A new approach to performance measurement using standards: a case of translating strategy to operations

Abstract

By convention, performance measurement from the business perspective is executed using the accounting standard costing and variance analysis doctrine. However, this practice is hardly theoretical, as it does not measure performance per se; what it is measuring is simply the actual activities and their pre-determined standards. According to theory and good practice, performance measurement is concerned with how strategy is translated into work via the different organizational structures and initiatives down to operations, using appropriate methods and procedures, and typically, the steps consist of specifying of objectives (goals), cascading them down the hierarchy, using standards in measuring progress (or deviation from goals), and rewarding performance. That is, strategy translation is a practical endeavor just like any OM activities. Since it is apparent that there is no conceptually established standard on performance measurement from the business perspective, we develop a performance measurement standard system (PMStd) based on the well-tested Classical Test Theory (CTT) as used by many non-business practitioners. Using a case study methodology, the PMStd is implemented in an emerging Chinese mobile phone manufacturer, and the results suggest that vital performance information on operations can be pinpointed and analyzed for actions to be taken to remedy weaknesses in order to improve performance.