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Abstract

Performance measurement and management (PMM) is a management and research paradox. On one hand, it provides management with many critical, useful, and needed functions. Yet, there is evidence that it can adversely affect performance. This paper attempts to resolve this paradox by focusing on the issue of “fit”. That is, in today's dynamic and turbulent environment, changes in either the business environment or the business strategy can lead to the need for new or revised measures and metrics. Yet, if these measures and metrics are either not revised or incorrectly revised, then we can encounter situations where what the firm wants to achieve (as communicated by its strategy) and what the firm measures and rewards are not synchronised with each other (i.e., there is a lack of “fit”). This situation can adversely affect the ability of the firm to compete. The issue of fit is explored using a three phase Delphi approach. Initially intended to resolve this first paradox, the Delphi study identified another paradox – one in which the researchers found that in a dynamic environment, firms do revise their strategies, yet, often the PMM system is not changed. To resolve this second paradox, the paper proposes a new framework – one that shows that under certain conditions, the observed metrics “lag” is not only explainable but also desirable. The findings suggest a need to recast the accepted relationship between strategy and PMM system and the output included the Performance Alignment Matrix that had utility for managers.
Management
Accounting
Research
25
(2014)
173–186
Contents
lists
available
at
ScienceDirect
Management
Accounting
Research
jo
ur
nal
homep
age:
www.elsevier.com/locate/mar
Is
performance
measurement
and
management
fit
for
the
future?
Steven
A.
Melnyka,,
Umit
Bititcib,
Ken
Plattsc,
Jutta
Tobiasd,
Bjørn
Andersene
aDepartment
of
Supply
Chain
Management,
The
Eli
Broad
Graduate
School
of
Management
Michigan
State
University,
USA
bUniversity
of
Strathclyde,
Glasgow,
UK
cCentre
for
Strategy
&
Performance,
Department
of
Engineering,
Cambridge
University,
UK
dCentre
for
Business
Performance
Cranfield
University
School
of
Management,
MK43
0AL,
UK
eProduction
and
Quality
Engineering,
Norwegian
University
of
Science
&
Technology,
Trondheim,
Norway
a
r
t
i
c
l
e
i
n
f
o
Keywords:
Performance
measurement
Performance
management
Strategic
fit
Delphi
study
a
b
s
t
r
a
c
t
Performance
measurement
and
management
(PMM)
is
a
management
and
research
para-
dox.
On
one
hand,
it
provides
management
with
many
critical,
useful,
and
needed
functions.
Yet,
there
is
evidence
that
it
can
adversely
affect
performance.
This
paper
attempts
to
resolve
this
paradox
by
focusing
on
the
issue
of
“fit”.
That
is,
in
today’s
dynamic
and
turbu-
lent
environment,
changes
in
either
the
business
environment
or
the
business
strategy
can
lead
to
the
need
for
new
or
revised
measures
and
metrics.
Yet,
if
these
measures
and
metrics
are
either
not
revised
or
incorrectly
revised,
then
we
can
encounter
situations
where
what
the
firm
wants
to
achieve
(as
communicated
by
its
strategy)
and
what
the
firm
measures
and
rewards
are
not
synchronised
with
each
other
(i.e.,
there
is
a
lack
of
“fit”).
This
situa-
tion
can
adversely
affect
the
ability
of
the
firm
to
compete.
The
issue
of
fit
is
explored
using
a
three
phase
Delphi
approach.
Initially
intended
to
resolve
this
first
paradox,
the
Delphi
study
identified
another
paradox
one
in
which
the
researchers
found
that
in
a
dynamic
environment,
firms
do
revise
their
strategies,
yet,
often
the
PMM
system
is
not
changed.
To
resolve
this
second
paradox,
the
paper
proposes
a
new
framework
one
that
shows
that
under
certain
conditions,
the
observed
metrics
“lag”
is
not
only
explainable
but
also
desir-
able.
The
findings
suggest
a
need
to
recast
the
accepted
relationship
between
strategy
and
PMM
system
and
the
output
included
the
Performance
Alignment
Matrix
that
had
utility
for
managers.
©
2013
Published
by
Elsevier
Ltd.
1.
Introduction
It
has
been
long
recognised
that
performance
measure-
ment
and
management
(PMM)
is
critical
for
the
effective
and
efficient
management
of
any
business.
PMM
facilitates
effective
control
and
correction
by
reporting
the
current
level
of
performance,
and
comparing
it
with
the
desired
level
of
performance
(i.e.,
the
standard).
More
importantly,
the
PMM
system
also
communicates
strategic
intent
and
Corresponding
author.
E-mail
address:
melnyk@msu.edu
(S.A.
Melnyk).
importance
to
the
rest
of
organisation
in
terms
of
what
has
been
measured
and,
as
importantly,
by
what
has
not
been
measured
(Magretta
and
Stone,
2002).
To
some
researchers
(e.g.,
Magretta
and
Stone,
2002),
PMM
is
more
important
than
the
mission
statement:
metrics
enable
the
organisa-
tion
to
convey
the
strategy
to
everyone
else
in
terms
they
can
understand,
thus
making
the
strategy
concrete
and
meaningful.
