Académique Documents
Professionnel Documents
Culture Documents
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.
Adapted from Micheli, P. and Manzoni, J.-F. (2010), Strategic performance measurement:
benefits, limitations and paradoxes, Long Range Planning, Vol. 43, No. 4, pp. 465-476.
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 the longer term, it is crucial to understand how appropriate SPM practices
deliver improved performance.
In spite of decades of research in this area, evidence on the benefits and limits of SPM is
still inconclusive. Indeed, authors from areas as diverse as strategy management, human
resources, management accounting and control, operations management, public administration,
organisational behaviour, information systems and marketing have paid considerable attention to
strategic performance measurement. However, lack of cross-disciplinary studies has resulted in
the fragmentation of this field - as well as the polarisation of the debate - among advocates of
specific tools and techniques, and critical investigators of behavioural and cultural implications.
Discussion
4
SPMS can be used in relationships between headquarters and subsidiaries, and between
corporate and business unit levels. In their study of Italian subsidiaries of foreign multinationals,
Dossi and Patelli show how non-financial indicators are still treated as complementary and not
substitute measures of performance. Although increasing emphasis has been placed on the
importance of using non-financial indicators, this is not necessarily a negative finding. As
previous studies demonstrate, it is fundamental for organisations to decide which type of SPMS
to introduce, in line with their approach to strategic control [15]. Indeed, if the headquarters of a
multinational company wants to exert financial control over its subsidiaries and keep the learning
generated within those subsidiaries, the inclusion of predominantly financial indicators would be
appropriate. However, if headquarters want to stimulate knowledge flows and the diffusion of
good practices across subsidiaries, then mere financial control would be insufficient.
SPM is a means by which to establish a dialogue between different functions within an
organisation; between headquarters and subsidiaries; and between an organisation and its
environment. In the context of multinationals, the participation of subsidiaries in designing an
SPMS is likely to result in the inclusion of a higher number of non-financial indicators.
Therefore, headquarters seeking dialogue with local managers should design measurement
systems that are not there solely for diagnostic purposes, but also include more interactive,
non-financial indicators. Moreover, although the diagnostic use of SPMSs could work against
deploying certain capabilities, it would not necessarily have a negative impact on performance.
In fact, it could make a positive contribution by monitoring performance against goals, providing
boundaries for action, restricting risk-taking, and monitoring the efficiency and effectiveness of
processes and activities [16]. It is the lack of clarity over these issues and inconsistencies (e.g.,
efforts to promote communication and diffuse good practices across a group of firms using
mostly financial indicators) that create considerable problems and may eventually lead to the
failure of the whole SPMS.
Finally, it is interesting to notice the shift in emphasis over elements of the SPMS. Surely,
the importance attributed to certain performance indicators should change over time, depending
on the how the organisation is performing and where it wants to be. A typical example would be
the choice made by GE to modify its SPMS several times in a relatively short period, depending
on which type of strategy it wanted to implement [17]. However, Dossi and Patelli find that
shifts in the emphasis on specific elements of the SPMS depend on changes in the performance
of subsidiaries and the environment in which they operate. Although headquarters often adopt
multiple perspectives in order to more comprehensively assess and evaluate performance, they
tend to restrict their focus to financial indicators in the presence of poor financial results. This is
particularly dysfunctional as the noise and volatility of traditional financial indicators can limit
their use as a performance evaluation tool for the relationship between headquarters and
subsidiaries. Also, non-financial indicators would be more suitable to identify the very reasons
for those unsatisfactory results.
SPMS: static systems for dynamic environments?
Thanks to data collection automation and improvements in data analysis, organisations have
introduced increasing numbers of performance indicators. The inclusion of more performance
indicators could be welcome. Indeed, research in cognitive and social psychology shows that an
SPMS can help frame managers mental representations of the business, due to the systems
6
informational effects. As Gimbert et al. notice, SPMSs encourage extensive scanning behaviour
and help produce more informed assessments than mono-dimensional non-causal PMSs do.
Furthermore, comprehensive SPMSs can increase managers goal clarity and process clarity in
business units and subsidiaries. Performance information also affects intrinsic motivation and
empowerment, since a more comprehensive PMS can make business unit managers believe their
jobs are more meaningful by helping them to determine how their work fits within the broader
scope of the organisation [18]. These aspects, in turn, have been found to have a positive impact
on organisational performance.
