Lanuza, Louise Nichole E.

099046
Quantitative Research Methods

The Impact of the Balanced Scorecard (BSC) - based Performance Governance System
(PGS) on the Business Growth in the City of San Fernando, Pampanga (CSFP)

CHAPTER I

Statement of the Problem

Balanced scorecards (BSCs) have been prominent governance management tools to

ensure good performance among government institutions. However, there is still a debate on

whether or not balanced scorecards aid government officials to make progressive changes and

development in their respective area of responsibility. In this regard, the Balanced Scorecard

(BSC) – based Performance Governance System (PGS) of the Institute for Solidarity in Asia

would be a suitable case study to verify the relation of having good governance and having

economic growth.

Research Questions and Hypotheses

This study aims to answer: How does Balanced Scorecard (BSC) based Performance

Governance System (PGS) of the Institute of Solidarity in Asia (ISA) facilitate business growth in

the City of San Fernando, Pampanga (CSFP)?

The specific questions that will be answered are as follows:

1. How does the standard processing time of issuance of the business permits affect the

number of the issued business license in the local government of CSFP?

 H1 There is a correlation between the time of issuance of the business permits and

the number of the issued business license in the local government of CSFP.

H0 There is no correlation between the time of issuance of the business permits

and the number of the issued business license in the local government of CSFP.

2. How does the amount of mobilized resources such as buildings, infrastructure, and other

construction facilities affect the number of business establishments including small and

medium enterprises in the local government of CSFP?

H1 There is a correlation between the amount of mobilized resources such as

buildings, infrastructure, and other construction facilities and the number of

business establishments including small and medium enterprises in the local

government of CSFP.

H0 There is no correlation between the amount of mobilized resources such as

buildings, infrastructure, and other construction facilities and the number of

business establishments including small and medium enterprises in the local

government of CSFP.

3. How does the transparency rating of the local government of the CSFP affect the number

of the peso investments?

H1 There is a correlation between the transparency rating of the local government

of the CSFP and the number of the peso investments.

Ho There is no correlation between the transparency rating of the local

government of the CSFP and the number of the peso investments.

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 CHAPTER II

Review of Related Literature

Governance has been associated with the mechanisms in which power is exercised by

political authority and institutions in a country (Kaufmann, et al, 2000) to regulate and manage

social and economic resources for development (Avellaneda, 2003; International Fund for

Agricultural Development Executive Board, 1999; Manasan, et al, 2000; The UN’s Role in

Global Governance, 2009). With these principles of governance in mind, it is then crucial to

relate good governance as marked by participation, transparency, accountability, rule of law,

effectiveness, and equity (OECD, 2006; Akhtar, 2005) among others. In other words, good

governance is systemic, political and administrative (Rhodes, 2000). Meanwhile, the Public

Management project (PUMA) of the Organization for Economic Co-operation and Development

(OECD) emphasizes “technical and managerial competence and organizational capacity”

(Jorgensen, T. B., & Sorensen, D.-L, 2013, p. 72) in order to achieve good governance. Along

with the progressive concept of good governance comes the concept of performance

management which involves mechanisms for strategic government initiatives (Bryson, 2003) and

public sector reforms (Bouckaert & Halligan, 2006). Altogether, these mechanisms under good

government have the fundamental goal of achieving development in the society.

However, there is gap in which authors cannot readily agree if good governance indeed

leads to economic development. Particularly, authors, Cypher and Dietz (2004) support the

notion that good governance is not enough to achieve economic development. The said authors

have included important factors that are beyond good governance such as unequal distribution of

financial and social resources and land ownership in order to successfully attain economic

development. Moreover, Chong and Calderon (2000) emphasize that there are causality

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problems in the process of linking good governance with economic development. This notion is

elaborated further by authors such as Glaeser et al (2004), Berdhan (2005), and Weiss (2000), by

affirming that the causal relationship or link between good governance and economic

development are marked by: (1) measurement errors, (2) missing-variable considerations and

(3) conceptual vagueness, respectively. Altogether, these claims support the claim that good

governance may not be enough in order to achieve economic development. Also, the diverse

institutional heritages and political cultures that are reflected by different conceptions of good

governance, pose the challenge to develop the general values under good governance (Jorgensen,

Sorensen, D., et al, 2013). These are actually some of the critiques of the claims of authors such

as Manasan, Gonzalez, and Gaffud (2000), Avellaneda (2006), (Kaufmann, 2000 & Knack,

2003) that: (1) development, be it economic or social, is supposedly the end result of good

governance; (2) “there is a positive relationship between the quality of institutions and

governance structures and economic growth.” (Avellaneda, 2006, p. 2); and that (3) good

governance is the key to have a sustained economic development especially living standards,

respectively.

