Appendices

Overview of Popular
Performance Measurement
Models and Frameworks

Managing Business Performance: The Science and the Art

By Umit S. Bititci
Copyright © 2015 John Wiley & Sons, Ltd.
254 MANAGING BUSINESS PERFORMANCE

A.1 DuPONT MODEL

This is one of the original performance measurement systems that was developed
by Du Pont, the American chemicals giant, and is based on cost accounting theories
and practices. Du Pont developed a structure by linking accounting measures and
financial ratios – such as Return On Net Assets (RONA), Return On Investment
(ROI) and Return On Equity (ROE) – to more operational indicators and measures.
RONA is commonly used to evaluate the effective use of assets by measuring
the ratio of profit margins (net income) to asset turnover (average total assets). ROI
is used to evaluate the efficiency of an investment by comparing the ratio of profit
and investment cost. ROE is the ratio of net income to shareholders’ equity, which
shows the amount of profit generated from the money invested by shareholders.
One of the advantages of Du Pont’s model is its structure, which integrates
financial measures with operational indicators. In contrast, the main drawback is
that it is mainly focused on financial measures and has been criticised for being
myopic and short-term oriented.
Figure A.1 illustrates DuPont’s RONA tree.

Sales
Production Costs
Earnings Minus
Plus
Earnings As % Selling
Of Sales Divided by Cost Of Sales
Expenses

Plus
Sales
Administrative
Return On
Net Assets Multiplied by
Inventories
Sales
Plus

Turnover Divided by Accounts

Current Assets
Receivable
Total Plus Plus
Assets
Cash
Fixed Assets

FIGURE A.1 The DuPont model

A.2 THE PERFORMANCE MEASUREMENT MATRIX (PMM)

The PMM was developed by Keegan et al. (1989). It integrates financial and
non-financial internal and external facets of business performance, as illustrated in
Overview of Popular Performance Measurement Models and Frameworks 255

Non-Cost Cost

External
• Product reliability index • Price competitiveness
• No of customer index
complaints • Relative marketing
• Market share expenditure

• Cost of goods sold

Internal

• On time delivery
• Value added
• Cycle time
productivity
• No of new products
• Warranty returns cost

FIGURE A.2 The Performance Measurement Matrix

Figure A.2. The main strengths of PMM are its simplicity and integrated structure.
The main criticisms of PMM include a lack of structure and detail, particularly in
relation to making the links between different business dimensions more explicit,
as in the Balanced Scorecard.

A.3 THE PERFORMANCE MEASUREMENT QUESTIONNAIRE (PMQ)

The PMQ was created by Dixon et al. (1990) to serve as a decision tool for man-
agers. Essentially, it is a structured questionnaire that audits the compatibility of a
firm’s performance measures in relation to its improvement aims and objectives.
The questionnaire analyses alignment, congruence, consensus and confusion –
helping maintain consistency between the firm’s strategy, improvement actions
and measures. Essentially it is different from previous frameworks and models as
it does not attempt to provide a framework for designing a performance measure-
ment system, rather it is a tool for auditing the appropriateness of a performance
measurement system.

A.4 THE RESULTS AND DETERMINANTS FRAMEWORK

The Results and Determinants Framework (Fitzgerald et al., 1991) has a structure
composed of six performance dimensions classified under two categories: results
and determinants (Figure A.3).
256 MANAGING BUSINESS PERFORMANCE

Lagging Indicators Dimension of performance Types of measure

Relative market share and position
Competitiveness Sales growth
Measures of the customer base
RESULTS

Profitability
Liquidity
Financial performance
Capital structure
Market ratios
Reliability responsiveness
Aesthetics/appearance
Cleanliness/tidiness
Comfort
Friendliness
Quality of service Communication
Leading Indicators
DETERMINANTS

Courtesy
Competence
Access
Availability
Security
Volume flexibility
Flexibility Delivery speed flexibility
Specification flexibility
Productivity
Resource utilisation
Efficiency
Performance of the innovation process
Innovation
Performance of the individual innovations

FIGURE A.3 The Results and Determinants Framework

The results category covers financial- and competitiveness-related perfor-

mance measures. The framework conceptualises these measures as lagging indi-
cators that reflect the ultimate objectives of an organisation. The determinants
category includes performance measures for service quality, flexibility, resource
utilisation and innovation, which are conceptualised as leading indicators.

