PERFORMANCE MEASUREMENT IN SUCCESSFUL COMPANIES:

THREE CASE STUDIES

Lin FitzgeraldWarwick Business School

University of Warwick

Abstract

Performance measurement systems play an important role in organisations, providing

information on the achievement or otherwise of an organisation’s competitive strategy, and

linking that strategy to operations. This paper explores the characteristics of the performance

measurement systems in three successful UK service organisations, a food retailer, a motor

vehicle distribution network and a firm of accountants. The focus is on strategic business

units within each organisation whose performance is regularly reported to and analysed by

central headquarters. The case studies involved semi-structured interviews with a range of

personnel both at corporate and business unit level combined with examination of internal

documents and non-participatory observation of company practices. The performance

measurement systems are compared and contrasted using dimensions, standards and rewards

framework which poses three central questions for performance measurement systems: What

dimensions of performance to measure, how to set standards for those measures and what

rewards are to be associated with the achievement of those standards. All three companies

measure across a range of dimensions which are consistent with their corporate strategy, have

the same approaches to standard setting and reward performance achievement. The

framework was useful in highlighting the different measurement mechanisms used in the

three organisations, distinguishing between standard setting for profit and quality measures

and identifying the importance of non-financial rewards in motivation.

Acknowledgement

We are grateful to CIMA for funding this research (“Performance measurement in serviceindustries: making it work”), and to the many employees at the case organisations for theirtime and consideration in providing us with information concerning their organisation’sperformance measurement systems.

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PERFORMANCE MEASUREMENT IN SUCCESSFUL COMPANIES:

THREE CASE STUDIES

1. INTRODUCTION

It is well established that performance measurement plays a critical role in organisations,revealing how well that organisation is succeeding in achieving its corporate objectives andpinpointing where improvements are required (Merchant, 1985; Dixon et al, 1990; Euske etal, 1993). Alongside this is a suspicion that a performance measurement system can haveunintended dysfunctional consequences as managers change their behaviour in response to it(Burchell et al, 1980). Conventional wisdom suggests this is alleviated to some extentthrough the adoption of a wide range of performance measures that focus on quality, serviceand flexibility as well as on the financial measures (Nanni et al, 1992 Kaplan and Norton1992). Thus, advocated performance measurement systems have become complexmechanisms that are linked to corporate strategy, include external as well as internalmeasures and non financial as well as financial measures, and make explicit the trade-offsbetween the various performance measures used (Fitzgerald and Moon, 1996).

Although survey evidence suggests that measurement managed companies out perform non-measurement managed companies (Lingle and Schiemann, 1996, Ashton, 1997) to date fewstudies have explored in detail how companies actually measure performance in practice.Single company studies reported include Otley’s (1990) observations on accountability andcontrol in British Coal, and Archer and Otley’s (1991) investigation of strategy and controlsystems at Rumenco. More recently, Moon and Fitzgerald (1996) provided an in-depthdescription of the performance measurement systems used within TNT (UK) Ltd which drewout the key characteristics of the system that facilitated the translation of strategy into action.However, while findings from all these studies are illuminating, there is a need forcomparisons across several organisations in order to identify recurring patterns inperformance measurement systems. The have been studies of performance measurementsystems at parent and subsidary companies, for example, the Coates et al (1992) investigatedthe performance measurement systems used in 15 UK, US and German corporations, and thelinks with each company’s corporate objectives and style of monitoring and control. Mostly,though, the analysis was restricted a categorisation of the broad types of indicators used (e.g.market share, yield, safety etc.). The focus of this paper is on the performance measurementof strategic business units within organisations whose performance is regularly reported toand analysed by central headquarters. This will enable the analysis of both the broad type ofindicators and the more detailed operational measures that facilitate the translation of strategyinto action.

The objective of this paper is to provide a detailed comparison of the performancemeasurement systems adopted within three, successful, UK service organisations. Theperformance measurement systems are compared and contrasted using dimensions, standardsand rewards framework which poses three central questions for performance measurementsystems: What dimensions of performance to measure, how to set standards for thosemeasures and what rewards are to be associated with the achievement of those standards.