This review of related literature then presents studies that discuss good governance and

economic development which serve as a basis for verifying the positive impact of the Balanced

Scorecard (BSC) based Performance Governance System (PGS) of the Institute for Solidarity in

Asia (ISA) on the economic growth in the City of San Fernando, Pampanga (CSFP). The review

of related literature is divided into four sections. The first section is mainly about good

governance and economic development. This section elaborates on the elements and concepts of

good governance along with economic development and their relationship which is supported by

the perspectives of relevant scholars. The second section then is about governance management

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tools used by governments. This section tackles the management tools incorporated by

governments in the process of fulfilling governance responsibilities. Meanwhile, the third section

discusses a particular governance management tool that has been developed by the Institute for

Solidarity in Asia (ISA) which is the Balanced Scorecard (BSC) based Performance Governance

System (PGS). Lastly, the fourth section elaborates on the role of BSC based PGS in economic

growth specifically, the business growth in the CSFP.

Good Governance and Economic Development

The well-being of its citizens ought to be the primary concern of the state. In this regard,

the collective action or meaningful collaboration between the state and the civil society remains

to be the essential principle behind good governance (Gaffud & Ternulo, 2000). This also means

that the direct participation of the citizens has become an inevitable factor in maintaining good

governance. Gaffud and Termulo (2000) cite the Commonwealth Foundation (1999) that in order

for the state to fulfill its functions, it should have the following attributes:

“(1) provider of public goods, and of laws, and environment that meet the basic
needs of the people; (2) facilitator of collective action among citizens; and (3)
promoter of equal rights and justice, including protection of the citizens from the
harmful effects of macroeconomic policies” (Gaffud & Ternulo, 2000, p. 217).

On the other hand, the citizens or the civil society has to engage in political activities

such as monitoring the accountability of the public officials and assisting public agencies

(Gaffud & Ternulo, 2000).

Indeed, good governance is not anymore limited to how the government operates in its

own sphere because good governance has included the private sector and other civil society

organizations (Manasan, et al, 2000). With such progress, the concepts under public values “such

as transparency, accountability, effectiveness, and the rule of law” prevail (Jorgensen, T. B., &

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Sorensen, D.-L, 2013, p. 72). This is crucial since public values constitute ideals that are

articulated and followed when delivering a public service (Jorgensen, T. B., & Sorensen, D.-L,

2013).

Moreover, good governance may be attributed to “how everyone is expected to work and

operate within more open, much more interconnected economies and societies” (Estanislao,

2009, vii). Therefore, it is through good governance that clear and measurable benefits are

produced (Diokno, 2000). This leads to the fact that good governance consists of individuals and

institutions such as civil society organizations and other private sectors governing themselves so

they are able to participate and make a positive change (Estanislao, 2009; Manasan, Gonzalez, &

Gaffud, 2000).

The World Bank further mentions in the article, “The State in A Changing World” that

good governance has civic dimensions such as (1) political accountability which includes

capacity and efficiency of the public sector (Lander-Mills et al., 1992); (2) transparency and

information (Kaufmann, 2003; World Bank, 1997), and (3) predictability for economic

management and development (Root, 1995; Manasan, Gonzalez & Gaffud, 2000; Natividad,

2000).

In terms of political accountability, good governance may be achieved if public officials

can be held responsible for government behavior including the act of being responsive to the

needs of the people (Manasan, Gonzalez & Gaffud, 2000). Especially at the local level, public

officials ought to establish standards in order to measure their performance. This would also

allow them to create an outlook mechanism to make sure that the set standards are met.

Therefore, accountability may manifest both in the micro-level and the macro-level (Paul, 1991;

World Bank, 1992).

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 At the macro-level, a particular type of state should in principle have a way to ensure

accountability. For instance, cabinet ministers or secretaries are accountable to the legislature

and or the executive political leadership; civil servants are in turn accountable to the ministers”

(Manasan, Gonzalez & Gaffud, 2000, p.41). On the financial side of macro-level accountability,

there ought to be a stable accounting system (World Bank, 1992) that ensures (1) an effective

expenditure control including cash management; (2) an external audit system that “reinforces

expenditure control by exposure and sanctions against mis-spending and corruption”; and (3)

“mechanisms to review and act on the results of audits and to ensure that follow-up action is

taken to remedy problems identified” (Manasan, Gonzalez & Gaffud, 2000, p.41). On the other

hand, the economic side of macro-level accountability involves monitoring and evaluation

mechanisms such as performance contracts, memorandums of understanding in order to ensure

the efficient use of public resources in the government (Manasan, Gonzalez & Gaffud, 2000).

In contrast, micro-level accountability involves two crucial elements. The first of which

refers to the ability and willingness of the government to choose other alternatives when

dissatisfied with a public service (Paul, 1991). This is otherwise known as “Exit” (Hunter et al.,

1998) which involves contracting out of services, deregulation, public-private partnership,

among others (Manasan, Gonzalez & Gaffud, 2000). In this regard, contestability is also an

important factor in establishing an environment that is competitive (World Bank, 1992). This in

turn enables competitors to make bids and also to guarantee good performance (Manasan,

Gonzalez & Gaffud, 2000).

