MBA Thesis on On EFFECTS OF BALANCED SCORECARD IMPLEMENTATION ON ORGANIZATIONAL PERFORMANCE IN CASE OF ABAY BANK S.C BY ASFAWOSEN DINGAMA

1. ARSI UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF MANAGEMENT
MBA PROGRAM
EFFECTS OF BALANCED SCORECARD IMPLEMENTATION ON
ORGANIZATIONAL PERFORMANCE IN CASE OF ABAY BANK
S.C
BY
ASFAWOSEN DINGAMA
ID No-GS/EX0113/12
ADVISOR
DR. HABTAMU DADI
A THESIS SUBMITTED TO DEPARTMENT OF MANAGEMENT
FOR PARTIAL FULFILLMENT OF THE REQUIREMENTS OF
MASTERS OF BUSINESS ADMINISTRATION (MBA)
JUNE, 2022
ASELLA, ETHIOPIA

2. i
DECLARATION
I, Asfawosen Dingama, declare that the work included in this research is my own work
carried out by me under the guidance of my advisor. The MBA thesis I have submitted
has not been submitted for any other purpose to any other higher education institution/s.
I also declare that I have adhered to all principles of academic honesty and integrity and
have not misrepresented or fabricated or falsified any idea/data/fact/source in my
research endeavor, and the sources used are duly acknowledged. I understand that any
violation of academic integrity will be cause for disciplinary action by the University.
Name of the Student: Asfawosen Dingama
Signature of the student:
Date: June 2022

3. ii
ADVISOR CONFIRMATION
This is to certify that the thesis entitled ‘Effects of Balanced Scorecard Implementation
on Organizational performance in case of Abay Bank S.c’ submitted to Arsi University,
College of Business and Economics, Department of Management for the award of
Masters of Business Administration (MBA) is carried out by Mr. Asfawosen Dingama,
under my supervision is correct and fulfill all required standard and commensurate with
academic integrity. Hence, I attest the student can submit the MBA Thesis to the
department for further evaluation by the board of the examiners.
Name of Advisor: Dr. Habtamu Dadi
Signature of the Advisor:
Date: June 2022

4. iii
APPROVAL SHEET
ARSI UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF MANAGEMENT
MBA PROGRAM
Submitted By:
Asfawosen Dingama
ID No-GS/EX0113/12 _______ __June,2022_____
Name of Student Signature Date
APPROVED BY BOARD OF EXAMINERS
Name Signature Date
1) _________________________ _______________ ______________
(Chairperson)
2)__________________________ ________________ ______________
(Internal Examiner)
3) __________________________ ______________ ____________
(External Examiner)

5. iv
ACKNOWLEDGEMENTS
First and foremost, I thank the Almighty God for the gift of life, strength and health
during the entire period of my studies.
I wish to also thank my former manager Zegeye Salemichael, and colleagues, Habte and
Korsa for standing in for me when I had to rush for classes and for giving me a peaceful
environment at work.
Above all, this research was made successful through the guidance and input of very
important people, whom I am deeply indebted to. I first acknowledge my supervisor, Dr.
Habtamu Dadi who availed himself for guidance out of his busy schedule and tirelessly
followed up my progress. And all the staff in Abay Bank who provided me with the
necessary data.
My sincere gratitude also goes to my spouse Nardos Tefera, for the moral support and
sacrifices she had to make for my success.
Lastly, I am grateful to the friendly, dedicated, encouraging and helpful classmates who
stood with me all through.

6. v
LISTS OF ACRONYMS
BSC: Balanced Scorecard
ERP: Enterprise Resource Planning
IBM: International Business Machines
KPIs: Key Performance Indicators
OP: Organizational Performance
ROA: Return on Asset
ROE: Return on Equity
S.C: Share Company
SPSS: Statistical Package for the Social Sciences

7. vi
TABLE OF CONTENTS
Table of Contents
DECLARATION ........................................................................................................................................i
ADVISOR CONFIRMATION.................................................................................................................ii
APPROVAL SHEET................................................................................................................................iii
ACKNOWLEDGEMENTS.....................................................................................................................iv
LISTS OF ACRONYMS ..........................................................................................................................v
TABLE OF CONTENTS.........................................................................................................................vi
LISTS OF TABLES..................................................................................................................................ix
LISTS OF FIGURES.................................................................................................................................x
ABSTRACT...............................................................................................................................................xi
CHAPTER ONE.........................................................................................................................................1
INTRODUCTION......................................................................................................................................1
1.1 Background of the Study ....................................................................................................................1
1.2 Statement Of the problem...................................................................................................................4
1.3 Research Questions .............................................................................................................................6
1.4 Research Objectives ............................................................................................................................6
1.4.1 General Objective.............................................................................................................................6
1.4.2 Specific Objectives...........................................................................................................................6
1.5 Significance of the Study....................................................................................................................6
1.6 Scope of the Study...............................................................................................................................7
1.7 Limitation of the Study.......................................................................................................................8
1.8 Operational Definition of Key terms.................................................................................................8
1.9 Organization of the Paper...................................................................................................................9
CHAPTER TWO......................................................................................................................................10
REVIEW OF RELATED LITERATURE............................................................................................10
2.1 Theoretical Review............................................................................................................................10
2.1.1 Concept of Balanced Scorecard....................................................................................................10
2.1.2 The Balanced Scorecard Model: ..................................................................................................11
2.1.2.1 Financial perspective ..................................................................................................................13
2.1.2.2 Customer perspective..................................................................................................................15

8. vii
2.1.2.3 Internal business process perspective.......................................................................................15
2.1.2.4 Learning and growth perspective..............................................................................................16
2.1.3 Phases and steps of the Balanced Scorecard...............................................................................17
2.1.3.1. Assessment..................................................................................................................................18
2.1.3.2. Strategy........................................................................................................................................18
2.1.3.3. Objectives....................................................................................................................................18
2.1.3.4. Strategic Map..............................................................................................................................18
2.1.3.5. Performance Measures and Targets.........................................................................................18
2.1.3.6. Strategy Initiatives. ....................................................................................................................19
2.1.3.7. Performance Analysis/Automation..........................................................................................19
2.1.3.8. Cascading/Alignment ................................................................................................................19
2.1.3.9. Monitoring and Evaluation .......................................................................................................19
2.1.4 The Rational for Performance Measurement..............................................................................19
2.1.5 Abay Bank S.c’s Corporate Balanced Scorecard.......................................................................21
2.2 Empirical Review ..............................................................................................................................22
2.2.1 Summary and gap in existing literature.......................................................................................24
2.3 Conceptual Framework of the Study...............................................................................................26
2.3.1 Hypothesis.......................................................................................................................................27
CHAPTER THREE .................................................................................................................................28
RESEARCH DESIGN AND METHODOLOGY ...............................................................................28
3.1 Research Design.................................................................................................................................28
3.2 Research Approaches........................................................................................................................28
3.3 Population and Sample......................................................................................................................29
3.3.1 Target Population ...........................................................................................................................29
3.3.2 Sampling Techniques.....................................................................................................................29
3.3.3 Sampling Design.............................................................................................................................29
3.4 Data Collection Tools and Procedure .............................................................................................30
3.4.1 Data collection Tools .....................................................................................................................31
3.4.2 Data collection Procedure .............................................................................................................31
3.5 Validity and Reliability of Instruments ..........................................................................................32
3.6 Data Analysis .....................................................................................................................................33

9. viii
3.7 Ethical Consideration........................................................................................................................34
3.8 Model Construction...........................................................................................................................34
CHAPTER FOUR....................................................................................................................................35
DATA ANALYSIS AND INTERPRETATION .................................................................................35
4.1 Characteristics of the Respondents..................................................................................................35
4.2 Analysis of Data on Balanced scorecard Perspectives .................................................................37
4.2.1. Financial Perspective ....................................................................................................................38
4.2.2 Customer Perspectives...................................................................................................................40
4.2.3 Internal Process Perspectives........................................................................................................41
4.2.4 Learning and Growth Perspectives ..............................................................................................43
4.3 Key Performance Improvement due to BSC implementation .....................................................44
4.3.1 Correlation Analysis.......................................................................................................................47
4.3.2 Regression analysis ........................................................................................................................48
CHAPTER FIVE......................................................................................................................................52
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS..........................52
5.1 Introduction ........................................................................................................................................52
5.2 Summary of Major Findings ............................................................................................................52
5.3 Conclusion..........................................................................................................................................54
5.4 Recommendations..............................................................................................................................57
REFERENCES.........................................................................................................................................59
APPENDIX...............................................................................................................................................67

10. ix
LISTS OF TABLES
Table 1: Sample distribution of the study......................................................................... 30
Table 2: Reliability Analysis of using SPSS Version 26………………………………...33
Table 3: Backgrounds of respondents............................................................................... 36
Table 4: Financial Perspective.......................................................................................... 38
Table 5: customer Perspective .......................................................................................... 40
Table 6: Internal Business Perspective ............................................................................. 42
Table 7: Learning and Growth Perspective ...................................................................... 43
Table 8: Organizational Performance Due to BSC implementation................................. 45
Table 9: Correlations analysis model................................................................................ 47
Table 10: Model Summary for BSC Effect on organizational performance .................... 49
Table 11: ANOVA for BSC Effect on organizational performance................................. 49
Table 12: The Coefficients Table of Enter Mode: BSC implementation indicators and OP
........................................................................................................................................... 50

