Evolutionary paths ofperformance measurementAn overview of its recent development

Suwit SrimaiFaculty of Liberal Arts & Management Sciences, Prince of Songkla University,

Surat Thani, Thailand, and

Jack Radford and Chris WrightFaculty of Commerce, Lincoln University, Lincoln, Canterbury, New Zealand

Abstract

Purpose – This paper aims to understand the evolutionary paths of performance measurement (PM)from the 1980s to the present.

Design/methodology/approach – The paper is a narrative review. The sources of literaturereviewed are from diverse academic disciplines (e.g. operations management, strategic management,management accounting and organisational behaviour). Three main types of literature were selected,namely scientific literature, professional journals, and books. The authors’ approach is illustrative andselective. It is based on the belief that societal and organisational contexts provide the clues for theappropriateness in design and use of a managerial innovation. It describes the transition inperformance measurement, incorporating a number of PM innovations as illustrative exemplars.

Findings – Management needs, arriving from the evolving business ecology and focused on creatingand sustaining competitive advantage, drive the destiny of PM systems during their evolutionaryprogression. Performance measurement has evolved from various perspectives. The evolution tookplace in four major paths, from operations to strategic, measurement to management, static to dynamicand economic-profit to stakeholder focus.

Practical implications – The evolutions embody trends in development and use of PM systemsover the long periods that point the way for future PM to develop and evolve.

Originality/value – The contemporary evolution of PM exhibited in the connection with its evolvingcontexts that is not explicitly acknowledged in the literature gives the raison d’etre to this review.

Keywords Management techniques, Performance management systems,Performance measurement (quality), Performance measures, Quality management,Operations management

Paper type Literature review

1. IntroductionThis review attempts to illustrate the transitional paths of the development ofperformance measurement[1] in the last few decades. Performance measurement, likeother management ideas/tools, develops beside societal ideologies and corporateecologies. It can be assumed that an innovation[2] in performance measurement, at anypoint in time, is characterised by the relationships between the needs for, and the formsof, management tools in use. Performance measurement, similar to any biology-drivensystem, evolved to better fit its niche (e.g. to better sustain organisations’ competitiveadvantage). As a result of these continual progressing competitive forces, many ideasabout performance measurement arose from divergent sources, to create and deliverstrategy in expected and unexpected ways, means, and forms.

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Received August 2010Revised October 2010Accepted October 2010

International Journal of Productivityand Performance ManagementVol. 60 No. 7, 2011pp. 662-687q Emerald Group Publishing Limited1741-0401DOI 10.1108/17410401111167771

This paper is a narrative review. Its concentration is on the evolution ofperformance measurement in the USA. However, since organisations increase theirdegree of inter-connections as the global network intensifies (Delmas, 2002; Guler et al.,2002; Franceschini et al., 2010), this review does include some important non-USdevelopments as well. The authors commence the timeline in the 1980s, when adramatic change in performance measurement began that has continued on to thepresent (Neely, 1999). Performance measurement is an interdisciplinary topic thatcrosses traditional boundaries among academic disciplines. Therefore, the sources ofliterature reviewed are from diverse academic disciplines (e.g. operations management,strategic management, management accounting and organisational behaviour). Threemain types of literature were selected, namely scientific literature, professionaljournals, and books. The authors do not attempt to provide a comprehensive coverageof the literature. Rather, the review focuses on the transitions in performancemeasurement, incorporating a number of performance measurement innovations asillustrative exemplars. It examines which of these prescriptions are useful in clarifyingthe essential issues of performance measurement while allowing the earlier thoughtintroduced by former academia and practitioners, and practices which may becurrently used in organisations, to be reappraised and re-approached.

The idea that a management tool/practice should be designed with respect to thesocietal and organisational contexts has long been established (see Johnson, 1981;Macintosh, 1981; Johnson and Kaplan, 1987; Johnson, 1992; Chenhall, 2003; Otley, 2003;Drucker and Maciariello, 2008). However, the contemporary evolution of performancemeasurement exhibited in connection with its evolving contexts is not explicitlyacknowledged in the literature, which gives the raison d’etre for this review. It is basedon the belief that societal and organizational contexts provide the clues for theappropriateness in design and use of a managerial innovation (Johnson, 1981; Ittnerand Larcker, 2001; Bourne et al., 2003; Otley, 2003).

The rest of this paper is organised as follows. The following sections illustrate fourpaths of performance measurement –from operations to strategy, measurement tomanagement, static to dynamic, and economic-profit to stakeholder focus. The lastsection provides the conclusions.

2. Transition from operations to strategic orientationsThe movement of the quality management techniques (e.g. benchmarking, businessprocess, just in time (JIT), business process re-engineering (BPR), total qualitymanagement (TQM) and world class manufacturing (WCM)) in America in the 1980s[3]potentially brought a momentum for developing new performance measurementinnovations (Maskell, 1989; Johnson, 1992; Watson, 1993; Spicer, 1992; Lind, 2001).Several scholars have claimed that the development and the use of suchorganisation-wide management techniques radically influenced the development ofmanagement accounting techniques (e.g. Dixon et al., 1990; Maskell, 1991; Johnson,1992; Otley, 1994). Turney and Anderson’s (1989) case study, supported by Lind’s(2001) follow-up longitudinal case study, suggests that awareness of non-financialmeasures has increased in companies that adopt the new organisation-widemanagement techniques.

The increasing change in performance measurement and accounting techniques incompanies that adopt such quality management techniques perhaps occurred because

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the incompatibility of the philosophical foundations of management techniques withtraditional performance measures. While the foundations of the techniques appear tobe organization-wide, holistic, and integrative, the existing financial/functionalmeasures were apparently covering a small part of the organisation’s activities (i.e.financial and/or operations). For example, the integrative nature of TQM and WCMprovide management principles to ensure that core management processes andsystems including non-production areas such as strategic and marketing arecomprehensively considered. Since implementing TQM or WCM took place inorganisations, a new approach of performance measurement is needed.