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While it is unlikely to be appropriate for any two organisations to adopt identical performancemeasurement systems, especially where they operate in distinct business sectors, neverthelesshidden within the rich diversity characterising the systems of the three organisationsinvestigated are several important areas of commonalty. The framework is used to draw outthese common themes.

The paper is arranged in four sections. The next section describes the research methodsadopted including a description of the analysis framework. Section three briefly outlines thecase companies followed by the analysis of their performance measurement systems. Thefinal section reflects on the findings and offers some conclusions.

2. RESEARCH METHODThe purposes of the research was to compare the characteristics of the performancemeasurement systems used within the organisations to identify common themes that helpedeach organisation translate its corporate strategy into action. The complexity of therelationships under investigation and the many contextual variables that might affect them inour view necessitated the use of case studies (Yin 1994). Standard methodologies for caseresearch were adopted as discussed by Otley and Berry (1994). We wanted successful servicecompanies who had strategic business units reporting to a central headquarters. In additionwe wanted companies in different service businesses. Our prior belief being that althoughsuch business may span different Standard Indusrty Classification (SIC) service sectors,recognition that they nevertheless face common problems may lead to a cross-fertilisation ofideas for performance measurement. A set of companies was identified who met thesecriteria and three were selected who agreed to participate in this research study. The three area food retail company, henceforth FR, the Peugeot Dealership Network and Arthur Andersen.

For the three participant organisations, semi-structured interviews were combined with anexamination of internal documents and non-participatory observation of company practices,including in some instances company meetings. The interviews were carried out with a rangeof personnel both at corporate or partnership level and at business unit levels. For ArthurAndersen all interviews were conducted at a regional office. The studies at FR and Peugeotadditionally included several visits to, and interviews at, separate business units. Thisallowed us an opportunity to gain insights to the performance measurement systems both at astrategic “board” level and at the operational level. All interviews were recorded with the fullconsent of the interviewees. Thirty one interviews totalling fifty seven hours wereundertaken. A summary of the number of participants, their position in their organisation andthe duration of interviews is provided in Table 1.

--- Table 1 ---

An organising frameworkAlthough there is broad agreement that some form of performance measurement system is animportant component of organisational control there is no general model that provides aprecise prescription of such a system. Different organisations will be pursuing differentstrategic objectives operating in different environments with different technologies and sowill require different performance measures (Otley, 1987, Anthony 1988, Simons 1990,Fitzgerald et al 1991). Common to all systems is the need to decide what performance

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measures to use, how to set targets for those measures and what rewards are to be associatedwith the achievement of performance targets (Otley 1987). The intention of this research isexplore company responses to these three questions. To facilitate comparisons across thecompanies the analysis is structured around the dimensions, standards, rewards frameworkdeveloped from the Otley questions, using the management accounting literature, byFitzgerald and Moon (1996). The framework is reproduced as figure 1 and has three buildingblocks dimensions, standards and rewards which are described below.

--- Figure 1 ---

DimensionsThere is increased recognition that companies compete on a wide range of dimensions whoseevaluation cannot be confined to financial indicators. Appropriate non-financial indicatorssuch as quality, customer service, innovation and flexibility need to be specified andmeasured (Lynch and Cross 1991, Fitzgerald et al 1991, Kaplan and Norton 1992, Nanni et al1992). Common threads emerging from a review of three performance measurementframeworks – Lynch and Cross’s performance pyramid (1991), Fitzgerald et al.’s results anddeterminants matrix (1991) and Kaplan and Norton’s balanced scorecard (1992) – are thatperformance measures should be linked to corporate strategy, include external (customerservice type) as well as internal measures, include financial and non-financial measures andmake explicit the trade-offs between the various measures of performance (Fitzgerald andMoon, 1996). In addition both the results and determinants framework and the balancedscorecard distinguish between the ‘results’ of actions taken and the ‘drivers’ or‘determinants’ of future performance. This is an attempt to address the short termismcriticism frequently levelled at financially focused reports by emphasising the notion thatimprovements in quality, say, may not impact on the bottom line in the current period but ifthese quality improvements are valued by customers future financial results should reflectthis.

