The Effects of the Implementation of the Balanced Scorecard on the Performance of the Riyad Bank - Dissertation Example

?RESEARCH PROPOSAL THE EFFECTS OF THE IMPLEMENTATION OF THE BALANCED SCORECARD (BSC) ON THE FINANCIAL PERFORMANCE OF A SAUDI COMPANY – THE CASE OF THE RIYAD BANK 1. Description of Academic Area A study on the potential implications and benefits of the Balanced Scorecard as a key strategic tool for supporting the financial performance of a firm operating in the financial services industry of Saudi Arabia. 2. Criteria of research in terms of industry and geographical area The study will refer to the banking sector of a particular country, Saudi Arabia. At the next level, the research will be developed in regard to a particular firm, the Riyad Bank, one of the most powerful competitors in the Saudi Arabia banking sector. 3. Analysis of the industry Saudi Arabia is one of the most powerful economies worldwide – even if it is not yet fully developed; the country has been a member of the WTO since 2005 (Abdallah, 2007), a fact that has been proved quite important for its economy. In accordance with a recent report of KPMG, Saudi Arabia is considered as ‘the 13th best place to do business’ (Fozan 2009). One of the key characteristics of the country’s banking sector is its dependency on the principles of Islamic finance (Mena FN 2011), a fact that should be taken into consideration when evaluating the potential effects of the Balanced Scorecard Model on the financial performance of banks in the particular country. The performance of the country in regard to each particular industrial sector is presented below in Graph 1. It is clear that the financial services sector of the specific country is of key importance for the national economy; the identification of methods that could enhance the performance of firms operating in this industry would be of significant value – in terms of the expected benefits for the country’s economy. Graph 1- Performance of Saudi Arabia – sector breakdown (Source: Standard & Poors, 2011) The potential use of Balanced Scorecard framework in organizations operating in various industries across Saudi Arabia has been set under examination in the Balanced Scorecard Forum that was held in 11-15 December in Saudi Arabia (Balanced Scorecard Forum, 11-15 December 2010). The use of the specific framework in the country’s banking sector would be examined through this study highlighting all the potential requirements/ implications of such project. 4. Research problem The use of Balanced Scorecard as a strategic tool for supporting the performance of firms in the banking sector has been often characterized by failures; for firms in the banking sector of Saudi Arabia could a different result be expected? 4.1 Issues addressed in the research The research developed for this study focuses on the examination of the following issues: a) the theoretical framework of the Balanced Scorecard, b) the practical aspects/ requirements of the Balanced Scorecard when is used as a strategic tool for supporting the financial performance of modern firms, c) the expected benefits and the potential drawbacks of the Balanced Scorecard both in the short and the long term; reference will be made particularly to the effects of the Balanced Scorecard on the financial performance of firms in the banking sector, d) the use of Balanced Scorecard as a strategic tool in the banking sector of Saudi Arabia – referring to the presentation of the level at which the Balanced Scorecard is used by firms in the banking industry of the particular country, e) the expected requirements of the Balanced Scorecard if its implementation is attempted in firms operating in the banking industry of Saudi Arabia, f) the effects that the implementation of the Balanced Scorecard would be expected to have on the financial performance of banks in Saudi Arabia. 4.2 Issues excluded from the research The following issues will not be included in the research: a) the potential use of other similar models for the support of the financial performance of banks in Saudi Arabia, b) the potential combination of Balanced Scorecard with other strategic tools of similar characteristics, c) the effects of Balanced Scorecard on the financial performance of firms of various industries across Saudi Arabia – i.e. reference is made particularly to the firms operating in the banking industry of the specific country. 4.3 Research objectives The research objectives of the research are the following ones: a) to show the importance of Balanced Scorecard as a strategic tool for supporting the financial performance of firms operating in the banking sector, b) to highlight the needs/ requirements of Balanced Scorecard when being in banks, c) to prove that the financial performance of banks in Saudi Arabia could be improved using the specific strategic management tool. 5. Research Methodology The research methodology of the proposed study will have the following two forms: a) the literature published on the issues under discussion – as explained in the section 4.1 above – will be reviewed and critically discussed. It should be noted that the literature employed in the proposed study should meet the following criteria: a1) only recent studies – published from 2005 onwards will used; studies published before 2005 will be used only if there is no material available on a study’s critical issue and the particular study is the only resource on the issue under examination, a2) only academic studies will be used; non-academic studies will be involved in the study only if the information included is not accessible otherwise, for instance the websites of governmental or non-governmental organizations; b) a qualitative research tool, the case study analysis, will be also employed in this study; the performance of a firm operating in the Saudi Arabia banking sector will be critically analyzed using the Balanced Scorecard model of Kaplan and Norton – as explained in section 7 below. The reference to a particular organization – in the context of the case study analysis – is necessary in order to show the actual effects of the specific Model on the financial performance of the firm under examination. Moreover, the proposed study focuses on the effects of the Balanced Scorecard on the financial performance of a particular organization; therefore, the use of the case study analysis as a research method for supporting the proposed study is quite necessary. 