Performance Measures for Inter-organisational Partnerships
Dr Fang Zhao
School of Management, Business Faculty, RMIT University, GPO Box 2476V, Melbourne 3001, Vic. Australia
E-mail: [email protected]
ABSTRACT
This paper presents an empirical study of performance measurement in inter-organizational partnerships through a nation-wide survey of Cooperative Research Centres (CRC) in Australia. The survey found that there was a clear gap between CRC managers’ perception of importance and applicability of the performance measures for inter-organizational collaboration and the frequency of use of the measures in CRCs. Based upon the results of the survey and a literature review, the author proposed an index of KPIs which takes mutuality as a key to success and comprehensively measures the performance of partnerships in all aspects of inter-organizational collaboration.
Keywords: Key Performance Indicators (KPIs), Inter-organisational Partnerships
1.0 Introduction
As we entered into a new millennium, we are confronted with a more rapidly changing competitive landscape. Organizations are increasingly seeking partnerships to stay ahead of the competition and to sustain. Strategic alliances taking in various forms have gained great momentum in today’s global and local economy. Companies rushed into alliances for the complementary resources that they lacked but knew not much about how to make their partnerships work and how to effectively measure the performance of the partnerships.
This paper aims to develop a performance index to measure inter-organisational partnerships. Research questions to be addressed in the study are:
What are the effective key performance indicators (KPIs) for inter-organisational partnerships? To what extent are the identified KPIs important to the partnerships?
Based upon the results of a national survey of CRC managers conducted for this study and the existing literature in the study field, a performance index is proposed by this author. The performance index will provide a means of benchmarking for organizations involved in partnerships to identify the best practices in partnerships and set goals to emulate them.
2.0 Literature Review on KPIs
Key performance indictors are supposed to be measures of an organization’s performance in key areas of its operational life. They are directly linked to the strategic and operational goals that an organization determines to achieve in both the long and short terms. They should reflect what are crucial to the success of an organization [Tovey, 2001]. As a result of the enormous pressure for efficiency and effectiveness on all types of organizations in both public and private sectors, KPIs have been widely accepted and employed by managers to help organizations to use resources to their fullest capacity.
However, problems exist in association with the formation and implementation of performance measures. Organizations that introduce new strategies and innovative operational processes continue to use the old and traditional measures without questioning their relevance to the new initiatives [Kaplan & Norton, 1998]. Financial measures are no longer the only leading indicators of business performance. Quality, customer satisfaction, innovation, market share and the like are complementary with the financial indicators and are better metrics that reflect the economic health and growth prospect of an organization [Eccles, 1998]. Non-financial performance measurement is increasingly important to the competitiveness and sustainability of an organization in today’s business environment. The well-recognised Balanced Scorecard of Kaplan and Norton [1998] allows CEO to view an organization from several perspectives simultaneously. It includes both financial measures that tell the results of actions already taken and the operational measures that drive future financial performance of an organization.
Today’s managers are increasingly using the term “partnerships” to refer to their buyer-supplier relationships [Campbell, 1997]. Both the Malcolm Baldrige National Quality Award and the Canada Award for Excellence take supplier partnership as one of the important criteria for quality management [Laszlo, 1997]. However, quality management of inter-organisational partnerships is a relatively new art and little empirical research has been reported on performance measures for the partnerships, although efforts have been made to tackle the complexities of managing alliances and to develop alliance management skills [De La Sierra, 1995, Daussauge & Garrentte, 1999]. As it deals with partnerships in a broader sense, namely, inter-organisational collaboration (alliances, joint-ventures, consortium, etc.), this study has wider application and will enlighten the research into performance management in supplier partnerships because most of supplier partnerships involve inter-organisational collaboration.
3.0 Methodology
The author of this paper conducted a nation-wide survey of 64 currently operating Cooperative Research Centres (CRCs) in Australia in 2001. The questionnaire for the survey was developed on the basis of a review of recent annual reports of all the 64 CRC in Australia and the existing literature on CRCs. An electronic questionnaire was employed to maximise the response rate. By using an electronic survey, respondents were able to either reply on-line or reply by e-mail. Given the scattered geographical locations of CRCs, and the expected high level of Internet and e-mail literacy and access of the target population, electronic survey was selected.
