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Evolutionary paths of performance measurement

An overview of its recent development
Suwit Srimai
Faculty of Liberal Arts & Management Sciences, Prince of Songkla University, Surat Thani, Thailand, and

Received August 2010 Revised October 2010 Accepted October 2010

Jack Radford and Chris Wright

Faculty of Commerce, Lincoln University, Lincoln, Canterbury, New Zealand
Purpose This paper aims to understand the evolutionary paths of performance measurement (PM) from the 1980s to the present. Design/methodology/approach The paper is a narrative review. The sources of literature reviewed are from diverse academic disciplines (e.g. operations management, strategic management, management accounting and organisational behaviour). Three main types of literature were selected, namely scientic literature, professional journals, and books. The authors approach is illustrative and selective. It is based on the belief that societal and organisational contexts provide the clues for the appropriateness in design and use of a managerial innovation. It describes the transition in performance measurement, incorporating a number of PM innovations as illustrative exemplars. Findings Management needs, arriving from the evolving business ecology and focused on creating and sustaining competitive advantage, drive the destiny of PM systems during their evolutionary progression. Performance measurement has evolved from various perspectives. The evolution took place in four major paths, from operations to strategic, measurement to management, static to dynamic and economic-prot to stakeholder focus. Practical implications The evolutions embody trends in development and use of PM systems over the long periods that point the way for future PM to develop and evolve. Originality/value The contemporary evolution of PM exhibited in the connection with its evolving contexts that is not explicitly acknowledged in the literature gives the raison detre to this review. Keywords Management techniques, Performance management systems, Performance measurement (quality), Performance measures, Quality management, Operations management Paper type Literature review

International Journal of Productivity and Performance Management Vol. 60 No. 7, 2011 pp. 662-687 q Emerald Group Publishing Limited 1741-0401 DOI 10.1108/17410401111167771

1. Introduction This review attempts to illustrate the transitional paths of the development of performance measurement[1] in the last few decades. Performance measurement, like other management ideas/tools, develops beside societal ideologies and corporate ecologies. It can be assumed that an innovation[2] in performance measurement, at any point in time, is characterised by the relationships between the needs for, and the forms of, management tools in use. Performance measurement, similar to any biology-driven system, evolved to better t its niche (e.g. to better sustain organisations competitive advantage). As a result of these continual progressing competitive forces, many ideas about performance measurement arose from divergent sources, to create and deliver strategy in expected and unexpected ways, means, and forms.

This paper is a narrative review. Its concentration is on the evolution of performance measurement in the USA. However, since organisations increase their degree of inter-connections as the global network intensies (Delmas, 2002; Guler et al., 2002; Franceschini et al., 2010), this review does include some important non-US developments as well. The authors commence the timeline in the 1980s, when a dramatic change in performance measurement began that has continued on to the present (Neely, 1999). Performance measurement is an interdisciplinary topic that crosses traditional boundaries among academic disciplines. Therefore, the sources of literature reviewed are from diverse academic disciplines (e.g. operations management, strategic management, management accounting and organisational behaviour). Three main types of literature were selected, namely scientic literature, professional journals, and books. The authors do not attempt to provide a comprehensive coverage of the literature. Rather, the review focuses on the transitions in performance measurement, incorporating a number of performance measurement innovations as illustrative exemplars. It examines which of these prescriptions are useful in clarifying the essential issues of performance measurement while allowing the earlier thought introduced by former academia and practitioners, and practices which may be currently used in organisations, to be reappraised and re-approached. The idea that a management tool/practice should be designed with respect to the societal and organisational contexts has long been established (see Johnson, 1981; Macintosh, 1981; Johnson and Kaplan, 1987; Johnson, 1992; Chenhall, 2003; Otley, 2003; Drucker and Maciariello, 2008). However, the contemporary evolution of performance measurement exhibited in connection with its evolving contexts is not explicitly acknowledged in the literature, which gives the raison detre for this review. It is based on the belief that societal and organizational contexts provide the clues for the appropriateness in design and use of a managerial innovation (Johnson, 1981; Ittner and Larcker, 2001; Bourne et al., 2003; Otley, 2003). The rest of this paper is organised as follows. The following sections illustrate four paths of performance measurement from operations to strategy, measurement to management, static to dynamic, and economic-prot to stakeholder focus. The last section provides the conclusions. 2. Transition from operations to strategic orientations The movement of the quality management techniques (e.g. benchmarking, business process, just in time (JIT), business process re-engineering (BPR), total quality management (TQM) and world class manufacturing (WCM)) in America in the 1980s[3] potentially brought a momentum for developing new performance measurement innovations (Maskell, 1989; Johnson, 1992; Watson, 1993; Spicer, 1992; Lind, 2001). Several scholars have claimed that the development and the use of such organisation-wide management techniques radically inuenced the development of management accounting techniques (e.g. Dixon et al., 1990; Maskell, 1991; Johnson, 1992; Otley, 1994). Turney and Andersons (1989) case study, supported by Linds (2001) follow-up longitudinal case study, suggests that awareness of non-nancial measures has increased in companies that adopt the new organisation-wide management techniques. The increasing change in performance measurement and accounting techniques in companies that adopt such quality management techniques perhaps occurred because

