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Introduction

Since the late sixties, the Malaysian public service has witnessed the successful
implementation of a number of initiatives aimed at inculcating a high performance work
culture for a more efficient public service delivery. These initiatives include performancebased budgeting, total quality management, the ISO 9000 series, productivity improvements,
development of key performance indicators and clients' charter. Coupled with the use of
information technology, continuous improvement of work processes, flatter organisational
structures and the development of workforce competence, these public management
initiatives have made significant impact on the Malaysian public service delivery. They have
impacted positively on the citizens' view about service effectiveness. Notwithstanding, there
has been no let up in the constant drive to improve service delivery, especially, through better
performance management. New initiatives are continuously being undertaken to meet the
ever-increasing and incessant demands and expectations of customers and stakeholders as
well as to respond expeditiously to the challenges posed by the dynamic and complex
environment.
Most management initiatives are centrally driven, that is, initiated by the Malaysian
Administrative and Management Planning Unit of the Prime Minister's Department
(MAMPU)

for

across-the-board

implementation.

Notwithstanding,

public

service

organisations too are encouraged to undertake their own initiatives to inculcate a culture of
excellence in their organisations within the broad umbrella of public service reforms. These
localised initiatives are undertaken through benchmarking activities with other public and
private institutions. One such initiative under the ambit of performance measurement and
management is the implementation of the Balanced Scorecard (BSC).

Among the public agencies that have introduced the BSC are the Malaysian Public Service
Department (PSD), branches of the Ministry of Defence, the Employees Provident Fund and
other government-linked companies such as TENAGA (the national power agency) and
TELEKOM (the national telecommunications agency). The implementation of the Balanced
Scorecard (BSC) in measuring organisational performance serves as a useful feedback
mechanism towards improving the performance management of public organisations.
Together with the utilisation of key performance indicators (KPI), this approach enables an
organisation
to monitor the results and outcomes of the strategies implemented. The feedback on
performance can then be used to further improve organisational performance towards
realising the vision and mission of the organisation. The purpose of this paper is to:
i.
ii.
iii.

Highlight the salient features of the BSC;


Describe selected overseas experiences in implementing the BSC; and
Share the experience of several Malaysian public agencies in implementing the BSC.

What is a balanced scorecard?

This section explains the concept and principles of the BSC, the rationale for and benefits
from implementation. It also compares the BSC with the traditional approach of strategic
planning and performance measurement and management. The BSC is a performance
measurement and management toot that was introduced in the early 1990s by Dr. Robert S.
Kaplan and Mr. David P. Norton of the Harvard Business School. It was developed out of the
concern that previous systems of performance management were unduly skewed to
measuring only the financial performance. Thus, the original intent of the system was to
balance historical financial numbers with the drivers of future value for the firm.
Undoubtedly, financial performance is central in determining the health of any organisation,
especially the for-profit companies - for which the BSC was originally developed. Under a
knowledge-based economy, by themselves, financial indicators have little significance in
highlighting the operations and health of the company for the following reasons:
Financial indicators measure the tangible assets of an organisation. In the new
economy, human or intellectual capital is equally, if not more, an important driver of
organisational performance. Indeed, in any organisation, more than 75% of the assets
constitute intangible assets comprising human, information and organisational capital
(Kaplan and Norton, 2004, p. 5); and
Financial indicators portray, at best, the historical performance of the company. As
such, they are unable to predict future performance, as other indicators of quality,
efficiency and effectiveness would be able to do.

As Kaplan and Norton note:

The balanced scorecard retains traditional financial measures. But financial measures tell
the story of past events, an adequate story for industrial age companies for which
investments in longterm capabilities and customer relationships were not critical for success.
These financial measures are inadequate, however, for guiding and evaluating the journey
that information age companies must make to create future value through investment in
customers, suppliers, employees, processes, technology, and innovation". (Kaplan and
Norton, 1996, p. 7).

