Use Of Performance Measurement Systems Research Articles

The role of digital governance in the integration of performance measurement systems uses and Industry 4.0 maturity

ABSTRACT This study aims to investigate the effect of different types of performance measurement systems (PMSs) use (diagnostic use and interactive use) on Industry 4.0 maturity, examining whether there is a need for digital governance to facilitate the relationship between different types of PMS use (diagnostic use and interactive use) and Industry 4.0 maturity. Although the use of PMSs has been identified as beneficial in the Industry 4.0 context, relatively little research exists on the digital governance that enables firms to lead and control digital processes. The paper posits that digital governance plays an important role in mediating the relationship between PMS use and Industry 4.0 maturity. The data were gathered from 280 small- and medium-sized enterprises (SMEs), which operate in the service and manufacturing industry in Finland. The results demonstrate that different types of PMSs use cannot provide Industry 4.0 maturity alone, so there is a need for digital governance to fuel different types of PMS use, hence leading to Industry 4.0 maturity. However, diagnostic use of PMSs significantly hinders digital governance, while the interactive use of PMSs significantly drives digital governance. Finally, digital governance facilitates Industry 4.0 maturity.

Controllers’ role ambiguity and work-related outcomes: exploring the influence of using performance measurement systems

PurposeScholars have recognised that an inherent ambiguity underlines the roles of controllers, as they navigate multiple expectations of various organisational counterparts, including the control-type needs of corporate top managers and the decision-making needs of business managers. Role ambiguity (RA) is a form of psychological distress leading to dysfunctional work-related outcomes (WROs); therefore, the purpose of this study is to analyse whether the use of performance measurement systems (PMSs) by controllers influences their RA and, in turn, their job satisfaction and organisational commitment.Design/methodology/approachThis study used data collected from a survey of 158 controllers to investigate whether controllers’ diagnostic and interactive uses of PMSs affect their RA and, indirectly, organisational commitment and job satisfaction.FindingsThe results show that an interactive use of PMSs by controllers decreases their RA, with positive effects on their commitment and satisfaction. On the contrary, PMS diagnostic use has no significant influence on either RA or WROs.Originality/valueThis study contributes to the body of literature on the psychological effects of PMSs related to RA, providing further empirical evidence to suggest that the adoption of PMSs may decrease individuals’ RA and, in turn, increase their WROs. In particular, this study enriches the existing literature with two elements of novelty: focus on controllers’ role instead of that of popular managers and focus on the behavioural effects of the diagnostic and interactive uses of PMSs.

Performance measurement systems, hierarchical accountability and enabling control

The theory of enabling control explains how the development and design of performance measurement systems (PMSs) induce subordinate managers to experience PMSs as enabling. However, PMSs are often vital to superior managers’ control. The empirical research indicates that PMSs cease to be enabling when given a large degree of attention in control processes. We use a qualitative case study, abductive research, and a hierarchical accountability perspective to explore how superior managers’ use of PMSs for control purposes may support subordinate managers’ experience of PMSs as enabling. We show how superior managers’ choices of how to use PMSs to demand and react to accounts may trigger subordinate managers to use the design characteristics of enabling control. We also show how PMSs can be important to superior managers’ control and still be experienced as enabling by subordinate managers. We show the importance of two choices for superior managers’ use of PMSs in hierarchical accountability: (1) extend performance evaluation over time and (2) limit the discretion for subordinate managers to play out within hierarchical communication.

