Analysing performance measurement systems

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

In the present world all the profit and non-profit making organisations (NPMO) are required to contest in globalized and agitated markets. Neely et al. (2002) favoured this notion and stated that for organisation's survival in present turbulent market; organisations not only need to suffice the stakeholders but also outshine in all performance ambits. While accepting the above argument Cocca et al., (2009) added that the vital tool to achieve and maintain acceptable performance standards of an organisation is to measure and monitor organisation's performance. Eccles (1991) and Kaplan and Norton (1992) mentioned in their research sayings like "What gets measure gets attention" or "What you measure is what you get" is widely recognized both among academics and practitioners. Therefore Cocca et al. (2009) recognised the performance measurement systems (PMS) as a tool to acquire competitive advantage and regularly revert and accustom to external modifications. The aim of this research is to analyse the PMS in NPMO and to establish whether the existing body of knowledge is associable to NPMO.

2. What are the characteristics of Performance Measurement System?

According to Neely et al. (2002),

"A Performance Measurement System is the set of metrics used to quantify the efficiency and effectiveness of past actions" and "it enables informed decisions to be made and actions to be taken because it quantifies the efficiency and effectiveness of past actions through the acquisition, collation, sorting, analysis and interpretation of appropriate data"

Nevertheless, Wettstein et al. (2002) argued that a PMS is not just an accumulation of measures, as it constitutes of five basic elements: people, procedures, data, software, and hardware. Furthermore, Bititci et al. (1997) and Cocca et al., (2009) enumerated following characteristics of a successful PMS:

Acknowledge all stakeholders.

Sustainable, flexible and frequently adjustable.

Balanced (internal/external, financial/non-financial).

Easy to implement, use and run.

Strategically aligned.

3. How is the performance of organisations evaluated?

One peculiar stream of writing that is very relevant to this research is concerned with performance measurement frameworks (PMF). This section focuses on the proposed frameworks like Balanced Scorecard and the Performance Prism which are used to measure performance.

Firstly, while accepting the argument made by Johnson (2007) that amongst the various PMF, Balanced Scorecard (BSC) is widely applied in organisation Kaplan et al., (2000) states that not only BSC accentuates unambiguous casual links via strategy maps and descended objectives but also enables the organisation to align all levels of employee around single strategy hence enabling successful execution. Johnson (2007) also argues that BSC integrates various perspectives hence abducts both leading and lagging performance measures and ultimately gives a balanced view of an organisation performance.

Secondly, Neely et al., (2002) introduced a framework called the Performance Prism (PP) which successfully establishes the relationship of diverse stakeholders with its organisation operating environment. It bestows a creative and balanced framework that pilot management attention to what is crucial for long term success and growth. Furthermore, Neely et al., (2002) argues that PP enables the organisation to model, frame, perform and revive their PMS in accordance to their operating environment.

4. How do NPMO differ from Commercial Enterprises?

Commercial enterprises (CE) are similar to non-profit making (NPM) organisations in many respects; however, there are some vital differences. Approving this statement Anthony et al., (1994) states that commercial enterprise focuses on profitability and maximising shareholder value; however, NPM organisation primitively aims to continuously furnish socially desirable needs. It is also argued that the primitive concern of a NPMO is not attaining financial success; however, this is the case for CE (Kaplan et al., 2001). CE has the financial flexibility however a NPMO lacks this, as dependent on resource providers and that NPMO has to make sure that the resource provided must be used for specific purpose (Anthony et al., 1994). Hence, Kaplan et al. (2001) stated that the customer perspective is on the top of NPMO balanced scorecard where as financial perspective is on top for CE. It is also argued that NPMO must be accountable for how successful are they in fulfilling social necessities rather than how well can they propagate capital and administer expenses (Kaplan et al., 2001).

In a nutshell, a NPMO aim is to represent the accountability between it and society which ultimately is the reason for its subsistence (Connolly et al., 2004).

5. PMS in Non-Profit Making Organisations:

Pressure to measure performance is being placed on nonprofits by a range of stakeholders, including government and non-government funders, donors, volunteers, employees, users and beneficiaries (Wainwright, 2003). Pressure from government is becoming more significant as nonprofits progressively engage in the provision of state funded services (Cairns et al., 2005; Speckbacher, 2003). Since government has an obligation to keep track of state funded services, nonprofits are under pressure to measure performance (Lipsky and Smith, 1989/1990; Morris, 2000; Osborne et al., 1995).

There have been calls for nonprofits to be "more business-like in their operation and attitude" (Dart, 2004) when demonstrating their performance, but there is no clear indication of what this means. A study by Yates (2004) found that nonprofits were often particularly keen to be able to demonstrate their performance because they recognised that it had an important role to play in sustaining public trust and confidence in their work. Research examining performance measurement in nonprofits is fragmented: nonetheless, financial accountability is collectively reported as the key driver for measuring performance (Dart, 2004; Speckbacher, 2003; Stone and Ostrower, 2007). In contrast to the private sector, the majority of public sector measurement practices

require inspection by an external body (Andrews et al., 2005; Rashman and Radnor, 2005;

Stephens and Green, 2002). The study shows that measuring the performance of nonprofit organisations is not

distinctly different from measuring the performance of private or public sector

organisations. Therefore, the literature from the private and public sectors can be used to

inform performance measurement system design in nonprofits.

The nonprofit sector has been described as unique, indicating that its practices differ

markedly fromits private and public sector counterparts (Allison, 1979;Nutt and Backoff,

1992). This paper challenges this viewin the context of performance measurement system

design. In designing performance measurement systems, private and public sector

literature advocates the consideration of relevance, integration, balance, strategy and

improvement (Bititci et al., 2005; de Bruijn and van Helden, 2006; Franco-Santos et al., 2007;

Johnsen, 2005; Radnor and McGuire, 2004). This study argues that this body of knowledge

is applicable to the nonprofit sector.

In the provision of state funded services force per unit area from authorities is becoming more significant as nonprofits progressively engage.

Nonprofits are under force per unit area to measure performance, since authorities has an obligation to keep track of state funded services.

A study by yates found that nonprofits were often particularly keen to be able to demo their performance because they recognised that it had an important role to play in sustaining public rely and a survey by yates found that nonprofits were often particularly keen to be able to present their performance because they recognised that it had an important role to play in sustaining public rely.

The nonprofit sector has been described as unique, bespeaking that its practices differ.