A.5 THE STRATEGIC MEASUREMENT ANALYSIS AND REPORTING

TECHNIQUE (SMART)

SMART, which is also known as the Performance Pyramid, was developed to

eliminate the disadvantages associated with traditional, financially focused per-
formance measurement systems (Cross and Lynch, 1989). This pyramid integrates
the strategic objectives and operational performance dimensions through a four-
level structure (Figure A.4). Whilst the right-hand side of the pyramid reflects
Overview of Popular Performance Measurement Models and Frameworks 257

The performance pyramid

The
vision

Market Financial Business units

Objectives measures measures Measures

Customer Business
Flexibility Productivity
satisfaction operating
units

Process Departments and

Quality Delivery Cost
time work centres

Operations

FIGURE A.4 The Strategic Measurement Analysis and Reporting Technique

internal efficiency measures, the left-hand side of the pyramid reflects external
effectiveness measures.

A.6 THE CAMBRIDGE PERFORMANCE MEASUREMENT

DESIGN PROCESS

The Cambridge Performance Measurement Design Process, illustrated in Figure

A.5, was developed in order to improve the design of performance measurement
systems (Neely et al., 1996). The process is documented in the form of a workbook,
which is available from the Institute for Manufacturing.1
The main contribution of this work is to show how all internal, external,
financial and non-financial elements are integrated with the strategy to create a
coherent performance measurement system. The framework can assist with iden-
tifying conflicting performance measures whilst maintaining a balance between
external and internal measures.

1
www.ifm.eng.cam.ac.uk/resources/strategy/getting-the-measure-of-your-business/.
258 MANAGING BUSINESS PERFORMANCE

Customer Guidelines for

Stakeholder
Requirements Ongoing
Requirements
Management

Conflict and
Define Business Environmental
Objectives Analysis

Detail Appropriate
Performance Destructive
Identify
Measures (existing Testing
Performance
and new)
Drivers

Discard some
measures

FIGURE A.5 The Cambridge Performance Measurement Design Process

A.7 THE PYRAMID OF ORGANISATIONAL DEVELOPMENT

Developed by Flamholtz (1995), the model links organisational capabilities (cul-

ture, system and resources) to success in the markets using six factors: corporate
culture, management systems, operational systems, resource management, prod-
ucts and services, and markets (Figure A.6). As a model it is much broader
than performance measurement systems, which it incorporates as a management
system.

A.8 INTEGRATED PERFORMANCE MEASUREMENT SYSTEM

(IPMS) REFERENCE MODEL

The IPMS reference model (Bititci et al., 1997) was developed to quantify and
model the relationships between performance measures. This system comprises a
reference model and an audit method. The model integrates stakeholder require-
ments with performance measures through: differentiating competitive character-
istics of different business units; deployment of stakeholder requirements through
the entire organisation; external monitoring and competitive positioning; key busi-
ness processes and associated performance measures (Figure A.7). It also includes
normative planning and active monitoring through the usage of leading measures.
Overview of Popular Performance Measurement Models and Frameworks 259

CORPORATE
CULTURE
• Values
• Beliefs
• Norms

MANAGEMENT SYSTEMS
• Planning Systems
• Organisation Structure
• Management Development Systems
• Performance Management Systems

OPERATIONAL SYSTEMS

• Accounting • Operations • Marketing • Human

• MIS • Sales Resources

RESOURCE MANAGEMENT

• Financial • Physical • Technology • Human

Resources Resources

PRODUCT & SERVICES

• Identify the “Nominal” and “Real” Products (services)

MARKETS
• Define targeted Segments
• Develop Niche

FIGURE A.6 The Pyramid of Organisational Development

A.9 THE BUSINESS EXCELLENCE MODEL OF THE EUROPEAN

FOUNDATION FOR QUALITY MANAGEMENT (EFQM)

The EFQM’s Business Excellence2 model is a framework, which links the key
performance results of an organisation to its processes and leadership. Referring
to Figure A.8 and working from right to left:

 Long-term sustainable performance (key performance results) is a function

of satisfied people (people results), satisfied customers (customer results) and
a positive impact on the society (society results).

