Effective performance management

Different studies have explored the dimensions of effective performance management. Kasul and Motwani (1995) identified the management of world class organisations using four distinct areas covering, allocating budgets and resources; controlling visibility; monitoring progress; and planning for change. Amaratunga and Baldry (2002) believe that to establish a performance management program several attributes need to be included. These attributes are, leadership in designing and implementing performance measurement systems; open communication between employees and key stakeholders; clear assignment of accountability of results; reward and recognition linked to performance measures; and targets that are linked to appraisal.

Over the past few decades a variety of performance measurement approaches or frameworks have emerged to help guide managers in achieving better outcomes. Many of these frameworks, referred to as measurement frameworks, also encompass the management of performance. The success of these approaches has been the focus of much debate in the literature. It appears that some of these approaches are merely a business health check or self-assessment while others combine a self-assessment approach with the identification and implementation of improvement strategies and practices. In order to identify effective performance measurement approaches to assist in the development of a PMS for small motels, a thorough review of the literature was undertaken. This literature search was conducted using the following

electronic databases: Business Source Premier, Emerald, Expanded Academic, Science Direct and Blackwell Synergy. The literature review was conducted with the primary goal of seeking research that directly dealt with organisational performance measurement in an holistic and integrated manner. The search engines within each of the electronic databases were utilised to search abstracts using all combinations of the key words ‘performance measurement’ and ‘performance management’ with the terms – ‘approach’/ ‘model’/ ‘framework’/ ‘tools’. As a result of the search, a number of common or reoccurring performance measurement models were identified. These models are summarised in Table 2.5.

Table 2-5 Key performance measurement frameworks Year Performance

measurement/management system

Reference Main focus or purpose

1972 QM maturity matrix (developed

by Crosby)

(Neely, Gregory et al. 1995)

Health checks

1986 TQM (developed by Deming) (Kaynak 2003) Improvement initiative

1987 Malcolm Baldrige National Quality Awards (MBNQA)

(Pun, Chin and Lau 1999)

Quality management award based self assessment models

1988 Through put accounting (Galloway and

Waldron 1988)

Product costing techniques in manufacturing process/activities 1988 Activity Based Costing –

Product costing (developed by Cooper)

(Cooper 1988) Product costing

techniques in manufacturing process/activities

1989 Benchmarking (Camp 1989) Improvement initiative

1989 Performance Measurement Matrix (Keegan, Eiler et al. 1989) Integrating performance measures 1989, 1991 Strategic Measurement Analysis and Reporting Technique (SMART) (also known as Performance Pyramid System, 1991)

(Lynch and Cross 1991)

A management control system for large business.

1990 Lean Production (Womack, Jones

and Roos 1990)

Improvement initiative

1991 World Class Manufacturing (Maskell 1991) Improvement initiative

1991 Results and Determinants Matrix

(Fitzgerald, et al, 1991)

A model to explain the key dimensions of performance measurement 1992 Performance Measurement Questionnaire (Nanni, Dixon et al. 1992)

An assessment tool for identifying improvement needs in large business.

1992 European Quality Awards [developed by European Foundation for Quality Management (EFQM)]

(Shergold and Reed 1996)

Quality management award based self assessment models

1992 Balanced Scorecard (Kaplan and

Norton, 1992)

A measurement

framework for monitoring performance and strategic management

1994 Deming Management Model (Anderson,

Rungtusanatham and Schroeder 1994)

Quality management award based self assessment models

1996 Economic Value Analysis

(EVA) and Market Value Analysis (MVA) (Kippenberger 1996) Value analysis 1996 Cambridge Performance Measurement Process

(Neely, Mills et al. 2000)

A management process.

1996 Integrated Dynamic PMS (Ghalayini and

Noble, 1996) An integrated dynamic performance measurement system 1997 Integrated Performance Measurement (Bititci, Carrie et al. 1997) A performance management process. 2000 Integrated Performance Measurement Framework (Medori and Steeple 2000)

A ‘how to’ approach to designing a system

2000 Organisational Performance

Measurement (small firms)

(Chennell, Dransfield, Field, Fisher, Saunders et al. 2000) Organisational performance measurement 2000 Dynamic Performance Measurement Systems (Bititci, Turner et al. 2000)

A ‘how to’ approach to designing a system

2001 Performance prism (Neely, Adams and

Crowe, 2001) A performance management tool. 1996, 2002 Integrated Performance Measurement for Small Firms

(Laitinen 2002) Integrated performance framework for small business

2002 Comparative Business

Scorecard

(Kanji 2002) An extension of the BSC.

