A framework of the factors affecting the evolution of performance measurement systems

The effectiveness of performance measurement is an issue of growing importance to industrialists and academics alike. Many organisations are investing considerable amounts of resource implementing measures that reflect all dimensions of their performance. Consideration is being given to what should be measured today, but little attention is being paid to the question of what should be measured tomorrow. Measurement systems should be dynamic. They have to be modified as circumstances change. Yet few organisations appear to have systematic processes in place for managing the evolution of their measurement systems and few researchers appear to have explored the question, what shapes the evolution of an organisation’s measurement system? The research reported in this paper seeks to address this gap in the literature by presenting data that describes the forces that shape the evolution of the measurement systems used by different organisations. Introduction Although it has long been recognised that performance measurement has an important role to play in the efficient and effective management of organisations, it remains a critical and much debated issue. Significant management time is being devoted to the questions – what and how should we measure – while substantial research effort, by academics from a wide variety of management disciplines, is being expended as we seek to enhance our understanding of the topic and related issues (Neely, 1999). Survey data suggest that between 40 and 60 per cent of companies significantly changed their measurement systems between 1995 and 2000 (Frigo and Krumwiede, 1999). Most of these initiatives, however, appear to be static. Although many organisations have undertaken projects to design and implement better performance measures, little consideration appears to have been given to the way in which measures evolve following their implementation (Waggoner et al., 1999). It is important that performance measurement systems be dynamic, so that performance measures remain relevant and continue to reflect the issues of importance to the business (Lynch and Cross, 1991). The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0144-3577.htm The authors are grateful to the Engineering and Physical Sciences Research Council (EPSRC) for the award of research grant number GR/K88637, to carry out the research reported in this paper. Performance measurement systems 1223 In order to ensure that this relevance is maintained, organisations need a process in place to ensure that measures and measurement systems are reviewed and modified as the organisation’s circumstances change (Dixon et al., 1990). Yet few organisations appear to have systematic processes in place for managing the evolution of their measurement systems and few researchers appear to have explored the question – what shapes the evolution of an organisation’s measurement system. The research reported in this paper seeks to address this gap in the literature by presenting a framework that describes the forces that shape the evolution of the measurement systems used by different organisations. Following this introduction the paper consists of a further six sections. The next section discusses the literature regarding the evolution of performance measurement systems, providing the context for the research. Descriptions of the research methodology, the case study findings and the resultant framework of factors affecting the evolution of performance measures are then presented. The subsequent discussion is followed by conclusions that are drawn in the final section. Performance measurement literature The problem of how organisations should assess their performance has been challenging management commentators and practitioners for many years. Financial measures have long been used to evaluate performance of commercial organisations. By the early 1980s, however, there was a growing realisation that, given the increased complexity of organisations and the markets in which they compete, it was no longer appropriate to use financial measures as the sole criteria for assessing success. Following their review of the evolution of management accounting systems, Johnson and Kaplan highlighted many of the deficiencies in the way in which management accounting information is used to manage businesses (Johnson, 1983; Kaplan, 1984; Johnson and Kaplan, 1987). They highlighted the failure of financial performance measures to reflect changes in the competitive circumstances and strategies of modern organisations. While profit remains the overriding goal, it is considered an insufficient performance measure, as measures should reflect what organisations have to manage in order to profit (Bruns, 1998). Cost focused measurement systems provide a historical view, giving little indication of future performance and encouraging short termism (Bruns, 1998). The shortcomings of traditional measurement systems have triggered a performance measurement revolution (Eccles, 1991; Neely, 1999). Attention in practitioner, consultancy and academic communities has turned to how organisations can replace their existing, traditionally cost based, measurement systems with ones that reflect their current objectives and environment. Many authors have focused attention on how organisations can design more appropriate measurement systems. Based on literature, consultancy experience and action research, numerous processes have been developed that organisations