Discuss about the Strategic Performance Measurement Systems.
The measurements of the performance and the management system are the two of the systems that are connected with each other. These systems help in motivating and rewarding the workforce. The increase in the competitive pressure due to the globalization of the markets and the operational activities are forcing the organizations to reformulate their operations systems, strategies, procedures and processes for the sustainability of the competitive position. Strategic performance measurement system is considered as a system which makes use of the information in order to bring the positive changes in the system, culture and the processes of the organization. The positive impact upon the organization can be attained through the agreement on the allocation, performance goals, resources priorities, informing the managers for the review and to maintain the plans and the current policies for meeting the goals as well as to share the results of the performance in attaining goals (Bisbe & Malagueño, 2012).The strategic performance measurements system has now become the need of the organization as it helps the organization to establish the competitive advantage in comparison to the other organizations of the market. This system helps the organization to bring the changes that helps in improving the performance of the various areas of the organization in an effective manner. The implementation of the SPMS in the organization creates some of the issues for the organization. It is important for the organization to develop the plan and strategy for the effective implementation of the SPMS. The effective implementation of the SPMS in the organization help the organization meets the goals and the objectives of the organization as well as maintaining the position of the organization in the market place.
SPMSs are used by the organization as it helps the managers in developing the competitive strategies. These systems are designed to present the managers with the non-financial measures and financial measures that include the various perspectives that provide a path to translate the strategy in performance measures. These systems assist in enhancing the organizations’ strategic competitiveness. SPMS helps in influencing the organizational performance as it enables the organization to make strategic decisions and provide shape to the strategic agendas of the organization by the formulation processes of the strategies (Bisbe & Malagueño, 2012). The balance scorecard is one of the strategic performance measurement systems that is used by organizations for communicating the goals to be achieved, aligning the daily work with the strategy, prioritizing the services, projects and products and also for monitoring and measuring the progress of the organization towards the strategic targets (Balanced Scorecard Institute, 2017).
There are many of the characteristics of the performance measurement systems that include: First: The measures should include the relevant non-financial information on the basis of the main success factors of the business. Second: the systems must be implemented for communicating the strategies and monitoring the results of the business. Third: It is important that the systems and the measures must be developed on the basis of the objectives of the organization, significant success factors and customer orientation. It is important to monitor the non-financial and financial aspects from the achieved results. Fourth: the performance system should follow the current strategies. Fifth: Performance system should fulfil all the requirements of the particular situation in the operations and it should be understandable and easy to implement. Sixth: the performance system must be connected with the reward system of the organization. Seventh: it is important that the non-financial and the financial measures must be consistent and coherent with strategic framework (Lima et al., 2008). The balance scorecard is helpful in measuring the actual performance in comparison to the planned performance. It is a strategic management tool that facilitates the translation of the strategic objectives and the mission of the organization into critical drivers and the operational measures. It also indicates lagging and leading indicators. It enables the top management to take a look upon the organization through integrating measures derived from strategy of the company (Yang & Wang., 2010).
Strategic performance measurement system produces the positive changes in the systems and the culture of the organization and also helps by contributing in strategic vision realization. It also helps in understanding about the needs of the customers in an effective and clearer manner. It helps in developing the capability of the organization related to the continuous improvement (Lima et al., 2008).
Performance management is considered as a process that helps in quantifying the effectiveness and the efficiency of the actions in the past by sorting, acquisition, interpretation, collation and the dissemination of the proper data. The organizations which make use of variety of the non-financial and financial measures have higher measurement system satisfaction as well as the returns in comparison to the organization which make use of the specific value drivers or the strategies. The greater measurement emphasis and diversity is linked with the higher satisfaction. The greater measurement diversity of the organizations with the same value drivers is related strongly with the stock market performance in comparison to greater measurement upon absolute scale. It is found through the literature that balance scorecard process, causal business modelling and the economic value measurements are mainly associated with the higher measurement system satisfaction. Apart from this, the casual business modelling, balanced scorecard process and the economic value measurements are not associated with the economic performance of the organization (Ittner et al., 2003). The balanced scorecard measures mainly four perspectives that are: financial, customer, internal process and learning and growth. Each of the perspectives should be associated with the strategy of a business (Simister, 2011). The balance score cared helps in providing with the information about the performance of an organization in context to the four perspectives. The main aim is to establish the objectives for all the teams and individuals so that the every person in the organization can act in alignment with the strategy of the business. BSC is helpful in attaining the desired transformation in the organization. The financial perspective contributes in defining the financial performance through execution and implementation of the strategic plans of the company and, assessing the profitability of the organization through making using of the tools like EVA and ROI. The customer’s perspective is considered as one of the leading indicator which assists in evaluating the level of satisfaction of the customers from the services or brand. It is important to make sure customer loyalty apart from attracting the new customers. The third perspective – internal process emphasizes upon the organization’s internal operations and allows the managers to assess the business. This makes balanced score card unique in comparison to the traditional performance measures. The fourth perspective – learning and growth demonstrates areas of competencies or excellence to be achieved for the value creation (Zin et al., 2013).
Various organizations are now adopting the strategic performance management system as it helps in providing the information and the organization is able to identify the strategies that are able to support the organization to achieve the objectives of the organization. It also help the organization to align the management process like decision making, performance evaluation and target setting and allows the organization to attain the strategic objectives (Ittner et al., 2003).
The communication of the goals of the organization among the managers of the organization and the subsidiary organizations is important in order enhance the effectiveness of the SPMS. It is also important for the organization to link the compensation system of the organization with the SPMS in order to reduce the complications in the measurement system.
