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It begins in the first section with the definition of interpretation related terms used in this study, modes of interpretation, and the current status of the freelance interpretation market

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Chapter 2 Literature Review

This chapter reviews literature in interpretation studies, performance evaluation systems and the Balanced Scorecard approach. It begins in the first section with the definition of interpretation related terms used in this study, modes of interpretation, and the current status of the freelance interpretation market. The second section reviews the performance evaluation systems businesses have use in the past, giving an overview of traditional performance evaluation systems, features improved in strategic performance evaluation systems, and development principles of evaluation systems. The third section provides the origin, attributes, evolvement and framework of the Balanced Scorecard, how it links performance measures to strategy, and possible concerns when endeavoring to build a Balanced Scorecard for freelance interpreters.

2. 1 Freelance interpretation as a profession

Studies focused on a certain profession should begin by first determining the definition and coverage of said profession. This is to eliminate possible misunderstandings and clarify research borders, which effect accurate data compilations and projections (GIO, 2004).

This section consists of three portions: the definition of interpretation and interpreters, different modes of interpretation services, and an overlook of the freelance interpretation market.

2. 1. 1 Definition of interpretation and interpreters

For the purpose of clarity, a distinction has to be made between the words “translation”

and “interpretation”, as well as “translator” and “interpreter”, which are sometimes used interchangeably as evidenced by The American Heritage Dictionary of the English Language

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Fourth Edition simply listing the second definition of the word “translator” as “an interpreter”.

Although the definition of interpretation can fall under the concept of a “translation activity”, which is defined as “the process and procedure of transforming one natural language into another under the prerequisite of not altering the intended meaning of the original speech or written material” (GIO, 2004), it is better identified further as the type of translation that produces an oral output, whereas “written translation” refers to translation activities that produce a written output.

In other words, interpretation is the transformation of speech from one natural language into another without hindering the material’s original meaning by one who understands both languages, and requested for the purpose of facilitating communication between two or more parties that don’t share the same language (GIO, 2004; Selescovitch, 1978). It is also

“understood as the mental process and communicative act of reproducing orally in a target language what a speaker is expressing in a source language” (Riccardi, 2002, p. 75). In order to avoid possible confusion, this study chooses to define translation activities with oral outputs as “interpretation” or “interpreting” and those with written outputs as “written translation” or “translating” explicitly unless stated otherwise, without regard to the form of the source language, which is the material being interpreted or translated. The difference in nuance and pragmatic usage between “interpretation” and “interpreting” may be negated since both are actually involved in the service interpreters provide. It is understandably perceived that interpretation may sometimes require a disentangling of the original material, thereby allowing the message to come through in a manner more easily digested by the audience. If emphasis is placed on the reproduction and communication of messages, it is possible to use these two term interchangeably (Lin, 2005). Therefore, interpretation throughout this study refers explicitly to a means of communication taking the form of

spoken language between or among people of different languages and cultures (Seleskovitch,

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1978) unless otherwise stated.

Simply put, “interpreters” and “translators” are respectively people who provide interpretation or written translation services (Phelan, 2001). The Standard Occupational Classification used by the Directorate-General of Budget, Accounting and Statistics of the R.O.C. lists several types of occupations under the category of interpreters or translators, including: technical interpreters/translators, legal interpreters/translators, science

interpreters/translators, business interpreters/translators and conference interpreters. This categorization was based on the following principles when applicable:

a. Responsibilities shouldered at work b. Domain knowledge, skill and experience

c. Type of goods manufactured or services provided d. Work environment, process or raw materials used

The categorization method further states that if a person has two or more occupations, his/her occupation is categorized by the occupation that takes up most of his/her time, the occupation that offers a higher income or the occupation he/she is currently engaged in during the survey in that order. The occupation that commands a higher skill set may also be used to determine the person’s occupation. However, interpreters who interpret into and from languages seldom used in the local market would not be included in this definition, since it is quite likely that they have another predominant occupation as the major source of their income (GIO, 2004). Secretaries fluent in two languages would also be considered an interpreter/translator if such activities take up most of their time. The categorization of interpreters according to the domain knowledge used does not reflect reality very well either, since research has shown that interpreters seldom limit themselves to a certain knowledge field (GIO, 2004). The different fields may also overlap which cause confusion and difficulty in the categorization process. The principles listed above should be considered in defining the

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interpreter but not relied upon to be the sole rationale for pragmatic reasons.

This study chooses instead to apply the principle of the Standard Industrial

Categorization used by the same bureau which categorizes industries according to the final product offered in its economic activities. People in various types of occupations may be called upon to provide translation or interpretation services. Company employees fluent in two languages may be required to translate business letters from one language into the other.

Tourists who don’t speak the local dialect in a tour group traveling in a foreign country would certainly request their tour guide to provide interpretation services when needed. But if the concept of “final product offered in economic activities” is used to define interpreters in this study, occupations like secretaries, receptionists or tour guides would be exempt from the definition, since the interpretation/translation services provided do not count as the final product of their respective industries but rather a requirement pertaining to their work.

Therefore, this study chooses to define interpreters as “people who provide interpretation services as the final product of their economic activities”. (GIO, 2004)

2. 1. 2 Modes of interpretation

Several interpretation study researchers have attempted to categorize the different types of interpretation activities. Distinctions were made according to the manner of interpretation provided (Seleskovitch, 1978), work situations that relate to interpretation (Yang, 2000) and a combination of both (Phelan, 2001). The manner interpretation can be provided in include consecutive, simultaneous, sight and whispering. Work situations for an interpreter include conference interpreting, escort interpreting, community interpreting, court interpreting, television interpreting, and medical interpreting.

