Performance implications of strategic performance measurement in financial services firms

Abstract

This study examines the relation between measurement system satisfaction, economic performance, and two general approaches to strategic performance measurement: greater measurement diversity and improved alignment with firm strategy and value drivers. We find consistent evidence that firms making more extensive use of a broad set of financial and (particularly) non-financial measures than firms with similar strategies or value drivers have higher measurement system satisfaction and stock market returns. However, we find little support for the alignment hypothesis that more or less extensive measurement than predicted by the firm's strategy or value drivers adversely affect performance. Instead, our results indicate that greater measurement emphasis and diversity than predicted by our benchmark model is associated with higher satisfaction and stock market performance. Our results also suggest that greater measurement diversity relative to firms with similar value drivers has a stronger relationship with stock market performance than greater measurement on an absolute scale. Finally, the balanced scorecard process, economic value measurement, and causal business modeling are associated with higher measurement system satisfaction, but exhibit almost no association with economic performance. Disciplines Accounting | Finance and Financial Management | Management Sciences and Quantitative Methods AbstractThis study examines the relation between measurement system satisfaction, economic performance, and two general approaches to strategic performance measurement: greater measurement diversity and improved alignment with firm strategy and value drivers. We find consistent evidence that firms making more extensive use of a broad set offmancial and (particularly) non-financial measures than firms with similar strategies or value drivers hav e higher measurement system satisfaction and stock market returns. However, we find little support for the alignment hypothesis that more or less extensiv e measurement than predicted by the firm's strategy or value drivers adversely affect performance. Instead, our results indicate that greater measurement emphasis and diversity than predicted by our benchmark model is associated with higher satisfaction and stock market performance. Our results also suggest that greater measurement diversity relative to firms with similar value drivers has a stronger relationship with stock market performance than greater measurement on an absolute scale. Finally, the balanced scorecard process, economic value measurement, and causal business modeling are associated with higher measurement system satisfaction, but exhibit almost no association with economic performance.

A behavioural perspective on the effects of using performance measurement systems in the companies: Evidence from a case study

“…In fact, there is a significant number of studies supporting the beneficial effects of PMS in the business performance, whether being financial or non-financial performance (e.g. Davis & Albright, 2004;Hoque & James, 2000;Ittner et al, 2003), as well as the beneficial effects on the managers' perceptions of performance (e.g. Chenhall, 2005;Hoque & James, 2000;Lee & Yang, 2011).…”

“…Moreover, information that a PMS provides to managers may be used to remove uncertainties in the decision-making processes, evaluate processes and the consequences of past decisions as well as possibly suggesting corrective measures and improvements in organizational learning (Grafton, Lilis & Widener, 2010;Pavlov & Bourne, 2011). Several researchers, such as Chenhall (2005), Ittner, Larcker and Randall (2003), and Kaplan and Norton (1996; state that an integrative PMS helps organizations to achieve strategic competitiveness, not only by aligning internal processes with the long-term strategic goals, linking them to short-term actions, but also by developing organizational learning. For instance, the BSC (Kaplan & Norton, 1992;1996; provides a framework for managing the implementation of strategies, containing a wide set of performance measures (KPIs), customer relations, internal business processes, and an organization's learning and growth activities that allow, at the same time, to deal with changes in the company's competitive market and technological environments.…”

Causality analysis in business performance measurement system using system dynamics methodology

“…The cause and effect in BSC was found not based on the statistical causality testing but relied on logic assumption and identification of relationship is merely depends on user's belief [11]. Results from previous studies found that the relationships between customer satisfaction and loyalty to revenue in BSC were not represented by causal relationship but based on logical relationships instead [3,4]. Earlier researchers were proposed to conduct a causality test on the relationship in BSC.…”

“…Earlier researchers were proposed to conduct a causality test on the relationship in BSC. This concern was very important as only 23% of firms built and checked their causal models [4]. It was found that the relationships between employee engagement to revenue and vice versa showed only correlation and not causation [12].…”

“…Despite its apparent popularity, BSC posses several limitations. Criticisms on the causality in BSC have been widely discussed by earlier researchers [3][4][5][6][7][8]. In seeking empirical evidence of causality, a theoretical framework which consist of ten (10) propositions based on the Service Profit Chain (SPC) theory were developed and tested using the Granger causality tests [9] on the 45 time series data point.…”