The need for integrated performance

measurement

Techniques
Integrated
performance
measurement systems:
an audit and
development guide

Business performance improvements arising

from increased manufacturing integration
continue to be one of the primary competitive
issues of the 1990s. Recent research into
manufacturing systems integration (Carrie
and MacIntosh, 1992) has identified the need
for effective deployment of business objectives
down through the organization and the subsequent measurement of performance in
critical areas as key elements of sustainable
competitive advantage. Other researchers
have also noted the links between performance measures and strategic plans and/or
critical success factors of the business. The
research by Grady (1991) and Eccles and
Pyburn (1992) supports the same conclusions
drawn in the earlier research programme.
There is already considerable work being
carried out by the accounting profession on
performance measurement. Indeed, most
manufacturing organizations have extensive
performance measurement systems based on
cost and financial accounting practices.
Recent innovations, such as activity-based
costing, overcome some of the difficulties
associated with traditional methods but still
do not promote continuous improvement and
strategic orientation. Notable work has been
carried out by Kaplan (1983; 1990) and
Johnson and Kaplan (1987) in recognition of
these weaknesses. Neely (1993) summarizes
the shortcomings of the current accounting
practices with respect to performance measurement in manufacturing enterprises.
Because financial measures that are currently in place are not supporting the change
process, there is a case for new styles of measurement systems that are appropriate to the
needs of the modern business. Green (1991),
McNair and Mosconi (1987), Drucker
(1990) and Russell (1992) show that there is a
need for alignment of financial and nonfinancial measures that fit within a strategic
framework.
Furthermore, based on research carried
out by Bititci (1993), Bititci and Swenson
(1993), Blenkinsop and Burns (1991) and
Gelders et al. (1993) there is evidence that,
even in companies where quality-oriented
performance measures are employed, these
are still being used in a manner which does
not promote integration. There have been
several cases cited where the companys

Umit S. Bititci
Allan S. Carrie and
Liam McDevitt
The authors
Umit S. Bititci is the Director of the Centre for Strategic
Manufacturing at the University of Strathclyde, Glasgow,
UK. Allan S. Carrie is a Professor and Liam McDevitt is a
Research Assistant at the University of Strathclyde.
Abstract
The performance management process is seen as a closed
loop control system which deploys policy and strategy, and
obtains feedback from various levels in order to manage
the performance of the business. The performance
measurement system is the information system which is at
the heart of the performance management process and it
is of critical importance to the effective and efficient
functioning of the performance management system.
Research identifies two critical elements with respect to
the content and structure of the performance measurement system: integrity and deployment. The viable
systems model (VSM) provides a framework for assessing
the integrity of the performance measurement system,
while the reference model developed for integrated
performance measurement systems provides a framework
against which performance measurement systems can be
designed and audited.

The TQM Magazine

Volume 9 Number 1 1997 pp. 4653
MCB University Press ISSN 0954-478X

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Integrated performance measurement systems

The TQM Magazine

Umit S. Bititci, Allan S. Carrie and Liam McDevitt

Volume 9 Number 1 1997 4653

strategy, improvement projects and performance measures were in conflict.

In summary, the need for an integrated set
of performance measures which support
rather than contradict business objectives is
now clearly established (Bititci, 1994).

from the relevant systems. In this context

integration means that the performance
measurement system should enable the correct deployment of the strategic and tactical
objectives of the business as well as providing
a structured framework to allow the relevant
information to feed back to the appropriate
points to facilitate the decision and control
processes.
This information system, i.e. the performance measurement system, to be effective in
achieving its objectives as described above,
should take account of the strategic and
environmental factors relating to the business
as well as considering the structure of the
organization, its processes, functions and
their relationships. Similarly, the effectiveness
of the performance management process
which makes use of this information system
depends on how this information is used to
manage the performance of the business.
Figure 2 summarizes this view of the performance management process.

The performance management process

A paper which was presented by the authors
at the International Federation for Information Processing Working Group 5.7 Working Conference in Seattle (Bititci, 1995)
asserted that performance management
should be viewed as a key business process
which is central to the future wellbeing and
prosperity of any manufacturing enterprise.
The performance management process is
the process by which the company manages
its performance in line with its corporate and
functional strategies and objectives. The
objective of this process is to provide a proactive closed loop control system, where the
corporate and functional strategies are
deployed to all business processes, activities,
tasks and personnel, and feedback is obtained
through the performance measurement
system to enable appropriate management
decisions (Figure 1).
In essence, the performance management
process defines how an organization uses
various systems to manage its performance.
At the heart of the performance management
process, there is an information system which
enables the closed loop deployment and
feedback system. This information system is
the performance measurement system which
should integrate all relevant information

