43/4 June 2010
This Special Issue on Performance Management will include the following articles:
Strategic Performance Measurement: Benefits, Limitations and Paradoxes
Strategic Performance Measurement (SPM) can be both functional and dysfunctional for organisations. SPM can help organisations define and achieve their strategic objectives, align behaviours and attitudes and, ultimately, have a positive impact on organisational performance. However, SPM has also been criticised for several reasons, such as encouraging perverse behaviours, stifling innovation and learning, and having little effect on decision-making processes. If both perspectives are valid, how can organisations make SPM more of an asset and less of a liability?
In this article, we argue that the design of an SPM system (SPMS) and the definition of its roles are fundamental factors determining its success and impact on business performance. Indeed, only by carefully considering characteristics and roles will managers reap the full benefits, and SPMSs make a substantial contribution to the achievement of organisations' strategic goals.
Building on the papers selected for this Special Issue, we draw conclusions that are relevant for both the theory and the practice of SPM. First, the benefits and limits of SPM depend on the very definition of what SPM should be, and on whether the measurement of performance is linked to both formulation and implementation of strategy. Secondly, the types of behaviour promoted by the SPMS are determined primarily by the uses of the system, particularly whether it is adopted for control or learning purposes. Thirdly, organisations should regard their SPMS as a means of fostering alignment to an existing strategy, but also of supporting empowerment and the continuous adaptation of strategy and tactics. Finally, in order for SPM to support decision-making processes and positively impact on organisational performance, targets and indicators have to be linked to strategy and considered in strategic reviews.
Following an introductory section on the theme of SPM, we examine the benefits, limits and paradoxes of SPM. We conclude by arguing for intelligent and purposeful designs of performance measurement systems, and for research that breaks the barriers of academic silos and puts an end to sterile contrapositions between advocates and critics of SPM.
This paper examines how substantial dynamism can be built into strategic performance measurement systems (SPMSs), and how such flexible and adaptable SPMSs can be used for strategic alignment. It draws on an in-depth case study of a successful global leader in the telecommunications industry. This research suggests that building substantial dynamism into SPMSs, and using such flexible and adaptable SPMSs for strategic alignment, may require companies to seek a balance between empowerment and alignment. To do so, they may need to adopt a combination of management practices that differ considerably from those prevalent for more stable SPMSs. Further, this research argues that subjectivity may be a central feature in a dynamic SPMS. Indeed, it could be essential both more effectively to empower managers to take primary responsibility for measures, and to provide them with sufficient leverage to account for changes in the external and internal contexts. The paper concludes by discussing theoretical and managerial implications.
The Role of Performance Measurement Systems in Strategy Formulation Processes
Since most studies have focused on the role of strategic performance measurement systems (SPMSs) in communicating the firm's strategy and facilitating its execution and control, little is known about the role they might potentially play in shaping strategy (re)formulation processes. In this paper, we examine whether organisations that use SPMSs engage in strategy formulation processes differently from those that use performance measurement systems (PMSs) which do not qualify as SPMSs, or those which do not use any type of PMS. In particular, we hypothesise that the use of SPMSs will relate to 1) a greater frequency of strategy (re)formulations, and 2) a more comprehensive strategic agenda, reflected through a greater number and a wider variety of strategic decisions in each strategy (re)formulation. Empirical data gathered from surveys completed by 349 CEOs of medium and large Spanish companies provide support for a positive association between the use of SPMSs and both the number and variety of strategic decisions taken in each strategic review. Our findings suggest that the use of SPMSs (as opposed to other forms of PMS) by an organisation's top management team translates into a more comprehensive strategic agenda. Prior studies have shown that strategic agendas shape the extent and direction of corporate strategic change.
You Learn From What You Measure: Financial and Non-financial Performance Measures in Multinational Companies
According to recent studies in international management, relationships between headquarters and subsidiaries in the global economy are characterised simultaneously by elements of organisational interdependence and local autonomy. These characteristics challenge the traditional design and use of performance measurement systems (PMSs). Contemporary approaches to PMSs emphasise the role of performance indicators for strategy implementation and advocate the adoption of non-financial indicators in addition to traditional financial metrics. We investigated the factors associated with the inclusion of non-financial indicators in PMSs used in relationships between headquarters and subsidiaries. Our empirical study is based on 141 questionnaires collected from Italian subsidiaries of foreign companies and 13 interviews with respondents. Non-financial performance indicators contained in PMSs refer equally to customer, internal processes and people measurement perspectives. Furthermore, we find that the inclusion of non-financial indicators is positively associated with relative performance evaluation, interactive use of PMSs, subsidiary size, headquarters nationality and subsidiary participation in the design of PMSs. Information gathered through interviews provides explanations of our results, and suggests that the inclusion of non-financial perspectives in PMSs contributes to the strategic alignment of international organisations by supporting learning and dialogue within relationships between headquarters and subsidiaries.
Hitting the Target…but Missing the Point: Resolving the Paradox of Strategic Transition
Many firms are undertaking a strategic shift from cost leadership (through process management) to differentiation based on radical product innovation. Success in such transitions has been mixed, as have findings on the role of performance measurement and management in the process. This study explores the challenges of managing this transition, with specific focus on the role of performance metrics. Conventional wisdom indicates that top management can use metrics – measures, standards and rewards – to communicate new directions and priorities. Based on findings reported in this paper, this approach is found to be potentially fatally flawed when applied to a situation where both the corporate goals and the means of achieving these goals have changed. Using detailed data drawn from a multi-level analysis of a major international corporation undertaking such a strategic shift, this study explores the process by which metrics are formed and deployed, and the impact of this process on the ability of the firm to successfully achieve the change. Using measures such as the percentage of sales from new products, top management in the case study had the impression that the strategy was being successfully carried out by the various operating divisions. However, radical innovation (the desired result) had been replaced by incremental innovation. This study identifies the reasons for this situation. A major finding is that the performance measurement and management system can both allow and conceal this failure. Firms trying to significantly change their strategic directions must change their selection of performance metrics to focus less on the intended outcomes and more on the means by which these outcomes are to be achieved.