The challenges of measuring business excellence in the 21st century

Citation

Schiuma, G. (2009), "The challenges of measuring business excellence in the 21st century", Measuring Business Excellence, Vol. 13 No. 2. https://doi.org/10.1108/mbe.2009.26713baa.001

The challenges of measuring business excellence in the 21st century

Article Type: Editorial From: Measuring Business Excellence, Volume 13, Issue 2

1 Measurement challenges

What are the challenges of measuring business excellence in the twenty-first century business landscape? Which meaning, contents and modalities the measurement of business excellence has to have in the emergent new complex competitive scenario?

Today’s recession and the related economic and production difficulties that organizations are dealing with require a deep re-consideration of the business models and managerial approaches adopted to govern the organizational growth and value creation processes. It is important to highlight that organizations are today not merely engaged in dealing with a contingent downturn, but they have to face a structural transformation due to a change of the market’s features, characterized on the one hand by an increase of the pace of change and of its complexity, and on the other hand by a wide heterogeneity of the consumers’ wants and needs. This poses to organizations the need to evolve and to become more agile, reactive and, at the same time, proactive in order to answer to the changes and to the variability of the market’s demand. For this reason new business models and management innovations are necessary (Hamel, 2007). In this context, it is of great relevance to understand which new functions the measurement of business excellence has to play as well as which contents and modalities the performance measurement models have to present in order to answer to the new emergent needs of organizational governance.

The measurement is at the core of the performance management and of the strategic governance of organizations. Indeed, it has traditionally played a fundamental role in the modern management. The scientific management defined by Frederick Taylor (1957) at the beginning of the twentieth century had adopted the measurement as an essential means to make “visible and understandable people’s work” as well as the business processes’ performances. The effort of the modern management, along the twentieth century, had been aimed to develop a wide range of models to allow managers to control, understand and coordinate the functions of organizations’ value chain as well as their integration in accordance to a strategic perspective.

The analysis of the managerial models and tools developed in the management literature and practice stresses the importance of measurement as a process grounding the identification, classification and qualitative and/or quantitative analysis of the variables and components affecting the business process performances. Starting from the introduction of the Scientific Management all the models for managing performance, from operations to marketing, from logistic to selling, from human resource management to supply chain management, and so on, have adopted the measurement as an indispensable process for organizational performance management and the organizational strategic governance. Starting from this fundamental assumption, which recognizes the centrality of the measurement in the definition of any business model, we need to delineate what are the challenges of measuring business excellence in the twenty-first century business landscape. It is necessary to reflect whether the measurement takes new meanings and aims for the twenty-first century organizations. What are the new variables and dimensions that the measurement of business excellence has to involve in order to define new management models able to guarantee an organizational development coherent with the competitive challenges of the twenty-first century. Finally, it is critical to understand how the performance measurement systems have to evolve and to be integrated in the management models of the organizations.

2 From an efficient-based to a value-based perspective

The management literature focused on the performance measurement has widely analyzed the different managerial reasons motivating the adoption of a performance measurement systems within organizations (Bourne, 2001; Neely, 1998, 2002; Neely et al., 1995). However, independently from the diverse interpretations of the reasons justifying the adoption of a performance measurement system within an organization, the main traditional aim of the measurement has been to check and guarantee a continuous improvement of the efficiency of any organizational business activity and process. Indeed, starting from Taylor, who first introduced the measurement as a management tool, the adoption of the measurement systems has been mainly aimed to improve organizational process efficiency in terms of cost rationalization, optimization of the use and allocation of resources, improvement of the quality and reduction of the times. The scientific management as a body of knowledge, which has originated the modern management and the set of models today adopted by organizations, has assumed the measurement as an essential means to guarantee in accordance with and input-output approach that not only an organizational output is processed accordingly to the defined specifications, but most importantly that the output-input ratio is continuously improved through a deep understanding of the transformation function linking the inputs to the outputs. This represents the fundamental assumption grounding the performance measurement and management models. However, in the new emerging business landscape this efficient-based perspective needs to be expanded. The development and growth of the twenty-first century organizations will be increasingly tied to not only to the organization capability of being efficient, in order to produce competitive outputs, but more and more to the organization ability to comprehend and manage the links between the organizational business processes and the external environment. This requires an extension and integration of the efficient-based perspective towards a value-based perspective, which involves that a measurement system has to be thought as a means to drive organizations in their value creation dynamics in terms of satisfaction of the wants and needs of all stakeholders directly and indirectly connected to the organization (Neely et al., 2002). Consequently the new measurement systems need to be capable not only to govern the production of the organizational outputs, but they have to be able to drive the understating of the relationships linking outputs to outcomes, and the impacts that business activities have on the organization’s external economic, socio-cultural and physical environment. They have to guarantee the integration of an organization to the external environment and drive the organizational governance coherently with the emergent incremental and radical external changes.

