MINISTRY OF TRANSPORTATION MINISTRY OF EDUCATION & TRAINING VIETNAM MARITIME UNIVERSITY STUDENT NAME: LE TAT QUOC ANH DISSERTATION GLOBAL STUDIES AND MARITIME AFFAIRS RECOMMENDATIONS FOR SETTING UP AND RUNNING PROCESS OF KPI SYSTEM IN ASIA INVESMENT AND ASSET MANAGEMENT JSC HAI PHONG – 2015 MINISTRY OF TRANSPORTATION MINISTRY OF EDUCATION & TRAINING VIETNAM MARITIME UNIVERSITY STUDENT NAME: LE TAT QUOC ANH CLASS : GMA 02 DISSERTATION GLOBAL STUDIES AND MARITIME AFFAIRS RECOMMENDATIONS FOR SETTING UP AND RUNNING PROCESS OF KPI SYSTEM IN ASIA INVESMENT AND ASSET MANAGEMENT JSC Supervisor: Vu Thanh Trung Division: Basic Economics Faculty: Economics HAI PHONG – 2015 Recommendations for setting up and running process of KPI system in Ashico PREFACE I declare that this report is my own unaided work It has not been submitted before If violated, I am solely responsible for and bear the punishments of the Institution and University Student Name and Signature Le Tat Quoc Anh Name: Le Tat Quoc Anh – Class: GMA 02 Page Recommendations for setting up and running process of KPI system in Ashico ACKNOWLEGEMENT Firstly, I would like to express my sincere gratitude to my advisor Master Vu Thanh Trung for the continuous support of my dissertation and related research, for his patience, motivation, and immense knowledge His guidance helped me in all the time of research and writing of this thesis I could not have imagined having a better advisor and mentor for my study Name: Le Tat Quoc Anh – Class: GMA 02 Page Recommendations for setting up and running process of KPI system in Ashico TABLE OF CONTENTS Preface i Table of Contents .iii List of Symbols, Abbreviations iv List of Tables and Chart and Figure v INTRODUCTION .1 CHAPTER 1: THEORETICAL BACKGROUND 1.1 Definitions and contents of KPI 1.2 Requirement of KPI 1.3 Functions and meanings of KPI CHAPTER 2: SETTING UP AND RUNNING PROCESS OF KPI SYSTEM 2.1 Company introduction 2.1.1 General information 2.1.2 Company network 2.1.3 Company structure 10 2.1.4 Operation fields and partners 10 2.2 The setting up and running process of KPI system in Ashico 12 2.2.1 Stage 1: Company information collection and set up Balance scorecard 13 2.2.2 Stage 2: Set up company targets and indicators by using Balance Scorecard 18 2.2.3 Stage 3: Set up specific indicators for departments and staffs 22 2.2.4 Stage 4: Running and adjusting and optimizing indicators .33 2.2.5 Stage 5: Combining salary with KPI 39 CHAPTER 3: EVALUATIONS AND RECOMMENDATIONS 41 3.1 Evaluations for setting up and running process of KPI system .41 3.1.1 Advantages .41 3.1.2 Disadvantages 43 3.1.3 Successes 43 3.1.4 Problems 45 3.2 Recommendations for setting up and running process of KPI system 50 CONCLUSION 53 Reference / Bibliography 54 Appendices .55 Name: Le Tat Quoc Anh – Class: GMA 02 Page Recommendations for setting up and running process of KPI system in Ashico LIST OF ABBREVIATIONS KPI BCS Ashico Dept CJS SHRM Key Performance Indicators Balance Score Card Asia Investment and Asset Management Joint Stock Company Department Cloudjet Solution Corporation Strategic Human Resource Management Name: Le Tat Quoc Anh – Class: GMA 02 Page Recommendations for setting up and running process of KPI system in Ashico LIST OF TABLES AND CHARTS AND FIGURES Table 1: Company brief information Table 2: SWOT analysis 17 Table 3: Financial KPI 23 Table 4: Customer KPI 26 Table 5: Process KPI 28 Table 6: Learn and growth KPI 29 Table 7: KPI calculation 36 Table 8: KPI – salary coefficient .39 Chart 1: Organization structure 10 Chart 2: KPI setting up and running process .13 Figure 1: KPI testing result .37 INTRODUCTION Necessity In any period of time, human resource always plays an important role in the development of all the organizations from big countries to smaller groups and human are key factor that can control everything and the history can proved that In the history of humanity, even though suffering a lot of influences from natural disasters such as earthquakes or volcanoes, Japanese still created many inventions and deal with the nature and develop their country become one of the most powerful countries in the world America becomes an independent nation from 1776 and after only 239 years of development, US is becoming the leader in the entire field: economy, finance, society, military, etc For a long time ago, in long and severe wars, people of Vietnam have showed our power and won all the invaders All the achievements and successes of nation are reached by the power of the human in these nations Nowadays, Vietnam are developing and penetrating into the world environment and the images and reputations of Vietnamese products are formed step by step in the market One of the key factors that bring the success to Vietnam is the quality of human resource Not only in the level of nation, in every smaller organization and enterprise, the human resource management is considered as an important strategy and it is always be on top of developing plans Human resource will be the main power that brings the benefit for enterprises but the method to manage this precious resource effectively is not simple problems Human resource management often includes many Name: Le Tat Quoc Anh – Class: GMA 02 Page Recommendations for setting up and running process of KPI system in Ashico other issues such as recruitment, appointment, training, control and evaluation Evaluation are an important process because from the result of evaluation, the company can understand clearly about the work of each employee and give the relevant behavior to increase the effectiveness of this employee and in order to assess the employee, there is a system that can help company to assess the employees from the working performance that called Key Performance Indicators (KPI) The KPI system has many advantages in the comparison with the other assessing methods because KPI system evaluate the performance by using the specific figure and number; it will not depend on the sentiment of any person and deal to the equity and accurate in the assessment It is undeniable that KPI systems are increasingly popular in many organizations and showing their own remarkable applications Consequently, in this dissertation, I decided to research and analysis the Key Performance Indicators system in case of a specific company with the topic: “Recommendations for setting up and running process of Key Performance Indicators system in Asia Investment and Asset Management Joint Stock Company” Research Object The research objects of the topic are the foundation process, adjustment process, running and assessing process, completion process, application process and controlling process of Key Performance Indicators system in Asia Investment and Asset Management Joint Stock Company and the related elements, components, stages, etc that are founded and applied In addition, the research also analyzed the company employees in term of the establishment and running of KPI system Research Scope The research scope of the topic is the entire of Asia Investment and Asset Management Joint Stock Company with all the departments, offices and employees of the company The topic of this dissertation has been researched for five months from June 2015 to November 2015 This period of time corresponds with the time from the beginning to the end of KPI foundation projects and the starting period of running KPI assessing systems in Asia Investment and Asset Management Joint Stock Company Research Findings Name: Le Tat Quoc Anh – Class: GMA 02 Page Recommendations for setting up and running process of KPI system in Ashico After the period of researching all the elements in the setting up and running process of KPI system in Asia Investment and Asset Management Joint Stock Company, the result of the research is the evaluation of these process including the advantages, strengths, successes as well as disadvantages, weaknesses and failures in the KPI project Besides, some recommendations will be suggested to increase the efficiency of the KPI systems in Asia Investment and Asset Management Joint Stock Company CHAPTER 1: THEORETICAL BACKGROUND 1.1 Definitions and contents of KPI KPI – Key Performance Indicators is not a new concept with the modern business so some authors gave the different definitions about KPI in many points of view as well as many features of KPI According to F.J Reh (2014), “Key Performance Indicators, also known as KPI or Key Success Indicators (KSI), help an organization define and measure progress toward organizational goals” or “KPIs are quantifiable measurements, agreed to beforehand, that reflect the critical success factors of an organization” In other definition, KPIs are defined as “financial or nonfinancial measures that are used to define and evaluate the success of an organization and are linked to an organization’s strategy for success” or KPIs are “devised to help evaluate the progress of an organization towards achieving its long-term goals and fulfilling its vision” (Thrall et.al, 2010) In an easier and more specific way, KPI are a system of indicators and the size of this system can be very big or very small depend on the operations and scale of the owning organization These indicators are the target that the in-charged person needs to reach and the result will show the level of his performance F.J Reh also concludes that “KPIs give everyone in the organization a clear picture of what is important, of what they need to make happen” and “make sure that Name: Le Tat Quoc Anh – Class: GMA 02 Page Recommendations for setting up and running process of KPI system in Ashico everything people in the organization is focused on meeting or exceeding those KPIs” KPI system can be presented by many ways: computer software, internet software or even traditional paper documents The software or automatic devices can help the owners easier to calculate or gather the information of KPI but it cannot impact on the content of KPI The KPI content depends totally in the operations or managements of the owning organizations Normally, the KPI content covers in areas: financial, customer, internal process and learn and growth (Tracy, 1995): - KPI financial contains the indicators that give the target of operation to increase the sales or incomes and maintain the flow of cash in the organization Besides that, this group of KPI also can relate to the chances that help