Associated with the phenomena of hyper-uncertainty, rising capacity around theglobe brought competitive intensity that increased executive concern overdecision-making risks. This made long-range planning and strategic issues ofcritical importance (Ittner and Larcker, 2001). As a result, management tools andpractices became more strategic. Performance measurement designed in this periodshifted from an operations/functional level to a focus on strategic sustainingcompetitive advantage. Particular performance measurement systems have evolvedthrough diverse philosophies, even though they seem to have emerged from theoperations arena with the explicit aim of continuous improvement. Severalperformance measurement innovations generated after the 1980s were sought toprovide a set of measures towards the more strategic, which better suited the emergingpost-industrial era. Not only non-performance measures were considered, but also thequality of financial measures was examined (Ittner and Larcker, 1998).

It is argued that the generation and diffusion of the management innovationsincluding performance measurement in the 1980s is a demand-driven phenomenon. Asthe rapidly changing global business created a similar performance gap across varioustypes of organisation, managers realised that the existing performance measures wereno longer sufficient for managing organizations (Johnson and Kaplan, 1987). Thatdetection drove them to seek for better solutions. Among a variety of parties, most ofthe prior-1990s performance measurement innovations were developed bypractitioners with the intention to close the performance gap created byenvironmental change. This observation accords with Galbraith (1980), that mostmanagement innovation might be created by managers who are involved in dailymanagement challenges. Scholars and consultants probably have been involved in thisfield since early 1990s. However, the development of management innovations mightnot be attributed to scholars working single-handedly in their laboratories (Galbraith,1980; Kaplan, 1998). Indeed, the ideas for management innovations might emerge fromthe interaction between scholars/consultants and managers. These happen whenscholars are actively engaged in helping organisations to produce and implement newideas (Kaplan, 1998).

There are a number of causes that stimulate change to performance measurement. Itwas found that the most powerful source is government bodies. For example, theMalcolm Baldrige National Quality Award (MBNQA), first launched by the USgovernment in 1987 on the foundation of quality management as a means to encourageUS firms to use TQM to gain competitive advantage (Gadd, 1995), was developed beyondthe boundary of quality management to provide a more holistic view as an organisationalperformance excellence framework (i.e. a strategic management system) (Nataraajan et al.,2000; Vokurka, 2001). This change was mandated by the US government to free the

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theoretical foundation of TQM, which is not easily applied to various types oforganizations. More recently, the multi -dimensional key performance criteria of MBNQAprovide a generic business model which can be applied to guide all types of organizationsin moving toward performance excellence (Chuan and Soon, 2000; Leonard and McAdam,2003; Miguel, 2005).

This new notion of performance measurement signifies the idea that performancemeasurement and strategy are closely linked (Anthony and Govindarajan, 2003; Saidet al., 2003; Melnyk et al., 2005). Performance measurement, a tool that translatesstrategy into a set of performance measures of a chosen strategy, is often calledstrategic performance measurement (Atkinson et al., 1997; Ittner et al., 2003; Chenhall,2005). From the 1980s until now, many researchers in a variety of disciplines have beensearching for a better solution linking performance measurement and strategy(Langfield-Smith, 1997; Neely, 2005). At the moment, that strategy-measurement fitaffects organizational performance has been raised and validated (Ittner et al., 2003;Chenhall, 2005; Van der Stede et al., 2006). Accordingly, there is a common question foracademic communities such as how to ensure that performance measurement relates toand reflects an organisational strategy (Neely, 2005).

The concept of emergent strategies made the earlier paradigm of strategicmanagement, that tended to be synonymous with strategic planning (Andersen, 2004),obsolete and allowed strategic management as a continuous process to be conceived(Mintzberg, 1973). A resource-based view of the firm and associated concepts are nowdominant. These show the fundamental drivers of firm performance as how the firmenvisages and engages its potential useful assets and resources[4] (Rumelt, 1984;Prahalad and Hamel, 1990; Barney, 1991; Hamel and Prahalad, 1996; Teece et al., 1997;Eisenhardt and Martin, 2000; Jose Acedo et al., 2006; Newbert, 2007; Døving andGooderham, 2008). The new-form strategies have become an important element ofstrategic management. This realisation has re-characterised an entire chain ofstrategy-management processes and activities. It infers that as emerging new-formstrategies become embedded in strategic management, performance measurement as asystem designed to facilitate strategy-management should be reviewed and reformed.As a consequence, it could be suggested further that new perspectives of performancemeasurement should be re-characterised according to the entire chain of strategicmanagement process.

While the concept of linking strategy and performance measurement is wellacknowledged in the last two decades, conceptualising a performance measurementsystem as a strategy has been advocated recently (Henri, 2006). Henri (2006, p. 548)asserts that:

Despite the current perspective reflected by the resource-based view that control systems donot represent a source of competitive advantage, we suggest the opposite view and open thedebate concerning the role of MCS [management control system] as a capability which isvaluable, distinctive and imperfectly imitable.

This conceptualisation is neither to take strategy as a given nor to restrict its scope tothe notion of deliberate strategy; in contrast, the role of performance measurement isconceived in the ability of the measurement-information-learning process to activate acontinuous strategy-management process.

In the measurement-information-learning domain we are likely to find the dynamicaligned-capabilities needed to formulate, develop, and activate the strategies that will

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enable organizations to outperform their competitors. Henri (2006) asserted that thisinsight provides an integrative framework of strategy, resource-based view, andmanagement accounting. It can be assumed that once managers shift theirparadigmatic perspectives and realize the existence of the capability, thisrecognition leads them to envision the plausibility that such capable organisations’tools and systems will be turned to strategic capabilities as a means to createcompetitive advantage.