StandardsThe second building block relates to the setting of expected standards once the actualdimensions and measures have been selected. This involves consideration of the extent towhich individuals responsible own the standards upon which their performance will beassessed, whether the standards set are perceived as being achievable by the managersresponsible and whether the standards are equitable across the business units.

In establishing targets the importance of individuals owning the standards has long beenestablished (Argyris, 1952, Becker and Green, 1962). Managers who participate in the targetsetting process are more likely to accept the standards set (Emmanuel et al 1990) and definedquantitative targets motivate higher levels of performance than if no targets are set.Providing the target is accepted the more demanding the target the better the resultingperformance (Chow, 1983 Cyert and March 1963). Thus the budget level that motivates thebest performance is unlikely to be achieved all of the time. Budgets need to be realisticenough to encourage performance but not set at levels so high that they become totallydemotivated. Finding the balance between what the company sees as achievable and what themanager views as achievable is a frequent source of conflict. Consideration needs to be givento equity across business units. The local environment faced by different business units mayvary considerably, indeed Govindarajan (1984) found the greater level of uncertainty the

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more reliance was placed on subjective judgement in appraising performance, with lessreliance on objective financial data.

RewardsThe third building block relates to the reward structure of the overall performancemeasurement system and is concerned with guiding individuals to work towards the standardsderived above. This involves posing three questions is the system clear to all whoseperformance it will seek to evaluate? how are individuals motivated to work together in thepursuit of the company’s strategic objectives? and what level of controllability do managershave for their areas of responsibility.

If one of the primary roles of performance measurement systems is to ensure the successfulimplementation of strategy by linking operational performance with strategy (Kaplan andNorton 1996) then this should be clearly understood by employees throughout theorganisational structure. Employees may be motivated to work together for the pursuit of thecompany’s strategic objectives by tying rewards, for example bonuses, to the attainment ifkey success factors (Fitzgerald et al 1991). Goal clarity and participation have been shown tocontribute to higher levels of motivation to meet targets, providing managers accept thosetargets (Hofstede 1968). The traditional view in responsibility accounting is that peopleshould only be made responsible for financial elements which they can control and theyshould only be rewarded for those efforts. A common area of difficulty here is in theallocation of those costs arising from activities that benefit many departments or divisionswithin an organisation. The principle of cost controllability inevitably also involves, then, theprinciple of the perceived fairness of cost allocations – an area of lively debate in manyorganisations.

This organising framework will be used to structure comparisons between the performancemeasurement systems of the cases in the next section.

3. THE THREE CASE ORTGANISATIONS

The three case study companies each hold a strong market position in their own industrialsegment. They are all successful organisations in terms of both profitability and quality ofservice. The analysis is focused on strategic business units within each company whichsupply goods and services to end customers and whose performance is measured by a centraloffice. The strategic business units are supermarkets in the FR chain, Peugeot CarDealerships, and a large UK office of Arthur Andersen .

FR is a leading UK food retail organisation. The company has an annual turnover well overone billion pounds and trades from many outlets throughout the UK. Each store is anindustry in its own right, with annual sales of several million pounds. For reasons ofconfidentiality, the precise identity of the company will not be disclosed in this paper, norwill some of the finer details of its performance measurement system.

Peugeot Talbot is engaged in the manufacture and distribution of motor vehicles, replacementparts and accessories in the UK. The company has a market share of approximately 8% ofthe 2 million new car registrations in this country each year, placing it in fourth positionbehind Ford, Vauxhall and Rover. The European motor industry is highly competitive with

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an oversupply of vehicles and increasing competition from Korea, the Third World and,internally, from Japanese transplants. The case study focuses on the Peugeot Dealershipnetwork in the UK, comprising around 400 franchised dealerships located to providegeographical coverage throughout the country. A large proportion of these are privatelyowned, family businesses.

The Arthur Andersen world-wide organisation is one of the largest accountancy andconsultancy firms in the world employing around 80,000 people in offices in over 75countries. The partnership has a reputation for breadth, depth and excellent quality ofservice, across the comprehensive range of financial and business services that it provides toits many and varied clients. The case study focuses on the audit and business advisory,taxation and corporate recovery services provided by one large UK office.

