Surely all of us, whether we are nurturing a business project or directly participating in the management work, realize the importance of management. So, do you know how to control work, observe and monitor all the progress of the Enterprise? Surely you have
heard of the Balanced Scorecard (BSC) and Key Performance Indicator (KPI) - two trendy tools to support management. But to understand and accurately apply the BSC-KPI tool for your business, you need to approach it correctly, with the right source and be guided by the right expert.
We would like to introduce to you a service:
EFFECTIVE BUSINESS MANAGEMENT WITH BSC-KPI
Keeping track of all the activities of the company is not a simple matter. But just understanding the BSC-KPI tool, you are closer to success.
If you've ever wished for an integrated tool, powerful enough to:
- Keep track of all activities in the company: what is happening, where, who is responsible
- Control cash flow and evaluate performance after each project,
- Make long-term plans and know the progress of each stage of the organization,
- Check, accurately evaluate employees and have reasonable reward policies.
- All organizational processes are in place and on target.
Those wishes will come true when applying BSC-KPI to the entire management process.
If you:
- Do not want to regret any small mistakes throughout your management process.
- Want all business activities to be under control, and all plans to bring the highest efficiency.
Then the BSC-KPI tool is the solution for you.
BSC - KPI is a modern and effective management tool, analyzing and covering all four pillars of the company: Finance - Customers - Internal Processes - Training & Human Resources Development. This toolkit can help you:
Plan strategies and action plans for the Enterprise in accordance with the set mission.
Manage the work of all departments well while aiming at the common goals of the Enterprise.
Effectively control the cash flow of the Enterprise.
Internal processes will be completed in a professional and scientific manner.
There is a basis for setting targets for each department and each employee; a basis for calculating appropriate salary and bonus policies.
Training - evaluating - developing human resources according to the right needs, right capacity and activating creativity from employees.
Don't miss the opportunity to approach and apply BSC - KPI for your business!
What is BSC?
Balanced scorecard is a strategic planning and management system used in business, non-profit and government organizations to align business activities with the organization's vision and strategy, improve internal and external communication, and monitor business performance against set goals. This concept was introduced by Dr. Robert Kaplan at Harvard Business School and David Norton. This
is a performance measurement model that integrates non-financial indicators in addition to traditional financial indicators, allowing managers to have a more "balanced" view of business operations. The term balanced scorecard has been used since the 1990s, but its origins date back to General Electric's (GE) pioneering of performance reporting in the 1950s.
The balanced scorecard has evolved into a strategic planning and management system, derived from a simple business performance evaluation model. This system helps businesses implement strategies on paper into "action orders" for their daily operations. The balanced scorecard helps create models that not only measure performance but also help plan what needs to be done and evaluated. It allows managers to actually implement their strategies.
This strategic management approach was first described in detail in a series of articles and books by Drs. Kaplan and Norton. Recognizing the weaknesses and lack of transparency in previous management methods, the balanced scorecard management method helps provide specific solutions and shows businesses which factors to evaluate to 'balance' the financial aspect. The balanced scorecard is a management system (not an evaluation system) that allows businesses to clearly understand their vision and strategy and translate them into specific actions. It also encourages feedback on both internal business processes and business results to help managers continuously improve and increase operational efficiency. If used thoroughly, the balanced scorecard helps turn theoretical plans and strategies into the center of coordination of all activities in the business.
Kaplan and Norton describe the breakthrough of the balanced scorecard as follows:
“The balanced scorecard retains traditional financial metrics. These metrics reflect past performance, which is appropriate for companies operating in an industrial economy where investment in long-term capabilities and customer relationships is not a key factor in success. However, in an information economy, where companies are oriented towards creating future value through investment in customers, suppliers, employees, processes, technology, and innovation, financial metrics alone are not enough.” The balanced
scorecard
evaluates a company based on four scorecards, developing metrics, collecting data, and analyzing them for each scorecard.
Learning and Growth Scorecard
This scorecard covers employee training and corporate culture attitudes related to personal and corporate advancement. With the constant change in technology, employees must always be ready to learn at any time. Metrics can be used to help managers allocate training budgets in the most effective and reasonable way. In all cases, learning and growth capabilities create a solid foundation for business development.
Kaplan and Norton emphasize that “learning” is more necessary than “training”; this can be done through inviting training experts or using internal trainers, or creating an environment that encourages communication between employees to facilitate mutual learning.