The
use
of
performance
measurement
and
manage-
ment
systems
is
frequently
recommended
for
facilitating
strategy
implementation
and
enhancing
organisational
performance
(e.g.,
Davis
and
Albright,
2004)
a
view
that
coincides
with
much
of
the
Balanced
Scorecard
rhetoric
1044-5005/$
see
front
matter
©
2013
Published
by
Elsevier
Ltd.
http://dx.doi.org/10.1016/j.mar.2013.07.007
174
S.A.
Melnyk
et
al.
/
Management
Accounting
Research
25
(2014)
173–186
(Kaplan
and
Norton,
1996;
Olve
et
al.,
1999)
as
well
as
the
findings
of
business
based
research
(Buckingham
and
Coffman,
1999).
To
some,
PMM
is
the
business
equivalent
of
the
body’s
nervous
system
(Beer,
1981,
1985;
Bititci
et
al.,
1997),
connecting
the
mission
of
the
business
to
what
it
is
trying
to
achieve,
while
sensing
the
environment
and
allowing
the
organisation
to
adapt
along
the
way.
Yet,
PMM
is
not
without
its
problems.
It
has
been
accused
of
undermining
manufacturing
competitiveness
(Hayes
and
Abernathy,
1980),
encouraging
local
optimi-
sation
(Hall,
1983;
Fry
and
Cox,
1989)
and
fostering
a
lack
of
strategic
focus
(Skinner,
1974).
These
issues
led
to
Franco-Santos
et
al.
(2012)
asking
the
question,
“can
it
be
shown
that
PMM
positively
affects
performance?”
This
paper
views
these
problems
with
PMM
as
symptomatic
of
a
larger
more
critical
problem
the
lack
of
“fit”
between
the
environment,
strategy,
and
what
is
being
measured.
The
construct
of
fit
is
fundamental
to
fields
such
as
strategy
(Venkatraman,
1997),
but
fit
is
poorly
defined
within
the
PMM
field
of
study.
We
posit
that
fit
is
crucial
as
PMM
is
most
effective
when
it
fits
with
elements
such
as
business
strategy,
organisa-
tional
culture
and
external
environment.
Without
such
a
fit,
what
is
being
measured
(and
communicated
as
important)
and
what
is
actually
important
to
the
firm
are
not
synchro-
nised
with
each
other.
We
further
posit
that
the
importance
of
fit
increases
in
direct
relationship
to
the
level
of
business
turbulence.
There
is
strong
evidence
that
the
business
environment
has
become
highly
turbulent
(Harrington
et
al.,
2011)
and
that
these
changes
are
structural
rather
than
transient
in
nature.
The
following
are
some
of
these
structural
changes:
An
increasing
focus
on
areas
such
as
innovation
(Pink,
2005).
A
recognition
that
being
good
with
process
management
and
lean
may
adversely
affect
the
ability
of
the
firm
to
compete
on
innovation
(Benner
and
Tushman,
2002,
2003).
A
recognition
that
lean
systems
may
adversely
harm
the
ability
of
the
firm
to
be
responsive
(Business
week,
April
25,
2010).
The
emergence
of
new
business
models
for
delivering
value
to
the
customer
(e.g.,
Service
Oriented
Manufac-
turing,
Lusch
et
al.,
2007).
Recognition
of
the
importance
of
blended
outcomes,
when
positions,
such
as
cost
leadership,
are
no
longer
defendable
longer
terms
strategies
(Lee,
2004;
Melnyk
et
al.,
2010).
Proactive
governmental
legislative
interventions
and
initiations
(e.g.,
Sarbanes-Oxley,
Customs-Trade
Partner-
ship
Against
Terrorism
or
C-TPAT).
The
increasing
importance
of
the
supply
chain
(Reuters,
January
10,
2008).
These
changes
should
be
reflected
in
the
strategies
developed
and
deployed
by
firms;
in
turn,
these
strate-
gic
changes
should
impact
the
PMM
system
(Bourne
et
al.,
2000;
Kennerley
and
Neely,
2002).
Maintaining
this
alignment
between
PMM
and
strat-
egy
is
not
simple.
It
takes
time
to
restate
the
strategic
changes
into
reformulated
measures
and
metrics.
It
also
takes
time
for
these
changes
to
be
communicated
effec-
tively
through
the
organisation.
Finally,
it
takes
time
for
the
participants
to
accept
these
changes
and
for
them
to
change
their
behaviour.
The
consequences
of
misalign-
ment
between
the
PMM
system
and
business
environment
are
both
well
known
and
significant
(Johnson
and
Kaplan,
1987).
To
assess
the
proposition
that
there
is
a
lack
of
“fit”
between
the
environment,
strategic
intent
and
perfor-
mance
measurement,
we
use
a
three-phase
Delphi
method
to
identify
emerging
trends
in
the
business
environment
and
to
explore
how
these
trends
will
affect
the
future
of
PMM.