Management control systems and performance in strategic supply relationships

PurposeThis study analyzes the relationship between two elements of the management control systems (MCSs) (performance measurement systems (PMSs) and socialization processes) and four dimensions of the theory of cooperation (information sharing, problem-solving, adaptability to changes and restraint from the use of power) and how this translates into performance in contracts of strategic supply relationships (SSRs).Design/methodology/approachA survey was carried out to investigate the theoretical model of Mahama (2006) in the empirical field. The population investigated is composed of service stations dealers affiliated with a union of southern Brazil, and the sample consists of 75 questionnaires.FindingsThe structural equation show that the two elements of the management control systems (PMS and socialization processes) do not influence performance when their direct effects are evaluated. However, when evaluated together with the cooperation, the results indicate that information sharing and problem-solving reflect into improved performance in contracts of SSRs.Research limitations/implicationsThe results are partially similar to Mahama's study (2006). In this study, direct association between socialization processes and cooperation dimensions, related to adaptability to changes and restraints from the use of power, was not identified. Furthermore, the use of PMSs is not associated with the improvement of performance in SSRs.Originality/valueThe distinction of this and Mahama's (2006) study focuses on the types of contracts, to identify whether the dimensions of cooperation imply in the contractual relationship.

Requirements in performance measurement systems of construction projects from the lean production perspective

Performance measurement (PM) generates useful data for process control, facilitates communication between different sectors, and helps to align efforts on the most important aspects of the business. Thus, PM plays a key role in the management of projects and organizations. PM is also important in the implementation of lean production principles and methods, such as reducing the share of nonvalue-adding activities, increasing process transparency, building continuous improvement into the process, and benchmarking. Moreover, the adoption of the lean production philosophy requires changes in PM. Despite its importance, limited studies have been conducted on the use of PM systems for assessing the impact of lean production programs in construction projects. In addition, studies on how lean companies (or projects) use performance measurement and to what extent the indicators adopted reflect the result of actions that have been undertaken are limited. This study proposes a set of requirements in PM systems of construction projects from the perspective of lean production and a taxonomy of performance metrics for lean production systems. Five empirical studies have been carried out on construction companies from South America involved in the implementation of lean production systems. The scope of this investigation is limited to the construction projects as production systems rather than PM at the level of construction organizations.

Do different uses of performance measurement systems in hospitals yield different outcomes?

BackgroundInspired by the new public management movement, many public sector organizations have implemented business-like performance measurement systems (PMSs) in an effort to improve organizational efficiency and effectiveness. However, a large stream of the accounting literature has remained critical of the use of performance measures in the public sector because of the inherent difficulty in measuring output and the potential adverse effects of performance measurement. Although we acknowledge that PMSs may indeed sometimes yield adverse effects, we highlight in this study that the effects of PMSs depend on the way in which they are used.PurposeThe aim of this study was to investigate various uses of PMSs among hospital managers and their effects on hospital outcomes, including process quality, degree of patient-oriented care, operational performance, and work culture.MethodologyWe use a survey sent to 432 Dutch hospital managers (19.2% response rate, 83 usable responses). For our main variables, we rely on previously validated constructs where possible, and we conduct ordinary least squares regressions to explore the relation between PMS use and hospital outcomes.ResultsWe find that the way in which PMSs are used is associated with hospital outcomes. An exploratory use of PMS has a positive association with patient-oriented care and collective work culture. Furthermore, the operational use of PMSs is positively related to operational performance but negatively related to patient-oriented care. There is no single best PMS use that positively affects all performance dimensions.Practice ImplicationsThe way in which managers use PMSs is related to hospital outcomes. Therefore, hospital managers should critically reflect on how they use PMSs and whether their type of use is in line with the desired hospital outcomes.

Evidence for the Feedback Role of Performance Measurement Systems

Performance measurement systems (PMSs) are used to diagnose and remediate problems, termed the “decision-facilitating” or feedback role of management control. We examine whether use of PMSs by individual decision makers is associated with better performance. Experimental studies have isolated individual-level effects of feedback on decision quality; however, it is difficult to extend these findings to natural settings. Archival and survey studies offer evidence on the association between the presence of PMSs and performance but have had limited success in measuring decision makers’ actual use of PMSs and addressing endogeneity of the decision to use PMSs. We use unobtrusively collected data on actual PMS use in 30 K–12 charter schools over three years to test whether teachers who make greater use of two PMSs are associated with greater growth in student learning. We find that teachers’ use of PMSs is associated with increased student learning, consistent with the premise that PMSs facilitate teacher interventions and improve student outcomes. The results are both statistically and materially significant, and they are better explained by PMS use than by selection effects of better teachers using PMSs. Consistent with the organization’s focus on “at-risk” students, the strongest effects of teachers’ use of one PMS are concentrated among the lowest-performing students. In sum, we find broad support for the thesis that the feedback role of PMSs is associated with meaningful performance improvement. This paper was accepted by Suraj Srinivasan, accounting.

