Cultivating a Culture of Performance in both Form and Spirit
“Balanced Scorecard is a technique and methodology which, like a seedling, requires suitable soil in order to take root and grow. Similarly, the building and continuous improving of a healthy corporate culture forms the breeding bed in which management tools such as Balanced Scorecard can fully realize their effectiveness within the Yue Xiu Group.”
— Mr. Shouchun Tang, Deputy General Manager, Yue Xiu Group
Yue Xiu Group (“Yue Xiu”) was established in Hong Kong in 1985. Over the past 26 years, Yue Xiu has been leveraging on the “Two Markets” and “Two Resources”, referring to the international and domestic playing fields, to form its global vision and market positioning. Over the years, Yue Xiu has developed into a multi-industry conglomerate with tentacles into three core sectors: real estate, transport infrastructure, and finance and securities, i.e. “3+X” model. As of mid-2012, the total assets of the Group amounted to more than RMB 140 billion. Yue Xiu has three Hong Kong listed entities within the Group, namely, Yue Xiu Property Company Limited (00123.HK), Yuexiu Transport Infrastructure Limited (01052.HK), and GZI Real Estate Investment Trust (00405.HK). In addition to these real estate and transport infrastructure businesses, the Group’s non-listed finance and securities business is also significant. The latter business includes securities, futures, fund management, private equity, finance leasing, and micro-credit in both Guangdong and Hong Kong.
In 2010, the Group established its “Twelfth Five-year” Plan through scientifically and systematically tapping on the “wisdom of the entire Group”. The plan defined that the strategic goal of the Group would be to “achieve a compound annual growth rate of 15% with total assets of over RMB 230 billion by 2015”. The Group’s strategic vision was also defined: “to become an international modern conglomerate with sustainable growth and powerful financing capabilities, by expanding and strengthening its modern services industry, rejuvenating its traditional business, and investing in strategic emerging sectors”.
Mr. Shouchun Tang is the Deputy General Manager of Yue Xiu Group, supporting the General Manager of the Group in managing the operations. He leads both the Finance and Legal departments, as well as assists Mr. Ningguang Liang, the Vice-Chairman of the Board of Directors, in Capital Operation Management. Mr. Tang has a wealth of experience in planning and operating large scale property projects, and managing the finance and capital operation functions of large enterprises. He and his team have been involved in many management improvement initiatives and have built particular expertise in the selection of management tools and corporate-level applications. The core members of the corporate performance management team include:
- Mr. Wei Wu: Deputy General Manager of Group Management Department, responsible for leading the Balanced Scorecard (“BSC”) development project;
- Madam Jing Chen: General Manager of Internal Audit Department, responsible for audit and risk management, as well as assessment and continuous improvement of the BSC system.
Application of the BSC under a Sound Management System
In 2009, although the Group had formulated its mid-to-long term development roadmap, setting out clear strategic goals and positioning, there was no scientific management and control program to support its effective execution. At the same time, even though the Group had preliminarily established a management framework around “Professional operation under strong management and control from the headquarters”, there was a lack of methodology and tools to enhance its management capabilities. Ideally, the aforesaid management tool should satisfy the following requirements:
- To enhance the achievement of strategic plan: Through the setting of management and control targets, direct efforts to achieve mid-to-long term targets from top down to the execution levels of the organization, thereby ensuring that the strategic plan is accomplished successfully;
- To enhance the quality of assets and operations: Through the monitoring of the management and control targets, objectively assess the corporate performance and development progress, helping the enterprise identify its own strengths and weaknesses;
- To enhance the formation of a market-oriented operating model: Through assessing the performance targets, support the gradual shift to a market-based competitive compensation and incentive scheme.
To ensure that the most appropriate management and control program will be selected for the Group, the Chairman and General Manager of Yue Xiu personally managed the mobilization and deployment of this initiative. Finally, the BSC was selected as the corporate performance management tool.
“Although implementing the BSC in a state-owned enterprise at China’s current stage of transformation to a market economy seemed difficult, we began to see the positive impacts of this initiative in 2010. Our experience has been recognized as exemplary for state-owned enterprises in the Guangzhou region”, Mr. Tang recalled.