The focus of the research is on the performance measurement systems used each organisation.

AnalysisThe similarities and differences across the three case studies are analysed using thedimensions, standards reward framework (section 2). Each performance measurement systemis summarised in terms of the dimensions of performance measured, the way in whichstandards are set as targets to be attained on those dimensions, and the reward mechanismsthat are adopted to encourage high performance levels.

Dimensions of PerformanceTable 2 summarises the main dimensions measured by the three organisations across fourcategories of performance indicator: profit and competitiveness, the results of corporatesuccess (or failure), quality of service and resource utilisation, the determinants of success.All three companies adopt a wide range of performance measures, both financial and non-financial. All too have some focus on the bottom line; profit remains critically important.The difference is in the way this profit information is disclosed: FR regularly publicisebranch profits achieved via the use of league tables, making overall success or failureimmediately transparent to other managers within the business. In contrast, knowledge ofprofits is restricted to the partners in Arthur Andersen and to dealership owners in thePeugeot Dealerships.

--- Table 2 ---

At the company level where data is available about the market segment as a whole this isgenerally monitored on a formal basis; thus, for example Arthur Andersen are well aware oftheir position (and movement in position) in the UK in terms of fee income, while FR closelymonitor food retailing market share statistics at a macro level, as well as placing considerableemphasis on competitor pricing policies at a micro (store by store) level. At the business unitlevel, however, only Peugeot formally measure their competitive performance; they use apublished breakdown of new car registrations by post-code. The others use informalmechanisms; for example Arthur Andersen will gain knowledge of how they are doing incomparison with their local competitors through the careful cultivation of relationships withbusiness providers such as banks and insurance companies. General store managers at FRwill pick up performance signals from other companies’ stores in their area through, forexample, the direct observation of how near to capacity are the car parks.

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Considerable effort has been devoted to measuring service quality in all three organisations.There are clear distinctions between the approaches adopted in Andersens compared with theFR, these largely resulting from the intrinsic nature of the business undertaken. ArthurAndersen review their performance with (almost) every client. Some facets of performanceare relatively easy to measure, the successful completion of an assignment in accordance withthe original job specification. However, this is an output measure; measuring the process isless straightforward. The nature of the client relationship is that projects often last aconsiderable time with a high level of client to staff interaction; the challenge is to identifyproblems early during the process, so that corrective action can be taken. This is achievedthrough some form of meeting, usually with the partner responsible: the nature of the meetingwill vary from client to client, some want a formal interview type setting while others prefer adiscussion over a pint in the pub. The driving force is "no surprises"; if there are problemsthe earlier they are identified the quicker they can be rectified: there is no point in waitinguntil the end of the process to discover that there were problems. In contrast FR have a largecustomer base with each transaction taking a relatively short time. Monitoring is thereforerestricted to a sample of individual transactions assessed via mystery shopper schemes.These are output measures and the results are used to drive continuous improvement. Inaddition overall reports detailing service performance over a wide range of measures areproduced on a regular basis by depot or store in a league table format. The system at Peugeotis a hybrid of the approaches described above. Overall service performance is measured bymanagement inspection, individual transactions are sampled in a mystery shopper system andevery new car sale is followed up with a customer assessment questionnaire. An interestingfeature of the Peugeot system is that the customer assessment is repeated 12 and 24 monthsafter the initial purchase, entirely consistent with trying to develop a long term relationshipwith the customer.

All three organisations measure resource utilisation at the business unit level, but a furtherdeterminant of success, flexibility, is not formally monitored, although all have strategies forproviding it. For example, Arthur Andersen are able to pull in resources from other offices ifnecessary because there are consistent standards throughout the organisation, and FR willtelephone part time checkout operators and counter employees at short notice to overcomesudden shortages due to absenteeism.

Similarly, innovation is not formally measured by any of the organisations. There is arecognition of the need to continually innovate but the innovation process does not lend itselfto monthly reporting. Innovation, though, is an issue regularly debated at business planningmeetings.

