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IJOPM
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Theory and practice in SME

performance measurement
systems
Mel Hudson
Department for Business Development, University of Plymouth, UK

Andi Smart
School of Business and Economics, University of Exeter, UK, and

Mike Bourne
Manufacturing Engineering Group, University of Cambridge, UK
Keywords Strategy, Performance, Small- to medium-sized enterprises
Abstract Describes research undertaken to evaluate the appropriateness of strategic
performance measurement (PM) system development processes for small- and medium-sized
enterprises (SMEs). An evaluation is undertaken of ten PM approaches found in the literature.
To facilitate this evaluation a typology is presented which synthesises current theory. This
evaluation resulted in the identification of a process, based on its congruency to the theoretical
model, which is used for an empirical investigation. Empirical data from SMEs is collected and
analysed using the typology. This indicates a discontinuity between current theory and the
requirements of practitioners in small companies. The paper concludes with a number of
recommendations to facilitate the development of appropriate PM processes for SMEs.

International Journal of Operations &

Production Management,
Vol. 21 No. 8, 2001, pp. 1096-1115.
# MCB University Press, 0144-3577

Introduction
The need for companies to align their performance measurement (PM) systems
with their strategic goals is well documented in the literature (Kaplan, 1983;
Eccles, 1991; Gregory, 1993). To address this need a number of frameworks and
processes (approaches) for the development of PM systems have emerged. The
most popular of these is the balanced scorecard (Kaplan and Norton, 1992),
which emphasises a balance between the use of financial and non-financial
measures to achieve strategic alignment. The popularity of the balanced
scorecard has acted as a catalyst for further research into the characteristics of,
and approaches for developing, strategic PM systems (Neely et al. 1996a; 1996b;
Bititci et al., 1997; Oliver and Palmer, 1998). These approaches have been
designed primarily for use in a medium to large company context. Small- and
medium-sized enterprises (SMEs) exhibit distinct characteristics that
differentiate them from the majority of their larger counterparts (Storey, 1994).
Therefore, there is a need to establish the relevance of existing PM approaches
for SMEs and to identify an appropriate process for the design and
implementation of strategic PM systems in this context.
This paper describes the research that has been undertaken to specify a set
of requirements for a SME focused, strategic PM development process. A
typology is presented that synthesises the characteristics of PM development

processes, for this purpose. There is also a need to ensure that the outputs of the SME performance
process are appropriate. Therefore, the typology also identifies the
measurement
characteristics of well designed performance measures and appropriate
systems
dimensions of performance. This framework is used to evaluate current
strategic PM development approaches found in the literature. A survey is used
to establish current PM practice in SMEs and a case study is undertaken to
1097
assess the relevance of an existing PM development process in a SME context.
Ten existing approaches are evaluated using the typology. This evaluation
highlights an appropriate PM development process, with respect to current
theory, for empirical analysis. The empirical data is analysed using coding
techniques. The codes, which are pre-selected from the typology, are used in an
attempt to identify any discrepancies between the empirical and theoretical
data. The results obtained are used to characterise SME PM systems, and to
inform the development of a practical development process within a SME
context.
Research methodology
The research presented in this paper is specifically concerned with the
investigation of the following question: Are current approaches for the design
and implementation of strategic PM systems appropriate for SMEs? An initial
literature survey was undertaken to establish the status of current knowledge
in the area of strategic PM for SMEs. This survey revealed that while there has
been increased attention on PM per se, current literature is inadequate in
respect of the specific SME context.
The research falls into two phases: theoretical and empirical. The theoretical
phase of the research approach may be conceptualised in more detail as two
stages:
(1) the formulation of a typology; and
(2) the analysis of current PM approaches.
Stage one focused on the deduction of a typology that embodied the findings of
previous research on process methodologies, the characteristics of well
designed strategic performance measures and appropriate dimensions of
performance. The typology resulting from the synthesis of these areas was
used to evaluate ten PM development approaches found in the literature (stage
two). This evaluation, although constrained by existing theoretical
frameworks, resulted in the selection of a process based on its coverage
(completeness) of the criteria within the typology, and indicated the need for an
empirical study.
The second phase of the research approach focused on the collection,
verification and analysis of empirical data, and was divided into two stages:
(1) semi-structured interviews with managers of SMEs;
(2) participant observation of strategic PM system development, in a SME,
using the selected process.