While management’s need to sustain competitive advantage created a tension thatcaused the shift of performance measurement in the 1980s from operations to strategicfocuses, the ever-rising intensity of competition has continually forced seniormanagement to seek new sources of competitive advantage and left them ever less ableto rely on existing knowledge and know-how. Sustainability and long-term growth donot involve trading off short-term pain or gain for a longer-runadvantage/disadvantage. Ideally, management should seek applied solutions to dealwith the short term and get ready for the opportunities and threats in the long term;thus, a critical aspect in designing performance measurement systems is in the balancebetween short- and long-term gains. Consequently, new business foundations arenecessary to identify, measure, analyse, and steer organisations to more innovativepaths (Teece, 2000; Low and Kalafut, 2002).

Recognition of the rising need for new and innovative perspectives of competitiveadvantage (e.g. knowledge workers, intangible assets, hidden value and human capital,etc.) has caused the emergence of new areas of intellectual capital as acompetitive-advantage fount[5] (Stewart, 1997; Sveiby, 1997; Roos et al., 1998;Bontis, 2001). Performance measurement for intellectual capital suggests newapproaches to provide insights, measure, and manage new strategic factors. However,a consensus on the best way to measure and visualise intellectual capital is not wellestablished. For example, Skandia Business Navigator (SBN; Edvinsson and Malone,1997) relies on a conventional (financial) accounting focus reflecting only the monetaryvalue of a company and neglects many aspects of intellectual capital which playimportant roles in creating value (e.g. a company’s culture, organisational learning andemployee creativity) (Chen et al., 2004). In contrast, Sveiby (1997) recommends a newlens to see organizations as knowledge nexi and to modify the traditional accountingwith a new framework of intellectual capital.

Although the outputs of strategic performance measurement systems tend to besimilar and are provided by comparable processes, their inputs (i.e. strategic measures)seem unrelated[6]. In general, performance measurement systems, which highlightinputs, provide pre-defined groupings of performance measures. While performancemeasures developed in the 1980s were much more related to operations and production,the strategic and customer-focused approach gradually became a trend in the 1990sand onwards. It can be seen from the exemplars in Table I that, under theoperations-oriented focus, cost, quality and productivity are particularly attended to.On the other hand, in order to become strategically oriented, the scope of performancemeasurement systems has been broadened to cover future prognosis, innovation,customer/market and intellectual capitals.

As noted, a critical managerial task, in a performance measurement system, is tobalance short-term survival and long-term growth. While diversity and increasingnumber of performance measures is preferred as a means to preserve the firm’s

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long-term sustainability, the few traditional financial measures which represent thepurpose of business is needed as a means to survive in the short-term. With thepurpose of enhancing organisational capability, the decision is laid in the continuum offinancial to non-financial. However, while using strategic measures along withfinancial measures is well established, until very recently the lack of consensus about aproper number of performance measures still remained.

3. Transition from measurement to management domainsRecently, performance measurement has fundamentally expanded its historical role ofimplementing strategy to facilitate strategic management (Lebas, 1995; Kaplan andNorton, 1996; Kloot and Martin, 2000; Nita, 2008). A call for evolution frommeasurement to management might gradually establish the idea that performancemeasurement systems narrowly defined as a set of performance measures cannot be

Performance measurement systemsYear

introduced Dimensions of performance measures

Sink and Tuttle Performance Measurementmodel (S&T; Sink and Tuttle, 1989, 1990)

1985 Effectiveness, efficiency, quality,productivity, quality of work life,innovation, and profitability/budgetability

The Strategic Measurement Analysis andReporting Technique system (SMART;Cross and Lynch, 1988)

1988 Market, financial, customer selection,flexibility, productivity, quality, delivery,process time, cost

World Class Manufacturing PerformanceMeasurement system (WCMPM; Maskell,1989, 1991)

1989 Quality, delivery, production process times,flexibility, costs

Skandia Business Navigator (SBN;Edvinsson and Malone, 1997)

1991 Financial, customer, human, process, andrenewal and development focus

Balanced Scorecard (BSC; Kaplan andNorton, 1992)

1992 Financial, customer, internal processes,and learning and growth perspectives

Knowledge-based Measurement Model(KBM; Sveiby, 1997)

1997 Three sets of measures – growth andrenewal, efficiency, and stability – forthree intangible asset categories –employee’s competences, internal structure,and external structure

Comparative Business Scorecard (CBS;Kanji, 1998)

1998 Stakeholder values, process excellence,organisational learning, delightingstakeholders

Performance Prism (PP; Neely et al., 2002) 2001 Stakeholder satisfaction, strategies,processes, capabilities, stakeholdercontribution

Dynamic Multi-dimensional Performanceframework (DMP; Maltz et al., 2003)

2003 Financial, market, process, people, andfuture

Note: Some performance measurement systems do not address a wide framework. They instead focuson specific issues related to performance measurement (e.g. to provide guidelines to select and designperformance measures and/or how to manage and utilize the performance measures)

Table I.Dimensions of

performance measures

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tolerated (Neely et al., 1995; De Toni and Tonchia, 2001). Any element serves a systemin a cooperative manner only so long as the key participants realize that theirbehaviours, as parts of the bigger system, contribute to the same purposes of anorganization (Barnard, 1974). Since a performance measurement system is a centralpart of performance management, consideration of either measurement ormanagement separately should lead to an incomplete conclusion. Thus, thisexpanded understanding of performance management systems should portray amore complete picture to management scholars and practitioners.

