Impact of the changing business environment on performance measurement and management practices

Abstract

While there is abundant literature in the field of performance measurement systems and performance management practices (PMM), there is little research into how the current highly volatile, uncertain and ambiguous operating environment are affecting the way organisations measure and manage performance. The literature suggests that business trends are indeed affecting the way organisations are managed in general, but their effect on PMM is rarely investigated. Thus, the purpose of this paper is to explore how current business trends are impacting PMM. A literature review reveals five business trends and develops an analytical framework based on organisational control theory. This framework is then used to explore the impact of these business trends through fine-grained case studies across four diverse organisations. Findings suggest that emerging technologies enable collaborative networks creating opportunities for co-creating value while, at the same time, fostering innovation. The findings are theorised using organisational control dimensions that lead to a number of propositions concerning: how the use and purpose of PMM is changing; how strategic objectives are expressed and deployed with particular differences in strategic and turbulent environments; changes in the focus and scope of how performance is measured and reviewed. The paper contributes to existing knowledge by explaining the changing nature of PMM from an organisational control perspective and also by presenting a framework to inform future studies investigating the impact of new business trends on PMM. The paper also reveals practical insights for improving performance measurement systems and performance management practices in organisations.

Introduction

It is widely recognised that effective Performance Measurement Systems and Performance Management Practices (PMM) bring improvements in the form of efficiency and effectiveness to organisations (Neely et al., 1995). Whilst, there has been a plethora of literature in the design of performance measurement systems (PMS) (Neely et al., 1995; Garengo et al., 2005), implementation and the use of PMS also started to receive attention (Bourne, 2001; Kennerley and Neely, 2002; Davenport et al., 2010). In this context, several researchers have also explored the dynamics between measurement, culture and change (Bititci et al., 2006; Garengo and Bititci, 2007; Franco-Santos et al., 2007; Nudurupati et al., 2011). It is apparent from the literature that the focus of the PMM literature has been evolving from performance measurement systems, i.e., what to measure, towards performance management practices i.e., how to use measures to manage performance of organisations (Bititci et al., 2012); some of these changes have also been in response to technological, economic and social trends (Melnyk et al., 2014; Nudurupati et al., 2011).

As we approach the third decade of the 21st century, the rate of change in the world is set to increase further, coming from unexpected directions (Bailey et al., 2019; Gunasekaran et al., 2019; Sheng et al., 2019). While this change is fuelled by technological developments, increasing globalisation and changes in trade barriers, political, social and environmental considerations are also becoming key concerns. Based on these trends, Bititci et al. (2012) conducted a review identifying ten grand challenges for PMM research. Similarly, Melnyk et al. (2014) investigated the evolving nature of PMM, highlighting the importance of maintaining “fit” between an organisation's purpose and PMM to compete in an increasingly turbulent environment.

Whilst the impact of emerging business trends on organisations is widely recognised in general terms, their specific impact on PMM are rarely explored. Furthermore, the literature also recognises that businesses may operate in more or less turbulent operating environments where the rate of change and the impact of business trends could be considerably different (Prajogo, 2016; Cai and Yang, 2014; Pérez-De-Lema et al., 2019). Once again, although this phenomenon is widely recognised in the literature, the specific implications on PMM are rarely explored. It is expected that these business trends and the stability or turbulence of the operating environment has significant impact on the way the performance of organisations is managed. However, the literature does not provide sufficient insights to predict how business trends impact on PMM particularly in this new dynamic, volatile and highly turbulent environment. Hence, this paper aims to empirically investigate how these business trends are impacting PMM.

This aim is achieved as follows. In the next section, the literature review, develops theoretical foundation of PMM and identifies five business trends that are impacting on PMM (Emerging Technologies; Networking and Collaboration; Servitisation and Value Co-creation; Innovation & Knowledge Work; Environment & Sustainability) and concludes with an analytical framework based on organisational control theory (Smith and Bititci, 2017) and performance alignment matrix (Melnyk et al., 2014). The Methodology section that follows justifies and details the qualitative exploratory theory-building approach adopted to explore the impact of these trends on PMM using fine grained case studies in four diverse organisations. In the Context and Findings sections the case study companies are introduced, and the emerging findings are detailed. In the Discussion section, the findings are theorised in the form of propositions that contribute to existing knowledge by explicating the changing nature of PMM in response to business trends and environmental turbulence with distinct implications on future research and practice.