Moreover, micro-level accountability also considers the aspect of knowing the ability and

willingness of the government to compel partners or providers to perform well. This is otherwise

known as “Voice” (Kaufmann, 2003) which depends in terms of how the citizens are able to

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influence both the quantity and the quality of a public service through articulation of interests

(World Bank, 1997). This can be done through a “voice mechanism” by conducting a survey of

beneficiaries’ satisfaction with the public services (Manasan, Gonzalez & Gaffud, 2000).

The World Bank would then affirm that micro-level accountability reinforces macro-level

accountability but “competition and/or participation cannot substitute for good financial and

economic accountability.” (Manasan, Gonzalez & Gaffud, 2000, p.43)

With regard to Transparency and Information as another set of elements under good

governance, this would imply that there has to be provision of information in terms of the

decision-making and implementation processes which in turn strengthen accountability of

government officials. (World Bank, 1997)

Lastly, the predictability for economic management and development would imply

fairness and consistency in the application of laws and policies. Manasan, Gonzalez and Gaffud

(2000) cite the World Bank (1992) in its assertion that this sense of predictability creates a

“stable economic environment that allows prospective investors to assess opportunities and risks,

to transact business with one another and to have a reasonable assurance or recourse against

arbitrary interference” (Manasan, Gonzalez & Gaffud, 2000, p.44). In detail, Predictability has

five critical elements, namely:

“(1) there is a set of rules known in advance; (2) the rules are actually in
force; (3) there are mechanisms assuring application of the rules; (4) conflicts are
resolved through binding decisions of an independent judicial body; (5) there are
procedures for amending the rules when they no longer serve their purpose.”
(Manasan, Gonzalez & Gaffud, 2000, p.44)

Also, good governance is achieved through clearly defined and measured steps in the

sense that the word measure “refers to both a way of measuring governance and a way of

achieving good governance” (Diokno, 2000, ix). Since good governance is achieved when power

8
is used to manage the economic and social resources of a country, “development is supposed to

be the end result” (Manasan, Gonzalez, & Gaffud, 2000, p. 37). In this regard, it is noteworthy

to define a suitable concept of economic development in this study.

Under the leadership of former Tanzanian president Julius Nyerere, the report of the

South Commission summed up the aspirations of developing countries and came up with the

definition of development which is

“a process which enables human beings to realize their potential, build self-
confidence, and lead lives of dignity and fulfilment. It is a process which frees
people from the fear of want and exploitation. It is a movement away from
political, economic, or social oppression. Through development, political
independence acquires its true significance. And it is a process of growth, a
movement essentially springing from within the society that is developing.” (Rist,
2008, p. 8)

Similarly, the United Nations Development Programme states that development has to be

more participatory and democratic in the sense that it includes employment opportunities,

education and safe environment, and that individuals can participate fully in community

decisions to enjoy political freedoms. (Rist, 2008)

In this regard, Professors of Economics at California State University, James Cyper and

James Dietz (2004) affirm some relevant aspects of economic development, namely: (1) Growth

of Industrialization, (2) A decrease in the role of agriculture, (3) Changing trade patterns, (4)

Increased application of human capital and knowledge to production, and (5) Undertaking

essential institutional change.

For the Growth of Industrialization aspect, it basically asserts that “Economic growth and

development are strongly associated with an increasing share of a nation’s output and labor force

involved in industrial, especially manufacturing, activities” (Cypher & Dietz, 2004, p. 18). As an

effect, there is a rise in the wages and an expansion of technology that leads to an increase in the

9
production as well (Cypher & Dietz, 2004). Altogether, this leads to a decrease in the role of

agriculture aspect which explains the transfer of the surplus labor in the agricultural sector into

the higher-paying and more productive industrial employment (Cypher & Dietz, 2004).

Ultimately, this contributes to an increase in the overall revenue of a particular country. This led

development expert Amsden to conclude that “economic development is a process of moving

from a set of assets based on primary products, exploited by unskilled labor, to a set of assets

based on knowledge, exploited by skilled labor” (Amsden, 2001, p. 2).

With regard to changing trade patterns, it shows that economic development is marked by

a more diverse structure of trade in order to export more resources (Cypher & Dietz, 2004). This

then leads to another aspect which is the increased application of human capital and knowledge

to production. By improving the education and training of the people in the labor force, a

significant increase in the productivity of labor may be achieved, otherwise known as human

capital accumulation (Cypher & Dietz, 2004). This is also crucial in achieving economic growth

and development. Lastly, in terms of undertaking essential institutional change aspect, it remains

crucial for the central government to facilitate and encourage private initiatives (Cypher & Dietz,

2004). In the process of achieving economic development, the private business and other sectors

may only do so much in bettering the stakeholders’ living conditions. Ultimately, the state would

have the capacity and the political will to properly distribute the natural, financial and social

resources to achieve economic development.