IJOPM
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The semi-structured interviews were conducted with managers from eight

SMEs, drawn from a sample of companies who had recently undertaken
programmes focusing on strategic improvement. This is consistent with
``judgement sampling (Sekaran, 1992), which was used because there is a
distinct scarcity of strategic planning in the majority of SMEs (Mintzberg et al.,
1998; Cagliano et al., 1998; Barnes et al., 1999). The rationale for the selection of
this sample was that companies actively seeking strategic improvements
would be most likely to view PM as a strategic improvement tool. Company
size ranged from 12-240 employees, which is consistent with current SME
definitions (European Commission, 1996). The interviews were taped and
transcribed. Summaries of the transcripts were produced and were verified by
both the original interviewees and an additional manager. This enabled
multiple source triangulation (Denzin, 1978). The interviews were then
analysed using thematic coding (Flick, 1998) and were compared against the
formulated typology. The rationale for this approach was to highlight any
discrepancies between theory and practice.
The second stage of phase two was based on the observation of the PM
development process identified in phase one. The process was facilitated by a
member of the original development team and focused specifically on the
development of a set of top-level strategic measures. This was planned as a
series of five workshops. The study utilised a case study approach that focused
on the accumulation and interpretation of qualitative data. As Gummesson
(1991) states:
The general reason for doing case study research is to better understand complex phenomena
such as change processes. Innumerable factors, and entangled interconnections between
them, do not allow simple unambiguous research designs and quantifications.

Data collection was based on both participant observation and on face-to-face

interviewing methods. An observational method was identified as appropriate
for the collection of both processual and behavioural data that would emerge
from the application of the process. In an attempt to overcome any observer
bias, face-to-face interviews were also undertaken. This included structured
interviews with each of the SME participants at the beginning of the
intervention and a set of semi-structured interviews at the end of the
intervention. As Sekaran (1992) states:
Because almost all data-collection methods have some biases associated with them, collecting
data through multimethods and from multisources lends rigor to research.

Data analysis of the observational data was undertaken using thematic coding
(Flick, 1998). This facilitated the identification of a set of issues that were
verified and validated with workshop participants and with the process
facilitator. Using the classification of Denzin (1978), the data triangulation
undertaken was multiple data source, multiple method, and multiple researcher
involvement.
The interview data relating to the SME PM systems, together with the issues
identified from the observational data, were compared against the typology.

This facilitated the identification of discrepancies between the empirical and SME performance
theoretical data. This approach has the advantage of informing theory, through
measurement
the enhancement of theoretical frameworks, and improving practice, through
systems
the identification of the key constraining issues.
A typology of strategic PM system development process
characteristics
The concept of strategic PM was developed in response to the criticisms that
traditional PM systems are financially driven and historically focused (Kaplan
and Norton, 1993). According to Neely (1999), this change in emphasis
represents a revolution in the field of PM, evidenced by the increasing body of
research that has been developed over the last decade. This plethora of
information included many different proposals and guidelines that attempt to
explain the characteristics of strategic PM. These may be divided into two
broad categories: appropriate dimensions of performance for which measures
might be developed and the characteristics that these measures should display.
These categories, however, focus only on the content of strategic PM systems,
rather than identifying the requirements of effective processes for developing
them.
Previous research has failed to address explicitly the features of PM
development processes that enhance the likelihood of successful
implementation. This makes the evaluation of existing approaches
problematic. This problem has been addressed by the identification of features
of typical process methodologies, which can be applied to the PM development
process. The three resulting categories are described in the following sections
and are synthesised to form a typology for evaluating the PM approaches that
have emerged in the literature.
Development process requirements
In order to develop a strategic PM system, it is critically important to identify
the properties of an effective development process. Without this, there can be
no practical value for business from the concept of strategic PM. As the PM
literature is deficient in addressing this issue a wider review was undertaken
looking at process methodologies. The objective of this review was to identify
general principles of effective development and implementation, which could
be applied to strategic PM system development processes.
Mills et al. (1995) suggest that:
To be useful, a process should specify how an organisation might be attracted to implement
the process; who should participate in the process and how the project of implementing the
process should be managed.

Their subsequent examination of the manufacturing strategy development

process used the generic process framework identified by Platts (1990, 1994):
.
point of entry;
.
participation;

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.
.

procedure;
project management.

