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Abstract

This paper argues for the design and implementation of a new breed of performance management
framework that suits the expanding periphery of firms. From a thorough literature review the paper
demonstrate that all current performance measurement and management systems do not reach beyond
the boundaries of the firm and presents the limitations of the current scope and the inability to
properly manage multi-firm performance issues.

The paper proposes a series of features desirable in an inter-firm performance management

framework that consider the multi-objective nature of joint scorecards without a single point of
control but with some common goals bringing two or more firms together. Joint scorecards will
measure performance metrics in a multi-dimensional way, along the concepts of efficiency and
effectiveness but considering performance goals for more than one firm but avoiding zero-sum game
results.

Some examples are provided where firms today are designing performance measuring frameworks
grounded in these principles of multi-firm goals, multi-perspective metrics, no single point of control
or alignment and avoidance of zero-sum results.

Conclusions of this paper call for additional research on the design features of joint scorecards in light
of corporate strategies that enable extended enterprise activities such as off-shoring, outsourcing,
contract manufacturing, single and dual sourcing, channel intermediation, servitisation and others.
Providers of IT solutions for implementing performance measuring frameworks may need to
incorporate in their solutions the required functionality to design and manage joint scorecards.

Introduction

As firms continue expanding their periphery and shrinking the core of the activities they engage more
often in inter-organizational relationships (IOR). One of these types of IORs is the contractual
alliance. Contractual alliances are popular governance mechanisms through which firms accomplish
several strategic goals: gain access to critical resources (Gulati, 1998), acquire competitive advantage
(Dyer and Singh, 1998), create economic value (Chan et al., 1997) and minimize transaction costs
(Williamson, 1985) among others. The management literature presents compelling cases for
participating in alliances and report great numbers of alliance formation in past years (Anand and
Khanna, 2000). However, this alliance formation activity has yielded mixed business results with
almost equal probability of success or failure (Das and Teng, 2000). The purpose of this paper is to
explore, through a series of examples the role that aligned performance measurements may play in
understanding the stability of the contractual alliance and to predict the success of the alliance.

Literature Review

A brief review of the previous two topics indicates that theoretical explanations of alliance formation
place, as top management priority, the achievement of strategic goals when joining inter-
organisational relations. If meeting strategic goals is a management objective, then performance
measurement should be a primary area of concern for alliance managers. Managers realise the
strategic value of the new venture, but are also aware of the inability to govern it as they do with
internal functions.

Methodology

The management literature reports two different dimensions for measuring alliance success: firm-level
success and contract-level success. At the firm-level, success is measured as improved financial
performance and overall managers¶ perception of the alliance effectiveness. Improved financial
performance considers impacts on firm¶s profitability, growth, cost-positioning and economic value
derived from the alliance. Also at the firm-level, perceptions of operational effectiveness reflect
overall management satisfaction with alliance performance, fulfilment of strategic objectives and
assessment of direct net contributions of alliance performance to the member firm.

At the relational level, alliance success is measured in a more operational way, especially the
performance of non-equity (contract-based) alliances. Thus, alliance-level metrics of success include
contract stability (measured by the number of contract renegotiations in the life of the alliance),
longevity (assuming the relationship is designed to be renewed) and alliance survival (as a binary
concept opposite to abrupt termination).

These two dimensions of alliance success (firm-level and alliance-level), introduce three different
performance measurement systems (PMS) that will and should interplay with each other. One PMS
measures the intra-alliance performance (operational performance), and at least two more measure
member-level performance derived from participating in an alliance (one for each member firm).

The literature on inter-organisational relationships recognizes the need to measure all levels of
performance but does not suggest specifically any guidance on how to include them in the
management of the alliance, nor does it prescribe the need to seek alignment or congruence among
them. The µstrategic fit¶ literature has demonstrated that internal coherence or µcoalignment¶ of
business strategies and the environment is positively related to firm performance (Venkatraman and
Prescott, 1990). However there is a gap in the management literature due to the lack of empirical or
theoretical studies to test if strategic coalignment of firm-level performance measurement systems and
alliance-level performance measurement systems is positively related to alliance success.

Results

Conclusions

There is a need to articulate a ³super y´ function of contractual alliance success incorporating the
three indicators of success as presented above: continuity, stability and longevity of the relationship.
Additional research is needed to explore the use of other alignment calculations among sets of
performance metrics replacing the Euclidean distance calculations for other distance measures such as
the Mahalanobis distance.

This exercise needs to be replicated with a larger sample of contracts and perhaps a variety of services
providers to test the conclusions stated in the conclusions.

References

Key issue is whether you think we have anything meaningful to say given the analysis you have
undertaken so far? If so, then paper should be structured as follows ±

introduction - literature review (why this study is important) - methodology (how you undertook the
work)

- results (what you found).

highlight the contributions of your research

highlight the implications and/or contributions to practice

where possible illustrate issues with real examples

where possible highlight the best practices or lessons learnt from the research.