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the incompatibility of the philosophical foundations of management techniques with traditional performance measures. While the foundations of the techniques appear to be organization-wide, holistic, and integrative, the existing nancial/functional measures were apparently covering a small part of the organisations activities (i.e. nancial and/or operations). For example, the integrative nature of TQM and WCM provide management principles to ensure that core management processes and systems including non-production areas such as strategic and marketing are comprehensively considered. Since implementing TQM or WCM took place in organisations, a new approach of performance measurement is needed. Associated with the phenomena of hyper-uncertainty, rising capacity around the globe brought competitive intensity that increased executive concern over decision-making risks. This made long-range planning and strategic issues of critical importance (Ittner and Larcker, 2001). As a result, management tools and practices became more strategic. Performance measurement designed in this period shifted from an operations/functional level to a focus on strategic sustaining competitive advantage. Particular performance measurement systems have evolved through diverse philosophies, even though they seem to have emerged from the operations arena with the explicit aim of continuous improvement. Several performance measurement innovations generated after the 1980s were sought to provide a set of measures towards the more strategic, which better suited the emerging post-industrial era. Not only non-performance measures were considered, but also the quality of nancial measures was examined (Ittner and Larcker, 1998). It is argued that the generation and diffusion of the management innovations including performance measurement in the 1980s is a demand-driven phenomenon. As the rapidly changing global business created a similar performance gap across various types of organisation, managers realised that the existing performance measures were no longer sufcient for managing organizations (Johnson and Kaplan, 1987). That detection drove them to seek for better solutions. Among a variety of parties, most of the prior-1990s performance measurement innovations were developed by practitioners with the intention to close the performance gap created by environmental change. This observation accords with Galbraith (1980), that most management innovation might be created by managers who are involved in daily management challenges. Scholars and consultants probably have been involved in this eld since early 1990s. However, the development of management innovations might not be attributed to scholars working single-handedly in their laboratories (Galbraith, 1980; Kaplan, 1998). Indeed, the ideas for management innovations might emerge from the interaction between scholars/consultants and managers. These happen when scholars are actively engaged in helping organisations to produce and implement new ideas (Kaplan, 1998). There are a number of causes that stimulate change to performance measurement. It was found that the most powerful source is government bodies. For example, the Malcolm Baldrige National Quality Award (MBNQA), rst launched by the US government in 1987 on the foundation of quality management as a means to encourage US rms to use TQM to gain competitive advantage (Gadd, 1995), was developed beyond the boundary of quality management to provide a more holistic view as an organisational performance excellence framework (i.e. a strategic management system) (Nataraajan et al., 2000; Vokurka, 2001). This change was mandated by the US government to free the

theoretical foundation of TQM, which is not easily applied to various types of organizations. More recently, the multi -dimensional key performance criteria of MBNQA provide a generic business model which can be applied to guide all types of organizations in moving toward performance excellence (Chuan and Soon, 2000; Leonard and McAdam, 2003; Miguel, 2005). This new notion of performance measurement signies the idea that performance measurement and strategy are closely linked (Anthony and Govindarajan, 2003; Said et al., 2003; Melnyk et al., 2005). Performance measurement, a tool that translates strategy into a set of performance measures of a chosen strategy, is often called strategic performance measurement (Atkinson et al., 1997; Ittner et al., 2003; Chenhall, 2005). From the 1980s until now, many researchers in a variety of disciplines have been searching for a better solution linking performance measurement and strategy (Langeld-Smith, 1997; Neely, 2005). At the moment, that strategy-measurement t affects organizational performance has been raised and validated (Ittner et al., 2003; Chenhall, 2005; Van der Stede et al., 2006). Accordingly, there is a common question for academic communities such as how to ensure that performance measurement relates to and reects an organisational strategy (Neely, 2005). The concept of emergent strategies made the earlier paradigm of strategic management, that tended to be synonymous with strategic planning (Andersen, 2004), obsolete and allowed strategic management as a continuous process to be conceived (Mintzberg, 1973). A resource-based view of the rm and associated concepts are now dominant. These show the fundamental drivers of rm performance as how the rm envisages and engages its potential useful assets and resources[4] (Rumelt, 1984; Prahalad and Hamel, 1990; Barney, 1991; Hamel and Prahalad, 1996; Teece et al., 1997; Eisenhardt and Martin, 2000; Jose Acedo et al., 2006; Newbert, 2007; Dving and Gooderham, 2008). The new-form strategies have become an important element of strategic management. This realisation has re-characterised an entire chain of strategy-management processes and activities. It infers that as emerging new-form strategies become embedded in strategic management, performance measurement as a system designed to facilitate strategy-management should be reviewed and reformed. As a consequence, it could be suggested further that new perspectives of performance measurement should be re-characterised according to the entire chain of strategic management process. While the concept of linking strategy and performance measurement is well acknowledged in the last two decades, conceptualising a performance measurement system as a strategy has been advocated recently (Henri, 2006). Henri (2006, p. 548) asserts that:
Despite the current perspective reected by the resource-based view that control systems do not represent a source of competitive advantage, we suggest the opposite view and open the debate concerning the role of MCS [management control system] as a capability which is valuable, distinctive and imperfectly imitable.