Source: analysis of literature.

In Table 2.5 the performance measurement approaches are presented chronologically and classified according to their main focus. The classifications are drawn from the work of Sinclair and Zairi (2000); Garengo, Biazzo and Bititici (2005); Hudson, Smart and Bourne (2001); Pun and White (2005); and Neely (1998). In analysing this table a number of trends are apparent. Firstly, performance measurement has moved away from the traditional models popular in the pre 1980s, which were embodied by financial approaches related to health checks (Crosby, 1972). The Deming model and the TQM movement (Anderson, Rungtusanatham & Schroeder, 1994) have brought greater focus to the importance of non-financial approaches and a management

approach for implementing improvement activities. The integration of both financial and non-financial approaches has guided the development of the quality award models for managers to assess their business excellence. The best-known models emerged in the late 1980s and early 1990s and were developed for the Malcolm Baldrige National Quality Awards (MBNQA) and the European Quality Awards. A more integrated and balanced approach to measurement also became popular in the early 1990s. The most widely acclaimed model employing this approach is the Balanced Scorecard. It is also evident in the literature that despite the changing trends in the way performance is measured, approaches based on the more traditional models prevailed in the 1990s. However, these approaches, which included Activity Based Costing are now considered to be inadequate in today’s competitive climate (Bourne, Wilcox, Neely & Platts, 2000) as they don’t provide a balanced approach to performance measurement. A more recent trend has been the move to a ‘how to’ approach in designing individual PMS rather than a generic ‘one-model fits all’ approach (Bititci, Turner & Begemann, 2000; Pun and White, 2005). In these studies the focus is on dynamic as well as integrated systems. Finally, it is only in the past few years that the focus has shifted to small firms and their specific needs for performance measurement systems (PMS). A group of researchers, including Garengo, Biazzo and Bititici, (2005); Hudson, Smart and Bourne, (2001); and Laitinen (2002); have attempted to address the performance measurement needs of small firms.

A PMS for small firms. As systems for performance measurement for small firms are only now emerging the need to further develop this area is apparent and it is hoped that previous research will provide a platform for developing a PMS for these firms. Therefore, rather than attempting to ‘reinvent the wheel’ there is value in assessing existing PMS, developed for large firms, to determine their applicability to small firms and small motels in particular. In developing a PMS model for small motels, by drawing on existing models, a set of criteria for selection of existing models is needed. As discussed in Section 2.2, the focus on performance has shifted to a) the management of performance as opposed to measurement of performance (based on the accepted view the mere measurement is not enough and that the management for continuous improvement is also needed); b) the use of an integrated approach (integration refers to the inter-relationships of the measurement and management

dimensions); and c) the two dimensions of drivers (internal and external influences)

and results (financial and non-financial outputs) as key concepts. Given their

importance these three criteria will be the platform on which a new PMS for small motels will be built. Based on these criteria, five models were selected from the complete list (as shown in Table 2.5) for further study. These models: the Balanced Scorecard (Kaplan & Norton, 1996), the EFQM Excellence Model (1999), the MBNQA award model (Voss, Ahlstrom and Blackmon 1997), the Results and Determinatns Matrix (Fitzgerald et al. 1991)and the Performance Prism (Neely, Adams & Crowe, 2001) are presented in Table 2.6. As indicated, these models meet all the selection criteria.

Table 2-6 Summary of key performance management systems that meet the selection criteria for this study

Balance Scorecard (Kaplan and Norton, 1992) European Quality Awards Model (EFQM, 1992) MBNQA (US Congress, 1987) Results and Determinan ts Matrix (Fitzgerald, et al., 1991) Performanc e Prism (Neely, et al., 2001) √ √ √ √ √ RESULTS - Financial Non-financial √ √ √ √ √ √ √ √ √ √ DRIVERS - Internal External √ √ √ √ √ Management processes √ √ √ √ √ Integrated approaches √ √ √ √ √

Source: analysis of literature.

Summary. As explained in this chapter, performance measurement is central to good performance management. A number of performance measurement models exist that provide guidance to managers. An understanding of the dimensions of effective performance management systems has guided the selection of five frameworks for the study of performance management in small motels. A critique of each of these systems is now necessary to analyse the components that may be important to performance improvement in small firms. Therefore, the following section of this

chapter discusses the five performance measurement systems, as summarised in Table 2.6, in order to identify their strengths and weaknesses and their relevance to small motels. In Chapter 3, these systems will be compared and contrasted against key criteria for assessing effective performance management systems in order to build a model that is relevant to small motels.