Batenburg Industriële Elektronica Wheedwarsweg 7
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- Bu səhifədəki naviqasiya:
- Performance measurement in SMEs
- There is nothing so useless as doing efficiently that which should not be done at all.
- Content
- 1.1 Research assignment
- 1.2 Research questions
- 1.3 Research objective
- 2 Literature 2.1 Definition of a performance measurement system
- 2.2 Characteristics of performance measurement systems
- 2.2.2 Roles of performance measurement systems
- 2.2.3 Processes of performance measurement systems
- 2.3 Performance measurement models
- 2.3.1 Balanced Scorecard
- Figure 1. The Balanced Scorecard (Kaplan Norton, 1996)
- 2.4.1 Designing implementing performance measurement systems
- 2.4.2 Design- implementation methodologies
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Batenburg Industriële Elektronica Wheedwarsweg 7 7471 GG, Goor www.batenburg-elektronica.nl
Koen Brinkerink S1068830 University of Twente Master Business Administration Track: Service Management k.brinkerink@student.utwente.nl
Performance measurement in SMEs
Performance measurement in SMEs
07-12-15 Koen Brinkerink ii
“ There is nothing so useless as doing efficiently that which should not be done at all. ” - Peter Drucker (1909-2005) Performance measurement in SMEs
07-12-15 Koen Brinkerink iii
Title Performance measurement for SMEs: Student Koen Brinkerink Student number S1068830 Programme Business Administration Track Service Management Faculty Behavioural, Management and Social Sciences University Universiteit van Twente Organization Batenburg Industriële Elektronica 1 st
Ir. H. Kroon 2 nd University supervisor Prof. Dr. C.P.M. Wilderom 1 st
2 nd
organization supervisor Arnold Scheringa BSc Place
Goor Date
18-11-2015
onderzoek naar de ontwikkeling van een prestatiemeetsysteem voor Batenburg Industriële Elektronica ’. For more information contact the author. Performance measurement in SMEs
07-12-15 Koen Brinkerink iv
Content 1 Introduction ..................................................................................................................................... 2 1.1 Research assignment ............................................................................................................... 2 1.2 Research questions .................................................................................................................. 2 1.3 Research objective ................................................................................................................... 2 2 Literature ......................................................................................................................................... 3 2.1 Definition of a performance measurement system .................................................................. 3 2.2 Characteristics of performance measurement systems ......................................................... 3 2.2.2 Roles of performance measurement systems ................................................................... 3 2.2.3 Processes of performance measurement systems ........................................................... 3 2.3 Performance measurement models ......................................................................................... 3 2.3.1 Balanced Scorecard .......................................................................................................... 4 2.4 Developing performance measurement systems ..................................................................... 4 2.4.1 Designing & implementing performance measurement systems ...................................... 5 2.4.2 Design- & implementation methodologies ........................................................................ 5 2.5 Performance measurement systems for SMEs ........................................................................ 6 2.5.1 Designing and implementing a performance measurement system for SMEs ................. 7 2.5.2 Design and implementation methodologies for SMEs ...................................................... 8 2.5.3 Preconditions for effective developmental process for SMEs .......................................... 9 2.5.4 Strategic alignment ........................................................................................................... 9 2.5.5 Critical success factors ................................................................................................... 10 3 Method .......................................................................................................................................... 11 3.1 Data collection ........................................................................................................................ 11 3.2 Data analysis .......................................................................................................................... 11 3.2.1 Developing activity statements ....................................................................................... 12 3.2.2 Developing affinity groups and supporting theme’s ....................................................... 12 3.2.3 Developing critical success factors ................................................................................. 12 3.3 Validity & generalizability ........................................................................................................ 12 3.4 Ethics ...................................................................................................................................... 12 3.5 Data analysis process ............................................................................................................ 12 4 Results .......................................................................................................................................... 12 4.1 Overview of critical success factors ....................................................................................... 13 5 Advice ........................................................................................................................................... 13 6 Limitations ..................................................................................................................................... 13 6.1 Future research ...................................................................................................................... 13 7 References .................................................................................................................................... 14 Tables and figures Table 1. Develop steps of a performance measurement system (Wisner & Fawcett in Neely et al., 2005) ............................................................................................................................................... 6 Table 2. Appliance of validation strategies (Creswell, 2009) in this study ........................................... 12
Figure 1. The Balanced Scorecard (Kaplan & Norton, 1996) ................................................................. 4 Figure 2. Top-down approach of Kaplan & Norton (Biazzo & Garengo, 2012a) .................................... 5 Figure 3. A circular approach to the implementation of the BSC (Biazzo & Garengo, 2012a) .............. 8 Figure 4. Strategic alignment (Bauer, 2004) .......................................................................................... 9
Performance measurement in SMEs
07-12-15 Koen Brinkerink 2
Batenburg Industriële Elektronica (BIE) wants to gain insight into their performances. They want to develop a performance measurement system (PMS) by which they should be able to focus on all their essential performance dimensions (e.g. Bititci, Garengo, Ates & Nudurupati, 2015; Taylor & Taylor, 2014).
