Patterns in developments of the frameworks

In the previous section, fifteen business performance frameworks from ten recent literature reviews were identified. By reviewing the strength and weaknesses of these frameworks, the following two patterns in the framework development can be identified and are explained in the following subsections:

1- Shift from strategy implementation to stakeholder satisfaction 2- Shift from measuring individual elements to measuring processes

2.2.2.1. Shift from strategy implementation to stakeholder satisfaction

Up until the 1980s, most companies used financial measures, such as Return on Investment (ROI) or Return on Equity (ROE), to evaluate their performance (Taticchi et al., 2010). The Du Pont Pyramid of Financial Ratios is one of the earliest frameworks developed for financial performance measurement in the early 1920s (Yadav & Sagar, 2013). The strength of this model is that it provides a sophisticated approach which is still extensively used for analysing financial performance (Rouse & Putterill, 2003; Yadav & Sagar, 2013).

However, these financial measures were criticised for not being linked to a company’s strategy (Garengo et al., 2005). The models developed after the 1980s tried to address this limitation by linking the process of performance measurement to a company’s strategy. For example, Cross & Lynch (1988) introduced the SMART approach which is based on a four-level pyramid of objectives and measures. This approach ‘ensures an effective link between strategies and operations’ (Cross & Lynch, 1988).The strengths of the framework are as follows:

 Linking strategy to operations (Rouse & Putterill, 2003; Pun & White, 2005; Taticchi et al., 2010;

Jamil & Mohammad, 2011; Taticchi et al., 2012)

 Using external and internal measures of performance (Taticchi et al., 2010; Taticchi et al., 2012)

 Modelling the company as an integrated structure (Taticchi et al., 2010); Taticchi et al., 2012)

 Connecting the business process view with the hierarchical view of business performance

measurement (Yadav & Sagar, 2013).

However, one of the limitations of the framework is that it does not propose any specific measures or mechanisms to develop measures (Pun & White, 2005; Yadav & Sagar, 2013). Similarly, the creators of the Balanced Scorecard, in their original paper, claim that:

The scorecard puts strategy and vision, not control, at the center. It establishes goals but assumes that people will adopt whatever behaviors and take whatever actions are necessary to arrive at those goals. The measures are designed to pull people toward the overall vision (Kaplan & Norton, 1992, p79).

Therefore, the emphasis of these models was on linking performance measures with strategy. However, in the more recent performance measurement frameworks, the emphasis is shifted towards the requirements and satisfaction of the stakeholders. For example, the developers of the ‘Performance Prism’ state that:

One of the great fallacies of performance measurement is that measures should be derived from strategy. [….However] the first and fundamental perspective on performance is the stakeholder perspective (Neely & Adams, 2000, p4).

Neely et al. (2000) argue that one of the main strengths that distinguishes the ‘Performance Prism’ from the earlier frameworks is that it starts from identifying the needs of the following five stakeholders.

1- Investors

2- Customers & Intermediaries 3- Employees

4- Suppliers

5- Regulators & Communities.

The authors of other more recent frameworks, such as Brown (1996), Kanji (1998) and Chennell et al. (2000), have also considered the importance of stakeholders in their frameworks. Brown’s (1996) suggested framework (i.e. ‘The Macro Process Model of an Organization’) also identifies some of the main stakeholders in the ‘Performance Prism’, including:

1- Suppliers, 2- Customers 3- Employees

Rouse & Putterill (2003) argue that Brown’s framework ignores certain stakeholders and would be better described as a micro process model. However, it has considered some of the main stakeholders that appear in the other existing frameworks such as the Performance Prism.

Kanji’s (1998) Business Excellence Model also emphasises stakeholders’ satisfaction. It is claimed that pleasing stakeholders helps create revenue and a satisfactory return for the investor. Increased revenue helps fund investment in both process and in learning. This, in turn, helps people to satisfy the demands of the stakeholders and create business excellence (Kanji, 1998). However, as argued by Yadav & Sagar (2013), this framework mainly focuses on external stakeholders and internal stakeholders, such as employees, are not considered.

The Organizational performance measurement (OPM) framework suggested by Chennell et al. (2000) also recommends that the success of a company is measured by the value it provides to the following five key stakeholders, including:

1- Community (Industry and local group) 2- Business including owners and shareholders 3- Customers

4- People (employees)

5- Strategic Partners (suppliers).

Therefore, this framework also highlights the importance of satisfying the stakeholders. However, the drawback of this framework is that it has left the choice of measures to organisations. Therefore, the performance measures and the relationships between them are not stated in this framework.

Overall, based on the reviews of the existing frameworks in the literature, the emphasis of performance measurement in the more recent frameworks is shifted from strategy implementation to stakeholder satisfaction. In the next subsection, the second shift in the development of the performance measurement frameworks is discussed.

2.2.2.2. Shift from measuring individual elements to measurement of processes

The second pattern in developing the performance measurement frameworks is the inclusion of business processes in achieving corporate goals, as found in the more recent frameworks. A business process is defined as a set of activities to achieve a certain business goal (Han et al., 2009).

Some of the earlier frameworks only propose individual elements of performance, such as quality, time, flexibility and cost in their frameworks. However, they have either not suggested any relationship between those measures, or they suggest that companies find links between the performance measures at different levels of their management hierarchy. Therefore, in these frameworks it is not clear how companies can achieve their business objectives. For example, Maskell’s (1989) framework (i.e. Performance Measures for world Class Manufacturing) only suggests five categories of operational measures used by world-class manufacturing firms including:

1- Quality 2- Delivery

3- Production Process Time 4- Flexibility

However, in this framework, the relationships between these categories are not provided. Similarly, Beischel & Smith’s (1991) framework offers five categories for performance measurement, including:

1- Quality

2- Customer service 3- Resource management 4- Flexibility

5- Cost.

