strategic performance measurement

Topics: Strategic management, Management, Strategic planning Pages: 12 (5774 words) Published: December 3, 2014
Strategic Performance Measurement: Benefits, Limitations and Paradoxes1 Pietro Micheli and Jean-Francois Manzoni

Extended abstract
Strategic Performance Measurement (SPM) can be both functional and dysfunctional for organisations. SPM can help organisations define and achieve their strategic objectives, align behaviours and attitudes and, ultimately, have a positive impact on organisational performance. However, SPM has also been criticised for several reasons, such as encouraging perverse behaviours, stifling innovation and learning, and having little effect on decision-making processes. If both perspectives are valid, how can organisations make SPM more of an asset and less of a liability? In this article, we argue that the design of an SPM system (SPMS) and the definition of its roles are fundamental factors determining its success and impact on business performance. Indeed, only by carefully considering characteristics and roles will managers reap the full benefits, and SPMSs make a substantial contribution to the achievement of organisations’ strategic goals. Our conclusions are relevant for both the theory and the practice of SPM. First, the benefits and limits of SPM depend on the very definition of what SPM should be, and on whether the measurement of performance is linked to both formulation and implementation of strategy. Secondly, the types of behaviour promoted by the SPMS are determined primarily by the uses of the system, particularly whether it is adopted for control or learning purposes. Thirdly, organisations should regard their SPMS as a means of fostering alignment to an existing strategy, but also of supporting empowerment and the continuous adaptation of strategy and tactics. Finally, in order for SPM to support decision-making processes and positively impact on organisational performance, targets and indicators have to be linked to strategy and considered in strategic reviews. Following an introductory section on the theme of SPM, we examine the benefits, limits and paradoxes of SPM. We conclude by arguing for intelligent and purposeful designs of performance measurement systems, and for research that breaks the barriers of academic silos and puts an end to sterile contrapositions between advocates and critics of SPM.

Introduction
Since the early 1990s, organisations have invested increasing amounts of money and resources in measuring their performance. Recent reports suggest that an average company with $1 billion sales spends over 25,000 person-days per year planning and measuring performance [1]. In the public sector, following the recent introduction of ‘New Public Management’ reforms in a number of OECD countries, considerable attention has been paid to strategic performance measurement by governments. UK government departments recently estimated they spend over £150 million per year solely to monitor progress on national targets. This excludes the cost of front-line organisations gathering, analysing and providing data [2]. A number of studies have found SPM generally productive and helpful in improving organisational performance [3]. Specifically, research has shown that, through appropriate measurement and management of performance, organisations can benefit in the following areas: Formulation, implementation and review of organisational strategy [4] Communication of results achieved to stakeholders, thus strengthening corporate brand and reputation [5] Motivation of employees at all levels, promotion of a performance improvement culture, and fostering of organisational learning [6]. Other studies, however, show that despite the substantial resources invested by organisations, SPM related initiatives such as the implementation of scorecards can often fail to bring the intended benefits. Worse, if done poorly, they can be very expensive, and not only ineffective but harmful and indeed destructive [7]. Therefore, if organisations are to realise value and become more sustainable in...

References: [2] A. Neely, P. Micheli, and V. Martinez, Acting on information: lessons from theory and practice, Report prepared for the National Audit Office. Publication sponsored by the Advanced Institute of Management (2006).
[7] Royal Statistical Society, Performance indicators: good, bad and ugly. This document can be accessed from the Royal Statistical Society site at:http://www.rss.org.uk (2005).
[8] X. Gimbert, J. Bisbe and X. Mendoza, The role of performance measurement systems in strategy formulation processes, Long Range Planning 43(4), 477-497 (2010).
[9] A. Dossi and L. Patelli, You learn from what you measure: financial and non-financial performance measures in multinational companies, Long Range Planning 43(4), 498-526 (2010).
[10] K. Kolehmainen, Dynamic strategic performance measurement systems: balancing empowerment and alignment, Long Range Planning, 43(4), 527-554 (2010).
[11] S. Melnyk, J. Hanson and R. Calantone, Hitting the target…but missing the point: resolving the paradox of strategic transition, Long Range Planning, 43(4), 555-574 (2010).
[13] R. Simons, Levers of Control: How Managers Use Innovative Control Systems to Drive Strategic Renewal, Harvard Business School Press, Boston (1995).
[16] J.-F. Henri, (2006) op. cit. at Ref. 14.
[17]. J. Magretta, What management is - and why it’s everyone’s business, Harper Collins Business, London (2002).
[18] M. Hall, (2008) op. cit. at Ref. 12.
[20] K. N. Eisenhardt and D. N. Sull, Strategy as simple rules, Harvard Business Review 79(1), 106-116 (2001).
[21] J. Magretta, (2002) op. cit. at Ref. 17.
[22] M. Chwastiak, Rationality, performance measures and representations of reality: planning, programming and budgeting and the Vietnam war, Critical Perspectives on Accounting 17, 29-55 (2006).
[23] D. O’Sullivan and A. V. Abela, Marketing performance measurement ability and firm performance, Journal of Marketing 71(2), 79-93 (2007).
[25] A. Neely and M. Bourne, Why measurement initiatives fail, Measuring Business Excellence 4(4), 3-7 (2000).
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay on Md. Saddam Hossain
  • Essay about performance measurement
  • Strategic Management Accounting and Performance Measurement Essay
  • Performance Measurement Essay
  • Performance Measurement Essay
  • Performance Measurements Essay
  • Performance Measurement Essay
  • Essay on Performance Measurement

Become a StudyMode Member

Sign Up - It's Free