A performance measurement system contains a set of critical and balanced performance indicators (Kaplan & Norton, 1996; Taticchi, Tonelli & Cagnazzo, 2010) that provide insight into the level of organisational success in achieving their mission, vision and strategy (Garengo, Biazzo & Bititci, 2005; Kaplan & Norton, 1992, 1996; Neely, Mills, Platts & Richards, 2002; Taticchi, Balachandran & Tonelli, 2012). By deploying a performance measurement system strategic alignment can be achieved (e.g. Bititci et al., 2015; Franco-Santos, Lucianetti & Bourne, 2012; Kaplan & Norton, 1996; Pun & White, 2005). Strategic alignment is linking operational activities to organizational strategy and objectives (Johnston & Pongatichat, 2008; Kaplan & Norton, 1996; Pun & White, 2005). With a PMS the mission, vision and strategy of an organization can be translated into critical success factors (CSFs), (critical) performance measures, goals and targets (e.g. de Waal & Kourtit, 2013; Doeleman, Thomassen & van Winzum, 2013; Gomes, Yasin & Lisboa, 2011; Lohman, Fortuin & Wouters, 2004; Mettänen, 2005; Neely et al., 2002; Wouters & Sportel, 2005).
BIE has to take a number of steps before they will be able to develop a performance measurement system. Obstacles the organisation encounters concerning developing such a system are inherent to the characteristics of small and medium-sized enterprises (SMEs) (Cocca & Alberti, 2010; Garengo et al., 2005; Hudson, Smart & Bourne, 2001; Sousa & Aspinwall, 2010). One of the requirements is using the organizational strategy or conducting a stakeholder analysis as a basis (i.e. Kaplan & Norton, 1996; Neely et al., 2002; Yadav & Sagar, 2013). Other obstacles they might encounter when developing a PMS are: lacking human resources; lacking managerial capacity; lacking financial resources; reactive approach to managing; having tacit knowledge and little need to formalise processes; and having misconceptions about performance measurement (Garengo et al., 2005). Therefore, effective designing and implementing a PMS requires a thoroughly designed approach (Fernandes, Raja & Whalley, 2006; Hudson et al., 2001; Taticchi, Balachandran, Botarelli & Cagnazzo, 2008), in which preconditions are taken into consideration (Brem, Kreusel & Neusser, 2008; Garengo et al., 2005; Taylor & Taylor, 2014).
In this study the first steps into designing and implementing a PMS are taken. This has been fulfilled by means of identifying preconditions and requirements of a PMS as well as identifying the CSFs of BIE. The mission, vision, and strategy of BIE is developed and adjusted by the management team in agreement with the Batenburg Holding. The CSFs (Bullen & Rockart, 1981; Caralli, Stevens, Willke & Wilson, 2004; Rockart, 1978) of the organization have not been distinguished. Therefore, I am focussing on identifying the CSFs of the organization. This study has to support the development of a PMS and result in an advice on further formalisation of Batenburg Industriële Elektronica.
Following the aforementioned objective the research question is: ‘What are the critical success factors of Batenburg Industriële Elektronica and how can they be collected in order to support the development of a performance measurement system?’