In the 1980s scholars and practitioners paid much attention to “what gets measuredgets done”, which is likely to represent a half truth of management by measurement.However, in the late 1990s they have shifted the focus onto: “how to manage what ismeasured” as a means to ensure that what is measured will be implementedsuccessfully. This shift was not only caused by the awareness of abundantperformance measurement systems being provided but also by the understanding thatthe potential usefulness of performance measurement is heavily reliant on how to useand mange them (Kaplan and Norton, 2001; Neely, 2005). A performance measurementsystem has to be integrated as a core of a performance management system, which canbe loosely defined as a system that uses a performance measurement system as ameans to manage strategy (Lebas, 1995; Kaplan and Norton, 1996; Otley, 1999).According to Vickers (1967)[7], a performance measurement system is composed of:

. inputs – performance measures and their resulting information;

. processes – procedures to convey inputs into outputs, or practices of execution toensure the expected yields; and

. outputs – the results derived directly from the performance measurement.

The performance management system can only function when the feedback fromperformance measurement is available. Without information, it can only strike thegoals by chance. Information from the performance measurement (i.e. inputs)facilitates the facts-based management of the entire organisation. However, it has nosignificant meaning until it is implemented as a part of a control system – then it feedsinformation back to executives for fine-tuning organisational strategy and re-aligningpeople and resources to achieve desired outcomes (i.e. processes). An ultimate outputgoal of performance measurement systems is to align the strategy of the entireorganisation’s activities and processes.

A number of performance measurement systems reviewed indicate that mostperformance measurement systems do not clarify their outputs explicitly. On thecontrary, their creators concentrated more on describing the performance measures(see Table II for examples). Most performance measurement systems are striving toprovide processes to identify, monitor, diagnose, communicate and report informationto managements with the purpose of managing people and resources and therewithresponding to a competitive market. While managers need a performancemeasurement system to operate a management system, not all performancemeasurement systems can respond to the managers’ needs.

The evolution of BSC is regularly referred to as a cornerstone of the transformationfrom measurement toward management. Even though the BSC was not the first modelthat introduced a classification of performance measures, it was massively successfulin creating a rational norm and standard solutions of strategic performance

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measurement. Starting out as a set of cause-and-effect performance measures(reflecting four distinct perspectives: finance, customers, internal business processes,and learning & growth that were used to translate strategy into actions; Kaplan andNorton, 1992), a constantly evolving progression pushed BSC to the point of being aframework for implementing strategy (Kaplan and Norton, 1996) and then morerecently a strategic management system (Kaplan and Norton, 2001). Although there area number of critical issues associated with the BSC in practice and with the underlyingassumptions (see Atkinson et al., 1997; Norreklit, 2000; Maltz et al., 2003; Nørreklit,

Components FunctionsPerformance measurement systems Inputs Processes Outputs Measurement Management

Tableau de Bord (TdB; Epstein andManzoni, 1997; Bourguignon et al., 2004) U U 7 U U

Sink and Tuttle PerformanceMeasurement model (S&T; Sink andTuttle, 1989, 1990) U 7 7 U 7

Malcolm Baldrige National QualityAward (MBNQA; Goh and Xie, 2004;Mitra, 2004) U U 7 U U

The Strategic Measurement Analysis andReporting Technique system (SMART;Cross and Lynch, 1988) U U U U 7

Skandia Business Navigator; SBN)(Edvinsson and Malone, 1997) U U 7 U U

Balanced Scorecard (BSC; Kaplan andNorton, 1992, 1996) U U U U U

Consistent Performance MeasurementSystem (CPMS; Flapper et al., 1996) U U 7 U 7

Knowledge-based Measurement Model(KBM; Sveiby, 1997) U U 7 U U

Integrated Performance MeasurementSystems (IPMS; Bititci et al., 1997) 7 U 7 U 7

Integrated Dynamic PerformanceMeasurement System (IDPMS; Ghalayiniet al., 1997) U U U U 7

Comparative Business Scorecard (CBS;Kanji, 1998) U U 7 U U

Integrated Performance MeasurementFramework (IPMF; Medori and Steeple,1998) U 7 U U 7

Dynamic Performance MeasurementSystem (DPMS; Bititci et al., 2000) 7 U 7 U 7

Quantitative Models for PerformanceMeasurement System (QMPMS; Suwignjoet al., 2000; Bititci et al., 2001) 7 U U U U

Performance Prism (PP; Neely et al., 2001,2002) U U U U U

Dynamic Multi-dimensional Performanceframework (DMP; (Maltz et al., 2003) U 7 7 U 7

Transforming Performance Measurement(TPM: (Spitzer, 2007) U U U U U

Table II.Components and

functions of performancemeasurement systems

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2003) associated with socio-psychological forces (Abrahamson, 1996) seniormanagement might adapt BSC to their organizations to experiment and learn aboutattractive promises and attribution that might help them to fill their performance gaps.

It is seen that innovators play an essential role in putting forward evolutionarypaths and sustained visibility of the BSC. Kaplan and Norton (see Kaplan and Norton,2001, p. 23) asserted that the evolutionary progression of BSC is constantly driven bythe intention of fully utilizing the advantages and usefulness of the BSC. It can beargued that as a means to create and expand communities of adopters (Abrahamson,1996), in the later versions of the BSC the innovators play an active role in extending itsutility and fertilising its popularity to sustain the impression of its progress. Thepopularity and intensity of diffusion are the results of the dynamic interplay betweenthe promoters who put forward the innovations and the senior managers who adoptthe idea to their organisations (Abrahamson, 1991, 1996). However, existingperformance measurement innovations including the BSC tend to be organisedaround the brand (i.e. commercial trademark). Consequently, the commercialisation ofa number of performance measurement innovations raises questions as to how todifferentiate between what is real and effective and what is simply myth andineffective. To receive empirical support of the usefulness of performancemeasurement innovations, from the late 1990s until now, scholars and practitionershave called for empirical validation of the existing innovations (Ittner and Larcker,1998; Neely, 2005) and have attempted to reflect the practicality of them, especially theBSC (see Atkinson et al., 1997; Norreklit, 2000; Maltz et al., 2003; Nørreklit, 2003).

