POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Chapter 1

THE PROBLEM AND ITS SETTING

Introduction

The commitment of educational institution is to produce competent, capable and

confident citizens, create, develop and improve transfer of knowledge to its constituents.

They provide a place where learners develop their full potential, continually expand their

capabilities, nurture their aspirations and learn how to interact with other learners. In turn,

the institution as a learning organization, would ensure continual growth of the

administration, faculty and staff to increase their capacity to improve the quality of education

and to meet the needs of the learners and the external community (Anastacio, 2016).

There are different types of educational institution in the Philippines. The most

common are non-stock non-profit educational institution which are registered with the

Securities and Exchange Commission and government educational institutions which are

created by a legislative body. State Universities and Colleges (SUC) have not been faced

with the pressure of survival because their operation is subsidized by the government.

However, there is no established performance measure tool for these institutions that can

easily be understood by the stakeholders.

In educational institution, the Balanced Scorecard (BSC) initially introduced by

Kaplan and Norton for the business sector can be used as a tool in coordinating the

activities of the academic and non-academic departments of an educational institution in

terms of handling the the appropriated budget. The objective of this study is to evaluate

the performance of selected state universities and colleges as to management and

utilization of the appropriated budget using the BSC.

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Theoretical Framework

A Balanced Scorecard (BSC) was introduced by Kaplan and Norton in 1992. BSC is

a set of measures that gives the managers a fast but comprehensive view of the business.

The balanced scorecard is well suited to the kind of organization many companies are trying

to become (Kaplan and Norton, 1992). The BSC is centered on the strategy and vision of

the organization, not control. Traditionally, the performance measures are focused on

finances, but in BSC, it allows managers to look at the business from four important

perspectives: the financial perspectives – how do we look to stakeholders; the customer’s

perspectives – how the customers see us; internal business perspectives – what must we

excel at; learning and growth perspectives – can we continue to improve and create value

(Kaplan & Norton, 1992). Figure 1 is the General Framework of the Balanced Scorecard.

Figure 1. General Framework of the Balanced Scorecard (Kaplan & Norton, 1992)
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Customer Perspective: How Do Customers See Us? Customers’ concerns tend to

fall into four categories: time, quality, performance and service, and cost. Time for existing

products and services is measured by the time a customer make an order to actual delivery;

while time for new products and services is measured by how long it takes for a new product

or service to market. Quality is measured by the defect level of products and services

delivered to customers and its timely delivery. Performance and service is measured by the

effective distribution system of the products and services. The cost of product or service

includes ordering costs, carrying costs including obsolescence and scrap and rework, and

disruptions of production schedule. Summing up all these measures results to a creation of

added value to the customer.

Internal Business Perspective: What Must We Excel at? An organization should

excel on measures that has the greatest impact on customer satisfaction. Examples of

which are technology, design and production, and employee skills to implement the

production system.

Learning and Growth Perspective: Can We Continue to Improve and Create Value?

The success of one organization depends on the ability of managers to innovate existing

products and services, or to introduce entirely new products or services, improvement of the

production process and have the capability to create more value to the customers and

shareholders.

Financial Perspective: How Do We Look to Shareholders? The common financial

measures for a business have to do with profitability, growth and sustainability, liquidity

solvency, and shareholders value. Improved financial performance or success is the

consequence of improved operational performance.

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After that article written by Kaplan and Norton in the Harvard Business Review in

1992, executives found that: "while executives appreciated a more comprehensive new

performance measurement system, they wanted to use their new system in a more powerful

application than we had originally envisioned. The executives wanted to apply the system to

solve the more important problem they faced -- how to implement new strategies" (Kaplan &

Norton, 2004). This later evolved into a broader strategic management system and has

been customized to meet the needs of a variety of environments and markets (Kaplan and

Norton, 1992 2001b). Its objective is to translate an organization’s mission and vision into

actual (operational) actions (strategic planning). In addition, it can help provide information

on the chosen strategy, manage feedback and learning processes and determine the target

figures. The operational actions are set up with measurable indicators that provide support

for understanding and adjusting the chosen strategy. The classical Kaplan and Norton BSC

is based on a set of four parameters, namely, financial perspectives, customer’s

perspectives, internal process perspective and learning and growth perspective.