On the other hand, several studies have criticised SPM as it can promote organisational
inertia and create ossification, i.e. organisational paralysis caused by an excessively rigid
SPMS [19]. Particularly when a system is pervasive and consists of large number of indicators,
organisational inertia and ossification may arise. This may not be a major problem for
organisations competing in relatively stable markets, but it could become a serious issue for
firms operating in very dynamic environments. Authors have remarked how in dynamic
environments only a few indicators and rules should be introduced, and those mostly to set
boundaries [20] However, Kolehmainen [10], in her study of a leading telecommunications
company, also argues for the possibility of embedding dynamism in SPMSs. To do so, an
organisation has to adopt an empowering and flexible approach to the design and use of such
systems. While alignment processes are needed to ensure that performance indicators and
behaviours are in line with the organisations strategic priorities, empowerment at the individual
managers level is needed to build sufficient dynamism into the SPMS. In other words,
empowerment and HR management can promote dynamism and responsiveness, by building
flexibility into the system in order to allow for local adaptation of the indicators.
The introduction of new performance targets and indicators can kick-start the
implementation of new strategic objectives and promote different ways of working. Therefore,
the introduction of a new SPMS, or the review of an existing one, can support and enable change
management initiatives. A good example of the introduction of new performance indicators to
support a corporate turnaround within an organisation is the case of Continental Airlines in the
mid 1990s [21]. Essentially, Continentals new management team promoted a radical change in
strategy and values through SPM, by linking a limited number of key performance indicators to
the companys mission and making the whole organisation accountable for them.
Although SPM has been successfully used in conjunction with change management
initiatives, several studies have remarked how SPM can actually act as an obstacle to change.
Certainly, the latter happens when the SPMS is too pervasive, rarely reviewed or not subdivided
in levels of importance, and when responsibilities are not delegated. Nonetheless, even when an
SPMS is reviewed and redesigned to support a change in strategy, it can push the organisation in
a direction opposite to the one intended.
The paper by Melnyk et al. sheds light on this apparent contradiction. In the organisation
considered, the authors find that SPM supported the development of particular capabilities and
the crystallisation of a specific organisational culture, linked to process improvement driven by a
cost leadership strategy. When the organisation tried to change its strategic focus to
differentiation through radical innovation, the capabilities that SPM had contributed to create
became core rigidities and the SPMS subverted this movement into a shift to incremental
innovation.
7
Other studies have also emphasised how measurement systems, particularly if used for
diagnostic purposes, could have a negative effect on innovation and the capacity of the
organisation to transform itself [16]. On the other hand, the interactive use of SPMSs could
foster capabilities of entrepreneurship, market orientation, organisational learning and
innovation. As Dossi and Patelli suggest, they could be used as a means to generate and
disseminate new strategic objectives and knowledge across the organisation. Therefore, as
previously remarked, the different roles of SPM should be considered, especially when
organisations are involved in processes of substantial transformation.
SPMS: a powerful tool or a tool for power?
The previous discussion shows how powerful SPM systems can be as a management tool.
However, SPM could also be regarded as a tool for power. Indeed, SPM is often used as a way
to introduce a rational discourse in complex situations. According to a rational paradigm,
performance information is communicated with the aim of demonstrating results within the
organisation or to key external stakeholders. Consequently, if performance information is related
to the strategic objectives of the organisation, it is used to show that progress is being made
against these objectives. On the other hand, performance indicators are often utilised for
symbolic purposes; in this case, their aim is to increase the relative power of a business unit or
department within an organisation, or to (apparently) satisfy the demands of external
stakeholders [22].
This is evident if we consider how a number of functions within organisations have tried
to acquire greater legitimacy and power by relying on the measurement of their performance.
This is the case with R&D departments and functions involved in new product development and
marketing, for example, as they have invested substantial resources to demonstrate their value
through the introduction of increasingly sophisticated performance indicators [23]. However,
particularly in periods of recession, budgets allocated to these functions tend to be cut first. As
the paper by Gimbert et al. shows, the reason is that it is not so much the accuracy of data that
counts, but the level at which that data is considered. If performance indicators pertinent to
product design or marketing are utilised at an operational level, they are not likely to influence
the strategy and the strategic decisions of the organisation. Therefore, in order for performance
measurement to be used as an effective tool for power, it is important that performance
indicators are linked with strategy and that they are considered in strategic reviews.
