International Journal of Productivity and Performance Management

Firm operation performance analysis using data envelopment analysis and balanced
scorecard: A case study of a credit cooperative bank
Tser-yieth Chen Chie-Bein Chen Sin-Ying Peng
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To cite this document:
Tser-yieth Chen Chie-Bein Chen Sin-Ying Peng, (2008),"Firm operation performance analysis using data
envelopment analysis and balanced scorecard", International Journal of Productivity and Performance
Management, Vol. 57 Iss 7 pp. 523 - 539
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Operation
Firm operation performance performance
analysis using data envelopment analysis
analysis and balanced scorecard
523
A case study of a credit cooperative bank
Received June 2007
Tser-yieth Chen Revised April 2008
Department of International Business, National Dong-Hwa University, Accepted April 2008
Taipei City, Taiwan
Chie-Bein Chen
College of Management, Takming Commerce Technology University, and
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Department of International Business, National Dong-Hwa University,

Taipei City, Taiwan, and
Sin-Ying Peng
Department of International Business, National Dong-Hwa University,
Taipei City, Taiwan

Abstract
Purpose The purpose of this paper is to present a case study showing how the selection of
performance indices affects performance results and the evaluation of a firms performance.
Design/methodology/approach This paper employs a data envelopment analysis (DEA)
framework using four kinds of performance indices selection, which include basic input/output items,
balance scorecard (BSC) indices, balanced scorecard with risk management, and traditional financial
indices, to evaluate banking operations.
Findings Shows that a DEA-based evaluation of performance produces a similar view of the firms
well-being as does an analysis of financial indices; however, a BSC-based evaluation produces a
different assessment.
Research limitations/implications This study was based on the following assumptions: first,
when organizational units achieve technical efficiency, they will improve their organizational
performance. Secondly, the inputs and outputs selected for the data envelopment analysis provided an
indicator of the changes of banks technical efficiency over the six-year period.
Practical implications This research was based on the data envelopment analysis approach to
find different performance efficiency to apply four performance indicator selections, which include
basic inputs/outputs items, balanced scorecard indices, balanced scorecard with risk management, and
traditional financial indices, to evaluate bank operation.
Originality/value Combines the balanced scorecard concept with data envelopment analysis
measurements (model information) to generate measures of technical efficiency for a Taiwanese bank.
It shows how comparisons can be made within and across companies on the basis of balanced International Journal of Productivity
scorecard measures. and Performance Management
Vol. 57 No. 7, 2008
Keywords Balanced scorecard, Financial information, Risk management, Performance measures, pp. 523-539
Data analysis q Emerald Group Publishing Limited
1741-0401
Paper type Case study DOI 10.1108/17410400810904010
 IJPPM Introduction
57,7 Any business organizations goal is to improve its operational performance. Through
the employment of various types of performance measures, firms can assess the
efficiency and effectiveness of their business process vis-a-vis their strategic objectives.
Furthermore, performance measurement tools can help businesses in evaluating their
resource allocation processes in order to determine how resources can be better
524 managed and distributed to the appropriate channels (Chen and Chen, 2006).
Traditionally, many performance measures schemes have been based around financial
aspects, omitting important non-financial aspects. The evaluation of the performance
of banks, for example, usually employs financial indices, providing a simple
description about the banks financial performance in comparison to previous periods
(Chen, 2002). Focusing only on financial aspects, however, is not enough for
management to deal with the changing business environment (Hsu, 2005).
Kaplan and Norton (1996) introduced the concept of a Balanced scorecard (BSC) as
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a basis for a strategic management system. This approach not only included financial
and non-financial aspects but also blended business strategies into management
systems. Additionally, Charnes et al. (1978) adopted the data envelopment analysis
(DEA) models as a main measurement performance approach based on mathematical
planning, not only to improve on traditional approaches, but also to expand the role
of mathematical techniques from original planning to measurement and control. Unlike
the BSC approach which is based on strategic performance management, the DEA
approach develops one efficiency result under the operational environment of
multi-input and multi-output.
Recently, credit cooperative banks have been facing increasing competition from
foreign and domestic banks after Taiwans government opened up the financial
market. This has constricted the existence of credit cooperative banks which also face
an overall market under economic depression. The Financial Examination Bureau of
the Financial Supervisory Commission (FSC) in Taiwan has declared that there are
seven domestic credit cooperative banks (one of which is the Hualien First Credit
Cooperative Bank (HFCCB)) that have a ratio of non-performing loans of less than 1 per
cent. HFCCB has managed its capital assets well, and it is also one of the most
represented banks in eastern Taiwan with a large number of branches across different
counties. Therefore, we have used HFCCB as the research target and measured the
firms performance using financial and non-financial indices. It should be noted that
risk level will affect profit variation and increasingly bank crisis management; thus,
banks should control and manage risk in order to avoid financial crises. As a result, we
have added risk management to a BSC as an important contextual factor.
This research employs a DEA framework with different performance evaluation
indices. They mainly include input/output items and BSC indices using the example of
one bank with detailed information for each quarter over the past six years presented
in a simple fashion. Hopefully, this will provide the industry with a standard for
performance evaluation. This study was based on the following three assumptions:
(1) When organizational units achieve technical efficiency, they will improve their
organizational performance.
(2) The inputs and outputs selected for the DEA provided an indicator of the
changes in HFCCBs technical efficiency over the six-year period.
 (3) The performance indices (based on the BSC framework) selected for this study Operation
provided an accurate indication of the HFCCBs performance and determined performance
how its business processes could be improved to achieve its strategic objectives.
analysis
In addition, this research was based on the DEA approach to find varying performance
efficiency to apply four performance indicator selections, which include basic
inputs/outputs items, BSC indices, BSC with risk management, and traditional 525
financial indices, to evaluate bank operation. Thus, we focused on the following
problems:
.
How to best recognize the rationale of the firms most and least efficient years
within the nearest six years time using data envelopment analysis.
.
With the concept of performance efficiency scores, how to find out the relevance
between different performance evaluation indices and to see whether it is
apparent? In particular, to what degree are financial indices relative to
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non-financial indices for the firm?