In the business sector, the important indicators to measure the performance of an

organization under each perspective include: Financial Perspective: Financial results and

growth, key financial parameters like Return on Equity (ROE), Return on investment (ROI),

higher profit margin, improved cash flow, low bad loans and lower debt, reduced operating

costs, net interest margin, reduced overhead expenses, and net profit. Learning and

Growth perspective focuses on how the organization can continue to create value for the

firm (Kaplan & Norton, 1992). It concerns with developing and sharing new knowledge to the

company’s manpower, developing the skills and competencies of staffs through seminars,

conferences and other related activities, satisfaction and retention of staffs and employee

growth and turnover, and provide strategic information to all, align personnel goals with
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company goals, Customer Perspective: Increase customer satisfaction, increase customemr

loyalty, retention of key customers, sales revenue per customer, competitive pricing and

product offering, high quality service, and customer service compared to customers. Kaplan

and Norton (2000) write that the BSC tells “the knowledge, skills, and systems that

employees will need (learning and growth) to innovate and build the right strategic

capabilities and efficiencies (internal processes) that deliver specific value to the market

(customer), will eventually lead to higher shareholder value (financial)” (p. 169). Internal

Business Processes: Continuous innovation of existing products and services, Cross sell

products, improve operational efficiency and minimize problems, proper customemr

relationship management, higher business rate in nconnecting business opportunities, fast

business decision and approvals, proper work culture, higher employee confidence,

minimization of problems to a tolerable level, sound decision for potential business venture,

and empowerment of employees to a high degree of satisfaction

Extending Balanced Scorecard to Non-Profit and Public Sector Enterprises

BSC is initially developed for the business sector was soon extended to non-profit

and public sector enterprises (NPSEs) and educational institutions are non-profit

organizations. Financial success is not the main objective of NPSEs but it is focused on the

effectiveness of delivering the service and accountability to its constituents. Prior to the

development of the BSC, the performance reports of NPSEs focused only on financial

measures, such as budgets, funds appropriated, donations, endowments, expenditures,

and operating expense ratios. Their success has to be measured by their effectiveness in

providing benefits to constituents. The Balanced Scorecard helps NPSEs select a coherent

use of nonfinancial measures to assess their performance with constituents (Kaplan, 2010).
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BSC Framework In Higher Educational Institution

In general, educational institution is a non-profit organization although some private

schools maybe driven by business objectives which is profit. Performance measurement is

not peculiar to profit seeking organizations only; it is necessary for every organization, no

matter what the nature and the purpose of the organization are and what the measurement

systems include (Dodor, et al). The general framework of BSC for Higher Educational

Institution is presented in figure 2.

Figure 2. Four Perspective of BSC for Higher Educational Institution.

In HEIs, the “financial perspective” is replaced by the “teaching and research work

perspective” which refers to the highest possible quality of the supplied teaching and

research work. The “customer perspective” is replaced by the “students and partners

perspective” since they are considered as customers of the HEIs. The “internal processes

perspectives” remains the same, while the fourth perspective “learning perspective” is
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replaced by the “human and financial resources perspective”. This perspective refers to

input and infrastructure elements of the scientific process of the institution (Chalaris,

Manolis, et al, 2011).

In educational institution, BSC is a performance evaluation framework that focuses

on the optimization of budget/resources that support the delivery of quality

instruction/service to stakeholders. It is rooted from the employees committment and their

involvement in peformance management decision (Farid).

Michał Pietrzak (2014) claims that both public and non-profit sectors require

performance system that not only counts the inputs and outputs but also allows to assess

progress in reaching the organization's mission. According to him, both sectors can gain

from many potential benefits of using the BSC, for example: demonstrate accountability;

Improving performance against mission; Attract funding and employees; Create focus on

strategy; Generate knowledge instead of amounts of data; Drive change, etc.