So, while shareholders have an insight into the performance of the company through financial
indicators and targets, employees and customers were out of the system of measurement.
True, there were occasional surveys of client and employee satisfaction and the Human
Resources Department did take care of employee needs for training and development. True,
there were occasional shake-ups to the internal processes each time a new process
improvement technique came along. (Among these are the ISO, TQM and 6-Sigma). What
the BSC does is to integrate these elements under one set of measurement and reporting
system. The BSC approach, therefore, provides additional perspectives that could be
measured to 'balance' the financial perspective. Accordingly, the BSC derives its name from
the fact that it balances the financial with nonfinancial measures, short-term with long-term
objectives, lagging with leading indicators, and external with internal performance
perspectives. The BSC also brings about a balance to performance management and reporting
whereby all stakeholders - customers, employees and shareholders are represented in the
performance management exercise (Kaplan and Norton, 1996, p. vii). (See Figure 1).

So, while measuring and reporting on issues that are external to the firm - financial and
customers - the BSC also measures and reports on issues that are internal to the firm - internal
business processes and employee growth and development. Combined, these measurements
and reporting should promote better decision-making on improving organisational
performance and results. As Figure 1 show, overarching this balancing of the internal and
external perspectives is the mission, values, vision and the overall strategy of a company.
These elements then determine the strategic objectives and the key performance indicators for
the following four perspectives of the BSC:

The Learning and Growth Perspective


The Business Process Perspective
The Customer Perspective
The Financial Perspective

Accordingly, the BSC requires for each of these perspectives:


Objectives;
Performance indicators to provide a meaningful picture of performance and to
indicate whether the objectives set have been achieved;
Annual performance targets or planned levels of performance for each indicator of
performance; and
Initiatives - programmes, projects, tasks - that would have to be carried out to achieve
the performance targets.

Figure 1 : Balancing the External and Internal Perspectives

Since its introduction, all types of organisation - private, public, non-profit - across the world
have adopted the BSC. The BSC has also evolved from its initial purpose of being a
performance measurement system to becoming the basis of a new management system; one
that aligns and focuses the entire organisation towards implementing and improving its
strategies. Strategic planning requires an organisation to fix its vision, mission and strategies
based on scanning its internal and external environment. It also requires that the organisation
evaluate its performance in reaching its goals and the efficacy of its strategies in achieving
them. The BSC has come to complement the strategic planning initiatives of the organisation;
more so, in the context of implementing strategies and monitoring and controlling
performance.
The BSC offers the following benefits of performance management:
Demonstrates accountability for financial and physical performance

from the

perspective of the customer and employees through measurement and reporting;


Aligns the mission, values, vision, and overall strategies with the strategic objectives
for the four perspectives - financial, customer, internal processes and employee
growth and learning;
Meets customer needs; and
Offers a tool to further improve organisational performance through feedback on
performance.
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Balanced Scorecard Implementation - The Malaysian Experience


This section highlights the BSC implementation in selected organisations of the Malaysian
public service. Specifically:
it portrays the efforts in implementing the BSC;
describes the progress towards cascading the corporate scorecard right down to
individual performance targets; and

reveals the issues in implementation. Among the issues are the choice of KPIs to
provide a meaningful and comprehensive picture of performance, the importance of
leadership commitment and communication of the initiative to all in the organisation
to make performance management everyone's everyday job.

Given these concerns, the section concludes by explaining that the BSC is part of the overall
effort at performance management. It supplements and complements other performance
measurement initiatives as, for example, the performance budgeting process, to provide a
comprehensive picture of organisational performance. Since its inception, the BSC has
generated much enthusiasm and interest in Malaysia. An increasing number of Malaysian
organisations have implemented the BSC, especially after Kaplan conducted a one-day
seminar in 2003 (Rozhan, 2007). Among them include government-linked companies such as
Telecom
Malaysia (TM) (which has implemented the BSC since 1996) and the Employees Provident
Fund (EPF) (which has implemented the BSC since 2002).th As the principal advisor to the
Malaysian government on the management of public service human resource, the PSD was
among the first to implement the BSC as an organisation-wide performance measurement
tool starting from January 2005. To paint a broad picture of BSC implementation in the
public service, this paper will draw upon the experience of these three agencies - the PSD,
TM and the EPF - in implementing the BSC.
The implementation of the BSC among public sector agencies and governmentlinked
companies is in line with the Government's drive to inculcate the `report card' culture within
the public service delivery system. This drive for a performance culture was given a further
boost by the latest policy announced during the September 2008 budget presentation. The
Prime Minister announced that secretaries-general and department heads would be appointed

