect relationship in the chain from learning and
growth, to processes, to customers and to financial performance.
3. Link financial objectives to life cycle – the design of a scorecard must begin
with the identification of the organization’s life cycle as the financial objectives
differ depending on the stage of this life cycle.
4. Select a mix of customer measures – to be successful, companies must focus on
customer needs, so they have to select a mix of generic and custom measures.
The generic measures mostly used by companies are: market share, customer
retention, customer acquisition, customer satisfaction, customer profitability.
The custom measures should focus on product/service attributes, customer
relationship, and image and reputation.
5. Focus internal processes on meeting expectations - the focus should be on
customers and shareholders not on making incremental improvement to current
operations.
6. Focus on investments for the future - to achieve long-term success on the
financial, customer and internal processes of the BSC, firms must invest in
people, systems and procedures. Regarding the employees, firms measure
employee satisfaction, employee retention, employee productivity an employee
skills. Firms must invest in systems to ensure that employees have all the
information about customers. Procedures must ensure a positive organizational
climate that motivates employees to act in the best interest of the firm.

Conclusion
In an era of globalization, customer knowledge, and rapid change, the
successful implementation of strategy plays a crucial role. A performance measurement
system is needed to link the strategy with the action and it must include a balanced set
of measures linked to the organization’s strategy.
A sustainable competitive advantage, in the new economy, is based more on the
intangible assets like skills, systems and values than on physical and financial capital.
The Balanced Scorecard provides managers with the instrumentation they need to
navigate to future competitive success. It translates the organization’s mission and
strategy into a comprehensive set of performance measures. The BSC complements
financial measures of past performance with the measures of drivers of future
performance.

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