Business performance measurement Theory and practice Edited by Andy Neely Cranfi eld School of Management, UK The Pitt Building, Trumpington Street, Cambridge, United Kingdom The Edinburgh Building, Cambridge CB2 2RU, UK 40 West 20th Street, New York, NY 10011-4211, USA 477 Williamstown Road, Port Melbourne, VIC 3207, Australia Ruiz de Alarcn 13, 28014 Madrid, Spain Dock House, The Waterfront, Cape Town 8001, South Africa http:/www.cambridge.org Cambridge University Press 2002 This book is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2002 Reprinted 2003 Printed in the United Kingdom at the University Press, Cambridge Typeface Minion 11/14ptSystem QuarkXPress A catalogue record for this book is available from the British Library ISBN 0 521 80342 X hardback Contents List of contributorspage ix Prefacexi Part IPerformance measurement functional analyses 1Measuring performance: The accounting perspective3 David Otley 2Measuring performance: The marketing perspective22 Bruce Clark 3Measuring performance: The operations perspective41 Andy Neely and Rob Austin 4Finding performance: The new discipline in management51 Marshall W. Meyer Part IIPerformance measurement theoretical foundations 5A conceptual and operational delineation of performance65 Michel Lebas and Ken Euske 6When it should not work but does: Anomalies of high performance80 Rob Austin and Jody Hoffer Gittell 7Does pay for performance really motivate employees?107 Margit Osterloh and Bruno S. Frey v 8Superior managers tolerance to dysfunctional behavior: A test123 Clive Emmanuel Part IIIPerformance measurement frameworks and methodologies 9Performance measurement frameworks: A review145 Mike Kennerley and Andy Neely 10The critical few: First among equals as parameters of strategic eff ectiveness156 Elspeth Murray and Peter Richardson 11Integrated performance measurement systems: Structure and dynamics 174 Umit Bititci,Allan Carrie, and Trevor Turner 12Why measurement initiatives succeed and fail: The impact of parent company initiatives198 Mike Bourne and Andy Neely Part IVPerformance measurement practical applications 13What really goes on in the name of benchmarking?211 David Mayle, Matthew Hinton, Graham Francis, and Jacky Holloway 14Measuring marketing performance: Which way is up?225 Tim Ambler and Flora Kokkinaki 15Loosely coupled performance measurement systems244 Thomas Ahrens and Chris Chapman 16 Redefi ning government performance259 Ken Ogata and Rich Goodkey Part V Performance measurement specifi c measures 17Customer satisfaction and business performance279 Kai Kristensen,Anne Martensen, and Lars Grnholdt Contentsvi 18 Linking fi nancial performance to employee and customer satisfaction295 Andy Neely and Mohammed Al Najjar 19Measuring innovation performance304 Riitta Katila Part VIPerformance measurement emerging issues and trends 20The future of performance measurement: Measuring knowledge work321 Rob Austin and Pat Larkey 21Measuring eBusiness performance343 Andy Neely, Bernard Marr, Chris Adams, and Neha Kapashi Index361 Contentsvii 1Measuring performance: The accounting perspective David Otley Introduction Accounting measures of performance have been the traditional mainstay of quantitative approaches to organizational performance measurement. However, over the past two decades, a great deal of attention has been paid to the development and use of non-fi nancial measures of performance, which can be used both to motivate and report on the performance of business (and other) organizations. The impetus for such developments has come from both the bottom and the top of the organization. Much performance management at the operational level is carried out using specifi c indicators of performance, which are usually not measured in fi nancial terms. At the most senior levels, although fi nancial performance is inevitably a major consideration, there has been increasing recognition that other important factors in the eff ective running of the organization cannot be well captured by such measures. Thus, non-fi nancial performance measures have undergone signifi cant develop- ment, to the relative neglect of the development of improved fi nancial meas- ures. However, the recent publicity surrounding the marketing of economic value added (EVA) as an overall measure of company performance by man- agement consultants Stern Stewart can be seen as a sign of a new emphasis on the fi nancial aspects of performance. The purpose of this contribution is to review the roles and functions of fi nancial measures of organizational performance, and to outline the major features of their development, particularly in the latter half of the last century. It will be