11. x
LISTS OF FIGURES
Figure 1: Balanced scorecard perspectives....................................................................... 12
Figure 2: The nine steps of BSC Implementation............................................................. 17
Figure 3: Corporate scorecard of Abay Bank S.c ............................................................. 21
Figure 4: Conceptual Framework of the Study ................................................................ 26

12. xi
ABSTRACT
A balanced scorecard is one of the management systems that supports an organization to
achieve its vision by aligning the organization’s corporate goals with every employee’s
day-to-day activities. It has been largely used as a strategy and performance framework
in business organizations throughout the world. This research was conducted on the
effects of balanced scorecard implementation on organizational performance in Abay
Bank S.c. The main objective of the study is to explore the effects of balanced scorecard
implementation on organizational performance measurement with emphasis on the Abay
Bank S.c. The overall purpose of this study is to explore major areas that Balanced
scorecard emphasis and how balanced scorecard perspectives (customer perspective,
internal process perspective, learning and growth perspective, and financial perspective)
influence organizational performance. In this study, BSC significance has been discussed
and analyzed. The explanatory research design employed to explore the cause and effect
relation between variables undertaken in this study in which data has been collected and
analyzed by using descriptive and inferential statics. A mixed research approach was
used. Primary data were collected from respondents through a structured questionnaire.
The study used stratified sampling technique from quantitative research methods to select
employees of Abay Bank S.c as respondents. The scope of this study is limited by
conceptually, geographically, methodologically and time period. The findings of this
study revealed that the implementation of the balanced scorecard has a positive relation
to the performance of the bank. The study revealed that non-financial perspectives are as
important as financial criteria in measurement systems, and when both measures are
integrated into the system, they lead to more results. The implementation of a balanced
scorecard was found improved the performance of the bank. The study concludes that
Abay bank implemented the balanced scorecard perspectives and it improved the
performance of the bank. The study recommends that the bank should maintain these
pillars of the balanced scorecard to ensure support by the bank’s employees and
management for further improvement.
KEYWORDS: Abay Bank, Balanced scorecard, Balanced scorecard perspectives,
Organizational performance

13. 1
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The recent wave of increased complexity and multi-facet business environment, and the
fact that global political and economic integration and increased concerns about
standardized and customer-tailored service delivery activities have posed challenges to
organizations all around the world which, in turn, led to an increased interest of new
methods of running and controlling business: that focus on competition through more
flexible, customer-oriented, prompt and up to date services as a driving force for
improved productivity and enhanced overall organizational performance.
A bank as a part of the financial system plays a vital role in contributing to the dynamic
development of a country’s economy. The health of the economy is closely associated
with the soundness of its banking industry. In a developing country like Ethiopia, the
banking system as a whole plays a very important role in the progress of economic
development. Therefore, the prevalence of profitable banks that can generate sufficient
funds for economic growth is a requirement. Hence a banking system, as far as it is the
heart of a country’s economy, should be wisely, systematically, and competently operated
and controlled to enable it to compete and survive within the fierce and dynamic
competitive business environment of the knowledge age both within the short run and
also as within the long run. An effective and efficient operation and controlling system
need comprehensive, flexible, and multi-criterion performance measurement (Assefa
Worede, 2016).
Like all organizations, Banking sectors need to find an effective way to align their
strategies with corporate goals based on performance analysis. Performance
measurement, as a component of the management control process, plays a significant role
in organizational effectiveness (Slater and Olson, 2012). However, it is vital to put an
effective, reliable performance measurement that evaluates the success or failure of a
bank, assesses the bank’s current status, and predicts its future health (AlSawalqa, 2013).

14. 2
This requires adopting appropriate performance measures that enhance the competitive
environment of the banking system. Given that banks often measure financial
performance, omitting non-financial performance is a crucial part of their overall
operations and has an immediate impact on financial performance.
Some studies indicate the dominance of financial measures in measuring organizational
performance. Although empirical evidence suggests that the dependence of organizations
is only on financial performances characterized by the machinelike, physical asset-based
nature of early industrial endeavors, they are ill-equipped to capture the value-creating
mechanisms of today’s modern business organization. Besides, using financial measures
was criticized as short-term focused and dependent only on historical data. Intangible
assets like employee knowledge, customer and supplier relationships, and innovative
cultures are the key to producing value in today’s economy. Additionally, the importance
of a differentiation strategy is more important today than it has ever been (Paul R. Niven,
2013).
The use of non-financial measures alongside financial measures was believed to be
forward-looking (Slater and Olson, 2012). The changing needs of customers, the
increased concern of shareholders on their investment, the advancement in technological
development, and therefore the got to win a competitive edge in the market are among the
factors pushing organizations to shift their strategic priorities from low-cost production to
differentiation (Ghosh and Mukherjee, 2016). This has diverted the main target of being
unique in terms of quality, short lead time, and dependable delivery, which may be a shift
in the external marketing approach to create satisfaction for the customers (Al Sawalqa,
et al. 2013). All these dynamics have revealed further the limitations of traditional
performance measures that focused only on financial measures.
Designing and implementing performance measurement frameworks that blend financial
as well as non-financial indicators is a key to maintaining a healthy and stable banking
system. A large number of performance measurement frameworks have been designed, of
which the Balanced Scorecard (BSC) framework (Kaplan and Norton, 1996) have been
more widely accepted (Xu and Goedegebuure, 2015). These approaches were developed
out of the need to focus on non-financial measures and achieve the ultimate financial
objectives.

15. 3
The concept of the balanced scorecard was developed by Robert Kaplan and David
Norton in 1992. The name balanced scorecard comes from the thought of looking at
strategic measures in addition to traditional financial measures to urge a more balanced
view of performance. The balanced scorecard (BSC) is a strategic planning and
management system that organizations use to: communicate what they are trying to
accomplish, align the day-to-day work that everybody is doing with strategy, prioritize
projects, products, and services, and measure and monitor progress towards strategic
targets (Kaplan and Norton, 1992).
The Balanced Scorecard translates a firm’s strategy into a comprehensive set of
performance measures in four perspectives: financial, customer, internal processes,
learning and growth. These are measures that are derived from an organization’s mission
and strategy and specialize in future results (Kaplan and Norton, 1996A).
A balanced scorecard includes measures for intangible assets, such as customer
relationships, innovative products and services, high quality and responsive operating
process, skills and knowledge of the workforce, and the information technology that
support the workforce and links the firm to its customers and suppliers, and the
organizational climate that encourages innovation, problem-solving and improvement
(Mark, 2012).
Supporters of the balanced scorecard argue that to realize success in financial
measurements, first non-financial measures need to be achieved (Davis and Albright,
2014). Therefore, empirical research is necessary to determine if the focus on non-
financial measures leads to better profit margins and better organizational performance
using a balanced scorecard.
Abay Bank S.c implemented a balanced scorecard since its establishment in 2010. And
the rationale for adopting the tool was the need to plan, manage and measure the
performance of the bank. Moreover, the main aim of implementation was to align the
bank's corporate strategy with daily operations of the bank, to make informed business
decisions via defined reports, to achieve the bank's vision by building rigor, to help with
innovation or new product development, to adapt to changing technologies and markets
and to attract and retain talented employees (Abay Bank S.c strategic plan document,
2011).

16. 4
This study aims to assess the effect of the balanced scorecard implementation on the
organizational performance measurement; the purpose of this study was to explore the
balanced scorecard implementation on organizational performance by assessing balanced
scorecard perspectives that can influence the performance of the bank.
1.2 Statement Of the problem
Because of the basic functions of the bank as a financial institution, Abay bank collects
money from the customers in the form of deposits and provides various loan facilities and
thus appears as intermediaries between depositors and loan applicants, to make a profit
for its shareholders. These financial activities convey the economic consequences already
taken by organizations and focus on profitability measures and according to which
shareholders confirm the profitability of their investments, (Al Najjar and Kalaf, 2012).
According to the Abay Bank’s mission statement, the bank is committed to satisfying the
expectation of stakeholders by providing full-fledged banking service through deploying
state-of-the-art technology and competent human resources. Providing Superior service
quality, delivering more personalized service to customers, continuously inspiring its
employees to make difference, and endeavoring to satisfy its stakeholders’ expectations
are core aspects of the bank, (Abay Bank S.c strategic plan, 2017). This indicates that
Abay Bank strived to adopt non-financial indicators like employee satisfaction, service
quality, internal business process, customer satisfaction, and customer loyalty to improve
the performance of the bank, to support these goals the bank implemented a balanced
scorecard since its establishment in 2010.
However, almost all of the commercial banks in Ethiopia solely depend on purely
financial indicators to measure their performance and competitiveness in the banking
industry (Syum Abay, 2010). Tools such as Return on Assets (ROA) and Return on
Equity (ROE) are used as measures of the performance of the banks. The National Bank
of Ethiopia as a regulator of the banking industry uses the traditional financial metrics to
assess performance and rank the commercial banks in Ethiopia by reflecting the level of
profitability and competitiveness of those banks (Assefa Worede, 2016).
Despite their apparent effectiveness and objectivity, financial indicators are fraught with
several limitations which exposed them to increasing criticism by many researchers and
authors (Paul R. Niven, 2008). Kaplan and Norton (1996) for instance, argue that to