to gain the organization budget - KPI customer often relates to the increase of number of new customers or maintains the current customer It also relates to the relationship with customer, so it can be seen in the quality of services or customer services of the organization - Almost organization has its own internal processes so KPI process focus on implementation and application of the process into the operation The KPI process also mentions to the adjustment or creation to make the process better - KPI learns and growth includes the training and increase the knowledge and skills for member of organization In addition, it also relates to the culture or social feature such as the working environment, attitude of members… In the world, KPI is used for a long time in many companies but in Vietnam, not many organizations use KPI because it’s not too easy to make and their cost for automatic KPI system is not low Some brands that using KPI can be listed as Viettel Corporation, LG Electronic Vietnam,… 1.2 Requirements of KPI The KPI can be different in different organizations or companies but it still needs to follow some general requirement Firstly, KPIs must to follow the S-M-A-RT standards, Hursman (2010) found out the standard for KPI includes: Specific, Measureable, Attainable, Relevant, Time bound Name: Le Tat Quoc Anh – Class: GMA 02 Page 10 Firstly, as mentioned above, Ashico’s staffs are willing to accept to new system although it can make their work harder because of the fixed target However, some employees don’t really concern about the KPI in company After a period of running KPI, these employees still don’t understand what KPI is and KPI’s function and meanings in the company They just know to open the system in internet, fill the number of result then close it If the employee don’t aware the necessary or purpose of KPI in company, the KPI will be meaningless KPI system is not only to assess the working result of staff but also create the clear and specific target for staff to follow The honest and progressive of employees Secondly, the problem about the honest and progressive of employees is also a huge problem A cycle of creating and using KPI for each person can be summed in the most important jobs: give the KPI content, fill the weighting point and fill the result Each employee will control their own KPI and conduct the cycle by themselves It’s hard for managers and leaders to check all of their KPI information so the honest is strongly appreciated Some staffs considered the KPI as the target for them to increase their working performance and company’s business result but some of them only care about the result of KPI as well as their salary and they will give the content, weighting point, result… with the minimum influence 3.1.4.2 Details in KPI setting up and running process Choosing weighting point Weighting point is the number that comparing the importance of one KPI with the other KPI It also affects the total result of the owners; the high weighting point has high percentage in total result and vice versa The problems of Ashico in choosing weighting point is this process conducted sensible without any standard or general regulation The owner of KPI can base on the ranking questions to find out the final weighting point but all of these questions can be answered by their feeling and it cannot ensure the equality among staffs in company If people don’t want to have low KPI, they can give low weighting point for difficult KPI and high weighting point for easy KPI Actually, in some departments, managers will check the weighting point of their staffs and correct it (with discussion or not) However, the involvement of managers can make many unnecessary dissatisfaction or conflicts with the staffs KPI original basis In Ashico, KPI is created by levels: company, department and staff and from the department KPI, KPI in each level is linked with KPI in the higher level So, in order to give the company KPI, Ashico almost based on the factors as company’s missions, objectives or current strategies of company…and only a few KPI is based on the actual status of operation in company If the KPI is not come from the reality, it will be hard and cannot reach For examples, KPI [F6] is “Change the form of operating vessel from bareboat to time – charter”; this KPI is an objective of the company and it is brought to KPI but in fact, it’s very hard to complete this job and staffs predicted this KPI will almost fail The S-M-A-R-T KPI must be attainable and if the KPI is too difficult, this criterion is not ensured KPI and company objectives Although the big part of KPI in Ashico based on company’s objectives or general target but actually, it still has many KPI that not really connect or be important with company’s objectives These KPI can be listed as examples: - KPI about the punctuality of report from departments - KPI about the ability of staff to meet the demand of customer (staff should be required with full of ability to serve customer without the forced target from company) - KPI for one-one meetings between managers and staffs - KPI for organization of company events These KPI are often completed automatically because it