L5 - Performance Measurements 2

Question 1

What is the solution to poor alignment between PMS and organizational objectives? (Ittner and Larcker 2003)

Answer 1

A rational/instrumental approach: ensure links between measures and strategic objectives (Ittner and Larcker 2003).

Question 2

What is the solution to poor alignment between individual goals and organizational objectives because PMS are fouled up (Kerr 1995).?

Answer 2

An approach combining management control with psychological theory: Motivate individuals and improve performance through participatory process and feed-back on performance (Groen et al 2012; 2017).

Question 3

How do Ittner and Larcker (2003) recommend you to “mind the links”?

Five steps

Answer 3

1. Pull together the data
   * Avoid extra administrative work
   * Use what is there or start in small scale
   * Avoid “fiefdoms”. Transparency is important!
2. Turn data into information
   * Statistical methods (correlations)
   □ Example Sears: employee satisfaction, customer satisfaction and loyalty, results for shareholders
   * Qualitative analyses (focus groups)
   □ Example Gas company: customer not satisfied with billing system but it was the technical support rather than the system as such that was problematic.
3. Continually refine the model
   * Changing environment, improved knowledge may change links
4. Base actions on findings
   * Use the conclusions drawn from data analysis for decision making
   * Discover pros and cons with different measures
5. Assess outcomes
   * Post audits, did the action plans yield the desired results?
   * (A continuous process)

Question 4

What is the theory of planned behavior (TPB)?

Groen et. al 2012

Answer 4

PM participation (leading to)

attitude
people’s evaluation regarding the behavior

norm (social pressure)
the extent to which people think that most people who are important to them, want them to behave in a particular way

control (capability)
the extent to which people feel capable of performing the behavior

(all lead to)
Employee initiative

Question 5

Define the takes from Groen, Wouters and Wilderom 2012; 2017

Answer 5

A less instrumental approach
* Combines literature from the management accounting and management control field with psychological theory
* Investigate at the operational level howPM participation (participatory development) works in practice and why it is related to employee motivation and organisational performance
* Participatory development and employee motivation (Groen et al 2012)
* Participatory development and organisational performance (Groen et al 2017)

Question 6

What can be improved by a participatory development process?

Answer 6

1. Attitude—due to feedback on the outcomes of improvement initiatives;
2. Social pressure—because it provides employees at operational level with shared priorities and targets; and
3. Capability—because the performance measures uncovered various improvement opportunities.
   * Attitude, social pressure, and capability in turn positively influence motivation (employee initiative).
   * Organisational performance improved when the jointly developed PMS was put into use.

Question 7

What are the 4 misstakes in non financial performance measurement according to Ittner & Larcker (2003)?

Answer 7

1. Not linking measures to strategy
2. Not validating the links
3. Not setting the right performance targets
4. Measuring Incorrectly

Question 8

How do you ensure using the right non-financial measures that have the most powerful effect on long-term economic performance? (Ittner & Larcker, 2003)

Answer 8

• Develop a casual model
• Pull together the data
• Turn data into information
• Continually refine the model
• Base actions on findings
• Assess outcomes

Question 9

According to Groen, Wouters and Wilderom (2017), who’s participation in the development of performance metrics has beneficial effects on the metrics quality?

Answer 9

Employee participation

Question 10

In Groen, Wouters and Wilderom (2012) they conclude that participatory development of performance measures has a positive influence on employees. How?

Answer 10

It increases employees attitudes, perceived social pressure and perceived capability to take initiative.

Question 11

What are the steps in the S.M.A.R.T framework by Doran (1981)?

Answer 11

Specific - target a specific are for improvement
Measurable - quantify or at least suggest an indicator of progress
Assignable - specify who will do it
Realistic - state what results can realistically be achieved, given available resources
Time-related - specify when the result(s) can be achieved