Abstract
Purpose *€“ The recent performance measurement literature suggests that organizations
should put more emphasis on non-financial measures in their performance measurement
systems, that organizations must use new performance measurement approaches such as
the balanced scorecard and that measures should be aligned with contextual factors such as
strategy and organizational structure. The purpose of this paper is to assess the extent to
which organizations are following these prescriptions. Design/methodology/approach *€“
A survey of a sample of Canadian manufacturing firms was conducted. In the
questionnaire, organizations had to indicate the extent to which they use 73 performance
measures. They also had to respond to questions about determinants such as strategy,
organizational structure and environmental uncertainty. More than 100 organizations
responded to the survey. The response rate was 50.5 percent. Findings *€“ The results
show that manufacturing firms continue to use financial performance measures. Despite
the recommendations from experts and academics, the proportion of Firmss that implement
a balanced scorecard or integrated performance measurement systems is low. Furthermore,
organizations that use these approaches are not employing more extensively non-Financial
measures than those which are applying traditional performance measurement approaches.
This research project also shows that there are some significant relationships between the
types of measures and contextual factors like strategy, decentralization and environmental
uncertainty. This research finally demonstrates clearly that there is a need to develop a
theory that explains how Firmsss can use their performance measurement system to enhance
their performance. Originality/value *€“ This paper provides information on performance
measures used by organizations and their association with organizational determinants.
Keywords Performance measures, Performance management, Balanced scorecard Paper
type Research paper
Study of performance measurement 419
1. Introduction Since the beginning of the 1990s, performance measurement has become
an important issue for academics and practitioners. The professional literature has
suggested that managers should design new performance measurement systems that
include Financial and non-Financial measures. Kaplan and Norton (1992, 1993, 1996)
advocated in favor of the design of balanced
scorecards. Dixon et al. (1990) and Nanni et al. (1992) proposed the use of integrated
performance measurement systems. All these systems would put more emphasis on
non-Financial measures and would enable organizations to give more weight to customers
and internal processes in their performance
The author acknowledges the Financial assistance provided by the FQRSC of the
Gouvernement du Quebec.
International Journal of Productivity and Performance Management Vol. 54 No. 5/6, 2005
pp. 419-437 q Emerald Group Publishing Limited 1741-0401 DOI
10.1108/17410400510604566
IJPPM 54,5/6
420
measurement systems. Overall, this change would help Firmss to improve ultimately their
performance. These suggestions have been in general well received in the accounting
community according to the large number of books, seminars and professional articles on
performance measurement. However, there is not much information on the extent to which
Firmss actually use these performance measurement innovations. A few studies have been
conducted recently and have revealed that organizations are implementing to some extent
performance measurement innovations such as the balanced scorecard (Ax and Bjornenak,
2000; Ittner and Larcker, 1998; Malmi, 2000). These studies have provided some
explanations of the diffusion process for this innovation but have not attempted to establish
a closer
link between the measures used, the innovation and some contextual factors. The purpose
of this paper is to examine what are the measures that manufacturing Firmss use, classify
these measures into categories, assess the extent to which Firmss use performance
measurement innovations such as the balanced scorecard and integrated performance
measurement system and examine the association between the measures and contextual
factors like strategy, decentralization and environmental uncertainty. A survey was mailed
to 200 randomly selected Canadian manufacturing Firmss to collect data on their
performance measurement systems. After extensive follow-up procedures, 101 responses
were received. The results show that traditional measures are still widely used and that the
proportion of Firmss that have decided to implement new performance measurement
approaches is relatively low. Furthermore, the level of performance measurement
competence does not seem to be as high as one could expect. More specifically, the results
show that the types of performance measures used by Firmss are seldom associated to
strategy, environmental uncertainty and decentralization. This paper is organized as
follows. A brief review of the literature is completed in Section 2. The questionnaire and
the data collection process are described in Section 3. The results are described and
discussed in Section 4. 2. Empirical
research on performance measurement and hypotheses Research on performance
measurement has gone through several phases during the last 30 years. In the 1970s,
researchers examined how organizations used management accounting systems especially
budgeting as tools for performance measurement. In the 1980s, the focus was put
essentially on the budgeting process and its impact on performance. The scope of the
research on performance measurement began to broaden in the beginning of the 1990s.