Interpretation activities according to the modes they are provided: consecutive interpretation, simultaneous interpretation and whispering (Ru, 1996; Zhou & Chen, 1995)

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are described in the following paragraphs.

2. 1. 2. 1 Consecutive interpretation

Consecutive interpretation (CI) is likely the earliest and most prevalent form of interpretation (Zhou and Chen, 1995). In the usual form of consecutive interpretation, the long consecutive, the interpreter sits or stands close to the speaker and jots down notes while the speaker delivers his or her piece. At predetermined intervals, the speaker will pause and allow the interpreter to interpret what has just been said. Pauses are usually set in terms of meaning units, time, or presentation slides by the speaker and interpreter beforehand.

Common examples include pausing every 3~5 minutes (Shi, 2004), or after the speaker is done with the current slide on display. A variation of this mode is the short consecutive, during which the interpreter would not be jogging down notes since the speaker will pause after every sentence or meaning unit. This quickens the flow of delivery since the audience does not need to wait as long for the speaker or interpreter, yet suffers from the possibility of a sudden meaning mismatch or awkward pause. The recurring cognitive process of

consecutive interpreting is depicted clearly in the following model:

1. Auditory perception of a linguistic utterance which carries meaning. Apprehension of the language and comprehension of the message through a process of analysis and

exegesis.

2. Immediate and deliberate discarding of the wording and retention of the mental representation of the message (concepts, ideas, etc.).

3. Production of a new utterance in the target language which must meet a dual

requirement: it must express the original message in its entirety, and it must be geared to the recipient. (Seleskovitch, 1978, p. 9)

Consecutive interpretation services are generally less expensive for employers since no

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specific equipment is required and most cases only call for one interpreter to be present.

However, since the interpreter is basically repeating the same message, it will take twice as long for the speech to conclude. A meeting scheduled for two hours would actually only allow the participants an hour of discussion if consecutive interpretation is required, since half of the time would be taken up by the interpretation. This makes consecutive

interpretation a very unlikely choice if interpretation is required in meetings that utilize more than two languages at the same time, since more interpreters would be required for each language combination and more time spent on interpretation unless the interpreter happens to have all the languages used as his or her working languages which is quite unlikely.

Consecutive interpretation is usually offered for escort interpreting, community interpreting, medical interpreting and court interpreting. CI is also provided in conferences that prefer to proceed in this manner. Escort interpreting refers to “interpretation on the go”

when interpreters act as escorts and provide interpretation services for the listener during guided tours, inspections or visits. Community interpreting is interpretation services provided for a community that requires this kind of service to carry out daily activities that otherwise don’t require this service. An example of community interpreters would be those that assist new immigrants or residents of a region using a specific language of their own to

communicate with the local authorities when the need arises (Mikkelson, 1997). Medical interpreting serves a similar function as community interpreting, but is singled out to due the specific domain knowledge required. Some countries require interpreters who intend to provide medical interpreting services to obtain legally required certifications before they can do so usually by passing an exam designed for this purpose. Court interpretation refers to interpretation services provided in court or legal proceedings such as depositions or hearings.

Countries may also require court interpreters to be certified due to the domain knowledge required (Berk-Seligson, 1990).

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2. 1. 2. 2 Simultaneous interpretation

The interpreter provides simultaneous interpretation (SI) when he or she listens to the original message, comprehends it, stores it in mind and reproduces it in the receivers' language almost at the same instant it's heard with a varying length of lag time. The "Effort Model" presented by Daniel Gile in 1995 summarizes this coordination process with the formula: SI = L + M + P +C. L= listening and analyzing; M=short-term memory; P=speech production; C=Coordination (as cited in Ru, 1996, p. 25). Coordination is described by Riccardi in 2002 as finding the right balance between the different tasks interpreters have to accomplish. Since the interpreter has to comprehend the speaker’s utterance first, render the interpretation from the message stored in short-term memory, and all the while listening to the next part of the speech, an amount of lag would understandably occur between the interpretation and original speech. The amount of lag time differs between interpreters with different ear-voice-spans or décalage, the term used to describe this ability to render previously retained information while processing additional information. Due to the

strenuous multitasking required in this mode of interpretation, it is optimal according to AIIC guidelines for interpreters to work in pairs of two or three for this kind of work, since meaning errors in SI are prone to happen if the interpreter becomes weary. Each interpreter would render the incoming messages, ideally, for no more than half an hour at a time with the assistance of his or her partner in challenging tasks such as a string of figures or proper names (Phelan, 2001).

This mode of interpretation is usually provided by the interpreter through an

interpretation console linked via infra-red connection or radio frequencies to the speaker's microphone and wireless headsets distributed to the audience. The interpreter listens to the speaker through a headset connected to the console and provides almost instantaneous

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interpretation spoken into the microphone attached to the console. The voice of the interpreter is then transmitted to the headsets previously distributed to the audience. Interpretation

consoles are usually set up in mobile or fixed interpretation booths that allow the interpreter direct sight of the speaker. And since the consoles usually allow the setting of more than one channel, it is possible for several pairs of interpreters with different language combinations to provide interpretation at the same time in a meeting for participants speaking different

languages.