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This conceptualisation is neither to take strategy as a given nor to restrict its scope to the notion of deliberate strategy; in contrast, the role of performance measurement is conceived in the ability of the measurement-information-learning process to activate a continuous strategy-management process. In the measurement-information-learning domain we are likely to nd the dynamic aligned-capabilities needed to formulate, develop, and activate the strategies that will

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enable organizations to outperform their competitors. Henri (2006) asserted that this insight provides an integrative framework of strategy, resource-based view, and management accounting. It can be assumed that once managers shift their paradigmatic perspectives and realize the existence of the capability, this recognition leads them to envision the plausibility that such capable organisations tools and systems will be turned to strategic capabilities as a means to create competitive advantage. While managements need to sustain competitive advantage created a tension that caused the shift of performance measurement in the 1980s from operations to strategic focuses, the ever-rising intensity of competition has continually forced senior management to seek new sources of competitive advantage and left them ever less able to rely on existing knowledge and know-how. Sustainability and long-term growth do not involve trading off short-term pain or gain for a longer-run advantage/disadvantage. Ideally, management should seek applied solutions to deal with the short term and get ready for the opportunities and threats in the long term; thus, a critical aspect in designing performance measurement systems is in the balance between short- and long-term gains. Consequently, new business foundations are necessary to identify, measure, analyse, and steer organisations to more innovative paths (Teece, 2000; Low and Kalafut, 2002). Recognition of the rising need for new and innovative perspectives of competitive advantage (e.g. knowledge workers, intangible assets, hidden value and human capital, etc.) has caused the emergence of new areas of intellectual capital as a competitive-advantage fount[5] (Stewart, 1997; Sveiby, 1997; Roos et al., 1998; Bontis, 2001). Performance measurement for intellectual capital suggests new approaches to provide insights, measure, and manage new strategic factors. However, a consensus on the best way to measure and visualise intellectual capital is not well established. For example, Skandia Business Navigator (SBN; Edvinsson and Malone, 1997) relies on a conventional (nancial) accounting focus reecting only the monetary value of a company and neglects many aspects of intellectual capital which play important roles in creating value (e.g. a companys culture, organisational learning and employee creativity) (Chen et al., 2004). In contrast, Sveiby (1997) recommends a new lens to see organizations as knowledge nexi and to modify the traditional accounting with a new framework of intellectual capital. Although the outputs of strategic performance measurement systems tend to be similar and are provided by comparable processes, their inputs (i.e. strategic measures) seem unrelated[6]. In general, performance measurement systems, which highlight inputs, provide pre-dened groupings of performance measures. While performance measures developed in the 1980s were much more related to operations and production, the strategic and customer-focused approach gradually became a trend in the 1990s and onwards. It can be seen from the exemplars in Table I that, under the operations-oriented focus, cost, quality and productivity are particularly attended to. On the other hand, in order to become strategically oriented, the scope of performance measurement systems has been broadened to cover future prognosis, innovation, customer/market and intellectual capitals. As noted, a critical managerial task, in a performance measurement system, is to balance short-term survival and long-term growth. While diversity and increasing number of performance measures is preferred as a means to preserve the rms

Performance measurement systems Sink and Tuttle Performance Measurement model (S&T; Sink and Tuttle, 1989, 1990) The Strategic Measurement Analysis and Reporting Technique system (SMART; Cross and Lynch, 1988) World Class Manufacturing Performance Measurement system (WCMPM; Maskell, 1989, 1991) Skandia Business Navigator (SBN; Edvinsson and Malone, 1997) Balanced Scorecard (BSC; Kaplan and Norton, 1992) Knowledge-based Measurement Model (KBM; Sveiby, 1997)

Year introduced Dimensions of performance measures 1985 Effectiveness, efciency, quality, productivity, quality of work life, innovation, and protability/budgetability Market, nancial, customer selection, exibility, productivity, quality, delivery, process time, cost Quality, delivery, production process times, exibility, costs Financial, customer, human, process, and renewal and development focus Financial, customer, internal processes, and learning and growth perspectives Three sets of measures growth and renewal, efciency, and stability for three intangible asset categories employees competences, internal structure, and external structure Stakeholder values, process excellence, organisational learning, delighting stakeholders Stakeholder satisfaction, strategies, processes, capabilities, stakeholder contribution Financial, market, process, people, and future

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1991 1992 1997

Comparative Business Scorecard (CBS; Kanji, 1998) Performance Prism (PP; Neely et al., 2002)



Dynamic Multi-dimensional Performance framework (DMP; Maltz et al., 2003)


Note: Some performance measurement systems do not address a wide framework. They instead focus on specic issues related to performance measurement (e.g. to provide guidelines to select and design performance measures and/or how to manage and utilize the performance measures)

Table I. Dimensions of performance measures

long-term sustainability, the few traditional nancial measures which represent the purpose of business is needed as a means to survive in the short-term. With the purpose of enhancing organisational capability, the decision is laid in the continuum of nancial to non-nancial. However, while using strategic measures along with nancial measures is well established, until very recently the lack of consensus about a proper number of performance measures still remained. 3. Transition from measurement to management domains Recently, performance measurement has fundamentally expanded its historical role of implementing strategy to facilitate strategic management (Lebas, 1995; Kaplan and Norton, 1996; Kloot and Martin, 2000; Nita, 2008). A call for evolution from measurement to management might gradually establish the idea that performance measurement systems narrowly dened as a set of performance measures cannot be

