Examining the process of performance measurement system design and implementation in two Italian public service organizations

In the last two decades, the adoption of new public management (NPM) practices in the public sector has increased as public sector organizations seek to improve efficiency, effectiveness and public accountability. We present case study findings of a NPM initiative to implement balanced scorecard (BSC) performance measurement systems in two Italian public sector organizations. This study considers the question of whether the BSC development process can be effectively translated into the public sector context. Our findings highlight the importance of aligning the development of performance management systems with a greater understanding of the internal and external environment of public sector organizations. Our results further emphasize the significant role of emergent stakeholders and management culture for the success of NPM performance management initiatives.     

Strategy,performance measurement techniques and information technology of the firm and their links to organizational performance

This study investigates the relationships between organizational performance and customer-focused strategies, performance measures and information technology. The results indicate that when a firm does not follow a customer-focused strategy, contemporary management accounting systems in combination with advanced information technology are related to high customer performance. The results also indicate that contemporary performance measures do not help firms with a highly customer-focused strategy to achieve high customer performance. Finally, the results show that a fit between the customer-focused strategy and financial performance measures improves customer performance.     

Using a robust performance measurement system to illuminate intellectual capital

The central premise of the “fit-as-mediation” view states that knowledge-related factors could determine the usage and design of specific organizational systems, such as management accounting and control systems. This could, in turn, facilitate information processing and bring about positive organizational outcomes. While the influence of knowledge-based assets on measurable performance has been examined extensively in the intellectual capital literature, little is known concerning the role of an organizational control system in fostering the management of intellectual capital as the most strategic asset for organizations. As such, this study primarily aims to explore what role a performance measurement system plays in terms of the diversity of measurement in the relationship between intellectual capital and organizational performance. We incorporate social capital into the general three-dimensional classification of intellectual capital; namely, human capital, structural capital, and relational capital, to provide a more comprehensive measure of intellectual capital. Further, we conceptualize the diversity of measurement by supplementing the original Kaplan and Norton's BSC model with a new perspective, social and environmental measures. Such integration of financial, customer, internal business process, learning, and growth, along with social and environmental measures could result in an overarching and robust conceptualization of performance measurement; a concept that was barely mentioned in previous literature. We conducted a questionnaire survey involving chief financial officers of 128 Iranian public listed companies. Using the partial least squares (PLS), we find that companies with higher levels of intellectual capital emphasize a greater diversity of performance measures. The findings also show that the diversity of measurement mediates the relationship between intellectual capital and organizational performance. This paper may offer guidance to companies concerning the competencies needed for securing positive organizational outcomes from their knowledge resources, such as intellectual capital.     

An investigation of Customer Accounting systems as a source of sustainable competitive advantage

This study examines whether using customer accounting systems for resource allocation purposes is a source of sustainable competitive advantage. Based on a longitudinal data set comparing the performance of firms that adopt customer accounting and their industry benchmarks, we find that financial performance increases post adoption, leading to significant abnormal positive performance vis-à-vis average industry benchmarks (4–5%-points ROA difference) in the first two years following the adoption. However, we also show that this effect deteriorates over time, suggesting that the adoption of management accounting systems is a source of temporary rather than sustainable competitive advantage. The results are robust to other strategic events around the time of adoption, different matching of peers, and the influence of other factors that could be expected to influence firm performance. We discuss the implications of these findings for management accounting research and practice.     

The balance on the balanced scorecard a critical analysis of some of its assumptions

In recent years academic scholars have given increasing attention to the importance of strategic measurement systems including both non-financial and financial measures. One of the approaches adopted is that of the balanced scorecard. It is distinct from other strategic measurement systems in that it is more than an ad hoc collection of financial and non-financial measures. It contains outcome measures and the performance drivers of outcomes, linked together in cause-and-effect relationships, and thus aims to be a feed-forward control system. Furthermore, the balanced scorecard is intended not only as a strategic measurement system but also as a strategic control system which can align departmental and personal goals to overall strategy. This paper first examines the extent to which there is a cause-and-effect relationship among the four areas of measurement suggested (the financial, customer, internal-business-process and learning and growth perspectives). The paper then examines whether the balanced scorecard can link strategy to operational metrics which managers can understand and influence. Finally, it discusses and suggests some improvements to the balanced scorecard.     