The
Delphi
technique
was
selected
because
it
is
most
appropriate
when
the
research
problem
does
not
lend
itself
to
precise
analytical
techniques
but
can
benefit
from
sub-
jective
judgments
on
a
collective
basis
and
when
time,
cost,
and
logistics
would
make
frequent
meetings
of
all
the
subjects
unfeasible
(Linstone
and
Turoff,
1975).
The
Del-
phi
technique
was
used
to
address
the
following
three
key
questions:
1.
What
are
the
major
developments
in
the
business
envi-
ronment
facing
firms
both
today
and
five
years
into
the
future?
2.
To
what
extent
are
PMM
systems
capable
of
coping
with
these
changes
and
developments?
3.
How
can
the
resulting
insights
be
synthesised
into
a
use-
ful
theoretical
framework
that
has
utility
for
practicing
managers
and
researchers
alike?
The
Delphi
process
revealed
that,
although
practition-
ers
related
positively
to
our
list
of
business
trends,
they
were
more
concerned
with
the
broad
sweep
of
changes
they
faced
rather
than
any
individual
elements.
They
also
believed
that
the
current
PMM
literature
and
tools
available
were
inadequate
for
these
challenges
empha-
sising
the
need
for
a
co-evolutionary
approach
between
organisational
setting,
business
strategy
and
the
PMM
sys-
tem.
Yet,
more
importantly,
the
Delphi
study
revealed
an
unanticipated
paradox:
while
managers
recognised
that
they
were
operating
in
a
more
dynamic
environment
and
that
a
response
to
these
changes
had
to
be
incorpo-
rated
into
the
resulting
strategies,
the
metrics
often
were
not
changed.
Our
response
to
this
finding
was
to
con-
struct
a
framework
that
addressed
these
concerns.
This
was
tested
on
and
refined
by
the
Delphi
expert
panel,
before
being
validated
further
with
different
practitioner
groups.
The
rest
of
this
paper
is
structured
as
follows.
In
the
next
section
we
present
a
theoretical
perspective
of
PMM
to
make
the
subject
clear
(as
recommended
by
Franco-Santos
et
al.,
2012).
Then,
we
present
the
key
trends
used
to
inform
our
study.
This
is
followed
by
a
brief
review
of
the
PMM
literature
before
we
present
our
methodology.
Our
findings
are
then
presented
along
with
a
detailed
discussion
of
the
paradox.
In
the
last
section,
the
discussion,
we
present
the
framework
used
to
resolve
the
paradox
“the
performance
alignment
matrix”–
and
its
implications
for
strategy
and
PMM
including
suggestions
for
future
research.
http://daneshyari.com/article/1003448
... In seeking a definition for performance measurement and management (PMM), due to the diversity of disciplines involved and changes over time, Franco-Santos et al. (2007) note that there is a lack of agreement in the research literature. Melnyk et al. (2014) identify PMM as facilitating efficient and effective control (Neely et al., 1995; and correction by assessing the desired level of performance of an organisation through a reporting process that gives feedback to employees on the outcome of actions (Bititci et al., 1997). From a strategic perspective, both Melnyk et al. (2014) and Franco-Santos et al. (2007) add that PMM also communicates strategic intent and importance to the rest of organisation in terms of what has been measured and, as importantly, by what has not been measured as well as the capacity to provide the information necessary to challenge strategy (Ittner and Larcker, 2003). ...
... Melnyk et al. (2014) identify PMM as facilitating efficient and effective control (Neely et al., 1995; and correction by assessing the desired level of performance of an organisation through a reporting process that gives feedback to employees on the outcome of actions (Bititci et al., 1997). From a strategic perspective, both Melnyk et al. (2014) and Franco-Santos et al. (2007) add that PMM also communicates strategic intent and importance to the rest of organisation in terms of what has been measured and, as importantly, by what has not been measured as well as the capacity to provide the information necessary to challenge strategy (Ittner and Larcker, 2003). • Performance measurement is quantifying, either quantitatively or qualitatively, the input, output, or level of activity of an event or process. ...
... • Performance management is action, based on performance measures and reporting, which results in improvements in behaviour, motivation and processes and promotes innovation Therefore, PMM comprises two entities, performance measurement and performance management where processes convert data into information that is used to assess the effectiveness and efficiencies of organisational actions (Melnyk et al., 2014). PMM is therefore both a technological process and a social one (Pavlov and Bourne, 2011). ...
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... The CM is developed via the claims of the scientific literature that discusses the effectiveness of the actions of IoT technologies for environmental and social sustainability. The CM considers the current level of performance in relation to what must be achieved and how it must be achieved, together with what has been assessed and what has not been assessed, in a general way, not measuring performance against a well-defined goal, as highlighted by the survey by Melnyk [14]. The intent of the assessment is to help the organization to engage employees in realizing the performance of IoT technologies. ...
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... Further performance measurement advances can be observed driven by digitalization and other business and environmental developments (Melnyk et al., 2014). Digital and platform business models show a more customer-centric performance measurement driven by a shift in focus from value creation to value proposition (Abdelkafi et al., 2019;Schrage and Kiron, 2018;Iansiti, 2007, 2019). ...
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