A fuzzy MCDM approach for evaluating banking performance based on Balanced Scorecard Hung-Yi Wu a, * , Gwo-Hshiung Tzeng a,b , Yi-Hsuan Chen c a Department of Business and Entrepreneurial Management, Kainan University, No. 1, Kainan Road, Luchu, Taoyuan 338, Taiwan b Institute of Management of Technology, National Chiao-Tung University, 1001 Ta-Hsueh Road, Hsinchu 300, Taiwan c Division of Global Purchasing, JI-EE Industry Co., Ltd., No. 498, Sec. 2, Bentian St., An Nan Dist., Tainan 709, Taiwan article info Keywords: FMCDM Balance Scorecard (BSC) Fuzzy Analytic Hierarchy Process (FAHP) TOPSIS VIKOR abstract The paper proposed a Fuzzy Multiple Criteria Decision Making (FMCDM) approach for banking perfor- mance evaluation. Drawing on the four perspectives of a Balanced Scorecard (BSC), this research first summarized the evaluation indexes synthesized from the literature relating to banking performance. Then, for screening these indexes, 23 indexes fit for banking performance evaluation were selected through expert questionnaires. Furthermore, the relative weights of the chosen evaluation indexes were calculated by Fuzzy Analytic Hierarchy Process (FAHP). And the three MCDM analytical tools of SAW, TOPSIS, and VIKOR were respectively adopted to rank the banking performance and improve the gaps with three banks as an empirical example. The analysis results highlight the critical aspects of evaluation criteria as well as the gaps to improve banking performance for achieving aspired/desired level. It shows that the proposed FMCDM evaluation model of banking performance using the BSC framework can be a useful and effective assessment tool. Ó 2009 Elsevier Ltd. All rights reserved. 1. Introduction Financial liberalization and internationalization have been heavily advocated in Taiwan over the past decade, in response to increased global competition. Due to the government’s loosening control over the applications of establishing the medium-and- small business banks, the number of domestic headquarters and branches of financial institutions has increased from 6,127 to 6,365 between the years 2000 and 2005 (Central Bank of the Republic of China, 2005). Financial institutions are densely distrib- uted in Taiwan. Moreover, the financial environment of Taiwan has undergone a drastic change since Taiwan entered the World Trade Organization (WTO). It is very important for Taiwan’s bank institu- tions to have a competitive advantage, because they are all quite homogeneous. Therefore, a fiercely competing financial market with relatively little profit, plus the new withdrawal mechanism regulations for low performance banks has resulted in a limited growth of banks in Taiwan. To outperform competing bank institu- tions, more emphasis on internal operational performance is re- quired. This means it is imperative to develop an effective way to conduct performance evaluations that can measure the overall organizational performance and link it to the corporate goals. That is, a holistic evaluation model of banking performance is key to a bank’s survival. Many different theories and methods of performance for con- ducting an evaluation have been applied in various organizations for many years. These approaches include ratio analysis, total pro- duction analysis, regression analysis, Delphi analysis, Balanced Scorecard, Analytic Hierarchical Process (AHP), Data Envelopment Analysis (DEA) and others. Each method has its own basic concept, aim, advantages and disadvantages (Dessler, 2000). Which one is chosen by management or decision makers for assessing perfor- mance depends on the status and type of the organization. How- ever, all the successful enterprises have some common features, including a specific vision, positive actions, and an effective perfor- mance evaluation. The Balanced Scorecard (BSC) is an extensive and thorough performance evaluation tool to adequately plan and control an organization so it can attain its goals (Davis & Alb- right, 2004; Lawrie & Cobbold, 2004; Pinero, 2002). The BSC breaks through the traditional limitations of finance, examining an organi- zation’s performance from the four main perspectives of finance, customer, internal business process, and learning and growth (Kaplan & Norton, 1992). It emphasizes both the aspects of the financial and non-financial, long-term and short-term strategies, and emphasizes internal and external business measures. Several studies have been conducted incorporating the four perspectives of the BSC in performance appraisal. To achieve the best possible 0957-4174/$ - see front matter Ó 2009 Elsevier Ltd. All rights reserved. doi:10.1016/j.eswa.2009.01.005 * Corresponding author. Tel.: +886 33412500x6103; fax: +886 33412176. E-mail addresses: hywu@mail.knu.edu.tw, whydec66@yahoo.com.tw (H.-Y. Wu), ghtzeng@mail.knu.edu.tw (G.-H. Tzeng), j02255@ji-ee.com.tw (Y.-H. Chen). Expert Systems with Applications 36 (2009) 10135–10147 Contents lists available at ScienceDirect Expert Systems with Applications journal homepage: www.elsevier.com/locate/eswa