CRCs are unique joint ventures in Australia, in which business enterprises, academic institutions, research technology organizations and other partners collaborate on the type of research projects and programs, which are crucial in the development of a competitive Australian economy. However, as with any joint ventures in which organizations with different missions collaborate, there is considerable complexity involved in the management and judgement of the performance of the joint ventures.
The survey sought to explore the views of participants in these joint ventures about current and potential approaches to performance measures in the CRC system. The survey has collected quantitative and qualitative data on
- the extent of use, importance and applicability of the current Performance Indicators for CRCs, and
- crucial factors affecting collaboration/partnering between CRC participating members.
4.0 Analysis and Results
A total of 31 responses were collected from the survey. The following table summarises the key findings relevant to this study.
Table I: Comparison: Importance, Applicability and Use of the Performance Indicators (N = 31)
Performance Indicators Importance ranking (mean) Applicable to my CRC (frequency %) In Use in my CRC (frequency %)
1. commitment to strategic alliances 4.3 93.5 74.2
2. effectiveness of communication network
4.4 96.8 87.1
3. openness/honesty in communication 4.2 93.5 29.0
4. actual trust between participants 4.5 90.3 22.6
5. sharing/exchanging relevant info/data
4.7 100.0 71.0
6. sharing physical infrastructure 4.0 93.5 77.4
7. collaborative research/training programs 4.2 100.0 83.9 8. joint publications 3.7 93.5 67.7 9. personnel interchanged 3.1 80.6 51.6 10. cash contribution 4.1 96.8 83.9 11. in-kind contribution 4.6 100.0 96.8
12. human resource contribution 4.3 96.8 74.2
13. personal commitment of participants
4.5 96.8 51.6
14. adherence to pre-agreed objectives 4.5 96.8 80.6
15. projects that met all defined milestones
4.2 96.8 74.2
16. projects with a signed agreement 3.6 83.9 38.7
17. projects with a full business case analysis
2.8 45.2 6.5
18. projects completed within budget 4.2 90.3 71.0
19. projects that realize market forecasts
2.8 41.9 6.5
20. projects which realize ROI 3.0 64.5 22.6
21. projects which fall within environmental impact forecasts
2.4 32.3 9.7
22. success in transferring research products
4.5 96.8 93.5
23. postgraduates co-supervised by ind/edu
3.6 90.3 74.2
24. theses completed within time 3.5 87.1 71.0
25. graduates employed within 3 months
3.6 87.1 25.8
Note: Respondents were asked to rank the importance of each of the PIs shown above, with a score of 5 = Very important; 4 = Quite important; 3 = Important; 2 = Less important; and 1 = Not important.
Table I provides readers with three sets of comparable data which clearly showed the gaps between CRC managers’ perception of the importance and applicability of the PIs and the frequency of them being used in CRCs (See responses to PIs 3, 4, 9, 13, 16, 17, 19, 20, and 25). The data also indicated an overall correlation between CRC managers’ perception of importance and applicability of PIs. However, when it comes to the use of the PIs in their CRCs, the overall frequencies were significantly lower than those of applicability.
A study of CRC recent annual reports found that most performance indicators used by CRCs are, to a large extent, similar in content but different in wording and in scope. The following list summarises most commonly used performance indicators of CRCs in their Annual Reports [CRCs, 2000].
A List of Performance Indicators Used by Most CRCs
Cooperative Arrangements
Proportion of projects/programs involving more than one participant Number of personnel contributing from each participant
Industry contributions as a proportion of total funding Number of joint project/program sharing major facilities
Number of project/program involving other CRCs and international collaboration Research and Researchers
Number of publications (papers, presentations, [provisional] patents, etc.) Number and amount of external funding and awards
Number of projects in progress Education and Training
Number of higher degree students enrolled and/or completed (theses submitted)
Number of participant (non-university) staff contributing to research training and/or teaching Number of courses developed and introduced, and conferences/symposia/seminars held Application of Research
Number of patent, licenses and royalties applied and/or granted/received Number of processes and/or projects commercialised
Number of consultancies or earnings of consultation Number of new participants and/or associate members
Number of promotional articles/research publications on research results and products for users Management and Budget
Proportion of research projects completed or milestones reached (in the planned time and within specified budgets)
Total staff (full-time equivalents) including new appointments (CRC-funded)
Efficiency and effectiveness of reporting systems including financial reporting system Number/frequency of internal reviews of activities/projects and strategies
Compared with the above most used PIs in CRCs, the PIs in our survey (shown in Table I) are more comprehensive in scope, particularly addressing the key issues of CRC inter-organisational collaboration, such as, strategic alliances, open communication, mutual trust, sharing and interchange. Moreover, the PIs also address management process and output of innovation projects as seen in PIs 15 to 21, and output (see PI 25) of industry and university co-supervision of postgraduate students which is innovative in nature.