Performance measurement systems as generators of cognitive conflict in ambidextrous firms

This study explores the decision-facilitating role of performance measurement systems (PMSs) in firms attempting to translate competence ambidexterity (i.e., the simultaneous pursuit of exploration and exploitation) into innovation ambidexterity outcomes (i.e., the achievement of both radical and incremental innovations). Drawing on paradox and organisational conflict literature, this study emphasises the role of cognitive conflict, generated by PMSs, in shaping the relationships between competence ambidexterity and innovation ambidexterity. Based on survey data from a sample of 90 Irish firms, our findings indicate that competence ambidexterity is associated with (a) the choice to have a balanced set of performance measures, and (b) the use of PMSs for frequent and intensive debate between top managers. Furthermore, the study reveals that these choices are interdependent, as they function as complements in generating cognitive conflict, which in turn drives the realisation of innovation ambidexterity outcomes. The results also show that cognitive conflict is not directly associated with the development of competence ambidexterity, but is instead generated through the conjoint action of a balanced PMS design and the use of PMSs for intensive debate. Overall, this study demonstrates the interdependent nature of choices concerning the design and use of PMSs, and the significant role of PMSs as generators of cognitive conflict in firms attempting to achieve ambidexterity.

Intellectual capital and performance measurement systems in Iran

PurposeThe purpose of this paper is to empirically explore how the effect of intellectual capital (IC) on organizational performance is indirect and mediated through performance measurement (PM) systems.Design/methodology/approachData were collected from a survey of 128 chief financial officers of Iranian publicly listed companies. Hypotheses were tested using partial least squares regression, a structural modeling technique which is appropriate for highly complex predictive models.FindingsResults from the structural model indicate that, in general, companies with a higher level of IC place a premium on the balanced use of PM systems in a diagnostic and interactive style. Furthermore, the results provide some evidence that IC is indirectly associated with organizational performance through the intervening variable of the balanced use of interactive and diagnostic PM systems.Practical implicationsThis study sheds light on the issue of how senior management should use PM systems to take full advantage of intellectual assets which could lead to improved organizational performance.Originality/valueThis is the first study of its kind to synthesize a model which examines IC, PM systems, and organizational performance. Although the effect of different types of intangible assets on performance has been substantially examined in the literature, less effort has been devoted to understanding the role of PM systems in leveraging an organization’s IC.

Evidence for the Feedback Role of Performance Measurement Systems

Performance measurement systems (PMSs) are used to diagnose and remediate problems, termed the ‘decision-facilitating’ or feedback role of management control. We examine whether use of PMSs by individual decision makers is associated with better performance. Experimental studies have isolated individual-level effects of feedback on decision quality; however, it is difficult to extend these findings to natural settings. Archival and survey studies offer evidence on the association between the presence of PMSs and performance, but have had limited success in measuring decision makers’ actual use of PMSs and in addressing endogeneity of the decision to use PMSs. We use unobtrusively collected data on actual PMS use in 30 K-12 charter schools over three years to test whether teachers who make greater use of two PMSs are associated with greater growth in student learning. We find that teachers’ use of PMSs is associated with increased student learning, consistent with the premise that PMSs facilitate teacher interventions and improve student outcomes. The results are both statistically and materially significant and are better explained by PMS use than by selection effects of better teachers using PMSs. Consistent with the organization’s focus on “at risk” students, the strongest effects of teachers’ use of one PMS are concentrated among the lowest-performing students. In sum, we find broad support for the thesis that the feedback role of PMSs is associated with meaningful performance improvement.

