Choice and change of measures in performance measurement models

This paper uses management control, resource-based, systems-based and contingency-based strategy theories to describe a large U.S. manufacturing company's efforts to improve profitability by designing and using a performance measurement model (PMM). This PMM includes multiple performance measures relevant to its distribution channel for products, repair parts and maintenance services. The PMM is intended to reflect the company's understanding of performance relations among strategic resources, operational capabilities, and desired financial outcomes. The PMM also reflects its intended distribution strategy, the types of performance necessary to achieve that strategy by its distributors, and its desired financial outcomes. Furthermore, the company uses the model to evaluate its North American distributors and intends to use these evaluations as a partial basis for annual and long-term rewards. Thus, the PMM embodies the measurable portion of the firm's management control system of its distribution channel.The study addresses four research questions: (1) Are measure attributes important considerations for performance measure choice? (2) Does the importance of attributes differ according to firm strategy? (3) Does the importance of attributes for design and use differ according to firm strategy? (4) Does a company trade-off some individual attributes for others? The questions are investigated using qualitative and quantitative analyses of archival documents and interviews with top managers and distributors. Principal findings are that measure attributes are important considerations for choice and change of performance measures, design attributes are more important than use attributes, the importance of attributes does not appear to differ according to strategy, and some individual attributes are traded-off for other attributes.     

Constructing institutional performance: a multi-level framing perspective on performance measurement and management

Research on performance measurement and management (PMM) informed by institutional theory has proliferated over the past two decades. Much of this research has concentrated on the institutional effects on organisational PMM practices and their consequences for organisational behaviour and has only recently started to pay more focussed attention to the effects of such practices on the construction of the very conceptions of performance that come to dominate institutional fields. To further integrative theory development, I pull these strands of research together into an analytical framework pivoting on the concept of institutional performance. Institutional performance is defined as the socially constructed conceptions of organisational performance that become firmly institutionalised as legitimate aspects of achievement in institutional fields. Adopting a multi-level framing perspective, I develop a set of research propositions reflecting how contradictory PMM practices, emerging in response to the institutional complexity attributable to heterogeneous and competing constituency demands, shape such conceptions of performance and how this contributes to reducing or reinforcing institutional complexity over time. I discuss the implications of applying this framework in empirical research and the contributions to institutional research on PMM as well as institutional theory, more generally, that may emerge from such research.     

Is performance measurement and management fit for the future?

Performance measurement and management (PMM) is a management and research paradox. On one hand, it provides management with many critical, useful, and needed functions. Yet, there is evidence that it can adversely affect performance. This paper attempts to resolve this paradox by focusing on the issue of “fit”. That is, in today's dynamic and turbulent environment, changes in either the business environment or the business strategy can lead to the need for new or revised measures and metrics. Yet, if these measures and metrics are either not revised or incorrectly revised, then we can encounter situations where what the firm wants to achieve (as communicated by its strategy) and what the firm measures and rewards are not synchronised with each other (i.e., there is a lack of “fit”). This situation can adversely affect the ability of the firm to compete. The issue of fit is explored using a three phase Delphi approach. Initially intended to resolve this first paradox, the Delphi study identified another paradox – one in which the researchers found that in a dynamic environment, firms do revise their strategies, yet, often the PMM system is not changed. To resolve this second paradox, the paper proposes a new framework – one that shows that under certain conditions, the observed metrics “lag” is not only explainable but also desirable. The findings suggest a need to recast the accepted relationship between strategy and PMM system and the output included the Performance Alignment Matrix that had utility for managers.     