.
With the diversification of performance evaluation indices, which areas should
the firm develop in order to derive the greatest benefit?

Literature review
In this section, the paper reviews past studies on balanced scorecard and data
envelopment analysis. The balanced scorecard, as developed by Robert Kaplan and
David Norton (1996), has come to be heralded as one of the 75 most influential business
ideas of the twentieth century (Niven, 2002). Frigo et al. (2000) sugest that 60 per cent of
the Fortune 1000 companies in the USA have had experience with a BSC. The value of
a BSC is that it assists the development of consensus around the firms vision and
strategy, allowing managers to communicate the firms strategy throughout the
organization and to force managers to focus on the handful of measures that are most
critical (Maiga and Jacobs, 2003). Manandhar and Tang (2001) concluded that a BSC is
not only a system of performance measurement but also a system of strategy
measurement: a BSC has evolved from management reporting to a strategic tool used
by executive teams to set strategy, align operations, and communicate with internal
and external stakeholders.
Kim and Davidson (2004) use the BSC framework to assess the business
performance of IT technology (IT) expenditures in the Korean banking industry. They
introduce the BSC approach to measure IT performance and use it as a framework for
the development of research hypotheses. Their study shows that the relationship
between IT expenditures and a banks financial performance or market share was
significantly different depending on the level of IT. McNamara and Mong (2005) also
indicate the importance of understanding the interrelationship between organizational
context and performance/management in practice; specifically they offer insights into
developments through examination of three case studies including the OZ bank, As
Telco and SEA Bank cases. These case studies support the delineation of the concepts
of performance measurement and performance management. As such, they clarify
the usefulness of implementing broad-based performance measurement frameworks
and the criticality of organizational culture for effective performance management.
A generic BSC translates an organizations overall mission and strategy into
specific, measurable balanced scorecards using operational and performance metrics to
 IJPPM assess enterprise health and well-being Typically, a BSC uses four perspectives:
57,7 financial performance, customer satisfaction, internal business processes, and
learning/growth for employees (Beasley et al., 2006). However, a traditional BSC
often omits key variables related to the business risks faced by the company. Besides
the four perspectives of the BSC, some scholars have added a risk management
perspective to the BSC to apply to financial institutions (Beasley et al., 2006). Tange
526 (2003) stands for base on the BSC to measure bank risk, and the research views a
financial institution as this research target. This is different from the transactions of
other industries in that the banking industry can face operational risks which are
multiform and complicated. Since banks face more business risks than other industries,
we have added the fifth perspective as proposed and added it into the typical BSC
approach.
Data envelopment analysis (DEA) is a decisional approach that has been widely
used for performance analysis in public and private sectors (Sueyoshi, 2000). The
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DEA method was first described by Charnes et al. (1978) who employed a
mathematical planning model (CCR model) to measure the efficiency frontier based
on the concept of Pareto optimum. Then Banker et al. (1984) developed a revised
model (BCC model) to measure technical efficiency and scale efficiency. In the
financial area, DEA has been applied to banks and their branches. Earlier studies
that used the DEA approach for evaluating bank branch performance have used a
relatively smaller sample of branches. Favero and Papi (1995) measured technical
efficiency and allocation efficiency by an intermediation and asset approach
employing a regression analysis on a bank-specific measure of inefficiency to
investigate the determinants of a banks level of efficiency. Schaffnit et al. (1997)
presented a best-practice analysis of banks based on a DEA assurance region
(DEA-AR) model containing output multiplier constraints, with standard transaction
and maintenance times, in order to evaluate allocative efficiency. Chen and Yeh
(1998) employed DEA to verify that privately owned banks enjoyed a higher
technical efficiency than that of publicly owned banks in Taiwan. Later studies
made use of a larger sample of branches and employed a multivariate statistical
approach in conjunction with the DEA approach.
Considering the above studies, there is some literature applying to the banking
industry which uses the BSC concept combining DEA; in fact, BSC can be called a
strategies management system (Kaplan and Norton, 1996). However, it is difficult to
make comparisons within and across companies on the basis of BSC. Additionally,
DEA can generate a set of weights for each indicator and can rank the efficiency scores
of individual banks (Chen, 2002). Based on these concepts, we can combine the BSC
concept with DEA measurements (model information) to generate a banks technical
efficiency for the research in Taiwan.

