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What are the Effects of Strategic Performance Measurement Systems?

Takeyoshi Senoo/Associate Professor, Faculty of Commerce, Chuo University
Area of Specialization: Accounting

The importance and difficulty of performance measurement systems

"How is the performance of the organization to which you belong?"

How would you answer this question? If you work for a corporation, you may evaluate its performance by the amount of sales or profit. In order for an organization to successfully execute a strategy, a mechanism for understanding the outcomes is necessary. Therefore, it is important to have a performance measurement system that measures, evaluates, and analyzes performance by setting strategic objectives as well as performance measures and targets that measure the degree of achievement.[1]

However, even when measuring corporate performance, there is a problem with performance measurement systems which only use financial measures that can be measured in monetary terms such as sales and profits. The first reason is that financial measures are nothing more than an indication of past outcomes. As such, they may not necessarily lead to future outcomes. The second reason is that financial measures are not always clearly related to people behavior in the organization.

Therefore, the performance measurement system should include nonfinancial measures such as customer satisfaction, quality, and other indicators that cannot be measured by monetary value. For example, improving the nonfinancial measures of customer satisfaction is likely to improve future financial measures. To a certain degree, customer satisfaction is clearly related to the behavior of salespeople on-site.

However, since there are innumerable nonfinancial measures, it is difficult to determine how they should be incorporated into performance measurement systems.

What are strategic performance measurement systems?

Strategic performance measurement systems are performance measurement systems which use both financial measures and nonfinancial measures to measure strategic objectives. A typical example is the balanced scorecard (hereinafter, "BSC").

BSC assumes causal relationships in the order of four perspectives: (1) learning and growth perspective, (2) internal business process perspective, (3) customer perspective, and (4) financial perspective. Multiple strategic objectives and performance measures are set for each perspective, thus creating a system for well-balanced measurement of performance. For example, consider the BSC used at the sales department of Kirin Brewery Co., Ltd. as of December 31, 2008. In this case, the BSC incorporates nonfinancial measures in the form of activity amount (visit frequency) of the sales department for the learning and growth perspective, the number of restaurants/bars handling draft beer for the internal business process perspective, and sales volume share of the customer perspective. It also uses financial measures such as operating income for the financial perspective. This BSC aims to achieve targets for each of the performance measures by assuming a causal relationship in which improving nonfinancial measures in the three perspectives other than the financial perspective will lead to the improvement of future financial measures. Ultimately, this BSC seeks to achieve the financial measures targets and skillfully execute the strategy.[2]

According to a questionnaire survey conducted by my research group in 2010, only about 10% of large companies in Japan use BSC.[3] However, since many Japanese companies use systems similar to BSC including management by objectives and hoshin kanri, strategic performance measurement systems are considered to have spread throughout Japan to a certain extent.

Strategic performance measurement systems can take many forms. For example, they can be classified according to whether or not they make use of the causal relationship between performance measures as presupposed by BSC, and whether or not they are linked with a reward system.[4] The latter is also important as the effects of linking strategic performance measurement systems with reward systems are now controversial.

Evidence related to the effect of strategic performance measurement systems

So, what are the effects of strategic performance measurement systems? Based on the results of a meta-analysis by Endrikat et al., I will briefly explain the evidence that has been demonstrated thus far.[5] Meta-analysis is a research method that summarizes the analysis results of previous research, re-analyzes those results, and integrates the findings.

First, Endrikat et al. classified the effects of strategic performance measurement systems into three major categories: (1) people's behavior, (2) organizational capabilities, and the final organizational (3) performance. Overall, systems had a positive impact on all of these categories. In category "(1) people's behavior," analysis is conducted for the six concepts: role clarity, psychological empowerment, perceived fairness, job satisfaction, individual creativity, and individual performance. In category "(2) organizational capabilities," there is analysis for the four concepts: performance of the strategy development process, strategic alignment, strategic capabilities, and organizational learning. Lastly, in category "(3) performance," analysis is performed for three concepts: general performance, financial performance, and innovation.

Next, it was demonstrated that the relationship between strategic performance measurement systems and some of these concepts differs depending on the presence or absence of a linkage to the reward system, national culture, and the industry differences--that is, manufacturing or non-manufacturing. It is particularly interesting how not linking to the reward system has a greater effect on individual performance and the general performance of the organization. Our case study suggests that one of the reasons for a major Japanese food company discontinuing the use of BSC was that the company strengthened the linkage to the reward system.[6]


As described above, it has been found that strategic performance measurement systems generally have the effect of enhancing people's behavior and organizational capabilities, and ultimately improving organizational performance. However, linking with the reward system may reduce the effectiveness of systems. In addition, there is much that is not known regarding the factors impacting the effectiveness, including whether or not the use of causal relationships between performance measures, which is a presupposition of BSC, actually enhances the effects of strategic performance measurement systems.

However, I believe that the evidence thus far regarding the effectiveness of strategic performance measurement systems is useful for all those who are struggling to utilize important but difficult performance measurement systems.

[1] Performance measurement systems are also known as performance management systems. Although some theorists emphasize the differences between these systems, both systems shall be treated as one and the same in this article.
[2] Eri Yokota and Takeyoshi Senoo (2010), A case study of strategic management system in Kirin Brewery Co., Ltd. (2), (published in the Mita Business Review) 53 (3): 45-58.
[3] Eri Yokota and Takeyoshi Senoo (2011), A survey of management control systems in Japanese companies, (published in the Mita Business Review) 53 (6): 55-79.
[4] Franco-Santos, M., L. Lucianetti, and M. Bourne (2012), Contemporary performance measurement systems: A review of their consequences and a framework for research. Management accounting research 23 (2): 79-119.
[5] Endrikat, J., T. W. Guenther, and R. Titus (2020), Consequences of strategic performance measurement systems: A meta-analytic review. Journal of Management Accounting Research 32 (1): 103-136.
[6] Eri Yokota and Takeyoshi Senoo (2012), Examining the balanced scorecard as an interactive control system: A case study of a food company, (published in the Melco Journal of Management Accounting Research) 5 (1): 3-14.

Takeyoshi Senoo/Associate Professor, Faculty of Commerce, Chuo University
Area of Specialization: Accounting

Takeyoshi Senoo was born in Tokyo in 1981.
In 2003, he graduated from the School of Commerce, Waseda University.
In 2006, he completed the Master’s Program in the Graduate School of Commerce, Waseda University.
In 2011, he completed the Doctoral Program in the Graduate School of Business and Commerce, Keio University. He holds a Master’s Degree in commerce from Waseda University.
He served as a Full-Time Instructor and Associate Professor at Wakayama University before assuming his current position in 2018.

His current research theme is the empirical analysis of consistency between budgeting and management by objectives.

His main co-authored works include Practical Management Accounting of KAO (edited by Eisuke Yoshida and the Accounting & Finance Division of Kao Corporation; published in 2020 by Chuokeizai-sha Publishing), Deepest Layer of Japanese Management Accounting (edited by Eisuke Yoshida; published in 2017 by Chuokeizai-sha Publishing), and more.