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Explaining the Effects of Peformance Measurement on Performance

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  International Journal of Operations & Production Management Explaining the effects of performance measurement on performance: An organizationalroutines perspective  Andrey Pavlov Mike Bourne  Article information: To cite this document: Andrey Pavlov Mike Bourne, (2011), Explaining the effects of performance measurement on performance ,International Journal of Operations & Production Management, Vol. 31 Iss 1 pp. 101 - 122 Permanent link to this document: http://dx.doi.org/10.1108/01443571111098762 Downloaded on: 18 October 2014, At: 07:58 (PT)References: this document contains references to 117 other documents.To copy this document: permissions@emeraldinsight.comThe fulltext of this document has been downloaded 5851 times since 2011* Users who downloaded this article also downloaded: Judy Bullock, (2010), Organizational Routines: Advancing Empirical Research20103Markus C. Becker,Nathalie Lazaric, . Organizational Routines: Advancing Empirical Research. Aldershot: Edward Elgar 2009. 291 pp., ISBN: 978#1847201942 £79.95 (hardback) , Leadership & Organization DevelopmentJournal, Vol. 31 Iss 6 pp. 568-569 Access to this document was granted through an Emerald subscription provided by 459863 [] For Authors If you would like to write for this, or any other Emerald publication, then please use our Emerald forAuthors service information about how to choose which publication to write for and submission guidelinesare available for all. Please visit www.emeraldinsight.com/authors for more information.  About Emerald www.emeraldinsight.com Emerald is a global publisher linking research and practice to the benefit of society. The companymanages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well asproviding an extensive range of online products and additional customer resources and services. Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committeeon Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archivepreservation. *Related content and download information correct at time of download.    D  o  w  n   l  o  a   d  e   d   b  y   N   A   R   O   D   N   A   B   I   B   L   I   O   T   E   K   A   S   R   B   I   J   E   A   t   0   7  :   5   8   1   8   O  c   t  o   b  e  r   2   0   1   4   (   P   T   )  Explaining the effectsof performance measurementon performance An organizational routines perspective Andrey Pavlov and Mike Bourne Cranfield School of Management, Centre for Business Performance,Cranfield, UK  Abstract Purpose  – Existing research evaluating theeffect of performance measurement (PM)on performanceproduces conflicting results,indicating thatthe effectispoorlyunderstood. This paperaims toaddressthis problem by proposing a theoretical model of the effects of PM on performance. Design/methodology/approach  – The paper reviews the PM and MCS literature, extracting thefactors thathelptoexplaintheeffectofPMonperformance. Thenitappliestheorganizational routinesperspective as an analytical lens to tie these factors into a coherent explanatory model. Findings  – A theoretical model shows that PM has three distinct effects on the organizationalprocesses that deliver performance – the trigger, guidance, and intensification effects. Originality/value  – The paper employs the organizational routines perspective, moving beyond thedescription of the effects of PM on performance to offer a theoretical model explaining these effects.As such, it responds to a number of contemporary challenges in the PM field – most importantly,the broad need for a solid organizational foundation for the studies of PM and the explanation of the mechanism through which PM affects organizational performance. Keywords  Performance measures, Performance management, Organizational structures Paper type  Conceptual paper Introduction Research in the field of performance measurement (PM) has drawn on a wide crosssection of disciplines, from operations and production management to accounting andmanagementcontrol(Neely etal. ,1995;Neely,2005).Overthelasttwodecades,thefocushas moved from PM system design (Neely  et al. , 1995) to the design and deployment of enterprise performance management systems (Neely, 2005). With academic andpractitioner interest in the balanced scorecard (BSC), there has spawned a literaturearound the design (Kaplan and Norton, 1992; Neely  et al. , 1996; Bititci  et al. , 1998),implementation (Bourne  et al. ,2003a, b, 2005; Bititci  et al. ,2006) and use of performancemeasures to manage performance (Bourne  et al. , 2005; Widener, 2007; Wouters andWilderom, 2008; Hall, 2008) together with a more critical interest in whether scorecardswork (Norreklit, 2000, 2003) and whether they have a positive impact on performance(Bourne  et al. , 2007; Griffith and Neely, 2009). However, there remains one fundamentalyet excruciatingly complex question – how is the performance of an organizationmanaged?Perhaps, none of the aspects of this research has received as much attention as thetask of measuring performance (Franco and Bourne, 2003; Neely, 2005). Numerousstudies, academic conferences and associations, and an emergence of a distinct PM The current issue and full text archive of this journal is available at www.emeraldinsight.com/0144-3577.htm The effects of performancemeasurement 101 Received May 2009Revised March 2010Accepted May 2010 International Journal of Operations &Production ManagementVol. 31 No. 1, 2011pp. 101-122 q Emerald Group Publishing Limited0144-3577DOI 10.1108/01443571111098762    D  o  w  n   l  o  a   d  e   d   b  y   N   A   R   O   D   N   A   B   I   B   L   I   O   T   E   K   A   S   R   B   I   J   E   A   t   0   7  :   5   8   1   8   O  c   t  o   b  e  r   2   0   1   4   (   P   T   )  theme in the literature reflect this interest. PM has been widely viewed as anindispensable pre-requisite for management – as an old adage often attributed to LordKelvinsays, “If you cannot measure it, you cannot improve it”.In this capacity,PMhasbecome a firmly established element of performance management.The link between measurement and management, however, has been notoriouslydifficult to explain, and today it remains one of the most pressing contemporarychallengesinthefield.Inthispaper,wetakeasteptowardsaddressingthischallengebyproposing a model that illuminates the mechanism of the major effects of PM onperformance.Theoretically,themodelisinformedbythreekeybodiesofliterature – PMand management, management accounting, and organizational routines. The paperfollows a simple structure, which is outlined below.First,wepresenttheproblemthatwillbethefocusofattentionofthispaper.Todoso,we offer an expanded discussion of the effects of PM on performance, noting thatexisting studies have produced contradictory evidence. On one hand, they have shownthat measurement is a powerful tool for affecting organizations and, ultimately, theirperformance. On the other hand, these studies have also demonstrated that the natureanddirectionofthiseffectarefarfrombeingpredictable.Itcouldbesaidthatwhattheyhave shown was that the power of PM, however significant, is often poorly understood.Second, we draw upon two domains of literature to review the insights into variousaspects of the effect of PM on performance where some understanding has beenachieved. We show that the management control systems (MCS)/managementaccounting literature has suggested several distinct roles of PM and shown that theroleofPMdependsonthewayitisused.However,ithasnotdemonstratedhowexactlyPM is linked to performance, thus leaving the gap between PM and performance stillunexplained.WesuggestthattheunderstandingoftheeffectsofPMcanbeachievedbyadoptinganorganizationalperspectivethatwouldhelptospelloutthemechanismoftheeffect of PM on organizations and organizational performance. We argue that such aperspectiveisprovidedbytheorganizationalroutinesliterature.Thisliteratureassumesthat organizational performance is delivered by a set of organizational processes – routines – which perform specific functions, respond to performance feedback (Nelsonand Winter, 1982) and carry out organizational change in a number of distinct ways(Feldman,2000;Becker etal. ,2005).Assuch,routinesprovideapowerfulanalyticallensfor studying organizations (Becker and Zirpoli, 2008) and present a clear link betweenPM and organizational performance.Finally,weusetheinsightsfromtheaforementionedliteraturedomainstoproposeatheoretical model of the effects of PM on performance. We then discuss the ways inwhich this model may be used to address current challenges in the PM field. Current challenge The modern literature on performance management (Flapper  et al. , 1996; Bititci  et al. ,2005; Neely, 2005) has progressed from providing general recommendations onimproving performance to formulating PM frameworks and systems (Folan andBrowne, 2005), and finally to the issues of implementing and using PM systems tomanage organizational