In educational institution, the key performance indicators under each perspective

include: Customer (student-partner) perspective: accepting quality students, number of

students involved in extension, research and training for continuing education, number of

alumni involved in public service or community service and average salaries offered to

faculty and staffs; Internal business perspective: continuous improvement of services,

facilities and resources for staffs, number of programs and curriculum changes, number of

syllabi developed, number of internship and companies available for students, number of

departments offering specialized programs, flexible course schedule for students, and

percent of students with job offer after graduation; Innovation and learning perspective:

faculty and staff, organizational effectiveness and social responsibility, number of faculty

presentations at conferences; number of seminars attended; travel budget for conference

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attendance; number of applicant for entry exam; number of articles published and number

of articles delayed for publication. For staff motivation and development, the indicators are:

Percent of budget spent on staff development; staff satisfaction index in staff survey;

number of cross-trained or multi-skilled staff and number of employees formed based on the

specification of their tasks. For organization effectiveness, the indicators are: Number of

courses incorporating new technology, Number of specialized labs for each department;

Number of teaching workshops attended by faculty; number of teaching innovation projects;

Number of curriculum revisions in last five years; number of new courses offered in last five

years. For social responsibility, the indicators are: No. of articles or studies related to the

environment or a social cause, efficient use of energy; Financial Perspective: good Quality/

price combination, budget allocation to instructional and institutional support and tuition

revenue. For wise budget allocation, the indicators are: Budget allocation studies and

Budget allocation monitoring, Year-end budget variance, Expenditure allocated to

personnel; Variance of budget allocated each year. For increase research, and incentives,

the indicators are: Peso value awarded to scholarships, Instructor salary, Instructor

benefits; to be market oriented Market share vs. private universities.

Strategy Maps for Education Services

Yuksel and Coskun developed a strategy map for educational services. In this

strategy map, performance targets for each performance measures are indicated to

evaluate the achievement of each strategic objective.

Implementation of the BSC in education can utilise existing tools such as strategy

map to enhance clarity. This is useful to guide the middle management and operational

staff of the institution, as well as other non-thecnical stakeholders. Using the strategy map,
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each one is able to visualize how their activities contribute to the institutional strategic goals

and final coutcomes (Al-Hosaini and Sofian). Figure 3 presents the strategy maps for

educational services.

Figure 3. Strategy Maps for Educational Services

In figure 3, the objectives in each perspective are identified so with the

performance indicator that is used to measure whether the objective is met or not. In

stakeholder perspective (customer), the objective of the educational institution is to maintain

an attrative school image for the satisfaction of parents, students and alumni and to achieve

accessibility and partnership with other related institution. In internal process perspective,
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the objective is teaching excellence, students’ participation in sport and social activities and

improve academic performance. Under learning and growth, the focus is on the satisfaction

of academic and non-academic staffs, organizational teamwork and infrasture development

to improve learning. Under financial perspective, the focus is productivity and growth

strategy (Yuksel and Coskun, 2013).

Another researcher, Cindy Brown (2012) used the BSC to measure the

performance of the College of St. Scholastica of Duluth, Minnesota. The strategy maps

developed by cindy Brown include the following indicator oof performance by perspective:

Finance Perspective. The finance aspect show how do the institution intend to meet

its vission, mission, goals and objectives. To achieve financial stability, the enrollment

growth is effectively managed, financial resources is increased thru donations/endowments,

operating efficiency is improved and capital/infrastructure funds is secured.

Students and community (customers perspective). The students and community

aspect show what do the community and students expect from the institution. Success

indicators for students under this aspect include improved student satisfaction, optimization

of student learning experience, advance student success and high graduate rates. For the

community, strong partnership with the community and develop community leaders are the

success indicators.

Internal Process Perspective. This perspective is concerned with the offering of

various programs that are globally recognized, strenghten the various programs offered by

considering enhancement factors that add value to the outcome, improvement of learning

environment and delivery formats that will result to high retention and graduation of the best

students, The outcome of this perspective is the high employability of graduates.

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Learning and Growth. This shows the type of culture, skills, training and technology

the institution should develop to support the processess. This include retention of the most

qualified faculty and staff, support faculty & staffs professional practices and research

through university funded professional development activities, promote high employee

productivity, high level of satisfaction and low turnover of employees through system of

promotion, awards/recognition/distinction of outstanding performances, strenghten

information technology infrastructure and build service learning awareness and training.