This framework urges companies to find and link performance measures at different levels of management, such as Corporate, Plant Manager, Department Manager, and Process Drivers. However, it does not offer any recommendations with regard to the links between their suggested categories of performance. However, this pattern (i.e. individual elements of performance only) does not appear in all of the earlier frameworks. Cross & Lynch’s (1988) framework (i.e. The Performance Pyramid) suggests two categories of financial measures, including:

1- Long-term market measures 2- Short-term financial measures

These financial measures depend on six categories of operational performance, including:

1- Customer satisfaction 2- Flexibility 3- Productivity 4- Quality 5- Delivery 6- Process time.

This framework states that there is a causal relationship between its categories of performance. For example, financial measures depend on flexibility and productivity. In turn, flexibility measures depend on delivery and process time, and productivity measures depend on process time and cost.

The shift to propose a process for performance measurement to help companies achieve their objectives is more recognisable in the more recent frameworks. For example, in the first generation of the Balanced Scorecard Kaplan & Norton (1996) identifies four categories for measuring the performance of a company including:

1- Learning and growth perspective 2- Internal process perspective 3- Customer perspective

However, in the first generation of the Balanced Scorecard framework, the causal link between the identified categories of the framework was not clear. However, Kaplan & Norton (2000) introduce the idea of a strategy map to enable an organisation to describe its objectives and targets and the measures used in assessing its performance. The strategy map is a visual illustration of an organisation’s strategy. It provides cause-and- effect links between the measures at four perspectives of the Balanced Scorecard to show how an organisation is expected to reach its desired outcomes. The suggested link starts from the ‘Learning and growth’ perspective that is expected to elicit improvement in the ‘Internal process’ perspective. The ‘Internal process’ perspective, in turn, is expected to improve the ‘Customer’ perspective. Finally, the improvement in the ‘Customer’ perspective is expected to improve the ‘financial’ perspective.

However, Norreklit (2003) criticises the suggested relationship in the Balanced Scorecard and argues that the suggested relationships in this framework are not causal, but logical. In particular, the assumed causal relationship between customer satisfaction and profitability on the Balanced Scorecard is criticised as problematic because:

Profitability depends on the revenues and costs attributable to having satisfied or loyal customers. This has to be based on financial calculus, i.e. on a logical relationship and not a

causal one (Norreklit, 2003, p617).

Kaplan (2012) briefly responds to some of Norreklit criticisms by stating:

I found it curious that they describe the [Balanced Scorecard] (BSC) as a “myth.” when it has been successfully implemented by thousands of for-profit, non-profit and public sector enterprises […]. Perhaps, Norreklit et al. believe that the BSC may be fine in practice but it does not work in theory (Kaplan, 2012, p542).

Other examples of frameworks that propose a process for performance measurement to help companies achieve their objectives are Brown’s (1996) Macro Process Model of an organisation (MPM) and Neely & Adams’s (2000) Performance Prism. Brown’s (1996) MPM framework offers six categories of measures for evaluating the performance of a company including:

1- Product/Service quality 2- Supplier performance 3- Customer satisfaction

4- Process and operational performance 5- Employee satisfaction

In this framework, employee satisfaction and supplier performance categories influence the performance of a company in process and operational measures. These, in turn, will influence the quality of a company’s product or services. The quality of the product or services eventually improves customer satisfaction and financial performance. Similar to the MPM framework, Neely & Adams’s (2000) Performance Prism offers five categories of performance, including:

1- Stakeholders’ satisfaction 2- Strategies

3- Processes 4- Capabilities

5- Stakeholder contribution.

It also highlights the importance of considering the needs of stakeholders, as well as shareholders, in identifying performance measurement and identifies five stakeholders:

1- Investors

2- Customers & Intermediaries 3- Employees

4- Suppliers

5- Regulators & Communities.

It is claimed that for many companies, shareholders will remain the most important stakeholders; however, it will not be possible to create value for shareholders without creating value for other stakeholders (Kennerley & Neely, 2002). The process of performance measurement in this framework starts by identifying the stakeholders’ expectations of a company and the company’s expectations of those stakeholders. The identified needs from the first two steps will lead to companies developing strategies to meet those needs. Afterwards, it is essential to find the necessary processes to perform corporate strategies and the necessary capabilities to perform the processes (Neely et al, 2002). Although this model is comprehensive in term of evaluating business performance, it does not explain the relationship between the measures in different categories. It is assumed that a company’s strategies, processes, capabilities, and stakeholders’ contributions are all determinates of the stakeholder satisfaction perspective (Kennerley & Neely, 2002). However, the relationship between the measures to meet the needs of different stakeholders and the overall financial performance of the company (i.e. the shareholders’ expectations in this model) are not named.

Overall, in most of the recent frameworks, the emphasis of the frameworks is shifted from measuring individual elements of performance towards the measurement of processes to achieve business objectives. However, there are some exceptions in some of the recent models. For example, Medori & Steeple’s (2000) ‘Integrated Performance Measurement framework’ only identifies the required performance measures of a company and not the relationships between those measures.

This section describes the two patterns in developing performance measurement frameworks that are reviewed in this study and highlights some of the strengths and weaknesses of some of these frameworks. However, the complete strengths and weaknesses of all of the identified frameworks are provided in appendix 1. The next two sections (2.2.3 and 2.2.4) compare the suggested operational and financial measures of the identified frameworks to gather the necessary dimensions that should be considered for evaluating the performance of a company.