3.

1 PMM theoretical foundations

Since Johnson and Kaplan (1987), PMM has been investigated by subsequent researchers using
different theoretical “lenses”. These lenses included applying agency theory, contingency theory,
resource-based view, and goal-setting theory in the study of PMM (Franco-Santos et al 2012).

Bourne et al (2000) critiqued the traditional PMM derived from accounting system which have
encouraged short term perspective, prioritised local-level optimization, promoted minimization
of variance, became inward looking instead of outward, lacked strategic focus, even favoured
‘creative destruction’ of franchises, and in so doing eventually led to the destruction the very
objective, organisational competitiveness, that strategy sought to achieve.

In the early 90’s, Kaplan and Norton (1992) proposed a balanced scorecard that opposed the
single-dimensional accounting based PMM arguing that in its current form, it is principally a
lagging indicator.

Over reliance on financial indicators, argued Kaplan and Norton (2001), encouraged short-term
performance achievement at the expense of long-term value creation. Balanced scorecard
enlisted customer, internal business, and innovation and learning perspectives. While financial
perspective was reframed as shareholders’ perspective.

Bititci (2012) proposed that the theoretical foundations of PMM is rooted in cybernetic control,
cybernetic is from the Greek root-word ‘kubernetes’. Underpinning PMM is the concept of
Performance Measurement System (PMS) which is a collection of performance measures
organised into a system of managing the performance of an organisation (Neely et al 1995).

Goal setting, developing performance measures, collecting, analysing, reporting, interpreting,

reviewing, and acting on performance data eventually formed part of PMS (Melnyk et al 2014).
Feedforward and feedback controls are included in PMS where feedforward control is involved
with goal setting based on external inputs, whereas feedback controls is involved with attainment
of objectives (Bititci 2012). PMS and strategy are linked in a dynamic two-way relationship in
which PMS informs on strategy, and PMS advances in response to strategy (Margretta and Stone
2002).