SI is usually more expensive for employers since at least two interpreters need to be present and the rental fee of interpretation equipments like consoles, transmitters, or headsets are fairly expensive for an average SME. However, the speaker is allowed to go on

uninterrupted, total time does not have to be split between the speech and interpretation, and meetings utilizing more than two languages are usually more effective with SI. An additional third party, the SI equipment rental company or PCO (Professional Conference Organizer) with similar capabilities will be involved in cases like this. Conferences, seminars, or conventions of a certain scale predominantly use simultaneous interpretation as the

interpretation mode of choice (Yang, 2000). Television interpreting is also offered in the same manner though often with higher emphasis on reporting the issue (Shi, 2004).

Sight translation, is in reality a variation of simultaneous interpretation albeit the different connotation its name suggests. The difference being the acoustic form of source language input is now replaced by the visual form. Sight translation is offered when interpreters are handed written materials and expected to render it out loud in another

language instantaneously or at a certain later time. This is done as if the original material was read in the original language without any significant pauses in between. Due to the different syntax structure of written and spoken language, the interpreter is often required to “read ahead” and rely on the message stored in short-term memory to provide the interpretation.

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This form of interpretation may take place in conference interpreting or any situation requiring the immediate translation of a written material orally.

2. 1. 2. 3 Whispering

Whispering is basically a variation of SI in that the interpreter provides similar, nearly instantaneous interpretation but without the aid of an interpretation console. This mode is used when only one or two participants require interpretation services. The interpreter would sit or stand very close to the listener, and whisper the interpretation to him or her in SI mode while listening to the speaker. This form of interpretation enables the event organizer to save time and money, since it's SI but no interpretation equipment is required. However, it does not work as the number of interpretation listeners increases (Zhou & Chen, 1995). It is also not always recommended since the quality of interpretation is believed to deteriorate without adequate facilities and reasonable working time (Ru, 1996).

2. 1. 3 The freelance interpretation market

This section consists of four portions: features that suggest interpretation services to be a professional service, proposed definition of a freelance interpreter, the proposed

development and current status of the freelance interpretation market, and challenges presented to the freelance interpreter.

2. 1. 3. 1 Interpretation as a professional service

When interpretation is provided, it displays the generic characteristics used to distinguish a good from a service, namely: intangibility, inseparability, variability, and perishability (GIO, 2004; Lin, 2005).

- Intangibility

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Intangibility refers to products that cannot be touched, tasted, smelled, seen, or owned and is an indispensable element in determining whether a product is a service or a good.

Managers, providers and clients of a certain service may display different expectations regarding the content and evaluation of the service. Cost of the service is often not as easily comprehended as cost of a good for clients. Since interpretation can be understood as a mental process and communicative act, the actual cost for the interpreter is often difficult to convey.

- Inseparability

Inseparability refers to the closely-knit relation between service products and

consumption; the absence of consumers would result in failure or non-existence of the service product. This distinctive aspect of service products could create situations specific to the service consumption experience. Clients for example, may not be able to evaluate the effect of the service beforehand, causing possible dissatisfaction due to discrepancies between expectations and actual services received. Client behavior or overall circumstances such as limited resources may also be factors that affect the perception or quality of a service, causing the service provider to be unable to guarantee the quality of service provided or rectify problems immediately upon being notified. Interpretation services provided at meetings where none of the participants require it would not benefit the client in any way unless the presence of this service alone is able to generate appreciation.

- Variability

Variability refers to the inability to reproduce the exact effect of the product and the consumer reaction. Not only is the service provided by different service providers

heterogeneous, the same service provided by the same provider would also be prone to quality fluctuations at a different time or space. High levels of variability may create gaps between client expectations and perceived quality of the service provided, causing clients to

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lose confidence in the service. Interpretation services are often provided for the participants at that very time and space, and the effect cannot be reproduced completely unless the exact time and space can be reenacted. Research during this study has shown that interpreters may be able to provide interpretation services above a certain quality level consistently since long term clients are prevalent, but no interpreter can guarantee the effect of an interpretation service beforehand because several factors that influence the quality of the service may come into play unexpectedly.

- Perishability

Perishability refers to the inability to be stored and used at a later date. Unlike manufactured goods, services do not have an inventory and must be consumed when

produced. It is impossible for interpreters to interpret a spontaneous event before it happens.

Nor is a provided interpretation able to be used again in another spontaneous event.

Other than the four essential features mentioned above, scholars also determine

whether a product is a good or service by the level of difficulty in evaluating its quality prior to consumption. Services are often more difficult to evaluate in advance due to the

predominance of experience and credence attributes (Lin, 2005). Services like guided tours exemplify experience attributes since one usually cannot decide how satisfying it was until the tour is over. The quality of credence heavy services like consultation or medical care are not easily determined with confidence even after the consumption, since the provider is basing his/her service on skills or knowledge unfamiliar to the buyer. Therefore, customers have no better choice but to trust the service provider for delivering or having delivered the desired benefits since they do not possess adequate knowledge or expertise to evaluate or judge (Lovelock, 2001). While professional services in general are credence-based and thereby difficult for consumers to evaluate in advance and afterwards, this does not mean that consumers will not do so. Consumers tend to evaluate the professional's capabilities through

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perceived experience, credentials and other factors that they believe to be reliable indicators of competence (Lin, 2005). This in turn leads to customer satisfaction or dissatisfaction.

Recorded interpretation, however, is considered a tangible good that is different from the interpretation service provided. As stated by Fan in 2004, interpreters consider

interpreting to be a mode of communication occurring within a specific context, which optimizes the effectiveness of the interpretation only when used in that certain context.