Business Process Scorecard
This scorecard covers internal business processes. Metrics in this scorecard allow managers to understand the business situation, and whether products or services meet customer needs. These indicators should be developed by people who understand the business processes in the enterprise.
Customer scorecard
Modern management philosophy always appreciates the importance of customers and the method of meeting their needs. These are very important indicators: if customers are not satisfied, they will find other suppliers who are able to meet their needs. Poor performance in this scorecard is a sign that the business will have many uncertainties in the future, even though the current financial picture looks promising.
When building a customer satisfaction index, it is advisable to classify customers into groups and the service process for each group.
Financial scorecard
Kaplan and Norton do not deny the role of financial parameters. Accurate and timely financial data is always a top priority. In reality, there are always tasks that are beyond the scope of financial data processing. When applying a corporate database system, data processing tasks can be centralized and automated. But the problem is that the current emphasis on financial metrics creates an imbalance with other scorecards. Perhaps financial metrics, such as risk and cost-benefit assessments, need to be added.
Strategy Map
Strategy maps are communication tools that demonstrate the value created for the business. They show the logical, step-by-step linkages between strategic objectives in the form of cause-and-effect chains. In general, improving performance against the objectives set out in the learning and growth scorecard (the bottom row) enables the business to improve its business process scorecard (the second row from the bottom), which in turn produces the desired results in the customer and financial scorecards (the next two rows above).
What is KPI?
KPI in English is Key Performance Indicator , which means the index to evaluate the performance of the job. Normally, each position will have a job description or monthly work plan. The manager will apply the indexes to evaluate the effectiveness of that position. Based on the completion of the KPI, the company will have reward and punishment regimes for each individual.
What is a KPI? That depends on you setting the indexes for each position, but a kpi must also meet the 5 criteria of a goal. You need to learn more about management by objectives to know these 5 criteria.
To implement KPI, the company should build a system of goals from high to low according to the MBO method, however, there are jobs that are difficult to set goals, then people will build standards for the process (called the MBP process management method), those standards are also kpi.
In the section below, we would like to discuss some kpi for the departments.
1. KPI for sales - marketing:
1.1 Response rate / total number sent:
- Formula = total number of customer responses / total number of information sent to customers.
- This rate measures the effectiveness of direct marketing by sales reps. Direct marketing programs can be sending letters, sending emails...
1.2 Rate of customers lost after the first purchase:
- Formula = equal to the total number of first-time customers leaving / total number of first-time customers.
- This low rate can be due to the following reasons: your product is not suitable, the product is good but the advertising is not good, leading to non-target customers buying your product...
1.3 Product awareness level: measured before and after advertising
- Rate = number of people who recognize your product / total number of people who collect.
- This rate is measured before and after advertising.
See more -> evaluate work according to the kpi - full method
2. KPI to evaluate personnel efficiency:
2.1 Employee life cycle rate
- Employee life cycle rate = total time of service in the company of all employees/ total number of employees recruited by the company.
- You can calculate the life cycle for the whole company and for the title, for the department.
- For the title, if the life cycle is too low, this may not be due to the company but due to the nature of society, for example, the titles often work seasonally.
- For departments, it may be partly due to the management style of the department head leading to low life cycle of employees.
2.2 Rate of employees who do not complete tasks:
- Formula = number of employees who do not complete tasks/ total number of employees.
- You consider this rate for the whole company and for each department.
- Too low rate of the company or each department requires your attention. Sometimes you also need to review, the ratios are too low because the department boss evaluates too harshly, on the contrary, almost no employees are evaluated poorly or well, which makes you pay attention (the boss tends to be egalitarian).
3 KPIs for production:
3.1 Consumable material usage ratio:
- Formula: = actual consumption outside the norm / allowable consumption.
- This ratio is measured by 100%. The higher the ratio, the more the business has consumed the materials outside the norm.
- This ratio helps you determine the average consumption of materials, thereby deciding on the appropriate ratio for upcoming orders. In processing units, low consumption ratio helps businesses have more income when reselling the remaining consumable materials.
BSC and KPI - Tools to realize the leader's dream >
The Balanced Scorecard (BSC) system is a strategic management system based on measurement and evaluation results, applicable to all organizations. In other words, BSC is a method of converting vision and strategy into goals, evaluation indicators and specific activities. The Key Performance Indicator (KPI) system is a tool for measuring and evaluating work efficiency expressed through data, ratios, and quantitative indicators, to reflect the performance of organizations, functional departments or individuals.