Enterprise risk management and firm performance: The Italian case

This paper investigates whether a relationship exists between the extent of implementation of enterprise risk management (ERM) systems and the performance of Italian listed companies. While many contributions in the literature focus on the determinants of ERM adoption and use one-dimensional feature to proxy for ERM implementation, we detect the consequences of ERM implementation and capture a variety of features to measure the sophistication of the ERM system. The results show that firms with advanced levels of ERM implementation present higher performance, both as financial performance and market evaluation. Additional tests also corroborate the expectation that effective ERM systems lead to higher performance by reducing risk exposure and that reverse causality between ERM and performance is not present in the short term. The study provides a twofold contribution to the ERM literature. First, it introduces new and more complete measures for ERM implementation, concerning not only corporate governance bodies dedicated to risk management, but also the characteristics of the risk assessment process. Moreover, it provides evidence of a positive relationship between ERM implementation and firm performance in an under-investigated context such as Italy.     

INSTITUTIONAL RESEARCH ON PERFORMANCE MEASUREMENT AND MANAGEMENT IN THE PUBLIC SECTOR ACCOUNTING LITERATURE: A REVIEW AND ASSESSMENT

This paper reviews the evolution of institutional research on performance measurement and management (PMM) in the public sector accounting literature. An assessment of the progress of this research programme is offered in light of some key developments in the broader neo-institutional sociology (NIS) literature, such as the growing recognition of the role of embedded agency, the need to bridge institutional and rational choice explanations of action and the extension of empirical research across different levels of institutional fields. Some progress has been made in this respect and has contributed to shift the emphasis from a one-sided focus on institutional effects  on  PMM, treating institutional pressures as largely exogenous, to recognize its more intricate roles as an outcome of, as well as a medium for, change. However, further research is required into the micro dynamics involved in transforming and reproducing PMM practices at different levels of analysis and how such practices become infused with meanings conditioned by higher-order institutional logics across various levels of institutional fields. Some research strategies for addressing these issues are outlined.     

Productivity and Performance Indicators in Enterprise Agreements

The design and implementation of performance measurement systems is a major interest of management accountants. In recent years many organisations have made enterprise agreements with their employees, often specijjing performance indicators on which to base wage increases. This paper explains how performance indicators are used in enterprise agreements and considers alternative definitions of indicators and their limitations. It argues that performance indicators in enterprise agreements should be consistent with wider organisational performance measurement systems, particularly those having a strategic focus.     

ERP in action — Challenges and benefits for management control in SME context

ERP systems have fundamentally re-shaped the way business data is collected, stored, disseminated and used throughout the world. However, the existing research in accounting has provided only relatively few empirical findings on the implications for management control when companies implement ERP systems as the technological platform. Especially scarce are the findings concerning the production phase, after implementation, when the information processes, related work practices and the new information contents can be seen as established. In this paper we explored and theorized the benefits, challenges and problems for management control when an ERP system is in use, four years after the implementation. Our findings also illustrate why and under what circumstances these challenges and benefits may exist. For a holistic view of the organization our findings, based on a qualitative case study, are constructed from the viewpoints of people at different levels and functions of the organization. Top management expected a new strategic control system, but due to the many challenges it ended up with merely financial accounting based control. At the operational level, serious challenges lead to inadequate usage of the ERP system. Management control produces the financial basic data and must contend with many practical problems caused by ERP implementation.     

PHYSICIANS AND RESOURCE MANAGEMENT: THE ROLE OF ACCOUNTING AND NON-ACCOUNTING CONTROLS

Prior research has identified the difficulties associated with encouraging physicians to 'take resource management to their hearts' and has questioned the efficacy of implementing management accounting systems (MASS) in the health care setting. Although physicians are now being integrated into management structures, they typically do not identifjr with managerial values and goals. This creates a potential impediment to the effective implementation of accounting-based controls. No prior research has, however, assessed if this impediment is equally significant in the effective implementation of other non-accounting forms of control. This paper builds on prior research and assesses the extent to which a physician manager's managerial orientation significantly influences the effectiveness of both accounting and non-accounting forms of control. The paper contributes to the literature by simultaneously assessing the effect of managerial orientation on the use and relative importance of three forms of control. The results confirm the importance of an identification with managerial values and norms for the effective implementation of management accounting systems. This orientation, did not, however, appear to be important for the effective implementation of non-accounting forms of control. These findings have direct implications for the design of effective management control systems in hospitals and other organizations dominated by professionals.     