There are number of issues in the implementation of the strategic performance measurement system that impacts the various dimensions of the effectiveness of the SPM system. The issues that are faced by the organization in the implementation of SPM system includes selection of the adequate and right performance measures, use of SPM by the top management, flow and the quality of the data, use of the SPM as a strategic tool, acceptance of SPM by the organization and aligning of the incentive system with the SPM. These are the issues that impact the various dimensions such as the strategic monitoring, internal process, financial, strategic alignment, customer and the learning objectives of organization (Akhtar & Mittal, 2015).
There are some other technical and organizational issues that are faced by the organization in the implementation of the performance measurement system such as overcoming the resistance by the people of the organization, overcoming the limitations of the information system, proper support by the top management of the organization, training to the people of the organization and the decision making authority. It is important for the organization to consider the mentioned organizational and technical issues in order to implement the performance management system in the organization successfully (Ittner, 2015).
SPM systems are considered as a means for establishing clear communication system between the various functions in the organization, subsidiaries and the headquarters of the organization. In the multinational organizations, the subsidiaries participate for designing the SPMS and this result in involvement of the non-financial indicators. There is a need of effective communication between the managers of the local organization and the headquarters for designing the measurement systems not only for the diagnostic purpose. It should also be included for interactive indicators in context to non-financial perspectives. On the other hand, the diagnostic use of the Strategic Performance management system could work in opposition to deploying the certain capabilities. But it is not necessary that it would impact the performance of the organization in a negative manner. The positive contribution can be result by the monitoring of the performance in contrast to the goals and through restricting the risk taking, establishing boundaries for the actions and evaluating the processes and the activities and their effectiveness. The lack of the clarity about the issues and the inconsistencies can result in problems for the organization and can also result in the failure of the SPM system in the organization (Nørreklit & Mitchell, 2014).
Different issues can be faced by the organizations in the implementation of the Balanced score card. The lack of commitment from the senior management, lack of involvement of the individuals and the introduction of the balanced scorecard intended only for the compensation are some of the issues (Wang, 2016). Along with this, the adoption of too many indicators, inability of the selected measures to reflect the strategy of and organization and establishing the quantitative link among the expected financial results and the non- financial leading indicators are some of the issues faced by the organizations (Molleman, 2018)
Conclusion
It can be concluded that the strategic performance measurement systems are becoming an important system for the organization as it helps in measuring the performance of the organization and the different functions of the organization in an effective manner. It is a means through which the managers of the subsidiaries and the headquarters of the organization can communicate and develop the strategies for the measurement of the performance. The implementation of SPM system helps in providing the support to the organization as it becomes easier for the organization to evaluate the performance and aligning the strategies. The issues that are faced by the organization in the implementation of SPM system includes the selection of the suitable measures, acceptance of SPM by the organization, training to the people of the organization, resistance by the people of the organization and aligning of the incentive system with the SPM. The increased competition is the reason due to which the organizations are adopting the SPM systems as this helps in establishing the competitive advantage. Hence, the organizations should focus on effective implementation through developing establishing coordination and communication so that performance can be measures using appropriate measures and can design appropriate SPMS
References
Akhtar, M. & Mittal, R.K. (2015) Implementation issues and their impact on strategic performance management system effectiveness – an empirical study of Indian oil industry. Measuring Business Excellence, 19(2), pp.71-82.
Balanced Scorecard Institute (2017) Balanced Scorecard Basics [online]. Available from: https://www.balancedscorecard.org/BSC-Basics/About-the-Balanced-Scorecard [Accessed 15 May 2018].
Bisbe, J. & Malagueño, R. (2012) Using strategic performance measurement systems for strategy formulation: Does it work in dynamic environments? Management Accounting Research, 23(4), pp.296-311.
Ittner, C.D. (2015) Performance Measurement, Implementation Issues [online]. Available from: https://onlinelibrary.wiley.com/doi/pdf/10)1002/9781118785317)weom010089 [Accessed 15 May 2018].
Ittner, C.D., Larcker, D.F. & Randall, T. (2003) Performance Implications of Strategic Performance Measurement in Financial Services Firms.. Accounting, Organizations and Society (28(7-8), pp.715-41.
Lima, E.P.d., Costa, S.E.G.d., Silva, M.F.d. & Angelis, J.J. (2008) Strategic Performance Measurement Systems Roles Revisited. Rio de Janeiro (2008) ICIEOM.
Molleman, B. (2018) The challenge of implementing the Balanced Scorecard [online]. Available from: https://referaat.cs.utwente.nl/conference/6/paper/6800/the-challenge-of-implementing-the-balanced-scorecard.pdf [Accessed 15 May 2018].
Nørreklit, H. & Mitchell, F. (2014) Contemporary issues on the balance scorecard. Journal of Accounting & Organizational Change, 10(4).
Simister, P. (2011) Balanced Scorecard As A Performance Measurement System [online]. Available from: https://www.differentiateyourbusiness.co.uk/balanced-scorecard-as-a-performance-measurement-system [Accessed 15 May 2018].
Wang, M. (2016) Issues of Balanced Scorecard and Its Implications for Chinese Companies [online]. Available from: https://aut.researchgateway.ac.nz/bitstream/handle/10292/10100/WangM.pdf?sequence=3&isAllowed=y.
Yang, L. & Wang., Y. (2010) An innovation in the Performance Measurement System: The reviews on studies of the Balanced Scorecard. IEEE International Conference 2010) In IEEE International Conference 2010. IEEE
Zin, N.M., Sulaiman, S., Ramli, A. & Nawawi, A. (2013) Performance Measurement and Balanced Scorecard Implementation: Case evidence of a Government-linked Company. Procedia Economics and Finance, 7(1), pp. 197 – 204
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