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tolerated (Neely et al., 1995; De Toni and Tonchia, 2001). Any element serves a system in a cooperative manner only so long as the key participants realize that their behaviours, as parts of the bigger system, contribute to the same purposes of an organization (Barnard, 1974). Since a performance measurement system is a central part of performance management, consideration of either measurement or management separately should lead to an incomplete conclusion. Thus, this expanded understanding of performance management systems should portray a more complete picture to management scholars and practitioners. In the 1980s scholars and practitioners paid much attention to what gets measured gets done, which is likely to represent a half truth of management by measurement. However, in the late 1990s they have shifted the focus onto: how to manage what is measured as a means to ensure that what is measured will be implemented successfully. This shift was not only caused by the awareness of abundant performance measurement systems being provided but also by the understanding that the potential usefulness of performance measurement is heavily reliant on how to use and mange them (Kaplan and Norton, 2001; Neely, 2005). A performance measurement system has to be integrated as a core of a performance management system, which can be loosely dened as a system that uses a performance measurement system as a means to manage strategy (Lebas, 1995; Kaplan and Norton, 1996; Otley, 1999). According to Vickers (1967)[7], a performance measurement system is composed of: . inputs performance measures and their resulting information; . processes procedures to convey inputs into outputs, or practices of execution to ensure the expected yields; and . outputs the results derived directly from the performance measurement. The performance management system can only function when the feedback from performance measurement is available. Without information, it can only strike the goals by chance. Information from the performance measurement (i.e. inputs) facilitates the facts-based management of the entire organisation. However, it has no signicant meaning until it is implemented as a part of a control system then it feeds information back to executives for ne-tuning organisational strategy and re-aligning people and resources to achieve desired outcomes (i.e. processes). An ultimate output goal of performance measurement systems is to align the strategy of the entire organisations activities and processes. A number of performance measurement systems reviewed indicate that most performance measurement systems do not clarify their outputs explicitly. On the contrary, their creators concentrated more on describing the performance measures (see Table II for examples). Most performance measurement systems are striving to provide processes to identify, monitor, diagnose, communicate and report information to managements with the purpose of managing people and resources and therewith responding to a competitive market. While managers need a performance measurement system to operate a management system, not all performance measurement systems can respond to the managers needs. The evolution of BSC is regularly referred to as a cornerstone of the transformation from measurement toward management. Even though the BSC was not the rst model that introduced a classication of performance measures, it was massively successful in creating a rational norm and standard solutions of strategic performance

Performance measurement systems Tableau de Bord (TdB; Epstein and Manzoni, 1997; Bourguignon et al., 2004) Sink and Tuttle Performance Measurement model (S&T; Sink and Tuttle, 1989, 1990) Malcolm Baldrige National Quality Award (MBNQA; Goh and Xie, 2004; Mitra, 2004) The Strategic Measurement Analysis and Reporting Technique system (SMART; Cross and Lynch, 1988) Skandia Business Navigator; SBN) (Edvinsson and Malone, 1997) Balanced Scorecard (BSC; Kaplan and Norton, 1992, 1996) Consistent Performance Measurement System (CPMS; Flapper et al., 1996) Knowledge-based Measurement Model (KBM; Sveiby, 1997) Integrated Performance Measurement Systems (IPMS; Bititci et al., 1997) Integrated Dynamic Performance Measurement System (IDPMS; Ghalayini et al., 1997) Comparative Business Scorecard (CBS; Kanji, 1998) Integrated Performance Measurement Framework (IPMF; Medori and Steeple, 1998) Dynamic Performance Measurement System (DPMS; Bititci et al., 2000) Quantitative Models for Performance Measurement System (QMPMS; Suwignjo et al., 2000; Bititci et al., 2001) Performance Prism (PP; Neely et al., 2001, 2002) Dynamic Multi-dimensional Performance framework (DMP; (Maltz et al., 2003) Transforming Performance Measurement (TPM: (Spitzer, 2007)

Components Functions Inputs Processes Outputs Measurement Management 7

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U 7

U 7

U 7 U U 7 U 7

U U U U U 7


U 7 U 7 7 7



U U 7 U

U 7


7 U 7 7

U 7

U 7


7 U U U

U U 7 U

U U 7 U


U U 7 U Table II. Components and functions of performance measurement systems

measurement. Starting out as a set of cause-and-effect performance measures (reecting four distinct perspectives: nance, customers, internal business processes, and learning & growth that were used to translate strategy into actions; Kaplan and Norton, 1992), a constantly evolving progression pushed BSC to the point of being a framework for implementing strategy (Kaplan and Norton, 1996) and then more recently a strategic management system (Kaplan and Norton, 2001). Although there are a number of critical issues associated with the BSC in practice and with the underlying assumptions (see Atkinson et al., 1997; Norreklit, 2000; Maltz et al., 2003; Nrreklit,