The analytic methodology

The study model
In general formulation, each expression is a ratio of weighted outputs to weighted
input, and effective value is a ratio of weighted output to weighted input. Evaluating
the DEA effective value is solved by a fractional linear programming problem. If it is in
terms of constant returns to scale (CRS), we denote Yrj as the j-th output of r-th DMU
and denote Xri as the i-th input of r-th DMU at the T-th DMU. If k-th DMU is p-th input
 and q-th output, that is called the relative efficiency value of DMU which is named as Operation
E k: performance
X
q analysis
uj Y kj
j1
Max Ek i 1; 2. . .p; j 1; 2. . .q; r 1; 2. . .k; . . .T 1
uvj i Xp
527
vi X ki
i1

X
q
uj Y rj
j1
s:t: #1 u j ; vi $ 0
Xp
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vi X ri
i1

Where uj and vi are both virtual value. In giving X ri and Y rj , DEA is based on a feasible
solution set of each decision-making unit (DMU) formulation to find the best virtual
value making the efficiency of DMU as big as possible.
Additionally, the novelty of our DEA-BSC modeling approach is two-fold. First,
from the BSC perspective, we offer a means to quantify the BSC concept. Second, from
the DEA perspective, we establish a hierarchical structure (corresponding to BSC) of
weight restrictions in DEA; we suppose that the DEA-BSC model can then be
computed from a simplified version of the general model. In general formulation, each
expression is a ratio of weighted outputs to weighted input above, and here, only
outputs are considered in the DEA-BSC model:
X
q
Max
uv
Ek uj Y kj
j i
j1

X
p
s:t vi X ki 1 i 1; 2. . .p; j 1; 2. . .q; r 1; 2. . .k; . . .T 2
i1

X
q X
p
uj Y kj 2 vi X ki # 0 u j ; vi $ 0
j1 i1

The CCR model has hypothesized that the production function described constant
returns to scale representing that when the quantity of the input is doubled, this would
make the output increase by the same quantity. However, the production function
might also appear to produce decreasing returns to scale or increasing returns to scale.
Thus, Banker et al. (1984) developed a BBC model which revises the weakness of
constant returns to scale of the CCR model and which is similar to the CCR model. The
BCC model also can divide input oriented and output oriented models. Generally, the
BCC model is:
 IJPPM X
q
uj Y kj 2 u0
57,7 j1
Max Ek
uvj i X
p
vX ki
i1
528 and it restricts
X
q
uj Y kj 2 u0
j1
X
p
vX ki
i1
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is less than 1.

