The document discusses outsourcing in the banking sector. It explains that banks are increasingly outsourcing both core and non-core functions to specialized third-party providers to improve operational efficiency and performance, access skills and expertise, and reduce costs. Selecting the right partner, negotiating contracts carefully, and having an exit strategy are among the key challenges of outsourcing that banks must address.

1. Outsourcing in the Banking Sector: Problems and Prospects
SantoshPatnaik, United Bank of India - 28 Aug 2007
This article discusses the evolution of outsourcing and why today, more than ever, banks
are well-advised to take advantage of the benefits of outsourcing.
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The idea of outsourcing has its roots in the 'competitive advantage theory' propagated by
Adam Smith in his book 'The Wealth of Nations' published in 1776. A hundred years ago, the
automotive industry was so vertically integrated that the largest car companies owned vast
tracts of fields on which they grazed their own sheep to produce wool for use in car seats! In
the 1970s, the industry realised that it simply couldn't be good at everything. It then began to
consolidate, converge and sell off those parts of the business that could be better sourced
externally, especially where external suppliers could generate greater economies of scale by
supplying multiple manufactures. Subsequently, in the early 1990s, companies began
outsourcing strategically significant functions such as manufacturing, logistics and other
innovation-related activities. Outsourcing thus became a critical management tool, a
management philosophy, a business management style and a restructuring model.
What is Outsourcing?
Outsourcing, in layman's language, can be defined as a process in which a company delegates
some of its in-house operations/processes to a third party. While in a contract, ownership or
control of the operation/process lies generally with the parent company, with outsourcing the
control of the process is with the third party. Outsourcing takes place in two types of services:
1. IT outsourcing (ITO) involving an external service provider who manages specific
applications, including server management, network administration and software
development/upgrades.
2. Business process outsourcing (BPO) which involves a third party who manages the entire
business process, such as accounting, financing, customer support or human resources. BPO
is rapidly becoming recognised as a strategy offering a compelling business value proposition
for companies as a means to gain operational efficiency, focus on core expertise, save time
and potentially reduce costs. BPO is independent of economic cycles and is therefore valid in
difficult times when companies want to cut costs as well as times of profit when companies
want to focus on growth.
Why Outsource?
If one doesn't have the time, money or skill to do the job internally, or if there is a function
that is a burden or detrimentally affecting other parts of the business, outsourcing is worth

2. considering. When companies first started thinking about outsourcing non-strategic functions,
such as payroll, IT maintenance, facilities management and logistics, their goal was to reduce
costs. Today, however, there is a far wider range of reasons why these organisations regularly
contemplate outsourcing core operations to third-party specialists, which include the
following:
Improving operational performance.
Avoiding capital expenditure.
Reducing overheads and operating costs.
Saving manpower and training costs.
Improving speed, service and efficiency.
Freeing up resources thereby enabling more time to focus scarce resources on time-critical projects,
such as application re-engineering.
Transferring non-core functions.
Access to specialised skills.
Avoiding the cost of 'chasing technology'.
Leveraging the provider's extensive investment in technology and methodologies to reduce the risk
of technology obsolescence.
Increased efficiency by consolidating and centralising functions.
Outsourcing in the Banking Sector
Banks all over the world have developed along a series of vertically integrated 'silos' and the
result is extensive duplication and redundancy across both businesses and geographies.
Duplicated structures and inflexible technology/service solutions not only generate increased
costs but also reduce business flexibility and damage service quality through inconsistency.
Since the 1990s, banks have been improving their efficiency ratios by acquiring or upgrading
technology, cost cutting and consolidation. But now that further improvements are proving
elusive, costs have been trimmed to the minimum and consolidation gains have waned, banks
are under pressure to improve earnings. Outsourcing has thus becomes a way of moving
banks' scarce resources away from trivial operations to value-added services, such as business
strategy and execution, new opportunity identification and pricing, business results and
interpretation, and M&A planning.
Strategic Reasons for Outsourcing
Specialisation coupled with greater economy of scale enables an outside provider to provide
services at a much lower cost that in turn reduces a bank's operating costs and increases its
competitive advantage. Third-party providers make extensive investments in technology,
methodologies and people, which provide banks with a wider range of capabilities. Freed
from devoting their energy to areas that are not within their expertise, banks can now focus
their resources on meeting customers' needs.
Markets, government regulations, financial conditions and technologies all change rapidly
and outsourcing providers who make investments on behalf of many clients are better
equipped to handle the resultant risks.