Implementing performance measurement systems

Purpose– This paper aims to explore the perceived drivers behind the implementation of performance measurement systems (PMSs) in Indonesian local government (ILG). It analytically assesses Indonesia’s attempt to introduce PMSs by addressing three research questions: Do organisations in developing countries actually use PMSs to aid decision-making and help plan for future performance improvement? (RQ1) Do the three isomorphic pressures exist in the development and use of PMSs? (RQ2) and If institutional isomorphism is evident, can accountability exist within the development and use of PMSs given these pressures? (RQ3).Design/methodology/approach– This research explores the perceived drivers behind the implementation of performance measurement systems (PMSs) in Indonesian local government (ILG). It analytically assesses Indonesia’s attempt to introduce a PMS by addressing three research questions:RQ1Do organisations in developing countries actually use PMSs to aid decision-making and help plan for future performance improvement?RQ2Do the three isomorphic pressures exist in the development and use of PMSs? andRQ3If institutional isomorphism is evident, can accountability exist within the development and use of PMSs given these pressures.Findings– Results determined that although employees perceived coercive isomorphism as being a driver of ILG compliance with President B.J. Habibie’s presidential instruction (Inpres No. 7/1999), the Laporan Akuntabilitas Kinerja Institusi Pemerintah/Performance Accountability Report of State Apparatus (known as LAKIP), many councils were still not reporting and those who were, were not doing it well. Many councils lacked management motivation, with some choosing to merely mimic (mimetic isomorphism) what others were doing. Better-resourced councils made use of external consultants or local universities where knowledge was shared (normative isomorphism).Practical implications– An understanding of factors influencing the development and use of performance measures, in turn, can be used not only to improve PMSs in the future but to improve the quantity and quality of LAKIP reporting.Originality/value– The theoretical development and interpretation of this research is drawn from institutional theory with a major contribution being that it provides an in-depth conceptual overview and understanding of factors influencing the development and use of performance measures. Further, it fills a gap in the literature exploring PMSs and accountability in a developing country – in this case, Indonesia.

Performance measurement adoption and business performance

Purpose – Seaborne trade accounts for 90 per cent of world’s total trade activity. Ship management is a highly skilled discipline with a high degree of complexity yet it has failed to follow with the same pace the advancements of performance measurement systems (PMSs) like other industries. Business performance measurement has only recently become a relevant topic in shipping. The purpose of this paper is to evaluate the adoption of PMS in the shipping industry. Design/methodology/approach – A questionnaire was developed based on the performance measurement literature and submitted to 100 shipping companies around the world obtaining 41 usable questionnaires covering 13 countries from Europe, Asia and America. Findings – The adoption of performance measurement differs based on type of business: liquid bulk (tanker) vessels and bulk carriers or containers. Quality and safety management systems have fostered the adoption of performance measurement positively in tankers impacting decision making and the performance of shipping companies using PMS. Research limitations/implications – While the sample is representative of the situation of the industry, it represents the results of one point in time. Practical implications – The use of PMSs can be a tool to achieve superior performance but it may be fostered by, and has to be aligned with the needs of, internal and external stakeholders. Early adopters in the shipping industry are among the leaders in the industry. Originality/value – The paper is a unique contribution to performance measurement since it explores the adoption of PMSs and its impact in performance at industry level in a global industry.

The effect of performance measurement systems on firm performance: A cross-sectional and a longitudinal study

