The Routledge Companion to Performance Management and Control

Elaine Harris, Elaine Harris

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781317429920
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

Performance management is key to the ongoing success of any organisation, allowing it to meet its strategic objectives by designing and implementing management control systems.

This book goes beyond the usual discussion of performance management in accounting and finance, to consider strategic management, human behaviour and performance management in different countries and contexts. With a global mix of world-renowned researchers, this book systematically covers the what, the who, the where and the why of performance management and control (PMC) systems.

A comprehensive, state-of-the-art collection edited by a leading expert in the field, this book is a vital resource for all scholars, students and researchers with an interest in business, management and accounting.

1
Introduction to performance management and control

Elaine Harris

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The objective of this book is to provide a reference work that offers students and researchers an insight into the current scholarship in organisational performance management and control (PMC). As a companion volume, the book offers a collection of work from more than 50 authors in the field and includes a variety of different perspectives on this key area of management. The aim of this chapter is to introduce the content of the book in terms of its subject matter, to explain the rationale for the book and how it is structured, and to give a brief taste of what each chapter contributes.

Defining performance management and control

In introducing the subject matter of the book’s content, the title and key terms will first be defined in order to position the work in its academic domain. There are many possible definitions of both performance management and management control as they relate to organisations. One might start with an organisation in mind, whether it is a business enterprise with a profit motive or some other kind of organisation that perhaps has a social or educational motive, to define performance management as a practice that seeks to identify what the organisation exists to do and to measure and control how effectively it does it. For the purpose of this book, performance management is defined as the design and implementation of management control systems in organisations to ensure that the strategic objectives are met.

Performance management therefore relates to a critical management practice that usually involves measurement of the key indicators of the organisational goals and achievements. Management control may be more broadly defined to include all the systems and procedures established and action taken by managers to ensure that the organisational goals are met. This implies more than the measurement of target and actual performance, and extends to the allocation of resources and the efficiency with which those resources are deployed in pursuance of organisational goals. Where the prime motive of an organisation is concerned with value creation defined in financial terms, it is clear that performance measurement is likely to be seen as the responsibility of the accounting and finance function. However, in other organisations, it may be that human resources are seen as being equally or more important to effective performance management, so management control may be focussed on managing people and their behaviour. Thus, performance management can be focussed at an individual level, where organisational members have their own specific objectives to achieve. This perspective is examined in Chapter 15 on leadership and control.

The key to PMC therefore starts with understanding what the organisation seeks to do (its strategic goals) and how it aims to deliver those goals (strategic plans) by utilising the resources available to it (effective management). Management control is concerned with the ways in which organisational managers encourage and motivate people in the organisation to work towards common goals. It also deals with how the organisation is seen to perform by a range of outside stakeholders such as providers of its finance, market regulators, consumers of its goods and services, and suppliers of its bought in goods and services. Thus, enterprise risk management and supply chain management (SCM) may be seen as part of management control (see Chapters 11 and 17).

As can be seen in the final chapter, a body of literature on PMC has developed considerably over the last 50 or so years, that seeks to explain and possibly to enhance management practice. Much of the research and scholarship in this period has been conducted in Business Schools, but there are overlaps with the social sciences, technology and engineering; thus, the authors who have contributed to this book are not all from a single discipline or background. Equally, they are not all academics. The authors include many academics who gained practical experience in accounting and business before entering academia and some non-academics who are and remain practitioners in organisations. This gives the book a richer context and a more practical feel than either standard textbooks or academic journals may have, with the aim of making it more accessible to a wider audience.

Structure of the book

The book is divided into four sections that take the reader through a logical set of questions about the theory and practice of PMC and how the relevant body of literature has been researched. The first section on the design of PMC systems deals with what gets measured and how PMC systems are designed. The second section on people and management control explores the human dimension of who gets involved in PMC and how they behave. The third section on PMC in different contexts examines where PMC takes place in a variety of countries, sectors and organisational settings and how these contexts shape PMC. The last section aimed at researchers in PMC (especially those new to the subject matter or to academia) is devoted to the matter of how research in PMC may be conducted, why it is important and what challenges the researcher may face along the way.

Figure 1.1 PMC conceptual model

Figure 1.1 depicts the conceptual model underlying the book, which the structure follows. Some of the chapters could have been placed in more than one section as they shed light on more than one question or dimension of PMC. However, they have been organised into sections according to their focus. The first section focusses on performance management systems (PMS) design, the metrics, data and technologies that organisations need to effectively measure and monitor performance. The second section illuminates the role of people, the organisational actors and their formal and informal uses of PMS in management control. The third section explores a variety of alternative contexts for PMC through case- and sector-based studies. The last section has an entirely different focus, and it aims to help researchers entering or re-entering this academic field by examining some alternative approaches to conducting PMC research, the lens through which the researcher may view themselves and their evidence and what impact their research might have on PMC practice.

The remainder of this chapter introduces the content and highlights of each contribution.

Introduction to the chapters

Part I: Design of performance management and control systems

Dugdale (Chapter 2) introduces us to management control theory before comparing PMC in action in three case organisations in manufacturing, insurance and banking. He illustrates organisational objectives, strategies and key success factors, targets and key performance indicators (KPIs), cost control and the role of company culture and structure (decentralisation), incentives and motivation. This chapter could have been positioned in Section 3, but the focus here is on PMC design, and he provides a gentle introduction to both the theory and lessons for practice, ideal for the non-expert reader to get a feel for the subject of PMC. He “suggests that there is scope for integration of contemporary performance management insights with established organisation theory” (page 36).

