A maturity model for performance measurement systems

Organizations are constantly seeking performance improvement through new technology, processes, and instruments. One instrument that received considerable attention during the last years is called Performance Measurement System (PMS). A PMS tracks actual performance of an organization, helps identifying weaknesses, and supports communication and decision-making processes. The aim of this paper is to develop a Maturity Model for Performance Measurement Systems. The Maturity Model suggested can be applied as a framework for judging PMSs in place, and it can be used as an instrument for improving running PMSs as well. 1 Why should performance be measured? Performance Measurement has become a field of intensive interest. In the last decade a large body of literature, that discusses various aspects of performance measurement, has been published; e.g. Fitzgerald et al. (1991), LyncWCross (1991), Simons (1999). However, it is worth to note two points: firstly, performance measurement is not only of academic interest, but it is of high practical relevance as well (HaspeslaghLBoulos, 2001). Secondly, performance measurement is not particularly new, it has been applied for decades; see Eccles (199 1). However, traditional performance measurement focused on financial aspects whereas modern performance measurement approaches take a multidimensional, stakeholder-based perspective. The reasons why performance is measured are manifold. To illustrate this, a few questions are enlisted: 0 Why does the mission control center of NASA supervise the space shuttle flights? To check whether the space shuttle in on track. © 2002 WIT Press, Ashurst Lodge, Southampton, SO40 7AA, UK. All rights reserved. Web: www.witpress.com Email [email protected] Paper from: Management Information Systems 2002 , CA Brebbia and P Pascolo (Editors). ISBN 1-85312-907-0 1 14 Management Information Systems Why does the doctor measure the babies’ weight regularly? To see whether it grows according to a standard. Why do people on diet measure their weight regularly? To check whether action taken (e.g. a substitution of protein by carbohydrates) has an impact on loss of weight. Why do the marathon runners measure the time for each sub-discipline separately in their training sessions? To identify weaknesses and points for improvements. Why do car drivers check the speed meter in inner cities regularly? For not violating regulations. Why do seismologists constantly monitor earth vibrancies? To receive early warning signals. Why do meteorologist measure wind strengths around the globe? To make forecasts more reliable. As the list above shows, performance measurement has different aims. Probably the most important objective of performance measurement is to replace intuition by facts. Today, most businesses are exposed to intensive competition and, therefore, companies are forced to improve their performance steadily. Companies doing business in a competitive environment must measure their performance regularly to quantitatively assess whether the set goals are met. In addition, they should measure different facets of performance (e.g. customer retention, service quality, employee motivation, sales revenue) to better understand the interrelationships between business-relevant aspects. This generated knowledge may be used to initiate appropriate action to improve overall business performance. 2 Performance Measurement System: a definition What is a Performance Measurement System? Is it a management process? Is it a collection of tools whose aim is to control business performance? Is it a modern management information system? Or is it a piece of software? Neely et al. (1995) define a PMS as follows: “A performance measurement system can be defined as the set of metrics used to quantify both the efficiency and effectiveness of actions” (p. 81). Other authors emphasize the relevance of IT when describing the term PMS. Bititci (1997) for instance states: “At the heart of the performance management process (i.e. the process by which the company manages its performance), there is an information system which enables the closed loop deployment and feedback system. This information system is the performance measurement system which should integrate all relevant information from relevant systems.” (p. 47). In this paper, the term PMS is used as follows: A Performance Measurement System (PMS) is a system that tracks the performance of an organization (or part thereof), supports internal and external communication of results, helps © 2002 WIT Press, Ashurst Lodge, Southampton, SO40 7AA, UK. All rights reserved. Web: www.witpress.com Email [email protected] Paper from: Management Information Systems 2002 , CA Brebbia and P Pascolo (Editors). ISBN 1-85312-907-0 Management Information Systems 1 15