The indices selections of the BSC and DEA approach

Kao et al. (2003) mention the relationship of inputs and outputs: the inputs are
contributive to all kinds of resources for outputs while outputs are attained to
organizational targets concretely. Additionally, the choices between input and output
variables are theoretically based on an intermediary approach. The intermediation
approach views banks as financial intermediaries where deposits are treated as inputs,
since a banks main business is to borrow funds from deposits to lend to others (Berger
and Mester, 1997; Favero and Papi, 1995).
When attempting to identify the important performance measures in BSC, an
answer is not easily found since it depends on how the evaluation is being directed. To
further produce performance variables of a balanced scorecard, we directly ask
banking managers from the research target to select variables. Subsequently, we refer
some variables of the BSC perspectives which can be provided by foreign and domestic
scholars in the banking industry. These variables included the following: from the
financial perspective, there are revenues of operation gained for employees and
operating expenses; from the customer perspective, there are customer retention and
new-opened numbers (Ma, 2000); from the internal process perspective, there are
averagely accomplished loans per day and average transaction volume per day; from
the learning/growth perspective, there are the employee turnover rate and employee
attendance rate; finally from the risk management perspective, there are the ratios of
non-performing loans (NPL) and deposit-loan ratios (Liao, 2003).
Generally, the selection of input items matches the production factors of production
function, including capital, labor, land and other capitals, and so on. Here, the five input
variables are employee numbers, bank assets, interest expenses, bank deposits, and
fixed assets. Additionally, we specify four types of banking output, namely bank loans,
interest income and member households, and fee income. Neither do we choose
investment amounts for the output variable because the finance institution belongs to
credit cooperatives which are subjected to government law thereby excluding the
banks investment as an output variable. In general, we make use of non-interest
expense for output variables because the business types of the credit cooperative banks
are much narrower than general banks, and fee income is the largest weight of all
 non-interest expenses. Besides, it has paid attention to the credit cooperative banks Operation
gradually. For this reason, it will be included in our research; moreover, the credit performance
cooperative banks which belong to the members financial system are served by the
member households and seek the largest profit for the member households. The analysis
customer targets are mainly member households, and the number of member
households represents its operational situation. Therefore, it will be also included. As a
result, this study chooses the input and output variables from the banking industry 529
literature and cooperates with the nature of this study target which belongs to credit
cooperatives.

Data collection and research design

The data used for this analysis was gathered from the Hualien First Credit Cooperative
Bank (HFCCB) from each season of the years from 2001 to 2006. At the end of 2006,
there were 24 seasons of operating data, and we therefore include these seasonal data
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into our investigation. Data collections of the research were based on a plan of
Banking Operating Management Performance Improving: e-Balanced Scorecard
System Induction by the Department of International Business, National Dong Hwa
University (NDHU) and Hualien First Credit Cooperative Bank (HFCCB). The variables
were gathered from the data base of HFCCB. The data of HFCCB is commonly deemed
valid and reliable.

Empirical results
The identification of I/O terms
Golany and Roll (1989) offer frameworks to examine these chosen numbers of I/O
terms: numbers of DMUs samples must be greater than input terms multiplied together
with output terms. Generally speaking, we can induce the I/O ratios of 20 terms if we
have five inputs and four outputs. Based on this rule of thumb, we need at least 20
DMUs terms above. These DMUs samples from the research are from the first quarter
in 2001 to the fourth quarter in 2006, amounting to 24 samples and just conforming to
the framework. Among each factor, I/O terms have to conform to the correlation
analysis of the statistics. First, we conduct DEA analysis meaning the I/O terms must
match with multi-collinearity diagnosis. Next, there must be a match with isotonicity
diagnosis. The correlation analysis results show interest incomes and interest
expenses to disobey the relationship between inputs and outputs. Thus, we will
eliminate these two terms, and I/O terms choose four and three variables respectively.
Charnes and Neralic (1989) point out that the variables of input and output terms
will be changed by the size of efficiency. We further adopt sensitivity analysis to try
choosing the right I/O terms in the choice of input and output terms (Table I). Our
research uses DEAP software to proceed to the efficiency analysis of the CCR model
which we try it repeatedly to run seven main models. We judge model one to be our
major model in that we think banks of main activity, being income and expense, would
favor. Our research reveals model one compares favorably with other models with
regard to the empirical results. Numbers of the efficiency value of model one are 10,
which is less than the other models. The average efficiency value is also smaller than
the others, leading us to conclude that the model is better.
Numbers of the efficiency value must be small to find the discrimination itself.
Otherwise, the average efficiency value of model one is 0.938, and it is lower than that
 IJPPM
Model Model Model Model Model Model
57,7 one two three four five six