Transformation in the defence sector: The critical role of performance measurement

This paper presents a longitudinal case study of strategic transformation in a complex organisation – Her Majesty's Naval Base (Clyde). The research identifies nine Critical Success Factors from the change management literature and analyses their position in driving the transformation. Findings suggest that many of the success factors suggested by the literature were not present during the transformation. However the presence of a robust performance management system within the organisation resulted in significant progress towards the strategic goals despite the absence of other factors. This paper demonstrates how strategic change can be accomplished by the use of more operational toolsets such as performance management systems.     

Implementing ABC: An Australian Feasibility Study

Activity-based costing systems have been one of the most important innovations in accounting practice in recent years, yet we know little about the practical difficulties associated with the design and implementation of such systems. This study examines the objections put forward in the management accounting literature, which suggest that costs outweigh benefits in ABC implementations. The arguments are developed in the context of an Australian feasibility study. Encouraging lessons from the study suggest that a systematic approach to the implementation of ABC will yield significant benefits.     

The design and use of performance management systems: An extended framework for analysis

Issues in the area of performance management and management control systems are typically complex and intertwined, but research tends to be based on simplified and partial settings. Simplification has made the work easier to carry out, but it has come at the price of increased ambiguity and conflicting findings from different studies. To help mitigate these issues, this paper puts forward the performance management systems framework as a research tool for describing the structure and operation of performance management systems (PMSs) in a more holistic manner. The framework was developed from the relevant literature and from our observations and experience. In particular, it elaborates the 5 questions of Otley's [Otley, D., 1999. Performance management: a framework for management control systems research. Management Accounting Research 10, 363–382] performance management framework into 12 questions and integrates aspects of Simons’ levers of control framework.Anecdotal evidence suggests that the extended framework provides a useful research tool for those wishing to study the design and operation of performance management systems by providing a template to help describe the key aspects of such systems. It allows an holistic overview to be taken while making this a feasible task. The paper uses material from two field studies to illustrate how the framework can be used to provide an overview of the major performance management issues within an organization.     

The role of budgets in organizations facing strategic change: an exploratory study

Recent attention in the general management literature has focused on mechanisms and processes used by organizations to respond and adapt to changes in their operating environment. There is, however, very little broad-based empirical research examining the role that management accounting control systems can play in shaping organizational change. Much of the empirical research to date has focused on the role of accounting as a diagnostic tool for assessing and rewarding managerial performance despite the recognition that accounting can serve as a dialogue, learning and idea creation machine (Burchell et al., 1980. Accounting Organisations and Society 5,5–27). The purpose of this study is to explore how accounting can serve this alternative role. We use (Simons, R. 1990.) Accounting Organisations and Society 15, 127–143). interactive/diagnostic classification of management control systems to capture how accounting can be used as a learning machine in the formulation and implementation of strategic change. A theoretical model is developed to examine the relationship between strategic change, style of budget use and performance. It is argued that an interactive style of budget use can mitigate the disruptive performance effects of the strategic change process. The data, collected from Chief Executive Officers in 63 public hospitals, provide results that are consistent with our expectations.     

Energy efficiency complexities: A technical and managerial investigation

Increased concern about sustainability issues has been voiced in the accounting literature. Although environmental performance is only one dimension of sustainability, it is nevertheless a key factor, especially in sectors such as the process industry, which consume substantial volumes of materials and energy. Energy itself is important because its production is a major cause of carbon emissions. Hence efforts to reduce its use are important, and here energy efficiency measurement and management play a key role.Although the conceptual challenges posed by energy efficiency measurement are well known in the technical literature, there has been little discussion of energy efficiency management. This paper examines the complexities involved in the measurement and management of energy efficiency. In particular, it examines how these complexities impede effective use of management control systems to impact the ability and motivation of employees to work toward the goals of sustainable development. The study is a cross-disciplinary one, and combines technical energy efficiency research and environmental management accounting research in performance management. The study provides practical knowledge of what happens in organizations pursuing sustainable development, in this case environmental performance. The paper demonstrates a performance indicator that does not allow proper energy efficiency performance management because it is still technically underdeveloped. Setting targets for the indicator is especially problematic.     