Since the late 1990s, several performance measurement innovators have expanded theperspective and capacity of the existing performance measurement systems (Otley, 1999,2001; Kanji and Sa, 2002; Neely et al., 2002; Verweire and Van den Berghe, 2003; Kaplanand Norton, 2004, 2006; Marr, 2006; Nita, 2008). At this stage, bundling systems andintegration approaches that called for a re-combination of the package of measurementand management systems, have been exercised to enhance the capability of eachindividual measurement and management system with the result the creation of a morecomprehensive measurement and/or management system (De Toni and Tonchia, 2001;Taticchi and Balachandran, 2008). The integration of independent performancemeasurement systems and other management systems are expected to yield synergisticeffects (i.e. all preferred functions of individual systems are retained and a more robustand comprehensive system is created) (Karapetrovic and Willborn, 1998a, b).

An attractive promise or attribute of a management tool makes it easier to apply(Benders and van Veen, 2001). Thus, the introduction of bundling and integratedsystems driven by the particular intentions of their innovators (e.g. consultants andscholars) leads to the creation of more attractive attributes of performancemeasurement systems for potential users (Bjøornenak and Olson, 1999; Ax andBjørnenak, 2005). On the other hand, demand for systems bundling and integration inparticular organisations can be created internally through organizational learning(Modell, 2009). Existing management tools are well embedded as organisational rulesand routines; as well as humans are likely to protect their existing practices and turfrather than embrace totally new directions (Van de Ven, 1986). Thus, there-combination of measurement and management systems should be a preferredchoice when making change. To do so does not straightforwardly oppose champions ofthe existing rules, routines and management tools.

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Performance management systems, provided under diverse trade names, performsimilar functions. They can be coordinated into an organisation-wide, strategic,integrated performance management system to facilitate and spur thestrategy-management process. A justification of performance management systemsas the systems for managing strategy is that they embody a superior capacity tocompete in markets. As an outgrowth of the intention to manage, deliver and controlstrategy, performance management systems are enterprise-level management systemsthat incorporate performance measurement to overcome corporate cultural inertia – byfacilitating strategy-management activities and processes to generate strategicinformation. In addition, they are used for organizational learning, as a guidingstrategy to managers and other employees, to monitor strategic drivers and results,and to steer organizational behaviours toward congruency with given goals.

4. Transition from static to dynamic perspectivesThe broadening perspective of performance measurement (from measurement tomanagement domains) is driven by internal tensions. It is a result of seniormanagement who request a more complete picture of performance management.Because considering either measurement or management individually is likely to leadto incompleteness, there are less useful implications. On the contrary, the change froma static to a dynamic mode of performance measurement reflects the need to respond tochange in the external environment, particularly when the existing performancemeasurement innovations are not sufficient. Many organisations now seek actively todifferentiate themselves from their competitors in terms of a flexible and rapidresponse to customisation, service, and innovation.

There is a common agreement that the external and internal environment of anorganisation changes constantly. However, since the late 1980s, management scholarsand practitioners have become increasingly concerned about sustaining competitiveadvantage in rapidly changing environments (Chilton, 1995; Werther and Kerr, 1995;Ghemawat, 2002). According to Ittner and Larcker (1998), the substantial pressure inthe nature of competition and its intensity forced firms to determine and measure thenon-financial “value-drivers” that are leading to success in the new competitiveenvironment. These changes have had impacts on the design and the implementationof performance measurement systems (Neely, 1999). Firms have been challenged andforced to improve in the value-driven markets, and leave behind the cost-focusedmindset. Thus, competing on the basis of non-financial factors means that theseorganizations do not need only to expand information across a broad spectrum ofdimensions, but also to activate a dynamic cycle of the measurement and managementof information.

In rapid changing global markets, senior management redirects attention toorganisational systems and processes, not rigid organisation structures, in order torespond promptly to the market – to ensure the firm’s dynamic sustainability (Osborn,1998). The awareness of how factors that are beyond control can contribute to a risingintensity in competition has been a fundamental concern of performance measurementinnovators since the 1990s. The rapidly changing environment causes the need forearlier performance measurement; however, although such earlier performancemeasurement systems emphasised creating strategic coherence through a variety oftechniques, many companies could not align their management processes to their

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strategy (Kaplan and Norton, 2005). As a result, they were unable to achieve theirdesired goals. As a consequence of the increasing rapid and dynamic change,especially after the 1990s, many innovators have proposed performance measurementas a means to create adaptability. The intention was to enable organisations to developthe dynamic capabilities that will help them to stay competitive. At this stage, not onlythe concepts and practices of performance measurement have evolved according to thenew conditions, but also the existing management theory, practices, and notionsproduced by academics are being questioned for their relevance to the dynamiccontexts (Davidson, 1996; Naisbitt, 2006).

Bititci et al. (2000) give the reasons why it is necessary for the performancemeasurement systems to be dynamic. They assert that dynamism is essential forsensing and responding to change in the external and internal environment of anorganization and for reviewing and reprioritising internal objectives. The deploymentof the changes to internal objectives and priorities to critical parts of the organisation isconsidered to ensure alignment at all times. Therefore, Bititci et al. (2000) propose thata dynamic performance measurement system should have:

. an external monitoring system – continuous monitoring and signalling ofchanges in the external environment;

. an internal monitoring system – continuous monitoring and signalling ofchanges within the organisation;

. a review system – for providing significant information for decision making; and

. an internal deployment system – deploying the revised strategic objectives andpriorities to critical elements of the system.

