AN EMPIRICAL STUDY OF KEY FACTORS TO EFFECTIVELY OPERATE STRATEGIC PERFORMANCE MANAGEMENT SYSTEM.

Author:Striteska, Michaela
 
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INTRODUCTION

Recently, performance management systems (hereinafter PMS) have been increasingly becoming a significant part of organizations, enterprises, and academia, which spend large sums on developing comprehensive methods of performance measurement (Taticchi, 2008; Franco-Santos & Bourne, 2005; Kennerley & Neely, 2002). Certain authors even speak about the revolution that performance measurement has undergone in recent years (Kennerley & Neely, 2002; Neely et al. 1995). This has occurred because the entrepreneurial environment has been undergoing changes (mainly, market globalization, new sources of competitive advantage, the need to quickly transfer information, and fast decision making) that call for revising current PMSs (Seethamraju & Marjanovic, 2009). These changes have led to criticism of traditional control and accounting systems, which ignore strategically important performance drivers (knowledge, reputation, branding, and relationships) and focus too intently on internal organization, the bottom line, lagging indicators, and yesterday's performance (Pedersen & Sudzina, 2012; Bourne & Neely, 2002).

Therefore, the objective of the new type of PMS is to achieve greater balance between performance measures that are financial and non-financial, short- and long-term, backward- and forward-looking, leading and lagging, focused on stockholders and stakeholders, and internal and external (Kennerley & Neely, 2002; Kaplan & Norton, 1992; Brignall et al., 1991; Keegan et al., 1989). Using a PMS that is designed in this way improves a company's orientation in the new business environment, speeds up and improves the quality of decision making processes, and makes it easier to implement strategy. Moreover, performance measurements align employees' incentives and motivate them to enhance performance and achieve the strategic goals (Simons et al., 2000).

Therefore, over the last two decades, a number of scientific studies have been conducted that deal with various aspects of performance measurement: the extent performance measures' use (Gomes et al., 2011; Robinson et al., 2005; Frigo & Krumwiede, 1999; Stivers et al., 1998), defining performance measurement systems (Franco-Santos et al., 2007; Bourne & Bourne, 2002; Forza & Salvador, 2000), the creation and implementation of PMS (Atkinson, 2012; Robinson et al., 2005; Bourne et al., 2000), and new trends (Yadav & Sagar, 2013; Marr & Schiuma, 2003). However, there is no unified theory or clear agreement concerning the factors and contexts that influence the implementation and continual improvement of strategic performance management system (hereinafter SPMS) (Henri, 2006). There is very little discussion about the quality of information and the linking of performance and strategic management.

Despite this, a number of internal factors influencing the implementation of PMS have been identified. These include size, strategy, organizational culture, organizational structure, management style, the process of reviewing measures, and systems for collecting and analyzing data. External factors that influence companies-and, thereby, also a performance measurement system's requirements-include new technologies, increasing global competition, increasing customer bargaining power, and cultural differences (Aguinis et al., 2012; Claus & Hand, 2009). Another internal factor cited is the maturity of the PMS. The question is whether it is valid to assume that a company's experience acquired during the development and implementation of a SPMS influences the system's level of development. Just as interesting is the research question of whether companies that spend sufficient energy managing key factors (company culture, competent people, review process, and information system) have a more developed SPMS. Key factors are considered to be those that are most frequently cited in the literature as relating to effectively implementing performance measurement and management systems.

Thus, the main goal of this paper is to provide an empirical analysis of the relationship between the length of time a SPMS has been implemented and its level of development and, at the same time, the relationship between the strategic performance management system's level of development and key organizational factors.

LITERATURE REVIEW

A performance measurement system is the core of the overall PMS; it supports its philosophy and is fundamentally important for its effective operation (Lebas, 1995). Melnyk et al. (2014) also confirms this; he believes that measuring and managing performance is composed of two elements: a system of performance measurement and a system of performance management. On one hand, the performance measurement system incorporates the process of setting objectives; creating measures; and collecting, analysing, and interpreting performance data. On the other hand, the PMS encompasses the process for assessing the differences between actual and desired outcomes; identifying and flagging those differences that are critical, i.e., warranting management intervention; understanding if and why the deficiencies have taken place; and, when necessary, introducing (and monitoring) corrective actions aimed at closing the significant performance gaps. Thus, the PMS allows companies to plan, measure, and monitor their performance so that decisions, resources, and activities can be better coordinated with the strategies for achieving the required results (Bento & Bento, 2006). On the basis of accepting these basic tenets, only one concept of the SPMS will be used hereafter in the paper, because this concept also encompasses the system of measurement.

In order to speak about an effective SPMS, it must show specific characteristics. Different scholars have put emphasis on various characteristics that should be shown by an effective SPMS. For example, Maskell (1989) claims that traditional financial measures are inadequate and sometimes misleading; he identifies seven common characteristics of a PMS as part of world class manufacturing (WCM). A balanced picture and comprehensive mapping are among the six key characteristics identified by Kennerley & Neely (2002). Bititci et al. (2006) provide a long list of detailed characteristics of modern PMSs that differentiates between supervisory and improvement measures. Gomes et al. (2011) created a summary of relevant characteristics using the available literature on performance measurement from the last two decades.

Taking into account the considerations of the authors mentioned above and a broader review of academic literature, it is possible to integrate these opinions, remove duplication, and define a basic set of characteristics of an effective SPMS. A SPMS must:

  1. Have strategic objectives and measures derived from the mission statement or vision,

  2. Be established as a tool for implementing strategy and continuous improvement,

  3. Set performance measure targets for what should be achieved during the projected period,

  4. Support an understanding of the causal relationships between measures,

  5. Have performance measures integrated across the entire hierarchy and all functions,

  6. Be linked to the reward system, and

  7. Change dynamically with the strategy and with changes in the internal and external environments.

    The PMS does not operate in an organizational, strategic, or environmental vacuum. This means that changes in organizational structure, corporate culture, strategy, or the environment should have direct consequences for the PMS (Melnyk et al., 2014). Recently, many authors have focused on examining factors that can facilitate or hinder the effective functioning of a SPMS. On the basis of interviews with managers, Kennerley & Neely (2003) identified four key factors: the presence of a corporate culture focused on performance management, people with the required knowledge and skills, the existence of a review process for performance measures, and the availability of flexible systems. Atkinson (2012) defined the same key factors for the successful development and implementation of a PMS. According to him, the key components are visible senior management leadership and commitment, a culture of improvement and learning, and regularly reviewing and updating the PMS so that it remains dynamic and flexible. Sole (2009) distinguishes between internal and external factors influencing PMSs in public organizations. Internal ones include leadership and management's commitment, internal resources, a performance-oriented culture...

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