Strategic Performance Measurement Systems And The Resource example essay topic

This paper discusses the development of a strategic performance measurement system in a multinational service corporation, which is congruent with the resource-based view and underpins the sustainable advantages obtained by the corporation. Scholars who subscribe to and use the analytical frameworks developed within the resource-based perspective of strategy maintain that strategy is about winning. Winning involves the development of a unique posture or position, which secures a sustainable competitive advantage. Sustainability derives from, but is not restricted to, the employment, development and leveraging of resources and dynamic capabilities which contribute to market heterogeneity. Their value, in the form of the ability to sustain rents, derives from their relative scarcity and immobility.

These asymmetric resources and dynamic capabilities are characterized as being durable and difficult to appropriate, transfer or replicate. Competitive advantage involves creating value through cost and / or differentiation advantages. The advantages are based on achieving superior performance from one or more of four interrelated factors; efficiency, quality, innovation and responsiveness to customer expectations. The resource-based view of strategy identifies a limited number of resources, which demand attention because their value derives from their scarcity and immobility. Valuable resources usually are those, which are intangible in the financial accounting based system of classifying resources as tangible or intangible.

Intangible resources are not directly measurable in accounting terms. Their contribution to firm profitability is assumed from derivative accounting practices and standards. In the system which classifies resources as contained resources or system resources, valuable resources are complex networks of firm specific system resources, which cannot be directly trade able because they cannot be easily identifiable or valued monetarily. Conventional accounting measures of performance are unable to identify or measure directly the value contribution of system resources. A fundamental axiom in strategic management is that strategy determines firm performance. Winning involves the achievement of superior performance with the measurement of performance being determined traditionally and conventionally through financial indicators associated with accounting determined firm profitability.

There are fundamental conceptual differences between the resource based view and the financial accounting view of organizational performance. In the resource-based view, organizational performance is an outcome of the effectiveness of achieving congruence between resources, capabilities, firm strategy and the competitive market context. In contrast, conventional financial performance measures are partial equilibrium measures, which use external reference points; they are an attempt to quantify organizational activities in terms of their pursuit of efficiency maximization. The conceptual differences mean that conventional financial performance measures are incompatible with the aims and objectives of the resource based view. The inability of financial accounting measures of performance to identify and value those resources and capabilities associated with sustainable competitive advantage, particularly those intangible or system resources related to the management of knowledge and innovation has led to the development of alternative, including strategy based, measures of performance. The value based, balanced scorecard approach is the most prominent of these alternative systems of performance measurement.

The balanced scorecard was developed in response to perceived shortcomings of conventional financial measures. Financial measures, even when they are transformed into measures of economic value, do not directly measure the contribution and performance of people, systems and processes. When expressed in present value or internal rate of return terms, the resulting lagged measures of performance become tautological, reflect outcomes of past actions and promote behaviour, which sacrifices long-term value creation for short- term instrumental performance. This paper reports on an investigation of the strategic performance measurement system developed by a prominent multinational service corporation, which employs a predominantly transnational strategy. The system was developed initially in Australia and implemented in the United States in 2000 where corporate headquarters are located. The system is compatible with the balanced scorecard but was developed independently of this paradigm.

It directly relates intangible resources concerned with people, customers and systems to conventional financial performance indicators. Benchmarking supplements the system and is unusual in that intra firm comparisons rather than inter firm comparisons are the bases for comparison. The size of the corporation, and the geographical representation in over 80 countries enables benchmarking to be performed internally. The system had its origins in the recognition that intangible resources and capabilities were responsible for organizational performance, which could not be measured and evaluated with the systems of control in place and the conventional financial measures used to determine profitability. This paper concludes by highlighting the necessary and important linkages to be made between strategic performance measurement systems and the resource-based view.