While little is known about the attributes of performance measurement as a means to dealwith uncertainty, Chenhall (2003) suggested that organizations should generally redesigntheir performance measurement system towards more open, interactive, externallyfocused, and non-financial measures. Kennerley and Neely (2003b) also offer a dynamicframework for managing performance measurement systems in a changing businessenvironment. They suggest that performance measurement must be manageddynamically in order to maintain relevance and effectiveness. Hence, the process ofmanaging the evolution of the performance measurement system should be triggered byreflection on the relevance of organizations’ elements (i.e. processes, people, infrastructures,and culture) in the changing context and the strategies of the organisations.

However, it is argued that the application of computers and information technologyfacilitates the dynamics of performance measurement. The dynamics of performancemeasurement are subjected to the continuous cycle of imitation, development andrenewal of information to support management decision-making and day-to-day work(Clancy and Collins, 1979; Bititci et al., 2002). The lack of an effective informationsystem is a barrier to the successful implementation of performance measurement(Eccles, 1991; Kaplan and Norton, 1996; Kennerley and Neely, 2003a). Although theinitiation of digital data management and its associated technology had already raisedthe quest for dynamic performance measurements in the 1970s (Fleischman andTyson, 2006), it was not until the 1980s that computerisation was a technique to deliverthe dynamism of performance measurement to continually capture, store, measure,interpret and visualise data and information (Wilkinson, 1986). Most recently,

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information has been required to apply minute adjustments to strategies and torespond instantly to customers and competitors (Friedman, 2005; Vasarhelyi and Alles,2008).

Indeed, the dynamism of performance measurement has not recently been givenmuch attention. Juran (1988) suggests a dynamic management approach (i.e. thecontinuous cycle of imitation, development and renewal of performance measurement).He offers three dimensions of performance measurement in time-frames relating tooperations. The dynamic roles of performance measurement in the cycle ofmanagement and operations are stated as follows:

. before operations (planning) – performance measurement can be used to buildgoal congruence, and, in order to get accountability during the process, theresponsibility for the results should be specifically assigned;

. during operations (implementation) – performance measurement can beexpected to provide information to senior managements to secure early andadvanced warning and to generate self-stimulation and a self-correcting systemthat conforms the working behaviour with the organisation’s goals; and

. after operations (controlling) – feedback from performance measurement helpsemployees to learn what is needed to adapt their strategies.

Generating and retaining strategic alignment is the key task of performancemeasurement. It has strived to provide mechanisms to create such alignment. Effectiveperformance measurement brings an entire organisation into alignment with thepurpose of creating and sustaining business value (Aguilar, 2003; Kaplan and Norton,2006). Further, integrated performance measurement links strategy with all aspects ofan organisation’s activities (Labovitz and Rosansky, 1997; Kaplan and Norton, 2001).However, continually evolving competitive conditions reveal the concept of alignmentas a snapshot to be inappropriate. Although alignment seen as a snapshot of the rapidand accelerating change in the competitive environment requires an accelerating rateof realignment, organisations are riding the tiger of change and can neither stop noreven slow down their response to change. If organisations want to remain relevant theymust adapt to rather than oppose change (Bate, 1994).

Performance measurement also creates dynamic alignment through organizationallearning — which is, in itself, a major source of competitive advantage (Senge, 1990;Slater and Narver, 1995; Edvinsson and Malone, 1997). In the command-and-controlparadigm, performance measurement is used to assess and judge employees’performance. In an effective learning environment it is also a tool for further learning,challenging, and continuously improving organisational performance (Marr, 2006). Asystematic acquisition of knowledge can reinforce a self-correcting system that drivescontinuous improvement resulting in continual realignment with the desired status.Indeed, a performance management system is a measurement-information-learningdomain that sets managerial functions to activate strategy. It builds dynamic alignedcapabilities that enable a firm to out-perform its competitors, according to givencontingencies.

5. Transition from shareholder to stakeholder valuesThe suggestion that financial and other aspects of organizations’ performance concernsby stakeholders should be weighted equally has embraced a long history of rise and fall

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(Business Week, 1973, p. 393). In the 1980s, a stakeholder approach to performancemeasurement emerged as a response to the criticism of overvaluing a group ofshareholders (Clarke, 1998, pp. 182-3). The original perspective of performancemeasurement is imbalanced because the wider social and environmental responsibility,and integrity of business enterprises are not included in the measuring and reportingsystems. The perspective also represents short-term oriented and financially focusedperformance that narrows the scope of performance measures to only shareholderinterests. Further, it has been acknowledged that other groups of stakeholders, besidesprofessional managers, make significant contributions to the performance of thecompany (Clarke, 1998). This trend has blended with long established social andenvironment accounting and it has potentially fuelled a management agenda.Consequently, it has caused a number of performance measurement systems,especially since the 1990s, to broaden their focus on the stakeholder’s requirementsrather than only reflecting shareholder’s economic-profits (Garengo et al., 2005).

Indeed, information about stakeholders’ contributions and expectations are criticalfor the management of businesses (Clarke, 1998). Crockett (1992, p. 41) asserted that“only when [an executive information] system is designed around performancemeasurements that give expectations of stakeholders the same weight and value ascritical success factors and their benchmarks does the system help improve strategicdecision making”. Adoption and implementation of a stakeholder approach (whichopposes a shareholder approach) caused senior managements to broaden their views tothe social purposes of firms, which lead to the change of managers’ mindsets inrunning businesses (Perrini and Tencati, 2006). While the issues of what is measuredand how is it measured have been long discussed (Estes, 1973) until the very present, aconsensus has never been reached.