repeats year by year and they shouldn’t be brought into KPI target KPI should be the target aiming to the final target of company, not all of the target that appeared in company KPI dividing process There are ways to dividing KPI from departments to staffs: dividing equally and dividing by cause and effect Both methods have different strength and weakness In Ashico, almost KPI is divided to staffs equally From one department KPI, it will be doubled, tripled or multiply with all the number of staff The result of this process is the huge number of current KPI in company According to Eckerson (2007), he believed that for KPI number, “the fewer the better” and Ashico didn’t get this standard with more than 500 KPI in the first period and more than 200 KPI in the current time Another problem in KPI dividing process of Ashico is the consistency among departments in company Although some departments divided KPI equally but some department divided KPI based on the specific activities of this staff The unimportant KPI made the mistake of “Correlated: lead to desired outcomes” (Eckerson, 2007) for standard KPI KPI and incorrect connections It always has connections or links between the “father KPI” and “child KPI” “Child KPI” or “children KPI” are divided from “father KPI” and they will support for “father KPI” Both of the content and figure of “father” and “children” KPI need to be corresponded But some connections among KPI in Ashico is not suitable Specifically, KPI [L2]: “(≥ 60%) of managers have TOEIC 600 points certificates” is divided to the managers of company But the “child KPI” for managers are: “The TOEIC result of Manager (≥ 600 points)”;…; “The TOEIC result of Manager A9 (≥ 600 points)” The problem will occur here as the unit of “child KPI” is points, so of course when we assess this KPI, it will assess about the “points” However, when the system links the results of KPI for manager to company KPI, it only calculates the average points of manager but not the percentages of people who have higher than 600 TOEIC points This issue can make the conflicts among KPI in the same system and as far as Eckerson (2007), it’s not good if the KPI is not “Aligned: no conflict” KPI and operations of staff After setting up the KPI for company, each staff has their own KPI that cover their target in work But it’s only target for a part in their activities related to the general KPI of company The KPI didn’t cover all the jobs that staff doing but it’s still counted into their salary Other parts of work then excluded in KPI are not recorded when they it excellent Some staff feels unjust with this problem and think that the KPI not correspond with their job describes More specific, up to October 2015, a department in Ashico has only to staffs, so one staff often assumes a lot of work in company but KPI only assess a small part and apply it as their all performance, so it can be called as inequity KPI and assessing, information gathering In the KPI assessing process, specially the testing assessment, there are many problems such as: impractical assessment, inaccurate assessment and incalculable KPI In the testing assessment for the nd quarter, almost departments and staffs in company didn’t prepare any document or statistic for KPI They just guess or fill the result without the accuracy So in this testing period, it’s hard to know what KPI is incalculable If Ashico had full of the document, these incalculable KPI would be founded immediately to remove or adjust But until the current time, many KPI that cannot be calculated still exist and they will be fixed only after the next assessing period In the 2nd assessing process, it shows many KPI that cannot collect the information to find the result of KPI This status is a big problem for KPI system and it occurred by reasons: - The target in KPI is very new and there is no any requirement to gather this information before so the staff is hard to it in the current time This reason leads to the requirement of new information collecting form in company (Appendix 3) About the KPI reporting form, D Parmenter (2007) also said that “KPI reporting formats are an art form, not science” - The in charge staffs not collect it continuously in the working time So, in assessing time, they cannot collect it fully because of the short time KPI and post audits and salary applications One more time according to the standard of Eckerson (2007), KPI need to be validated that means no one can cheat the KPI However, some of the KPI of Ashico is still can be cheated For examples, the KPI for reduction of overworking time is measured by the fingerprint machines, but if a staff presses the fingerprint then continue working and he cheated and the KPI successfully Besides, many KPI can be cheated or filled with the wrong information Because in Ashico, it has not got the audit department for KPI yet, so the result is only known by the staffs and managers But the big number of KPI will limit the ability of checking all the KPI of managers Ashico is applying the result of KPI to the salary with the coefficient for each scope of 10% (0 to 10%, 11 to 20% ) However, it’s not suitable to use the coefficient here because in this situation, the