If BSC evaluates the completion of a business through 4 indicators (finance, customers, internal operations, research and development activities), helping businesses develop in a balanced and sustainable manner, KPI is applied for many purposes: managing the work system of an organization, self-managing the work of a group, self-managing the work of an individual.
BSC & KPI help connect leadership strategy and business strategy. Leadership
strategy is the process of realizing the dream of a business owner, encouraging employees to implement the business plan. So, how to effectively connect leadership strategy with business strategy? According to Business Resources, to ensure business goals, business owners need to implement leadership strategy in parallel with the business strategy of both the company and functional departments (marketing, sales...). To do this, leaders must know how to communicate and share with employees about their "dream" as well as the vision and mission of the business.
Using modern tools such as BSC and KPI will help business owners deploy leadership strategies into management goals and specific action programs for each department and each employee.
In reality, most Vietnamese businesses have only built a general vision, such as: "I will rise to the leading position in the industry in the next 10 or 20 years". However, the problem is to "detail" that dream - to clearly identify which aspect the business will lead in (in terms of creativity or customer satisfaction index...) and continue to set specific goals. The close connection between the leader's "dream" and goals with the subordinate's action plan through the method of decentralization, empowerment, assigning targets, allocating resources - budget... always brings success to every business management strategy. On the other hand, to connect the leadership strategy with the business strategy, the business owner must also understand the aspirations and motivations of the employees to be able to build a common direction according to the principle of mutual benefit, creating a long-term connection. With the KPI work performance measurement tool, the leader can evaluate the capacity as well as the career development orientation for employees in a clear and reasonable way.
Applying BSC and KPI in the enterprise - Some things to note
Up to now, to evaluate business performance, most Vietnamese enterprises have only relied on financial indicators such as revenue and profit. Comprehensively evaluating business performance using two tools BSC and KPI is still quite new to domestic enterprises. Aiming for professionalism in management skills, some enterprises such as ICP, Kinh Do, Saigon Paper, ACB Bank, Tan Hiep Phat, Searefico... have applied BSC and KPI, but most of them are still in the testing phase. Initial results from applied enterprises show that BSC and KPI have the most obvious effect in "front office" departments such as marketing, sales, customer service... Thanks to the KPI work performance evaluation tool, employee motivation has been significantly improved and this is demonstrated through awareness, attitude and teamwork spirit.
According to some business management experts, the application of BSC and KPI in the leadership strategy of Vietnamese businessmen is very necessary, especially for companies that have a policy of management by objectives and management orientation by work efficiency. However, the application of these two tools is not simple, requiring a lot of effort and time to research and test each step. According to Business Resources, in order to be able to apply successfully, first of all, the enterprise must have the highest connection (from the board of directors to the staff departments) to build a suitable resource. The next step is to clearly define the goals and strategies for about 3-5 years and then establish a specific action plan for each year, build performance evaluation indicators, allocate responsibilities, allocate resources, set a deadline for completion... During the testing phase, the enterprise can accept large errors in results, budgets, and activity programs to gradually gain experience and perfect the system. Another important thing is that businesses must know how to "communicate" so that all members understand and voluntarily apply the spirit of "effective working" to each project and each team from proactively planning goals for themselves.
Stages to successfully build BSC & KPI
Perhaps, you have heard a lot or have also studied the knowledge and methods of building KPI (Key performance indicators) or Balanced Scorecard (BSC). However, the number of successful businesses is probably not much due to the lack of competent people or lack of skills in change management. The following article will provide you with some of my methods and experiences after implementing the BSC and KPI construction project at my business. Maybe someone will find the content in my article is not the same as what you and your friends have researched in books or the internet, but it is a useful, practical and feasible method and experience for you when implementing the project at your business.
"Three stages to successfully implement a KPI building project for businesses"
The biggest mistake of businesses is to think that when implementing a KPI project, they only need to build it once and it will be successful immediately. This reality has led to many businesses either building too many unnecessary indicators, leading to a waste of time in evaluation and management, or building too few indicators without really screening and selecting what is needed for the business, and finally having indicators that sound very professional and may be being applied in large multinational corporations but are not suitable for the management capacity and information technology system of the business.
In such cases, either the business is wasting time and human resources on a cumbersome system of indicators, or the business will be like a 2-year-old child who has been forced by his parents to read, write, and do math fluently. I do not deny that there are such children who have become geniuses, but clearly their number is very small, the vast majority of our children are normal children and must go through a period of nurturing, training, and education to be able to do those things.