Bank loan * * * * * *
Member households * * * * *
Fee income * * * * *
530 Employee numbers * * * * *
Bank asset * * * * *
Bank deposit * * * * * *
Fixed asset * * * *
Estimate result:Correlation coefficients by model one 0.999 0.684 0.649 0.706 0.286
Number of efficiency value (value 1) 10 10 15 15 12 8
Average efficiency value 0.938 0.939 0.990 0.989 0.989 0.978
Standard deviation 0.071 0.072 0.071 0.019 0.017 0.022
Table I. Least efficiency value 0.807 0.805 0.935 0.928 0.935 0.951
Sensitivity analysis of
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our study Source: Authors study

of other models. For example, in the variable of fee income, model six lacks the variable
of fee income in contrast to model one. The average efficiency value of model six is
0.978 which is higher than the average efficiency value of model one (0.938). The
estimate result of model one is also better than other models in numbers of efficiency
values or average efficiency values. Therefore, we choose model one which includes
three output and input terms. Outputs terms include bank loans, member households
and fee income variables while inputs terms include employee numbers, bank assets
and bank deposit variables.
After we use model one to choose input or output variables, we use the
input-oriented DEA model (whether the CCR or BCC model) to develop technical
efficiency (TE), pure technical efficiency (PTE) and scale efficiency (SE). TE is
decomposed into PTE and SE, and the nature of returns to scale is reproduced in
Table II. The order (No.) is coded by the quarters of the years; for example, 2001-1
means profits in the first quarter of 2001 at Hualien First Credit Cooperative Bank
(HFCCB). The average efficiency values of TE and PTE models are 0.938 and 0.992,
respectively; about half of the seasons are not efficient in the TE model. In the PTE
model, 14 out of the 24 seasons are not efficient. From the results of the average
efficiency value and numbers of efficiency values on the frontier, we can conclude that
TE is better than PTE for these 24 seasons. This result can be interpreted that even
though the efficiency values of some seasons do not perform well in generating
revenue, the HFCCB still acts positively to their profit.

Balanced scorecard framework with matrix analysis results

The five correlation analyses for performance indices were 0.320, 0.092. 0365 and
2 0.014 respectively after statistics correlated results indicated that the variables of
these perspectives have low-correlation. We can show these variables indeed present
the result of each perspective; they include model F, model C, model I, model L and
Model R. Each model names the first letters of the alphabet of these perspectives for
BSC. The mean efficiency score of model F is 0.409, and the mean efficiency score of
 Operation
Period TE (CCR) PTE.(BCC.) SE.(scale) RTS
performance
2001-I 1 1 1 * analysis
2001-II 1 1 1 *
2001-III 1 1 1 *
2001-IV 1 1 1 *
2002-I 0.939 1 0.939 b 531
2002-II 0.83 0.999 0.831 b
2002-III 0.81 1 0.81 b
2002-IV 0.828 0.975 0.849 b
2003-I 0.805 0.987 0.816 b
2003-II 0.857 0.991 0.865 b
2003-III 0.884 0.989 0.894 b
2003-IV 0.856 0.967 0.885 b
2004-I 0.913 1 0.913 b
2004-II 1 1 1 *
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2004-III 0.962 1 0.962 b

2004-IV 0.956 0.994 0.961 b
2005-I 1 1 1 d
2005-II 0.933 0.959 0.973 d
2005-III 0.945 0.959 0.985 d
2005-IV 0.995 0.996 0.999 d
2006-I 1 1 1 d
2006-II 1 1 1 d
2006-III 1 1 1 d
2006-IV 1 1 1 d
Mean 0.938 0.992 0.945
S.D. 0.071 0.013 0.068
Notes: Technical efficiency (TE) = pure technical efficiency (PTE) scale efficiency (SE); RTS
denotes returns to scale. * denotes constant returns to scale (CRS); d denotes decreasing returns
to scale (DRS). b denotes increasing returns to scale (IRS). 2001-I means the first quarter of 2001, Table II.
and so on Efficiency scores of
HFCCBs performance
Source: Authors study model

model C is 0.892. Then, the mean efficiency score of model I is 0.901, and the mean score
of model L is 0.958, etc.
We attempt to find the variable trends which are extended models by times, being
that there are significant influences on these models which are included in the financial,
internal process and learning/ growth perspectives in Table II. This means these
models are closely relative to firm performance and to time effects. Firm performances
of financial and learning/growth perspectives go down, and the results represent that
firms are unable to create satisfying achievements. They also represent the aspiration
for employees to work hard decreasingly. Additionally, firm performances of customer,
internal business and risk management perspectives both show that firm performance
trends are increasing (see Table III).
In order to compare the relationship between these perspectives, we will further use
the DEA approach to run models step by step and then produce technique efficiency.
For example, the first model only considers the financial perspective, and then we
name this model as model F. The second model not only considers financial
 IJPPM
Model T for H0:
57,7 (): dependent variable Beta Parameter 0 Prob. . F R-square Sig. Trend