on a three-year contract of service. Their contracts would be renewed if they achieved their
KPI targets set in the Annual Work Plan. The introduction of the BSC among public agencies
has replaced the previous approach to planning, which was based on the agency's
responsibilities and functions. In the past, the planning cycle was oriented towards year-onyear plans and budgets. This former approach, whilst serving the agency's operational needs,
lacked the strategic outlook. It did not provide for sufficient measurement of performance
achievement to identify the weaknesses and performance deficit that could tell on future
initiatives to improve performance. The BSC, on the other hand, forced the management to
have a more balanced view of the organisation and forced them to focus on strategy instead
of focusing only on operational matters. Most of the Malaysian organisations adopted the
BSC according to the form suggested by the pioneers with minor variations. For example,
both the PSD and the EPF adopted the four perspectives as advocated by Norton and Kaplan.
However, their strategy map - that is, the cause-effect order in which these four perspectives
are linked - is different. The PSD decided that the financial perspective should be directly
linked to the internal business process of the organisation (see Figure 9). That is, the financial
perspective should come immediately above the learning and growth perspective. This, in the
causeeffect scheme of things, means that if employees' competencies and the organisational
culture are upgraded, financial management would improve. With better financial
management, there would be better operations - that is better internal business processes which would then help the organisation meet stakeholder/customer expectations and the
organisation's mission. The EPF decided to reverse the order of the cause-effect relationship
between the financial perspective and the internal business perspective. The EPF considers
that if the organisation improves on its learning and growth perspective, that would enhance
its operational capability, that is, cause an improvement in its internal business processes.
Such an improvement in the internal business process would result in improving its financial

perspective. And with better financial ratios the strategic objectives set for the stakeholder
and client perspective would be met.
This difference in approach in drawing up the strategy map is due to the fact that the PSD is
not profit-oriented. All activities are accomplished with budgets obtained from the Treasury.
Unlike the PSD, much of the EPF's source of funding comes from returns on various
investments made with the members' contributions. Thus, the internal process determines the
financial returns. Figures 2 and 3 illustrate the differences between the strategy maps of the
PSD and the EPF.

Figure 2: The PSD's Strategy Map

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Figure 3: The EPF's Strategy Map

Public agencies that have adopted the BSC have done so as part of an effort to effect some
form of change in the organisation. For example, the EPF (Figure 4) and TM implemented
the BSC as a strategic project to strengthen the agency's operating culture and to
institutionalise a performance-based management system within their organisation. Similarly,
the PSD adopted the BSC as a vehicle to introduce a systematic approach to performance
management across the organisation. Performance management is an essential prerequisite of
a high performance organisation. Indeed, past and continuing public administration reforms
emphasise the central importance of performance management in public service delivery. The
PSD found the
BSC a ready vehicle to implement performance management.

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Figure 4: Incorporating BSC into Performance Management System

These public agencies consider the BSC as important in promoting cultural change as it
encourages team-building and eradicates the silo mentality. As the BSC enables personnel at
every level to understand the organisation's total strategy and vision, it also involves all
personnel in the organisation's strategic planning process. The agencies have also discovered
that the BSC plays the following roles in departmental management:
A system that helps translate their vision and strategy into achievable and measurable
objectives
Builds an effective performance measurement system into the organisation's work
culture
Allows the organisation to measure performance both historically and in the future, in
line with their vision and mission, and
A tool for senior management to communicate with employees at all levels as part of
a larger initiative to involve the entire organisation in the planning and
implementation of the organisation's strategy.

Most of the agencies adopting the BSC have cascaded the strategic objectives and
performance targets to lower levels of their organisation. Such a cascade ensures that
individual work objectives and performance targets contribute to the division's performance
and, ultimately, to overall organisational performance. Experience shows that cascading
works through influence. It is important that lower levels of management be well-informed
and involved at each step of the cascading process. Thus, the importance of planning and
communication of performance targets cannot be underestimated. The implementation of the
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BSC in the EPF involved cascading to all levels of employees, namely, at the corporate,
departmental, division and individual levels. At the corporate level, the Chief Executive
Officer is the 'owner' of the initiative while the heads of departments and divisions take
ownership of the department and division levels respectively. At the individual level, staff
members are responsible for their individual performance in tandem with the overall
scorecard of the organisation (Figure 5).