The same goes for our business, when our management system and capacity are only like a 2-year-old baby or let's say an 8 or 10-year-old, we still cannot do the work of an adult. Therefore, if we apply the target system that is being applied in corporations with a management system of several hundred years, it will be an overwhelming task and when it fails, it will easily cause discouragement and not create motivation for both leaders and employees in the business. Therefore, the 3 stages that I would like to introduce to you are as follows:
1. Stage 1: let's temporarily call it the toddler stage.
At this stage, it is important that you are determined and motivate your staff to implement this project. From nothing, you start to familiarize yourself and your staff with terms such as KPI, BSC, understand what are the indicators/measures that can be measured from the work they are doing instead of the emotional assessments of you in particular or of the superior management in general.
Let them start from their own functions, tasks and work assignments, from the strategic orientation (strategic map) and the organization's balanced scorecard, set out the main goals for the Department's work or if it is still difficult, just let the Departments set out an Action Plan including the work content that they have to perform, regardless of whether the quantity is large or small, support them in establishing measurable measures from their work results and finally set planning targets for it.
From the Action Plan and the completion of the system, changing the behavior of employees to improve the efficiency and productivity of the business, the business has succeeded 50% in the project. The remaining 50% will depend on the next two stages that I will present below.
Key points to note in phase 1:
- Things not to do:
+ Don't care whether you have KPIs that are really KPIs or whether your KPIs are really similar to the KPIs being applied in similar businesses in the same industry.
+ Don't care how many metrics you have, whether it is a lot or a little.
- Points to consider:
+ The important thing is whether you have established measurable metrics, created SMART goals for your employees to aim for, changed their behavior, and motivated them to work more proactively and responsibly.
+ The important thing is whether you have changed the perception of everyone in the organization to see the benefits that KPI brings to individuals and the organization. From there, the business can improve labor productivity, and managers can have an additional effective management tool so that employees in the organization can work towards the common goals of the business, and can more accurately and quantitatively evaluate the results of employees' work, avoiding emotional assessments, averages, or relying only on outstanding achievements in a certain period of time without comprehensively evaluating the entire work process of employees during the year. Employees who are more proactive in their work, have a clear goal to aim for, and have their results accurately evaluated will be motivated to strive and work better and more effectively for the organization.
2. Phase 2: Fall and get up.
Just like a baby learning to walk, there will be times when it stumbles and falls. Therefore, after finishing phase 1, you will have to re-evaluate the KPIs that have been built, see which are not suitable, which can be removed, which need to be added to make adjustments to be more reasonable and effective. However, no matter how many mistakes you make, don't be discouraged. Nothing is perfect the first time. When babies learn to walk, they stumble and sometimes it hurts a lot, but they are still determined to walk and finally walk steadily. Only by stumbling can you gain experience to walk more steadily and maintain better balance. Therefore, don't be discouraged. Learn from experience and continue to improve. Only by learning from mistakes can you succeed. Abraham Lincoln failed 12 times before succeeding as President and became the most outstanding leader who is still mentioned in history and learned from by many generations of presidents and leaders.
This is also the stage for you to complete the management systems if there are any gaps, software systems, technology to support the management of KPIs and evaluate the results achieved from the organizational to individual levels. These will be important foundations to help you succeed in the next stage.
3. Phase 3: Go steady.
After evaluating the results of phase 1 and completing the work in phase 2, you will determine what you need to complete. At this stage, your company is also relatively fully equipped with the necessary knowledge and methods of BSC and KPI. You should apply the knowledge of determining goals according to BSC to transfer the Company's strategic map into the BSC of the Corporation in a more systematic, feasible, effective and coherent way to serve as a basis for further dividing the goals down to the Department level and finally to individuals.
Thus, you not only implement empowerment but also create motivation and mobilize the strength of the whole group to work towards achieving the common goals and strategies of the organization in a consistent, systematic and effective manner. At this time, you can also refer to and apply the KPIs that are being applied in the industry and multinational organizations if any because you have built for yourself a management system and software with enough capacity to manage and operate these KPIs, contributing to the implementation of the organization's strategic goals in a systematic and effective manner.
Meanwhile, in terms of human resources, you have motivated your employees better, they are evaluated fairly and accurately, paid according to their abilities and work results, so they dedicate themselves more to the organization, thereby making the overall labor productivity of the organization truly improved.
Above are some experiences shared by Business Resources. Wish you success in implementing KPI projects at your unit.
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