An Overview of Performance Measurement

Introduction

In 1959, Churchman (1959) wrote on the importance “ to develop a method of generating a class of information that will be useful in a wide variety of problems and situations”. Today, this is sentence has translated into the widely known term of performance measurement, which according to Sinclair & Zairi (1995) is defined as the systematic assignment of numbers to entities and according to Neely, Gregory & Platts (2005) is “the process of quantifying the efficiency and effectiveness of action”.

As what was mentioned by Parker (2000), measuring performance is something that all organizations do, be it systematically and thoroughly or on an ad-hoc basis and only superficially. In fact, it has become a must-do process that all organizations have adopted. Every resource and its use as well as all the processes within an organization in addition to the various influencing external factors, are measured and weighted in order to squeeze out every iota of available advantage that will gift the organization with an edge to stay competitive in today’s highly globalized business world.

Frameworks: Trend and varieties

According to various journals reviewed, (Kennerley & Neely, 2003; Sinclair et al., 1995) for the longest time, the measurement used to determine the success of an organization i.e. the organization’s performance has always been one that uses traditional financial accounting systems. While such a measurement method remain invaluable especially to, the external agents whose interests tend to be on the profits achieved, they tend to lead to according to Kennerly et al. (2003), the lack of strategic focus or “short termism” within the organization. It became quite apparent that these measures were inadequate particularly to supply information pertaining to future performances, the organization’s competitors or even of its customers. Which unfortunately makes the information obtained all but redundant for use in the organization’s strategic planning.

Awareness for the need of a more balanced measurement that can and does take non-financial factors (such as the issue of customers, non-financial capital and competitors) into consideration along with the financial factors, started growing and began gaining momentum. Such a measurement that takes multiple elements into consideration would undoubtedly cause performance to be measured in a more efficient and effective manner. As mentioned in Crowther’s (1996) article, “there was a shift from an emphasis on financial figures as the basis of performance measurement to the use of a broader range of measures”. From the literature reviewed (Purbey, Mukherjee & Bhar, 2007; Bourne, Mills, Wilco, Neely & Platts, 2000) the various measurement frameworks that were born out of that awareness are as below:

1) The Balanced performance measurement matrix.

Introduced by Keegan et al. (1989), this framework incorporates elements that are both internal and external as well as financial and non-financial. While advocated as simple and easy to use, it does not however, make explicit links between the different dimensions of organizational performance. This unexpectedly made the measurement of performance of a system somewhat complex. Additionally, Purbey et al. (2007) were of the opinion that the matrix could have been developed further in particular, to include certain refined elements of lead measures as dimensions for the measurement of performance.

2) The Bitton (1990)’s approach based on the GRAI methodology.

Targeted towards enterprise modeling, this framework breaks down activities like planning and control of manufacturing into discrete decision-making units, after which, suitable performance measures are attached to each decision to facilitate measurement (Bourne et al., 2000).

3) The Performance measures for time-based competition.

In an attempt to be more defined, Azzone et al. (1991) suggested a framework that is based on time and more detailed as well as specific. Here, lead measures are taken into consideration in addition to the internal and external configurations as dimensions of performance in order to determine the effectiveness as well as efficiency of an organization. As an added bonus, the framework is flexible as it has the potential to be adapted when change or diversity occurs within or externally of the organization.

4) The Performance pyramid system.

Originally developed by Judson (1990), this framework was improved by Cross & Lynch (1991) and integrates performance throughout the hierarchy of the organization