Abstract
The practice of measuring performance of the finance function as a business support unit is not widespread. This study assessed the importance of measuring finance function performance, by ascertaining whether such measurement facilitates identification of the relative efficiency of business finance functions, and by establishing its impact, if any, on overall company performance. Focussing on a sample of companies in the South African Freight Forwarding industry, a performance metric was developed and implemented to measure finance function performance. Relative finance function efficiency was then evaluated using inputorientated data envelopment analysis (DEA) to identify ‘best in class’ performance and to benchmark participants’ performance. Further, value chain DEA (VC-DEA) was applied to evaluate finance function efficiency simultaneously with overall company efficiency. Results show that implementation of the performance metric together with DEA facilitated the benchmarking of the finance functions of the sample group and the establishment of improvement targets for the finance functions determined as inefficient. In addition, a link between overall company performance and finance function performance in terms of inputs was confirmed; however, this link was not conclusively established as regards finance function performance in terms of outputs. The contribution of the study includes confirmation that implementation of the performance metric together with DEA facilitates the critical evaluation of finance function performance, thus establishing the importance of measuring the performance of the finance functions. In addition, incorporating the use of DEA in a performance framework for the finance function as a business support unit has extended the range of applications of DEA.
Highlights
In order to manage business performance effectively, an appropriate performance measurement system needs to be in place
In support of performance measurement, Neely (2004)argues that the act of deciding what to measure has value in that it forces management to be clear about its goals, and that having appropriate measures in place facilitates the communication of a well-defined structure for moving towards the achievement of these goals
In addition to much research relating to overall business performance measurement systems, there are empirical studies concerning measurement systems designed to manage the performance of business support units
Summary
In order to manage business performance effectively, an appropriate performance measurement system needs to be in place. In addition to much research relating to overall business performance measurement systems, there are empirical studies concerning measurement systems designed to manage the performance of business support units Examples include those related to the purchasing and supply chain management functions (PSM) (Das & Narasimhan, 2000; Easton, Murphy, & Pearson, 2002; Ellram, Zsidisin, Siferd, & Stanly, 2002; Narasimhan, Jayaram, & Carter, 2001; Saranga & Moser, 2010), and those related to the information technology (IT) function (Chen & Zhu, 2004; Ebrahimnejad, Tavana, Lotfi, Shahverdi, & Yousefpour, 2014; Mitra, Sambamurthy, & Westerman, 2011; Wang, Gopal, & Zionts, 1997).There is, evidence that performance measurement of the finance function as a business support unit is not commonplace (Shewell, 2011; Van Arnum, 2004). If companies do not set up measurements to establish baseline performance for the finance function it is not possible to measure improvements (PricewaterhouseCoopers [PWC], 2015)
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