Can Performance Measurement System Work as "Link" Between Management Control System and Strategy?

Paper Type:  Essay
Pages:  7
Wordcount:  1687 Words
Date:  2022-10-03


Performance Measurement System refers to the process of analyzing, collecting, and reporting the performance of a group, system, individual, or organization. The idea of Management Control System has existed for the past 30 years, and it can be defined as the system that collects and utilizes information in evaluating several organizational resources including financial, human, or financial while pursuing corporate strategies. Additionally, the strategy is an action plan that is designed to help in achieving a long-term goal and the overall aim. Performance management system can work as a link between management control system and strategy by ensuring that the resources of an organization are well utilized to achieve the overall objectives of an organization.

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While doing an online search, there is increased popularity of "Management Control System" term. In the past, management control was defined as the process where the managers ensure that their resources are used efficiently in achieving the different objectives of an organization (Siska, 2015). Although this definition was useful, in 2003, another scholar admitted that different management terms like management accounting systems, organizational controls, management control systems, and management accounting were used interchangeably. Even though these words are used interchangeably, MCS is a broad term that entails management accounting and other controls like a clan or personal controls as it involves more controls (Siska, 2015). Currently, MCS is regarded as a set of controls that organizational managers have at their disposal in steering a company towards its predetermined goals.

Performance measurement system can work as a link between management control system and strategy by measuring if an organization has achieved the set goals and objectives. This issue can be achieved through the different performance measurement systems including Balanced Score Card which endorses the holistic view of a firm by prioritizing vision and strategy over control (Vieira, O'Dwyer, & Schneider, 2017). In getting if there is a difference between performance management and MCS, there should be a vital overlap. Both the two systems also have main objectives in supporting the achievement of a firm's goals and objectives, and that is the reason they can be considered synonyms in some situations (Siska, 2015). However, MCS term is preferred that performance management in emphasizing a system's structure. On the other hand, performance management term is preferred to MCS when it is the system's behavior that is in question.

Background of study

Most of the organizations have found it difficult in measuring strategy and management control system. Thus, it is essential for them to know the way the management control system and strategy can be linked to the performance measurement system. Currently, the use of financial and non-financial performance tools is associated with a company's business strategy in contemporary performance management. This makes it significant to find the relationship between the three terms. Conversely, many companies are under pressure to deliver success to both the shareholders and other stakeholders as they have confidence that Contemporary Performance Management (CPM) systems will assist them to complete the task. In the past, it is only MCS that has been linked to performance management making it essential to know the relationship between strategy and performance management.

Description of the purpose and structure of the paper

The primary goal of this research is developing a conceptual framework on the different ways in which performance measurement system like Balanced scorecard relates to the strategies set by the origination and the various management control systems. It tends to find out if management control systems and strategies enhance or limits the performance of a firm. The research begins with the introduction and background of the topic. It then analyzes the topic of discussion which entails the relationship between strategy and performance management system, management control system and performance measurement system. The paper then summarizes the findings and making a conclusion from the study.

Topic of Discussion

Contemporary Performance Measurement

The main CPM tools used by organizations in achieving the goals of an organization include multi-criteria key performance indicators and balanced scorecards. According to Franco-Santos, Lucianetti, and Bourne (2012), CPM is the system which translates an organization's business strategies to considerable results by combining operating, financial, and strategic business measures in gauging the way a firm meets its set targets. CPM might also work as a strategy linking strategy and management control system as it offers information that enables a company in identifying the strategies which provide the highest potential of achieving a company's objectives. The objectives are then aligned with management processes like performance evaluation, decision making, and target setting in attaining the set strategic goals (Franco-Santos, Lucianetti, & Bourne, 2012). CPM is mainly present in both the financial and non-financial performance indicators utilized in operationalizing the set strategic objectives.

The different CPM systems are efficient mechanisms for involving the managers in review processes and strategy formulation. It is upon an organization to set the right strategies in helping it achieve its goals and compete effectively with the competitors. The CPM systems can enable a strategy to be implemented while it is translated into operational terms. The managers should also be encouraged in embracing a firm's strategy as a process that continues and not a one-off exercise.