17. 5
compete and survive in the information age, in which information forms a fundamental
part of the trade and industry, it is no longer enough to rely solely on financial measures
because they could lead to an incorrect picture of the effectiveness and profitability of a
business. Moreover, financial measures are criticized for lack of consistency with today’s
changing world business realities, driving by rear view mirror, Tendency to reinforce
functional silos, Sacrifice long-term thinking and financial measures are not relevant to
many levels of the organization. To overcome these limitations, the balanced scorecard
proposed to give a balanced and more holistic approach to assessing the performance of
the organization (Hamere Tadege, 2012).
Depending on only financial metrics to measure the performance and competitiveness of
banks do not take into account the effect of the leading, forward-looking, and critical
performance measures( non-financial perspectives) and therefore creates a huge vacuum
in the performance and competitiveness evaluation of bank, so this study seeks to fill in
by providing information on the performance of Abay bank via applying balanced
scorecard perspectives which balances financial and non-financial measures very well.
Although there are many studies conducted on the Balanced Scorecard in Ethiopia, there
is a big gap in the study of this topic area. Most of the studies that conducted on the areas
of Balanced Scorecard Implementations were; prospects and challenges, factors affecting
balanced scorecard implementation, and the practices and problems of Balanced
Scorecard implementation. Some researchers are Amare Eshete (2014), Adamitu Kumssa
(2016), Adino Gelaw (2018), Ashrek Hairedin (2020). Whereas it is hardly any empirical
study has been conducted to determine the effects of Balanced Scorecard Implementation
on organizational performance in Abay Bank with emphasis on Balanced Scorecard
perspectives. So in response to this problem, the researcher expected that this study
proposed to investigate Balanced Scorecard frameworks for making financial and non-
financial indicators to measure the performance of the bank.
The researcher also observed that there is an evidence gap on the extent to which non-
financial perspectives affect the performance of bank. This also makes it very imperative
to provide a new framework that will give a balanced overview of the performance of the
bank.

18. 6
The reason for selecting the balanced scorecard is because of its popularity and
acceptability among business communities and academia worldwide. According to a
survey on “Management Tools and Trends” made by Blain and company (2013), BSC
has ranked the fifth most widely applied management tool in organizations. The study,
hence, was conducted to assess a balanced scorecard in measuring the performance of the
Abay bank and thereby fill the identified vacuum in the measuring the performance of the
bank through the application of the balanced scorecard framework.
1.3 Research Questions
To address the statement of the problem, the researcher raised the following research
questions
1. What is the effect of the internal business process perspective on the performance
of the bank?
2. What is the effect of the customer perspective on the performance of the Bank?
3. What is the effect of the learning and growth perspective on the performance of
the Bank?
4. What is the effect of financial perspective on the performance of the bank?
1.4 Research Objectives
1.4.1 General Objective
The general objective of the study is to assess the effects of Balanced Scorecard
implementation on organizational performance in case of Abay Bank S.c.
1.4.2 Specific Objectives
To examine the effects of Balanced Scorecard Perspectives on the Performance of Abay
Bank.
1.5 Significance of the Study
The Researcher expected that this stud would have huge significance for managers,
academicians, and other Practitioners. As a balanced scorecard has become one of the
important performance management and measurement tools and the objective of a

19. 7
balanced scorecard is to realize the organizational vision and objectives; so, this paper
shows the relevance of a balanced scorecard in banking sectors.
Managers can use the result of this study to apply integrated performance measurement
tools to obtain the best financial and non-financial information for effective decision
making as well as to suit their managerial needs. Stockholders, potential investors, and
business partners would be assisted in their understanding of performance measurements
and how to determine the progress of the companies. Furthermore, the significance of this
research study is that the researcher gets to know about the Balanced Scorecard and how
its implication evaluates the performance of the Bank.
The concerned government bodies would be assisted in determining how well the
companies operate, how efficiently resources are utilized, and how tax and other similar
issues should be handled.
Finally, for academicians and researchers, this study adds value to the literature by
empirically linking a more comprehensive performance measurement in the context of
the banking sector based on the relationship between financial and non-financial
performance measures.
1.6 Scope of the Study
The scope of this study was limited by conceptually, geographically, methodologically
and time period. Conceptually, the concept of a balanced scorecard has large scope but
this study focused on the effect of balanced scorecard implementation on the
organizational performance measurement;
Geographically, this study was conducted on Abay Bank S.c at head office, currently, it
has more than 350 branches in the country, whereas this study was conducted at the
head office in four departments which is located in Addis Ababa to get accurate data
regarding balanced scorecard.
Methodologically, explanatory research design employed and financial, internal business
process, customers, and learning and growth are major independent variables that are
incorporated in the study.
Periodically, this study has conducted from the month of October, 2021 to June, 2022.
Moreover, the study applied a cross-sectional research type, because this study is
confined to a single period to collect relevant data from respondents.

20. 8
1.7 Limitation of the Study
There were some constraints which confronted the investigation of the study. Although,
the researcher strived to minimize the range of limitations throughout the research
process by applying methods that are appropriate and sound like preparing close ended
questionnaires.
The first limitation of this study was employees did not have enough time to fill and
response open-ended questionnaires to the researcher. This limitation have been solved
by reducing the number of open ended questions asked during the survey to ensure that
the participant had enough time to answer all the questions adequately.
Another limitation of this study was shortage of accessibility of the empirical study that
clearly shows the effects balanced scorecard implementation on the organizational
performance in case of Abay bank.
1.8 Operational Definition of Key terms
A Balanced Scorecard: is an integrated strategic planning and management system that
is used to align business activities to the vision and strategy of an organization using four
perspectives (financial, customer, internal business processes, learning and growth) in a
balanced manner (Kaplan and Norton, 1992).
Balanced Scorecard Perspective: -the performance lens through which the organization
shall gauge its performance.
Financial Perspectives: - an organization’s financial performance and the use of
financial resources.
Customer Perspective: views organizational performance from the perspective of the
customer or key stakeholders the organization is designed to serve.
Internal Process Perspective: indicates the quality and efficiency of an organization’s
performance related to the product, services, or other key business processes.
Learning and Growth Perspective: refers to human capital, infrastructure, technology,
culture, and other capacities that are key to breakthrough performance
Organizational Performance: - is the process to enhance both the effectiveness of the
organization and the well-being of its employees through planned manner; it also refers
to the actual output or results of the organization as measured against its intended
outputs, goals and objective.

21. 9
1.9 Organization of the Paper
The study has been organized into five chapters. The first chapter is an introductory
chapter, which Contains background of the study, statement of the problem, objectives of
the study, questions of the study, significance of the study, scope of the study, limitation
of the study, Definition of major terms and organization of the paper.
The second chapter is organized with introduction, theoretical definition and basic
concepts, empirical literature review of previous study on the subject matter under study
and conceptual literature review.
The third chapter is research methodology which includes; research design, research
approach, population and sample of the study, sampling technique, sampling design, data
collection and its tools , data processing and analysis techniques, reliability and validity
test and ethical consideration.
The fourth chapter contains data presentation and analysis, and results and discussion.
The fifth chapter encompasses summary, conclusion and recommendations.

22. 10
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 Theoretical Review
2.1.1 Concept of Balanced Scorecard
According to Kaplan and Norton (1992), both financial and non-financial performance
indicators of an organization have to be efficiently and effectively monitored and tracked
by the management. The Balanced Scorecard framework is used to present organization
goals using a cause and effect link as seen from; learning and growth. Customer, financial
and internal processes (Kaplan and Norton, 1996). The word “Scorecard” stands for
quantified performance indicators and the word “Balanced” indicates that the BSC
system is undertaken based on both the short-term and long term organizational goals,
lagging and leading indicators, internal and external performance indicators or
perspectives and financial and non-financial measures.
The Balanced Scorecard (BSC) is a means to translate the mission and strategy of an
organization into all-inclusive set measures of performance measures which provide the
structure for measuring strategic orientation and management of systems (Kumari, 2011).
Kaplan and Norton (1996) further opine that the Balanced Scorecard is basically a means
for interpreting the management strategy into action. Robbins and Coulter (2012),
describe balanced Scorecard approach as a way to evaluate organizational performance
from more than just financial perspective.
Organizational Performance has Key Performance Indicators (KPIs) that point to the
business growth, expansion, competitive price of services for the bank, efficiency and
effectiveness. Financial perspective comprises the traditional financial performance KPIs
such as revenue growth, profitability, cost control and reduction. Customer perspective
has KPIs of importance to customers such as meeting the expectations of customers,
customer satisfaction and customer value proposition. Internal Business Processes
perspective has KPIs of the critical internal activities that the organization uses to meet its
objectives such as quality, service time, technology, process re-engineering and process
improvement. Learning and Growth (Staff Training) has KPIs that represent the

23. 11
organization's ability to adapt and innovate for the future; staff training, staff performance
appraisal, staff motivation, leadership, mentorship and succession planning.
The general Balanced Scorecard approach for profit making organizations such as Abay
Bank is as follows; increase in staff training leads to improved business processes which
in turn result in better service or product quality and therefore higher customer
satisfaction. Higher customer satisfaction enhances customer loyalty, new customers,
more cross sales, increased revenues and therefore improved financial performance.
Improved financial performance increases organization performance in terms of business
growth, branch expansion, image, creditworthiness, confidence. The Balanced Scorecard
Financial and Customer perspectives are results perspectives while Internal Processes and
Learning and Growth perspectives are enabling perspectives. Generally speaking,
improving performance in the objectives found in the Learning and Growth viewpoint
gives the organization an opportunity to enhance its process internally to drive the desired
results on the basis of the customer and financial perspectives (Kaplan and Norton,
1996). These measures are therefore linked in a long chain of cause-effect interaction
which drives the organizational performance in the context of learning and growth
viewpoint through to enhanced financial performance, (Niven, 2008).
2.1.2 The Balanced Scorecard Model:
The concept of BSC was introduced following the deficits of financial measures to
evaluate the performance of a firm. Kaplan and Norton (1992 and 1996) popularized
the BSC as a combination of non-financial and financial measures of performance
and on the belief that it brings all the strategic objectives of management into a
single and comprehensive performance model. The objective of this research is to
investigate the effects of balanced scorecard implementation on organizational
performance measurement for the Abay Bank S.c. This research is inspired by the
concepts contained in the BSC framework (see figure 1) to develop performance
measurement.
The framework identifies the four related critical performance measurement areas
necessary for the development of a comprehensive performance model: (1) learning
and growth perspective, (2) internal process areas, (3) customer perspective, and (4)