6. Literature review The use of Balanced Scorecard in modern organizations has been related to a series of benefits; however, the above Model has certain requirements – in terms of the processes followed and the criteria involved in the interpretation of findings; otherwise, the benefits of the Model are limited. The examination of the requirements and the effects of Balanced Scorecard through the literature published in the particular field has led to the conclusion that the above Model is particularly valuable in managing the performance of firms in all industrial sectors. However, it has been also proved that the requirements and benefits of the Balanced Scorecard are not standardized; for this reason, the characteristics and the needs of the internal and the external organizational environment should be carefully reviewed before using the specific Model for managing the performance of a specific organization. The Balanced Scorecard is a theoretical model – see Graph 2 below – which is used for managing the performance of an organization; the measurement of the performance is developed gradually, in phases, as presented in Graph 2, section 7. The Balanced Scorecard Model developed by Kaplan and Norton is based on the principle that when managing the financial performance of an organization, ‘the focus on the past (financials) needs to be balanced by a focus on the future (people)’ (Holbeche 2005, p.248). In the above context, both financial and non-financial measures are involved in the measurement of performance of a particular organization – a fact that increases the credibility and the value of the above Model (Jackson et al. 2008, p.442). At this point, the Balanced Scorecard Model offers an integrated view of the organization, a fact that helps managers to develop accurate and effective strategic plans (Scarlett 2001). However, it would be necessary for managers to examine in advance ‘the level of the Balanced Scorecard adoption’ (Epstein et al. 2010, p.15). In accordance with Niven (2006) one of the key advantages of the Balanced Scorecard when is used for managing the performance of a particular organization is that it is able to indicate the potential improvement of this performance under the terms that the firm’s strategic practices are based on similar criteria; more specifically, it is explained that the Balanced Scorecard can help ‘to balance the accuracy of the financial measures with the drivers of future financial performance of the organization’ (Niven 2006, p.5). On the other hand, Needles et al. (2007) note that the most important characteristic of the Balanced Scorecard is its ability to develop a link between ‘the perspectives of the stakeholders and the organization’s mission and objectives’ (Needles et al. 2007, p.773). Because of its structure and its criteria, the above Model offers to the firm’s managers the ability ‘to have a fast but comprehensive view of the business’ (Broadbent et al 2003, p.310). 7. Academic models employed in the study As noted above, the research developed for this study will have two different forms: a) the review of the literature and b) the case study analysis. In the case of the literature, the criteria used have been analyzed above – section 5; however, the second part of the research, the case study analysis requires the use of a specific academic model, the Balanced Scorecard, as developed by Kaplan and Norton; in fact, the use of this Academic model is unavoidable since it is a key element of the study’s subject – as analyzed in previous sections. The specific Academic Model will be used in this study as follows: a) the various phases of the Model will be gradually developed using data related to the firm under examination – the Riyad Bank, b) the Academic Model of Kaplan and Norton – as presented below in Graph 2 – will be used as the basis; a similar Model will be created included information related to Riyad Bank, c) the results/ findings of each phase will be evaluated by referring to the relevant literature; particular emphasis will be given on the issues highlighted by Kaplan and Norton in regard to the practical requirements and implications of the specific Academic Model. Graph 2 – Balanced Scorecard (Source: The Balanced Scorecard Institute, 2011) 8. Phases of the study - Gantt Chart Week/ Task 1 2 3 4 5 6 Development of the first part of the study/ Introduction, objectives, limitations Literature Review Chapter Development of the Balanced Scorecard Model for Riyad Bank/ Case study analysis section Discussion of findings/ results using the literature Conclusion/ Recommendations section of the study References/ Bibliography Broadbent, M., Cullen, J. (2003) Managing Financial Resources. Butterworth-Heinemann Carton, R., Hofer, C. (2008) Measuring Organizational Performance: Metrics for Entrepreneurship and Strategic Management Research. Edward Elgar Publishing Eigenmann, U. (2007) Design and Implementation of a Human Capital Oriented Balanced Scorecard in an Engineering Services Unit. GRIN Verlag Epstein, M., Lee, J. (2010) Advances in Management Accounting, Volume 18. Emerald Group Publishing Fleisher, C., Blenkhorn, D. (2001) Managing frontiers in competitive intelligence. Greenwood Publishing Group Holbeche, L. (2005) The high performance organization: creating dynamic stability and sustainable success. Butterworth-Heinemann Hubbard, E. (2004) The diversity scorecard: evaluating the impact of diversity on organizational performance. Butterworth-Heinemann Jackson, S., Sawyers, R., Jenkins, G. (2008) Managerial Accounting: A Focus on Ethical Decision Making. Cengage Learning Kaplan, R., Norton, D. (2002) The balanced scorecard. Harvard Business Press Meyer, M. (2003) Rethinking performance measurement: beyond the balanced scorecard. Cambridge University Press Needles, B., Powers, M., Crosson, S. (2007) Financial and Managerial Accounting. Cengage Learning Niven, P. (2006) Balanced scorecard step-by-step: maximizing performance and maintaining results. John Wiley and Sons Scarlett, R. (2001) Value-based management. Elsevier Verweire, K., Berghe, L. (2004) Integrated performance management: a guide to strategy implementation. SAGE Warren, C., Reeve, J., Duchac, J. (2008) Financial and Managerial Accounting. Cengage Learning Online Sources Abdallah, I., March 22, 2007, Cultural Barriers to Improving Performance in Saudi Arabia, SAM Advanced Management Journal, available from http://www.allbusiness.com/management/4508149-1.html Balanced Scorecard Forum, 11-15 December 2010, Saudi Arabia, available from http://www.iirme.com/bscsaudi/speakers Fozan, A., 2009, Saudi Arabia, available from http://www.kpmg.com/Global/en/WhoWeAre/Performance/AnnualReviews/PublishingImages/IAR2009/KPMGannual09-12/global_growth_saudiarabia.html Mena FN, 2011, Islamic Finance to Flourish in Saudi Arabia, available from http://www.menafn.com/qn_news_story_s.asp?StoryId=1093317599 Riyad Bank (2011) Corporate website, available from http://www.riyadbank.com/index_en.html S&P, Indices, Saudi Arabia, 2011, avaible from http://www.standardandpoors.com/indices/sp-saudi-arabia/en/us/?indexId=spgbbmemglusduf--p-sa---- The Balanced Scorecard Institute (2011), Balanced Scorecard, as Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review (January-February 1996): 76, available from http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx Read More