Model F 0.367
(F) (Constant) 5.173 0.000
X 20.367 2 1.848 0.078 d
532 Model C 0.241
(C) (Constant) 31.531 0.000
X 0.241 1.165 0.257 b
Model I 0.499
(I) (Constant) 32.912 0.000
X 0.499 2.703 0.013 * b
Model L 0.448
(L) (Constant) 60.343 0.000
X 20.448 2 2.352 0.028 * d
Model R 0.044
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(R) (Constant) 81.458 0.000

X 0.044 0.205 0.839 b
Notes: *Correlation is significant at the 0.05 level (two-tailed) and the 0.1 level (one-tailed); b
denotes the line shows increasing trend; d denotes the line shows decreasing trend
Model F means financial aspect; Model C means customer aspect; Model I means internal process
Table III. aspect; Model L means learning/growth aspect; Model R means risk management aspect
Regression results under
models Source: Authors study

perspectives, but also considers customer perspective (named model FC), and so on
(please refer to Table IV). We try to explain firm performance situations to work from
different angles, and this is included in the models of single perspectives and the
models of multi-perspectives in Figure 1.
The model which only has financial indices displays the figure on the downgrade
for these six years. It seems to be making declining profits. The firm must therefore set
up its strategy again and find a way to improve. The financial perspective follows the
customer perspective. The model which includes the customer perspective shows a
nearly flat figure, meaning the operating purposes of a firm have to focus on their
customers. However, in credit cooperatives, member households are mainly service
targets. The figure in model C shows the firm still has room for growth. Therefore,
service customers must have high priority in the firm and we look for how to make
customers the most value added. Additionally, model FC, which combines model F
with model C, can slightly find its variable situations from model F and model C. It
shows performance has decreased many times over and shows that the performances
of financial indices do not perform well and are involved with the performances of
customer indices. This also reveals that the customer perspective has gone downhill.
We can further look over the inner business, as the figure of model I shows that I has
gone up slowly. We can tell that the internal business aspects of the firm have
improved gradually over six years; in other words, this may also be because of the
internal process increasing enough that the figure of model FCI is also increasing (the
model considers financial, customer and internal process perspectives). The model FCI
which is based on financial and customer indices adds internal business indices. From
this, the firm inner has to improve by itself in order to meet customer expectations to
 Operation
Model T for H0:
(): dependent variable Beta Parameter 0 Prob. . F R-square Sig. Trend performance
Model F
analysis
(F) 0.484 Quadratic equation
(Constant) 18.298 0.0
X 1.299 1.630 0.118 b 533
XX 21.629 2 2.043 0.054 * d
Model FC 0.587 Quadratic equation
(FC) (Constant) 2 1.264 0.220
X 2.446 3.320 0.003 * b
XX 22.363 2 3.207 0.004 * d
Model FCI Log-Linear equation
[ln(FCI)] (Constant) 8.371 0.000 0.600
X 0.600 3.515 0.002 * b
Model FCIL
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(FCIL) (Constant) 3.501 0.002 0.827 Quadratic equation

X 21.938 2 3.788 0.001 * d
XX 2.565 5.015 0.000 * d
Model FCILR 0.597 Liner equation
(FCILR) (Constant) 2.403 0.025 b
X 0.597 3.494 0.002 *
Notes: * Correlation is significant at the 0.05 level (two-tailed) and the 0.1 level (one-tailed); b
denotes the line shows increasing trend; d denotes the line shows decreasing trend Table IV.
Cross analysis in
Source: Authors study regression results

approve of important business operations affecting customer satisfaction regarding

business endeavors, etc. This is the most important thing which we stress. Finally, the
figure of model L shows the firm (Hualien First Cooperative Credit Bank, HFCCB)
cannot continue creating its values. It should also be noted that we combine financial,
customer, internal business and learning/growth perspectives with model FCIL (the
model considering financial, customer, internal process and learning/ growth
perspectives). The figure of model FCIL shows a bottom-up trend meaning the
internal business indices still deliver sufficient strength to help it grow although the
learning/growth perspective of model L declines gradually.
If we only use a financial perspective for analysis, we will find that most technical
efficiency values are insufficient for the levels of the best efficiency values. We have
proved again and again that if we only use traditional financial indices for performance
evaluation, these cannot express the integrity of a firms performance. The benefit of
using BSC is that we can define the order of priority for each item; it is connected with
the opinions of managers, employees and investors, and even with a core point of
customers (Kaplan and Norton, 2004).