The structure of the performance

measurement system
The research to date revealed two critical
considerations with respect to the structure of
performance measurement systems: integrity;
and deployment
Integrity
Integrity refers to the ability of the performance measurement system to promote
integration between various areas of the business. Previous research on manufacturing
systems integration undertaken by the same

Figure 1 The closed loop deployment and feedback

system

Vision
D
E
P
L
O
Y
M
E
N
T

Business
objectives
Strategic
goals
Critical
success factors

Figure 2 The performance management process and the position of the

performance measurement system

The performance
management process
F
E
E
D
B
A
C
K

Behavioural
issues
Cultural
issues
Attitudes

Information
technology

The performance
measurement system
What is
Strategy
measured?
The
Environment
information
Structure
Who uses
system
Processes
the measures?
Relationships

Responsibilities
Reporting
structure How systems are
used to manage
performance

Critical tasks
Action plan
Performance measures

47

Integrated performance measurement systems

The TQM Magazine

Umit S. Bititci, Allan S. Carrie and Liam McDevitt

Volume 9 Number 1 1997 4653

consortium identified the value of the viable

Systems Model (VSM) (Beer, 1979; Blenkinsop, 1993) as a framework for assessing a
systems integrity. The theory behind the VSM
is that for any system to be viable it must have
five components. The VSM identifies these
five components as five systems. These systems are discussed in the following
paragraphs with respect to the integrity of the
performance measurement system.

System 3
This system represents the tactical management system which manages the operations of
systems 1 and 2 by setting targets and priorities. This is the management system which is
responsible for the performance of business
processes and activities in line with the
requirements of the higher level systems.
From a performance measurement systems
perspective this is the system which deploys
the strategic policies and priorities to operational systems (system 1) as well as monitoring the performance of these operational
systems.

System 1
This is the operational unit which produces
the goods or services. In other words it represents the productive function of the organization. It could be interpreted that system 1
consists of business activities such as order
processing, credit control, production planning, manufacturing, shipping, invoicing, etc.
From a performance measurement systems
perspective system 1 will consist of performance measures which objectively measure
the performance of an individual business
activity. For example:
order processing order processing leadtime, order processing accuracy;
credit control credit control leadtime,
average time taken to register new
customers;
production planning plan stability;
manufacturing manufacturing leadtimes,
set-up times, yield, utilization.

System 4
This is the developmental system which
concerns itself with the external environment
and therefore the future. Its focus is on
improvement. This is the system which identifies the changes necessary to the lower level
systems. This system, by focusing externally,
identifies the improvement gaps and sets
strategies to fulfil corporate objectives. The
performance measures used in this system
tend to be externally focused and comparative, e.g. delivery performance with respect to
the competitors or market requirements.
It would be appropriate to combine the
external focus of this system with the results
category of the European Foundation for
Quality Management (EFQM) model for
total quality management (TQM) where the
focus is on customer satisfaction, people
satisfaction, business results and society
satisfaction. From a reference model point
of view it may be appropriate to expect
externally-oriented measures corresponding
to each one of the four areas.

System 2
This is the local management system which
co-ordinates the activities of operational units.
This system represents the business process
which contains the business activities of
system 1. For example, an order fulfilment
process may contain all of the business activities listed above. From a performance
measurement systems perspective, system 2
will consist of performance measures which
objectively measure the performance of an
individual business process. In other words,
the performance measure applied to the
process is a function of the collective performance of its constituent activities. For
example, for the order fulfilment process
shown in Figure 3, performance against
measures such as order fulfilment leadtimes,
delivery performance and process cost are all
a function of the performance of the activities
contained within that process.

System 5
This is the boss: this system sets the direction,
the corporate policy and the objectives the
organization would be adopting in the future.
With respect to the performance measurement system, this system sets the corporate
priorities and targets.
The combination of systems 3, 4 and 5 is
known as the meta system, which is responsible for identifying and managing change.
Figure 3 attempts to illustrate the application of the VSM to an organization as
described in the preceding paragraphs.
The VSM places great importance on
communications between its individual
components. It stresses that the higher level
systems amplify (i.e. deploy) higher level
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Integrated performance measurement systems

The TQM Magazine

Umit S. Bititci, Allan S. Carrie and Liam McDevitt

Volume 9 Number 1 1997 4653

Figure 3 The VSM configuration and its interpretation to the structure of a performance measurement system

The meta
system

System 5
Direction, policy and
strategy setting

The external environment

System 4
Monitors the external environment
and internal performance
Sets improvement targets
System 3
Monitors and manages
the performance of systems 1 and 2