Figure 5: Cascading the BSC at the EPF

In the next phase of the BSC implementation, the PSD intends to cascade the BSC by
pegging the performance targets of senior management to those in the corporate scorecard.
The personnel involved would be directors of the various divisions of the Department. They
have been selected as they act as a bridge between their department's activities and the
organisation's strategic objectives and mission. Thus, it is only fair to measure their
performance based on their KPIs as derived from the corporate KPIs. Top management has
played an important role in the implementation of BSC in all three agencies. With the help of
the BSC, all employees were able to understand the organisation's total strategy and their
involvement and contribution to its achievement. This has fostered commitment among the
staff to their organisation's strategic direction.

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The BSC too has allowed for greater interaction between senior management and the staff.
For example, in the first phase of development, the Chief Executive of Telecom Malaysia
used video conferencing to introduce and launch the BSC. All managers attended this
conference regardless of whether they were located in the headquarters, state or in business
units across the country. At the PSD, top management constantly stresses the benefits of
implementing the BSC not only during its bi-annual strategic planning seminars but also in
the weekly senior management meetings. More important, top management constantly
monitors the performance results and makes decisions to improve performance on the basis
of the performance scores.
It has on-line access to these scores. To ensure the success of the implementation, all
agencies appointed a core team. This core team is responsible for coordinating, conducting
training and preparing guidelines and overseeing the implementation and continued
development of the BSC. Initially, one of the major tasks of the core team was to work
closely with the consultant appointed to ensure that performance indicators selected were
determined correctly, that is,
they offered a meaningful and a comprehensive picture of performance. Where needed, and
keeping with changing times, an in-house review and development exercise was conducted to
ensure that the strategic objectives and the KPIs are meaningful and relevant. The choice of
the appropriate number of KPIs needed to represent the performance of the whole
organisation was one of the major problems that continue to beset most public agencies in
Malaysia. The problem lies in the inability of choosing significant KPIs to measure the
organisation's strategic
objectives. Initially, most organisations fell in to the trap of choosing too many KPIs. This, in
turn contributed to, on one extreme, problem in data collection and, on the other extreme, to
an information overload. The PSD decided that 34 KPIs would be fairly reflective of its

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performance upon measurement while the EPF limited theirs to 17. A comparison of the
number of perspectives and KPIs between the PSD and the EPF is shown in Figure 6.

Perspectives
Strategic Objectives
Key Performance Indicator
Measures

Public Service Department


4
11
34
202

EmployeesProvident Fund
4
11
17
-

Figure 6: Summary of the PSD and the EPF Perspectives, Strategic Objectives and KPIs

Similarly, most agencies found it difficult to develop non-financial measures. This is a


universal problem that is partly due to the problem of causal ambiguity (Szulanski, 1996).
Most agencies had to rely on assumptions in developing the indicators. The measures chosen
were surrogate and indirectly informed on the state of performance in the relevant areas
(Rozhan, 2007). For example, one of the agencies had specified learning as a driver of its
performance. It relied on the number of books the employees had read' as a measure of
organisational learning. However, the measure selected only measured personal learning
efforts, at best.

There are many hurdles that need to be overcome when the BSC is

implemented. This is especially so in changing people's mindset and attitude. As with any
change, the BSC encountered cynicism and resistance. For example, Telecom Malaysia took
five (5) years to gain the whole organisation's buy-in. It took about the same time for the PSD
to gain organisation-wide acceptance to the BSC after it was initiated in 2000. Some of the
concerns shared by the agencies during the first five years of implementation were:
The KPIs at the divisional levels had to be aligned with the organisational mission,
vision and corporate strategy;
Implementation required extended time. Time was needed to get the agreement of alt
managers on the KPIs as their individual performance and that of their division would
be based on the selected KPIs;
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Some managers resisted the new performance system due to the fear of the unknown.
They also perceived the system as lacking benefit to both them and the organisation;
Some KPIs were misaligned, duplicating and subject to differing interpretation both in
terms of meaning as well as the measurement method. These differences arose
because the organisation was spread across the country and different branches had
different perceptions of what the KPIs meant;
Not every division's outputs could be measured because of the

difficulty in

quantifying them or because of the subjectivity in measuring them; and


Some KPIs were developed but they had no bearing on the performance of the
divisions.
Malaysian public service organisations do not solely depend on the BSC to measure their
organisation's performance. The adoption of the BSC was done in tandem with other
management techniques. For example, the PSD also has a system of KPIs that it measures
and reports as part of the budgeting process. Cascading the BSC to individual levels has not
stopped agencies from using Individual annual performance appraisal forms as before. Such
dual systems seem to suggest that agencies recognise that the BSC serves as a complementary
and supplementary system to provide a more extensive picture of the agency's performance.

