This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.
The literature review in this dissertation observes the thematic approach where the reviews are organized around subjects regarding to performance measurement. In addition, performance measurement in foreign development and Malaysia are compared to investigate whether the country fall within the globalizing environment. Books, researches and journals written by world's leading experts in the field of performance measurement have been chosen to assist this dissertation such as Kaplan, Norton, Neeley and Eccles. According to Marr et al (2003), who investigated which scholars predominantly influence the field of business performance measurement, Kaplan and Norton were found to be the most dominating authors. As such, a significant amount of their work has been used in this literature review.
2.2 Balance Score Card
There are many models and tools developed by experts and all had one common goal in mind, which is to evaluate the current performance measurement and ultimately to ensure better achievement by management.
According to Dabhilkar et al (2004), the Balance Score Card (BSC) is a new approach for strategy development and deployment that has entered the management scene during the last decade. In short, BSC is a multidimensional approach to measure performance and control management that is linked specifically to organizational strategy (see Figure 2.1).
FINANCIAL PERSPECTIVE How do we look to our shareholders?
CUSTOMER PERSPECTIVE How do our customers see us?
THE BALANCE SCORE CARD
INTERNAL BUSINESS PROCESSES PERSPECTIVE At what must we excel?
LEARNING AND GROWTH PERSPECTIVE How do we look to our shareholders?
Figure 2.1: The Four Perspective of Balance Score Card
Source: Kaplan et al (1996)
Kaplan et al (2002) explained that the different types of performance indicators could be broken down into what BSC practitioners call "perspective". Perspective reflects the different views that can be taken of an organization and the four perspectives of BSC are illustrated above. Customer perspective captures the effectiveness of their delivery, the ability of the organization to provide quality goods and services, and overall customer service and satisfaction. So, many organizations today have a mission focused on the customer and measuring how an organization is performing from its customers' perspective has become a priority for top management. They indicate that the principal driver of performance in a public organization model is different from that in a strictly commercial environment; specifically customer and stakeholder interest take importance over financial results. Generally, public organizations have a different, perhaps greater fiduciary responsibilities and focus than private sector entities (Kaplan et al, 2002).
Kaplan et al (2002) further explained that the business processes perspective is primarily an analysis of the organization's internal processes. They highlighted that internal business processes are the mechanisms through which organizational performance expectations are achieved. Customer based measures are imperative, but they must be translated to meet its customer expectations. Hence, this focuses on the internal business results that lead to financial success and satisfied customers.
As for the innovation and learning perspective, Kaplan et al (2002) also iterated that customer and internal business process measures identify the parameters that the organization considers most vital for competitive success but the targets for success keep changing and intense competition requires organizations to make continual improvements to their existing products and processes. They stress that organizations must have the ability to introduce entirely new processes, which expand capabilities. In this context, innovation and learning perspective look at such issues, which include the quality of information systems, the ability of employees and the effects of organizational alignment in supporting accomplishments of organizational goals. Kaplan et al (2002) claim that learning and growth issues enable the organization to ensure its capacity for meeting customer needs, a pre-requisite for long-term survival.
As for the financial perspective, they highlight that financial performance measures indicate whether the organization's strategy, implementation and completing are contributing to bottom line improvements. They profess that it shows the results of the strategic choices made in the other perspectives and the financial numbers will take care of themselves by making fundamental improvements in their operations (Kaplan et al 2002). According to Dabhilkar et al (2004), one of the major strength is the emphasis it places on linking performance measures and action plans at all levels with the business unit strategy. However, Chang (2001) argued that the BSC is primarily designed for use in profit-motivated firms. Kaplan et al (1996) agree the BSC model was initially designed for companies and private sector where operation is profit-driven. This factor has a significant impact in selecting VFM as the choice model for this dissertation.
2.3 Total Quality Based Performance Measurement
While some organizations measure performance along the same dimensions, using some form of balanced scorecard approach, other organizations monitor performance across different dimensions according to the process. Sinclair et al (1995) in their research paper have introduced a model for total quality-based performance measurement systems. The model integrates measurement within the overall management process (see Figure 2.2). The model consists of five levels, which are strategy development and goal deployment, process management and measurement, performance appraisal and management, break-point performance assessment, and reward and recognition system. The break-point performance assessment, which can be defined as the measurement of any performance criteria is intended to identify significant gaps in current performance and thereby motivate activities to improve performance so as to reduce or eliminate the gap (Sinclair et al, 1995).
According to Sinclair et al (1995), the model allows for the introduction of an integrated performance measurement systems, whereby individuals at all levels of the organization and all measurements are focused on the continuous improvement of processes towards customer satisfaction. However, no attempt has been made to identify a prescriptive list of measures at each level of the model although the flexibility in the face of changing competition and customer requirements is vital if performance measurement is to remain supportive, and not become an inhibitor to organizational change.
Strategy Development and Goal Deployment
Develop a public mission statement.
Identify Critical Success Factors ("CSF").
Define Key Performance Indicators("KPI").
Set targets for each KPI.
Assign responsibilty at the organosational level.
Develop plans to achieve target performance.
Deploy mission, CSFs, KPIs, targets, responsibility and plans.
Process Management and Measurement
Identify and map processes.