System 2
The process

System 1
Order
processing

System 1
Planning
System 1
Credit
control

System 1
Shipping
System 1
Manufacturing

objectives in to local objectives and that

during this deployment process the objectives
are transduced (i.e. translated into locally
relevant terms). The research presented in
this paper has adopted the term deployment
as being a function of amplification and
transduction. Further:

System 1
Invoicing

The VSM requires its five systems to interact

and co-ordinate in a controlled fashion. The
explanation of the five systems and the interpretation of the five systems with respect to
performance measurement systems, provided
in the previous section, suggest that the business directions and policies are set by system
5 using external information provided by
system 4, and that these policies are deployed
through systems 4, 3 and 2 to the operational
systems (i.e. system 1s).
However, VSM itself does not clearly
establish the exact requirements for correct
deployment but, when it is combined with the
three basic objectives specified with respect to
deployment a reference model is developed. A
pictorial view of this reference model is provided in Figure 4.

Deployment
Deployment refers to the deployment of
business objectives and policies throughout
the hierarchical structure of the organization
as illustrated in Figure 2. The objective of
deployment, in this context, is to ensure
that:
performance measures used at various
levels of the organization reflect the business objectives and policies;
deployment is consistent through the
hierarchy of the organization;
deployment is relevant and correct with
respect to the impact and influence of
individual business areas (i.e. processes,
functions and activities).

The audit method

Having identified and defined the key characteristics of an integrated performance measurement system (i.e. integrity and deployment), the researchers at the University of
Strathclyde have developed and tested a
method for auditing the integrity and deployment of the performance measurement
system as defined in the reference model. The
audit process consists of three phases. These
are: data collection; integrity audit; and
deployment audit.

A reference model
The reference model developed by the
research team at the University of Strathclyde
is based on the two facets of the performance
measurement system already identified as
integrity and deployment.
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Integrated performance measurement systems

The TQM Magazine

Umit S. Bititci, Allan S. Carrie and Liam McDevitt

Volume 9 Number 1 1997 4653

Figure 4 A reference model for integrated performance measurement systems

Integrity

Deployment

System 5: Sets direction, strategy, policy

and objectives based on current performance
and the external indicators obtained from
system 4

Environmental requirements and

competitive position
Business results, customer satisfaction,
people satisfaction, society satisfaction

System 4: Provides external intelligence

with respect to the strategic objectives of
the business. Expresses strategic objectives
in measurable terms and sets targets

Business objectives
Do the business objectives reflect the
environmental requirements and gaps?

The
environment
Market,
customers,
people, society,
shareholders,
etc.

System 3: Deploys strategic objectives and

priorities to co-ordinating (system 2) and
operational (system 1) measures. Monitors
and manages the performance of the process

Strategic measures
Do the performance measured and priorities
used at a strategic level reflect the business
objectives, environmental requirements and
associated priorities?

System 2: Employs process-oriented

performance measures to ensure that
individual business activities and tasks are
co-ordinated effectively and efficiently

Co-ordinating/process measures
Do the measures and priorities at this level
reflect the environmental requirements,
business objectives, the strategic measures
and priorities?

System 1: Employs performance measures

to measure the performance of each business
activity or task

Operational measures
Do the measures and priorities employed at
business activity level reflect the higher level
objectives, measures and priorities?

Data collection phase

The data collection phase, using a workbook
developed by the research team, collects all
information relevant to the performance
management process of the business. During
the early stages of the research programme it
became apparent that most businesses, small
or large, consist of discrete business units
which in turn may be treated as stand-alone
businesses. The common terminology
applied to these business units are strategic
business units (SBUs). The configuration of
SBUs within an organization could vary
dramatically.
In the first instance the data collection
phase requires the identification of the individual SBUs and their strategic requirements
in terms of the qualifiers and the differentiators. The performance measurement
system should ensure that the priorities
between the above two criteria are balanced
and appropriately managed in a dynamic
environment.
The information collected includes:
Identification of strategic business units
(SBUs) within the business.