Upon completion the critical success factors of the organization are delivered. Furthermore, an advice will be constructed concerning the development of a PMS by means of providing guidance for the design and implementation process, as well as preconditions and organizational requirements for developing a PMS.
Performance measurement in SMEs
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2.1 Definition of a performance measurement system Throughout this study the following definition of a PMS is used: “A PMS is a system that provides a concise overview of performance through sets of (financial and/or
A PMS can be defined based upon the features, roles, and processes it contains (Franco-Santos et al., 2007). Fundamentally a PMS consists out of two features, namely: performance indicators and the supporting infrastructure. Performance indicators are multidimensional and comprise of financial and non-financial perspectives (e.g. Franco-Santos et al., 2007; Garengo et al., 2005; Kaplan & Norton, 1996). The supporting infrastructure consist of the developed procedures for transforming raw data into useful information and the personnel involvement executing the process (Franco- Santos et al., 2007).
A performance-indicator “can be defined as a metric used to quantify the efficiency and/or effectiveness of an action” (Neely, Gregory & Platts, 2005, p. 1229). Developing a valid, useful and understandable indicator can be done by employing the ‘performance measurement record sheet’ (Neely et al., 2002; Neely, Richards, Mills, Platts & Bourne, 1997).
As a whole, the set of performance indicators need to be balanced and give a comprehensive representation of the organization. This can be accomplished by successively answering the following question “Are the objectives that have been identified balanced?; Do they relate tot the internal and external dimensions of performance?; Do they cover both the financial and non-financial dimensions?” Do they challenges for both the short and long term?” (Neely et al., 2002, p. 59)
The supporting infrastructure (Franco-Santos et al., 2007) consists out of procedures for data acquisition, data collection, data sorting, data interpretation, and data presentation (Kennerley & Neely, 2003). The infrastructure must to efficient and effective (Kennerley & Neely, 2003).
Appliance of a PMS can be summed up according to five categories: performance measurement; strategic management; communication; influencing behaviour; and learning & improving (Franco- Santos et al., 2007).
A PMS involves five quintessential processes, namely: selecting and designing measures; collecting and manipulating data; managing information; performance evaluation and rewarding; system review (Franco-Santos et al., 2007).
Development of performance measurement systems can be traced back to dissatisfaction of accounting systems during the late ’80. These systems weren’t capable of presenting a comprehensive view of organizational performances (Nudurupati, Bititci, Kumar & Chan, 2011). This criticism during the ’90 has led to the development of models and techniques by which a PMS can be constructed.
PMS-models that gained popularity during the nineties (Taticchi et al., 2008; Yadav & Sagar, 2013) are, among others: the Balanced Scorecard (BSC); Strategic Measurement and Reporting Technique (SMART); The Performance Measurement Matrix; The Performance Prism; The EFQM Business Excellence Model (Nudurupati et al., 2011). By applying a model one can develop an effective PMS (Taticchi et al., 2012). These models seek balance between financial and non-financial performance Performance measurement in SMEs
07-12-15 Koen Brinkerink 4 indicators, short and long term focus, leading and lagging indicators (Kaplan & Norton, 1992; Taticchi et al., 2010), and lead to strategic alignment (e.g. de Leeuw & van den Berg, 2011; Melnyk, Bititci, Platts, Tobias & Andersen, 2014; Pun & White, 2005). “All these models and frameworks were concerned with what to measure and how to structure the PMS, i.e. they try to answer the question ‘‘how to design the PMS?”.” (Nudurupati et al., 2011, p. 281).
A performance measurement system should (Neely et al., 2002): “contain balanced a mix of financial and non-financial indicators”(p. 11); stimulate employees to ‘do the right things’; help predict the future and make understandable what is occurring in the organization; contain a review process by which performance measures can be adapted and remain its relevance.
