The Combined Use of Balanced Scorecard and Data Envelopment Analysis in the Banking Industry

Aleksandra Bošković 1  and Ana Krstić 1
  • 1 Faculty of Economics, University of Kragujevac, Serbia

Abstract

Background: Starting from the limitations of different single-method approaches to measuring the organizational efficiency, the paper is focused on covering both the financial and non-financial factors of this concept by combining two methods, namely the Balanced Scorecard (BSC) and Data Envelopment Analysis (DEA).

Objectives: The main goal of the research in the paper is to show that certain deficiencies in the independent application of each method are eliminated by combining these methods.

Methods/Approach: The paper combines two methods, BSC and DEA, to measure the relative efficiency of all branches of a bank in Serbia.

Results: Results confirmed that the combined use of the named methods facilitates measurement of organizational efficiency by using both financial and non-financial indicators.

Conclusions: The paper shows that it is possible to achieve synergetic effects in the evaluation of organizational efficiency in the banking sector if BSC is applied first, to define goals within four perspectives, and then four DEA models are developed to measure efficiency in each perspective.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • 1. Amado, C. A. F., Santos, S. P., Marques, P. M. (2012),“Integrating the Data Envelopment Analysis and the Balanced Scorecard approaches for enhanced performance assessment”, Omega, Vol. 40 No. 3, pp. 390-403.

  • 2. Asosheh, A., Nalchigar, S., Jamporazmey, M. (2010),“Information technology project evaluation: An integrated data envelopment analysis and balanced scorecard approach”, Expert System with Application, Vol. 37 No.8, pp. 5931–5938.

  • 3. Banker, R., Charnes, A., Cooper, W. (1984), “Some models for estimating technical and scale inefficiencies in data envelopment analysis”, Management Science, Vol. 30 No.9, pp. 1078 - 1092.

  • 4. Bouyssou, D. (1999), “Using DEA as a tool for MCDM: some remarks”, Journal of the operational Research Society, Vol. 50 No.9, pp. 974-978.

  • 5. Casu, B. Molyneux, P. (2003), “A comparative study of efficiency in European banking”, Applied Economics, Vol. 35 No. 17, pp. 1865-1876.

  • 6. Charnes, A., Cooper, W., Rhodes, E. (1978), Measuring the efficiency of decision-making units, European Journal of Operational Research, Vol. 2 No. 6, pp. 429-444.

  • 7. Chen T., Chen L. (2007), “DEA performance evaluation based on BSC indicators incorporated: the case of semiconductor industry”, International Journal of Productivity and Performance Management, Vol. 56 No. 4, pp. 335–357.

  • 8. Chen, T., Chen, C.B. Peng, S. (2008), “Firm operation performance analysis using data envelopment analysis and balanced scorecard: A case study of a credit cooperative bank”, International Journal of Productivity and Performance Management, Vol. 57 No. 7, pp.523-539.

  • 9. Chen, L., Lu, W., Yang, C. (2009),“Does Knowledge Management Matter? Assessing the Performance of Electricity Distribution Districts Based on Slacks-Based Data Envelopment Analysis”, The Journal of the Operational Research Society, Vol. 60 No. 11, pp. 1583-1593.

  • 10. Cooper, W., Seiford, L., Zhu, J. (2011), Handbook on Data Envelopment Analysis, Ann Arbour, Springer.

  • 11. Domanović, V., Bogićević, J. (2011), “Mogućnosti primene balance scorecard koncepta u Srbiji (Possibilities of applying balance scorecard concept in Serbia”) Novi metodi menadžmenta i marketinga u podizanju konkurentnosti srpske privrede(New methods of management and marketing in raising the competitiveness of the Serbian economy), Faculty of Economics University of Belgrade.

  • 12. Domanović, V., Jakšić, M., Mimović, P. (2014), “Balanced Scorecard and analytic network process in performance measurement and strategy evaluation: A case study”, Themes, Vol. 38 No. 4, pp. 1457-1474.

  • 13. Dyson R., Camanho, A., Podinovski, V., Sarrico C.(2001), “Pitfalls and protocols in DEA”, European Journal of Operational Research, Vol. 132 No.2, pp. 245–259.

  • 14. Eilat H., Golany B., Shtub A. (2006), “Constructing and evaluating balanced portfolios of R&D projects with interactions: a DEA based methodology”, European Journal of Operational Research, Vol. 172 No.3, pp. 1018–1039.