Therefore interpreters hope that clients will not use their interpretation in any other forms and contexts. Research has shown that interpreters generally consider their works to be

intellectual properties protected by copyright laws, and consider recording an infringement of their copyrights (Fan, 2004). Research during this study shows that interpreters often charge an additional fee if the client wishes to record the interpretation.

2. 1. 3. 2 Defining the freelance interpreter

Interpreters as defined in chapter 2.1.1, are people who provide interpretation services as the final product of their economic activities. They are usually fluent in two or more languages and interpret into or from the working languages among their language

combinations. This group of people can be categorized into freelance interpreters or in-house interpreters according to their affiliation at work (Yang, 2000). In-house interpreters refer to interpreters that receive a guaranteed amount of salary at fixed intervals from a party; are regarded as employees of the party; and do not have the option of declining to provide interpretation services if they wish to remain affiliated to the party in this manner. In-house interpreters usually do not have the luxury or time to provide interpretation services for other unrelated parties. Freelance interpreters or freelancers refer to interpreters that are not regarded as an employee of a certain party when they are providing interpretation services.

This study therefore defines freelance interpreters or freelancers as "people who provide

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interpretation services as the final product of economic activities they are engaged in and are not regarded as employees of a certain organization or company when they are providing interpretation services". (GIO, 2004)

2. 1. 3. 3 Status quo of the freelance interpretation market

In 1991, Tseng's pioneer study on the emerging interpretation profession in Taiwan suggested that established professions usually go through four stages of development. The market starts out with drastic differences in quoted prices and competence of the practitioners.

Clients at this stage are believed to be price-sensitive, quite uninformed and generally

showing low confidence in the new field of practice. As competition on the market intensifies, education programs focused on building order in the emerging occupation will begin to be established. The second phase dawns as trainees graduate, and positive opinions regarding the new profession accumulate. Practitioners of the trade will gradually rally together, and

negotiate more favorable terms with their employers. New standards, ground rules and entry barriers are also likely to be set up to govern the professional practices. Respect from the general public for the profession rises. The establishment of a professional association and the optimization of all these actions characterize the third phase. In the fourth phase, the association strives to safeguard the interests of both its members and clients, culminating in legislative frameworks designed to support and protect the profession. This model is not linear and actually has a reinforcing loop between phase three and four which enables the profession to continue flourishing. Tseng (1991) concluded in the paper that conference interpreting in Taiwan has only achieved the second phase after comparing the working situations for interpreters in Taiwan and their counterparts in the US and Europe, while the establishment of local professional associations is certainly in need.

More than ten years has passed, but we see that local professional associations for

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interpreters have yet to be founded (GIO, 2004; Lin, 2005). The freelance interpretation market basically still works in a per assignment model, as long term contracts between freelance interpreters and employers are seldom seen. However, the market share a freelance interpreter commands expands once a certain level of professional imagery and reputation is established (Yang, 2000). Yang (2001) further states in later researches that the interpretation profession in Taiwan will likely follow three trends: increased focus on domain knowledge, diversification of jobs taken by conference interpreters and proliferation of interpretation training programs. Further research (GIO, 2004) has confirmed that freelance interpreters do take on different types of non-interpretation assignments, the most common being translation work and teaching positions. A proliferation of interpretation training programs is also

evident in the increasing numbers of universities and colleges that offer interpretation courses, as well as the establishment of new graduate institutes that focus on training interpreters. The increased focus on domain knowledge is not easily self-evident apparently, but research conducted by this study does show that freelance interpreters who have interpreted in fields that emphasize domain knowledge, are often retained by their employers in these fields for further interpretation assignments. Though not contract based, most freelance interpreters have long term clients and it is possible that the freelancer will become more knowledgeable in the field of their long term clients, as similar interpretation assignments requiring the specific domain knowledge continue to present themselves in the future.

2. 1. 3. 4 Challenges and strategies of the freelance interpreter

Possible obstacles identified by freelance interpreters in the GIO research listed six major issues as probable challenges currently present on the market:

- unstable amount of income - unstable amount of assignments

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- lack of connections with consultants possessing domain knowledge

- difficulty encountered in communications with clients because they do not understand the attributes of the profession

- inability to make oneself known to clients

- lack of a professional association to protect the interpreter's rights

The most prominent obstacle faced by interpreters were "lack of a professional association to protect the interpreter's rights" and "difficulty encountered in communications with clients because they do not understand the attributes of the profession". This result was compiled as an weighted average score among all the interpreters interviewed.

Further interviews showed that not knowing when or where the requirement for

interpretation might happen to be a major problem. Interpretation services clearly display the attributes inherent in services; no value is created from the provision of interpretation

services for the interpreter if the service was not requested or needed by a consumer.

Interpretation services should be considered as a remedy to a possible problem. The problem is “difficulty to achieve successful communication due to the lack of a common language between parties”. If the problem does not exist, there is no reason to provide a solution unless the solution serves a second purpose. Instances of this situation in interpretation services can happen to court interpreters for example. Legal proceedings that involve parties speaking different languages often require the provision of interpretation services to ensure clarity.

However attorneys that do not share the same mother language with the party they are communicating with have been known to require interpretation sometimes even if he/she speaks the language used very well. This has been described by court interpreters, if no other listeners are present, as a strategy to either reconfirm the message or buy more time. The interpreter may in fact have a second function as a buffer in situations like this. However, these kinds of cases are rare and usually not considered to be the main purpose for requiring

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interpretation service.