The results of the survey indicate that the currently widely used performance indicators by CRCs do not sufficiently address the considerable complexity of CRC operation. It is interesting to find that over 90 percent respondents thought that the indicators - “openness and honesty in communication between
participants” and “actual trust between participants” in our survey - were applicable to their CRCs. But less than 30 percent respondents said that their CRCs actually used the PIs. The primary reason expressed in the comments of the respondents of the survey was that it was hard to measure them although they were crucial to CRC inter-organisational collaboration.
5.0 Proposal of A Performance Index for Partnerships
Developing effective KPIs for performance measurement of partnerships requires great care in the light of lessons learned from the CRC case study. Given the special features and complexity of inter-organisational partnerships, priority should be given to the most crucial factors affecting both short and long term effectiveness and efficiency of the partnership in developing KPIs. The effective KPIs should be able to drive the desired values and behaviours of participating organizations to achieve their common business goals. This author favours a balanced approach to the composition of KPIs that includes both financial and operational measures and is both process and result focused.
Table II An Index of KPIs for Inter-organisational Partnerships
Critical Success Factor KPIs (Example)
Commitment Time and nature of contribution by partners
Communication Frequency, mode and nature of communications between partners Sharing Frequency/amount and type of info/data exchanges between
partners
Trust Frequency of meeting one’s expectation about another party’s behaviour and/or having confidence in another party
Profitability Profit margins realised from collaborative projects
Productivity Number/percentage of collaborative projects finished within time and budget
Market share Percentage of market share obtained through partnerships Corporate social responsibility Speed and nature of responsiveness to environmental issues Employee attitude Employee turnover rate
Innovation and improvement Number of new initiatives for improvement introduced Customer satisfaction Customer satisfaction rate
Note: The order of the KPIs in the Table is not subject to importance ranking. The author considers that a holistic and balanced view should be taken in introducing the KPIs for partnerships.
6.0 Conclusion
It is commonly recognized that successful partnerships offer many kinds of competitive advantage through generating added value from collaboration. Mutuality is crucial to the success of partnerships. Therefore, performance measures for partnerships should highlight the key points of mutuality, such as mutual understanding through communications, mutual trust, mutual benefits, mutual evaluation and sharing. To sustain in the competitive business environment of the 21st century, performance measures should also address issues of innovation, continuous improvement to enhance customer satisfaction and corporate social responsibility. This study and the KPI index developed in this paper are one of the few attempts to tackle the complexity of the performance measurement of partnerships in the current literature.
Acknowledgements
My sincerest thanks go to Professor John Dalrymple and all my colleagues at the Centre for Management Quality Research at RMIT, who contributed generously to the design and launch of the CRC survey. The author accepts sole responsibility for the content of this paper.
References
Campbell, A. [1997], “Buyer-Supplier Partnerships: Flip Sides of the Same Coin”, Journal of Business & Industrial Marketing, vol. 12, no. 6, pp.417-434
Cooperative Research Centres (CRCs) [2000], Annual Report 1999-2000, (64 CRCs), Authors, Australia.
Daussauge, P. & Garrentte, B. [1999], Cooperative Strategy. John Wiley $ Sons, England
De la Sierra, M. C. [1995], Managing Global Alliances: Key Steps for Successful Collaboration, Addison-Wesley Publishing Company, England.
Eccles, G. R. [1998], “The Performance Measurement Manifesto” in Harvard Business Review on Measuring Corporate Performance, Harvard Business School Press
Kaplan, S. R. & Norton, P. D. [1998], “The Balanced Scorecard – Measures that Drive Performance”, ” in Harvard Business Review on Measuring Corporate Performance, Harvard Business School Press Laszlo, P. G. [1997], “US and Canadian National Quality Awards: Increased Emphasis on Business
Results”, The TQM Magazine, vol. 9, no. 5, pp.381-383.