performance. The discussion of measurement, however,continues to occupy a central place in this literature. PM has always been viewed as amajor instrument of performance management, as it provides and integrates allinformation relevant for making decisions related to the task of managing performance IJOPM31,1 102    D  o  w  n   l  o  a   d  e   d   b  y   N   A   R   O   D   N   A   B   I   B   L   I   O   T   E   K   A   S   R   B   I   J   E   A   t   0   7  :   5   8   1   8   O  c   t  o   b  e  r   2   0   1   4   (   P   T   )  (Bititci  et al. , 1997). The development of discussion of PM, however, was in many waysshaped by the progress in the fields of management accounting and MCS.Management accounting in a way has provided the operational power for PM as itdevelopedasetofmetricsthatcouldbeusedformeasuringorganizationalperformance.However, the prevailing paradigm of management accounting in the second half of thetwentieth century determined the lens through which performance and PM wereexamined.Inmanycasesorganizationalperformancewasequatedwithfinancialresultsand measured with corresponding financial indicators. Such indicators of performancewere emphasized in early performance management practices (Hopwood, 1972), whichin turn resulted in a narrowly defined view of performance even when it was managedwithin the overall organizational context. It was not until financial measures of performance were complemented by non-financial counterparts that performancemanagement evolved into a separate conversation in its own right.Responding to the critique of management accounting mentioned above, the earlyperformance management field generated a large number of comprehensive PMframeworks(Keegan et al. ,1989;LynchandCross,1991;KaplanandNorton, 1992,1996a, b; Neely, 1998) and examined various performance measures (Azzone  et al. , 1991;Misterek  et al. , 1992; Dumond, 1994). In most of these early studies, measurement wasoften assumedtobeperformingthefeedback function,providing managementwiththeinformation necessary to challenge the assumptions underlying the organization’sbusiness model. However, more recent contributions reflect the use of measurement inits feedforward role, where measures are used to prescribe learning domains andstimulate learning in strategically important areas and where processes are allowed toevolvewithoutbeingfullypredeterminedbymanagement(Kerssens-vanDrongelenandBilderbeek, 1999). Contemporary discussions of PM are thus encompassing allaccumulated knowledge of the effects of PM, returning to the srcinal purpose of measurement – thetaskofmanagingorganizationalperformance(Otley,1999).PMandperformance management are thus inextricably linked, and while PM is driven by theperformance management philosophy, its results can also influence the latter (Lebas,1997). Moreover, the link between the two is a strong and enduring one, althoughapplying PM in the service of performance management may be less predictable andstraightforward than it seems on initial examination (Otley, 2003).In terms of the focus of this paper, most notable in this discussion is the stream of contributions on “managing through measures”. The goal of this literature has been toexaminethewaysinwhichPMsystemswereusedasaninstrumentofmanagementandwhat influenced the success of such actions. Franco and Bourne (2003), for instance,noted that the effectiveness of the use of measurement depended on the extent to whichtheprocessof“managingthroughmeasures”wasembedded intheorganization – bothin terms of “hard” elements, such as compensation systems, and in terms of “softer”aspects – such as culture and managerial competence. Bourne  et al.  (2005), on the otherhand, observed the differences between high- and low-performing units in anorganization, noting that people in the higher-performing units tended to use PMinteractively, continuously moving between interrogating the performance data andtakingactiononitsbasis.ThisliteratureprovidedaglimpseofhowPMcouldbeusedtomanage organizational performance comprehensively.However, at the turn of the century, a number of studies attempted to evaluatethe impact of PM initiatives on the actual performance of organizations. The effects of performancemeasurement 103    D  o  w  n   l  o  a   d  e   d   b  y   N   A   R   O   D   N   A   B   I   B   L   I   O   T   E   K   A   S   R   B   I   J   E   A   t   0   7  :   5   8   1   8   O  c   t  o   b  e  r   2   0   1   4   (   P   T   )
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