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2003) associated with socio-psychological forces (Abrahamson, 1996) senior management might adapt BSC to their organizations to experiment and learn about attractive promises and attribution that might help them to ll their performance gaps. It is seen that innovators play an essential role in putting forward evolutionary paths and sustained visibility of the BSC. Kaplan and Norton (see Kaplan and Norton, 2001, p. 23) asserted that the evolutionary progression of BSC is constantly driven by the intention of fully utilizing the advantages and usefulness of the BSC. It can be argued that as a means to create and expand communities of adopters (Abrahamson, 1996), in the later versions of the BSC the innovators play an active role in extending its utility and fertilising its popularity to sustain the impression of its progress. The popularity and intensity of diffusion are the results of the dynamic interplay between the promoters who put forward the innovations and the senior managers who adopt the idea to their organisations (Abrahamson, 1991, 1996). However, existing performance measurement innovations including the BSC tend to be organised around the brand (i.e. commercial trademark). Consequently, the commercialisation of a number of performance measurement innovations raises questions as to how to differentiate between what is real and effective and what is simply myth and ineffective. To receive empirical support of the usefulness of performance measurement innovations, from the late 1990s until now, scholars and practitioners have called for empirical validation of the existing innovations (Ittner and Larcker, 1998; Neely, 2005) and have attempted to reect the practicality of them, especially the BSC (see Atkinson et al., 1997; Norreklit, 2000; Maltz et al., 2003; Nrreklit, 2003). Since the late 1990s, several performance measurement innovators have expanded the perspective and capacity of the existing performance measurement systems (Otley, 1999, 2001; Kanji and Sa, 2002; Neely et al., 2002; Verweire and Van den Berghe, 2003; Kaplan and Norton, 2004, 2006; Marr, 2006; Nita, 2008). At this stage, bundling systems and integration approaches that called for a re-combination of the package of measurement and management systems, have been exercised to enhance the capability of each individual measurement and management system with the result the creation of a more comprehensive measurement and/or management system (De Toni and Tonchia, 2001; Taticchi and Balachandran, 2008). The integration of independent performance measurement systems and other management systems are expected to yield synergistic effects (i.e. all preferred functions of individual systems are retained and a more robust and comprehensive system is created) (Karapetrovic and Willborn, 1998a, b). An attractive promise or attribute of a management tool makes it easier to apply (Benders and van Veen, 2001). Thus, the introduction of bundling and integrated systems driven by the particular intentions of their innovators (e.g. consultants and scholars) leads to the creation of more attractive attributes of performance measurement systems for potential users (Bjornenak and Olson, 1999; Ax and Bjrnenak, 2005). On the other hand, demand for systems bundling and integration in particular organisations can be created internally through organizational learning (Modell, 2009). Existing management tools are well embedded as organisational rules and routines; as well as humans are likely to protect their existing practices and turf rather than embrace totally new directions (Van de Ven, 1986). Thus, the re-combination of measurement and management systems should be a preferred choice when making change. To do so does not straightforwardly oppose champions of the existing rules, routines and management tools.

Performance management systems, provided under diverse trade names, perform similar functions. They can be coordinated into an organisation-wide, strategic, integrated performance management system to facilitate and spur the strategy-management process. A justication of performance management systems as the systems for managing strategy is that they embody a superior capacity to compete in markets. As an outgrowth of the intention to manage, deliver and control strategy, performance management systems are enterprise-level management systems that incorporate performance measurement to overcome corporate cultural inertia by facilitating strategy-management activities and processes to generate strategic information. In addition, they are used for organizational learning, as a guiding strategy to managers and other employees, to monitor strategic drivers and results, and to steer organizational behaviours toward congruency with given goals. 4. Transition from static to dynamic perspectives The broadening perspective of performance measurement (from measurement to management domains) is driven by internal tensions. It is a result of senior management who request a more complete picture of performance management. Because considering either measurement or management individually is likely to lead to incompleteness, there are less useful implications. On the contrary, the change from a static to a dynamic mode of performance measurement reects the need to respond to change in the external environment, particularly when the existing performance measurement innovations are not sufcient. Many organisations now seek actively to differentiate themselves from their competitors in terms of a exible and rapid response to customisation, service, and innovation. There is a common agreement that the external and internal environment of an organisation changes constantly. However, since the late 1980s, management scholars and practitioners have become increasingly concerned about sustaining competitive advantage in rapidly changing environments (Chilton, 1995; Werther and Kerr, 1995; Ghemawat, 2002). According to Ittner and Larcker (1998), the substantial pressure in the nature of competition and its intensity forced rms to determine and measure the non-nancial value-drivers that are leading to success in the new competitive environment. These changes have had impacts on the design and the implementation of performance measurement systems (Neely, 1999). Firms have been challenged and forced to improve in the value-driven markets, and leave behind the cost-focused mindset. Thus, competing on the basis of non-nancial factors means that these organizations do not need only to expand information across a broad spectrum of dimensions, but also to activate a dynamic cycle of the measurement and management of information. In rapid changing global markets, senior management redirects attention to organisational systems and processes, not rigid organisation structures, in order to respond promptly to the market to ensure the rms dynamic sustainability (Osborn, 1998). The awareness of how factors that are beyond control can contribute to a rising intensity in competition has been a fundamental concern of performance measurement innovators since the 1990s. The rapidly changing environment causes the need for earlier performance measurement; however, although such earlier performance measurement systems emphasised creating strategic coherence through a variety of techniques, many companies could not align their management processes to their

