Today, the effective use of the Balance Scorecard (BSC) model can bring in a holistic approach to performance measurement and break the traditional use of financial indicators alone to measure the performance of any service-sector organization. As such, the aim of this paper is to examine the underlying hypotheses of the BSC model and how they can be used for performance evaluation by focusing on the banking sector of Bangladesh. Results indicate a positive correlation among the BSC perspectives at a statistically significant level and in a sequential way for the selected banks. Findings of the study particularly highlights that banks which have experienced improvements in their selected financial indicators like ROA, ROE, etc had evidently increased their efforts towards the characteristics under the learning and growth, internal business process and customer perspectives. These findings thus clearly have a number of important implications for bank managers in the context of Bangladesh.
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Across the global market, traditional measures of financial performance have mostly dominated the performance measurement system of many organizations. However, with the introduction of globalization, organizations have been forced to consider non-traditional measures as well (Ghalayini and Noble, 1996). A closer look at the financial markets further emphasizes how the rapid development of commercial institutions like banks have intensified competition because of which the traditional measures of performance is currently inadequate (Cao et al., 2012). Moreover, the operating environment and nature of business operations in the banking sector have become increasingly future-oriented (Ibrahim, 2015). As such, it has become imperative to apply forward-looking accounting information including non-financial measures in the performance measurement systems in order to meet the banking needs of strategic development (Joshi, 2001; Zhang and Li, 2009).
Performance measurement has always been an integral part of management accounting (Emmanuel and Otley, 1995) but with the passage of time, a holistic approach to the concept of performance has been undertaken in the form of the Balance Scorecard (BSC) model (Dave and Dave, 2012). The balanced scorecard is a generally accepted management accounting tool which encompasses non-financial performance measurements along with the financial performance measurements, so that the performance of an institution is measured in a multi-dimensional way and can increasingly focus on the institution's strategies (Kaplan and Norton, 1992; Lipe and Salterio, 2002; Davis and Albright, 2004; Khan et al., 2010; Ozturk and Coskun, 2014). The BSC model highlights the cause-and-effect relationship between the four perspectives of learning and growth, internal business processes, customer and financial, along with the fact that the financial perspective is the end point where efforts of other perspectives should be directed at (Aidemark, 2001; Khan et al., 2010). These underlying hypotheses can actually provide bank managers with an opportunity to realize how an action classified in one perspective can influence the other dimensions of performance through a domino effect and can ultimately lead to improvements in the bank’s financial performance (Hoque and James, 2000; Khan et al., 2010).
Within Bangladesh, there has been considerable exploration of the application of BSC in various manufacturing firms. Many empirical studies like Ishtiaque et al. (2007), Mosarraf and Ahmed (2008), Khan and Halabi (2009), Khan et al. (2010) and Khan et al. (2011) reported the use of BSC model as a strategic performance measurement tool in industries like pharmaceutical, engineering, tannery, food and allied, cement, ceramics, textile, etc. Although financial measures were found to be dominating in the manufacturing sector, a good number of companies were also adopting non-financial measures through the BSC model. Findings of Morium (2002) further suggested that the BSC model can be an effective tool for long-term strategic planning in the banking industry of Bangladesh. However, there is a paucity of research that highlights how the casual linkages of the BSC model can be applied and worked among the banks.