24. 12
financial perspective where management should ensure the vision and strategy of
the firm are in congruence.
Figure 1: Balanced scorecard perspectives
Source: (Kaplan and Norton, 1996).
As shown in Figure 1 above, each of the perspectives consists of relevant goals,
indicators and measures to achieve. Advocates of the BSC such as Chow (1997) and
Cravens (2000) commend that this approach provides a powerful means for translating a
firm's vision and strategy into a tool that effectively communicates strategy and motivates
performance against established strategic goals. As a management approach, the BSC
integrates financial and non-financial measures with strategic measures (Singh and
Kumar, 2007). A firm has, therefore, to define its strategic vision and translate it into a
strategy map (Kaplan and Norton, 2001). A strategy map envisions and communicates a
strategy through cause-and- effect relationships.
Non-financial indicators such as employee satisfaction, quality service, and customer
satisfaction are used to represent intangible factors of learning and growth, internal
business process, and customer perspectives respectively. Return on equity (ROE),
and return on assets (ROA) are taken as measures of the financial perspectives. The
Financial
To succeed financially,
how should we appear to
our shareholders?
Internal Business Process
To satisfy our
shareholders and
customers, what business
process must we excel at?
Learning and Growth
To achieve our vision, how
will we sustain our ability to
change and improve?
Vision and
Strategy
Customer
To achieve our vision,
how should we appear
to our customers?

25. 13
indicators are associated with a cause and-effect relationship where some of them
serve as driving indicators while others serve as the outcome indicators (Kasperskaya,
2013).
According to Norton and Kaplan (1996) a cause and effect relationship exists among
the perspectives of BSC in a sequential manner. This shows that improved
performance in Learning and Growth will result in improved performance in Internal
Business which will positively affect Customers and this will eventually influence
Financial Performance.
The typical Balanced Scorecard Model has four perspectives hypothesized in a
causal relationship between the perspectives. These perspectives are basically
designed to balance the financial and non-financial measures of performance. Each of the
perspectives is discussed below
2.1.2.1 Financial perspective
The Financial performance perspective of the BSC describes the tangible outcomes
of a strategy in traditional financial terms (Chenhall, 2015; Hoque, 2014). The
financial objectives represent the long-term objectives of organizations and are the
outcomes of other non- financial factors. The financial perspective describes the
measures of a firm’s strategic outcome in financial terms such return on equity
(ROE), return on assets (ROA), Net Interest Margin, market share residual income,
economic value added, revenue growth (Atkinson 2016). In other words, the financial
objectives are set as a firm’s goals depicting the long-term objectives of the
organizations.
Financial statements have long served as important tools to measure the financial
performance of organizations and as the source of information for all stakeholders in their
respective decisions.
The Ethiopian Commercial Code No. 166 of 1960, Article 63 and Proclamation No.
592/2008, article 23 of the Federal Democratic Republic of Ethiopia gives the National
Bank Ethiopia the power to direct banks to prepare and issue audited financial statements
in accordance with the international standards, (NBE Directives, 2008).

26. 14
Limitations of Financial Measures of Performance
Some of the limitations of financial measures of performance include that:
1. Traditional financial measures were designed to compare previous periods
based on internal standards of performance.
2. Financial measures provide an excellent review of past performance and events in the
organisation but fail to have a predictive power for the future.
3. The traditional financial measurement systems have no way to calculate the true value
or cost of the synergy of where many functional areas come together to solve pressing
problems and create value.
4. Sacrifice long-term thinking. Cost reduction efforts often targeted the long- term
value-creating activities of the firm such as research and development, associate
development, and customer relationship management. This focus on short-term gains
at the expense of long-term value creation may lead to sub-optimization of the
organization's resources.
5. Financial measures are not relevant to many levels of the organization.
When we roll up financial statements throughout the organization, we are compiling
information at a higher level and it is almost unrecognizable and useless in the decision
making of most managers and employees. Employees at all levels of the organization
need performance data they can act on.
In spite of the limitations of financial performance measures, financial statements will
remain an important tool for organizations since they ultimately determine whether
improvements in customer satisfaction, quality, on-time delivery, and innovation are
leading to improved financial performance and wealth creation for shareholders. What we
need is a method of balancing the accuracy and integrity of our financial measures with
the drivers of future financial performance of the organization (Kumar and Chandra,
2016).
Financial performance analysis of banking industries has long been of great interest to
academic research. A large number of researchers have developed a variety of
performance measures to deal with the limitations of solely depending on financial
metrics. Effectiveness, efficiency, productivity, quality of product/service, quality of
work life, innovation and profitability were promoted as performance criteria of an

27. 15
organization. The diversity of performance measures has created a complexity in
understanding which particular approach is appropriate to adopt. Kaplan and Norton
(1996), emerged with a balanced score of measures which they thought could overcome
the problem. Kaplan and Norton (1996) developed the concept of a balanced scorecard to
evaluate performance of an organization from the financial, learning and growth, internal
business process and customer perspectives.
2.1.2.2 Customer perspective
Customer perspective defines the value proposition used to generate revenue and loyalty
from targeted customers. This is to say that, the core of any business strategy, that makes
it unique from its competitors, is the customer-value proposition (Kaplan and Norton,
2001). Customer satisfaction refers to a person’s feelings of pleasure or disappointment
resulting from comparing service perceptions with expectations.
In a broad sense, customer perspective focuses on achieving customer satisfaction,
customer retention, customer acquisition, increase in market and account share, and
customer profitability (Tapanya, 2014). Tapanya considered staff availability, speed and
responsiveness, skill and competence, appearance and friendliness, and empathy of the
employee perspective as helpful towards customer satisfaction survey measures. The
customer perspective in turn helps organizations to improve their financial results by
connecting the business processes with customers (Al Sawalqa, et al., 2013).
In sum, the customer perspective focuses on the perceptions and expectations of
customers on the products and services acquired and consumed. Positive gap ultimately
leads at least to a modest financial performance of an organization. On the contrary, poor
performance in customer satisfaction would be a leading indicator of financial decline of
a firm.
2.1.2.3 Internal business process perspective
The Internal Business Process intends to measure the key business processes by which an
organization meets the expectations of customers and ultimately shareholders. It
identifies the critical processes, skills, competencies and technologies that add value to
the expectation of customers and the success of the firm (Atkinson, 2016). In other
words, the critical business processes enable an organization to deliver values that will

28. 16
satisfy, attract and retain customers in targeted market segments and address
shareholders‟ expectations of high financial results (Kaplan and Norton, 1996).
The internal business process should ensure that the firm’s products and services are
meeting customer needs, and is considered the most critical for the success of an
organization.
In relation to manufacturing industry, customer satisfaction is expected to be measured
through production volume, labor productivity, manufacturing cycle time, product
defects, product/service innovation, and improvement in response time to customers,
number of new facilities, and the percentage of equipment maintained, Research and
Development costs and improvement in space utilization (Ahmed et al. 2011).
2.1.2.4 Learning and growth perspective
Learning and growth dimension of the BSC emphasizes on creativity, competence and
capability of human capital, innovation in the information system, and the organizational
environment (organizational capital) that is supportive towards the achievement of
organizational strategy and objectives (Atkinson, 2016). Learning and Growth focuses on
people and their attitude, knowledge, development and ability to learn and improve.
Therefore, people, systems, and organizational capital represent the frame that any
organization must set up in order to create value to the stakeholders and maintain long-
term success. This requires to pay due attention towards the investment that enhances
employee satisfaction, capability and ultimately win competitive frontier of the
organization. Improvement in the learning and growth perspective can be measured
through customer satisfaction on employees‟ encounter which is a fundamental factor
that determines profitability.
Having a holistic approach of the perspectives, the balanced scorecard as a performance
measurement and management tool, has gained widespread acceptance by researchers
and practitioners (Gumbus, 2015). However, the BSC was criticized among others, for its
lack of specific guidelines for successful implementation, lack of formal methodology,
focusing on short term financial measures and dominated by a top down approach
(Malina and Selto, 2011).
The model was also criticized for the time lag of the events and their respective chain-
effect relationship between the perspectives and the doubt on its ability to test the

29. 17
reliability of the basic hypotheses of BSC causal relationships (Abu-Suleiman, 2016).
Besides, Ittner, et al., (2017), find no evidence of improvement and connections between
the managers' job and business objectives on the basis of the scorecard approach. Khan,
Halabi, and Masud, (2013), identify the reasons for the failure of the BSC concept as a
result of: (1) incorrect identification of non- financial measures as primary drivers; (2)
setting arbitrary goals rather than based on requirements that most of the employees need;
(3) non-existence of a deployment system that breaks the goals where actual
improvement activities reside; (4) absence of the cause-and-effect relationships between
non-financial and financial results. To overcome these problems and reinforce the
measurement system requires a systematic approach of execution, communication and
enhancement process.
2.1.3 Phases and steps of the Balanced Scorecard
Robert Kaplan and David Norton (1996) designed the nine steps for the successful
implementation of balanced Scorecard by the organization which has two phases and nine
steps.
The first phase, which is called the planning phase has six steps namely: 1.Assessment,
2.Strategy Development, 3.Objectives Development, 4.StrategicMap, 5.Performance
Measures/Indicators: and 6. Initiatives. The second phase, called Implementation phase
has three steps: 7. Automation 8.Cascading, 9. Monitoring and Evaluation and all these
nine steps are represented by the following figure 2 and explained after the figure.
Figure 2: The nine steps of BSC Implementation.
Source: (https://balancedscorecard.org/about/nine-steps/).

