Factors influencing[1]

download Factors influencing[1]

of 24

  • date post

    20-Jan-2015
  • Category

    Business

  • view

    505
  • download

    2

Embed Size (px)

description

 

Transcript of Factors influencing[1]

  • 1. The current issue and full text archive of this journal is available atwww.emeraldinsight.com/0144-3577.htmThe effectiveness Factors inuencing theof PMSseffectiveness of performancemeasurement systems1287 Amy Tung, Kevin Baird and Herbert P. Schoch Department of Accounting and Corporate Governance,Received June 2010 Macquarie University, Sydney, Australia Revised November 2010Accepted April 2011AbstractPurpose The purpose of this paper is to examine the association between the use ofmultidimensional performance measures and four organizational factors with the effectiveness ofperformance measurement systems (PMSs).Design/methodology/approach Data were collected by mail survey questionnaire from arandom sample of 455 senior nancial ofcers in Australian manufacturing organizations.Findings The results reveal that the use of multidimensional performance measures is associatedwith two dimensions of the effectiveness of PMSs (performance and staff related outcomes). Theresults also reveal that organizational factors were associated with the effectiveness of PMSs.Specically, top management support was found to be associated with the effectiveness of PMSs inrespect to the performance related outcomes, and training was associated with the staff relatedoutcomes.Practical implications The ndings provide managers with an insight into the desirable PMScharacteristics and the specic organizational factors that they can focus on in order to enhance theeffectiveness of their performance measurement system.Originality/value This study contributes to the limited empirical research examining theeffectiveness of PMSs regarding the extent to which organizational processes are achieved. In addition,the study provides an empirical analysis of the association between the ve perspective (nancial,customer, internal business process, learning and growth, and sustainability) BSC model and fourorganizational factors with the effectiveness of PMSs.Keywords Australia, Manufacturing industries, Performance measures,Performance measurement system, Multidimensional performance measures, Top management support,Training, Employee participation, Link of performance to rewardsPaper type Research paper1. IntroductionTo survive in todays rapidly changing environment, organizations must identify theirexisting positions, clarify their goals, and operate more effectively and efciently.Performance measurement systems (PMSs) assist organizations in achieving suchobjectives. Neely et al. (1995, p. 81) denes a PMS as a set of metrics used toquantify both the efciency and effectiveness of actions. An effective PMS enablesan organization to assess whether goals are being achieved, and facilitates theimprovement of the organization as a whole (Lebas, 1995) by identifying their position,clarifying goals, highlighting areas requiring improvement, and facilitating reliable International Journal of Operationsforecasts (Neely et al., 1996). Hence, an effective PMS enables an organization to& Production ManagementVol. 31 No. 12, 2011measure and control its performance in line with the dened strategy. pp. 1287-1310q Emerald Group Publishing Limited While the recent PMS literature has focused on the shift from traditional PMSs, which0144-3577focus on nancial measures, to multidimensional PMSs such as the performance DOI 10.1108/01443571111187457