The focus of enquiry for Adler (Chapter 3) is on the fourth of eight functional questions posed by Ferreira and Otley (2009) in PMS design introduced by Dugdale (“What is the organisation structure and how does it affect the strategy and control?”). Adler presents an interesting case study of a Japanese manufacturing company using what is termed “amoeba” management, which is based on breaking the organisation down into very small operational units for management control purposes. He shows how this “radically decentralised organisation structure” has been operationalised to address the challenges in the competitive environment. Adler used Simons’ three levers of beliefs, diagnostic and interactive controls (Simons, 1995) to analyse the case evidence and found that the belief systems were the key to Kyocera’s success in making amoeba management work.

Wouters and Stadherr (Chapter 4), by contrast, take us on a detailed journey through the design of a cost management system in the motor vehicle industry, where a product modularity strategy is adopted to improve financial performance. Their case study demonstrates that a modular design strategy goes beyond target costing and is more far-reaching than simply having a product portfolio that shares common components, having implications for all aspects and functions of the business. They position their case in relation to the literature on new product development and demonstrate how both innovation and accountability can improve when modularity is fully embraced.

Rouse and Harrison (Chapter 5) explain the issues that need to be addressed when composite measures are used to combine multiple measures of performance into indices for internal or external benchmarking purposes. They explain how reflective or formative metrics may be collected from a number of decision-making units and how fixed or free weights may be applied to incorporate them into a single measure. They illustrate the construction of composite measures with reference to their research in the healthcare sector. They acknowledge the mistrust of some league tables such as those used to publish university rankings and recommend “that any such measure is accompanied by a careful explanation of how it is compiled and the rationale for the weighting systems employed” (page 104).

Warren and Brickman (Chapter 6) continue on a theme of industry benchmarks by considering the external influences on metrics used in PMC systems in regulated industries. They analyse five case studies drawn from the financial services and utilities sectors, both heavily regulated in the UK. They consider the design of PMS in each case and show the benefits (for example the learning value) and issues (such as stifling innovation) involved in external benchmarking. They conclude that when using external data sources in designing internal PMS, it is important “to ensure that a system is flexible enough to withstand change” (page 121).

Quinn and Strauss (Chapter 7) consider the (largely enabling) role information technology has played in the development of PMS and the actual and potential impact it has had on PMC with the growing use of cloud technologies in organisations and society. They explore the advantages and challenges for managers and accountants working with cloud technologies and identify risks (not least issues of data security) that arise from using cloud technologies in the design and operation of PMS.

Leading on from the issues identified by Quinn and Strauss, Alahakoon and Wijenayake (Chapter 8) pick up on the management challenges of working with so much data availability in the design of PMS and consider how organisations can make the best use of ‘big data’. An extension to maturity models in PMS is presented. They also give a flavour of the current research going on in the data analytics field and the development of a dynamic form of Self-Organising Map (SOM) to help organisations harness data analytics technologies to gain competitive advantage.

Part II: People and management control

Nevries and Payne (Chapter 9) explore the changing role of the financial professional in PMC. First, they use the Ferreira and Otley (2009) framework (see Figure 9.1, page 160) to analyse the role of finance professionals (those working in the finance function of organisations). Then, they consider the factors that drive successful finance departments, from both a personnel profile perspective (knowledge, skills and behaviours) and a relational perspective (trust and collaboration). A typical career path is presented, and country-specific differences are considered. They conclude that more research is needed on the changing role of finance professionals (especially in light of the challenges of managing ‘big data’) and that the future success of those embarking on careers in finance in organisations depends on effective collaboration and co-creation across domains.

Harris and Ellul (Chapter 10) use a case study in higher education to illustrate how another kind of (non-financially qualified) professional, the strategic planner, might take up the challenges of managing ‘big data’ (see Chapter 8) in contributing to the organisation’s PMC. This study also used the Ferreira and Otley (2009) framework (see Figure 9.1, page 160) to analyse professional practice, but from the shared experience of two organisational members, one professionally qualified in accounting (though working as an academic manager, not in the finance function) and the other not. Whilst they found that the role of the Director of Planning was expanding and becoming more strategic in a highly competitive environment, it was not taking over the work previously undertaken in the finance function. Rather, the two departments (finance and planning) were seen as operating side by side in a complementary way.

Mikes and Zhivitskaya (Chapter 11) respond to Berry et al.’s (2009) call for more research on risk management as an essential part of management control with their focus on enterprise risk management and the management of ambiguity as part of PMC. They explore the developing role of the chief risk officer (CRO) in the UK financial services industry. They make a case for how the development of CROs may contribute (given the financial crisis and the damage to the reputation of banks and other providers of financial services in society) to a greater sense of control being exercised more professionally in this sector.

Mai and Hoque (Chapter 12) provide a useful analysis of performance management research that has focussed on the behavioural aspects in their literature review. The review covers the period from 1992 to 2015, contributing to the literature on PMS by assessing the behavioural causes and consequences of PMS. They examine the link between the theories underlying such research, especially those drawn from psychology, and methodological issues in the literature surveyed. There are useful indications of gaps in our knowledge and potential for future research in this field. They also provide some salient warnings about the potential pitfalls of qualitative studies in behavioural PMS research.

Carter (Chapter 13) identifies the key challenges t...