30. 18
2.1.3.1. Assessment
The organizations need to be assessed to implement BSC successfully by undertaking
SWOT analysis, then identify enablers (opportunities and strength) and pains (weakness
and treats) and also identify target customers and stakeholders. This is done by taking in
to account the organization‘s mission, vision and core values. Assessment provides the
organization direction to successes.
2.1.3.2. Strategy
The organization identifies the business strategy taking the mission, the vision and the
core values of the organization in to account. Here in strategy development stage it
should be known that the balanced scorecard is a tool helps to implement strategy not to
formulate strategy. Thus, in order to be successful in implementation of the strategy, the
formulated strategy should be good. The strategic theme (focus area) of the organization
will be emanated through identifying and understanding the customer and stockholder
need and core value and design the expected result from each theme (Tsion, 2014).
2.1.3.3. Objectives
Adamitu (2016) stated that an objective is the actual results which the organizations
desired to achieve. According to Room (2008, as cited by Tsion, 2014) stated that
strategic objective is used to break strategic themes in to more actionable activities that
lead to the strategic results
2.1.3.4. Strategic Map
The strategy map is a visual framework of the organization‘s strategy that shows how it
intends to create value. According to Adamitu (2016), a good strategy map will link
productivity and growth outcomes, customer value proposition, outstanding performance
in internal processes and capabilities required from intangible assets.
2.1.3.5. Performance Measures and Targets
According to Niven (2008) performance measure is the heart of balanced scorecard.
Adamitu (2016), stated the importance of effective performance measurement as a key in
ensuring successful implementation of organization‘s strategy and that it is about
monitoring an organization‘s effectiveness in fulfilling its own predetermined goals or
stakeholder requirements. She also described the importance of this stage of BSC for

31. 19
ensuring better informed and more effective decision making at both strategic and
operational levels.
2.1.3.6. Strategy Initiatives.
Initiatives are designed to close the gap between current performance and that embodied
in the stretch targets established (Niven, 2008). The strategic initiatives are developed
that support the strategic objectives. Strategy initiative is the stage where the strategy to
be implemented is drafted and assigned.
2.1.3.7. Performance Analysis/Automation
According to Niven (2008), automating the balanced scorecard benefits the organization
in maximizing its use as performance measurement system, strategic management system
and communication tool. Effective analysis helps people make better decisions that will
drive improved strategic outcomes. This step focuses on measuring and evaluating
performance to identify what works well and what doesn’t, taking corrective action and
becoming a high-performance organization.
2.1.3.8. Cascading/Alignment
Cascading is about creating alignment around the organization‘s shared vision, to make
strategy actionable to departments and down to individuals. Menwuyelet (2014), states
that cascading which is the key for organization‘s alignment to their strategy, translates
higher level of strategy to lower level objectives, performance measures and targets and
operational details.
2.1.3.9. Monitoring and Evaluation
The effectiveness of the balanced score card is based on its ability to translate a firm‘s
mission and strategy in to a comprehensive set of performance measures (Kaplan et al.,
2002).
2.1.4 The Rational for Performance Measurement
When you can measure what you are speaking about and express it in numbers, you know
something about it. Otherwise, your knowledge is inadequate; it may be the beginning of
knowledge, but you have scarcely in thought advanced to the stage of science (Lord
Kelvin, 1824 -1907).

32. 20
A firm is just like a complex organism that seeks to survive in its competitive
environment. Once a firm becomes large enough and goes beyond the oversight of a
single manager, then emerges the need for use of performance measurement and control
systems as a tool of a manager.
Performance measurement is used to motivate employees to make decisions that benefit
the corporation and themselves. Therefore, the key to good performance measurement
techniques is to set goals that are realistic and that incorporate decisions over which the
manager has control. A good performance measurement system is one that utilizes
appropriate performance measures, which are performance metrics used to evaluate a
specific attribute of a manager’s role, to evaluate management in a way that will link the
goals of the corporation with those of the manager. A metric is simply a means to
measure something. Performance measurement system serves a firm as a key factor in
alignment to strategies, goals and objectives (Charoenngam, 2013). Performance
measurement frameworks are designed in response to the ever- changing business
environment within which a firm operates. Yet performance measurement systems must
be effective so as to be able to accurately reflect a business situation and gear employees
towards the right directions that help achieve organizational objectives. Neely (2019),
argues the need for measures of performance as emerging due to: the changing nature of
work; the increasing competitive business environment; the development of innovative
initiates; national and international quality requirements; changing organizational roles;
changing external demands; and the development of information technology.
Ifeoma and Ijeoma (2012), identify the reasons for organizations to use performance
measurement systems as to: monitor and control, drive improvement, improve the
effectiveness; align goals with objectives and strategies, and Reward and discipline.
Kellen (2013), views business performance measurement as a tool to balance within the
firm for: Profit, growth and control; Comparison of short term results with future
capabilities and growth opportunities; Comparison of actual performance with planned
performance; Opportunities and attention; and Motives of human behavior.

33. 21
2.1.5 Abay Bank S.c’s Corporate Balanced Scorecard
Figure 3: Corporate scorecard of Abay Bank S.c
Perspectives Business Objective Measures Target
Financial
Perspective
Enhance
sustainable
profitability
 Increase Income
 Managing Cost
Become
unwavering and
sustainable bank
Satisfied
stakeholders,
Increase resource
mobilization
 Deposit
 Foreign currency
Stable financial
position
Customer
Perspective
Improve customer
satisfaction
 Quality
 Accessibility
 New or innovated
banking products.
Retain existing
customers
Widening customer
base
 Accessibility Satisfied
customers
Internal
Business
Process
Improve process
efficiency and
effectiveness
 Improved technology Reduced waiting
time
Enhance
service
outreach/accessibility
Expanding out physical
channels(Branch network)
Wider Customer
base
Learning
and
Growth
Improve employee
engagement
Enhance employee
Satisfaction
Improved
employee
productivity
Enhance
information
systems
Application of
management information
system
Improve process
efficiency
Improve human
resource
development
Training, coaching,
mentoring, succession
plan and effective
performance management
Improve employee
performance
Enhance
communications
Enhance Synergy Informed
employees
Source, Abay bank S.c five years strategic plan document, (2017).

34. 22
2.2 Empirical Review
Several study were conducted on the balanced score card internationally: From these, A
research conducted by Yahaya (2009) in his MBA thesis on ―Using Balanced Scorecard
to assess performance of Banks in Ghana ―concluded that the Customer perspective,
learning and growth perspective and internal business perspective affect the assessment
of the performance of banks to a very large extent in Ghana. The well performing banks
financially may not necessarily be the best banks in the industry when other perspective
or dimensions are taking into consideration. It provides additional information to
managers, shareholders and others stakeholders regarding performance of banks which
enables banks focus on the core strategies in order to create and deliver superior value
and returns to their shareholders. For this purpose, primary and secondary both sources
were used for data collection. Primary sources include questionnaires that concentrated
on the internal processes and learning and growth perspective. Secondary sources
included banks published financial statements. He recommended that banks should
implement the BSC as performance measurement and strategic implementation tool to
improve their operational performance and profitability. Banks must follow a well-
planned methodology to reap the full benefit of their investment.
Tominac (2014) in his research paper on Possibilities of Balanced Scorecard Application
in Commercial Banks concluded that Financial Indicators are not enough for reporting
because they are not directly connected with the bank‘s long term goals. Balanced
Scorecard engages all hidden resources in order to ensure bank‘s leading position in the
market. It is important for implementing Balanced Scorecard in Banks to appropriate
balance all imperatives of the bank. Application of BSc helps employees to better
understand the strategies. It also helps management to consider weaknesses and strengths,
areas on which losses are made and profitable ones.
Dave (2012) in his research paper on, Applying Balanced Scorecard in Indian Banking
Sector: An empirical study of the State Bank of India concluded that being a part of the
service sector, long-term strategic planning in a bank needs to concentrate on a
comprehensive performance evaluation system. BSC emerges to be an efficient and all-
inclusive tool and encompassing various aspects of Banks performance. It is helpful in