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strategy (Kaplan and Norton, 2005). As a result, they were unable to achieve their desired goals. As a consequence of the increasing rapid and dynamic change, especially after the 1990s, many innovators have proposed performance measurement as a means to create adaptability. The intention was to enable organisations to develop the dynamic capabilities that will help them to stay competitive. At this stage, not only the concepts and practices of performance measurement have evolved according to the new conditions, but also the existing management theory, practices, and notions produced by academics are being questioned for their relevance to the dynamic contexts (Davidson, 1996; Naisbitt, 2006). Bititci et al. (2000) give the reasons why it is necessary for the performance measurement systems to be dynamic. They assert that dynamism is essential for sensing and responding to change in the external and internal environment of an organization and for reviewing and reprioritising internal objectives. The deployment of the changes to internal objectives and priorities to critical parts of the organisation is considered to ensure alignment at all times. Therefore, Bititci et al. (2000) propose that a dynamic performance measurement system should have: . an external monitoring system continuous monitoring and signalling of changes in the external environment; . an internal monitoring system continuous monitoring and signalling of changes within the organisation; . a review system for providing signicant information for decision making; and . an internal deployment system deploying the revised strategic objectives and priorities to critical elements of the system. While little is known about the attributes of performance measurement as a means to deal with uncertainty, Chenhall (2003) suggested that organizations should generally redesign their performance measurement system towards more open, interactive, externally focused, and non-nancial measures. Kennerley and Neely (2003b) also offer a dynamic framework for managing performance measurement systems in a changing business environment. They suggest that performance measurement must be managed dynamically in order to maintain relevance and effectiveness. Hence, the process of managing the evolution of the performance measurement system should be triggered by reection on the relevance of organizations elements (i.e. processes, people, infrastructures, and culture) in the changing context and the strategies of the organisations. However, it is argued that the application of computers and information technology facilitates the dynamics of performance measurement. The dynamics of performance measurement are subjected to the continuous cycle of imitation, development and renewal of information to support management decision-making and day-to-day work (Clancy and Collins, 1979; Bititci et al., 2002). The lack of an effective information system is a barrier to the successful implementation of performance measurement (Eccles, 1991; Kaplan and Norton, 1996; Kennerley and Neely, 2003a). Although the initiation of digital data management and its associated technology had already raised the quest for dynamic performance measurements in the 1970s (Fleischman and Tyson, 2006), it was not until the 1980s that computerisation was a technique to deliver the dynamism of performance measurement to continually capture, store, measure, interpret and visualise data and information (Wilkinson, 1986). Most recently,

information has been required to apply minute adjustments to strategies and to respond instantly to customers and competitors (Friedman, 2005; Vasarhelyi and Alles, 2008). Indeed, the dynamism of performance measurement has not recently been given much attention. Juran (1988) suggests a dynamic management approach (i.e. the continuous cycle of imitation, development and renewal of performance measurement). He offers three dimensions of performance measurement in time-frames relating to operations. The dynamic roles of performance measurement in the cycle of management and operations are stated as follows: . before operations (planning) performance measurement can be used to build goal congruence, and, in order to get accountability during the process, the responsibility for the results should be specically assigned; . during operations (implementation) performance measurement can be expected to provide information to senior managements to secure early and advanced warning and to generate self-stimulation and a self-correcting system that conforms the working behaviour with the organisations goals; and . after operations (controlling) feedback from performance measurement helps employees to learn what is needed to adapt their strategies. Generating and retaining strategic alignment is the key task of performance measurement. It has strived to provide mechanisms to create such alignment. Effective performance measurement brings an entire organisation into alignment with the purpose of creating and sustaining business value (Aguilar, 2003; Kaplan and Norton, 2006). Further, integrated performance measurement links strategy with all aspects of an organisations activities (Labovitz and Rosansky, 1997; Kaplan and Norton, 2001). However, continually evolving competitive conditions reveal the concept of alignment as a snapshot to be inappropriate. Although alignment seen as a snapshot of the rapid and accelerating change in the competitive environment requires an accelerating rate of realignment, organisations are riding the tiger of change and can neither stop nor even slow down their response to change. If organisations want to remain relevant they must adapt to rather than oppose change (Bate, 1994). Performance measurement also creates dynamic alignment through organizational learning which is, in itself, a major source of competitive advantage (Senge, 1990; Slater and Narver, 1995; Edvinsson and Malone, 1997). In the command-and-control paradigm, performance measurement is used to assess and judge employees performance. In an effective learning environment it is also a tool for further learning, challenging, and continuously improving organisational performance (Marr, 2006). A systematic acquisition of knowledge can reinforce a self-correcting system that drives continuous improvement resulting in continual realignment with the desired status. Indeed, a performance management system is a measurement-information-learning domain that sets managerial functions to activate strategy. It builds dynamic aligned capabilities that enable a rm to out-perform its competitors, according to given contingencies. 5. Transition from shareholder to stakeholder values The suggestion that nancial and other aspects of organizations performance concerns by stakeholders should be weighted equally has embraced a long history of rise and fall

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(Business Week, 1973, p. 393). In the 1980s, a stakeholder approach to performance measurement emerged as a response to the criticism of overvaluing a group of shareholders (Clarke, 1998, pp. 182-3). The original perspective of performance measurement is imbalanced because the wider social and environmental responsibility, and integrity of business enterprises are not included in the measuring and reporting systems. The perspective also represents short-term oriented and nancially focused performance that narrows the scope of performance measures to only shareholder interests. Further, it has been acknowledged that other groups of stakeholders, besides professional managers, make signicant contributions to the performance of the company (Clarke, 1998). This trend has blended with long established social and environment accounting and it has potentially fuelled a management agenda. Consequently, it has caused a number of performance measurement systems, especially since the 1990s, to broaden their focus on the stakeholders requirements rather than only reecting shareholders economic-prots (Garengo et al., 2005). Indeed, information about stakeholders contributions and expectations are critical for the management of businesses (Clarke, 1998). Crockett (1992, p. 41) asserted that only when [an executive information] system is designed around performance measurements that give expectations of stakeholders the same weight and value as critical success factors and their benchmarks does the system help improve strategic decision making. Adoption and implementation of a stakeholder approach (which opposes a shareholder approach) caused senior managements to broaden their views to the social purposes of rms, which lead to the change of managers mindsets in running businesses (Perrini and Tencati, 2006). While the issues of what is measured and how is it measured have been long discussed (Estes, 1973) until the very present, a consensus has never been reached. As Argenti (1997) asserts that the values of each stakeholder group are not equivalent, a trade-off problem between shareholder and other stakeholders interests generally arises. In general, the idea of the shareholders priority was widely accepted by performance measurement innovators. Companies tend to choose a group of shareholders as their intended beneciary, as they are, by denition, prot-making organisations. Clarke (1998, p. 182) supports the idea that the value of stakeholders has never been greater than that of shareholders. Atkinson et al. (1997) suggest that even though performance measures should be balanced between achieving primary objectives (i.e. increase shareholders wealth) and satisfying other stakeholders, the primary objectives (towards shareholders interests) claim priority nonetheless. Similarly, Neely (2005; per Powell, 2004) asserts that the stakeholders values are a common practice so as to prioritise the competing needs of differing stakeholders. It can be argued that differing interests of diverse stakeholders constitute beliefs and manners of senior management as agents who act on behalf of their principals, not for all groups of stakeholders. Under the conditions of ambiguity, prot as a norm of rationality will be prioritised by senior management in order to sustain the appearance of rational management and to avoid sanctions from commanding shareholders (Abrahamson, 1996). However, this approach is criticised by Campbell (1997) who argues that delivering the shareholders value as the sole purpose of the company is oversimplied and misinterpreted. He illustrates a both . . . and condition; that while companies intend to deliver the primary purpose of making prot, the secondary purposes of the companies