The model that most likely gained most attention from both academics and businesses (Biazzo & Garengo, 2012c; Hudson et al., 2001; Taticchi et al., 2010) is the Balanced Scorecard (Kaplan & Norton, 1992) (figure 1). This model is composed out of four perspectives that determine short and long term objectives, contains financial and non-financial perspectives, and includes leading and lagging indicators (Kaplan & Norton, 1996). The Balanced Scorecard links mission, vision en strategy to operational activities (Kaplan & Norton, 1996). The goal of the Balanced Scorecard is to support an organization in strategy implementing (van Veen-Dirks & Wijn, 2004).
Central to each of the four perspectives is a guiding question that can aid the development of the model (Biazzo & Garengo, 2012a). The guiding questions can be found in the figure 1.
The development of a PMS can be conceptually (Lohman et al., 2004) divided into three stages (Bourne, Mills, Wilcox, Neely & Platts, 2000): 1. Designing the system and indicators; 2. Implementing the system and procedures for data collection, 3. Using and updating the PMS.
During the design stage key objectives are identified and performance measurement are designed (Bourne et al., 2000; Lohman et al., 2004; Wouters & Sportel, 2005). This can be achieved by employing a PMS-Model (Taticchi et al., 2012) such as the Balanced Scorecard (Kaplan & Norton, 1996). In the implementation stage systems and procedures are put into action (cf. Nudurupati & Bititci, 2005; Nudurupati et al., 2011) in order to ensure execution of measurement (Lohman et al., 2004). During the use stage results are judged based on efficiency and effectiveness of activities. In addition, the success of strategy implementation is examined (Lohman et al., 2004). In order to remain relevant, the system have to be updated when the external or internal environment (Kennerley & Neely, 2003) changes (Wouters & Sportel, 2005).
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During the design stage ‘how to design the PMS?’ (Nudurupati et al., 2011) is dealt with. As aforementioned, a PMS must be developed by utilizing a model or framework (Taticchi et al., 2012), such as: the Balanced Scorecard (BSC); Strategic Measurement and Reporting Technique (SMART); The Performance Measurement Matrix; The Performance Prism; The EFQM Business Excellence Model (Garengo et al., 2005). An effective design depends upon applying a PMS-model and strategy map, “choosing the measures and targets that would help the company to implement its intended strategy” (Franco-Santos & Bourne, 2005, p. 116), aligning organizational mission, vision and strategy, aligning additional management systems, and the “process of identifying, selecting and developing an appropriate information infrastructure” (Franco-Santos & Bourne, 2005, p. 117).
Designing and implementing a PMS-model like the Balanced Scorecard can been executed by appliance of a process methodology (Ahn, 2001; Bourne, Neely, Mills & Platts, 2003; Kaplan & Norton, 1996; Papalexandris, Ioannou, Prastacos & Eric Soderquist, 2005). Process methods ensure systematic development of a PMS and thereby its success during implementation (Franco-Santos & Bourne, 2005).
How a PMS is developed is dependent upon the objective of such a system (Simons, 1995; Wouters & Wilderom, 2008). A PMS is a way of formalisation (a way of standardizing behaviour via rules, procedures, formal training and related activities). The way it is developed determines how the system is perceived by managers and employees. A distinction between two types of formalisation has been acknowledged, namely: coercive and enabling formalisation (Adler & Borys in Wouters & Wilderom, 2008). Coercive formalisation is a method of imposed top-down formalisation, a PMS is used as a control mechanism and it forces employees to comply with the system (Wouters & Wilderom, 2008). On the other hand, enabling formalisation employs a bottom-up logic. Enabling formalisation serves end-users needs, stimulates ‘dialogue with employees’ (Gravesteijn, Evers, Wilderom & Molenveld, 2011), and can lead to more positive employee attitude towards the use of a PMS (Groen, 2012)
The coercive approach is regarded as a ‘typical’ developmental method (Lohman et al., 2004; Wouters & Sportel, 2005). It employs a structured top-down approach (Lohman et al., 2004) and is executed by the management of an organization (i.e. Ahn, 2001; Fernandes et al., 2006; Kaplan & Norton, 1996; Neely et al., 2002; Papalexandris et al., 2005). This method sees a PMS as a control mechanism for top management. A typical coercive method is portrayed below: the Balanced Scorecard methodology.
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