3. Outsourcing ensures that banks receive higher quality, better 'on-time' delivery access to
world-class skills, fast project start-up, industry best practices and even benchmarking
information about similar financial institutions.
Deciding What to Outsource
With investor expectations growing day by day, banks are forced to re-examine their core
functions. In effect, the distinction between core and non-core is slowly but surely
diminishing, thereby increasing the number of functions that could be outsourced. Jane
Linder, senior research fellow and associate director of Accenture's Institute for Strategic
Change in Cambridge, Massachusetts says: "It's really hard to figure out what's core and
what's non-core today. When you take another look tomorrow, things may have changed. On
September 9, airport security workers were non-core; on September 12 they were core to the
federal government's ability to provide security to the nation. It happenseveryday in
companies as well."
With outsourcing in the banking sector moving beyond non-core check processing and IT to
high-end functions, banks worldwide are responding to the competitive landscape by
outsourcing cash management, research, analytics and other processes once considered core.
A recent survey by Accenture on a sample of 30 US retail and commercial banks with more
than US$3bn in assets, found that half of the sample outsourced not just functions such as
credit card processing, human resources and IT, but also finance and accounting functions,
such as general ledger, tax accounting, fixed-asset accounting, accounts payable and
receivables, accounts management, reconciliation, treasury and capital management.
Conventionally, investment management functions were managed in-house but many private
banks, such as UK-based EFG Private Bank, are outsourcing all or part of their investment
management to a range of specialist fund managers to get greater economies of scale, while
retaining relationship management with them. ING outsourced its international cash equities
clearance and settlements operations in London, New York, Hong Kong and Singapore to
The Bank of New York in 2002. The decision was the result of ING's strategy to provide its
businesses with high quality, variable cost clearing and settlement services and the fact that it
had uncovered a Yen500m settlement fraud at ING Securities in Tokyo.
When HSBC decided to outsource part of its cash management functions and insource
payables at the end of 2004, the decision to outsource was prompted by Basel II and the
opportunities rendered by India - the major outsourcing hub. As the emphasis on equity
portfolios grow, banks are faced with a shortage of knowledge and expertise and therefore the
decision to outsource.
Overcoming the Pitfalls
Outsourcing can be a huge success story but there are challenges. Though simple in theory, it
is tough to execute especially when companies with high expectations outsource the wrong
things for the wrong reasons in the wrong way. Poorly planned deals have grave
shortcomings - companies overestimate the economic benefits of the deal, fail to establish the
right baseline for price negotiations and performance tracking, or are not fully prepared to
manage the transition and post-deal situation. A recent study by Cap Gemini Ernst & Young
shows that only 54% of companies are satisfied with outsourcing - down from more than
80% a decade ago.

4. The following section provides some guidelines in dealing with the various challenges
surrounding outsourcing.
Selecting the right partner: Since banking operations are a sensitive area, the primary barrier
to outsourcing in banks is security. The risks include disruption to service, defective services
and personnel of service providers gaining intimate knowledge of banks' systems and
misusing them. Organisations need to look for a service provider with experience, expertise,
integrity and long-term commitment to the industry. It is essential to select a credible
outsourcing provider who, besides making a good cultural match, is committed to ongoing
technology improvement who can add value to the bank's operations.
Negotiation: Negotiating teams must negotiate with the business managers, executive team,
employees and union representatives. Uncertainty during an outsourcing transition increases
the risk of staff turnover so banks should design a retention program that targets and retains
key personnel. A dedicated team of change management with top management involvement
should be in place to regularly monitor any unforeseen problems.
Timeframe: Outsourcing is not a one-time event with an instant payoff. While rapid execution
and implementation enables a bank to get through the most painful part of the change process
quickly, and minimises friction created by resisters by forcing them to adapt quickly, speedy
implementation certainly deprives the bank and the third-party provider of that all-important
'courting' stage before the 'wedding'. The real benefits of outsourcing take time and before
they kick in, things are likely to be painful, ugly and chaotic; and here lies the crucial role of
transition management.
Exit policy: Since outsourcing deals have become bigger, complex and strategically
important, an exit strategy has to be in place along with contingency planning. The exit
strategy may involve bringing outsourced activities back in-house, continuing with the same
provider, or choosing a new provider, all of which mean that the bank has to revisit its
strategy.
Conclusion
At a time when Basel II, with its artillery of spiky pre-conditions is within striking distance,
banks have to keep pace with the global banking environment that is undergoing a colossal
metamorphosis. Charles Darwin aptly remarked: "It is not the strongest of the species that
survives, or the most intelligent, but the one most responsive to change". With that in mind, it
is no longer a question of 'why outsource?' but rather 'why not?'