Communications between parties that would benefit from interpretation services are either identified early on by one party and dealt with, or accepted as passable. Solutions chosen to deal with the problem may or may not involve interpretation services, and the result could either be successful or unsuccessful. Interpretation is requested only when the problem is identified before the communication and solved by requesting interpretation services, or when all other measures have failed and the problem is still there to be solved. There is still a possibility that no interpretation is requested in the latter case if this choice is not known or turned down for whatever reason by the parties. Considering the fact that these instances or problems can not be easily created by interpreters alone, it is understandable that interpreters tend to wait for the instance or problem to approach them. Since no professional

interpretation association has formed on the market yet, consumers are left to seek out the suppliers of interpretation services by themselves. It is more than likely that the consumer would not be able to approach every interpreter on the market in this case, and therefore to the advantage of the interpreters who were able to be contacted by the consumer. But there is still currently no way of knowing beforehand when or where the call would present itself.

Many interpreters therefore rely on passive strategies such as waiting for the telephone to ring to acquire interpretation cases. The researcher believes that by looking at the ways companies evaluate and manage their business, active measures for interpreters might be devised to improve this situation.

2. 1. 4 Business Strategies

Competitiveness is proclaimed in competition strategy theories to be the key issue that makes or breaks a business (Porter, 1998). This strategy requires businesses to seek

competitive and profitable positions on the market; to recognize attractiveness of the industry

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from a long term profitability viewpoint. Porter states that by understanding the attractiveness of an industry, businesses will then be able to profit by analyzing the market with the five forces model: the threat of new market entrants, existing competitive rivalry between suppliers, bargaining power of buyers, the power of suppliers, and the threat of substitute products. The second theme of competition strategies is to maintain competitiveness throughout the industry by adopting cost leadership, differentiation and focus.

Another way to look at business strategies is through the “value system”. This theory attributes the success of a business to how it satisfies the customer’s demands by creating value for them. The value system is a congregation of various value chains, which are made up of value creating activities and profit margins. Value creating activities refer to the material and technical maneuvers of a business, which also serve as the base to create valuable products for the customer. Businesses that utilize this form of competition rely on perfecting and coordinating the value chains to create advantages on the market.

Generally speaking, the selection of a strategy relies on:

External environment analysis - customer analysis, competitor analysis, industry analysis and market analysis

Internal process analysis – performance analysis, cost and added value analysis, weakness and strength analysis

Target analysis – goals, visions, motives

Taking into consideration the specifications of the interpretation industry, an external market analysis is highly unlikely, since interpretation can take place in all kinds of contexts, ranging from high-profile conferences to private clinics (Niska, 2002). Therefore our

attention turns to the internal process analyses and target analyses as possible strategy choices.

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2. 2 Performance evaluation systems

This section looks at the various performance evaluation systems companies have used to carry out their core strategy. Freelance interpreters, being the direct provider of

interpretation services available on the market, more or less operate like single-person companies. It might be beneficial to evaluate performance using a more business oriented solution. This section reviews the concept of traditional performance evaluation systems and strategic performance evaluation systems. The Balanced Scorecard model is then selected as a probable performance evaluation system for service-oriented industries and further

examined in its possible uses for freelance interpreters.

2. 2. 1 Review of Performance evaluation systems

The performance of a company can be determined by how effective and efficient it is in allocating resources and achieving goals. A performance evaluation would be to determine the effectiveness and efficiency of daily operations through quantified standards or subjective observations (Kao, 2000). Necessary components include:

- Current status of the entity’s operations

- Are the strategies currently undertaken true to its goals?

- Are the limited resources effectively allocated and utilized from an operational viewpoint?

This section consists of three portions: review of traditional performance evaluation systems, introduction to strategic performance evaluation systems, and guidelines to developing these systems.

2. 2. 1. 1 Traditional performance evaluation systems

Traditional performance evaluation systems focused on financials only and relied on

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return of investments or earnings per share to evaluate performance. Neglecting the non-financial factors are no longer feasible practices in contemporary markets. The major drawbacks of a traditional performance evaluation system can be summarized as follows (Lee, 1995; Maisel, 1992; Kaplan and Norton, 1996 a):

a. Decisions are hard to justify if only near-term results are considered

In an increasingly competitive market, quality and cost have become the primary arena in competitions between businesses. Traditional viewpoints focused on the “final result”

while neglecting the measures taken. This makes improving quality a tough decision to make since near-term costs would likely be higher. The result of putting too much emphasis on lowering costs might actually be a drop in long term competitiveness.

b. Financials are only a reflection of the past

Traditional evaluation systems compiled the results of past operations. Although this reflects the history of the entity, nothing pertaining to the future is mentioned.

c. Lost linkage with strategy

If performance evaluation does not link to the strategy undertaken, results can be misleading or detrimental. Factors that seemed to be beneficial to the entity might prove to be a sacrifice of future competitiveness.

d. Accounting procedures based

Accounting factors alone do not reflect the customer and competitor perspective. Other essential non-financial factors are also neglected, and entities might not be forewarned of the reversing trends in the market.

e. Visions are hard to achieve

If resource allocation is not linked to the overall strategy, visions would be difficult to achieve. Returns tend to be tactical victories and not strategic gains.

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2. 2. 1. 2 Strategic performance evaluation systems

Strategic performance evaluation systems refer to those that incorporate both financial and non-financial factors. The evaluation results are closely tied to the internal process, allowing convergence of the evaluation system and overall strategy. This gives the business entity foresight in its actual competitiveness while providing a direction for further

improvement.