Applying this framework to PM development processes, an effective point of

entry would necessarily involve an evaluation or audit of the existing PM
system, to highlight areas of deficiency and indicate a need for improvement.
Furthermore, participation in the process, according to the PM literature,
should include the staff who will be the key users of the performance measures
developed (Globerson, 1985; Lynch and Cross, 1991; Neely et al., 1996a).
Identifying the procedures for developing strategic PM systems is rather more
problematic, as these will vary between processes. However, to ensure strategic
alignment, a procedure for identifying strategic objectives should be included.
In addition, a method for developing the measures is necessary, along with a
procedure for maintaining the new PM system. Slack et al. (1998) identify nine
rules for the effective project management of strategy implementation. In
addition, Smith and Tranfield (1989) present a similar set of guidelines for the
effective implementation of advanced manufacturing technology (AMT). From
these, the key principles for effective management of the PM development
process have been identified as:
.
.
.
.

top management support;

everybody on board;
clear explicit objectives;
time framed project management.

In addition to identifying the features of an effective PM development process,

it is also vital to conceptualise the content of such a process in terms of
performance measure characteristics and appropriate dimensions of
performance. This is important because a development process needs both
structure and relevant content to deliver value effectively to businesses.
Characteristics of performance measures
Globerson (1985) and Maskell (1989) present sets of guidelines detailing the
characteristics of performance measures, which have often been reiterated in
more recent literature (Dixon et al., 1990; Lynch and Cross, 1991; Neely et al.,
1996a). A comprehensive review of this literature was undertaken by Neely et
al. (1997), and a set of 22 characteristics was identified. However, a review of
these sets revealed that many of the characteristics are duplicated or are
deemed to be desirable. The removal of duplication and a focus on critical
characteristics resulted in the following set (Table I).
Dimensions of performance
The dimensions of performance for which measures, within a strategically
aligned PM system, should be developed have been defined using a variety of
terms in the literature. This has caused a degree of replication. Time, quality

Characteristics

Reference

Derived from strategy

Globerson, 1985; Maskell, 1989; Dixon et al.,

1990; Lynch and Cross, 1991;
Neely et al., 1996a

Clearly defined with an explicit purpose

Globerson, 1985; Neely et al., 1996a

Relevant and easy to maintain

Maskell, 1989; Lynch and Cross, 1991

Simple to understand and use

Maskell, 1989; Lynch and Cross, 1991;

Neely et al., 1996a

Provide fast and accurate feedback

Globerson, 1985; Dixon et al., 1990;

Maskell, 1989; Neely et al., 1996a

Link operations to strategic goals

Lynch and Cross, 1991

Stimulate continuous improvement

Lynch and Cross, 1991; Maskell, 1989;

Neely et al., 1996a

and flexibility are commonly cited as the main operational dimensions which
should be measured (Kaplan, 1983; Lynch and Cross, 1991; Schmenner and
Vollmann, 1994; Neely et al., 1995; Collier, 1995; White, 1996; Laitinen, 1996;
Slack et al., 1998; Medori and Steeple, 2000). Finance, in various different forms,
is also considered to be a critical dimension of performance (Keegan et al., 1989;
Sink and Tuttle, 1989; Jones et al., 1993; Meyer, 1994; Bititci, 1994; Ghalayini et
al., 1997). In addition, customer satisfaction and human resources are
repeatedly cited as critical measurement areas (Eccles, 1991; Kaplan and
Norton, 1992; Fitzgerald and Moon, 1996). Table II illustrates the grouping of
the terms found within the literature into six general dimensions.
These six dimensions can be seen to cover all aspects of business: the
financial results, the operating performance (through the dimensions of time,
quality and flexibility), the way the company is perceived externally (through
its customers) and the cultural aspects of the working environment (through
the human resource dimension). It is, however, important to note that these
dimensions are not prescriptive. Instead, they are intended to encourage the
holistic consideration of these areas when developing measures to support the
company strategy.
Analysis of current PM development processes
The synthesis of the requirements of effective development processes, the
characteristics of performance measures and the dimensions of performance,
provide a typology that may be used to evaluate current approaches for the
development of strategic PM systems (Table III).
Using the typology as a basis for analysis, ten PM development approaches,
as described in the available literature (see Table IV), were evaluated. The
objective of this analysis was to identify the completeness of existing
approaches with respect to the theoretically derived framework. Table IV
illustrates the outcomes of this activity and shows that while the majority of

SME performance
measurement
systems
1101

Table I.
Critical characteristics
of performance
measures

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Table II.
Critical dimensions of
performance