5. A Global Bank’s Performance Indicators:
1. Shareholder value
2. Staff Retention
3. Comfort
4. Risk/Health and safety
5. Speed
6. Creativity
7. Communication
8. Image and PR
An Investment Bank’s Performance Indicators:
Headline KPIs:
1. Integrity
2. Teamwork
3. Respect for the individual
4. Client focus
5. Responsible citizenship
The Value of Key Performance Indicators (KPIs)
September 15, 2011
Performance Management, Performance Measurements, Strategic Planning
Key Performance Indicators, or KPIs, are essential in helping organizations better define and
measure progress towards organizational goals and objectives. Once an organization has
identified its specific objectives and key stakeholders in support of those objectives, it is
better prepared to develop a systematic approach to measure progress towards those
predetermined goals.
Key Performance Indicators, or KPIs, if implemented AND sustained correctly, allow
us specific advantages including but not limited to the following:
Create organizational clarity with regard to specific performance objectives in relation to the
company vision and values;
Effectively monitor progress towards goal with viable performance metrics;
Conduct periodic analysis as a means to evaluate whether or not short-term objectives, or
milestones, are being met in support of the primary performance target;
Foster an environment of improved performance, employee motivation, and continuous
improvement strategies;
Ensure that the business is properly aligned with the agreed-upon objectives with the client,
thereby ensuring improved collaboration and visibility over all areas of the business,
including contractual compliance.

6. When implementing an effective KPI program, at a minimum it is crucial to consider
the following:
Measurements must be “quantifiable” – if you cannot measure specific data relative to key
areas of your performance, it becomes difficult to both track and monitor progress towards
goal, which impacts one’s ability to more effectively manage the business;
Measurements must be agreed upon with both the client and primary stakeholders in
advance of implementation – without question, this is one of the most critical steps in the
process. Ensuring that one is fully aligned with the client in all areas of the business helps
create a transparent and increasingly effective partnership, most especially when client
objectives are met;
Ensure complete alignment and understanding of the specific performance metricswithin
their organizations; employees must understand what is being measured, why it’s
important, how it benefits them individually and as a department, and how best to
contribute to the objective as a whole;
Communicate progress to goal within the organization, and communicate frequently –
repetition is key! - it is much easier as an employee and/or senior stakeholder to implement
specific strategies and performance behaviors designed to contribute towards short-term
milestones, most especially when they are continuously kept abreast of progress. The ability
to work towards something achievable within a manageable or compressed timeframe tends
to be more motivating and viewed by the employee as something they can achieve.
According to Forrester Research, this contributes to employee satisfaction while increasing
motivation toward meeting the specific objective(s);
Incentivize Performance - be creative in implementing incentives to reward short-term
contribution towards objectives designed to meet the ultimate company goal; add energy to
the process by creating an enjoyable environment and backing it with specific incentives
designed to both recognize and reward performance.