  • 15. Farrell, M. J. (1957), “The measurement of productive efficiency”, Journal of the Royal Statistical Society, Series A, Vol. 120 No. 3, 253-281.

  • 16. Galagedera, D. U. A., Watson, J. (2015),“Benchmarking superannuation funds based on relative performance”, Applied Economics, Vol. 47 No. 28, pp. 2959-2973.

  • 17. Kalas, B., Rakita, A. (2017), “Profitability of banking sector in Western Balkans countries”, Poslovna ekonomija – Business Economics, Vol. 11 No. 2, pp. 90-101.

  • 18. Kaplan, R.S. Norton, D.P., (1992), “The balanced scorecard: measures that drive performance”, Harvard Business Review January–February, pp. 71–79.

  • 19. Krstić, A. (2014), “Višekriterijumska analiza u menadžmentu: integrisana primena AHP i DEA metoda” (Multi-criteria analysis in management: integrated application of AHP and DEA method), Faculty of Economics University of Kragujevac, Master paper, Kragujevac.

  • 20. Macedo M.A., Barbosa A.C., Cavalcante G.T. (2009), “Performance of bank branches in Brazil: applying data envelopment analysis (DEA) to indicators related to the BSC perspectives”, E&G – Revista Economia e Gestão, Vol. 19 No. 19, pp. 65-84.

  • 21. Mimović, P., Krstić, A. (2016), “The integrated application of the AHP and DEA methods in evaluating the performances of higher education institutions in the Republic of Serbia”, Economic Horizons, Vol. 18 No.1, pp. 71-85.

  • 22. Min H., Min, H., Joo S-J. (2008), “A data envelopment analysis-based balanced scorecard for measuring the comparative efficiency of Korean luxury hotels”, International Journal of Quality & Reliability Management, Vol. 25 No. 4, pp. 349-365

  • 23. Mingers, J., Brocklesby, J. (1997), “Multimethodology: Towards a Framework for Mixing Methodologies”, Omega – International Journal for Management Science, Vol. 25 No.5, pp. 489-509.

  • 24. Ostroff, C., Schmitt, N. (1993), “Configurations of Organizational Effectiveness and Efficiency”, The Academy of Management Journal, Vol. 36 No. 6, pp. 1345-1361.

  • 25. Rabar, D. (2010), “Efficiency Assessment of Croatian Hospitals Using Data Envelopment Analysis”, Economics Review, Vol. 61 No. 9, pp. 511-533.

  • 26. Rabar, D., Blažević, S. (2011), “Efficiency Assessment of Croatian Counties in Tourism Using Data Envelopment Analysis”, Economic Trends and Economic Policy, Vol. 21 No. 127, pp.25-56.

  • 27. Rickards R. (2003), “Setting benchmarks and evaluating Balanced Scorecards with data envelopment analysis”, Benchmarking: An International Journal, Vol. 10, pp. 226–245.

  • 28. Rouse P, Putterill M, Ryan D. (2002), “Integrated performance measurement design: insights from an application in aircraft maintenance”, Management Accounting Research, Vol. 13 No.2, pp. 229–248.

  • 29. Seol, H., Lee, H., Kim, S., Park, Y. (2008), “The Impact of Information Technology on Organizational Efficiency in Public Services: ADEA-based DT Approach”, The Journal of the Operational Research Society, Vol. 59 No. 2, pp. 231-238.

  • 30. Šporčić, M., Martinić, I., Landekić, M., Lovrić, M. (2008), “Data Envelopment Analysis as the efficiency measurement tool-Possibilites of application in forestry”, New Forestry Mechanisation, Vol. 29 No. 1, pp. 51-59.

  • 31. Valderrama, T.G., Cornejo, V.R., Bordoy, D.R. (2013), “Balanced Scorecard and Efficiency: Design and Empirical Validation of a Strategic Map in the University by Means of DEA”, American Journal of Operations Research Vol. 3 No. 1, pp. 30-52.

  • 32. Wang, Y. G., Li, Y.M., Jan, C.L., Chang, K.W. (2013). “Evaluating firm performance with balanced scorecard and data envelopment analysis”, WSEAS Transactions on Business and Economics, Vol. 10 No. 1, pp. 24-39

OPEN ACCESS

Journal + Issues

Search