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Abstract
Purpose - This paper, originally published in 1995, aims to focus on the importance of performance measurement.
Design/methodology/approach - Focuses on the process of performance measurement system design, rather than the detail of specific measures. Following a comprehensive review of the literature, proposes a research agenda.
Findings - The importance of performance measurement has long been recognized by academics and practitioners from a variety of functional disciplines.
Originality/value - Brings together this diverse body of knowledge into a coherent whole.
Keywords Competitive strategy, Manufacturing industries, Operations and production management, Activity based costs
Paper type Conceptual paper
Introduction
When you can measure what you are speaking about, and express it in numbers, you know something about it ... [otherwise] your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely in thought advanced to the stage of science. (Lord Kelvin, 1824-1907).
Performance measurement is a topic which is often discussed but rarely defined. Literally it is the process of quantifying action, where measurement is the process of quantification and action leads to performance. According to the marketing perspective, organizations achieve their goals, that is they perform, by satisfying their customers with greater efficiency and effectiveness than their competitors (Kotler, 1984). The terms efficiency and effectiveness are used precisely in this context. Effectiveness refers to the extent to which customer requirements are met, while efficiency is a measure of how economically the firm's resources are utilized when providing a given level of customer satisfaction. This is an important point because it not only identifies two fundamental dimensions of performance, but also highlights the fact that there can be internal as well as external reasons for pursuing specific courses of action (Slack, 1991). Take, for example, one of the quality-related dimensions of performance - product reliability. In terms of effectiveness, achieving a higher level of product reliability might lead to greater customer satisfaction. In terms of efficiency, it might reduce the costs incurred by the business through decreased field failure and warranty claims. Hence the level of performance a business attains is a function of the efficiency and effectiveness of the actions it undertakes, and thus:
* Performance measurement can be defined as the process of quantifying...