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What gets measured gets done : an exploration of the influence of performance measurement on organizational behavior

Wijsman, R.H.P. (2011) What gets measured gets done : an exploration of the influence of performance measurement on organizational behavior.

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Abstract:Early versions of performance measurement systems (PMS) were adopted from the accounting systems of organizations and contained predominantly financial performance measurements. Since the introduction of the Balanced Scorecard, there is a growing awareness in both science and practice of the importance of the use of nonfinancial measurements, like customer satisfaction. Also, there is an increasing awareness about the use of leading performance measurements in addition to lagging performance measurements. Leading performance measurements measure the drivers of value and performance of the organization, where lagging performance measurements are outcomes of the business process. In most cases, leading measurements are nonfinancial (but still quantitative) and lagging measurements are financial indicators. This study shows that academic studies support the view that leading nonfinancial performance measurements are able to steer organizational behavior better towards the execution of the organizational strategy than lagging financial performance measurements. These measurements provide more clear directions to employees since they are more comprehensive, they are communicated before or during the process (instead of afterwards) and are closer related to the strategy and value drivers of the organization. This study indicates factors that can play a role in the design of PMSs and the influence it has on the behavior that is exposed within the organization. First, the performance measurements need to measure performance on the terms that are stated in the strategy and strategic goals. Furthermore, factors are mentioned that are related to the behavior of the employees. These factors influence the effectiveness of the PMS on steering behavior. These factors involve goal clarity, role clarity, psychological empowerment, participation, commitment, motivation, self-efficacy, focus on improvement and perceived justice. The attention of literature on the importance of steering the organizational behavior by performance measurements based on the value drivers, creates a growing awareness in the business on this topic. However, most of the organizations are not as far on this topic as literature describes, since they encounter barriers and dilemmas for this implementation. To discover these barriers and dilemmas, this study contains interviews with CFOs of large organizations to identify the problems that are encountered. The CFOs confirm the importance and strategic relevance of the use of nonfinancial leading performance measurements to steer organizational behavior and the culture in the organization. This way, the CFOs can steer on the value drivers of the organization, which is assumed to lead to good output in terms of strategy execution and sustainable business performance. Although these indicators are in some cases measured and analyzed very accurate, the interviewed CFOs experience barriers to steer on these value driving indicators. The main problems that are identified in the interviews are: - Investors and analysts demand most often financial indicators, which places pressure on the CFO for healthy short-term financial statements, while it can be more profitable to invest and have less positive short-term results, but a stronger long-term position. - Difficulties of measurement of value drivers: the time, costs and effort needed, measurement interval or the need to measure derivate performance indicators, which reduces the reliability. - High competition on price and efficiency in the sector. - Vision and core values are not understood well enough by employees. - Lack of understanding about the relation between the value drivers and the actions that need to be taken to excel on the value drivers. Having identified these barriers, the CFOs were asked to indicate the possible improvements on this area. The most important steps were: - Articulating a strong vision and core values - Frequent visits to observe ‘hard to measure’ values like leadership or culture - Investments in nonfinancial drivers of performance, like managerial leadership (e.g. training, coaching) - Creating better understanding of value drivers at all organizational levels - Having good performance dialogues and top management initiative in new performance measurements In conclusion, the interviews with the CFOs support the view of academic literature that the use of nonfinancial leading performance measurement for steering the business and organizational behavior can lead to increased performance and successful strategy execution.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:http://purl.utwente.nl/essays/62604
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