Quality

Time

Flexibility

Finance

Product
performance
Delivery
reliability
Waste
Dependability
Innovation

Lead time
Delivery
reliability
Process
throughput
time
Process time
Productivity
Cycle time
Delivery
speed
Labour
efficiency
Resource
utilisation

Manufacturing
effectiveness
Resource
utilisation
Volume
flexibility
New product
introduction
Computer
systems
Future growth
Product
innovation

Cash flow
Market share
Overhead
cost
reduction
Inventory
performance
Cost control
Sales
Profitability
Efficiency
Product cost
reduction

Development process requirements

Table III.
Typology for the
evaluation of strategic
PM development
approaches

Need evaluation/existing PM audit

Key user involvement
Strategic objective identification
Performance measure development
Periodic maintenance structure
Top management support
Full employee support
Clear and explicit objectives
Set timescales

Customer
satisfaction

Human
resources

Market share
Service
Image
Integration with
customers
Competitiveness
Innovation
Delivery
reliability

Employee
relationships
Employee
involvement
Workforce
Employee skills
Learning
Labour
efficiency
Quality of work
life
Resource
utilisation
Productivity

Performance measure
characteristics

Dimensions of
performance

Derived from strategy

Clearly defined/explicit purpose
Relevant and easy to maintain
Simple to understand and use
Provide fast, accurate feedback
Link operations to strategic goals
Stimulate continuous improvement

Quality
Flexibility
Time
Finance
Customer
satisfaction
Human resources

the sample covered all the dimensions of performance, few exhibited properties
that also mapped to the characteristics of performance measures and to the
requirements of an effective development process.
The balanced scorecard (Kaplan and Norton, 1992) has good coverage of the
dimensions of performance, but provides no mechanism for maintaining the
relevance of defined measures. An additional deficiency of this approach is the
lack of integration between the top level, strategic scorecard, and operationallevel measures (Ballantyne and Brignall, 1994) potentially making execution of
strategy problematic. Furthermore, it fails to specify a user-centred
development process. In contrast, the performance pyramid (Lynch and Cross,
1991) provides an explicit link between strategy and operations, and also
encourages a user-centred design. The key problem with this approach,
however, is that it fails to specify, in any detail, either the form of the measures
or the process for developing them.

3
3
3
3
3
3
3

3
3
3
3
3
3

3
3

3
3
3

PP

3
3
3
3

3
3

BSC

3
3
3
3

3
3
3
3
3

3
3
3

3
3

R&
DM

3
3
3
3
3
3

3
3
3
3
3
3

3
3

3
3
3
3

IDP
MS

3
3
3
3
3

3
3
3
3
3
3
3

3
3
3
3

IP
MF

3
3
3
3
3
3

3
3
3
3
3
3
3

3
3
3
3
3
3
3
3

IP
MS

3
3
3
3
3
3

3
3
3
3
3
3
3

3
3
3
3
3
3
3
3
3

CP
MP

3
3
3
3
3
3

3
3
3
3
3
3
3

3
3
3
3
3
3
3

IM
M

3
3
3

3
3
3
3
3
3

3
3
3

3
3
3

3
3
3
3
3

3
3
3

FSB
PM

CP
MS

Notes: BSC = balanced scorecard (Kaplan and Norton, 1992, 1993, 1996); PP = performance pyramid (Lynch and Cross, 1991); R&DM = results
and determinants matrix (Fitzgerald et al., 1991; Fitzgerald and Moon, 1996); IDPMS = integrated dynamic PM systems (Ghalayini et al., 1997);
IPMF = integrated PM framework (Medori, 1998a, 1998b, Medori and Steeple, 2000); IPMS = integrated PM systems (Bititci, 1994, 1995; Bititci
et al., 1997, 1998); CPMP = Cambridge PM process (Neely et al., 1996a, 1996b, 1997, Bourne and Wilcox, 1998; Bourne et al., 1998); IMM =
integrated measurement model (Oliver and Palmer 1998); CPMS = consistent PM systems (Flapper et al., 1996); FSBPM = framework for small
business PM (Laitinen, 1996)

A strategic PM development process should:

Evaluate existing PM system
Enable strategic objective identification
Enable performance measure development
Provide a maintenance structure
Involve key users
Have top management support
Have full employee support
Have clear and explicit objectives
Have set timescales
The measures in a strategic PM system should be:
Derived from strategy
Link operations to strategic goals
Stimulate continuous improvement
Provide fast, accurate feedback
Clearly defined/explicit purpose
Relevant and easy to maintain
Simple to understand and use
A strategic PM system should measure:
Quality
Flexibility
Time
Finance
Customer satisfaction
Human resources

Theoretical model

SME performance
measurement
systems
1103

Table IV.
Analysis of current PM
approaches

IJOPM
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The main strength of the results and determinants matrix (Fitzgerald et al.,
1991) is that it specifies, in reasonable detail, what the measures should look
like and provides a useful development process. However, it does not include
customers or human resources as dimensions of performance and cannot,
therefore, give a truly balanced view of performance. Ghalayini et al. (1997), in
their framework for integrated dynamic PM, build on several different concepts
to develop a system which has an explicit process for maintenance and for
ensuring fast and accurate feedback. The use of the PM questionnaire (Dixon et
al., 1990) as an initial audit tool, also ensures that all the dimensions of
performance are adequately covered. However, as this approach consists of
several different tools it is potentially complicated to understand and use. In
addition, it also fails to provide an explicit process for developing the PM
system and is inadequate with respect to the human resource dimension
(Medori, 1998).
The integrated PM system methodology (Bititci et al., 1997) covers many of
the criteria required for a comprehensive PM system. However, the method
fails to provide a structured process that specifies objectives and timescales for
development and implementation. The Cambridge PM process (Neely et al.,
1996a) fulfils all the criteria in the typology and is, therefore, a comprehensive
process for the development of strategic PM systems. The development of
operational measures, however, is described as an optional process. For it to be
classified as comprehensive, both strategic and operational measures need to
be developed. The integrated measurement model (Oliver and Palmer, 1998) is
also a comprehensive approach, defining the dimensions of performance and
providing a mechanism for designing the measures. The unsatisfactory aspect
of this approach is the lack of a structured process for overall development. In
contrast to this, the consistent PM system (Flapper et al., 1996) gives a very
detailed process for developing and implementing PM systems, but fails to
specify a balanced approach for critical dimensions of performance. Finally, the
framework for small business PM (Laitinen, 1996), differs from all the other
approaches in that it adopts a purely bottom-up perspective on performance.
This means that although the framework is very capable of measuring and
improving performance, it is not based on any form of strategy.
Most of the frameworks and processes within this analysis provide explicit
guidance about what to measure, and provide some information about how to
design the PMs. However, only the Cambridge PM process offers explicit
guidance on how to develop and implement a strategic PM system effectively.
While this process emerges from the analysis as the most complete, further
evidence is required to establish its appropriateness in a SME context. The
remainder of the paper describes this context and provides empirical evidence
of current PM practice in SMEs. A case study describing the application of the
Cambridge process in a SME is also provided.

Theoretical relevance of strategic PM for SMEs

SME performance
Current literature suggests that SMEs may be differentiated from larger
measurement
companies by a number of key characteristics. These are generally described
systems
(Addy et al., 1994; Burns and Dewhurst, 1996; Ghobadian and Gallear, 1997;
Appiah-Adu and Singh, 1998; Berry, 1998; Marri et al., 1998; ORegan et al.,
1998; Haywood, 1999) as:
.
.

.
.
.
.

personalised management, with little devolution of authority;

severe resource limitations in terms of management and manpower, as
well as finance;
reliance on a small number of customers, and operating in limited
markets;
flat, flexible structures;
high innovatory potential;
reactive, fire-fighting mentality;
informal, dynamic strategies.

The significant differences in the structure and philosophy of SMEs indicate a

need to assess the relevance of the strategic PM development process, as
described in the typology, for use in this context.
To illustrate the importance of an effective development process for
introducing new systems into SMEs, a case study on the development of TQM
in SMEs was studied (Ghobadian and Gallear, 1997). This case study
highlighted the critical issues when developing a new system within a SME.
The main finding was that resource implications particularly that of
management time means that the implementation process is markedly more
taxing for SMEs than larger companies. Therefore, a well designed
development process, with a clear focus and effective project management,
would improve efficiency and increase the likelihood of success.
The resource limitations associated with SMEs indicate that the dimensions
of quality and time are critical to ensure that waste levels are kept low, and that
a high level of productivity performance is attained. Similarly, the reliance on a
small number of customers suggests that to remain competitive, SMEs must
ensure that customer satisfaction remains high and that they can be flexible
enough to respond rapidly to changes in the market. The financial dimension of
performance is critical for both large and small companies, but given the lack of
a monetary safety net to absorb the impact of short term fluctuations resulting
from change, this dimension is paramount in SMEs. Finally, the flatter
structure of SMEs means that employees often have a greater number of job
roles and more responsibility. In these circumstances, a well trained and
motivated workforce is also paramount and necessitates effective monitoring of
the human resource dimension.
Research has shown that SMEs which link operations to their business
strategies outperform the competition (Argument et al., 1997). The implication