can be also fullled simultaneously (e.g. the Body Shop are making prot from its cosmetics without hurting animals). The explanation to this approach is far from straightforward. Simply, as the both . . . and condition seems to challenge the concept of shareholders as a prevailing stakeholder, senior management tends to be directly or indirectly forced to prioritise and pay attention to prot. Indeed, both . . . and might not be a contrary condition to shareholders interest, but it is important as a strategy as a means of accomplishing prot. For example, many organisations explicitly announce social objectives as a strategic positioning to particular market segments. Moreover, a number of organisations may practice an innovative human resource policy only because they are expecting protability through enhancing labour efciencies, not because it is really an organisational value (Atkinson, 1998). In fact, without the explicit both . . . and condition, protability, which is the main concern of the shareholder, may be not accomplished. External demands including the legitimate power of international bodies and regulators (e.g. the International Organisation for Standardisation; ISO) constantly play a major role in forcing internal change to pay particular attention to the social and environmental aspects of performance measurement systems. For example, to obtain an environmental certicate from ISO, environmental and social issues have to be included in the core business processes and translated into performance measures. More recently, a number of organisations have integrated social and environmental dimensions to their existing performance measurement systems (see Figge et al., 2002; Chenhall and Langeld-Smith, 2007; Lansiluoto and Jarvenpaa, 2008). As mentioned by Lansiluoto and Jarvenpaa (2008), the improvement of social and environmental performance in order to enhance protability may cause senior management to increase its attention towards the stakeholder approach of performance measurement. By integrating social and environmental measures with a performance measurement system, a company can monitor, learn and report information on social and environmental performance more precisely (Lansiluoto and Jarvenpaa, 2008). As stated by Berle (1932, p. 1367): the view that business corporations exist for the sole purpose of making prots for their stockholders is practical enough if senior managers have a clear comprehensive perception of responsibilities to other stakeholders. Although the performance measurement literature does not directly mention a stakeholder approach as a concept to enhance good governance, Kochan (2002, p. 139) identies that the root cause of the recent corporate scandals in the US lies in the overemphasis American corporations have been forced to give in recent years to maximizing shareholder value without regard for the effects of their actions on other stakeholders. Therefore, intended or not, the stakeholder approach to performance measurement helps reinforce a shift and change in the theory of business in order to gain a better practice in good governance. That thought dramatically rises as a major concern of both academics and professionals in recent time. 6. Conclusions Concepts regarding work, people and the organisation, which are embedded in management contexts, differ from time to time (Johnson, 1981; Ittner and Larcker, 2001; Otley, 2003). The basic theme underlining this review is a concern in achieving an understanding of the nature and force of the transitionary paths of performance

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measurement, especially from the 1980s up to the present. The main paths of evolution appear to ow from: . operations to strategic; . measurement to management; . static to dynamic; and . shareholder values (economic-prots) to stakeholder focuses. These ows reect the change and shift in competitive, social, environmental, organizational and managerial factors. The rst path reected the change in competitive advantage in the early 1980s; from product quality to a marketing-and-strategy view that caused organisations to shift their focus from production to the strategic arena. Although performance measurement was initially developed as operations-oriented in the beginning of the 1980s, it eventually went on to become a strategic tool in the late 1980s. This trend became more obvious in the 1990s, when innovations in performance measurement were increasingly introduced into the strategic arena. The second path became apparent as the number of performance measurement innovations saturated the marketplace in the late 1990s, leading to the introduction of a new approach of performance measurement to redirect managements attention again. The third path, an unpredictable and accelerating change in the 1990s forced senior managements to consider and manage the beyond-control factors that previously had been considered outside of their preview. As a result, they needed a new approach of performance measurement that could be executed in a dynamic mode, and be capable of dynamic adaptability. The last path resulted from understanding and realising the importance of stakeholders in running the business. It provides an alternative perspective to the design of performance measurement systems, by paying attention to all stakeholders rather than using a general model of shareholder values. There are a number of forces that cause the change in performance measurement. Figure 1 summarises that the ongoing development of performance measurement evolved along the change and shift in business ecology[8]. It can be explained that, although there are many existing innovations in performance measurement and they have been increasing, they seem to be incapable to satisfy senior management in the long term. It is argued that, as conditions change ever more rapidly, previous experiences and approaches become increasingly less applicable to the new contexts. Moreover, the fact that the real needs and satisfactions of managers are neither constant nor linear is a reason why academia and practitioners are constantly attempting to bridge the gap. This claim perhaps does not reect all actual conditions that developmental paths of performance measurement are not caused only by managers. A variety of groups including academia, consultants, governmental regulators, and international bodies may determine the choices of innovations. Darwinian selection inuences not only what theories or practices are valued by the marketplace (Moore, 2006) but also what theories or practices can continuously stay attractive to managers. It is attractive not because of the actual usefulness and effectiveness, but more importantly because of the results of interplay among various groups of people involved. Thus, it is argued that it makes little sense that managers tend to select the most effective choice or select a choice effectively. The claim will be