Performance measurement (PM) systems have been popularized over the last 20 years and the operations management literature is replete with discussion of metrics and measurement systems. Yet, a comprehensive nomological network relating types of PM system uses to organizational capabilities and performance is lacking. Furthermore, there is scant empirical evidence attesting to the explanatory efficacy of PM systems as it relates to organizational performance. We view PM system uses through the lenses of the Resource Orchestration Theory (ROT) and explore specific relationships of underlying variables by relying on the Organizational Information Processing Theory (OIPT). Resting on the extant literature, we identify two types of uses which include Diagnostic Use (the review of critical performance variables in order to maintain, alter, or justify patterns in an organizational activity) and interactive use (a forward-looking activity exemplified by active and frequent involvement of top management envisioning new ways to orchestrate organizational resources for competitive advantage) and relate them along with their interaction (i.e., dynamic tension) to organizational capabilities. We further link capabilities to target performance, which subsequently impacts organizational performance (operationalized through both perceptual and objective financial performance measures). The nomological network is tested via a cross sectional study (386 Italian firms) while the efficacy of PM systems to explain organizational performance is examined by using longitudinal panel data approaches over a 10 year period. There is sufficient evidence to suggest that the use of PM systems leads to improved capabilities, which then impact performance. Contrary to the extant literature, however, we discovered that Diagnostic Use appears to be the most constructive explanatory variable for capabilities. On the other hand, in light of a longitudinal study, we also uncovered that Diagnostic Use experienced depreciating returns as far as objective financial measures are concerned. Also, when high levels of Diagnostic Use were coupled with low levels of Interactive Use, they produced the lowest levels of organizational capabilities. Conversely, high levels of both types of PM system use generated extraordinary high levels of capabilities. There is sufficient evidence to suggest that organizations cannot rely merely on Diagnostic Use of PM systems. We also learned that the effects of PM systems (measured via adaptation) fade unless high learning rates are applied. We offer detailed recommendations for future research which have theoretical as well as empirical implications.

Performance-measurement system design and functional strategic decision influence: The role of performance-measure properties

Although conceptual research in the accounting literature suggests that the use of performance-measurement systems affects the influence of organizational actors, empirical evidence for this suggestion is largely limited to anecdotal evidence and a few qualitative case studies. Drawing on institutional theory, we develop predictions that link the use of performance measures to the influence of functional subunits in strategic decision making. Our research model tests the effects of two types of performance-measure use on functional strategic decision influence: (1) decision-facilitating use and (2) use for accountability. Moreover, we propose that the effects of using performance measures for these two purposes depend on the reliability and functional specificity of the measures the functional subunits use. We empirically test our hypotheses and a research question with survey data from 192 marketing directors of German firms. We find that the effect of performance-measure use on functional strategic decision influence depends on the two properties of the performance measures. We find no significant effects when these properties are not considered. However, decision-facilitating use of performance measures has a positive effect on functional strategic decision influence when the measures are specific to the functional subunit. With respect to the use of performance measures for accountability we find countervailing effects, as the effect on functional strategic decision influence is positive when the measures are more reliable but negative when they are more specific to the functional subunit. We discuss these findings in light of existing evidence and theory.

Evolutionary paths of performance measurement

PurposeThis paper aims to understand the evolutionary paths of performance measurement (PM) from the 1980s to the present.Design/methodology/approachThe paper is a narrative review. The sources of literature reviewed are from diverse academic disciplines (e.g. operations management, strategic management, management accounting and organisational behaviour). Three main types of literature were selected, namely scientific literature, professional journals, and books. The authors' approach is illustrative and selective. It is based on the belief that societal and organisational contexts provide the clues for the appropriateness in design and use of a managerial innovation. It describes the transition in performance measurement, incorporating a number of PM innovations as illustrative exemplars.FindingsManagement needs, arriving from the evolving business ecology and focused on creating and sustaining competitive advantage, drive the destiny of PM systems during their evolutionary progression. Performance measurement has evolved from various perspectives. The evolution took place in four major paths, from operations to strategic, measurement to management, static to dynamic and economic‐profit to stakeholder focus.Practical implicationsThe evolutions embody trends in development and use of PM systems over the long periods that point the way for future PM to develop and evolve.Originality/valueThe contemporary evolution of PM exhibited in the connection with its evolving contexts that is not explicitly acknowledged in the literature gives the raison d'être to this review.