As Argenti (1997) asserts that the values of each stakeholder group are notequivalent, a trade-off problem between shareholder and other stakeholders’ interestsgenerally arises. In general, the idea of the shareholders’ priority was widely acceptedby performance measurement innovators. Companies tend to choose a group ofshareholders as their intended beneficiary, as they are, by definition, profit-makingorganisations. Clarke (1998, p. 182) supports the idea that the value of stakeholders hasnever been greater than that of shareholders. Atkinson et al. (1997) suggest that eventhough performance measures should be balanced between achieving primaryobjectives (i.e. increase shareholders’ wealth) and satisfying other stakeholders, theprimary objectives (towards shareholder’s interests) claim priority nonetheless.Similarly, Neely (2005; per Powell, 2004) asserts that the stakeholders’ values are acommon practice so as to prioritise the competing needs of differing stakeholders. Itcan be argued that differing interests of diverse stakeholders constitute beliefs andmanners of senior management as agents who act on behalf of their principals, not forall groups of stakeholders. Under the conditions of ambiguity, profit as a norm ofrationality will be prioritised by senior management in order to sustain the appearanceof rational management and to avoid sanctions from commanding shareholders(Abrahamson, 1996).

However, this approach is criticised by Campbell (1997) who argues that deliveringthe shareholders’ value as the sole purpose of the company is oversimplified andmisinterpreted. He illustrates a “both . . . and” condition; that while companies intend todeliver the primary purpose of making profit, the secondary purposes of the companies

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can be also fulfilled simultaneously (e.g. the Body Shop are making profit from itscosmetics without hurting animals). The explanation to this approach is far fromstraightforward. Simply, as the “both . . . and” condition seems to challenge the conceptof shareholders as a prevailing stakeholder, senior management tends to be directly orindirectly forced to prioritise and pay attention to profit. Indeed, “both . . . and” mightnot be a contrary condition to shareholder’s interest, but it is important as a strategy asa means of accomplishing profit. For example, many organisations explicitly announcesocial objectives as a strategic positioning to particular market segments. Moreover, anumber of organisations may practice an innovative human resource policy onlybecause they are expecting profitability through enhancing labour efficiencies, notbecause it is really an organisational value (Atkinson, 1998). In fact, without theexplicit “both . . . and” condition, profitability, which is the main concern of theshareholder, may be not accomplished.

External demands including the legitimate power of international bodies andregulators (e.g. the International Organisation for Standardisation; ISO) constantlyplay a major role in forcing internal change to pay particular attention to the social andenvironmental aspects of performance measurement systems. For example, to obtainan environmental certificate from ISO, environmental and social issues have to beincluded in the core business processes and translated into performance measures.More recently, a number of organisations have integrated social and environmentaldimensions to their existing performance measurement systems (see Figge et al., 2002;Chenhall and Langfield-Smith, 2007; Lansiluoto and Jarvenpaa, 2008). As mentionedby Lansiluoto and Jarvenpaa (2008), the improvement of social and environmentalperformance in order to enhance profitability may cause senior management toincrease its attention towards the stakeholder approach of performance measurement.By integrating social and environmental measures with a performance measurementsystem, a company can monitor, learn and report information on social andenvironmental performance more precisely (Lansiluoto and Jarvenpaa, 2008).

As stated by Berle (1932, p. 1367): “the view that business corporations exist for thesole purpose of making profits for their stockholders” is practical enough if seniormanagers have a clear comprehensive perception of responsibilities to otherstakeholders. Although the performance measurement literature does not directlymention a stakeholder approach as a concept to enhance good governance, Kochan(2002, p. 139) identifies that the root cause of the recent corporate scandals in the USlies in “the overemphasis American corporations have been forced to give in recentyears to maximizing shareholder value without regard for the effects of their actions onother stakeholders”. Therefore, intended or not, the stakeholder approach toperformance measurement helps reinforce a shift and change in the theory ofbusiness in order to gain a better practice in good governance. That thoughtdramatically rises as a major concern of both academics and professionals in recenttime.

6. ConclusionsConcepts regarding work, people and the organisation, which are embedded inmanagement contexts, differ from time to time (Johnson, 1981; Ittner and Larcker,2001; Otley, 2003). The basic theme underlining this review is a concern in achieving anunderstanding of the nature and force of the transitionary paths of performance

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measurement, especially from the 1980s up to the present. The main paths of evolutionappear to flow from:

. operations to strategic;

. measurement to management;

. static to dynamic; and

. shareholder values (economic-profits) to stakeholder focuses.

These flows reflect the change and shift in competitive, social, environmental,organizational and managerial factors.

The first path reflected the change in competitive advantage in the early 1980s; fromproduct quality to a marketing-and-strategy view that caused organisations to shifttheir focus from production to the strategic arena. Although performance measurementwas initially developed as operations-oriented in the beginning of the 1980s, iteventually went on to become a strategic tool in the late 1980s. This trend became moreobvious in the 1990s, when innovations in performance measurement wereincreasingly introduced into the strategic arena. The second path became apparentas the number of performance measurement innovations saturated the marketplace inthe late 1990s, leading to the introduction of a new approach of performancemeasurement to redirect management’s attention again. The third path, anunpredictable and accelerating change in the 1990s forced senior managements toconsider and manage the beyond-control factors that previously had been consideredoutside of their preview. As a result, they needed a new approach of performancemeasurement that could be executed in a dynamic mode, and be capable of dynamicadaptability. The last path resulted from understanding and realising the importanceof stakeholders in running the business. It provides an alternative perspective to thedesign of performance measurement systems, by paying attention to all stakeholdersrather than using a general model of shareholder values.

