System classes

In this section the concept of system classes is suggested, which will be a cen- tral element when evaluating and revising a PMS (later described in chapter 8). The idea behind the concept of system classes is that instead of going directly to an advanced PMS, a company should begin with designing a simple yet useful PMS that should be further developed when the company is mature enough. In other words, it is suggested that a company should start with de- signing the lowest class of a PMS (i.e. 3rd _{class). When the company is com-}

pletely prepared it should progress to the next class (i.e. 2nd _{class) and later to}

the highest class (i.e. 1st class).

The reason for introducing this concept is mainly that it is believed within this research that it takes time to develop a perfect PMS as well as that an organisa- tion needs to build up experience of performance measurement before being

able to handle an advanced PMS. An impatient company that directly attempts to reach the highest class of a PMS will almost surely fail. As previously em- phasised, designing a successful PMS is a difficult task. Without any previous experience it is likely that many performance measures will not be designed appropriately as well as that the information retrieved from them be interpreted in the wrong way. Simply, “one needs to learn how to walk before how to run” and each class has its period of experimentation and learning before being fully incorporated into the organisation.

The concept of system classes also has some other advantages. First, as earlier mentioned, companies rarely want to design their PMS from scratch. Usually they are more interested in eliminating any weaknesses in their existing PMS. This concept allows companies to keep their existing PMS. Instead of design- ing a completely new PMS that fulfils all types of requirements, the system classes encourages companies to focus on how to fulfil the specific require- ments within the class that their existing PMS belongs to. Second, all compa- nies have their own unique need for a PMS, meaning that some companies will strive for the development of highly advanced PMS while others will be satis- fied with rather simple ones. Using the concept of system classes, a company can choose how advanced the final result of its PMS should be. For example, a company that are purely practising mass-manufacturing principles may not need such an advanced PMS that an agile manufacturing company requires. As described in Table VIII, in total five different classes of PMS are suggested:

1st _{class, 2}nd _{class, 3}rd _{class, class zero and class minus. However, it is only the}

three former classes that are actually used to describe functional PMS. The two latter ones (class zero and minus) describe insignificant PMS, which means that they should be avoided26 and these two classes are mainly used for evaluation purposes. Class zero actually means that the company does not have anything that can be classified as a real PMS since all existing performance measures are solely used for accounting reasons. The company is only performing duties required by law.

System class Description Fulfilled requirements 1st _class

”Fully integrated”

This is the most advanced system class, which means that many requirements must be fulfilled. The PMS is able to explain different causal relationships across the organisation. The needs from all relevant stakeholders are considered. Databases and other reporting systems should be fully integrated to each other. The information in the PMS is updated continuously and directly pre- sented to the persons who need it.

• Causal relationship dimensional • Focus: All stake-

holders • All hierarchical levels covered • Advanced informa- tion handling architecture • Existing processes

for natural evolution 2nd _class

”Balanced”

This class has a multidimensional view of performance, both when it comes to different perspectives and time horizons. These PMS support innovation and learning and are very customer-oriented. Aim to improve rather than to monitor.

• Multi-dimensional • Focus: Internal and

external • Long-term and short-term result • Most hierarchical levels covered • Information goes

directly to the right persons

3rd _class

”Mostly financial”

This class represents PMS that are based on traditional performance measures, such as ROI, cash flow and labour productivity. These PMS are profit oriented and are optimising against cost efficiency and mainly short- term results. Although 3rd _{class systems have their} flaws (such as limited and delayed feedback) they must still fulfil certain requirements.

• Single-dimensional • Focus: Internal • Short-term result • Top hierarchical levels covered • Easily accessible information Class zero ”Non-existent”

This class is used when the performance measures in the organisation are solely used for accounting reasons.

• Requirements by law

Class minus ” Condemned”

This class represents PMS that are not beneficial to a company at all due to the fact that they induce behav- iours completely inconsistent to strategy and give dis- torted information. Contains to the majority of sub- optimising measures.

• Many errors • Induces the wrong

behaviours

• Considered to be too hopeless to repair

Class minus means that there is something very wrong about the existing PMS and it is inducing behaviour that is inconsistent with the strategy of the com- pany as well as that the information it gives is distorted or even inaccurate. If an existing PMS has many errors (even though it is highly advanced) it may be necessary to start from the beginning and design a completely new PMS. In conclusion, if an existing PMS belongs to either of these two classes it is sug- gested that the company should strive for designing a new 3rd _{class PMS.} 3rd _{class can briefly be described as PMS where mostly traditional performance}

measures are used. The requirements of such a system are rather low, but it is important to have control over the basic principles in performance measure- ment before moving up to the next level.

2nd _{class means that the PMS have a much more balanced view on performance}

than the previous class. Non-financial measures are used, different time hori- zons are considered and most levels within the company are overviewed by the PMS.

1st _{class is the most advanced PMS, which means that very high standards are}

met, ranging from the existence of an advanced information handling architec- ture to measures that explain causal relationships across the organisation. These systems must also include processes that enable them to evolve when neces- sary.

Even though each class has its own unique characteristics, it should be noted that there are no exact defined borders between the classes. This can cause problems when trying to decide (during an evaluation) what class an existing PMS belongs to. However, it is recommended to always use the lower class if an existing PMS end up between two system classes. Thus, a higher class must at all times still fulfil the requirements of a lower one.

In the following sections, different requirements that are proposed to be ful- filled by a PMS will be described more thoroughly.