Conclusions
In spite of decades of practical experience and academic research, strategic performance
measurement is still under scrutiny and little consensus has been reached over its benefits and
limitations. In this paper we have shown how the design and purposes of an SPMS are
fundamental aspects to be considered if we want SPM to effectively contribute to organisational
performance. Also, clarity over the nature and aims of an SPMS is fundamental if we want to
resolve a number of apparent paradoxes. First, organisations should explicitly decide whether
their measurement system is strategic or solely operational. This choice is likely to determine the
link between strategy and performance measurement, and the relevance of the PMS within the
organisation.
8
Second, the design of the SPMS should depend on the roles the organisation assigns to
the SPM. These roles should therefore inform decisions over the types of performance indicators
to introduce (financial and non-financial; leading and lagging) and the use of performance
information as a means to generate single and double learning loops.
Third, the balance between diagnostic and interactive uses of SPM has relevant
consequences on the possibility of SPM playing an active role in the introduction of change
initiatives and innovation strategies. SPM can also contribute to the creation of capabilities and
the establishment of an organisational culture. Therefore, in case of substantial transformations,
the organisation should reflect on the role played by the SPMS and not only redefine the targets
and indicators, but also rethink the balance between alignment and empowerment. Only by doing
so will the organization make the system flexible and use it as a lever for change.
Finally, although SPMSs are certainly powerful tools, in isolation they cannot guarantee
business performance. They should be seen as part of a wider whole, and be used in conjunction
with other mechanisms including, for example, rituals and routines, reward and recognition
systems, and training programmes [24].
A purposeful design
The design of an SPMS is fraught with difficulties and, to date, many measurement initiatives
can be considered outright failures [25]. This paper shows not only how performance
measurement systems can differ from each other in nature, but also how they can be developed
for different purposes. The plurality of roles of SPM indicates the importance of defining from
the outset the roles of every performance indicator and the SPMS as a whole. In this sense, we
could argue that the design of such systems should be an intelligent and purposeful creation. Key
questions managers should ask themselves include:
Answers to these questions should then determine the number and kind of performance
indicators, the type of reviews that will be conducted, and the main features of the SPMS as a
whole. In particular, the organisation will have to decide the degree of flexibility it wants to
embed in the system, according to its envisaged use in both the short and the long term. The
balance between alignment and empowerment, and the frequency of reviews and audits will
determine the dynamism of the system. Also, the design of the SPMS will have to depend on the
environment in which the organisation operates, its strategy, its links with key stakeholders, and
the implications the measurement system may have in maintaining the current, or shaping the
future, organisational culture. Indeed, in a world where the pace of change has increased
markedly over the last few years, firms will increasingly need their SPMS not only to help get
alignment to an existing strategy, but also to support the empowerment and continuous
adaptation of strategy and tactics. And this will be valid not only for successful subsidiaries and
operations, but for all operations, particularly for less well performing ones.
References
[1] A. Neely, M. Bourne, Y. Jarrar, M. Kennerley, B. Marr, G. Schiuma, A. Walters, M. Sutcliff, H. Heyns,
S. Reilly and S. Smythe, Delivering value through strategic planning and budgeting, Report by
9
Accenture and Cranfield School of Management, London (2001); see also A. Papalexandris, G.
Ioannou and G. P. Prastacos, Implementing the Balanced Scorecard in Greece: a software firms
experience, Long Range Planning 37(4), 351-366 (2004).
[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).
[3] K. S. Cavalluzzo and C. D. Ittner, Implementing performance measurement innovations: evidence
from government, Accounting, Organizations and Society 29(3-4), 243-267 (2004); S. Davis and T.
Albright, An investigation of the effect of Balanced Scorecard implementation on financial
performance, Management Accounting Research 15(2), 135-153 (2004); G. J. M. Braam and E. J.
Nijssen, Performance effects of using the Balanced Scorecard: a note on the Dutch experience, Long
Range Planning 37(4), 335-349 (2004); M. A. Malina and F. H. Selto, Communicating and
controlling strategy: an empirical study of the effectiveness of the Balanced Scorecard, Journal of
Management Accounting Research 13(1), 47-90 (2002).
[4] H. Ahn, Applying the Balanced Scorecard concept: an experience report, Long Range Planning 34(4),
441-461 (2001); A. Butler, S. R. Letza and B. Neale, Linking the Balanced Scorecard to strategy,
Long Range Planning 30(2), 242-253 (1997); D. Campbell, S. Datar, S. Kulp, V. G. Narayanan,
Using the Balanced Scorecard as a control system for monitoring and revising corporate strategy
(unpublished working paper), Harvard University (2002); R. Veliyath, Strategic planning - balancing
short-run performance and longer term prospects, Long Range Planning 25(3), 86-97 (1992); G. S.