1105

IJOPM
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of this for PM development is that the measures should be strategically aligned

and should provide an explicit link back to operations (Greatbanks and
Boaden, 1998). An advantage of this is that the PM system would provide data
that could input directly into the strategy formulation process. In addition,
given the resource and time constraints imposed on SMEs, performance
measures should be clearly defined, have an explicit purpose, be relevant and
easy to maintain and be simple to understand and use.
PM practice in SMEs
The general characteristics of SMEs that have been described suggest that an
effective process for strategic PM development is imperative for the
competitiveness of the smaller firm. However, little empirical evidence
currently exists which describes current PM practice in SMEs or which
evaluates the appropriateness of current processes within this context. The
following sections describe phase two of the research approach and focus
explicitly on these issues. A survey of eight companies is described to establish
whether these SMEs currently measure performance strategically. A case
study describing the application of the selected PM process (the Cambridge
process) is also provided. The empirical data from both the survey and the case
study is evaluated using the typology criteria: requirements of PM
development processes, performance measure characteristics, and dimensions
of performance.
Survey analysis
The survey data was collected from managers of eight SMEs using semistructured interviews. Each of the SMEs had recently undertaken a programme
of strategic improvement. Transcripts from the taped interviews were analysed
using coding techniques. An example of the type of codes that were developed
is illustrated below:
Codes
lead times
delivery date
process efficiency
feedback/
improvement

Transcript (excerpt)
``When we receive an order we quote a delivery date. The customer
gives a date that they would like it by and we give a realistic date
that might be better or it might be worse. Then when we dont reach
that delivery date we have statistics that tell us how efficient we
have been. So we can say `well 10% of what we have done has been
delivered late. Then we can look back and see what the cause was.
Design new processes so it doesnt happen again. That works best
and that is as and when that is not taken every month.

The codes were then grouped into appropriate categories using the areas for
analysis already identified (Table V).
The results from this survey were used to build a picture of the use of PM
within SMEs. It is interesting to note that none of the companies had measures
covering all the areas identified in the typology. The only common attribute in
this area was that all of the companies had a plethora of financial measures.
None of the companies attempted to measure flexibility, and while three of the

Performance measure
PM development process characteristics
Codes and How
categories through brainstorming
through experience
Who
managers, some staff and
customers design
measures
staff action measures
Issues
lack of understanding of
new measures
blame culture
explanation essential to
ensure support
management support
essential
Internal triggers
problem recurrence
prevention
for visibility
to gain control
for planning purposes
External triggers
customer requirements
government legislation
national standards/awards
requirements

Scope
department specific
lack of company-wide
measures
not strategic
Type
historically focused
some out-of-date measures
Format
simple
small number
practical
flexible measurement
too much info
complex data
untimely data
unclear data
Use
managerial use
no formal feedback
non-specific informal
feedback
reviews to act on data

What is measured
Quality
product quality
process quality
defects
scrap
suppliers
Time
work in progress
output
lead times
delivery time
Finance
inventory
orders/receipts
profit
turnover
costs
cash flow
sales/value added
quotes converted
income
productivity
expenditure
Customer satisfaction
user problems
product usage
service
returns
complaints
Human resource
safety
staff turnover
personnel

companies had human resource measures, these were very rudimentary and
only covered, for example, staff turnover.
Many of the measures in use in each company were acknowledged to have
significant flaws by all the interviewees. The most significant of these flaws
was a lack of reference to strategy. The measures differed from company to
company, with some maintaining a small number of simple and practical
measures, and others having a majority of measures which were either obsolete
or designed essentially for monitoring historical data. Interestingly, all the
interviewees complained that the measures produced an overload of data which
was either too complex or outdated and therefore unusable. Even where the
data was usable, only one SME reported a formal feedback system, via monthly
review meetings.