Standards of PerformanceThere was a clear distinction between the levels of ownership of profit targets and servicequality targets (Table 3). Managers generally participated in setting the profit targets throughthe business planning process. In some cases there was clearly an over-riding view on whatlevel of business activity would be acceptable. In Peugeot the negotiation was around salestargets rather than profit targets, a reflection of the franchise relationship between Peugeotand the dealership with most of the dealerships being privately owned. Quality of servicetargets were almost invariably centrally driven, following the corporate viewpoint that aconsistent level of quality should be apparent in any outlet of that business anywhere in thecountry. For FR and Peugeot these measures were extensive and clearly defined. In ArthurAndersen the notion of service quality was more difficult to pinpoint. There was a clear view

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that a "happy client" is important but breaking that measure down further was both difficultand probably of limited use, because different clients would value different aspects of theservice process.

--- Table 3 ---

The profit and quality of service targets set were seen as being reasonably achievable. WithinAndersens, this partly reflects an acceptance of what is required of the job - “as fee earnerswe need to attain a certain level of chargeable hours for the business to maintain its marketposition” - thus, the “professionalism” of the fee earners leads to a positive attitude towardsthe targets. At the other two organisations, FR and Peugeot, the perceptions regardingachievability are driven by the extensive use of internal benchmarking. This creates“irrefutable” evidence (according to management) that the targets are realistic; if or store canachieve a certain level of performance in one area then there is no reason why other storeselsewhere in the country cannot do likewise. Thus, internal benchmarks are seen as importantin the quest for continuous improvement, and hence in sustaining competitive edge.Externally determined benchmarks, which in some ways might be considered preferable, arealso monitored where appropriate; for example, market share performance. However, at adetailed operations level, comparative information is generally not available, and so externalbenchmarking is rarely possible.

Internal benchmarking also has implications for the equity of the system. It creates absolute,though usually continually improving, standards for service quality, with the ultimate holygrail of perfect quality performance - 100% mystery shopper score. Formal allowance is notmade for any systematic differences between specific sub-units. Locational and other in-builtdifferences are generally allowed for in setting profit targets, however, so for example, theexpected volume of sales from an FR store will be varied in the event of significantcompetitor impacts such as the development and opening of a rival superstore within a shortdistance.

Reward Mechanisms for Achieving StandardsIn all companies employees interviewed exhibited a high awareness of the essentialingredients of their organisation’s corporate strategy, and its implications for what wasrequired of them regarding their own performance. Almost everybody interviewed at FRemphasised the need to “get the service level right”, while at Arthur Andersen employees areleft with little doubt as to the key characteristics necessary for a successful career path withinthe organisation given the comprehensive nature of the staff assessment procedures afterevery assignment they undertake.

--- Table 4 ---

In terms of motivation, it is perhaps not surprising that there was a noticeable pride in theworkplace as all are very successful organisations within their industrial segment. ArthurAndersen, for instance, are one of the top accounting and consultancy firms in the world, afact that somehow adds to employees' self esteem. Employees at FR seemed to gain asurprising amount of pride in being noticed by central management. At Peugeot, there wasalso an evident pride in the product being sold, employees openly demonstrating a real loveand enthusiasm for cars.

More concrete incentives are provided by monetary bonus schemes linked to performance.At Peugeot this is transparent with clear linkages between the performance level achieved and

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the amount of the bonus. The reward mechanism is similarly clear at FR for the GeneralStore Managers: here there is also the storewide monthly bonus scheme for being top of theCustomer Service League, thereby emphasising a teamwork ethic, though the magnitude ofthis bonus per employee is small. Of more tangible benefit are the discounts available onstore purchases, though this is an employee right and is not related to performance. AtArthur Andersen there is no bonus scheme, though it was acknowledged that a staffmember’s annual pay review would be based in part on an assessment of that person’s jobperformance. For such organisations the main incentive is undoubtedly the long termprospect of making it to partner. Partners themselves, of course, have a direct financial stakein the business; their income depends on the profitability of the firm.