7. Key Performance Indicators must be viewed as Critical to Organizational Success
I have always believed that if everything is important, nothing is important!Clearly, we
simply can‟t measure everything!
In selecting the appropriate KPIs, it is very important that we limit them to those indicators
that are essential to the organization reaching its full potential. At the same time, I believe
that it is important to keep the message simple, with only a short list of „very specific‟ and
equally „measurable objectives‟ – in doing so, you‟ll foster an environment of organizational
clarity, vision and direction of the business.
I would further argue anything more than on or about five key company objectives may serve
to defeat the purpose, often adding unnecessary confusion within the company. Just as clear,
less is undoubtedly more when it comes to developing key company objectives, supported by
measurable KPIs.
When working through the objectives that are important to the business in how they support
company vision, as well as the KPIs that support them, customization is key … Candidly, the
volume of available KPIs are, well … excessive! Identify and ultimately deploy those KPIs
that at a minimum, are:
Customized to the Enterprise: for KPIs to add true value to your business, they must be
customized around what is, in fact, unique to your business, market segment, and client
base.
Ability to Successfully Implement: simplicity if not a word to avoid … indeed, KPIs that are
manageable, relatively easy to understand, measure and ultimately deploy, are key to the
success of the initiative.
Aligned with Company Objectives and Vision: anyone can implement a performance
scorecard process that incorporates KPIs, however does that always translate into the
desired performance outcomes? In short … no. Many KPIs fail as they are not tied to well-
defined business objectives, which undoubtably are (or should be) tied to the vision
statement of the business.
Through proper communication, frequent updates regarding progress to goal and continued
positive reinforcement and recognition of efforts towards meeting specified goals, a business
can most certainly achieve organizational success.
To be sure, it is important to move quickly, identify both positive and negative performance
trends, and respond with the appropriate gap analysis and strategies necessary to improve
performance. According to Jack Welsh, “An organization‟s ability to learn, and translate that
learning into action rapidly, is the ultimate competitive advantage.”
So What Do We Measure?
Which KPIs are best for a particular organization depends on several factors:
Where is the organization today with overall performance?
Where does the organization want to be tomorrow?
Who receives the KPI data and what do they do with it?
How are KPIs and the conclusions that are drawn from the KPIs communicated to others?

8. Indeed, this is without question one of the most essential areas to be addressed by any
business, regardless of market segment. Candidly, not all clients are created equally – what is
important to some, may not be important to others. Understandably, every product and/or
service is measured differently. Yet, it is commonly understood that if one can‟t measure
their performance, they can‟t effectively manage it, nor for that matter, improve it. It is the
simple premise of measure, manage, improve!
The performance measurement process attempts to measure various aspects of performance
to determine where improvement is needed. Performance measurement tools provide a
window into how every element of your business is functioning in an effort to meet both
internal and customer specific objectives. Essentially, key performance indicators, or
performance measurements, fall into two specific categories, lagging or leading. Lagging
measurements provide analysis of past performance whereas leading serves to both evaluate
and define future performance.
The reality is that every business strives to deliver their products or services faster, smarter,
cheaper! Organizations that meet such objectives typically leverage work tools to help them
better facilitate the process. There are many valuable tools that can be acquired within the
marketplace to help organizations better manage all areas of their business, from field
operations to sales performance. At the same time, many business owners and managers can
also create their own tools, customized to both their individual clients and business
methodologies. It is my belief that a healthy organization will maintain a balance between
acquired business tools, as well as tools developed internally through innovation and
adaptation to the evolving demands of the client, which often are a direct reflection of market
conditions.
Keep the following points in mind when selecting KPIs:
Quantity does not equal quality.
Measure the most important things, not everything.
Ensure field and line management buy-in.
Consider piloting metrics before rolling them out company-wide.
Don’t let the cost of measuring exceed the value of the results.
So what specifically should we measure? I believe that the basic foundation of any
measurement program should at a minimum consist of the following partial list of
performance indicators:
Quality Performance
Quality Audits
Client surveys
Trend Analysis
Corrective Actions
Gap Analysis
Root Cause Analysis
Performance against Target
SWOT analysis
Cost Performance

9. Budget Performance against Goal
Benchmarking
Value Additions
Material/Supply cost
Value Additions
Cost Savings & Avoidance
BCWS (Budgeted Cost for Work Schedule)
Purchasing Improvements
Delivery Performance
Performance against Schedule
Cycle Time Analysis
Work Order Completion Rates
Productivity Assessments
Safety Performance
Recordables
Lost time
Accidents
Near Misses
Safety Tracking
Safety Audits
Clearly, there are a variety of equally important indicators that should be evaluated as part of
the process including sustainability or green performance, employee performance,
technology, etc.
In reality, not all clients are created equally. While some may emphasize overall safety
performance as their primary indicator, others may emphasize stringent objectives tied into
quality performance, often further validated through third-party audits.
It is my belief that above all else, the keyword is “customization.” Clearly, not all customers,
markets, nor facility environments are created equal. Often, suppliers of both materials and/or
services try to fit a square peg into a round hole in that they implement a generic quality
program that lacks focus and specificity on specific aspects of contractual compliance, and
what the client at the local level ultimately wants to achieve as part of the partnership.
According to an article noted within the International Facilities Management Association‟s
website, facilities managers, procurement professionals, and end–users suggest that one of
their continued concerns with suppliers of various commodities is that they either lack a
substantive performance management program, or when they do it is either far too generic,
and/or far tounder utilized.
For KPIs to be successful, there needs to be a system for tracking, communicating, and
improving performance. If data are collected but aren‟t communicated to the appropriate
audience, efforts will not be successful. In an effort to increase accountability, use periodic
reporting to highlight performance for leading and lagging indicators in a simple and highly
visible manner. This helps foster an environment for increased accountability and awareness.