SME performance
measurement
systems
1107

Table V.
Results of coding and
categorising the
survey data

IJOPM
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1108

The introduction of new performance measures in these companies was

initiated both internally and externally. The main internal trigger was as a
reaction to problems that had occurred. This supports the reactive
management style found in the majority of SMEs. Other internal triggers
focused on attaining a greater level of control, particularly for resource
planning. External triggers mainly originated from customers that requested or
imposed specific measures. This conforms with the emergence of a number of
supplier development programmes on the managerial agenda of large
companies. Measures were usually developed in an ad hoc fashion, and
difficulties were identified when staff were asked to start collecting data for
which they could see no use. This would lead to poor quality data, or, in certain
circumstances, a culture of blame would develop in an attempt to justify poor
performance. All the interviewees who experienced these problems advocated
better communication as a potential method for resolution.
A gap analysis was carried out to compare the identified SME PM
characteristics against the typology. This clearly illustrated a lack of
congruence between them (Table VI). A discrepancy between theory and
practice was identified in the development processes employed. This included a
lack of strategic forethought, a lack of communication between managers and
the lack of a structured process for development. However, the majority of
measures were developed by users. The characteristics of the PMs in use in the
SMEs were dramatically different to those specified in the typology. The only
commonalities were that the measures were both simple and practical. Two
main gaps were identified in the dimensions of performance category;
flexibility and human resources. Although there were human resource
measurements identified, they were concerned only with the monitoring of
safety or staff turnover.
Case study analysis
This stage of the research was undertaken to investigate whether the process
identified as most complete, in respect to the typology, was appropriate within
a SME context. The application of the Cambridge process in a SME, facilitated
by a member of the original development team, was observed over a period of
six months. The observations collected were coded and categorised using the
same methods as for the survey data. In addition to the categorisation of the
data the process was also analysed in terms of planned activities and actual
activities undertaken. The results of this coding and categorisation are
presented in Table VII.
The perception of PM as an under utilised management tool was the driving
force behind the case companys participation in the development of a strategic
PM system. The results of the coding and categorisation show that although
the process was not completed, the draft measures that were produced were
strategically aligned and covered all the dimensions of performance identified
by the typology. The process used for developing the PM system led to some
interesting observations that question its applicability for SMEs. The use of

Performance measures in SMEs are developed:

With little reference to any existing measures in place
With no reference to strategy
In an ad hoc fashion by individual managers/staff
Without deleting obsolete measures
By managers, occasionally staff and customers
With management support
With a lack of employee understanding of new measures

SME performance measures are:

Not strategic
Often unclear with complex or obsolete data produced
Historically focused with some outdated measures
Small numbers of simple practical measures
No formal feedback with non-specific informal feedback

SME PM systems measure:

Quality

The strategic PM development process should:

Evaluate existing PM system
Enable strategic objective identification
Enable performance measure development
Provide a maintenance structure
Involve key users
Have top management support
Have full employee support
Have clear and explicit objectives
Have set time-scales

Measures in a strategic PM system should be:

Derived from strategy
Clearly defined/explicit purpose
Relevant and easy to maintain
Simple to understand and use
Provide fast, accurate feedback
Link operations to strategic goals
Stimulate continuous improvement

A strategic PM system should measure:

Quality
Flexibility
Time
Finance
Customer satisfaction
Human resource

Time
Finance
Customer satisfaction
Human resource (v limited)

SME PM system characteristics

Theoretical model

x
x
x

x
x
x

x
x
x

x
x
x
x

Gaps

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Table VI.
Gap analysis of SME
PM against the
typology

Table VII.
Results of case study
analysis
Workshop 2 completed 100 per cent

Workshop 3 completed 100 per cent

Workshop 2
ID product groups
customer/stakeholder needs analysis
carried out

Workshop 3
ID strategic objectives
ID PM developers
PM development sessions

Workshop 5
sign off PMs
implement review mechanism
Interviews
final interviews with all managers

Workshop 4
agree PMs
conflict analysis on new PMs

All interviews completed successfully

Interviews with
general manager
operations manager
marketing manager
manufacturing manager
production manager
quality assurance manager
finance manager

Four final interviews held with

available managers

Workshop 5 cancelled
Final PM development sessions held

Only five PM development sessions

completed
Workshop 4 cancelled

Workshop 1 completed 100 per cent

Workshop 1
introduction to the process
business needs for a new PM system
identified