However, achieving economic development is not an easy undertaking. In fact, it is

evident that as their labels speak for themselves, the developed countries such as Germany and

Great Britain are more developed than the developing ones such as the Philippines and Mexico.

In the second edition of their book, “The Process of Economic Development”, James Cypher and

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James Dietz mention that the differences in the economic development of countries lies in the

varying level and pace of economic progress and transformation (Cypher & Dietz, 2004). Also,

development analysts have been attempting to recognize the barriers to development in order to

“formulate effective measures, including public policy that can begin to undo, remove, or at least

minimize the effects of those obstacles to progress that slow or thwart the development process”

(Cypher & Dietz, 2004, p. 20).

Some of the relevant potential internal barriers to development that Cypher and Dietz

(2004) affirm are: (1) unequal distribution of financial and social resources and land ownership;

(2) the pace of infrastructure development such as roads, electricity, water, communication

services, and port facilities; (3) the level of development of organized banking services and of

other financial markets; (4) underdeveloped educational system; and (5) the manner in which the

power of the central government is exercised.

On the other hand, Cypher and Dietz (2004) establish the potential external barriers to

development such as (1) the presence of multinational and/ or transnational corporations that

excessively control national resources; (2) the undesirable international division of labor and

patterns of international trade; (3) the malfunctioning of international financial institutions,

including the World Bank and the International Monetary Fund (IMF); (4) the unregulated

influence of the geopolitical and strategic interests of larger economic powers vis-àvis smaller

and weaker economic entities; (5) the unfavorable economic policies of more developed nations

on interest rates or on tariffs or non-tariff barriers in the global economic system.

Despite this gap, the Asian Development Bank (ADB) remains firm in asserting that it is

in “the absence of good governance [that] many countries – especially in the third world

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(Developing Member Countries (DMCs)) – continue to fail in their efforts at poverty reduction

and in their quest for economic and human development” (Asian Development Bank, 2005, viii)

Good Governance Performance and Strategy Management Tools Used by Governments to

Achieve Development: The Cases of US, New Zealand and Australia

Due to the increasing demand for performance documentation as an explicit proof for

outcomes of government actions, countries such as the United States, Western Europe, and

Australia, among others, have included performance measurement in their public management

reforms (Heinrich, 2003). It is also noteworthy how the objectives of these reforms have

expanded in order to have a significant increase in the scope and external visibility of the

performance measurement activities in terms of efficiency, effectiveness and responsiveness of

the government (Heinrich, 2003).

In the case of the United States the execution of the initiative “to better connect

performance information and the budget started in state and local governments, and have more

recently been transferred to the national government” (Heinrich, 2003, p. 407). Particularly,

some local governments such as Charlotte, Dayton, Sunnyvale, and Phoenix were regarded as

true examples that exhibit influential and good performance measurement (Heinrich, 2003). In

fact, Osborne and Gaebler’s (1992) bestseller book, “Reinventing Government” cited the cases

of these well-performing local governments as anecdotes that may serve as guidelines of other

local governments to perform better. It is also noteworthy that the International City/ County

Management Association (ICMA) has been established which serves as a Center for

Performance of over 80,000 local governments in the United States (Heinrich, 2003).

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 Furthermore, it is commendable that State governments have relatively the same pace in

terms of executing performance initiatives (Heinrich, 2003). As a matter of fact, a statewide

initiative on strategic planning, like the Oregon Benchmarks or Minnesota Milestones exists

(Broom & McGuire, 1995). Heinrich (2003) also cites the Urban Institute (2001) study in

affirming that “nineteen states had a statutory requirement for agencies to develop strategic plans

as of the end of 2000” (Heinrich, 2003, p. 407). Likewise, the study of Melkers and Willoughby

(1998) regarding state performance-based budgeting requirements verifies that as of 1997, there

are forty-seven out of fifty states that have established a requirement for strategic planning and

performance measurement which is otherwise known as performance based budgeting. In a more

micro-level study, Joyce and Tompkins (2002) also assert in their review of experiences of the

states studies by the Government Performance Project (GPP) that although there is availability of

performance information in the budget process, only Louisiana, Texas and Virginia actually used

performance information in the budget process.

Although both the local governments and states of the United States of America have

made a significant progress in performance management, the case of the federal government

remains an important concern for reform since the 1960s (Schick, 1966). In fact, the Government

Performance and Results Act of 1993 (GPRA) was established to renew the consolidation of the

performance information and the budget by requiring agencies to develop strategic performance

plans and to monitor and report the actual performance (Heinrich, 2003, p. 408).

Meanwhile, other Organization for Economic Cooperation and Development (OECD)

countries such as New Zealand, and Australia have also made significant progress in terms of

public management and budget reform (Heinrich, 2003). The OECD even reports in 2000 that

three-quarters of the country members include performance information in budget

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documentation, and that eleven of the twenty-seven countries differentiate outputs from

outcomes in most organizations (Heinrich, 2003).