10. Finally, KPIs will evolve as the organization changes. Business owners and managers should
be prepared to continuously evaluate their progress in tracking performance and the benefits
of the KPIs. When necessary and appropriate, KPIs should be modified to reflect changing
circumstances or drive further improvement.
balanced scorecard
kaplan and norton's organizational performance management tool
In the beginning was darkness. We went to work, did our job (well or otherwise)
and went home - day in and day out. We did not have to worry about targets,
annual assessments, metric-driven incentives, etc. Aahh… life was simple back then.
Then there came light. Bosses everywhere cast envious eyes towards our
transatlantic cousins whose ambition was to increase production and efficiency year-
by-year. Like eager younger siblings we trailed behind them on the (sometimes)
thorny path to enlightenment.
Early Metric-Driven Incentives - MDIs - were (generally) focused on the financial
aspects of an organization by either claiming to increase profit margins or reduce
costs. They were not always successful, for instance driving down costs could
sometimes be at the expense of quality, staff (lost expertise) or even losing some of
your customer base.
Two eminent doctors (Robert S Kaplan and David P Norton) evolved their Balanced
Scorecard system from early MDIs and jointly produced their (apparently) ground-
breaking book in 1996. Many other 'gurus' have jumped on the Balanced Scorecard
wagon and produced a plethora of books all purporting to be the ‘Definitive' book on
Balanced Scorecards. Amazon.com shows over 4,000 books listed under Balanced
Scorecards, so take your pick - and your chances!
balanced scorecard - definition
What exactly is a Balanced Scorecard? A definition often quoted is: 'A strategic
planning and management system used to align business activities to the vision
statement of an organization'. More cynically, and in some cases realistically, a
Balanced Scorecard attempts to translate the sometimes vague, pious hopes of a
company's vision/mission statement into the practicalities of managing the business
better at every level.
A Balanced Scorecard approach is to take a holistic view of an organization and co-
ordinate MDIs so that efficiencies are experienced by all departments and in a
joined-up fashion.
To embark on the Balanced Scorecard path an organization first must know (and
understand) the following:
The company's mission statement

11. The company's strategic plan/vision
Then
The financial status of the organization
How the organization is currently structured and operating
The level of expertise of their employees
Customer satisfaction level
The following table indicates what areas may be looked at for improvement (the
areas are not exhaustive and are often company-specific):
balanced scorecard - factors examples
Department Areas
Finance Return On Investment
Cash Flow
Return on Capital Employed
Financial Results (Quarterly/Yearly)
Internal Business Number of activities per function
Processes Duplicate activities across functions
Process alignment (is the right process in
the right department?)
Process bottlenecks
Process automation
Learning & Growth Is there the correct level of expertise for
the job?
Employee turnover
Job satisfaction
Training/Learning opportunities
Customer Delivery performance to customer
Quality performance for customer
Customer satisfaction rate
Customer percentage of market
Customer retention rate

12. Once an organization has analysed the specific and quantifiable results of the above,
they should be ready to utilise the Balanced Scorecard approach to improve the
areas where they are deficient.
The metrics set up also must be SMART (commonly, Specific, Measurable,
Achievable, Realistic and Timely) - you cannot improve on what you can't measure!
Metrics must also be aligned with the company's strategic plan.
A Balanced Scorecard approach generally has four perspectives:
1. Financial
2. Internal business processes
3. Learning & Growth (human focus, or learning and development)
4. Customer
Each of the four perspectives is inter-dependent - improvement in just one area is
not necessarily a recipe for success in the other areas.
balance scorecard implementation