2. IJOPM pyramid (Lynch and Cross, 1991), the balanced scorecard (BSC) (Kaplan and Norton,31,12 1992), and the performance prism system (Neely and Adams, 2000), there is limitedempirical evidence examining the effectiveness of such PMSs. Furthermore, the majorityof these studies assess PMS effectiveness in relation to overall organizationalperformance (Crabtree and DeBusk, 2008; Braam and Nijssen, 2004; Davis and Albright,2004; Ittner et al., 2003; Hoque and James, 2000), thereby assuming a direct association1288between the PMS and performance. This approach is inconsistent with Hamilton andChervanys (1981) claim that the impact of the PMS on performance is indirectlyinuenced by the effect on improvements in organizational processes. In other words,organizational objectives such as sales revenue, prot contribution and customersatisfaction will not be realized unless specic organizational objectives (e.g. motivatingperformance, developing individuals skills and knowledge, providing useful feedbackto employees, and providing an accurate assessment of business unit performance) areachieved. Accordingly, the rst objective of this study is to contribute to the limitedempirical research (Malina and Selto, 2001; Whorter, 2003) examining the effectivenessof PMSs based on the extent to which organizational processes are achieved.The measurement of performance is an on-going task, hence, in order to achievesystem effectiveness, organizations need to devote time and effort to managing thesystem (Neely et al., 2000). Hence, in an attempt to provide practitioners with an insightinto how to achieve and maintain effectiveness, the second objective of the study is tocontribute to the contingency literature by examining the factors associated withthe effectiveness of PMSs. The rst factor examined, the use of multidimensionalperformance measures, has been advocated by both academics and practitioners inorder to complement the limitations of traditional nancial PMSs and to increase theeffectiveness of PMSs (Van der Stede et al., 2006; Kaplan and Norton, 2001, 1996, 1992).While many multidimensional frameworks have been advocated, and the benets ofusing multidimensional performance measures have received wide publicity in theliterature (Van der Stede et al., 2006; Bryant et al., 2004), there is considerable variation inthe adoption rates reported for the most common multidimensional approach, the BSC(Rigby and Bilodeau, 2009 (53 percent); Chung et al., 2006 (31 percent); Ittner et al., 2003(20 percent); Speckbacher et al., 2003 (26 percent)). The variation in the adoption ofmultidimensional performance measures raises concerns regarding the contributionof such measures towards the effectiveness of PMSs. Accordingly, this study aimsto contribute to the literature by examining the association between the use ofmultidimensional performance measures and the effectiveness of PMSs.The study also aims to provide an empirical analysis of the association betweenspecic organizational factors (top management support, training, employeeparticipation and the link of performance to rewards) with the effectiveness of PMSs.While these organizational factors do not represent a comprehensive list of allrelevant factors, they were chosen for two reasons. First, they have been widely citedas factors contributing to the success of various management accounting practices suchas activity-based costing (ABC) (Baird et al., 2007; Shields, 1995), enterprise resourceplanning (Motwani et al., 2002; Rao, 2000), and management information system (MIS)(Raghunathan et al., 1999; Doll, 1985; Schultz and Ginzberg, 1984). Second, while theyhave been identied in previous studies as the main contingency factors associated withthe effectiveness of PMSs (Burney et al., 2009; Hoque and Adams, 2008; Cheng et al.,2007; Kleingeld et al., 2004; Chan, 2004), this was in isolation, and no study has analysed 3. all four factors together. Hence, this study is motivated to ll this gap in the literature by The effectivenessexamining the link between all four organizational factors and the effectiveness of PMSsof PMSswithin Australian manufacturing organizations.In addition, given the majority of previous studies examining the inuence oforganizational factors on PMS effectiveness have used the case study approach(Kleingeld et al., 2004; Bourne et al., 2002; Emerson, 2002; Kennerley and Neely, 2002;Kaplan, 2001), there is a gap in the literature empirically examining this association. 1289Hence, the current study is motivated to ll this gap by using the survey method in anattempt to enhance the generalizability of the ndings.The remainder of this paper is structured as follows. Section 2 provides the literaturereview and develops the relevant hypotheses. Sections 3 and 4 then discuss the methodand results. Finally, Section 5 provides the conclusion, limitations, and future directionsfor research.2. Literature review2.1 Performance measurement systemsPMSs have become a eld of interest over the last two decades with many studiesdiscussing various aspects of performance measurement such as: the purpose andusage (Marchand and Raymond, 2008; Horngren et al., 2005; Simons, 2000), design(Bhasin, 2008; Kennerley and Neely, 2002; Neely and Adams, 2000; Kaplan and Norton,1996, 1992; Lynch and Cross, 1991), and implementation (Ratnasingam, 2009; Othman,2008; Speckbacher et al., 2003; Kaplan, 2001).An effective PMS, which is dened as the achievement of the objectives set fora task (Clinquini and Mitchell, 2005), is important for a number of reasons. First,it can encourage goal congruence. For example, an appropriate PMS can be used tocommunicate the strategy and goals of an organization and align employees goals withorganizational goals. Second, an effective PMS can provide accurate information toenable managers to track their own performance and evaluate employees performancein an effective and efcient manner. Finally, an effective PMS can provide organizationswith an indication of their current market position and assist them in developing futurestrategies and operations (Langeld-Smith et al., 2009). This study operationalises aneffective PMS as the extent to which 16 desired PMS outcomes are achieved.Traditionally, PMSs have focused mainly on nancial measures such as prot, cashow and return on investment to evaluate the performance of employees (Chan, 2004).This focus has a number of shortcomings. First, these outcome-oriented measures donot allow managers to assess how well employees perform across the full range ofstrategically important areas, such as quality an