Various performance evaluation approaches

From (1) CCR and (2) BCC models in Table V, we can find out their performance
ranking in the situations when we compare (1) CCR model with (3) F model. It appears
that the first and the last performances are exactly the years of 2001 and 2003. Thus,
we might explain that the firm performance of (1) CCR model and (3) F model have
 IJPPM
57,7

534
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Figure 1.
The variable trends in two
types of models

indifferent performance evaluation results. Additionally, we discover that the results of

(3) F model are different from (4) FCIL model in the ranking of Table V. We can infer
that these two kinds of performance evaluation approaches could affect the firm to
produce different evaluation results. We will also compare (3) F model and (5) FCILR
model at the end (the FCILR model considers financial, customer, internal process,
learning/growth and risk management perspectives). Obviously, these kinds of
performance evaluation approaches indeed produce different results.
In this work, we use the Wilcoxon Signed Ranks Test to prove our assumption
in Tables VI-VIII. We found the pair (Fi, CCRi) with absolute difference, and it
 Operation
DEA model BSC-DEA model
(1) (2) (3) (4) (5) performance
CCR model BCC model F model FCIL model FCILR model analysis
Times Scores Rank Scores Rank Scores Rank Scores Rank Scores Rank

2001 1 1 1 1 0.845 1 0.199 3 0.504 6

2002 0.852 5 0.994 4 0.350 3 0.167 4 0.596 5 535
2003 0.851 6 0.984 5 0.286 6 0.133 5 0.913 4
2004 0.958 4 0.999 3 0.287 5 0.087 6 0.999 2
2005 0.968 3 0.979 6 0.297 4 0.341 2 0.961 3
2006 1 1 1 1 0.394 2 1 1 1 1 Table V.
Yearly efficiency scores
Source: Authors study and ranks
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FCIL v. F N Mean rank Sum of ranks D1( FCIL F)

a
Negative ranks 19 11.16 212.00
Positive ranks 4b 16.00 64.00
Ties 1c
Total 24 Table VI.
Z 2 2.251a Wilcoxon Signed Ranks
Asymp. Sig. (2-tailed) 0.0248* Test (1) Traditional
performance approach
Notes: a FCIL , F; b FCIL . F; c FCIL=F versus balanced
* means significant at a=0.05 scorecard

FCILR v. F N Mean rank Sum of ranks D2( FCILR F)

a
Negative ranks 5 7.60 38.00
Positive ranks 18b 13.22 238.00
Ties 1c
Total 24 Table VII.
Z 23.042a Wilcoxon Signed Ranks
Asymp. Sig. (2-tailed) 0.002* Test (2) Traditional
performance approach
Notes: a FCILR , F; b FCILR . F; cFCILR =F versus BSC with risk
* means significant at a=0.01 management

F v. CCR N Mean rank Sum of ranks D3 ( CCR F)

Negative ranks 10a 9.80 98.00

Positive ranks 11b 12.09 133.00
Ties 3c
Total 24 Table VIII.
Z 2 0.609a Wilcoxon Signed Ranks
Asymp. Sig. (2-tailed) 0.543 Test (3) Traditional
performance approach
Notes: a F , CCR; b F . CCR; c F= CCR versus DEA measure
 IJPPM reveals that there is no significant difference between the traditional performance
57,7 approach and the CCR (DEA) approach. This explains that the efficiency score
results of model F are no different from the results of the CCR (or BCC) model.
There is, however, a significant difference between model F and model FCIL
implying the traditional financed performance approach is different from the general
BSC approach. There is also a significant difference between the F and FCILR
536 model revealing the traditional model is different from the thinking of the risk
management of the BSC approach.