Kaplan mentioned in 1993 that the commonly used term “performance” should mean skills improved and goals reached through the cooperation of many. Performance evaluations ought to include financial factors such as return on asset, profitability, etc. as well as

non-financial factors such as customer satisfaction, productivity, speed of daily operations and product distinctions. Performance evaluations need to be connected to strategies to form a strategic performance measurement.

Ernst & Young further pointed out in 1995, that strategic performance evaluation systems, which connect strategies with evaluation methods, are capable of determining whether operations are in line with overall strategies. Three major perspectives of the strategic performance evaluation brought up are depicted in Figure 2.1:

- Internal perspective

Indicators derived from internal perspectives that evaluate the operation and financials of the entity.

- Market/Industry perspective

Indicators derived from the market or industry that provide indications of ongoing external trends, standards and prospects.

- Client perspective

Indicators derived from client perspectives that allow continual progress of the entity from the client’s point of view.

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Figure 0.1 Three major perspectives of a strategic performance evaluation Source: Ernst & Young (1995)

The evaluation perspectives suggested by Jones and Sasser (1995) that differ from traditional methods, include the external resource oriented perspective, the internal system oriented perspective, and the skill oriented perspective. The first perspective evaluates the means entities use to acquire valuable skills and resources related to future development or strategic alliances, and the management of said skills and resources. The second perspective evaluates the reaction speed and measures taken by entities regarding changes in the market, such as the impact of increased rivalry or new products presented by competitors. The final perspective evaluates how entities effectively develop skills and utilize resources to create better products and services, thereby increasing its competitiveness. Modification of the design or internal process are both possible means to decrease the cost of production.

Campi (as cited in Kao, 2000) believes that the major reason to acquire a performance evaluation system should be to assist the implementation of strategies for the business entity.

As clearly depicted in Figure 2.2, if strategies were connected with performance evaluations, the entity would be able to determine whether it’s doing what it said it will do regarding

Internal Client

Market/Industry

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business management, process, operation, timeliness, complexity and etc. Necessary modifications or changes may also be enacted at the same time.

Figure 0.2 Strategy oriented performance evaluation chart Source: Campi (1992)

2. 2. 1. 3 Development principles of strategic performance evaluation systems

Ernst & Young proposed a 4M guideline in 1995 regarding the principles of developing strategic performance evaluation systems, namely: meaningful, measurable, manageable and material. The system is meaningful when it is capable of evaluating the soundness and stableness of the entity. Feedbacks should be quick and essential to forming new strategies.

Being measurable would imply that the indicators are quantified for ease of use. Manageable Performance

evaluation

Management Business process

Operations Goal & Strategy

Time – speed of reactions Complexity

Cost Quality

Customer satisfaction Should we change?

Are we doing what we said we’ll be doing?

Increased shareholder value

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systems imply that the cost of system management and result acquisition should be low, and require only reasonable amounts of resources allocated to the task. The last guideline focuses on the comprehensiveness of the evaluation system, and ability to provide points of

improvement. In addition, the system should certainly be transparent and linked to overall strategies for the entity to realize its visions in a controlled manner. Systems displaying these qualities would be able to reroute the entity through performance evaluations should the business diverge from the principle strategy.

2. 3 The Balanced Scorecard (BSC)

The Balanced Scorecard was originally proposed as an approach for both manufacturing and service oriented businesses to perform measurement that combined traditional financial measures with non-financial measures to provide managers with richer and more relevant information about organizational performance, particularly with regard to key strategic goals (Kaplan & Norton, 1992). Over time, the BSC has developed to form the centerpiece of a strategic communication and performance measurement framework that helps management teams articulate, communicate and monitor the implementation of strategy.

This section looks at the origin and attributes of the BSC, the evolution and framework of the BSC, how it links measures to strategies, and its adaptations for the freelance

interpreter.

2. 3. 1 Origin and attributes of the BSC

The origin of the BSC can be traced back to 1990 when the Nolan Norton Institute sponsored a one-year multicompany study. Twelve US corporations, covering both manufacturing and the service industry, participated in the study titled “Measuring

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Performance in the Organization of the Future”. The purpose was to develop a new

performance evaluation model that suited the dawning information era. The major difference between the new system and the old, lay in its coverage of both financial performance and non-financial performance.

The BSC was designed to translate strategies into actions, with great emphasis on the linkage between performance evaluation and strategy. Its long term goal of achieving the entity’s vision by successful implementation of the core strategy, elevated its status from a performance evaluation model to that of a strategic management system. As Kaplan and Norton has pointed out in 1992, the BSC combines the strategy of a company with key performance evaluation indicators, and balances the long term/short term goal;

financials/non-financials; internal/external perspective; leading/lagging indicators and the subjective/objective factors to create a strategic management tool.

Chow and Haddad (1997) confirm that the BSC is able to connect an organization’s strategy, structure and vision, thereby assisting the entity to transform goals like innovate consumer values into tangible actions. Wu (1997) further expounds on the balancing act of the BSC as a balance between the three groups of evaluations: internal (e.g. corporate process, innovation, learning and growth) and external (e.g. shareholders, customers) evaluations;

historic data evaluation and future performance motives; objective (e.g. result based) and subjective (e.g. motives behind the results) evaluations. However, she further states that the entity should have an established strategy first before the BSC can be put to use (Wu, 2003).

An entity should first have a “strategy formation system” consisting of the entity’s vision, competitor review, client review and SWOT analysis, which when utilized, will be able to define the strategy of the entity. After the strategy is determined, the BSC can then be used to transform the strategy into actions.