3 The definition of a new measurement focus

In the 1992 Kaplan and Norton (1992) introduced in the management literature the Balance Scorecard as a integrated model for measuring organizational business performance. This model has marked the development of the managerial studies about the performance measurement, highlighting that the business excellence is tied, first, to the definition of measures in four fundamental perspectives – the economic and the financial perspective, the customer perspective, the internal process perspective, and the learning and the innovation perspective, and, second, to the integration of the measures into an unified framework (Kaplan and Norton, 1993). In the last years, the evolution of the Balance Scorecard, from a simple four box model to a strategic model, has contributed to point out the important variables and dimensions that a performance measurement system has to take into account and integrate in order to manage business performance as well as to strategically govern an organization (Kaplan and Norton, 1996a, b, c). In particular, the development of the studies and of the practices about the definition, implementation, management and review of the performance measurement systems have shown that the success and the excellence of an organization is due to not only to the ability to manage performance in the four balance scorecard’s perspectives, but a critical role is played by the measurement and management of the intangible and knowledge resources (Kaplan and Norton, 2003). This is one of the main challenges of measuring business excellence in the twenty-first century business landscape. Although, in the last decade a research stream focused on the measurement of intellectual capital has been developed by the confluence of different management research areas, such as intangible asset accounting, knowledge management, learning organization, strategic management, human resource management, and so on, there is still a need to further develop this research area. In particular, starting from the recognition that intellectual capital as a set of organizational intangible and knowledge asset value drivers affect organization’s value creation processes, it is necessary to understand what are the most significant intangible and knowledge assets affecting and driving the value creation dynamics of twenty-first century organizations. In particular, recognizing that in the future, organization’s competitiveness and efficiency will be increasingly based on the ability to harness complexity, managers need to revise their assumptions and corporate practices. Organizations will necessitate not only to manage their productivity and knowledge domains, but most importantly they will need to engage people’s imagination, passion and energy both at an individual and at a social level. Successful twenty-first century organizations must be capable of managing their energy and emotional states, as well as their experiential impacts on stakeholders, in order to govern value creation dynamics. Dimensions such as passion, emotions, happiness, hope, moral, imagination, aspirations, and creativity will be increasingly established as the new strategic organizational value drivers. In order to develop these competitive factors, companies need to turn their attention on measuring dimensions such as emotions, energy, excitement and experience. Therefore, one the challenges for measuring business excellence will be the development of a new generation of measurement systems capable of addressing the new intangible dimensions of business success.

4 From performance measurement systems to management systems

Although it is widely shared that the performance measurement systems have to support the organizational strategy definition, planning and implementation (Kaplan and Norton, 2006), it is possible to find in the practice that in many cases they play an additional role, rather than a focal one. Performance measurement systems are used at some stages of the management decision process, rather than to continuously orient the management actions at all levels of an organization. One of the main problem is that they are somehow not perfectly fitted with the management model of the organizations, i.e. with the way how the organizations work and take management decisions and actions on a day-by-day basis. Therefore an emergent challenge is to integrate the performance measurement systems in the management model of an organization and to make the measurement systems as an indispensable means for processing any organizational activity and make any management decision. In order to understand this position, the interpretative metaphor of the function mechanisms of the human beings can be adopted. The life of human beings is strictly related to biological performance measurement and regulating systems. Vital components such as blood pressure, hormonal levels and heartbeat, just to name a few, depend on a measurement and regulating system which is perfectly integrated into human organism. This metaphor aims to stress that the performance measurement systems within organizations should be integrated into the daily activities and support continuously management actions and learning. A first step in this direction is the integration of the measurement process with all other management processes taking place within organizations. This involves that at the basis of the definition and implementation of a performance measurement system lies the understanding of the meta model delineating the management working mechanisms of an organization. In other words, the performance measurement systems need to be designed and implemented into an integrated way with the organizational management model. In this way a performance measurement system not only allows to support and drive the organizational performance management processes, but also sustains the organization single and double loop learning processes as well as the evolution adaptability to environmental external changes. Consequently the attention on measuring business excellence will be moved increasingly from the definition of performance measurement systems to management systems that consider the measurement as an integrated module of a management model (Kaplan and Norton, 2008).

5 Final notes

As organizations are dealing with an emergent new business landscape the intent of our journal Measuring Business Excellence is to stimulate and fuel a wide and deep scientific conversation able to move forward the knowledge frontiers about the definition, implementation, execution and review of the performance measurement and management systems which allow to organizations to growth and generate wealth. Our engagement is to select relevant academic and practitioner-based papers which contribute both to further develop the traditional research streams about the performance measurement, and to open up new potential research streams dealing with the challenges above addressed.

About the author

Giovanni Schiuma, PhD, is Scientific Director of the Center for Value Management at the Università della Basilicata in Italy. Giovanni is Visiting Fellow at the Center for Business Performance, Cranfield School of Management and Adjunct Professor at the Tampere University of Technology, Finland. Giovanni is Co-Editor in Chief of Measuring Business Excellence and his primary research interests focus on the following areas: knowledge asset and intellectual capital management, performance management systems, innovation and change management, organizational behavior, organizational learning, industrial district and local development. For further information please visit www.gschiuma.com. Giovanni Schiuma can be contacted at: giovanni.schiuma@unibas.it