The market requirements in terms of

qualifiers and differentiators for each
SBU.
The development plans or objectives for
the business or each of its SBUs.
The performance measures used and
reviewed by the executive management
team within the business, i.e. the strategic
performance measures.
The performance measures used and
reviewed within each function of the business, i.e. the functional or operational
performance measures.
Personal objectives and any associated
incentive schemes for the executives, managers, supervisors and operational personnel.
Review, reporting and performance
responsibilities associated with measures
used at all levels.
Once the data are collected they are analysed
to conduct the integrity and deployment
audits respectively. An example of the audit
process and output is provided in the following section.
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Integrated performance measurement systems

The TQM Magazine

Umit S. Bititci, Allan S. Carrie and Liam McDevitt

Volume 9 Number 1 1997 4653

Performance measurement systems

audit for a small engineering
manufacturing business

manner, the research team has compiled a

checklist to search for objective evidence
supporting the existence of all five systems
within the VSM. Following the analysis of
these data against this checklist various gaps
were identified with respect to the completeness and integrity of the performance measurement system. An extract from the results
of the integrity audit carried out on the collaborating organization illustrates the nature of
the conclusions obtained from such an audit
(Table I).

The purpose of this section is to illustrate the

application of the audit techniques developed
in a real life case study. The company
concerned is a traditional engineering
company manufacturing blowing equipment.
The company, although autonomous, is
part of a larger group. It employs some 100
people from a single site based in Glasgow,
UK.
Data collection
Data were collected using standard data
collection forms developed by the research
team. During data collection three SBUs were
identified within the business, although prior
to the audit the company did not formally
recognize these SBUs. These were:
(1) Non-competitive markets, where the
differentiator is production flexibility and
the qualifier is product quality.
(2) Competitive markets, where the differentiator is price and the qualifier is once
again product quality.
(3) Spares and service business, where the
differentiator is delivery speed and the
qualifiers are price and quality.

The deployment audit

In order to audit the deployment of the performance measurement system a three-stage
audit method has been developed:
Stage one focuses on the requirements of
each SBU environment and through a
series of matrices assesses the deployment
of environmental requirements through
business objectives to strategic and functional performance measures.
Stage two focuses on the business objectives
and through a series of similar sets of
matrices assesses their deployment through
the strategic performance measures to
functional levels.
Stage three focuses on the deployment of
strategic performance measures to the
functional levels, again through the use of
similar matrices.

Integrity audit
In order to conduct the integrity audit in a
comprehensive, rigorous and repeatable

Table I Extracts from an integrity audit

System

Description

System 5

A policy-making system is in place where the business objectives and strategy are stated in the
form of a business plan
There is no evidence of the business plan and objectives being based on external competitive
position and actual performance of the business

System 4

There is no evidence of a formal or informal mechanism for identifying the companys current
performance with respect to the external environment
The strategic objectives are not expressed in measurable terms with associated targets with
the exception of the objective relating to reduction of material costs

System 3

There is no evidence of a system which prioritizes and deploys the business objectives to system
2 and 1. Any deployment seems to be random (see deployment audit results)

System 2

There is no evidence of system 2/co-ordination type measures

There is no evidence of the recognition of the key business processes

System 1

There are numerous measures at this level; however, none of these are linked in any way to the
business objectives
Measures at this level do not have targets associated with them
Measures at this level are not prioritized
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The TQM Magazine

Umit S. Bititci, Allan S. Carrie and Liam McDevitt

Volume 9 Number 1 1997 4653

The audit process is designed to be rigorous

in order to ensure repeatability. A scoring
system has been devised to measure the
strength of deployment which results in a
rigorous approach and repeatable conclusions. An extract from the results of the
deployment audit carried out in the collaborating organization illustrates the nature of the
conclusions obtained from such an audit.
Extracts from the deployment audit:
(1) Stage 1: SBU 1 market requirements:
Differentiator production flexibility is:
not deployed as a business objective;
not deployed as a strategic performance measure;
marginally deployed within the
manufacturing function with no
direct measure of performance and
associated target.
Qualifier product functional performance is:
partially deployed as a business
objective;
not deployed as a strategic performance measure;
marginally deployed at the manufacturing function and is not deployed
in any other function. Expected
deployment path for this measure
would have included manufacturing
and technical functions.

expected deployment path identifies the

functions where the reference model would
expect to see a strong deployment.

Summary and conclusions

The research and development effort is aimed
at development of practical tools and techniques to facilitate more scientific and precise
management of business performance. To
this end, the first stage of the work produced
an audit method designed to assess the
integrity and relevance of the performance
measurement system used in an organization.
Figure 5 summarizes the output from the first
stage of the research.
Figure 5 Stage 1 research output from the University of Strathclyde
Audit method

Reference model
VSM
integrity
framework

Integrity audit
Deployment audit

Deployment
framework

Output
Gaps in the
design of the
performance
measurement
system

Deployment
gaps

Recommendations

(2) Stage 2: SBU 1 business objectives:

Business objective reduce production
and inventory costs by range rationalization is:
not deployed as a strategic measure;
partially deployed in the manufacturing function. Expected deployment path for this measure would
have been the technical function.