Yip, T. M. Devinney and G. Johnson, Measuring long term superior performance: the UKs longterm superior performers 1984-2003, Long Range Planning 42(3), 390-413 (2009).
[5] A. A. Atkinson, J. H. Waterhouse and R. B. Wells, A stakeholder approach to strategic performance
measurement, Sloan Management Review 38(3), 25-37 (1997); D. McKevitt and A. Lawton, The
manager, the citizen, the politician and performance measures, Public Money & Management 16(3),
49-54 (1996); P. Smith, Performance indicators and outcome in the public sector, Public Money &
Management 15(4), 13-16 (1995).
[6] J. H. Gittell, Paradox of coordination and control, California Management Review 42(3), 101-117
(2000); Malina MA, Selto FH (2002) op. cit. at Ref. 3; G. Roos and J. Roos, Measuring your
companys intellectual performance, Long Range Planning 30(3), 413-426 (1997).
[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 targetbut missing the point: resolving the
paradox of strategic transition, Long Range Planning, 43(4), 555-574 (2010).
[12] M. Franco-Santos, M. Kennerley, P. Micheli, V. Martinez, S. Mason, B. Marr, D. Gray and A. Neely,
Towards a definition of a business performance measurement system, International Journal of
Operations and Production Management 27(8), 784-801 (2007); M. Hall, The effect of
comprehensive performance measurement systems on role clarity, psychological empowerment and
managerial performance, Accounting, Organizations and Society 33, 141-163 (2008).
10
[13] R. Simons, Levers of Control: How Managers Use Innovative Control Systems to Drive Strategic
Renewal, Harvard Business School Press, Boston (1995).
[14] J.-F. Henri, Management control systems and strategy: a resource-based perspective, Accounting,
Organizations and Society 31, 529-558 (2006); S. Miller, D. Hickson and D. Wilson, From strategy
to action: involvement and influence in top level decisions, Long Range Planning 41(6), 606-628
(2008); W. Ocasio and J. Joseph, Rise and fall - or transformation?: the evolution of strategic
planning at the General Electric Company, 1940-2006, Long Range Planning 41(3), 248-272 (2008);
J. Woiceshyn, Lessons from good minds: how CEOs use intuition, analysis and guiding principles
to make strategic decisions, Long Range Planning 42(3), 298-319 (2009).
[15] S. Bungay and M. Goold, Creating a strategic control system, Long Range Planning 24(3), 32-39
(1991); M. Goold and A. Campbell, Managing the diversified corporation: the tensions facing the
chief executive, Long Range Planning 21(4), 12-24 (1988); M. Goold, A. Campbell and K. Luchs,
Strategies and styles revisited: Strategic control - is it tenable? Long Range Planning 26(5), 54-61
(1993); L. G. Love, R. L. Priem and G. T. Lumpkin, Explicitly articulated strategy and firm
performance under alternative levels of centralization, Journal of Management 28(5), 611-627
(2002).
[16] J.-F. Henri, (2006) op. cit. at Ref. 14.
[17]. J. Magretta, What management is - and why its everyones business, Harper Collins Business,
London (2002).
[18] M. Hall, (2008) op. cit. at Ref. 12.
[19] P. Smith, On the unintended consequences of publishing performance data in the public sector,
International Journal of Public Administration 18(2-3), 277-310 (1995); B. Townley, D. J. Cooper
and L. Oakes, Performance measures and the rationalization of organizations, Organization Studies
24(7), 1045-1071 (2003).
[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. OSullivan and A. V. Abela, Marketing performance measurement ability and firm performance,
Journal of Marketing 71(2), 79-93 (2007).
[24] G. Johnson, Managing strategic change strategy, culture and action, Long Range Planning 25(1), 2836 (1992); P. Micheli, A. Pavlov, Promoting a culture of performance management in public sector
organisations. In: KPMG, CAPAM, IPAC, IPAA (eds.), Holy grail or achievable quest? International
perspectives on public sector performance management (2008).
[25] A. Neely and M. Bourne, Why measurement initiatives fail, Measuring Business Excellence 4(4), 3-7
(2000).
Authors biography
Pietro Micheli, MSc, MRes, PhD
11
12