Translate organizational goals, action plans and customer requirements into process performance measures.
Measure performance against process KPIs and compare with target performance.
Performance Appraisal and Management
Identify and document job decriptions based on process requirements and personal characteristics.
Formally appraise performance against range of measures developed and compare with target performance.
Break-point Performance Assessment
Identify the need for assessment.
Identify mode and technique of assessment.
Carry out assessment.
Feed results into the planning process.
Determine whether to repeat exercise.
Reward and Recognition Systems
Rewards are the financial consequences given as a result of measurably superior performance.
Recognition includes all non-financial consequences given as a result of measurably of superior performance.
Figure 2.2: Total Quality Based Performance Measurement
Source: Sinclair et al (1995)*
Best practice benchmarking, or benchmarking in short, is one of an ever-growing number of management practices aimed at improving organizational performance particularly in terms of strategic and competitive advantage. They claim that organizations that really succeed in using benchmarking to improve difficult areas of activity could be expected to gain wider benefits in terms of change management and organizational learning (Holloway et al, 1999).
According to Holloway et al (1999), their working definition of benchmarking is consistent with the definitions used by writers such as Camp (1995) which is the pursuit by organizations of enhanced performance by learning from the successful practices of others. The internal processes are adjusted and performance is monitored because benchmarking is a continuous activity. Following by that, new comparisons are made with the current best performers and further changes are explored.
In theory, best practice benchmarking helps organization to improve strategically important processes (Cox et al, 1998). In practice, the efforts are frequently directed towards operational or easy to change processes. Particularly in the public sector "benchmarking" is often simply equated with locating one's organization in a league table of some prescribed performance indicators to focus on results rather than processes that drive them. Thus, this reflects the constraints imposed by working in traditional contexts where the financial "bottom line" is all that really seems to matter or accountability and choice is supposed to be enhanced in the regulated sector by the publication of league tables and the development of quasi-markets (Holloway et al, 1999).
2.5 Value for Money Audit (VFM)
With many models and concepts in the field of performance measurement, Kandasamy (2003), Deputy Auditor General of Malaysia, iterated that VFM auditing is a recent expansion in the scope of auditing. However, based on many written materials, the VFM auditing model has been around since the past two decades but only recently it has been given much notice in this region. This was further strengthened Parker (1986) who stated two decades ago that VFM audit is generally accepted as an assessment on function, management and organization performances with regards to economy, efficiency and effectiveness factor.
Economy is defined as minimizing the cost of resources used for an activity having regard to the appropriate quality that relates to all types of resources such as human, financial, physical and information. The question of economy is important to the acquisition of resources because to decide whether the resources have been acquired in the right amount, at the right place and the right time, of the right kind and at the right cost (Glynn, 1993). For example, over-staffed departments, over-qualified personnel for specific job and usage of over-prices facilities are indicative of departments, which are operating uneconomically.
The second element is efficiency where it shows the relationship of inputs and outputs. It is also refers to the productive usage of resources. Efficiency occurs when maximum output is obtained from the resources in the department or alternatively, ensuring minimum level of resources used for a given level of output (Kandasamy, 2003). Examples of inefficiency are over storage or accumulation of stocks, absence of quality and service control, and wrong usage of appropriate performance information for planning, budgeting and controlling (Glynn, 1993). Jones et al (2000) included that efficiency covers the application of good operational procedures, compliance to rules and regulatory requirements, avoidance of time wastage and right maintenance of sources. Economy and efficiency is inter-related with one another and is hard to be disassociated.
Finally, effectiveness is defined as an end oriented concept that measures the degree between predetermined goals and objectives for a particular activity or program are achieved. In addition, it translates into the achievement of the right results from the usage of resources and organizational operations. Goal accomplishment or performance in meeting objectives is the main aim for all the authors although different authors, with different value systems have their own conceptions of effectiveness (Kandasamy, 2003).
2.5.1 Application of Model - Value for Money Audit
What is achieved by producing
Figure 2.3: Input, Output and Impact Relationship
Source: Ghobadian et al (1994)
Economy, efficiency and effectiveness factor in the VFM audit is based upon a simple input, output and impact model of organization (Flynn, 2007). Input resources are generally thought of as physical, human and financial. Financial inputs are perhaps the most important acquisition of other resource and usually depend upon the funds available. Many measures commonly used in public sector organizations are based on derivatives of this 'economy' or input oriented perspective, usually expressed in terms of cost, budget and staffing totals. Comparisons can then be made across similar types of organizations. Example of generic measures used includes cost per case, cost per service type, numbers and categories of staff involved.
Any change in these performance measures basically reflects the 'economy' with which the organizations are using its resources and provides little information about the operational processes within the organization, apart from some basic benchmarking.
Whereas output can be easily measured in quantifiable terms, unfortunately, these tell us little about the real success or failure of the organization. It is mainly used to calculate ration of input to output, which is a measure of organizational efficiency. An increase in the number of outputs, for a given input, simply demonstrates how efficiently an organization is converting its inputs to outputs but provides little information about the effectiveness or value of the outputs (Boland et all, 2000). Lastly effectiveness is concerned with the extent to which outputs meet organizational needs and requirements and is therefore much more difficult to assess.