What effective general managers really do.

A rather large gap exists between the conventional wisdom on management functions, tools, and systems on the one hand and actual managerial behavior on the other. The former is usually discussed in terms of planning, controlling, staffing, organizing, and directing; the latter is characterized by long hours, fragmented episodes, and oral communication. Actual behavior, as a study of successful general managers shows, looks less systematic, more informal, less reflective, more reactive, less well organized, and more frivolous than a student of strategic planning systems, MIS, or organizational design would ever expect. The gap is important and disturbing for many reasons. First of all, it raises serious questions about the kind of formal planning, performance appraisal, and other systems that are commonly in use today. In a similar way, it raises questions about management education, which usually relies heavily on management "theory" and which is currently producing more than 60,000 new MBAs each year. Furthermore, the gap makes it difficult for executives to coach younger managers and makes it hard for them to know how they might improve their own effectiveness.     

The influence of strategy map communications and individual differences on multidimensional performance evaluations

Multidimensional performance evaluation systems such as the Balanced Scorecard (BSC) were developed to overcome the documented tendency of managers to focus almost exclusively on short-term financial performance measures while disregarding or de-emphasising other short-term and/or long-term non-financial performance measures. Evidence suggests, however, that implementation of many of these systems has not achieved desired outcomes. Cogent communication of a corporation's goals and management's strategy to achieve those goals can be expected to influence employee ‘buy-in’ and the subsequent use or resistance to multidimensional performance measures. In this study we examine the role of strategy maps in communicating goals and strategy. We also examine individual differences (tolerance of ambiguity and functional background) that we believe also influence individuals to be more (or less) receptive to the guidance of strategy maps. An experiment was conducted with 165 experienced professionals enrolled in MBA programmes in Spain and the US. Our experimental results indicate that a strategy map reflecting integrated dependencies can de-bias evaluations of certain groups of individuals, who have high tolerance for ambiguity and have a financial work background. Implications and suggestions for future research are also provided.     

Sensor-based Condition Monitoring and Predictive Maintenance—An Integrated Intelligent Management Support System

To maintain a competitive edge, it becomes increasingly important for companies to manage their maintenance dollars effectively. This study reveals that a surprisingly large part of capital investment is associated with equipment maintenance in real business environments. Moreover, equipment availability also affects productivity, profitability and the ability to response to market demand. Therefore, maintenance management is becoming an important business area in many industrial settings. Sensory data utilization and interpretation is vital in the decision-making process for maintenance management. The paper proposes that indicative information and early warning about the health of the constituent components of a system are gathered through appropriate sensor measurement and monitoring. This strategy does not specify the use of fixed intervals for maintenance but dynamically adapt the maintenance intervals to the system's actual need for service. This strategy is called condition-based predictive maintenance, in contrast to scheduled maintenance with fixed intervals. Technologies including sensor measurement, data processing, knowledge-based intelligent systems and software implementation are integrated in this research to provide solid support for maintenance management. The purpose of this study is to investigate this new paradigm, its implications in business settings, and its implementation as a software system. Preventing catastrophic failures and damage to equipment is a major objective in this research. Adding value, reducing maintenance costs, and increasing the company's competitiveness are other driving factors for establishing a computerized management support system.     