35. 23
understanding the complementarities among various performance indicators for a bank
and makes a strategy designing ad implementation process more efficient.
Ibrahim (2015) in his research paper on Investigating the use of the four perspective of
Balanced Scorecard (BSC) as technique for assessing performance by Nigerian Banks
concluded that Nigerian Banks relied heavily on financial performance measures
followed by customer performance measures as a technique for assessing their
performance. A comprehensive view of their performance can‘t be guaranteed without
incorporating all the four perspective of BSC. A judgmental or purposive sampling
technique was adopted to arrive at the sample of eleven banks in Nigeria. For collection
of data, a survey technique using questioners was used Descriptive statics, percentages,
means, medians, modes, standard deviations, and minimum points, maximum points were
used for analysis of data. He recommended Nigerian Banks should enhance their
performance measurement systems by balancing their performance measures within the
four perspective of BSC.
Helen Chepkoech (2019), in her study on application of balanced scorecard on
organizational performance in selected public secondary schools in Nandi (an area in the
north rift of Kenya), concluded that, employee learning and growth perspective and
financial perspective did not significantly influence the organizational performance of
public secondary schools. This study founded that customer perspective and internal
process perspectives significantly influence organizational performance of public
secondary schools in Nandi County.
There are some local authors who have researched on the implementation of balanced
scorecard model on organizational performance in different researching areas.
The BSC is being used as a planning, change management, and communication tool, and
is also considered as an opportunity to embed strategic management principles into the
plan. The BSC incorporates the higher-level goals identified by the country’s Growth and
Transformation Plan (GTP) and tries to operationalize these goals. According to
Menwuyelet (2014), three reasons are cited as rationales to implement BSC in Ethiopian
Federal civil service organizations, namely: to have better performance evaluation system
in civil service organizations, to put in practice the Federal Civil Servants‟ proclamation
no. 515/99 (proclamation for administration of Ethiopian Federal Civil Service

36. 24
employees), To focus on strategies and link the day to day activities to strategies with
well-balanced and multi perspective performance evaluation system.
Adamitu (2016), on her study the assessment of balanced scorecard implementation,
success stories and challenges on Jimma University, concluded that the implementation
of BSC specially when supported with automation reduces time, cost and improves
productivity of goods and services. Tsion (2014), in her study Challenges and prospects
of Balanced scorecard Implementation in the Development Bank of Ethiopia founded
challenges that influence the application of BSC manipulation of targets, resistance to
change, politicizing the tool and early cascading are the major ones and outlined the
major causes of the above challenges emanated from lack of understanding of the tool
and the early reward seeking of employee. Hailemariam (2016), on his study assessment
of balanced score card implementation on Gulele sub-city education offices, concluded
that the major causes of the challenges for the implementation of balanced score card are
lack of understanding of the tool, lack of incentive and job displacement is also one of the
factors that lead the employees‘ resistance to the implementation of the BSC and lack of
continuous monitoring and evaluation, lack of delivering continuous training and far
beyond education to officers. Daniel (2017), in his study practice and challenges of
balanced scorecard implementation on Ethio- telecom founded that challenges for the
implementation of balanced score card are set unachievable individual target for the
benefit of the company, lack of training about BSC, lack of proper follow of BSC
implementation, the implementation of BSC has one way communication, that means top
down, Poor commitment of higher level management, cascaded to individual level is a
big challenge.
2.2.1 Summary and gap in existing literature
Implementing a balanced score card has a number of advantage for organization and
bank performance in effectively and efficiently. Many countries apply BSC benefit for
the company‘s performance evaluation effectively, the researchers show Yahaya (2009),
on using balanced score card to assess performance of banks in Ghana based on four
perspectives which are financial, customer, internal and learning and growth
perspectives. The study was used independent variables; they were financial, customer,
internal and learning and growth. Also it uses dependent variable was performance of

37. 25
banks in Ghana. The researcher recommended that the banks should implement the BSC
performance measurement and to reap the full benefit of investment. Ibrahim (2015)
research on investigating the use of four perspective of BSC as technique for assessing
performance of banks by using judgmental sampling technique , and used independent
variables called financial, customer, internal and learning and growth. Also dependent
variable was performance of banks in Nigeria. The bank enhances their performance
measurement system by balancing the performance in four perspectives. Dave (2012) in
his research applying BSC technique emerges to be an efficient and all-inclusive tool and
encompassing various aspects of Banks performance. Helen Chepkoech (2019), in her
study she concluded that, employee learning and growth perspective and financial
perspective did not significantly influence the organizational performance of public
secondary schools. This study founded that customer perspective and internal process
perspectives significantly influence organizational performance of public secondary
schools in Nandi County. Menwuyelet (2014) found that the rationales to implement BSC
in Ethiopian Federal civil service organizations are; to have better performance
evaluation system, to put in practice the Federal Civil Servants and to focus on strategies
and link the day to day activities to strategies with well-balanced and multi perspective
performance evaluation system. Tsion (2014), in her study founded challenges that
influence the application of BSC manipulation of targets, resistance to change,
politicizing the tool and early cascading are the major ones and outlined the major causes
of the above challenges emanated from lack of understanding of the tool and the early
reward seeking of employee and remains also focused on the prospects and challenges of
Balanced scorecard implementation.
Then my research to assess the effects of balanced scorecard implementation on bank
performance in case of Abay bank because of there is few empirical studies related on
effects of balanced scorecard and to investigate literature gap by identifying the
independent variables that influences bank performance based on balanced scorecard
frameworks.

38. 26
2.3 Conceptual Framework of the Study
Conceptual framework is a research tool that is used to develop awareness and
understanding of a situation under scrutiny. According to Reichel and Ramey (1987),
conceptual framework is given a description as a set of broad ideas and principles taken
from relevant fields of study that used for the subsequent presentation. The companies
adopt such a management tool that derived from the company's strategy, they can be
helpful in formulating administrative planning and BSC and it provides the framework
for justifying requests for administration and if effectively and efficiently implemented
lead to better customer satisfaction, accurate employee appraisal as well as efficiency and
effectiveness.
The following conceptual framework demonstrates how the BSC (independent variable)
influences the organizational performance (dependent variable) through its four
perspectives with different constructs for each.
Figure 4: Conceptual Framework of the Study
Independent Variables
Dependent Variables
Source: Researcher’s Own Construction Based on the Review of Related Literature
(2022).
Learning and Growth
Perspective
Internal Business
Process Perspective
Financial Perspective
Customer Perspective
Organizational
Performance

39. 27
2.3.1 Hypothesis
From the Literature Review result given, there were 4 hypothesis used to assess the effect
of the Balanced Scorecard implementation on the performance of Abay Bank:
H1: There is significant relationship between Customer Perspective of Balanced
Scorecard and Performance of Abay Bank.
H2: There is significant relationship between Internal Business Process Perspective of
Balanced Scorecard and Performance of Abay Bank.
H3: There is significant relationship between Learning and Growth Perspective of
Balanced Scorecard and Performance of Abay Bank
H4: There is significant relationship between Financial Perspective of Balanced
Scorecard and Performance of Abay Bank.

40. 28
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.1 Research Design
According to Kothari (2004), a research design is a plan, a roadmap, and blueprint
strategy of investigation conceived so as to obtain answers to research questions; it is the
heart of any study. This study was conducted on the effect of balanced scorecard
implementation on organizational performance. The Explanatory research design was
used in this study to obtain data that helps to explore and to understand the cause
and effect relationship of the variables. Explanatory research looks for causes and reasons
and provides evidence to support or refute an explanation or prediction. It was conducted
to discover and report some relationships among different aspects of the phenomenon
under study. In addition to this, the researcher applied a cross-sectional research type,
because data had been collected from participants at one point in time.
3.2 Research Approaches
In this study, the researcher applied a mixed research approach that combines both
qualitative and quantitative research methods. According to (Cresswel and Plano, 2011),
the use of mixed approaches provides a better understanding of research problems and
complex phenomena than either approach alone.
The quantitative research approach which was adopted in this study is an approach in
which the investigator primarily uses postpositive claims for developing knowledge, i.e.,
cause, and effect relationships between known variables of interest (Cresswell, 2013).
Qualitative research is an approach for exploring and understanding the meaning
individuals or groups ascribe to a social or human problem. The process of research
involves emerging questions and procedures, data typically collected in the participant’s
setting.
Hence, this study used both qualitative and quantitative data in order to examine the
effect of balanced scorecard implementation on measuring the organizational
performance through a mixed research approach to meet the research objectives.