2
www.efqm.org/the-efqm-excellence-model.
260 MANAGING BUSINESS PERFORMANCE

Business
Stakeholders
External Monitor
Objectives
Measures Business
Units
Stakeholders
External Monitor

Objectives
Measures Business
Processes
Stakeholders
External Monitor
Objectives
Measures
Activities

Stakeholders
External Monitor
Objectives
Measures

FIGURE A.7 Integrated Performance Measurement System reference model

 These results in turn are enabled by well-developed and mature processes that
are
 resourced with good people with appropriate education, training and

attitudes;
 directed by appropriate policies and strategies;

 supported by appropriate partnerships (e.g., suppliers) and other resources.

 All the results and enablers, in turn, are enabled by appropriate leadership.

Enablers Results

People People
Results

Key
Policy and Customer
Leadership Processes Performance
Strategy Results Results

Partnerships Society
& Resources Results

FIGURE A.8 The EFQM Business Excellence model

Overview of Popular Performance Measurement Models and Frameworks 261

The EFQM Business Excellence model, despite being criticised for its vague-
ness, has been popular and widely adopted across Europe and modified in other
regions of the world – for example the Australian3 and the Singapore4 Business
Excellence frameworks, amongst others.

FIGURE A.9 The Performance Prism

A.10 THE PERFORMANCE PRISM

Developed by Neely et al. (2002), the Performance Prism (Figure A.9) links Stake-
holder Contribution (the bottom face of the prism) with Stakeholder Satisfaction
(the top face of the prism) through Processes, Strategies and Capabilities (i.e., the
three vertical faces of the prism). Essentially its key message is that performance
results (i.e., stakeholder satisfaction) are a function of stakeholder contribution
orchestrated through strategies, processes and underlying organisational capabili-
ties. Each facet of the prism intends to create a focus around a key question:

 Who are the stakeholders of the organisation and what are their requirements?
 What strategies are required to ensure the needs of our stakeholders are
satisfied?

3
www.saiglobal.com/Improve/ExcellenceModels/BusinessExcellenceFramework.
4
www.spring.gov.sg/Building-Trust/Business-Excellence/Pages/business-excellence-
overview.aspx.
262 MANAGING BUSINESS PERFORMANCE

 What processes have to be put in place to allow the strategies to be delivered?

 What capabilities are required to operate the processes?
 What contributions do the stakeholders need to make to ensure that the
required strategies, processes and capabilities are in place?

REFERENCES
Bititci, U.S., Carrie, A.S. & McDevitt, L. (1997) Integrated performance measurement
systems: A development guide, International Journal of Operations & Production
Management, 17(5), 522–534.
Cross, K.F. and Lynch, R.L. (1989) The SMART way to define and sustain success,.
National Productivity Review, 9(1), 23–33.
Dixon, J.R., Nanni, A.J. and Vollmann, T.E. (1990) The New Performance Challenge:
Measuring operations for world class competition, Dow Jones-Irwin: Homewood, IL.
Fitzgerald, L., Johnson, R., Brignall, S., Silvestro, R. and Voss, C. (1991) Performance
Measurement in Service Business, CIMA: London.
Flamholtz, E. (1995) Managing organizational transitions: Implications for corporate and
human resource management, European Management Journal, 13(1), 39–51.
Keegan, D.P., Eiler, R.G. and Jones, C.R. (1989) Are your performance measures obsolete?
Management Accounting, June, 45–50.
Neely, A., Mills, J., Gregory, M., Richards, H., Platts, K. and Bourne, M. (1996) Get-
ting the measure of your business. Manufacturing Engineering Group, University of
Cambridge, Cambridge.
Neely, A.D., Adams, C. and Kennerley, M. (2002) The Performance Prism: The scorecard
for measuring and managing business success, Prentice Hall/Financial Times: London.