Firstly, the strategic positioning of the Group was very clear. Yue Xiu’s international vision and strategic positioning formed the basis for its “Twelfth Five-year” Plan, which was then communicated within the entire organization from top-down. “Without this clear positioning of the enterprise, it would be impossible to set performance targets”, said Mr. Tang. Hence, the clarity of the strategic positioning, together with the sense of identity that comes with it, formed the foundation for implementing a successful BSC program.
Secondly, the Group’s management and control model had taken shape. The management framework “Professional operation under strong management and control from the headquarters” spelt out clearly the missions and responsibilities of each entity within the Group. The headquarters established five strategic management centers to focus on strategy management, resource management for each industry sector, performance assessment, and enterprise risk management. It will then no longer be involved in the day-to-day operations of any business. The subsidiary companies would be responsible for running the businesses, and to achieve the detailed targets for their respective sectors.
Effectively the management hierarchy of the Group became: 1) Top Management Level (Strong headquarters); 2) Authorized Management Level (Tier Two holding companies of each industry sector); and 3) Operating Level (Subsidiary companies that run the business proper). This clear management structure provides guidance and clarity when setting BSC targets.
Last but not least, the Group had completed the fundamental transformation of its management model and system. Although it is state-owned, Yue Xiu had been a forerunner and success story in adopting a market-oriented, commercialized and professional management model. This provided an open platform for the implementation of the BSC.
Mr. Tang remarkably summarized Yue Xiu’s success in implementing BSC: “Balanced Scorecard is a technique and methodology which, like a seedling, requires suitable soil in order to take root and grow. Similarly, the building and continuous improving of a healthy corporate culture forms the breeding bed in which management tools such as BSC can fully realize their effectiveness within the Yue Xiu Group.”
Yue Xiu’s BSC Target Setting Framework
According to Mr. Wu, the Group’s BSC target setting framework consists of three main components:
- Quantitative Targets: The Group built a database of quantitative target indicators for each of the four dimensions of the standard BSC. Each year, 7-8 target indicators would be selected from the database, and used to assess the performance of various operating units. Due to the differences in nature of business, the management would have to customize some of these targets accordingly. On the other hand, the level of sophistication in Yue Xiu’s current management system is not able to support the extensive use of quantitative targets. Hence, some targets had to be improvised to suit local needs.
- Qualitative Targets: A qualitative set of performance targets is developed based on the annual strategy and work plan. This set of targets aims to assess the progress of key projects or milestones, such as human resources and IT infrastructure development. Qualitative targets are mainly applicable to functional units responsible for the development and management of enterprise infrastructure.
- Bonus/Penalty Items: In addition to the two basic categories described above, the Group designed a third category of items that may be added as “bonus” or deducted as “penalty” from the assessment scores. Bonus incentives are given to encourage performance, such as technology innovation, new patents, etc; penalty points are deducted for slippage in areas that are taken for granted, such as safety and quality issues.
The Closed-Loop of Self-Improvement
The data used for designing the BSC targets originally came from the five-year strategic targets, which were then broken down into annual operating plans, and further refined into performance targets for the various business operating units. To ensure reasonableness, the Internal Audit Department has to conduct an audit on the performance targets before they can be passed to the Human Resource Department to be used as the basis for personnel assessment and promotion.
According to Madam Chen, during the process of design and evaluation of performance targets, an open communications platform was set up to allow the assessors and assessed operating units to discuss the reasonableness of the proposed targets. In addition, at the beginning and middle of each fiscal year, the Human Resources Department will meet up with the assessed operating units (or departments) to discuss the progress of their achievement of those targets, as well as their plans for the second half of the year. This allowed the assessors to validate the accuracy of the assessment results, as well as for the assessed units to raise modifications, if any, to their plans for the remaining part of the year. The assessment results and revised targets for the year will then be formally documented and countersigned, after both parties have come to an agreement.
Furthermore, the annual corporate performance audit conducted by the Internal Audit Department is effectively another channel for communication of the assessment results to the assessed operating units. Comments and suggestions from the assessed operating units were collected and consolidated by the Internal Audit Department, which will then be reported to the top management of the Group as references for future improvement to the program.
The Group’s BSC program thus operates in a closed-loop cycle which continuously monitors and improves itself.
Achieving Success through Top Leadership Involvement
Based on observation of BSC implementation in many organizations, the most common obstacle is the resistance from employees. This negative pushback, resulting from the discomfort of undergoing rigorous performance assessment, leads many BSC programs to end up being one that has “form without substance”. Hence, change management is a major challenge to the management during implementation.