Coals from Newcastle: an evaluation of alternative frameworks for interpreting the development of cost and management accounting in Northeast coal mining during the British Industrial Revolution

How have the power and organisational effects of modern accounting systems developed? What is the appropriate theoretical framework for interpreting that development? Researchers in the ‘Neoclassical’ tradition of ‘economic rationalism’ focus on tracing how efficiently developments in accounting techniques, from the British Industrial Revolution (BIR) to the present, have been engineered to match the demands for new forms of rational economic management of emergent big business, while those adopting a ‘Foucauldian’ approach emphasise how it was that the emergence of new practices and knowledge-based discourses for calculating human performance, and for establishing new forms of human accountability, engendered the creation of the modern kind of business organisations through ‘disciplinary power’. To evaluate the relative merits of these two frameworks, we re-examine the primary archival evidence about managerial practices in the Northeast BIR coal mines. We focus on two unique features—the cadre of professional managers/consultants (the ‘viewers’) and the form of direct labour contract—since comparable features have been held to be significant in the rational economic development of sophisticated cost and management accounting techniques in other industries. We find that, while the records include sophisticated valuations of mines and calculations of technological efficiency, surprisingly absent, as compared with ‘modern’ accounting and managerialism, is any detailed measurement of human performance for setting piece rates and controlling production. Although our particular findings here could be explained within both the ‘Neoclassical’ and ‘Foucauldian’ theoretical frameworks, their consistency with the evidence being obtained from other historical sites further questions the adequacy of ‘economic rationalism’ to explain fully the genesis of modern management and the development of accounting's modern power.     

A Case Study on Organisational Performance Measurement Systems for Customer Intimacy

Organisations have been urged to embrace "customer intimacy" in order to become market leaders. However, the complexities of developing and implementing performance measures for customer intimacy are yet to be investigated. This study investigates the introduction of customer-focused performance measures in a wholesale financial services company pursuing customer intimacy. The study demonstrates the multi-dimensional nature of customer intimacy, examines the potential trade-offs in the design of customer-focused performance measurement systems and identifies social and technical factors that shaped the fate of the new performance measurement system studied.     

The relationship between strategic priorities,management techniques and management accounting: an empirical investigation using a systems approach

The study examines how combinations of management techniques and management accounting practices enhance the performance of organizations, under particular strategic priorities. Companies were identified as emphasizing product differentiation, low price strategies or a combination of both. Management techniques included in the study were improving existing processes; quality systems; manufacturing systems innovations; integrating systems; team-based structures and human resource management policies. Management accounting practices important in assisting managers implement management techniques were traditional management accounting techniques; activity-based techniques; balanced performance measures; employee-based measures; benchmarking and strategic planning. A systems approach, using cluster analysis, was used to examine hypothesized associations between performance and a range of management techniques and management accounting practices, under various strategic orientations. This provided a method to examine the way in which the entire range of variables combined to affect performance.     

A LONGITUDINAL CASE STUDY OF PROFITABILITY REPORTING IN A BANK

This project involved a seven-year longitudinal case study of a Bank monitoring over time the changes in profit measurement and overhead allocation, product group profitability, benchmarking, customer profitability, budgeting and profitability/performance measures such as return on risk adjusted capital. The overall finding is that the Bank’s profitability reporting (particularly its product group and customer profitability) changed considerably during this seven-year period. The main factors that accountants and managers identified as influencing such changes were four external factors and two internal factors. The four external factors were changes in technology (computers and telecommunications), regulatory change, increasingly competitive global markets and a greater difficulty in attracting customers. The two internal factors were the development of new products leading to a wider product range and a changing management accounting culture. The historical and organizational context of the Bank was also critical in this process of change, and a dynamic contingency model is proposed. This longitudinal case study indicates that more changes are occurring in management accounting practices (such as profitability reporting) than the current evidence from questionnaire surveys and ‘snapshot’ case studies reveals. An area for future research that this study highlights is that although accountants and managers talk in terms of long-term planning and control, the norm is short-term management accounting solutions and managerial reaction to new external developments.     