In this study, customer perspective in NOT included because the outcome of

instruction is manifested in the outcome of internal business processess, which is high

retention of best students, high graduation rates and high employability rates. Many

changes have been made to the design of BSC. According to Nayeri, et. al. Organizations

use this BSC model, customize it with their own processess and environment, therefore

there is no necessity in applying the four perspective of BSC or they could affix another

perspective to BSC, according to their needs (Nayeri, et. al).

The researcher also adopted the framework used by Farid in measuring the

performance of Yazd University School of Humanities, the BSC framework together with

measurable indicators of different perspective. Yazd University is a private educational

institution that depends on student tuition fees as source of funding. The performance

indicators to measure the performance of Yazd University include the following:

Financial. The performance indicators in this perspective are: Annual revenue from

tuition compared to annual budget, increase usage of assets and facilities due to increase

in programs offered, average cost of academic and administrative staff (human resource

expenses) and average usage of library services.

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Customer. The indicator in this aspect is improved school image and increased in

satisfaction of customers,

Internal Processes. The performance indicators are: offering high quality services,

high students’ satisfaction on various programs offered, improve educational facilities by

considering the average cycle for improving educational facilities and equipment and

stakeholders’ satisfaction from the educational services offered.

Learning and Growth. Improve IT services (number of online programs offered by

school and ratio of using computer in processing and keeping documents), availability of

performance based culture in manpower development and stakeholders’ satisfaction on the

schools administrative and academic staff performance.

Conceptual Framework

The Conceptual Framework used in this study is the systems approach. The

framework consists of three frames composed of input that includes the profile of

respondents and the factors used by respondents in measuring the performance of selected

state universities and colleges, the 2nd frame includes the materials and methods used in

analyzing the results and the 3rd frame is output of this research.
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Figure 4. The Research Paradigm of the Study

Input Process Output

1. What is the profile of the respondents? Profiles of respondents

1.1 Institutional Profile identified.
1.1.1 Number of employees (teaching &
non0teaching staffs) Financial Performance of
1.1.2 Number of years in existence Higher Educational
1.1.3 Average budget for the last 3 years Instituions in Metro Manila
1.1.4 Number of programs offered assessed as to Financial,
Learning and Growth and
1.2 Respondent’s Profile Internal Business
1.2.1 Age Analysis and Processes perspective
1.2.2 Highest Educational Attainment Presentation of Data
1.2.3 Employment Status through: Hypothesis is tested.
1.2.4 Number of years employed in the -Documentary Research
institution -Survey Questionnaire
1.2.5 Current position -Interview Conclusion/
1.2.6 Job position level -Statistical Stools Recommendation
1.2.7 Average number of annual
trainings/seminars attended for the last - To draw the attention of
three years Assess the Financial the school administrators
Performance of Higher to the performance of their
2. What is the respondent’s assessment on the Educational schools in terms of
financial performance of Higher Educational Institutionsiin Metro Financial, Learning &
Institutions in Metro Manila in terms of the Manila using the Growth and Internal
following: Balanced Scorecard Business Processes.
2.1 Financial
2.2 Internal Business Processes -To supplement future
2.3 Learning & Growth related studies.

3. Is there a significant difference on the assessment -To help future

of the respondents on the financial performance of researchers.
Higher Educational Institutions in Metro Manila
when grouped according to profile?

Feedback

The input contains the independent variables and dependent variables. The

independent variables are the institutional and respondents’ profile, assessment of the

respondents on the financial performance of the colleges and universities in Metro Manila as

to financial, learning and growth, and internal business processes. On the other hand, the

dependent variable is the budget allocated to each institution.

The second frame consists of materials which permits the researcher to gather

previous related literature and studies. It also contains the methods and procedures used in

analyzing the variables through survey questionnaires, interviews and statistical tools. The
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financial performance of government colleges and universities in Metro Manila through the

balanced scorecard approach adopting only three perspective, namely, financial, learning

and growth and internal business processes is assessed.

The third frame consists of the output. It encompasses the outcome of the study

which includes the identification of the institutional and respondents’ profile and the

assessment of the financial performance of government colleges and universities in terms of

financial, learning and growth and internal business processes is identified. The conclusion

or recommendation is also depicted in the third frame.