In the case of New Zealand, a reform effort known as “load shedding” or public private

partnership exists in which the government delegates the private sector to provide a significant

quality of goods and services (Heinrich, 2003). In a general sense, there is a clear division

between policy which is done by the government and implementation which is subsequently

done by the private sector (Holmes & Shand, 1995).

In contrast to other OECD countries, Australia has two unique reform strategies. Firstly,

the private sector does not have to fulfill the performance management strategies formulated by

the government because Australia has a more manageable public sector than New Zealand

(Heinrich, 2003). Secondly, Australia puts more focus on outputs or accountable and tangible

results and not just on outcomes or general claims (Heinrich, 2003).

The Strategy Management Tools

In the 1940s, the Management by Objectives (MBO) approach which was advanced by

Peter Drucker, then adopted later on by the Nixon administration, focused on performance

measurement systems that involved individual-level and organizational-level performance

measures (Heinrich, 2003). A significant number of public and private organizations which use

the MBO approach prove that it is an effective and efficient tool (Heinrich, 2003). Through the

MBO approach, organizations are able to link “organizational planning for financial, technical

and strategic performance goals with employee actions and objectives through their input in

participatory processes, feedback from management and financial rewards allocated on the basis

of measured organizational progress” (Heinrich, 2003, p.27).

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 Along with the MBO approach, the Balanced Scorecard (BSC) has also become globally

prominent in empowering the process of performance management (Bryson, 2003). Even though

it was originally conceptualized for the private or for-profit sector, the BSC has evolved and has

become successful in the field of government agencies (Niven, 2003; Bocci, 2005). As the

initiators themselves affirm, Robert S. Kaplan, the Marvin Bower Professor of Leadership

Development at Harvard Business School and Chairman of the Balanced Scorecard

Collaborative and David P. Norton, the Cofounder and President of the Balanced Scorecard

Collaborative affirm that the BSC translates “a vision and strategy for government and not-for-

profit organizations into tangible objectives and measures, and offer even greater opportunity to

improve the management of not-for-profit enterprises, especially those chartered to provide

social service to the community” (Chai, 2009, p. 21). The BSC also tries to equalize the focus on

financial outcomes with the focus on the stakeholders’ concerns which are altogether important

in the internal processes in achieving growth in the government institutions (Bryson, 2003). In

other words, BSC fortifies the actualization of strategic plans by establishing clear performance

measures (Kloot & Martin, 2000).

In their book, “Translating Strategy Into Action: The Balanced Scorecard”, Kaplan and

Norton (1996) establish that the Balanced Scorecard is a management system that incorporates

financial and nonfinancial measures in order to have a comprehensive information system for

employees at all organizational levels. In other words, “the Balanced Scorecard should translate

a business unit’s mission and strategy into tangible objectives and measures” (Kaplan & Norton,

1996, p. 10). The goal of achieving balance lies in the fact that while the results of the past

performance of the company is considered, there is the goal of having new targets which would

serve as an outlook for its future performance. The measurement focus provided by the scorecard

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enables institutions to achieve critical management processes, namely: (1) to clarify and translate

vision and strategy; (2) to communicate and link strategic objectives and measures, (3) to plan,

set targets, and align strategic initiatives, and (4) to enhance strategic feedback and learning

(Kaplan & Norton, 1996).

With regard to the first management process, it is crucial for the senior executive

management team to work collaboratively in translating its “business unit’s strategy into specific

strategic objectives” (Kaplan & Norton, 1996, p. 10). Upon establishing the financial and

customer objectives, the next step is for them to identify the internal objectives and measures for

its business processes. In contrast to the traditional performance measurement systems, the

Balanced Scorecard emphasizes the crucial processes for achieving breakthrough results for

stakeholders (Kaplan & Norton, 1996). In their experiencing of observing companies in

conceptualizing and developing their scorecard, it is noteworthy that Kaplan and Norton have

never encountered companies which have reached full consensus (Kaplan & Norton, 1996).

There are always some cases of compromise in the process of exchanging ideas in order to come

up with the best scorecard model for the company. However, this cannot be considered as a

negative factor for the simple reason that this manifests the explicit contribution of each of the

management team.