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2. 3. 2 Evolvement and framework of the BSC

The original article by Robert Kaplan and David Norton in 1992 outlined a simple “4 box” approach to performance measurement (Kaplan & Norton, 1992). Managers were encouraged to look at measures taken from the other three perspectives of business (Kaplan and Norton, 1992). Intriguingly, a clear definition was not provided on what a BSC is, and writings focused instead on how one might be used, or how it relates to other attributes. A mixture of non-financial and financial measures were clustered into four groups called

perspectives, and has been referred to as the first generation BSC (Lawrie & Cobbold, 2004).

The 1st generation BSC is depicted in Figure 2.3.

Figure 0.3 1st Generation Balanced Scorecard Source: As cited in Lawrie & Cobbold, 2004

Financial Perspective

Goals Measures

Innovation and Learning Perspective

Goals Measures

Internal Business Perspective

Goals Measures

Customer Perspective

Goals Measures

( Can we continue to improve and create value? ) ( How do customers see us? )

( How do we look to shareholders? )

( What must we excel at? )

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It was clear from the outset that the methods used to select measures to be included in the BSC would be critical to its success both in terms of filtering (selecting measures to be used) and clustering (deciding which measures should appear in which perspectives). The first paper was vague in this respect, and the practical difficulties inherent in the 1st

Generation Balanced Scorecard were quickly recognized by Kaplan and Norton. The original measure selection method was replaced by “strategic objectives”; short sentences which clarified the nature of the “Goals” (Kaplan & Norton, 1993). This subtle step in the selection process helped particularly with the filtering issue – the strategic objective itself gave a justification for the selection of one measure over another in each perspective. The perspectives “Internal Process” and “Innovation and Learning” were renamed “Internal Business Process” and “Learning and Growth” in the 1996 documents (Kaplan & Norton, 1996a). The second key innovation, an emphasis on causality between strategic objectives instead of measures, enabled the BSC to transform from an improved measurement system into a core management system as characterized by Kaplan and Norton in 1996 (Kaplan &

Norton, 1996a; Lawrie & Cobbold, 2004). The 2nd Generation Balanced Scorecards had measures that were chosen to relate to specific objectives, which were then assigned to one of the four perspectives, and an attempt is made to visually document the major causal

relationships between strategic objectives. This led to the “strategic linkage model” or

“strategy map” diagram that now represent the mainstream thinking on BSC design (Kaplan

& Norton, 2000). The framework of the BSC used in this study is depicted in Figure 2.4.

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Figure 0.4 Framework of the 2nd Generation Balanced Scorecard Source: Kaplan & Norton, 1996a

The Balanced Scorecard approach begins with the vision and strategy of the entity, which is then linked with the four perspectives. Strategy is materialized by specifying the related objectives and measures within each perspective, which link long term goals and short term actions. The entity is evaluated through the measures established in the four perspectives, and balance is achieved between external customer/financial objectives and internal

processes/learning and growth objectives; historic achievement indicators and future

performance drivers; as well as quantifiable objective performance measures and judgmental subjective performance drivers.

Customer

Objectives Measures Targets Initiatives

“To achieve our vision, how should we appear to our customers?”

Financial

Objectives Measures Targets Initiatives

“To succeed financially, how should we appear to our shareholders?”

Learning and Growth

Objectives Measures Targets Initiatives

“To achieve our vision, how will we sustain our ability to change and improve?”

Internal Business Process

Objectives Measures Targets Initiatives

“To satisfy our shareholders and customers, what business processes must we excel at?”

Vision and Strategy

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The four perspectives are explained as follows:

2. 3. 2. 1 Financial Perspective

Kaplan and Norton (1996a) listed financial objectives as the focus for the objectives and measures in all the other scorecard perspectives. Every measure selected should be part of a link of cause-and-effect relationships that culminate in improving financial performance.

An entity would also have to set different financial objectives at different stages. The life cycle of an entity can be simplified into three stages to be explained as follows:

- Growth

At the first stage of a business’s life cycle, significant investments have to be made and focus will be on the development or refinement of potential high growth products, processes and services. Customer relationships will also have to be developed and nurtured. The overall financial objective for growth-stage businesses will be percentage growth rates in revenues, and sales growth rates in targeted markets, customer groups, and regions.

- Sustain

Businesses at this stage will aim for steady growth and try to maintain their existing market share. Investments will fall in the category of enhancing continuous improvements, whereas overall financial objectives will likely be increased profitability,

return-on-investment and etc.

- Harvest

When a business unit reaches a mature stage of its life cycle, the company will want to harvest the investments made in the two earlier stages. Major investments won’t be made and any investment made will only be for the purpose of maintaining equipment and capabilities.

The main goal is to maximize cash flow back to the corporation and minimize working capital requirements.

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A normal progression which could occur over several decades moves business units from growth, to sustain, to harvest and finally to exit. Occasionally, a business in a mature stage may suddenly find itself with a growth objective due to the introduction of a new technology, market or regulatory change. Companies wishing to adopt the BSC are advised to review the financial objectives of all business units at least annually.