Performance measure development process

Achieved
Quality
scrap levels
actual vs planned performance
Finance
sales growth
fixed cost expenditure
return on sales
return on capital
Flexibility
production volume responsiveness
production capability
Time
actual vs promised delivery times
pre-emptive product development
Customers
products delivered on spec + on time
contacts with outside companies
service satisfaction
Stakeholders
employee/ manager satisfaction
group contacts

Performance measures

Strategic
developed from strategic objectives
not operational
Balanced
finances
customers
internal/ops
innovation
Practical
explicit purpose
set targets
explicit formula
feedback mechanism

Performance measure
characteristics

1110

Planned

IJOPM
21,8

workshops for group consensus building and debate was new for the company SME performance
but was regarded as an invaluable exercise. As one manager commented ``We
measurement
have a group of very experienced managers who get involved in everything
systems
due to our fire-fighting approach which works well, but doesnt allow us to
get involved in anything else. We dont spend enough time looking to the
future. In the early stages of the process the enthusiasm for the workshops
1111
contributed to their success with the key outcome being the identification of a
balanced set of strategic objectives that provided a foundation for the
development of specific measures. However, when individual managers were
allocated responsibility for developing a preliminary set of performance
measures difficulty was encountered in establishing specific, defined targets
for the objectives. In addition, tasks allocated to individuals, which were to be
completed between workshop sessions, were met with resistance. Severe
resource constraints combined with a reactive management style left little room
for additional developmental activities. One manager commented: ``The
meetings were great but as soon as people get out, the fire-fighting begins
again and everything is forgotten until next time.
Staff turnover and the re-allocation of management to new roles, resulting
from a restructuring programme, provided an unstable environment for the
development of the PM system. The restructuring programme eventually
became a higher priority than the PM development process for all the managers
concerned. The process had originally been championed by the operations
manager. During his interview at the end of the process, he commented that it
``needs customising to include day-to-day operations, rather than just the
strategic stuff. We need to focus our attention on basics how we can improve
customer perceptions is the main one at the moment we arent quite at the
stage for top-level PMs yet. The stage at which the process faltered was
directly after the identification of the top-level objectives and it is apparent that
it was at this stage that the operations manager regarded the process
unsuitable to address the companys immediate needs.
The main benefits of the process were that it highlighted an imbalance in the
current PM system, which was almost entirely financial. However, because the
process was not completed, the company did not achieve the implementation of
a more balanced system. The process of analysing the companys strategic
position and the identification of strategic objectives were acknowledged by the
participants to have fostered consensus and focused their improvement effort.
However, the main drawbacks of the process from a SME perspective were that
it was both resource intensive and time consuming, requiring resources which
were not readily available. Furthermore, the emphasis on strategic measures
and the exclusion of the development of operational measures led to a
perception that the approach was a future planning activity rather than one
which facilitated improvements in current performance.

IJOPM
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1112

Conclusion
The research presented in this paper has investigated the appropriateness of
current strategic PM development processes, for SMEs. A typology was
formulated which synthesises current theoretical developments with respect to
strategic PM. This typology contributes to current theory and attempts to
facilitate a convergence of theory and practice. A series of interviews with SME
managers investigated current practice, illustrating that their PM systems
shared few characteristics with those in the typology. A strategic PM
development process that exhibited congruity to the typology was used to
explore the issue of developing PM systems in SMEs, from which some
conclusions may be drawn.
Although there was widespread acceptance of the value of strategic PM
evident among the managers of the SMEs studied, none had taken steps to
redesign or update their current PM systems. This suggests that there are
substantial barriers to strategic PM system development in SMEs. The failure
of the implementation in the case study was attributed primarily to the
development process being: too resource intensive and too strategically
oriented. This concurs with the limited resources and the more dynamic,
emergent, strategy styles found in SMEs. These issues are acutely problematic
because developing a strategic PM is necessarily long term and it explicitly
requires the resulting measures to be strategically focused.
If these barriers are endemic in SMEs, then the requirements for a strategic
PM development process for SMEs are clear: it must be very resource effective
and produce notable short term, as well as long term benefits, to help maintain
the momentum and enthusiasm of the development team. In addition, it must
be dynamic and flexible enough to accommodate the strategic changes which
are a feature of emergent strategies. In practical terms, this means that the
process should be iterative, as an important feature would be the regular
surfacing of current strategy, in order to maintain the strategic relevance of the
performance measures.
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