salary bonus of decrease of the person with 91% KPI and person with 99% KPI is the same The coefficient will equate the result of staff in the same round of result It cannot assure the fairness for staff or encourage them to increase point by point It’s undeniable that in the big KPI system of Ashico and a long period of setting up the KPI, there are many problems that need to be considered and solved 3.2 Recommendation for Key Performance Indicators system in Ashico In this part of the research, some recommendations and suggestions will be given to improve the efficiency and quality of KPI in Ashico Adjusting the content of KPI In the content of KPI in Ashico, there are only a few points that need to improved or adjusted to complete a perfect KPI system As mentioned in the previous part about the problems in KPI system of Ashico, firstly, Ashico should consider about the basis for KPI KPI should be made base on the actual activities of each staff and combine with the common target, so KPI can cover all the operation in company and it’s also closer to reality However, in order to increase the value of KPI and reduce the number of KPI, company should choose the key targets to make the KPI instead of all the annual targets Moreover, after each assessing period (each quarter), company need to check and compare the result of this quarter with the result last quarter to find the different level of result for the same KPI and give the relevant adjustments For example, if the KPI are always over 100%, the difficult should be increased and vice versa The KPI about the administrative operation are often easy to complete but the KPI for commercial or financial are too difficult The timely adjustment can bring the remarkable effectiveness for company For example, in the early October 2015, the KPI result for Ashico in the rd quarter is 95.26%, it’s 24.15% higher than the 2nd quarter So it sees that Ashico need to consider about the difficulties of KPI for the th quarter because the target is almost easy to be reached, especially the KPI that was completed excellent Increasing company awareness about KPI The KPI is new system in the company so in the company so it does not similar with all the staffs and activities so the function of KPI is not really appreciated Because KPI is used to support the whole system in aiming to the goad of company so Ashico need to make the system to adapt the KPI and of course, the KPI can promote its own function Before starting create the KPI, company has introduced for staffs with basic information and operations of KPI but the knowledge and information need to be focused about the importance or the impacts of KPI into the company as well as each individual Besides, KPI must be considered as the core system that will appear in all the operations For examples, in Ashico, ISO 9001:2008 system is always mentioned and attended in every activity to make the absolute standard because all the staffs know about the value that brought by this system Similarly, with more carefully trainings or orientations, Ashico can enhance the benefit from KPI system and in each activity; so, the staffs will consider finding the best way and trying to reach the company’s target as well as the indicators in KPI Ensure the uniformity of KPI Currently, many aspects of KPI and KPI assessing process in Ashico is not uniformed and there are many different among departments and individual for the same operations, specially the KPI splitting Normally, the company KPI after dividing to department will be entirely belonged to the department In order to ensuring the uniformity of KPI, Ashico should give the common standard for the KPI system in term of dividing method, statistical method, assessing method,… Ashico also need to assure the similar in content of KPI, especially the measuring unit to increase the exacting These changes and common standards will help Ashico to avoid all the conflicts in KPI and reduce the number of adjustment in the future Besides, Ashico need to build a set of KPI documents with all the reporting and information collecting forms for all the KPI if required With the available information collecting form, the staff can collect the result as soon as the target finish and it’s easier for assessment Ensure the equity related to KPI To ensure the equity in KPI assessing system, firstly, it’s necessary to establish an auditing team in company to check the result and other aspects of KPI Without any checking process, it cannot ensure that the result and statistics that filled is correct and honest In addition, if the auditing team cannot be created, Ashico can use cross checking method - each department will check the KPI of another department The requirement of showing the source of information for KPI result should be highly appreciated Because the different of scope of jobs, each staff has different number of KPI but the different need to reduced The situation that one staff has only KPI and his colleague has 15 KPI must be changed The director of Ashico can give a maximum and minimum number of KPI for individual to solve this status One more recommendation about the equity related to the salary by KPI Instead of