Statement of the Problem

This study aimed to assess the financial performance of higher educational

institutions in Metro Manila in terms of financial, learning and growth and internal business

processes perspectives of the BSC. Specifically, it seeks to answer the following questions:

1. What is the profile of the respondents?

1.1 Educational Institution

1.1.1 Number of employees, teaching and non-teaching staffs;

1.1.2 Number of years in existence;

1.1.3 Average budget for the last 3 years; and

1.1.4 Number of programs offered?

1.2 Respondents’ profile

1.2.1 Age;

1.2.2 Highest Educational Attainment;

1.2.3 Employment Status;

1.2.4 Number of years employed in the institution;

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1.2.5 Current position;

1.2.6 Job position level; and

1.2.7 Average number of annual training/seminars attended for the last three

years?

2. What is the respondents’ assessment on the financial performance of higher

educational institutions in Metro Manila in terms of the following:

2.1 Financial;

2.2 Internal Business Processes; and

2.3 Learning and Growth?

3. Is there a significant difference on the respondents’ assessment on the financial

performance of higher educational institutions in Metro Manila when grouped

according to profile?

Hypothesis: There is no significant difference on the respondents’ assessment on the

financial performance of higher educational institutions in Metro Manila when grouped

according to profile.

Scope and Limitations of the Study

This study focuses on the assessment of financial performance of higher educational

institutions in Metro adopting the Balanced Scorecard as a management tool in measuring

performance of higher educational institutions. This study is limited only to Financial,

Learning and Growth and Internal Business Processes perspectives of the BSC because

the assessment on customer (student) perspective is already covered in the internal

business processes.
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Significance of the Study

Future researchers. This study may be used as a reference for future researchers

and may serve as a source of information and a conceptual and research literature in

conducting their studies that are related to the topic of the present study.

Government. This study would help the government to know if the allotted budget is

sufficiently and efficiently allocated. Also, it would help them to know if the universities are

complying with the policies and regulations required by the memorandum.

Students. This study would benefit the students in a way that will enrich their

understanding regarding on how effective the institution in allocating budget for learning and

growth and for internal business processes. The results can be used as a basis in order for

them to strive and improve their services, teaching styles and strategies for the benefit of the

students.

Teaching Staffs. The findings of this study will help the teaching staffs be aware of

the performance of the institution in handling finances related to learning and growth and

internal business processes.

Academic Staffs. This study will help the academic staffs in coming up with

strategies to improve the learning environment for the benefits of the stakeholders.

Non-teaching staffs. This study will aid the accounting department head and those

in charge with governance to strengthen, enhance and update, if necessary, the measures

affecting the financial performance of the institution with respect to financial, learning and

growth, and internal processes.

Universities and Colleges. This study will help Universities and Colleges in

identifying the strength and weak areas of their performance in terms of learning and
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growth, internal process, customers or stakeholders, and financial perspective, thus, helping

them focus on the factors that need attention.

Definition of Terms

Academic Staffs. These are the deans and chairpersons of the different colleges.

Balanced Scorecard. Balanced Scorecard is a management tool that measures

organizational performance cross four balanced perspectives: financial, customers, internal

business processes, and learning and growth. In this study, the Balance Scorecard is

adopted but limits its perspective to three areas only, namely, Financial, learning and growth

and internal business processes.

Financial performance. Financial performance is the optimization of institution’s

tight budget.

Financial Perspective. Financial perspective shows how well the institution

manages its resources/budget.

Internal Business Processes. Internal business processes refers to the

processes that will enable the institution to improve learning and delivery of instruction to the

satisfaction of the stakeholders.

Learning and Growth Perspective. This shows how well the institution is doing to

promote high productivity and high level of satisfaction of teaching and non-teaching staffs.

Non-Academic Staffs – Supervisory level. These are the heads, chief of office or

directors of different departments directly involve in student activities.

Non-academic Staffs – non supervisory level. These are the administrative

employees of the institution.

Organizational Goals. The strategic objectives that an entity’s management

established to outline expected outcome.

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State Universities and Colleges are educational institutions, operations of which

are subsidized or funded by the government.

Teaching Staffs. Teaching staffs are the regular and part time faculty members of

the institution.