Performance measurement systems, success factors of performance measurement and implementation within organizations

A brief introduction to the methodology

Managers and business management researchers around the globe are increasingly interested in understanding the secrets of high performing organizations. The search for the keywords “high performance organizations” delivers a list of over 2700 books at Amazon.com. Organizations such as the Performance Management Association (PMA) report a rapidly growing number of members. The attendance to the conferences and seminars around the topics of high performing organizations shows constant growth in Europe and in US. Finally, almost all leading consulting companies established teams that provide professional advisory services to private and public organizations, which by now have become a multimillion dollar business (e.g. Tollman et al. 2009).

Since the 1980s, advances in business management research led to the development of various theoretical frameworks describing the characteristics of high performing organizations. Top selling books by Tom Peters and Bob Waterman “In Search of Excellence” and “Built to Last” by Jim Collins are just two of the most prominent examples. While in depth overview of these framework has been intensively described elsewhere (e.g. Bourne et al. 2009; de Waal 2010), the essence of these books can be summarized as follows: few success factors such as “strategy alignment”, “customer orientation” and “personnel excellence” are often shared by high performing organizations.

Such statements may be familiar to you and they may provide you with rhetorical ammunition for the next top executive meeting. But does it really help to manage the business? Despite the great success of the books like “In Search of Excellence” and “Built to Last”, this work has been criticized for being far too general and imprecise for companies to be able to work with. In fact, these success factors are very abstract and are applicable to almost all existing organizations. With other words, this general knowledge is of little value for the practice (Duncan and Harrop 2006).

In 2010s managers want to know exactly which characteristics make their specific organization successful. They want to understand them, to set up projects and to deliver tangible results. The question for managers today remains – which high performance characteristics does my company have and how can these characteristics be managed?

Fortunately, universities and professional consultants developed sophisticated procedures how these characteristics can be identified and described quantitatively (e.g. Pavlov and Bourne 2011). One of the best practice examples for this work is the methodological approach developed by Andy Neely and the Performance Management Association (link to book). This approach is based on a four steps model. These steps are:

1. Causal performance modeling: define your performance criteria, identify your specific success factors, measure the relationships between the factors and performance
2. Set up projects: based on insights from step 1, setup projects that impact your success factors
3. Measure progress: measure your performance with key performance indicators
4. Make decisions: do your decisions have an impact on the success factors and consequently on the performance?

Klick on the chart below to see the framework.

In the following blogs, I will report on each of the four steps presented above starting with the first step. You will find out how powerful statistical methods enable managers to better understand the performance driving characteristics of their organizations and which are worth being actively managed.

References:

• Bourne, Mike; Mura, Matteo; Franco-Santos, Monica; Pavlov, Andrey; Martinez, Veronica; Lucianetti, Lorenzo (2009): Performance management practices and the drivers of business performance. Performance Measurement Association Conference Paper. Centre for Business Performance. Bedfordshire.
• Duncan, Sue; Harrop, Anne (2006): A user perspective on research quality. In International Journal of Social Research Methodology 9 (2), pp. 159–174. Available online at 10.1080/13645570600595462.
• Ed Barrows and Andy Neely (2011): Managing Performance in Turbulent Times: Analytics and Insight ; John Wiley & Sons; Cambridge.
• Pavlov, Andrey; Bourne, Mike (2011): Explaining the effects of performance measurement on performance. An organizational routines perspective. In International Journal of Operations & Production Management 31 (1), pp. 101–122.
• Tollman, Peter; Bixner, Ralf; Keenan, Perry; Powell, Kimberly (2009): Cascading change. Edited by Boston Consulting Group. Boston.
• Waal, André de (2010): Performance-driven behavior as the key to improved organizational performance. In Measuring Business Excellence 14 (1), pp. 79–95. Available online at http://www.emeraldinsight.com/journals.htm?issn=1368-3047&volume=14&issue=1.

Read also:

• Huelsbeck, David P.; Merchant, Kenneth A.; Sandino, Tatiana (2011): On testing business models. In Accounting Review 86 (5), pp. 1631–1654.
• Hung-Yi, Wu (in press) Constructing a strategy map for banking institutions with key performance indicators of the balanced scorecard Evaluation and Program Planning, Available online 8 December 2011
• Original Research Article 
  ► It demonstrates a clear roadmap to help management prioritize performance indicators based on influential directions and strengths of causal relationships. ► Three most essential evaluation indicators for banking performance are customer satisfaction, sales performance, and customer retention rate. ► Through the strategy map, management could better invest limited resources in the areas that need improvement most. ► Nonfinancial measures, particularly, in the customer perspective, may be more emphasized by the service sector as the foremost outcome measures. ► The proposed framework can be applicable to institutions in other industries.