Contemporary Performance Measurement and Strategy

Typically, the performance indicator systems cannot be collectively suitable meaning that every company should design its system while considering its circumstances to evade performance loss. In strategy, management processes, and communication, CPM plays an essential role to generate the organization capacities which makes it excel (Koufteros, Verghese, & Lucianetti, 2014). Additionally, the CPM systems help in the implementation, review of business strategies and facilitation of development through focusing on the actions and decisions people make on strategic goals. It also encourages a continuous dialogue concerning strategic endeavors. The CPM systems usually affect the management practices and routines through changing ways in which the leaders behave. All the issues have an impact on performance at all levels.

Vieira, O'Dwyer, and Schneider (2017) argue that a CPM system can positively influence organizational capabilities and individuals' behavior. Performance is also directly related to the way a system is developed, used, and designed and the way it fits the context of its operations (Vieira, O'Dwyer, & Schneider, 2017). For the CPM system, researchers claim that in being effective, the systems should compromise the performance target and measures with high controllability timeliness, technical validity, and strategic alignment. Furthermore, they are supposed to state the way performance measures are interconnected using the cause and effect relationships.

In looking at the CPM systems development, it is essential to adopt a transparent, consultative, and fair process in which in which individuals feel involved and empowered. The CPM systems development are supposed to be incremental and iterative in allowing continuous improvements. On the issue of its use, researchers have agreed that it is essential to find a balance between interactive and diagnostic uses and amid t motivational and informational uses of the CPM systems (Vieira, O'Dwyer, & Schneider, 2017). Unfortunately, literature gives little information on the way of achieving the balance. Data indicates that efficiencies of the CPM systems are toned-down using the internal contingencies like an employee's experience in areas such as information systems, orientation, structure, management style, and culture with other external contingencies including the level of environmental uncertainty and competition that the firm operates (Chenhall, 2003).

The main aim of PMS is assisting companies to define the measures which reflect their goals and analyze the performance. Setting up clear strategies help organizations work towards achieving them by using all the resources they have in place. The leading used PMS used is Balanced Scorecard. The BSC promotes a holistic read of a company, prioritizing strategy, and vision over management (Franco-Santos, Lucianetti, & Bourne, 2012). It is supported with a mix of four views of performance including financial, internal business processes, customer, and learning and growth. It is doable to watch gift performance moreover as acquire data concerning the longer-term ability to perform. Second, it helps in translating a company's vision into actions through strategic objectives and a group of performance measures which are supported by specific targets and concrete initiatives (Franco-Santos, Lucianetti, & Bourne, 2012). Third, exploitation the BSC facilitates the identification of success drivers, permitting managers to specialize in a little range of critical indicators, thereby avoiding data overload.

Performance management system can help an organization improve its strategic execution by visualizing an organization's strategy (Perego & Hartmann, 2009). Traditionally, strategic plans are written in a linear format where the organization lists its goals, critical measures, and projects. PMS enables an organization to establish an infinite strategy configuration basing on the audiences. Through PMS a company will quickly track the ownership of its information. Collecting information from different data owners in a company is usually difficult for most of the strategy officers. Thus, an essential PMS can easily turn the process of making a company proactive instead of being reactive. Through these strategies, a company will easily achieve its set goals and objectives.

Performance Management System and Management Control System

The main aim of a performance management system is helping companies define measures which reflect their objectives and assess the way it relates to their performance (Perego & Hartmann, 2009). PMS is essential as it enhances better understanding of input and output relationships and facilitation of activities coordination among the organizational subunits. Generally, the managers have the incentive for improving the areas where their performance is evaluated and measured (Perego & Hartmann, 2009). However, in realizing performance indicators potential benefits and using them, it is significant to know that information system characteristics are required to offer relevant and useful performance measures.

Management control systems are each affected by and affect the strategy process itself. MCS are considered for the most half to be strategy-implementation systems and the last step within the strategic management process (Malmi & Brown, 2008). The other line of research emphasizes the effects of MCS on strategy. These conceptualizations consider strategy as being influenced by MCS. In these studies, the role of MCS in strategy formulation is recognized as their continuous implication during strategic management process. This conceptualization of MCS follows a processual approach whereby the perspective is dynamic making the focus to be on issues such as the dialogue and interaction surrou...

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Can Performance Measurement System Work as "Link" Between Management Control System and Strategy?. (2022, Oct 03). Retrieved from

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