Conclusions
We constructed DEA and DEA-BSC models to compute performance efficiency. The
DEA-BSC model incorporates the BSC concepts, derived from Kaplan and Norton
(1992), into DEA. We choose three input and output terms after defining them;
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otherwise, we select two performance variables from the five perspectives of the BSC.
Note that we regard the model of financial perspective of the BSC as the traditional
financial ratio method. Although bank efficiency has been widely discussed in the
literature and the DEA approach is frequently used to explore this topic, there are still
some important points not touched on. Wang (2006) researches the performance of the
Acer Corporation, which is a computer manufacturer based in Taiwan, from its 2001 to
2003 annual reports using DEA and BSC. Further, we employ two performance
measurement tools to analyze a firm in depth.
We use the DEA approach to run models step by step which subsequently generate
technique efficiency in order to compare the relationship between these perspectives.
Our findings can briefly summarized as follows: First, these models which include
financial, internal process and learning/ growth perspectives, are closely related to firm
performance by time period. However, this does not include a risk management
perspective. Second, every perspective seems independent and our empirical research
shows that when we add the model of original perspective one by one, the result will
consequently be affected. This is especially true for the model of financial perspective
which changed in many aspects. What the positive and strong correlations of different
performance indices reveal is the need to acknowledge the linkages of the indices
(Wang, 2006). Third, regarding technical efficiency, only considering the financial
perspective will not be enough to reach levels of highest efficiency. We should consider
the five kinds of perspectives of the BSC in the banking industry. The firm will produce
an overall performance and attain a better efficiency value. Fourth, in comparing DEA
with the BSC performance tool, we find that the traditional performance approach is
similar to the DEA approach in which efficiency scores are different from the BSC. Hsu
(2005) uses the Fuzzy DEA to evaluate the performance of BSC for multi-national
research and development projects. Further, we use DEA to evaluate the performance
of traditional financial, input/output items and BSC for a firm.
Our study used the Hualien First Credit Cooperative Bank (HFCCB) as a case study.
We use different performance evaluation approaches to produce different performance
evaluation results. We use four kinds of performance evaluation indices based around
traditional financial performance evaluation, DEA approach, a general BSC, and a BSC
with risk management. It has only considered financial indices and than its result
appears it will be partial to control functions.
 Traditional financial indices are used in model (1) or CCR model and DEA approach Operation
is only considered for input and output indices. Our findings from these management performance
performance evaluation approaches both suggest that the firm had its best
performance efficiency in 2001. And relatively, they also show that the lowest analysis
performance efficiency is in 2003. These measures both stress efficiency being based
only on inputs and outputs. Traditional financial indices and the DEA approach aim to
obtain the largest outputs amounts under given input amounts. However, it is easy to 537
fall into numeric traps if we only just check on financial indices results. Thus, we also
look at DEA results (is model (1) or CCR model in Table V) and general BSC model (is
model (4) or FCIL model in Table V) to compare. Our study suggests there are
significant differences when using different performance measurement models.
A general BSC approach uses financial and non-financial aspects at the same time.
Our research target is a bank and risk is of great importance. Therefore, we add
another model with risk management which is named model (5) or model FCILR. This
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model has also different performance results, especially different from traditional
financial indices.
Efficiency explains the relationships between inputs and outputs and
effectiveness involves achieving firm worthwhile goals that support inner vision
and mission. Effectiveness is very similar to efficiency, but the measure is related to
some enterprise objective rather than the technical quality of output. In utilizing either
or both of these performance measurement approaches, it is vital for companies to
predetermine their objectives in order to select the appropriate indices (Wang, 2006).
And, a BSC selects the key performance indices (KPI) of each section, together with
overall goal. It helps do the right thing (Kaplan and Norton, 1996). Continuously, it
keeps bank managers mind on goals for the arrival of ideal indices. Moreover, with a
BSC, managers easily can direct their attention to those variables affecting the firms
success at any given organizational level (Rickards, 2003).
After our study shows the different results of each performance evaluation
approaches, we direct the firms performance not to place restriction on financial
accounting numbers. For example, the financial performance evaluation results in the
bank we studies show good performance. However, linger-term and wider issues
only become evident if we spend time in taking notice of customer satisfaction,
characters of employees, inner operation and risk management etc.
The BSC is mainly about evaluating longer-term strategies and visions, and less
about operational control. It presents the changes of the basic hypotheses of
performance evaluation. It not only evaluates current situations, but also forecasts
future environmental indices (Kaplan and Norton, 1996). A BSC can help firms
integrate different perspectives.

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Corresponding author
Tser-yieth Chen can be contacted at: tychen@mail.ndhu.edu.tw

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