41. 29
3.3 Population and Sample
A population refers to an entire group of individuals, events or objects having a common
observable characteristic (Mugenda and Mugenda, 2003).
3.3.1 Target Population
The target population for this research is diverse comprising 400 of Abay Bank S.c Head
office four department employees such as human capital department, Customer relation
management department, market research and product development department and
finance department.
3.3.2 Sampling Techniques
In order to improve the accuracy and representativeness of the results by reducing
sampling bias, the researcher used a stratified sampling technique. The main reason that
researcher select this tool is to draw more precise conclusions by ensuring that every
subgroup is properly represented in the sample. Moreover, stratified sampling helps to
study a diverse population, and it is also appropriate for a population of a heterogeneous
nature to ensure that every character is properly represented in the sample.
So, in order to complete the study, the researcher employed stratified sampling from a
quantitative sampling technique.
3.3.3 Sampling Design
The study was carried out on 196 employees in Abay bank S.c. Fisher et al. (1998)
formula was used since the target population is finite. The selection formula was:
Where n= the required sample size
p = extent of population proportion with the required attributes of the study (assumed to
be 0.5)
q = Population without the required qualities of the study (1-P)
N = Total population
e = Acceptable error = 5%

42. 30
Z = Z value at the level of confidence at 95% = 1.96
So in this case it can set e= 0.05, z = 1.96 and ˆp = 0.5, and we get
All the sampled employees were involved. The employees were selected through
stratified random sampling. The respondents were stratified into the departments of job
roles in which they operated. Simple random sampling ensures that employees in each
department have an equal chance of being selected.
Table 1: Sample distribution of the study
S.No Name of
Departments
Number of
employees
percentage
against total
employees
Sample
respondents
1 Finance 97 0.242 47
2 Market research
and product
development
90 0.225 44
3 Human Capital
Management
120 0.30 59
4 Customer
Relationship
management
93 0.232 46
Total 400 100% 196
Source; computed and compiled of SPSS output from questioner response (2022).
3.4 Data Collection Tools and Procedure
The data collection tool is one of the most integral and pivotal parts of the study.
According to Kothari there are various methods of data collection. As such the researcher
must judiciously select the method or methods for his own study, keeping in view the
= (1.962
)(0.5)(0.5)(__400 ____________)
(.05)2
(400-1) + (1.96)2
(.5)(.5)
=.9604(__400____)
(.9975+.9604)
=.9604*204.3 =196.2102
n=196

43. 31
following factors: such as nature, scope and object of enquiry, availability of funds, time
factor and precision required.
3.4.1 Data collection Tools
In order to gather available information on the effect of balanced scorecard
implementation on organizational performance questionnaire has been used. A
questionnaire is a carefully designed instrument consisting of a set of items to which the
respondents are expected to react, usually in writing (Amin, 2015).
Researcher applied questionnaires data collection tools because it has big advantages
such as increased speed of data collection, low or no cost requirements, and higher levels
of objectivity compared to many alternative methods of primary data collection. The
researcher used structured questionnaires with all alternative questions for the
respondents to select the best answers that described their situation as closely as it was.
Kothari (2004) stated that the questionnaires had a mixture of focused and free response
items in a single instrument to enable the researcher to collect quantitative data from the
closed-ended sections, and qualitative data from the open-ended sections.
John Dudovskiy (2018) proposed different types of questionnaire like telephone,
computer in-house survey and mail questioner. The researcher applied computer or
electronic questioner type to collect appropriate data from the employees of Abay Bank
S.c; by using the bank’s data sharing tool know as ERP (enterprise resource planning)
software; because this method saves time and ensure uniformity of the questions asked.
Researcher also applied a Likert scale to measure the degree of response in terms of
strength or weakness on a scale of one to five.
3.4.2 Data collection Procedure
The researcher sent the electronic questionnaire to the respondents through the bank’s
data sharing software (ERP) with a passing letter to provide details of the research to
sensitize them. Questioner through ERP has sent to facilitate a high and acceptable
questionnaire return rate in order to collect sufficient data. The questionnaires through
computer or e-mail is important to save time and cut down on cost, ensure uniformity of
the questions and the option of anonymity also made respondents more comfortable to

44. 32
answer sensitive questions without fear of retribution. Respondents were freer to answer
sensitive questions when they are not required to disclose their identity (Madden, 2014).
3.5 Validity and Reliability of Instruments
Validity of the instrument is the extent to which it measures what it purports to measure.
Kothari (2004) stated that validity measured the accuracy of the instrument in obtaining
anticipated data that could meet the objectives of the study. In this study, the researcher
attempted to ensure the validity of the study through cross checking how well the
responses of the questionnaire corresponded to established theories and other measures of
the same concept; in addition to this, the researcher ensures validity of the instruments
through peer review and professionals comments which aid in shaping up the
questionnaire items intended with the objectives of the study, as well as meet expected
outcome. Moreover, a content validity type applied to assure the validity of the study.
Reliability of instruments is one that gives consistent results when measurements are
repeated under the same conditions to ascertain that the instrument measures what it is
supposed to measure. The researcher through reliability was measuring the degree to
which research instruments yielded consistent results or data after repeated trials
(Mugenda, 2003). Reliability is consistency of measurement (Bollen, 1989). Nunnally,
(1978) stated that reliability assures stability of measurement over a variety of conditions
in which basically the same results should be obtained. In this study, the reliability of the
questionnaire was achieved through checking the consistency of results across time,
across different observers, and across parts of the test itself. In addition to this,
Cronbach’s alpha was used to test the reliability of the quantitative questionnaire for
internal consistence. To ensure internal consistency among the items included in each of
the scales, Cronbach’s value coefficient is estimated. Specifically, (George and Mallery,
2013) suggested that scales with 0.60 alpha coefficients and above are considered
acceptable. Internal consistency can be estimated using a reliability coefficient such as
Cronbach’s α (Saraph et al., 1989). Therefore, the reliability of each questionnaire was
calculated via Cronbach’s α and the results for the respective section questionnaires are
as follows.

45. 33
Table 2: Reliability Analysis of using SPSS Version 26
S.No Variables Cronbach’s Alpha Number of items
1 Financial Perspective 0.852 7
2 Customer Perspective 0.926 6
3 Internal Process Perspective 0.615 4
4 Learning and Growth Perspective 0.776 5
5 Performance Improvement Due
to BSC Implementation
0.728 4
Average 0.779
Source; computed and compiled of SPSS output from questioner response (2022).
3.6 Data Analysis
Descriptive and inferential statistics applied for data analysis. The Researchers applied
descriptive statistics to summarize the characteristics of a dataset by using Statistical
Package for Social Sciences IBM SPSS® version 26 for computation of results. Tables
used to organize data for analysis. Qualitative data used to compliment, enrich and
reinforce the quantitative data. Frequencies and percentages employed to obtain
proportions of the data for comparison. In the Likert scale values, combined respondents
data determines using weighted averages to measure the strength of response on a scale
of one to five. The researcher converted qualitative data in to quantitative data to
facilitate measurements. The researcher employed confidential intervals, regressions and
correlation analysis as inferential statics for data analyses. At the level of multivariate
analysis, Pearson’s product-moment correlation coefficient (r) was used to establish the
relationship between dependent and the independent variables. To adjust for
confounding, all independent variables that significantly correlated with the dependent
variable at multivariate analysis were considered together using multiple linear
regressions. All tests were two-sided. A value of p< .05 was considered statistically
significant.

46. 34
3.7 Ethical Consideration
It is essential to follow principles, guidelines and legal procedures when dealing with
respondents to avoid infringing on their privacy. Therefore, ethics is an integral part of
the research process to fulfil ethical requirements for the researcher to avoid unnecessary
risks and also accord respect, privacy and justice to the responds. Letter of introduction to
conduct research obtained from Arsi University and facilitates acquisition of a research
permit from Abay.
3.8 Model Construction
The researcher designed the questionnaires and collected data by means of surveys with
different departments in Abay Bank; thereby synthesized and analyzed data using the
SPSS 26 statistical software to evaluate the application of Balanced Scorecard and run
the model to build the equation to determine the impact level of Balanced Scorecard
perspectives to the performance of Abay bank. The equation of the study is expected as
follows:
BP = α+ β1CP + β2IP + β3LG+ β4FP
In which of:
BP: Performance of Abay Bank
CP: Customer Perspective
IP: Internal Process Perspective
LG: Learning and Growth Perspective
FP: Financial Perspective

47. 35
CHAPTER FOUR
DATA ANALYSIS AND INTERPRETATION
This chapter presents the data gathered from the bank’s staff by using questionnaires and
document analysis. These data were categorized into three sections the first part treats the
characteristics (socio-demographic character) of respondents, the second and third part
deals with the analysis of the data obtained from the respondents and different source
supported with discussion of important issues. With regard to questionnaires 196
electronic copies of questionnaires were distributed of which 47(24%) for finance
department staffs, 44(22.4%) for market research and product development department
staffs, 59(30.1%) for Human capital management department staffs and 46(23.5%) were
given for Customer Relationship Management department staffs of Abay bank S.c. All of
the distributed questionnaires 47(24%) of finance department staff, 44(22.4%) of market
research and product development department, 59(30.1%) of Human Capital
Management department and 46(23.5%) of Customer Relationship Management were
filled and returned. Thus, the data from return was organized, tabulated, transcribed and
analyzed by SPSS® version 26 program to get findings.
4.1 Characteristics of the Respondents.
Basically background information of the respondents in a research is considered as a
basis to get relevant data for the study. Hence, the background information of the
respondents of the study was analyzed and discussed in terms of their implication for
BSC implementation and its effect on organizational performance. As the main source of
information the respondents of this study were the Abay bank S.c employees that are
higher managers, seniors and officers who have direct concern for BSC implementation
and measure. To get relevant and dependable information the selection of these sample
representatives was based on their position and role they have on the BSC
implementation. The descriptive analysis of the data on the demographic profiles of the
sampled employees of the Abay Bank S.c is shown in table 3 below.