Fabricating budgets: A study of the production of management budgeting in the national health service

This paper examines the processes by which a form of responsibility accounting system emerges in an organizational context. The paper utilizes recent approaches to the understanding of how science and technology is created (Latour, Science in Action, Harvard University Press, 1987) to investigate the processes by which a management budgeting initiative in the U.K. hospital system takes hold (or not) in specific hospitals. The approach is critical of the notion that accounting systems are well-defined technologies which are designed and then implemented (or face resistance). Instead, the study shows that management budgeting is fabricated, put together in a changing and fragile manner. Emerging accounting systems are not fixed technologies with well-defined purposes which reflect patterns of responsibility but changing constructions. Management budgeting systems are initiated with loose characteristics, purposes and uses. In the process of their design and implementation, new possibilities for decision making and definitions of responsibility emerge. Through this study of accounting in action, the paper explores the processes by which accounting and budgeting systems bring economic logic into hospital management. It is also relevant to debates about the role of budgeting and accounting in health care organizations in many countries.     

Performance management and organizational strategy: How to design systems that meet the needs of confrontation strategy firms

The link between organizational strategy and performance management system design has been examined in numerous studies. Invariably, strategy is conceptualized using archetypes developed in the 1970s and 1980s. Scholars have increasingly questioned the wisdom of relying on strategic archetypes that are plainly dated and conspicuously disconnected from the possibility of firms competing head-to-head, not out of choice but out of necessity. Cooper (1995) calls such a situation the undertaking of a confrontation strategy. Using an exploratory research design, this paper draws on nine qualitative case studies to examine how performance management systems are designed to meet and support the implementation of a confrontation strategy. Initially six firms, spanning a variety of what were expected to be mature, highly competitive industries likely to feature confrontation strategies, were recruited for participation. This initial study was then followed by a more concentrated examination of one particular industry: the banking industry. Findings from the total case study sample of nine firms lead to the presentation of an original table contrasting the unique performance management system designs associated with the three distinct strategies of cost leadership, differentiation, and confrontation. In particular, and in contrast to firms pursuing cost leadership or differentiation strategies, firms with confrontation strategies are likely to feature collaborative organizational cultures, lean organizational structures, and training and development programs that focus on developing empowered, multi-skilled teams of self-governing and coordinating employees. The exploratory intent of the paper, and thus its reliance on a small sample size of nine organizations, may limit the generalizability of the paper’s findings. In spite of this limitation, the findings offer opportunities for researchers to move beyond the exploratory approach presently adopted and empirically test the confrontation strategy and performance management system linkages proposed. Additionally, practitioners are likely to benefit from a clearer understanding of the type of performance management system design needed to support confrontation strategies.     

THE RISE AND USE OF BALANCED SCORECARD MEASURES IN AUSTRALIAN GOVERNMENT DEPARTMENTS

This paper examines the rise and use of balanced scorecard performance measurement systems in Australian government departments. Through a survey of all Australian federal, state and territory government departments we find that Australian government departments include a broad set of financial and non‐financial measures within a balanced scorecard approach. Theoretically, our findings lend support for both economic and ‘external’ institutional rationales for the implementation and use of balanced scorecard measures. We find that those government departments reporting greater implementation of balanced scorecard performance measures also report greater benefits for organisational decisions. Our findings shed light on the use, and further potential, of BSC performance measurement systems as part of the management control system in Government departments.     

Accounting for Research: Academic Responses to Research Performance Demands in an Australian University

This study examines the perceptions of individual academics about performance management systems (PMS) developed by an Australian university to meet government research assessment requirements. Using a case study method, the research examines the period 2006–2010 within a university, relying on academics’ responses to a survey on the effect of research PMS, contextualised with publicly available organisational documents. The case study university performed well in the Australian Government's first research assessment exercise, Excellence in Research for Australia (ERA) 2010. However, academics reported increasing levels of stress and decreasing job satisfaction, consistent with research that identifies the commodification of academic research. This process of commodification has occurred as a result of the implementation of PMS designed to assess academics’ research‐focused performance and thereby strengthen the university's performance under ERA. In investigating in detail the responses of individual academics to Australia's research assessment initiative, the paper reveals a disconnect between the macro‐institutional demands placed on the higher education sector, university changes made to accommodate these demands, and the ability of academics to meet these demands in a sustainable way.