Once the objectives are clearly set, the company proceeds to the second management

process, which is the act of communicating and linking strategic objectives and measures. This

may be done through the use of communication tools such as making videos, writing newsletters,

posting on the company’s bulletin boards or even posting on social networking sites. This

communication process remains crucial for the employees to be aware of the institutional

objectives and strategy. With these strategies in mind, the employees can build their commitment

16
in fulfilling these objectives. Ultimately, the success of the company depends on the shared

commitment and responsibility from the top business unit down to the last personnel. (Kaplan &

Norton, 1996)

When the objectives and strategies of the company are communicated to all the

employees, they can now proceed to the third process which is to plan, set targets and align

strategic initiatives. In this particular process, it is now important to establish targets in a matter

of a certain number of years which would enable the company to transform. “To achieve such

ambitious financial objectives, managers must identify stretch targets for their customer,

internal-business-process, and learning and growth objectives” (Kaplan & Norton, 1996, pp. 13-

14). Ultimately, the target-setting management processes allows the organization to: (1) quantify

the long-term outcomes it wishes to achieve, (2) identify mechanisms and provide resources for

achieving those outcomes, and (3) establish short-term milestones for the financial and

nonfinancial measures on the scorecard (Kaplan & Norton, 1996).

Lastly, the Balanced Scorecard ensures the continuous transformation of an institution. It

is in the last management process which is enhancing strategic feedback and learning that makes

sure the strategic learning framework is embedded in the Balanced Scorecard (BSC). Kaplan and

Norton consider this as the most important part of the entire scorecard management process for

the very reason that this process allows the executive managers to monitor and adjust the

implementation of their strategy if there is a need for changes (Kaplan & Norton, 1996). Along

the process of formulating and monitoring the BSC, it may be observed that there are cause-and-

effect relationships that can be derived from the strategy.

Although the balanced scorecards have aided certain public sectors among countries,

there are still government institutions that have not adopted or have made a significant progress

17
on the said performance management tool mostly because of their reluctance to their level of

readiness in adopting the tool. Certainly, adopting the BSC would be a form of investment on the

part of the government sector because the adopting and operationalizing BSC still involves costs

and significant cooperation among the stakeholders. This is where the case of the adoption of the

Philippines of the BSC becomes relevant in the field of good governance performance

management tool in achieving economic development.

The Balanced Scorecard (BSC) Based - Performance Governance System (PGS) of the

Institute for Solidarity in Asia (ISA)

It was in 2000 that the Foundation for Community Building in the Asia Pacific, Inc. put

up the Institute for Solidarity in Asia (ISA), which was also founded by Dr. Jesus P. Estanislao to

improve governance standards in the public government sector. The following year, ISA

Chairman Jesus P. Estanislao was tasked to head the Presidential Governance Advisory Council,

and ISA served as its secretariat. By 2003, the Professional Regulation Commission (PRC)

issued the Code of Good Governance, with the help of ISA, for the Professions which made all

professions rate themselves based on the provisions of the code. It was then in 2004 that the

grant from the Center for International Private Enterprise (CIPE) and The Asia Foundation that

ISA was able to introduce the Public Governance System (PGS) to a pilot of group cities such as

San Fernando, Pampanga and Iloilo City, Iloilo (Estanislao, 2010). In the same year, the

Renaissance Initiative was also launched, under the auspices of ISA. This initiative consisted

individuals from different sectors such as the academe, youth, business, media, military, among

others. They all came up with three fundamental principles which would encapsulate their civic

duties to promote the common good. These principles are: (1) personal dignity of every Filipino;

18
(2) Solidarity with fellow Filipinos; and (3) Subsidiarity or greater local autonomy in decision

making. The group also formulated a road map, called the Philippines 2030, that highlighted a

set of strategic priorities ranging from spiritual and moral values to institutions that should drive

social change (Estanislao, 2010).

In order to achieve the Philippines 2030 vision, the Renaissance Initiative formulated the

Public Governance System (PGS) which is the adoption of Kaplan and Norton’s Balanced

Scorecard system in the Philippines. PGS then has four phases. First is the Initiation which is the

process of “defining a time-bound agenda and translating the strategy into measurable targets”

(Estanislao, Balanced Scorecard Report: The Strategy Execution Source, 2010). The second

phase is Compliance which is the process of organizing stakeholders for the governance process

in order to establish accountability. Then the third phase is Proficiency which includes the

monitoring and reporting of the strategic performance and establishing a fully functioning Office

of Strategy Management. Lastly, the Institutionalization phase is where there have been

produced breakthrough results on the part of the public sector and the individual performance

and compensation has been linked together (Estanislao, Balanced Scorecard Report: The

Strategy Execution Source, 2010).

Since 2000, ISA would have an annual milestone since then but important to highlight in

this study is that it was in 2009 that the pilot cities: Iloilo City and City of San Fernando

completed the Governance Pathway which meant that they were able to achieve breakthrough

results through the PGS. Although the two cities completed the PGS in the same year, it is

noteworthy that the City of San Fernando was the first Local Government Unit (LGU) to

complete the four stages of the PGS. The CSFP was then elevated to the Institute for Solidarity

in Asia (ISA) – Institute of Corporate Directors (ICD) Maharlika Hall of Fame for its

19
institutionalization of the PGS in its entire bureaucracy. On the other hand, Iloilo city was

elevated to the Balanced Scorecard Hall of Fame for Executing Strategy.