4. CONCLUSIONSThe preceding analysis comparing the performance measurement systems of the three caseorganisations across the dimensions, standards, rewards framework offers a revealing insightinto what is actually done in three service organisations, each of which holds a strong marketposition in its own industrial segment. Clearly, the precise specification of the performancemeasurement system is heavily context dependent; what is appropriate in one sector may notbe appropriate in another. Nevertheless, these are all highly successful organisations; all havean explicit statement of strategy, which was well understood by all individuals interviewed,and performance measures had been set which were consistent with these strategies. Themeasures were regularly reported across a range of dimensions both financial and non-financial. The performance measurement systems were clearly defined and communicated toall levels of employees and reinforced with regular reporting on achievements. Thisemphasis on clear communication also extends outwards to the customer. Satisfyingcustomer needs was, unsurprisingly, the driving force for all the organisations. Theframework helped us to reveal three aspects of the performance measurement systems;centrally driven quality targets, the combination of financial and non-financial rewards andthe different measurement mechanisms used by the three organisations.

Centrally Driven Quality TargetsIn negotiating targets for business units or for individual managers, a clear distinction wasmade between targets relating to financial performance and targets relating to the quality ofservice delivered. Generally, managers participated in the setting of profit or sales targets andthose interviewed mostly viewed the eventually agreed plans as being reasonably achievable.They saw the process as reflecting a genuine attempt by central management to build a planthat people at the lowest level have bought into and feel they can achieve. A General StoreManager at FR confirmed this:

“you’ve got to be realistic. You want something achievable butchallenging, and the whole objective of that is to make your managers thinkabout what they are doing, to say how do we push the business forward?Because you’ve got to make it a challenge for them but you can’t pull it sofar out of their reach that they never try because you know it’s not going tobe achievable ... that’s ludicrous to go that way.”

In contrast, quality of service standards were almost invariably centrally driven and wererarely adjusted to make allowance for the special circumstances of some specific businessunit. Peugeot’s Lion Standards Programme includes some 71 separate factors for

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consideration within its operating standards assessment. For example, one factor within thesales department assessment considers whether ‘follow-up letters to customers and prospectsare dispatched at regular intervals, based upon the date of purchase or contact ... (andwhether) thank you letters to all customers are dispatched within 5 days of purchase andfollowed-up by direct (telephone or visit) sales staff contact’. The 71 factors are the same forall dealerships. And, at Arthur Andersen all offices and office staff are expected to conformwith the one-firm world-wide concept in terms of work procedures and documentation.

“This focus on absolute standards of quality means there is no market forexcuses.”

This central dictation of quality service standards aims to ensure a consistency of qualitywithin and between business units, and so enable a firm’s corporate strategy to be pusheddown through the organisational hierarchy; there is no compromise on quality.

Combination of Tangible (financial) and Intangible (non-financial) RewardsFor most services customers will draw a substantial proportion of their perceptions regardingthe quality of service, and so the organisation as a whole, from the manner of the contactexperienced with the person or persons delivering the service - the operator on the telephoneor the checkout, the team working at the client premises. As this paper has demonstrated,performance measurement systems can be complex mechanisms that offer rapid andtransparent ‘evidence’ of the results of an individual’s or a department’s efforts. So how isemployee co-operation harnessed?

An obvious aspect is money. FR and Peugeot all operate detailed bonus schemes that canbenefit many employees in their organisational structure. Although no such scheme isadopted at Arthur Andersens, financial rewards for working there are substantial. Generallythey pay above the going rate for new recruits; a generally expressed comment was “twice thepay for three times the work”. Here, though, the big financial carrot is the possibility ofpromotion to partner with its associated profit share.

However, motivation is not restricted to money. For instance, one store personnel manager atFR cited the work atmosphere as an attractive recruitment feature:

“One of the main motivations is the money, obviously, but a lot of peopleapply to work for us because they like the atmosphere in the store; they likeshopping here and they nearly always say when they come for interviewthat the people seem to enjoy working here.”

