Citibank Case

1. Why has Citibank introduced a Performance Scorecard? Consider the specifics of the Citibank case. Also consider the general advantages and risks associated with financial measures of performance and with nonfinancial measures of performance.

The purposes of the balanced scorecard are as follows:

a. To better communicate and implement the strategy of the bank. Citibank’s strategy in California was to build a profitable franchise by providing relationship banking combined with high level of service to its customers. To communicate the high service strategy of the bank, Citibank California developed a Performance Scorecard to reflect the importance of non-financial measures as leading indicator of strategy implementation. It forces employees to have a broader view of the business and focus their attention on those dimensions that were critical to the long-term success of the business. It measures managers’ performance in six areas: financial, strategy implementation, customer satisfaction, control, people, and standards. Those measures provide incentives for managers to address long-term strategy.

b. Complete well-rounded performance reviews using both quantitative and qualitative measures. Financial measures are important in analyzing performance of the bank, but they do not provide enough insight into non-quantifiable measures that ban be equally important in performance assessment. Non-financial measures offer a closer link to long-term organizational strategies, while financial measures generally focus on annual or shot-term performance. However, evaluating performance using multiple measures that can conflict in the shot term can also be time-consuming. A greater number of diverse performance measures also require significant investment in time and cost. Some measures may become value consuming rather than value adding. It would raise the possibility that managers may over-invest in the easiest, rather than most value-adding goals.

c. To better indicate the future financial performance. Financial measures may not capture long-term benefits from decisions made now. Moreover, in the banking industry, customer satisfaction is critical to the long-term success of the business. Seegers considered it as a leading indicator of future financial performance. If customer satisfaction deteriorated, it would eventually impact the financials. Investments in customer satisfaction can improve subsequent economic performance by increasing revenues and loyalty of existing customers, attracting new customers and reducing transaction costs. But non-financial measures maybe lack of statistical reliability. The customer satisfaction measures are based on telephone interviews with few respondents (twenty-five branch customers each month) and few questions. These measures generally exhibit poor statistical reliability, reducing their ability to discriminate branch managers’