The BSC represents a major departure in performance management for many public agencies
in Malaysia that have adopted it. Strategy, not financial controls, now largely dictates the
organisation's direction. The BSC has created a powerful new language for organisational
change. This new agenda is needed to fulfill the nation's aspiration of becoming a developed
nation by 2020.

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How the organization could improve the effectiveness in using the BSC
In designing a scorecard, there is a need to challenge and discuss the generic four
perspectives of the balanced scorecard that preoccupy managers regularly. In the public
sector particularly, scorecard design can be refined with perspectives that are more
meaningful and as is illustrated in chapter three, visualising value drivers does not need to be
undertaken within the context of these perspectives.
To summarise, the Kaplan and Norton view is that strategy scorecards:
Provide a logical and comprehensive way to describe strategy;
Communicate clearly the organisations desired outcomes and its hypotheses about how
these outcomes can be achieved; and
Enable all organisational units to understand the strategy and identify how they can
contribute by becoming aligned to the strategy
The correct balance that a scorecard encompasses should be driven by and reflect
the value proposition (product leadership, customer intimacy or operational excellence) on
which the strategy is based. To be most effective, scorecards of customer intimates should
emphasise measures in the customer perspective; product leaders should emphasise those in

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the innovation and growth perspective; and those pursuing technical excellence should focus
more on the internal business-processes perspective.
Recent research suggests that the way forward for managers, is to focus explicitly on
how goals, strategies and operations are connected, and to try to understand the
interdependencies across the value chain.

If we accept that organisations create value through their superior co-ordination and
integration, identifying what it is exactly that a balanced scorecard integrates seems very
useful. What matters most for the individual company, however, is on which dimension of
integration to concentrate.
By contrast, organisations in a strategic turnaround situation might need to emphasise
the integration between the operations in local units with overall corporate strategy.
Performance measurement systems can support such change programmes by highlighting the
extent of integration between operations and strategy.
The bottom line is that a good scorecard will reveal an organisations strategy and
paint a picture that the traditional focus on financial measures is unable to do.

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Conclusion
The ever-increasing demands by stakeholders and citizens on public service delivery dictate
the public service be both strategically and operationally excellent. One framework that helps
to achieve the balance between strategy and operations is the Balanced Scorecard. The
scorecard is a useful tool because performance can be reviewed from various angles. It
indicates relationships between the different perspectives, where all perspectives are linked
and what happens in one, affects another. It also reflects the fact that an organisation is a
system of interacting elements.
Therefore, while the BSC does not create strategy, it does force organisations to be very clear
on their strategic objectives and to measure progress against them. The scorecard creates a set
of key measures to monitor the organisation's deployment of strategy and causes senior
managers to focus on forward-looking initiatives. In this way, the BSC acts more like a
compass rather than a performance logbook. However, the BSC, just like any other
performance measurement tool has a number of limitations. The criticism that the BSC
ignores the external environment requires organisations to be more pragmatic in findings
ways to overcome this deficiency. Nevertheless, the use of the BSC does help the
organisation to monitor its performance and scrutinise any under-performance more

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effectively. The BSC implementation in the Malaysian public service is more than just a
'measurement' initiative. It brings about the alignment of various levels of management to
achieve the organisation's objective, mission and vision.
It also focuses on the transparency of reporting across the organisation for better public
accountability. The adoption of the BSC, as another aid to performance measurement is a
testimony to the public sector's earnestness to perform and deliver better services to the
public.

References
http: / /www.kwsp.gov.my
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Paul R. Niven (2002). Balanced Scorecard: Step-By-Step: Maximizing Performance
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Paul R. Niven (2003). Balanced Scorecard for Government and Nonprofit Agencies.
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