Online relationship marketing and affective customer commitment – The mediating role of trust

The pervasive use of information technology has implications for consumer relationship management among financial services organisations. There is a need for increased understanding of how digital channels might influence the development and maintenance of firm–customer relationships and in particular the role of the Internet upon commitment and trust outcomes. Thus, this research aims to determine the relationship between online relationship marketing practices and affective customer commitment, and how this relationship is mediated by online channel trust. Data were collected from 200 online retail bank customers and Structural Equation Modelling was used to test the impact of five key online relationship marketing practices on affective commitment, and how trust mediates these relationships. We found that advocacy and collaboration have a direct relationship with affective commitment, while trust mediates the influence of engagement and personalisation on affective commitment. The article highlights the significance of trust in technology when using online channels to build customer relationships.     

The Cambridge Container Company: managing customer-centric information integration

This case illustrates the efforts of the Cambridge Container Company, a fictitious manufacturer of plastic containers, as they consider methods for moving organizational decision-making toward a more customer-centric focus. Cambridge has four independent manufacturing units, each of which currently bases all operational decisions on internally generated cost and profitability information.¹ In 2000, Cambridge established a special enterprise level division to consider best practices for collecting qualitative product and service feedback from customers and to subsequently consider how to best integrate such nontraditional, nonfinancial information into their own operational decision models.This realistic scenario gives students an opportunity to consider the financial and managerial implications of moving to customer-centric operational decision-making. Business articles on the advantages of customer centricity abound, but few sources consider the financial and managerial consequences beyond increased customer loyalty and satisfaction. In actuality, this current business trend requires significant reengineering of information systems and management practices. Consequently, accounting methods must be re-evaluated for accuracy and fit with new systems and management practices.At the heart of this case is an opportunity for students to consider the appropriate balance of traditional financial and customer-driven nonfinancial information in management decision models for optimal profitability of the company and its individual units. In addition, the instructor can delve into a number of internal control and political issues related to information sharing. There is also opportunity for students to consider at a high level the complexities of balancing open information sharing and information security. Several alternative questions and suggested solutions are provided for the instructor at the end of the case. We suggest that instructors select only three or four of the questions so students can spend more time on each selected issue. This case is adaptable for use in managerial accounting, accounting systems or management systems courses at the undergraduate or graduate levels.     

Factors influencing the role of management accounting in the development of performance measures within organizational change programs

Many companies are undergoing organizational changes encompassing innovative approaches to organizing production processes, restructuring work practices and developing new planning and control mechanisms. This paper explores the role that management accounting played in the development of performance measurement systems within five organizations implementing change programs. The major case study is of a large manufacturing firm undertaking changes which included the development of team structures, the adoption of a customer-focused strategy and the implementation of new performance measurement systems. In this company, a lack of integration of operational performance measures with strategic priorities contributed to poor integration of team activities with overall strategy. The paper proposes five interrelated factors that may help explain the extent to which management accountants contribute to the development of integrated performance measures and change programs. Case evidence drawn from a further four firms is presented to provide some validation of conclusions drawn from the primary case study.     

New development: Integrating risk management in management control systems—lessons for public sector managers

Exploring multiple dimensions of management control systems (MCS), this article proposes a new framework to integrate risk management with strategy, MCS and performance measurement systems (PMS). Considering the public sector as a focal point, the article points to some enterprise risk management (ERM) issues and argues that ERM-enabled MCS has potential to improve PMS and strategic decision-making, leading to a more proactive risk management framework and a culture that promotes performance driven accountability. Consequently, the article calls for further research towards solving the public sector’s risk management problems, motivating its managers to adopt best practices, and stimulating suitable policy developments.     