ISA then renames the PGS as Performance Governance System to highlight the need for

governance to deliver results. Dr. David Norton became a keynote speaker at the ISA Public

Governance Forum (Annual Report, 2010).

Generally, ISA does Public-Private Partnership in which ISA as the private sector,

collaborates with the national government agencies in order to ensure there is a shared

responsibility in achieving good governance.

The Role of BSC Based PGS in the Business Growth of CSFP

With a total land area of 67.74 square kilometers, the 2005 census conducted in the CSFP

affirm that CSFP contains a total population of 265,073 and a growth rate of 3.62 percent in the

past five years (Demography and Settlement, 2012). In the micro-level, the CSFP remains well-

positioned at the heart of Central Luzon as the North Luzon Expressway connects Metro Manila

with the CSFP (Economic Development, 2012). It was then established that the CSFP is: (1) the

regional growth center of commerce and trade of the region and (2) the host to the Clark Special

Economic Zone (CSEZ), which is a prominent investment hub of the region (Economic

Development, 2012).

Since the adoption of the BSC based PGS of the CSFP, Estanislao (2009) then affirms the

continuous progress in terms of monitoring in order to achieve strategic priorities in the local

government of the CSFP and in the business sector.

Moreover, the CSFP with the constant guidance of the ISA, came up with three strategic

themes, namely: (1) responsible citizenship, (2) center for business and human development, and

20
(3) effective government, that are all encapsulated in their BSC-PGS strategies. (Estanislao,

2009)

Figure 1: The Strategy Roadmap of the CSFP

This study has presented factors that are crucial in achieving good governance and

economic development. The prominent themes are accountability, transparency, civil society

participation, and strategic objectives. The performance management mechanisms have also

enabled the public sector or the government to achieve breakthrough results that the private

sector has been initially reaping. Indeed, the collaboration between the public and the private

sector is an undeniable factor in achieving progress and ultimately, development. The results

21
may not be readily observed but what matters is that this partnership would always be

strengthened and developed further.

CHAPTER III

Theoretical Framework

The Philippine Quality Award (PQA) Criteria for Performance Excellence

In order to promote the competitiveness of the Philippines in the realm of globalization,

particularly, economic productivity, former President of the Republic of the Philippines, Fidel V.

Ramos established the National Action Agenda for Productivity (MALACANANG MANILA,

2013). This then had a program, entitled The Philippine Quality Award (PQA), which was

established on October 3, 1997 through the Executive Order 448 (EXECUTIVE ORDER NO.

448 February 14, 1991, 2013). It was on February 28, 2001 that this program was

institutionalized when the Republic Act 9013 or the Philippine Quality Award Act was signed

and ratified (Republic Act 9013, 2012). Generally, this aims to sustain the performance

excellence in the Philippines with the guide of Total Quality Management (TQM) which serves

as the Philippine adoption of the prestigious Malcolm Baldrige National Quality Award which

has been adopted by 77 countries in the world in order to uphold global competition (President

Benigno S. Aquino III leads conferment of 15th Quality Award in Malacanang, 2012; Talavera,

2005).

Moreover, section 2 of the said law states that

“RA 9013 aims to encourage public and private organizations to attain

performance excellence and to give recognition for their achievements; thus,

22
 contribute to the growth of the economy and improvement in the quality of life of
Filipinos” (Rules Implementing the Philippine Quality Award Act, 2013, par. 2)

Figure 2: The PQA Criteria for Performance Excellence Framework

Firstly, the Leadership Principle is important for the executives of public organizations

to “set directions and create a customer orientation, clear and visible values, and high

expectations that address all stakeholders” (Mendoza & Gonzalez, 2000).This means that the

strategies would have to be clear to the stakeholders in order to achieve breakthrough results.

On the second box which indicates Strategic Planning, it is important to pursue the

overall competitiveness of the government sector which includes the anticipation of the strategic

23
planning efforts, citizen expectations and technological developments, among others (Mendoza

& Gonzalez, 2000). This is then followed by the third box which involves Customer focus. The

government institution ought to be sensitive enough to consider the programs and services of the

public sector that will ultimately lead to the satisfaction of the citizens who are considered as the

customers (Mendoza & Gonzalez, 2000). In terms of the Information and analysis, the

government or the public sector has to develop a substantial way of documenting and storing

information and data in order to analyze performance (Mendoza & Gonzalez, 2000). This is also

an important key in order to monitor the performance of the public sector.

The abovementioned indicators and factors cannot really be actualized without the

Human Resource Focus. Without the knowledge and skills, motivation and creativity of the

people behind the public sector, there cannot be a substantial planning and strategic performance

mechanisms in the government (Mendoza & Gonzalez, 2000). It is then needed that the

government invests in training and educating the workforce in the public service (Mendoza &

Gonzalez, 2000). When the human resource focus is established already, there can now be a

stable Process Management in which the government can manifest public responsibility by

effectively designing and operating strategies without much unnecessary waste of resources

(Mendoza & Gonzalez, 2000). Lastly, Business Results may already be achieved which

manifests the breakthrough results that can be achieved in the government through its strategic

performance governance which is now economic oriented (Mendoza & Gonzalez, 2000).

