Management practices have undergone many innovations. Companies have been down-sized, delayered, and hollowed out. Newly trained and empowered employees have implemented many innovative practices including continuous improvement, reengineering, just-in-time manufacturing, and total quality management. Outsourcing and exclusive supply relationships now allow organizations to focus on core activities.
Many of these innovations have fundamentally changed the relationships between the organization and its employees, customers, suppliers, and other stakeholders. In many instances, arm’s-length transactions between independent parties have been replaced by long-term partnerships in which intangibles such as service, innovation, and flexibility are essential to success. Intangible, difficult-to-measure resources are driving the creation of wealth in many companies. Consequently, traditional accounting-based performance measures that rely on transaction prices are not as useful.
Most companies use formal performance measurement systems that are extensions of their financial reporting systems. They justify this practice because the financial reporting system provides measures that:
- Are generally regarded as reliable and consistent, thereby giving a solid foundation for developing reward and accountability structures.
- Mesh with the primary objective of creating profits for owners, thereby giving a performance measurement focus consistent with organizational objectives.
However, criticisms of conventional performance measurement systems have been increasing. Critics charge that financial performance measures lack the requisite variety to give decision makers the range of information they need to manage processes. For example, one study concluded: “There’s a growing concern . .... To read the complete article, login or sign-up using the form below.
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