Dixon et al. (1990) and Kaplan and Norton (1992, 1993, 1996) developed new
perspectives and frameworks to organize performance measurement systems. Nanni et al.
(1992) suggested that Firmss should increase their level of performance measurement
competence. The degree of competence would depend on the fit between the design of the
performance measurement system and the strategy of the Firmsss. Kaplan and Norton
suggested that the performance of a Firmsss would increase with the use of a balanced
scorecard. Surprisingly, only a few empirical studies were conducted during the 1990s and
they have not really been able to test the extent to which these prescriptions are followed
by organizations and their impact on the performance.
Traditionally, management accountants have relied on the use of Financial measures to
evaluate the performance of cost centers. Since the end of the 1980s, academics,
consulting
Firmss and practitioners have all emphasized the need to give more weight to non-Financial
measures in performance measurement systems. Despite these recommendations, we may
expect that organizations, especially in the manufacturing industries, will still rely mainly
on Financial measures. Therefore, the first hypothesis is: H1. Firms tend to use more
frequently Financial measures than non-Financial measures. New approaches to
performance measurement suggest that organizations should use more non-Financial
measures than traditional performance measurement systems. Thus, we may expect that
the extent to which organizations use non-Financial measures will be higher in Firmss that
have implemented innovations if performance measurement systems such as the balanced
scorecard or integrated performance measurement system. H2. Firms that have
implemented a balanced scorecard or an integrated performance measurement system use
more frequently non-Financial measures. The concept of performance measurement
competence suggests that organizations use types of measures that fit with their strategy,
their organizational structure and the environmental uncertainty that they face. The type of
strategy employed by a Firmsss should influence the design of the performance
measurement system. Miles and Snow (1978, 1994) identified four strategic types of
organizations according to the rate at which they
change their products and markets: prospectors, defenders, analyzers and reactors. The
fundamental difference among these types is the rate of change in the organizational
domain. Prospectors are characterized by their dynamism in seeking market opportunities,
their capability to develop and produce new products to meet customers needs, their
investment in large amounts of Financial resources related to research and development,
and their enhancement of teamwork. They are usually innovators that create change in
their respective industries. Defenders have a strategy that is the polar opposite from
prospectors. They operate within a narrow product-market domain characterized by high
production volume and low product diversity. Defenders compete aggressively on price,
quality and customer service. They engage in little or no product/market development and
stress efficiency of operations. Defenders are likely to face a lower level of environmental
uncertainty than prospectors (Slocum et al., 1985; Govindarajan, 1986). Analyzers stand
between these two categories, sharing characteristics of both prospectors and defenders.
Reactors do not follow a conscious strategy. They are viewed as a dysfunctional
organizational type. The premise of the Miles and Snow typology is that prospector,
defender and analyzer strategies, if properly implemented, can lead to effective
performance. Since
prospectors search continually for market opportunities and have a broad product-market
domain, they will tend to adapt their performance measurement systems to their strategy
and, therefore, focus on non-Financial measures pertaining to customers, products,
employees and quality. Defenders will tend to put more emphasis on Financial measures
such as variances. Therefore, we may hypothesize that:
Study of performance measurement 421
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H3. Prospectors tend to use more frequently non-Financial measures while defenders tend
to use more frequently Financial measures. Centralization has been used as a proxy for
organizational structure in most empirical studies in management accounting.
Centralization represents the extent to which the decision-process pertaining to the
management of divisions or subsidiaries is centralized. The link between centralization
(decentralization) and management accounting systems has been investigated in many
management accounting studies (Gordon and Narayanan, 1984; Chenhall and Morris,
1986; Govindarajan, 1988; Gul and Chia, 1994). This research showed that centralization
plays a key role in the design of management accounting systems. In the area of
performance measurement, Anthony and Govindarajan (1995) suggested that Financial
measures are more important at higher hierarchical levels and non-Financial measures at
lower levels
such as at work centers. Therefore, we may elaborate the following hypothesis: H4. Firms