using the coefficient for each 10% of KPI, the salary can be calculated by the exactly result of KPI After that, it will show the equity for the efforts of employees Moreover, adjusting salary is sensitive issue so the managers should give the suitable way in applying the result of KPI in salary because it can make many instable problems in psychology of staff and affect other working activities CONCLUSION Human resource management is a long-term operation but very important in the development of a company Especially in the period of high competitive market, human resource can show its power to bring many things that new and special to organization Applying of KPI is one method to contribute to the human resource management This concept is almost new for companies but its effectiveness is quiet valuable KPI is applied in many companies in Vietnam in some years ago Asia Investment and Asset Management Joint Stock Company (Ashico) has started and completed the KPI although it still has some problems In this dissertation, the KPI setting up process in Ashico has been researched from the process, strength, weakness and recommendations Specifically, the research included the following terms: - Chapter 1: Theory frame about Balance Score Card – Key Performance Indicators with the standard for KPI and setting up process from journal materials - Chapter 2: Summary about Ashico and KPI setting up process from the first step to the completion - Chapter 3: Comparing with the theory frame, the research shows the evaluation and recommendation to improve and develop the effectiveness of KPI in Ashico Because of the limitation in knowledge and KPI is quiet new term so this research cannot avoid mistakes However, I hope that it can be supported and improved to be better and the problems that mentioned in this research can be applied in actual Thank you very much! REFERENCES T.N.Hai, “Some contents about human resource and human resource assessing method” - Ministry of Home Affairs – Public Administration Reform Retrieved at 01/07/2015 http://caicachhanhchinh.gov.vn/uploads/News/2138/attachs/vi BAI %2021%20TRANG%2065.pdf N Henry 2006 Public Administration and Public Affairs, 12th edition New York: Routledge J Bratton and J Gold 2000 Human Resource Management: Theory and Practice 2nd edition New Jersey: Lawrence Erlbaum Associates, Inc George T.M and John W.B 1994 Human Resource Management N.T Thanh Giang 2011 “Complete the human resource management at Vietnam Post and Telecommunications Corporation” Master thesis Post and Telecommunications Institute of Technology Ta Ngoc Hai 2013 “Some content about human resource and assessment of human resource” - Institute for state organization sciences J.C Shapiro, K Hoque, I Kessler, A Pepper, R Richardson and L Walker 2013 “Human resource management”, p.12 A Price 2011.Human resource management, 4th edition, p.12-13 Y Wang 2012 On the theoretical basis of Strategic Performance Management, 2012 International Conference on Engineering and Business Management 10 L Cania 2014 The impact of Strategic Human Resource Management on organizational performance, Economia Seria Management, Vol.17, Issue 11 D Parmenter 2007 Developing, Implementing and Using Winning KPIs, 2nd edition, p.26 New Jersey: John Wiley and Sons Inc 12 G Iveta 2012 “Human resource Key Performance Indicators”, Journal of Competitives, Vol.4, Issue 13 D Oomen 2009 The challenge of translating Strategic Human Resource Management into Key Performance Indicators Master thesis Tilburg University APPENDIX Supporting question to calculate the weighting point Rating (1-5) for each criteria INo 10 KPI (Same person or same level) KPI KPI KPI KPI KPI KPI KPI KPI KPI KPI 10 The important level in the comparison with the company general strategic; the relation with the Key Success Factor (Company KPI) 5 3 1 The necessity of the KPI? Is it needed to right now? The level of your enthusiasm and proud with this KPI? The necessary effort to complete this KPI? (Or KPI difficulty) The contribution level of this KPI to the Company Vision; Company Mission and Company Core Value? 4 2 3 3 3 2 4 4 5 The number in the WEIGHTING column is the weighting point for the corresponding KPI WEIGHTING (KPI 1) = (Total answer KPI 1) / (Total answer of 10 KPIs) WEIGHTING 13 13 12 10 10 11 APPENDIX Interface of KPI assessing system Source: www.cjs.vn APPENDIX Reporting form example ASIA INVESTMENT AND ASSET MANAGEMENT JSC ONE - ONE MEETING CONFIRMATION FORM BETWEEN DEPARTMENT MANAGER AND STAFF Quarter: … Department: … NO Time Date Staff Signature Department Manager Signature Administrative Dept ... Page 14 Recommendations for setting up and running process of KPI system in Ashico CHAPTER 2: SETTING UP AND RUNNING PROCESS OF KPI SYSTEM IN ASHICO 2.1 Company Introduction 2.1.1 General information... system in Ashico After the period of researching all the elements in the setting up and running process of KPI system in Asia Investment and Asset Management Joint Stock Company, the result of. .. process, running and assessing process, completion process, application process and controlling process of Key Performance Indicators system in Asia Investment and Asset Management Joint Stock