Potential
deployment
paths
PMs by
function and by
criteria

More specifically the research and development work presented in this paper may be
summarized as follows:
The research project carried out at the
University of Strathclyde focusing on
performance measurement systems identified the need to study performance management as a process.
The performance management process is
seen as a closed loop control system which
deploys policy and strategy, and obtains
feedback from various levels in order to
manage the performance of the business.
The performance measurement system is
the information system which is at the
heart of the performance management
process and it is of critical importance to
the effective and efficient functioning of the
performance management system.
Research identified two critical elements
with respect to the content and structure of

(3) Stage 3: SBU 1 strategic measures:

Strategic measure cost is strongly
deployed across all functions. Expected
deployment path for this measure
would have included all functions.
The terminology can be defined as follows:
strongly deployed deployment is measurable with an associated target;
partially deployed deployment is measurable with no target or priority;
marginally deployed deployment is
indirect;
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Integrated performance measurement systems

The TQM Magazine

Umit S. Bititci, Allan S. Carrie and Liam McDevitt

Volume 9 Number 1 1997 4653

the performance measurement system:

integrity and deployment.
The viable systems model (VSM) provides
a framework for assessing the integrity of
the performance measurement system.
Within the VSM framework, deployment is
an integral element which largely corresponds to the amplification and transduction elements of the VSM.
The reference model developed for integrated performance measurement systems
provides a framework against which performance measurement systems can be
designed and audited.
The audit methods developed to assess the
integrity and deployment of the performance measurement system provide
simple but rigorous and repeatable tools
which may be used to improve the effectiveness and efficiency of the performance
management process.
The complicated theoretical basis of audit
methods is made transparent to the user
through the use of clearly designed workbooks which take the user step-by-step
through the process.

Blenkinsop, S.A. (1993), Organizational Aspects of Information Processing Systems, PhD Thesis, University
of Loughborough, Loughborough.
Blenkinsop, S. and Burns, N.D. (1991), Performance
Measurement as an Integrating Factor in Manufacturing Enterprises, 7th National Conference on
Manufacturing Research, September, pp. 231-6.
Carrie, A.S. and MacIntosh (1992), UK research in
manufacturing systems integration, in Pels, H.J.
and Worthman, J.C. (Eds), Integration in Production
Management Systems, North Holland, Amsterdam,
pp. 323-36.
Drucker, P.E. (1990), The emerging theory of manufacturing, Harvard Business Review, May/June,
pp. 94-102.
Eccles, R.G. and Pyburn, P.J. (1992), Creating a comprehensive system to measure performance, Management Accounting, October, pp. 41-4.
Gelders, L., Mannaerts, P. and Maes, J. (1993), Manufacturing Strategy and Performance Indicators, Proceedings of Industrial Engineering and Production
Management 93, Mons, Belgium, June.
Grady, M.W. (1991), Performance measurement, implementing strategy, Management Accounting, June,
pp. 49-53.
Johnson, H.T. and Kaplan, R.S. (1987), Relevance Lost the
Rise and Fall of Management Accounting, Harvard
Business School Press, Boston, MA.
Kaplan, R.S. (1983), Measuring performance a new
challenge for managerial accounting research, The
Accounting Review, Vol. 58 No. 4, pp. 686-705.

References
Beer, S. (1979), The Heart of Enterprise, John Wiley & Sons,
Chichester.

Kaplan, R.S. (1990), Measures for Manufacturing Excellence, Harvard Business School Press, Boston, MA.

Bititci, U.S. (1993), Integrated Performance Measures: The

Key to Business Integration and Improvement, 9th
National Conference on Manufacturing Research,
Bath, September.

McNair, C.J. and Mosconi, W. (1987), Measuring performance in advanced manufacturing environment,
Management Accounting, July, pp. 28-31.

Bititci, U.S. (1994), Measuring your way to profit,

Management Decision, Vol. 32 No. 6, pp. 16-24.
Bititci, U.S. (1995), Performance Measurement for Performance Management, IFIP WG5.7, Working Conference, Seattle, WA, August.

Neely, A.D. (1993), Performance Measurement System

Design, Theory and Practice, Manufacturing Engineering Group, University of Cambridge, Cambridge,
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Bititci, U.S. and Swenson, H. (1993), Use of performance

measures at strategic and operational levels,
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Russell, R. (1992), The Role of Performance Measurement

in Manufacturing Excellence, Conference, 27th
Annual British Production and Inventory Control
Society, Birmingham, November.

Commentary
There is an old saying that if you dont measure it you wont manage it. And we know the simpler
something is to measure the easier it is to manage.
53