A present state analysis method for performance measurement systems

Licentiate thesis, 2018

Most companies use a performance measurement (PM) system to support strategic management and operations management processes. This is especially important in today’s dynamic environment, which leads to changes in company strategy and PM systems. To achieve an efficient PM system, it is important to measure the things that matter to the organization but at the same time measure as little as possible. A life cycle approach to the PM system is useful in handling these changes, since it helps companies regularly review and design their performance indicators and keep them relevant. Several framework and methods exist for reviewing PM systems, and their main focus is on how well the performance indicators align with the company strategy. However, a research gap has been identified in how performance indicators are designed and used in the lower levels of an organization. Therefore, the purpose of this thesis is to identify areas of improvement and to develop a method to help companies review and design an efficient PM system.

The present state analysis method (PSAM) developed in the thesis focuses on reviewing operational performance indicators, using the strategic goals of the studied organization as input. The data is collected both from interviews with top management and from a mapping of the performance indicators used in the organization. This gives a view both of the top management’s perspective as well as of the operational use of the PM system. The strategic alignment of the mapped performance indicators are analyzed by visualizing the connection between the strategic goals and the performance indicators at each organizational level in a tree diagram. In addition, the standardization and rationalization potentials of the existing PM system are analyzed through a set of matrices that determine whether any performance indicators measure the same thing or have the same purpose.

The PSAM was tested at 7 manufacturing sites in Sweden to investigate the present state of their PM systems and to identify areas of improvement. The findings show similar structure of PM systems within the companies, where the performance indicators were divided into categorie that were derived from the strategy. More than half of the manufacturing sites had processes for all four stages in the KPI-life cycle; however, processes for reviewing the PM systems must be improved. The results also show that the companies used a large number of performance indicators that were well-aligned to the strategy. The studied companies were asked to identify common pitfalls related to their PM system, and eight groups of pitfalls were identified. One of the most important procedures to avoid these pitfalls is to make sure that the organization has defined processes for all stages in the KPI life cycle. This thesis contributes to the theoretical field of performance measurement systems with an empirical verification of the use of existing theories and frameworks, as well as a standardized and systematic method to review the operational performance measurement system within a single manufacturing site.