13. Implementing the Balanced Scorecard system company-wide should be the key to
the successful realisation of the strategic plan/vision.
A Balanced Scorecard should result in:
Improved processes
Motivated/educated employees
Enhanced information systems
Monitored progress
Greater customer satisfaction
Increased financial usage
There are many software packages on the market that claim to support the usage of
Balanced Scorecard system.
For any software to work effectively it should be:
Compliant with your current technology platform
Always accessible to everyone - everywhere
Easy to understand/update/communicate
It is of no use to anyone if only the top management keep the objectives in their
drawers/cupboards and guard them like the Holy Grail.
Feedback is essential and should be ongoing and contributed to by everyone within
the organization.
And it should be borne in mind that Balanced Scorecards do not necessarily enable
better decision-making!
Balanced Scorecard For Financial Institutions
Implementation of Balanced Scorecard in banks and financial institutions is a very tricky thing as
there is huge temptation to focus on financial indicators only. As known, banks, mortgage and
insurance companies, credit unions and other financial institutions work with money to make more
money. So, it is very easy to disregard non-financial indicators that, however, have a direct
impact on financial performance of the above mentioned organizations.
The last several decades saw a sharp increase in the number of commercial banks and financial
institutions which caused a very tough competition in this market. The traditional performance
management systems turned out to be quite ineffective since very often they failed to meet
specific requirements of financial organizations. As already said above, excessive focus on financial
indicators forced banks management turn the blind eye to the numerous indicators representing
overall organization performance. The problem is that financial indicators show what has already
happened to the bank or insurance company while it is very important to plan ahead and know

14. what will happen in future. This is where nonfinancial indicators can help. And that is why
Balanced Scorecard system turned out to be a more effective tool to measure business
performance of financial organizations and communicate operational management with strategic
vision.
Some of the banking KPIs used to measure bank's performance
One of the key problems banks and other financial organizations faced in performance evaluation
is focusing on internal processes, which is good in itself, but at the same time ignoring external
environment that is changing all the time and thus endangering financial institutions. Another
common mistake is ignoring intangible assets. In the modern age of information in intellectual
resources and financial knowledge must be given due attention. So, as to implementation of
Balanced Scorecard in banks and financial institutions, the process is quite typical as compared to
BSC implementation in other types of organizations. Balanced Scorecard measures key
performance indicators in four perspectives: financial, customer, internal processes, learning
and growth. It is difficult to say which perspective is the most important but it is possible to say
that implementation of financial goals depends on success in the other three categories. Also,
much depends on company strategy vision and strategic goals. Some banks may have a large
customer base and should focus on internal processes while other financial institutions have to
concentrate on attracting new customer and improving customer satisfaction in order to achieve
financial goals.
The Four Perspectives In Financial Institution Scorecard
1. Financial
As already said, although financial goals are the most important for financial institutions, focusing
only on financial indicators will not represent everything happening to the organization. That’s why
due attention should be given to financial indicators, but at the same time one should remember
that financial goals are achieved through implementation of other non-financial goals. Let’s review
basic financial strategic goals a bank or any other financial organization may pursue.

15. a) Reduce costs. One of the main goals here may be reducing expenses that do not lead to
generating of income. This is achieved by improving productivity, optimizing business processes
etc. As a rule, this is a 2-5 year plan that has a step by step implementation system.
b) Improve return on spending (ROS). ROS represents efficiency of managing company’s
funds. The ultimate goal is to create wealth. By engaging in high return activities a bank or any
other financial organization increases the profit on spent funds.
c) Increase revenues. This is about increasing the number of valuable customers, broadening
relationships with the VIP customers through sale of new products and cross-selling of existing
products.
d) Reducing risks. This may be achieved by moving from net interest income to broadening of
portfolio of fee based products. This will caution and protect the bank or a financial organization.
2. Strategic Customer Objectives.
a) Improving the image of a financial organization in the eyes of customers. This simple
goal has a direct impact on financial performance of an organization. More customers bring more
money.
b) Informing customers in a better way. A greater customers’ knowledge of banking services
will make it possible for bank employees and management better meet customers’ needs.
c) Eliminate mistakes in customer service. This refers to all operations and transactions as
well as communication of customer with a bank.
3. Strategic Goals On Internal Processes
a) Innovation. This includes identifying needs of customers who represent high profitability and
analyzing of their economic background. It is important to create new products, innovative
financial services which are convenient for customers and cost efficient for the organization that
offers them.
b) Delivery of services. This is about cross-selling of products through motivated and proactive
employees of a financial organization. Bank employees should listen to customer needs and
educate customers on new services and products. In order to achieve this goal, employees of a
financial organization should have strong relationships and regular communication with an end
customer.
c) Service excellence. A bank or a financial organization must understand the service excellence
is imperative for survival in the market. This is a key to keeping relationships with customers and
gaining competitive advantage in the battle for new customers.
4. Strategic Learning and Growth Objectives