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Figure 1. The development of performance measurement

given more support if it is taken with the assumption that all management innovations benets all adopting organizations. In fact, not all organizations adopt management innovations with economic rationale, and some reasons may not appear rational to others. Many are forced to adopt the innovations set by legitimate regulators and some may imitate other organizations choices of innovation without a clear understanding and objective. The conclusions of this paper are drawn from the review of the relevant literature. Its purpose was to depict the change and shift in performance measurement over two decades with a number of performance measurement systems as exemplars. As noted earlier, the performance measurement innovations presented in this review were selected purposefully, in agreement with some of the literature reviewed (e.g. Yeniyurt, 2003; Garengo et al., 2005; Pun and White, 2005; Taticchi and Balachandran, 2008). That sample may not be sufciently broad in terms of numbers and time frame to support general conclusions[9]. Nevertheless, this review is of value in framing a brief history of contemporary performance measurement and points the way to frame studies on how future performance measurement will develop and evolve. The existence of management tools at any point in time mirrors the result of prior choices in the search for distinct performance measurement capabilities. Their evolution embodies trends in the development and use of performance measurement systems over long periods, and also points the way for future performance measurement to develop and evolve. A new plateau for future performance measurement design and use will be established once an understanding of recent phenomena is gained. However, the evolution of performance measurement is an innite game in which management theory and practice never die. Each should be

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developed following its destiny, via the accelerated evolutionary process of new possibilities, opportunities, choices, and differences. Competitive advantage via performance measurement is a treadmill where one runs at an ever-quickening pace to not lose ground. This review as a path-nding research is practical only for a limited period. The phenomenon should be re-reviewed regularly since the different nature and forces of the change in performance measurement continually develop and evolve.
Notes 1. The terms performance measure, performance measurement, and performance measurement system used in this paper follow the denitions provided by Neely et al. (1995). 2. The terms performance measurement systems, frameworks, techniques or models are also used widely and sometimes interchangeably in performance measurement and management control literature. As the ideas seem to be perceived as new at the time they were rst introduced, they are commonly dened as innovations (see Bradford and Kent, 1977; Ittner and Larcker, 1998; Bjornenak and Olson, 1999; Ax and Bjrnenak, 2005; Modell, 2009). 3. Operations have stood as a prominent function of rms since the early past to the 1980s. Along with a greater degree of access to nancial markets and abundant resources, the prots of organisations were dependent on one dominant factor the production capacity of the rms. In the early 1980s, the search for a dominant solution to compete with new rivals led US industries to adopt a number of management techniques to improve the quality of manufacturing products (Ishikure, 1988; Maskell, 1991; Cole, 1999). 4. There is no consensus for the labels of research work based on resources or capability; however, their core or key issues documented are similar that a rms resources indicate the rms competitive positions. 5. Even though a notion of intangible resources was introduced at least a half century ago (see Polanyi, 1958), the intense competition and hyper-rapid change in industry structure and business practices in the late 1980s to mid-1990s forced managers to shift their paradigmatic perspectives with the notion to sustain their organisations competitive positions (see Petty and Guthrie, 2000; Low and Kalafut, 2002; Mouritsen and Larsen, 2005). 6. The attributes of performance measurement systems can be structured into inputs, processes and outputs (Vickers, 1967). According to performance measurement innovators intent, the literature of each performance measurement system may describe only those attributes the writer(s) attempted to highlight. 7. See Boulding (1956) for general system theory and classication of the hierarchy of systems. See also Machin (1983) and Otley and Berry (1980) for their application of these ideas to performance measurement and control systems in particular. 8. There are a number of literature sources that explain contingencies that play a role in the development and management of performance measurement systems (see Chenhall, 2003; Franco and Bourne, 2003; Kennerley and Neely, 2003a; Garengo and Bititci, 2007). However, this paper does not intend to provide a comprehensive range and detail of the conditions and factors. 9. It is generally accepted that the sampling and sample size should represent the whole population the small number of performance measurement systems shown in this review may not be sufciently broad in terms of numbers and time frame to support general conclusions about performance measurement systems. However, because the number of performance measurement systems initiated and developed is difcult to determine, a judgment about sampling is suggested (US General Accounting Ofce, 1996); namely to


select performance measurement systems which yield particularly rich information to enhance the power of explanation of the phenomenon being studied (Sandelowski, 2000). More importantly, by the nature and purpose of a literature review, even though greater extents of proxies are preferred, a small sample is not a crucial failing, because the performance measurement systems as proxies are intentionally used for explanatory and illustrative purposes (Glaser and Strauss, 1968, Strauss, 1987; Sandelowski, 2000; Finlayson and Dixon, 2008).

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