Yue Xiu had anticipated this challenge prior to the implementation of its own BSC program. Particular attention had been paid to the effectiveness of top leadership involvement and propaganda. Mr. Tang confessed that had the leaders in the organization not been committed and actively involved in promoting the program throughout its entire implementation, Yue Xiu could never have achieved the results that we see today. Any slight oversight could have turned the program into an empty-shell project. Moreover, relevant trainings to employees at all levels, coupled with the diligence of the champion department, were also factors that “safe guards” the smooth assimilation of the BSC program into Yue Xiu’s management system:
- Leadership commitment and involvement: The level of commitment from the leaders directly affects the degree of buy-in from all employees and the effectiveness of program execution. The personal involvement of the Group’s Chairman and General Manager, from the mobilization and deployment for the project, throughout the selection of corporate performance management tool and assessment methodology, to the final phase of the BSC program implementation, is proof of top-down commitment to the program. This is also the key factor for their success.
- Comprehensive training: During the implementation of the BSC program, the management team and the champion department organized enterprise-wide trainings that targeted different levels within the organization. The Chairman and General Manager took the lead by first training the management team on the BSC concept and its implementation plan. Thereafter, the management team went on to train the rest of the employees on the BSC concept, its significance to the enterprise and individual employees, as well as the interrelationship between them.
- Diligent execution: Various functional departments were deeply engaged throughout the whole process of implementation, from the selection of management and control program, setting of BSC targets and performance standards, assessing performance, determining incentive compensation and promotion, to obtaining feedback for continuous improvement. This gave the project a much needed drive, tight monitoring, as well as ability to manage the risks associated with change on a timely basis.
Two years down the road of implementing BSC program, the Group has begun to see positive results. Looking back at the changes that the program has created on the organization, Mr. Tang believes that the most visible one is the facilitation of the achievement of the Group’s strategy and business plan.
Moreover, the BSC program also steered the Group away from the limitations of being overly-focused on financial metrics, emphasizing a more balanced set of targets to guide enterprise development by assessing both the process of execution and end results. The program has been effective in fostering sustainable growth, and to a certain extent, diluted the traditional mindset of being too profit-oriented and short-term focused.
As for the employees of the Group, the most obvious benefit from the BSC program is a relatively fair assessment mechanism. Although not all the assessment targets are quantitative, the systematic and comprehensive manner in which evaluations were performed gave higher confidence to the employees that there is less subjectivity of supervisors involved. This promotes a healthy competitive environment within the organization.
Localization of the Balanced Scorecard
Based on his wealth of experience in introducing and implementing management tools into Yue Xiu, Mr. Tang commented: “advanced management methodologies need to be applied flexibly to organizations based on actual needs. It is more important to apply the spirit behind the methodologies than to simply emulate its form. In adopting advanced methodologies in China, many failed because they simply took a ‘plug and play’ approach.” Management personnel must first understand the spirit and objectives of the management tool to be adopted. Thereafter, the tool should be adapted to the realities of the local environment before it can be successfully implemented. Using Yue Xiu’s BSC program as an example, as the Group was not ready to use quantitative measures for all the targets, a supplementary set of qualitative targets and bonus/penalty items were developed to plug the inadequacies to achieve “balance” in the scorecard. In addition, Mr. Tang believes that the performance targets set should reflect the will of the top management. Hence, the choice of targets from the four dimensions of a BSC, and assignment of their weightings, should be based on the management objectives. Blindly pursuing balanced development of all four dimensions of a BSC is not the spirit behind this tool.
Currently, Yue Xiu has completed the initial phase of implementing its BSC program, achieving its goal of having a scientific and fair performance assessment program. Mr. Tang is of the view that achieving “fairness” is only the secondary purpose of the BSC program. The more profound purpose is to enhance the development of core competencies within the organization. It is these core competencies that determine an organization’s competitiveness and long-term growth potential. Not all organizations may have clear core competencies, and different types of organizations may possess varying core competencies. For Yue Xiu, with respect to the “3+X” model, the core competencies of each industry sector need to be further developed and refined, and at the same time, strengthened through the performance assessment program. For example, does the interaction between commercial properties and real estate investment trust within the real estate sector form a core competency for Yue Xiu? Or is the management’s outstanding judgment capabilities on investments and mergers and acquisitions within the transport infrastructure sector another core competency? These are questions that the Group management needs to explore in depth.