Organization structure, competition and performance measurement systems and their joint effects on performance

This study examines the effect of organization structure and competition on the design of performance measurement systems (PMSs) and their joint effects on performance. The design of performance measurement systems is investigated using two dimensions: the use of integrated measures related to the four perspectives of the balanced scorecard (BSC) and the stage of development of PMSs. The data for this study were collected from 168 valid responses (25.19%) of Taiwanese firms listed on the Taiwan Stock Exchange. The results indicate that organization structure is significantly associated with the design of PMSs. Compared to mechanistic organizations, organic organizations make greater use of integrated measures and the higher developmental stages of PMSs. The findings also partly support the presence of joint effects on performance involving organization structure, competition, and the use of PMSs. Specifically, the results show that when there is greater competition among firms, a positive relationship between the stages of PMS development and performance is of higher significance. Another conclusion derived from this study is that the use of integrated measures is more relevant with respect to organizational performance in mechanistic organizations than in organic ones.

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.

AN EXPLORATORY STUDY ON R&D PERFORMANCE MEASUREMENT PRACTICES: A SURVEY OF ITALIAN R&D-INTENSIVE FIRMS

Although measuring the performance of a firm's R&D activities is a very challenging task, the critical role played by R&D in creating and sustaining a firm's competitive advantage has raised the need to adopt appropriate performance measurement systems (PMSs) in R&D units. Therefore, management scholars have been studying this issue and PMSs have diffused in the R&D departments of most R&D-intensive companies. Nevertheless, empirical investigations into the diffusion and practical use of PMSs in R&D units mainly concern Anglo-Saxon countries, where R&D information disclosure requirements have been in place for a long time. The purpose of this paper is to study the diffusion and practical use of PMSs in the R&D units of firms that are not subject to these types of external institutional influences. With this aim, the results of a survey on the R&D performance measurement practices adopted by a sample of Italian R&D-intensive firms are discussed. They allow to understand why and how R&D-intensive companies design and use a PMS in their R&D units for managerial purposes.

Traditional or contemporary? The prevalence of performance measurement system types

PurposeThe paper seeks to examine the prevalence of traditional versus contemporary (balanced) types of performance measurement system (PMS) in an emerging economy and link incidence to key organisational factors of size, age and ownership.Design/methodology/approachData on design and use of PMSs are collected through a questionnaire survey (n=149) of electrical and electronic firms. Hierarchical cluster analysis identifies two PMS groups and assigns them to traditional and contemporary types, and then links them to key organisational factors via contingency tables.FindingsUse of contemporary PMS dominates the sample. PMS type is significantly associated with size and ownership, while age is not. Firms more likely to use contemporary PMSs are foreign‐owned and large in terms of number of employees.Research limitations/implicationsThis survey‐based research employs multivariate analysis and therefore standard limits for such statistical work apply. Results rely on hierarchical cluster analysis.Practical implicationsIf balanced approaches are more effective, as is argued by many, then a firm without such a style of PMS is at a competitive disadvantage given the high incidence of use.Originality/valueThe paper establishes a framework for a contemporary type of PMS that integrates balanced scorecard and other balanced approaches, then collects data in an emerging economy. Links use of contemporary PMS type to key organisational factors.

Performance Measurement Practices in Small and Medium Size Manufacturing Enterprises in Australia

This study examines the use of financial and non-financial performance measures in small and medium size manufacturing enterprises (SMEs) in Australia. The paper argues that SMEs in general make greater use of financial than non-financial measures of performance, and also non-owner managed firms make greater use of formal measurement systems than owner-managed firms. This study is based on data collected in 2004 from a survey of 86 manufacturing SMEs and semi-structured interviews conducted with managers in eight SMEs in Western Sydney metropolitan area in Australia. The data were analysed using two sample t-tests, regression analysis and chi-square test. The study found that SMEs place a greater reliance on financial measures of performance, although with increase in size there is a tendency to make more use of non-financial measures. Also, SMEs with non-owner managers make greater use of multiple performance measures than those with owner managers. It also reveals that for planning, control, and decision making purposes, SMEs use information generated from performance measurement systems (PMSs) to varying degrees. Time and resource constraints were noted by the respondents as the main factors that inhibit effective use of PMSs.