16. a) Gaining competitive advantage is being much determined by extracting, manipulating and
use of information. This process consists of 2 stages: gathering information, analyzing of
information and determining what information should be used in decision making. And of course, it
is imperative to improve methods of gathering and analyzing of information by introducing
innovative IT support systems.
b) Strategic jobs and competencies. This includes the ability to cross-sell the products by
focusing on customer needs. In order to achieve this goal, employees should have a better
understanding of company products and services, as well as understanding of financial markets in
general.
c) Compensation, reward and accountability system. Only properly motivated employees
would give the best work results. Balanced Scorecard should be used to offer additional motivation
for employees who manage to fulfill tasks and implement goals at their workplaces. These goals
might be different, from attracting new customers and selling new products to offering innovative
ideas and techniques.
d) Focusing on resources. Allocation of resources should be in that areas which claim to offer
the highest profitability, and setting priorities should be based on this principle. A few words must
be said about information systems. We are living in the age of progressing IT technologies. We
have already had the chance to appreciate innovative banking and financial services like mobile
banking, Internet banking, getting free insurance quotes, loan and deposit calculators
etc. Without any doubt, these new services and products increase competitive advantage of a
financial organization if properly applied in any of the four perspectives.
Conclusion
We should repeat again that this set of goals is not an action plan to be used by any financial
organization. These are just examples, which are although very common. Use of Balanced
Scorecard in banks and financial organizations helps all employees at all levels better understand
strategic vision of the company. Statistics show that only 5% of employees have a good
understanding of the company strategy, and only 25% of managerial staff participates in strategic
planning. It is especially important for financial organizations to link their budgets to the
adopted strategy. A strategy for a financial organization is something bigger than attracting as
many customers as possible or opening of thousands of new accounts. Balanced Scorecard
visualizes the strategy thus making it comprehensive in easy to understand. Through its
implementation management of a financial organization will be able to reveal weak and strong
points, loss making and profitable areas, efficiency of existing programs and campaigns,
effectiveness of learning efforts etc.

17. How Balanced Scorecard works in 4 perspectives for a bank
BSC Designer
BSC Designer is a software tool that provides automatic use of the Balanced Scorecard concept
and other KPI-based management systems. Its most important advantage is the ease in which it
can be understood and used, as well as all of its powerful features. BSC Designer makes it possible
to create projects that would support any KPI-based Management concept (including Balanced
Scorecard). It automates most implementation and maintenance processes, leading to a reduction
of costs for the concept’s use and also improving its benefits. Please read case study of how BSC
Designer helped Financial Institution to improve the strategic and control efficiency.
Revenue
Revenue Growth Rate

18. Net Profit
Net Profit Margin
Gross Profit Margin
Total Shareholder Return (TSR)
Net Income
Sales
Net Earnings
EBIT
EBITDA
ROI
EVA
Turnover
Net Income Margin
Return on Sales
Operating Profit Margin
ROCE
ROE
D/E Ratio
Cash Conversion Cycle
Working Capital Ratio
Operating Expense Ratio
CAPEX to Sales Ratio
P/E Ratio
Customer Profitability
Customer Lifetime Value
Return on Innovation Investment
Human Capital Value Added

19. Revenue per Employee
Energy Consumption
Saving Levels due to Conservation and Improvement Efforts
Risk Likelihood vs Consequence
Risk Appetite vs Exposure
IT Costs as Percentage of Revenue
IT Project Cost Variance
Sales Volume Projection
Direct Product Profitability
Revenue per User
Percentage Revenue per Major Customer
Sales per Channel
Quotation Conversion Rate
Upselling Success Rate
Cross-Selling Success Rat
Cost to Serve
Acquisition Retention Spending Ratio
Cost Avoidance Score