24
The Description of the Balanced Scorecard (BSC) based Performance Governance System

(PGS) and the Business Growth in the City of San Fernando, Pampanga (CSFP)

As stated in the Review of Related Literature, the PGS has incorporated the concepts and

mechanisms of the balanced scorecard which was originally designed by Robert Kaplan and

David Norton. It is then crucial to elaborate on the flagship program of the Institute of Solidarity

in Asia (ISA).

When ISA adopted the BSC and established PGS, ISA then had the primary objective to

help PGS partners which are both the National Government Agencies (NGAs) and the Local

Government Units (LGUs), to achieve breakthrough results that would have a positive impact on

the lives of the Filipino people (Celebrating the Progress of the Partners: PGS Elements, 2013).

From ISA’s principle that “good governance is good strategy formulation plus consistent strategy

implementation, the elements of PGS are expected to motivate PGS partners to have the

discipline of executing and monitoring their strategy which hopefully will bring about

performance results” (Celebrating the Progress of the Partners: PGS Elements, 2013, p.1)

Figure 3: The PGS and Business Growth Framework

25
 The Initiation Stage which serves as the first stage of the PGS, requires a well-

formulated strategy that involves the internal and external stakeholders. This involves the

following factors: (1) Commitment of Top Leadership, (2) Strategic Change agenda, (3) Charter

Statement, (4) Strategy Map, (5) Enterprise scorecard, and (6) Strategic Initiatives. (Celebrating

the Progress of the Partners: PGS Elements, 2013)

Then the second stage which is the Compliance Stage would ensure there is alignment of

the strategy, functions, and accountabilities with the lower units of the government sector. In

other words, the formulated strategies in the first stage must be communicated to the

stakeholders through an established representative of the public interests, called the Multi-

Sectoral Governance Coalition (MSGC) which works closely with an established body called the

Office for Strategy Management (OSM) that closely develops, monitors and translates strategy

into results (Celebrating the Progress of the Partners: PGS Elements, 2013). Under this stage are

crucial elements such as: (1) Second-level Scorecards, (2) Intitatives linked to budget, (3) Multi-

Sector Governance Coalition, (4) Strategic Communications Plan, and (5) Office for Strategy

Management (Celebrating the Progress of the Partners: PGS Elements, 2013).

When the time comes that the government sector has successfully executed the strategy,

it can now reach the third PGS stage which is the Proficiency Stage. It is also in this stage that

has been able to aid the stakeholders in terms of efficient and effective decision making

processes that enable the government sector to achieve breakthrough results (Celebrating the

Progress of the Partners: PGS Elements, 2013). In detail, this has the following elements:

(1) Functional OSM, (2) Functional Scorecards, (3) Further Cascading, (4) Consistent

Communication, (5) Link to Budget, (6) Monitoring and Reporting Mechanisms, and (7)

Functional MSGC.

26
 Lastly, upon successfully completing the three prior stages of the PGS, the government

sector can finally reach the Institutionalization Stage which clearly manifests that the

mechanisms to sustain good governance initiatives and to “spread the advocacy of good

governance with other organizations” are in place (Celebrating the Progress of the Partners: PGS

Elements, 2013). In specific terms, some crucial factors should be present such as: (1) emerging

breakthrough results, (2) integration with existing systems and processes, (3) link to rewards,

recognitions and incentives, (4) best practice identification and sharing, and (5) sharing of the

PGS Advocacy (Celebrating the Progress of the Partners: PGS Elements, 2013).

Upon the completion of the four stages of the PGS, it can be observed that it is up to the

government sector to determine the last end of the strategic initiatives and mechanisms. For

instance, the Philippine National Police (PNP) would want to go through the PGS process in

order to be a world-class police force that is efficient, effective and worth emulating in holistic

terms. Likewise, San Fernando City has been aiming to gain significant increase in its business

growth in local terms, which is already outside the scope of the PGS. It can therefore be

observed that the PGS can be tailored and adopted by any government institution as long as the

technology of the four stages will always be present. This has been the compelling reason that

the researcher saw the suitability of the PQA Criteria for Performance Excellence Framework in

this research. This framework basically affirms that the CSFP can go beyond the PGS by aiming

for business growth as one of CSFP’s end goal in adopting and establishing PGS.

This is further illustrated by the PGS and Business Growth Conceptual Diagram with

indicators:

27
 Figure 4: Conceptual Diagram of PGS and Business Growth

This conceptual diagram illustrates the consolidated stages of the PGS that manifests already its

indicators, and the tangible measure of business growth in terms of businesses and investments.

There is one to one correspondence of the indicators of the PGS and the Business growth.

28
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