There are a number of forces that cause the change in performance measurement.Figure 1 summarises that the ongoing development of performance measurementevolved along the change and shift in business ecology[8]. It can be explained that,although there are many existing innovations in performance measurement and theyhave been increasing, they seem to be incapable to satisfy senior management in thelong term. It is argued that, as conditions change ever more rapidly, previousexperiences and approaches become increasingly less applicable to the new contexts.Moreover, the fact that the real needs and satisfactions of managers are neitherconstant nor linear is a reason why academia and practitioners are constantlyattempting to bridge the gap. This claim perhaps does not reflect all actual conditionsthat developmental paths of performance measurement are not caused only bymanagers. A variety of groups including academia, consultants, governmentalregulators, and international bodies may determine the choices of innovations.

Darwinian selection influences not only what theories or practices are valued by themarketplace (Moore, 2006) but also what theories or practices can continuously stayattractive to managers. It is attractive not because of the actual usefulness andeffectiveness, but more importantly because of the results of interplay among variousgroups of people involved. Thus, it is argued that it makes little sense that managerstend to select the most effective choice or select a choice effectively. The claim will be

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given more support if it is taken with the assumption that all management innovationsbenefits all adopting organizations. In fact, not all organizations adopt managementinnovations with economic rationale, and some reasons may not appear rational toothers. Many are forced to adopt the innovations set by legitimate regulators and somemay imitate other organizations’ choices of innovation without a clear understandingand objective.

The conclusions of this paper are drawn from the review of the relevant literature.Its purpose was to depict the change and shift in performance measurement over twodecades with a number of performance measurement systems as exemplars. As notedearlier, the performance measurement innovations presented in this review wereselected purposefully, in agreement with some of the literature reviewed (e.g. Yeniyurt,2003; Garengo et al., 2005; Pun and White, 2005; Taticchi and Balachandran, 2008).That sample may not be sufficiently broad in terms of numbers and time frame tosupport general conclusions[9]. Nevertheless, this review is of value in framing a briefhistory of contemporary performance measurement and points the way to framestudies on how future performance measurement will develop and evolve.

The existence of management tools at any point in time mirrors the result of priorchoices in the search for distinct performance measurement capabilities. Theirevolution embodies trends in the development and use of performance measurementsystems over long periods, and also points the way for future performancemeasurement to develop and evolve. A new plateau for future performancemeasurement design and use will be established once an understanding of recentphenomena is gained. However, the evolution of performance measurement is aninfinite game in which management theory and practice never die. Each should be

Figure 1.The development of

performance measurement

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developed following its destiny, via the accelerated evolutionary process of newpossibilities, opportunities, choices, and differences. Competitive advantage viaperformance measurement is a treadmill where one runs at an ever-quickening pace tonot lose ground. This review as a path-finding research is practical only for a limitedperiod. The phenomenon should be re-reviewed regularly since the different nature andforces of the change in performance measurement continually develop and evolve.

Notes

1. The terms “performance measure”, “performance measurement”, and “performancemeasurement system” used in this paper follow the definitions provided by Neely et al.(1995).

2. The terms performance measurement systems, frameworks, techniques or models are alsoused widely and sometimes interchangeably in performance measurement and managementcontrol literature. As the ideas seem to be perceived as new at the time they were firstintroduced, they are commonly defined as innovations (see Bradford and Kent, 1977; Ittnerand Larcker, 1998; Bjøornenak and Olson, 1999; Ax and Bjørnenak, 2005; Modell, 2009).

3. Operations have stood as a prominent function of firms since the early past to the 1980s.Along with a greater degree of access to financial markets and abundant resources, theprofits of organisations were dependent on one dominant factor – the production capacity ofthe firms. In the early 1980s, the search for a dominant solution to compete with new rivalsled US industries to adopt a number of management techniques to improve the quality ofmanufacturing products (Ishikure, 1988; Maskell, 1991; Cole, 1999).

4. There is no consensus for the labels of research work based on resources or capability;however, their core or key issues documented are similar that a firm’s resources indicate thefirm’s competitive positions.

5. Even though a notion of intangible resources was introduced at least a half century ago (seePolanyi, 1958), the intense competition and hyper-rapid change in industry structure andbusiness practices in the late 1980s to mid-1990s forced managers to shift their paradigmaticperspectives with the notion to sustain their organisations’ competitive positions (see Pettyand Guthrie, 2000; Low and Kalafut, 2002; Mouritsen and Larsen, 2005).

6. The attributes of performance measurement systems can be structured into inputs,processes and outputs (Vickers, 1967). According to performance measurement innovators’intent, the literature of each performance measurement system may describe only thoseattributes the writer(s) attempted to highlight.

7. See Boulding (1956) for general system theory and classification of the hierarchy of systems.See also Machin (1983) and Otley and Berry (1980) for their application of these ideas toperformance measurement and control systems in particular.

8. There are a number of literature sources that explain contingencies that play a role in thedevelopment and management of performance measurement systems (see Chenhall, 2003;Franco and Bourne, 2003; Kennerley and Neely, 2003a; Garengo and Bititci, 2007). However,this paper does not intend to provide a comprehensive range and detail of the conditions andfactors.

9. It is generally accepted that the sampling and sample size should represent the wholepopulation – the small number of performance measurement systems shown in this reviewmay not be sufficiently broad in terms of numbers and time frame to support generalconclusions about performance measurement systems. However, because the number ofperformance measurement systems initiated and developed is difficult to determine, ajudgment about sampling is suggested (US General Accounting Office, 1996); namely to

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select performance measurement systems which yield particularly rich information toenhance the power of explanation of the phenomenon being studied (Sandelowski, 2000).More importantly, by the nature and purpose of a literature review, even though greaterextents of proxies are preferred, a small sample is not a crucial failing, because theperformance measurement systems as proxies are intentionally used for explanatory andillustrative purposes (Glaser and Strauss, 1968, Strauss, 1987; Sandelowski, 2000; Finlaysonand Dixon, 2008).

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Corresponding authorSuwit Srimai can be can be contacted at: Suwit.s@psu.ac.th

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