In other cases, there was a noticeable pride in the product - Peugeot Dealership managersinterviewed betrayed an open enthusiasm for the cars themselves - or simply in being part ofa large, successful, high quality organisation. For instance, comments made by employees atArthur Andersen included the conviction that “our audit practice is two to three years aheadof our competitors” ... “we give a superior tax service ... we are more imaginative, morecreative” ... and “we are seen to be at the cutting edge”

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Measurement mechanismsAll three companies devoted significant effort to measuring service quality, however, therewere clear differences between the measurement mechanisms used. Sampling, generallythrough mystery shopper schemes, was used at FR, in Arthur Andersen quality was reviewedwith (almost) every client and in the Peugeot Dealership the system included managementinspection, a mystery shopper scheme and customer assessment questionnaire for every newcar sale. This is entirely consistent with the findings of Fitzgerald et al (1991) and is linkedwith the service classification of professional service (Arthur Andersen), service shop(Peugeot Dealership) and mass service (FR) proposed by Silvestro et al (1992).

The organising framework provided a useful frame of reference for the analysis; there wereconsistent themes in all three organisations; clarity of communication, regular reporting offinancial and non-financial measures linked to corporate strategy, centrally driven qualitytargets, negotiation on profit targets and a mixture of financial and non-financial rewards.These findings relate to strategic business units reporting to a central headquarters. TheCoates et all (1992) study of performance measurement systems in multinationalorganisations revealed a focus on profitability and market share performance with verylimited reporting of quality and customer service type indicators. This may be explained bythe Coates study focusing on the performance measurement systems in subsidiary companieswhere, for example, quality comparisons may be of limited value. Our study in focusing onstrategic business units each delivering the same service revealed the use of the performancemeasurement system to monitor and control both the results of strategy, the profitability andmarket share measures and the drivers of those results through, for example, the quality andcustomer service measures.

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DIMENSIONS

Profit

Competitiveness

Quality

Resource Utilisation

Flexibility

Innovation

STANDARDS

Ownership

Achievability

Equity

REWARDS

Clarity

Motivation

Controllability

Figure 1: The Dimensions / Standards / Rewards Building Blocks

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TABLE 1: A SUMMARY OF INTERVIEWS

FRPeugeotDealerships

ArthurAndersen

n hrs n hrs n hrs

Top management andsenior partners 2 4 1 3 3 4

Other corporate personnel 4 6 2 6 2 6

Business unit managers 2 4 3 8 3 4

Other business unitpersonnel

3 5 - - 6 7

Totals 11 19 6 17 14 21

TABLE 2: Dimensions of Performance Measured

FRPeugeotDealershipNetwork

ArthurAndersen

Profit by store and region;publicised via theleague tables

by dealership by office

Competitiveness:market share atcompany level

published marketresearch data

published marketresearch data

published UK feeincome

Competitiveness:market share at thebusiness unit level

informal observation new car registrationsby post code

informally throughbusiness providers suchas banks

Quality of Service:on specific transactions

mystery shopper;compliments file

mystery customer;post-transactioncustomer assessment

client evaluationinterview

Quality of Service:overall

customer service leaguetables

managementinspection

not measured

Resource utilisation sales per square foot;wastage

sales per employee chargeable ratio;head count

1

TABLE 3: Setting Standards for Performance

FR

Peugeot

Dealership

Network

ArthurAndersen

ProfitStandardsOwnership iterative process iterative process set independently by

office

Achievability seen as achievable seen as achievable seen as achievable

Equity competitor impacts

allowance

territory allowance not applicable

QualityStandardsOwnership centrally

drivencentrallydriven

centrallydriven

Achievability` seen as achievable;internal benchmarking

seen as achievable;internal bench marking

formal measures not set

Equity no allowances no allowances formal measures not set

2

TABLE 4: Reward Mechanisms Adopted

FRPeugeotDealershipNetwork

ArthurAndersen

Clarity managers are very

aware of the company

strategy

high awareness of

Peugeot strategy at

dealer level

required standards of

professionalism well

understood

Motivation:

financial

(short term)

store manager bonus

plus 'team' bonus

significant bonus on

quality of the

dealership

partners' earnings

dependent on world-wide

profits

Motivation:

non-financial

pride in league table

performance

working in the

business "a love of

cars"

working for "no:1" world-

wide firm; high quality

training

Controllability no controllability issues

highlighted

no control over

product range

central costs allocated to

departments