The forces that shape organisational performance measurement systems:

Abstract

The aim of this paper is to explore those forces that help shape the structure of performance measurement systems used in organisations. In stark contrast to much of the work that is currently ongoing in the field of organisational performance measurement, the paper adopts a dynamic perspective. It recognises that measurement systems are not simply designed and implemented, but that they also evolve over extended periods of time. Hence, the research question which underpins the discussion is as follows: what forces shape the evolution and change of organisational performance measurement systems? To address this question the article reviews several different streams of academic literature, such as operations management, social psychology, management accounting, organisational behaviour. This synthesis results in the identification of four generic categories of force that can be said to shape the evolution and change of organisational performance measurement systems. These categories are: (i) internal influences, e.g. power relationships and dominant coalition interests; (ii) external influences, e.g. legislation and market volatility; (iii) process issues, e.g. manner of implementation and management of political processes; and (iv) transformational issues, e.g. degree of top-level support and risk of gain or loss from change. The discussion ends by presenting a framework which integrates these four different categories and explores how this can be used by: (a) members of the academic community, when researching the evolution of performance measurement systems; and (b) members of the practitioner community, when seeking to manage the evolution and change of their measurement systems.

Introduction

As espoused in both academic literature and the business press, the phenomenon commonly referred to as “globalisation” is creating both opportunities and challenges for innovative enterprises, forcing companies to make dramatic improvements not only to compete and prosper but merely to survive. Corporate initiatives designed to bolster competitiveness are accompanied by heightened awareness that the assumptions underlying many traditional financial measures of performance are inadequate in today's operating environment, and that financial measures of performance alone cannot guide an organisation to market dominance 1, 2. Non-financial performance indicators (e.g. customer service and satisfaction, product quality, productivity, learning and innovation) also have to be measured and improved [3].

The literature provides several examples of manufacturing and service firms that have re-engineered their performance measurement systems 3, 4, 5, 6, 7, 8, 9. But how were these measurement systems initially developed and how have they evolved since their implementation? Most commentators in the field concentrate on the first of these questions [3]. Few recognise, let alone tackle the second, which demands that the forces that shape the evolution¹ of performance measurement systems be identified.

A central aim of the present discussion is to identify these forces. In doing so the paper reviews several different streams of academic literature, such as operations management, social psychology, strategic management, management accounting and organisational behaviour and economics. This synthesis results in the identification of four generic categories of force that can be said to shape the evolution and change of organisational performance measurement systems. The categories are: (i) internal influences, e.g. power relationships and dominant coalition interests; (ii) external influences, e.g. legislation and market volatility; (iii) process issues, e.g. manner of implementation and management of political processes; and (iv) transformational issues, e.g. degree of top-level support and risk of gain or loss from change. The discussion concludes by presenting a framework which integrates these four different categories and explores how this can be used by: (a) members of the academic community, when researching the evolution of organisational performance measurement systems; and (b) members of the practitioner community, when seeking to manage the evolution and change of their measurement systems.