Using Social Return on Investment (SROI) to measure project impact in local government

This paper explains how Social Return on Investment (SROI) can improve public project management in local government. The authors provide a step-by-step account of SROI implementation in an Indonesian city. The case study is a community-based sewerage treatment facility. By using participatory SROI, project management was substantially improved through better project prioritization, performance measurement and project accountability.     

The relationship between business strategy, management control systems and performance: Evidence from China

Over the past two decades, China has emerged as a global economic power, ranking behind only the USA, Japan and Germany. China's continuous global economic power has therefore prompted a surge in interest in understanding Chinese business practices. This paper reports on the results of a survey on the contingent relationship between business strategy, management control systems (MCS) and performance in Chinese Enterprises. The analysis is based on data gathered from 215 enterprises operating within the Xinjiang autonomous region of China. For those firms that were classified as pursuing differentiation strategy, the use of more non-financial based MCS has a positive effect on performance and this finding is consistent with the literature. We also found that for those firms classified as pursuing a low cost strategy, the use of more financial based MCS had a positive effective on performance as suggested in the literature. Our research has implications for understanding management accounting practices in Chinese enterprises.     

Combining creativity and control: Understanding individual motivation in large-scale collaborative creativity

Recent research has shown that management control systems (MCS) can improve performance in contexts characterized by high levels of task uncertainty. This seems to conflict with a second stream of research, which argues that MCSs risk undermining the intrinsic motivation needed for effective performance in such settings. To solve this puzzle, we build on theories of perceived locus of causality and self-construal and develop an integrative model summarized in 15 propositions. To explicate our proposed solution and to show its robustness, we focus on the class of activities we call large-scale collaborative creativity (LSCC) - contexts where individuals face a dual challenge of demonstrating creativity and embracing the formal controls that coordinate their creative activities with others’. We argue that LSCC requires the simultaneous activation of intrinsic and identified forms of motivation, and simultaneously independent and interdependent self-construals. Against some scholarship that argues or assumes that such simultaneous combinations are infeasible, we argue that they can be fostered through appropriate attraction-selection-attrition policies and management control systems design. We also show how our propositions can enrich our understanding of motivation in other settings, where creativity and/or coordination demands are less pressing.     

The measurement and management of human performance in seventeenth century English farming: The case of Henry Best

Agriculture is one of the oldest and most important forms of organised human activity Roberts [Roberts, J. M. (1988). The Pelican History of the World. London: Penguin, p. 49] but accounting historians have paid it relatively little attention when investigating the measurement and management of human performance. Undertaking a detailed analysis of the records of Henry Best, a seventeenth century English farmer, the current paper seeks to remedy this deficit. The current research finds that Best maintained financial records but notes that, in the absence of external accountability relationships and professional accounting, these records were not used for the calculation of financial performance or financial position but were employed simply to maintain track of transactions and to hold his workforce accountable for their performance. In drawing up a treatise on operational farm management for the benefit of his son and heir, who did subsequently employ this treatise, Best made extensive use of non-financial information. Best advocated that, when managing human performance, personal supervision should be guided by appropriate measurement systems: presaging later developments in scientific management, Best developed, inter alia, labour classifications, specified rates of pay, and required working methods and output levels. Like labour tasking on nineteenth century slave plantations, Best's methods may be perceived as “thematic precursor(s) to accounting-based disciplinary controls like standard costs and a transitory element from pre-modern to modern control systems” Tyson [Tyson, T., et al. (2004). Theoretical perspectives on accounting for labor on slave plantations of the USA and British West Indies. Accounting Auditing & Accountability Journal, 17(5), p. 758].     

Public sector reform implications for performance measurement and risk management practice: insights from Australia

In 2013, the Australian Public Service was subject to a process of governance, accountability and performance reform. The implications of these reforms for micro-level practices are unknown. The authors’ empirical findings show that the reforms developed in three stages, each of which has significant implications for embedding performance measurement and risk management within a broader management control system.