Businesses in any stage of the cycle will focus on the following three major financial themes:

a. Revenue growth and mix

Revenue growth and mix refers to expanding product and service offerings, reaching new customers and markets, changing the product and service mix toward

higher-value-added offerings, and repricing products and services. The most common

revenue growth measure, for businesses of any stage, would be sales growth rates and market share for targeted regions, markets, and customers. Kaplan & Norton lists several measures as possible ways to increase revenue growth and mix. Businesses can offer new products, devise new applications for existing products, seek new customers and markets, develop new

relationships, devise new product and service mixes, or introduce a new pricing strategy. All measures listed will all be reviewed in later chapters with the freelance interpreter in mind.

b. Cost reduction/productivity improvement

This would refer to a direct reduction of the cost to provide goods/services or improvements in accrued revenue. Listed measures include: reducing unit costs, improving channel mix, and reducing operating expenses.

c. Asset utilization/investment strategy

This refers to the shortening of cash-to-cash cycles, which is the time required for the company to convert cash payments to suppliers of inputs to cash receipts from customers.

Other measures like asset utilization may focus on improving capital investment procedures,

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leveraging investments by sharing them across multiple business units and risk management.

2. 3. 2. 2 Customer Perspective

Kaplan and Norton (1996a) mentioned in the customer perspective of the BSC, that the first issue of this perspective is for companies to identify the customer and market segments in which they have chosen to compete. By linking the customer core measurement group and the targeted market/customer, companies can compile the customer value proposition which would serve as the motivating factor and leading indicator of core customer measures.

The customer core measurement group would include:

- Market Share: measurement that reflects the proportion of business in a given market (in terms of number of customers, dollars spent, or unit volume sold) that a business unit sells.

- Customer Acquisition: measurement that measures, in absolute or relative terms, the rate at which a business unit attracts or wins new customers or business.

- Customer Retention: measurement that tracks, in absolute or relative terms, the rate at which a business unit retains or maintains ongoing relationships with its customers.

- Customer Satisfaction: measurement that assesses the satisfaction level of customers along specific performance criteria within the value proposition

- Customer Profitability: measurement that measures the net profit of a customer, or a

segment, after allowing for the unique expenses required to support that customer. In targeted segments, profitable customers/segments should be retained and unprofitable ones

transformed. In untargeted segments, profitable customers should be monitored and unprofitable ones eliminated.

The five core measures can be grouped into a chain of relationships as depicted in Figure 2.5 below.

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Figure 0.5 The Customer Perspective – Core measures Source: Kaplan & Norton, 1996a

The customer value proposition represents the attributes that suppliers provide, through their products and services, to create loyalty and satisfaction in targeted customer segments.

The generic attributes observed can be organized into the following three categories:

- Product/service attributes:

These attributes encompass the functionality of the product/service, its price, quality and timeliness.

- Customer relationship:

This dimension includes the delivery of the product/service to the customer, the

response and delivery time dimension, and how the customer feels about purchasing from the company.

- Image and reputation:

This dimension reflects the intangible factors that attract a customer to a company.

Some companies are able to generate customer loyalty well beyond the tangible aspects of the Customer

Acquisition

Customer Profitability

Customer Retention

Customer Satisfaction

Market Share

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product or service offered. Name brands for example would command high levels of image and reputation.

The generic model of the customer value proposition is depicted as Figure 2.6 below.

Figure 0.6 The Customer Value Proposition Source: Kaplan & Norton, 1996a

2. 3. 2. 3 Internal Business Process Perspective

Kaplan and Norton (1996a) suggests that after formulating the objectives and measures for financial and customer perspectives, managers should identify the processes that are most critical in achieving shareholder and customer objectives. Traditional performance

measurement systems focus on controlling and improving existing processes. Though most organizations today have ceased to use only financial results as the primary method for evaluation and control, comprehensive measurements that incorporate measures of quality, yield, cycle time and etc. are still attempting to improve performance of individual

departments rather than the integrated business process. The BSC system specifically recommends managers to define a complete internal-process value chain that starts with the innovation process, proceeds through the operations process and ends with the post-sale service, since merely using financial and non-financial performance measures for existing business processes will not lead companies to make major improvements. Oftentimes, existing problems can only be solved by creating a new internal business process instead of

Time Price

Quality Functionality

= + +

Value Product/Service Attributes Image Relationship

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focusing on improving the quality of internal business processes alone. A generic value-chain model (see Figure 2.7) is provided as a template for companies to customize in preparing their internal-business-process perspective.

Figure 0.7 The Generic Value-Chain Model Source: Kaplan & Norton, 1996a

The three principles encompassed include:

a. the Innovation Process:

Value creation activities begin in this process by identifying new markets and new customers, as well as nurturing the emerging and latent needs of existing customers. After the needs are identified, companies design and develop new products or services to satisfy these needs. Managers may undertake market researches to identify the market situation or try to seek new opportunities and markets for the products and services the organization could supply. Results are then fed back into the product and service design and development process.

b. the Operations Process:

This process begins with the receipt of a customer order and ends with the provision of goods or services to the customer. Measurements include the traditional financial

measurements on efficiency and price, as well as quality and cycle time evaluations.

Characteristics specific to goods or services can also be incorporated into this process.

Customer Need Identified

Customer Need Satisfied Service

the Customer Create the

Product/

Service Offering Identify

the Market

Build the Products/

Services

Deliver the Products Services Innovation

Process

Operations Process

Post-sale Service Process

數據

Figure 0.1 Three major perspectives of a strategic performance evaluation  Source: Ernst & Young (1995)
Figure 0.2 Strategy oriented performance evaluation chart  Source: Campi (1992)
Figure 0.3 1 st  Generation Balanced Scorecard  Source: As cited in Lawrie & Cobbold, 2004
Figure 0.4 Framework of the 2 nd  Generation Balanced Scorecard  Source: Kaplan & Norton, 1996a
+5

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