48. 36
Table 3: Backgrounds of respondents
Categorized Group Frequency Valid Percent
Gender Male 108 55.1
Female 88 44.9
Total 196 100
Marital Status: Single 53 27
Married 125 63.8
Divorced/Separated 18 9.2
Total 196 100
Level of
Education
Certificate/Diploma 8 4.1
Bachelor Degree 121 61.7
Masters/phD 67 34.2
Total 196 100
Experiences Below 1 year 14 7.1
2-3 years 29 14.8
4-6 years 104 53.1
7 and above years 49 25
Total 196 100
Departments Finance 47 24
Market Research and Product
Development
44 22.4
Human Capital Management 59 30.1
Customer Relation Management 46 23.5
Total 196 100
Source; computed and compiled of SPSS output from questioner response (2022).
A total of 196 questionnaires were distributed and each was returned, resulting in a
response rate of 100%. The section focuses on the socio-demographic data of the
respondents in the study.
As can be seen simply demographic characteristics of the respondents’ are summarized in
table 3, concerning Gender, out of the total respondents 108 (55.1%) and 88 (44.9%)

49. 37
respondents were male and female respectively. This indicates the higher opportunity of
the male to the exposure of banking services.
Regarding marital status in the study area, it was indicated that 27%, 90.8%, and 9.2% of
the respondents are single, married, and divorced or separated respectively.
Results from the table showing the Educational background of the respondents’ revealed
that the majority 121(61.7%) of the respondents had first degree level, the rest 8(4.1%)
and 67(34.2%) had certificate or diploma and Masters or PhD holders respectively. This
proportion of the employees’ qualification indicated that the banking industry mainly
required intellectual resources in the provision of its service operations. In all, the fact
that almost all of the respondents being educated though in different levels is believed to
contribute for the understanding of the questionnaire as desired by the researcher.
On the subject of work experience in Abay Bank, the survey result indicated that the
majority of the respondents 104(53.1%) had between 4-6 years of experience, 14(7.1%)
below one year, 29(14.8%) of respondents between 2-3 years of work experience in the
bank respectively. Remaining 49(25%) of the respondents had above 7 years of work
experience in the bank.
Based on current job position or departments of sample respondents the majority
59(30.1%) are human capital management staffs following 47(24%) of respondents were
finance department staffs and 46(23.5%) of respondents were customer relationship
management department staffs, remaining 44(22.4%) of respondents were market
research and product development staffs.
4.2 Analysis of Data on Balanced scorecard Perspectives
This part deals with the analysis of data gathered from the respondent in relation to the
internal process, customer, financial and learning and growth perspective of the BSC
implementation as performance management system. By using Mean score decision was
made, in the analysis average mean and standard deviation were used to interpret each
response's disparity from the mean. The t-test was done to reveal the agreement level of
respondents the result revealed that, at 95 percent confidence interval, the associated p-
values were found to be less than 0.05 level of significant employing that there was an
agreement between the responses given by the respondents, otherwise there is statistical
significant difference between the respondents.

50. 38
In this section, four perspectives in each of the twenty two statements tabulated below
were provided for respondents and they were asked to choose their level of agreement on
a scale. The results for these four statements are analyzed and summarized in the
following sections.
4.2.1. Financial Perspective
Without integrating metrics showing an organization's financial returns, focusing time,
energy, and capabilities on customer satisfaction, quality, knowledge, and other factors in
other perspectives may yield little added value (Niven, 2008). In this way, a successful
use of Balanced Scorecard increases plan delivery and execution by improving
shareholders satisfaction, financial resource utilization, improved profitability, and
staying within regulatory requirements. The views of respondents up to this stage are
shown in the table below.
Table 4: Financial Perspective
s.no
Items
Scale
Strongly
disagree
Disagree
Neutral
Agree
Strongly
agree
Total
Mea
Standard
Deviatio
n
1 Abay Bank utilizes
financial resources well
F 5 23 28 115 25 196
3.67 .931
% 2.6 11.7 14.3 58.7 12.8 100
2 Shareholders are satisfied
with the adoption of BSC.
F 15 10 15 125 31 196
3.75
1.035
% 7.7 5.1 7.7 63.8 15.8 100
3 BSC implementation
improved the banks
performance through Cost
control, fund management
and reduction of operating
cost.
F 8 15 31 124 18 196
3.66 0.90
% 4.1 7.7 15.8 63.3 9.2 100
4 The bank’s profitability
has improved since the
implementation of BSC.
F 3 13 34 117 29 196
3.8 .828
% 1.5 6.6 17.3 59.7 14.8 100

51. 39
5 Abay Bank is able to meet
its business growth
through deposit
mobilization and loan
allocation.
F 9 13 19 125 30 196
3.79 .942
% 4.6 6.6 9.7 63.8 15.3 100
6 BSC implementation
Ensure financial
soundness
F 5 19 26 119 27 196
3.73 .906
% 2.6 9.7 13.3 60.7 13.8
7 Adopting BSC improve
the overall financial
performance of Abay
bank.
F 20 15 52 74 35 196
3.45 1.174
% 10.2 7.7 26.5 37.8 17.9 100
Source; computed and compiled of SPSS output from questioner response (2022).
Table 4, describes the arithmetic mean and standard deviation of respondents’ opinion on
the financial perspectives. The average mean for financial perspectives was 3.69. From
table respondents agreed to a great extent that the implementation of BSC lead to
increased profitability of the bank of mean 3.8, the implementation of balanced scorecard
leads to increased business growth through resource mobilization of a bank of mean of
3.79, shareholders’ satisfaction has improved of mean of 3.75, implementation of BSC in
the bank has led to ensure financial soundness of mean of 3.73. The focus on the financial
performance of the bank has improved by the mean of 3.45. Respondents agreed to a
great extent that adoption of a balanced scorecard on cost control and fund management
has improved the performance of the bank of mean 3.66.
This implies that the respondents were replying positively regarding financial
perspectives improvements by implementing BSC in the bank. To confirm the result the
researcher attempted to refer to the bank's annual financial report from the start of the
2011 fiscal year. Abay was licensed by the central bank in July 2010, registering 157.5
million birr in paid up capital mobilized from 823 founding shareholders. The operating
profit of the Bank reached 31.383 million in the 2011/12 fiscal year from the loss of 3.8
million in the previous fiscal year. The profitability ratio of the bank also indicates that
the bank is moving in the right direction from its establishments.

52. 40
Accordingly, Return on asset (ROA) increased from 3.7% in 2010/11 to 5.8% in 2011/12
indicating a large and continued improvement on asset utilization of the bank. The high
level of ROA and ROE explain the continued robustness of the bank in its profitability.
Therefore, from the above demonstration of financial performance of the bank, since the
balanced scorecard adopted Abay Bank achieved remarkable financial performance in the
banking industry.
4.2.2 Customer Perspectives
A business with very satisfied customers will build sustainable profitability and high
growth value, allowing Abay Bank to thrive and deliver consistently superior financial
performance in the areas indicated under the financial perspective above. The business
also generates profits from word-of-mouth ads from pleased customers, which lowers its
advertising costs while simultaneously expanding its consumer base (Roger, 2013). As a
result, the higher the satisfaction index, the higher an organization's potential profitability
will be achieved.
Table 5: customer Perspective
S.No
Items
Scale
Strongly
disagree
Disagree
Neutral
Agree
Strongly
Agree
Total
Mean
Standard
Deviatin
1 There are customer focused
objectives
F 34 23 18 39 82 196 3.57 1.539
% 17.3 11.7 9.2 19.9 41.8 100
2 After implementing BSC,
bank’s market share improved
F 15 26 10 105 40 196 3.66 1.168
% 7.7 13.3 5.1 53.6 20.4 100
3 A bank focus on long term
customer relationship by
developing the awareness of
their need
F 16 11 19 109 41 196 3.76 1.101
% 8.2 5.6 9.7 55.6 20.9 100
4 A bank Focused on Customer
value proposition and
customer satisfaction
F 19 12 14 92 59 196 3.82 1.210
% 9.7 6.1 7.1 46.9 30.1 100
5 There is customer retention in
the bank
F 27 12 17 59 81 196 3.79 1.397
% 13.8 6.1 8.7 30.1 41.3 100
6 A bank focused on the time of
delivery of its service
F 16 13 11 46 110 196 4.13 1.269
% 8.2 6.6 5.6 23.5 56.1 100
Source; computed and compiled of SPSS output from questioner response (2022).

53. 41
Results on table 5, show that respondents indicated an effect of Balanced scorecard
implementation of the bank assisted a firm to focus on the time of service delivery in a
great extent of mean 4.13, Accordingly, it is an evidence for the attitude of employees
regarding improvement of service delivery advanced, more banking services were
adequately designed to serve the needs of customers. A bank’s focus on customers’ value
proposition and customers’ satisfaction of mean 3.82, this implies that the
Implementation of Balanced scorecard is effective to maximize the satisfaction of
customers. The sustainability of customer retention of mean 3.79, maintaining long term
customer relationship of mean 3.76, as a result, it can be evidence that the level of
commitment to sustain strong long term relationships with dynamic needs of customers is
less than expected. Market share of the bank improved by a mean 3.66 and the
availability of customer focused objectives of mean 3.57.
From the table result the effect of Balanced Scorecard implementation in the customer
perspectives of the bank indicated that the average mean value is 3.78. Similarly, the
mean value of the service delivery time, focus on customer value proposition and
satisfaction, and sustainability of customer retention was 4.13, 3.82 and 3.79 respectively.
This indicated that the respondent replied positively about the achievements of customer
perspectives. However, the rest parameter of customer perspectives showed that the
respondents were not agreeing about the achievements of long term customer
relationships. When we look at the percentage of respondents in all cases of customer
perspectives criteria, however, researcher can say that the bank achieved success by
implementing the BSC.
4.2.3 Internal Process Perspectives
The internal process or working condition of the bank is the main priority area to
compete. An organization that has a good internal process will increase operating
efficiency, improve service quality, and enhance results. It covers core service quality
and accessibility, as well as innovation, efficiency, and effectiveness. With this in mind,
the table below summarizes respondents' views on the degree of operational efficiency
gained as a result of balanced scorecard implementation at Abay Bank.