Empirical Verification of the Performance Measurement System

Empirical Verification of the Performance Measurement System

DOI: 10.4018/978-1-5225-7362-3.ch099
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In their endeavor to increase profits, companies usually become aware that this is predominantly the result of employee competence and satisfaction, excellent processes, and customer's satisfaction. Based on that assertion, companies integrate different managerial tools in the performance measurement system (PMS) and therefore in their management system. One of the most dominant managerial tools is the Kaplan and Norton's balanced scorecard (BSC). In this chapter, the approach that represents the basis for further work in the field of research in PMSs of companies, with the use of econometric tools, was empirically tested and developed.
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One of the main purposes of implementing PMS is to communicate strategy throughout the organization. Among the number of PMS approaches, a dominant position was achieved by Kaplan and Norton’s BSC; it has emerged as a new synthesis between the traditional financial-accounting system and efforts to achieve long-term competitive ability. The BSC system considers the traditional financial KPIs as well as leading KPIs of future performance. In this way, it provides key information about the activities of managers. The BSC is a PMS theorized by Kaplan and Norton which was first created as a performance measurement tool, which has later evolved into a PMS, and has subsequently become a comprehensive strategic management system (Barnabè, 2011; Janeš, 2014).

Measurement of the organization’s performance represents a good practice and is an integral part of the organization’s management in the accomplishment of its strategies and objectives. The BSC and associated KPIs are treated in practice as a process that supports the reviewing and changes of the measurement system in relation to changes in the business environment of the organization.

Given the framework of the strategy map, which consists of four perspectives, and within them a large number of related strategic objectives, the added value of the business processes is manifested in the form of chains of cause-effect relations ranging from nonfinancial and quantifiable KPIs in the learning and growth perspective via processes and customers to a finance perspective (Waruhiu, 2014; Kaplan, 2012, p. 543). Cause-effect relations can be understood as a set of hypotheses that are taken to meet the strategic objectives. A strategy map is a diagram that describes how an organization creates value by connecting strategic objectives that are in explicit cause-effect relations with each.

Key Terms in this Chapter

KPIs: The most important performance indicators of PMS by which can be followed progress towards achievement of strategic goals.

Cointegration: Means that series have a common trend. If a pair of variables is cointegrated then it is likely that, they have a common factor and that one of the variables causes the other variable.

BSC: BSC is a managerial tool of four perspectives, which focuses attention of management on only a few most important KPIs.

Error Correction Model: When the KPIs are cointegrated, there must be an ECM that describes the short run dynamics of the cointegrated variables towards their long run equilibrium values.

AC and EC Motors: Alternating Current motors and Electronically Commutated motors.

SAP ERP: Systems, Applications, and Products in Data Processing for Enterprise Resource Planning.

Error Correction Term: Measures the speed of adjustment to long run equilibrium between the KPIs.

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