108 Int. J. Business Performance Management, Vol. 10, No. 1, 2008 Copyright �� 2008 Inderscience Enterprises Ltd. The strategic management of operations system performance Edson Pinheiro de Lima* and Sergio E. Gouvea da Costa Industrial and Systems Engineering Graduate Program, Pontifical Catholic University of Parana, 1155 Imaculada Conceicao Street, Curitiba 80215-901, Brazil E-mail: e.pinheiro@pucpr.br E-mail: s.gouvea@pucpr.br *Corresponding author Jannis J. Angelis Operations Management Group, Warwick Business School, University of Warwick, Scarman Road, Coventry CV4 7AL, UK E-mail: jannis@angelis.se Abstract: The enterprises��� operations systems environments, characterised by their complexity and dynamics, are challenging the strategic management models. This paper presents the development of a theoretical framework, organised as a set of design recommendations to guide the performance measurement system capabilities development. The developed theoretical construction is based on the literature review. A framework is constructed to represent the relationships between roles, capabilities and design recommendations of a performance measurement system. The measurement system is studied in the context of an Operations Strategic Management System (OSMS) and three different levels of analysis are used to organise the findings of this study. The results are presented in tables that identify the main roles that the measurement system should perform establish the relationships between roles and required capabilities and generate a list of design recommendations. Based on the mediating function of the required organisational capabilities, the causal links are identified and the framework is generated. Keywords: operations strategy performance measurement strategic management. Reference to this paper should be made as follows: Pinheiro de Lima, E. and Gouvea da Costa, S.E. and Angelis, J.J. (2008) ���The strategic management of operations system performance���, Int. J. Business Performance Management, Vol. 10, No. 1, pp.108���132. Biographical notes: Edson Pinheiro de Lima is a Founder Member of the Mechatronics and Industrial Engineering Group at the Pontifical Catholic University of Parana ��� PUCPR, Brazil. He received a BSc in Electrical

The strategic management of operations system performance 109 Engineering, an MSc in Electrical Engineering (Automation) and a PhD in Industrial Engineering. His research and teaching is in the operations strategy, performance management, strategic management and organisational design. Sergio E. Gouvea da Costa is a Founder Member of the Mechatronics and Industrial Engineering Groups at the Pontifical Catholic University of Parana ��� PUCPR, Brazil. He received a BSc in Electrical Engineering, an MSc in Electrical Engineering (Automation) and a PhD in Industrial Engineering. His research and teaching is in the manufacturing strategy and performance area, AMT adoption and technology management. Jannis J. Angelis is an Assistant Professor in the Operations Management Group of the Warwick Business School at University of Warwick, UK. He received a BA Economics and Economic History (Lund and Stockholm Universities), a BA Philosophy (Stockholm University), a BSocSc in Political Science (Uppsala and Stockholm Universities), an MSocSc in International Relations (Stockholm University), an MA in China Studies (SOAS, London), an MPhil (Cambridge) and a PhD (Judge Business School, Cambridge). His research and teaching is in the operations and technology strategy, innovative and lean/agile operations across supply/value chain and human factors. 1 Introduction The increasing competitive pressure resulting from operations activities and markets globalisation are forcing enterprises to reorient their strategies, operations systems, processes and procedures to sustain their competitive positions. This changing process can be supported by an Operations Management (OM) system redesign, which establishes the development of a strategic management dynamic capability as its main orientation (Teece et al., 1997). The process of Operations Strategic Management System (OSMS) redesign necessitates a more ���balanced���, ���integrated���, ���linked���, ���flexible���, ���multifaceted��� and ���multidimensional��� management system (Gomes et al., 2004). Such properties should reflect the performance measurement system specification when describing the whole strategic OM system. But these properties are currently not well developed and integrated to the strategic OM processes, and do not offer the opportunity for firms to better understand their operations systems environment and to increase their performance level (Platts, 1995 Slack, 2000). Franco-Santos and Bourne (2003) identified that organisations devote time and effort developing strategic performance measurement systems. Their research is looking for an understanding about why some organisations are better able to ���manage through measures��� than others. This question is related to the strategic dimension of the organisations��� performance and needs an in-depth comprehension about the interplay between action and measurement, the performance information use in their decision-making processes and their subsequently actions. It is not clear what critical factors enable organisations to effectively use their strategic performance measurement system. This paper furthers this discussion in the level OM systems, developing an understanding about the relationships between performance and strategic management systems.

110 E. Pinheiro de Lima, S.E. Gouvea da Costa and J.J. Angelis In issues associated with individual measures of performance, the research relates to the question ���How can one ensure that the management loop is closed ��� that corrective action follows measurement?��� The research also contributes to the understanding of what are the ���definitive��� principles of performance measurement system design and identify what techniques managers can use to reduce their list of possible measures to a meaningful set. Studying the issues associated with the system and its environment, questions such as ���Why do firms fail to integrate their performance measures into their strategic control systems?��� and ���How can we ensure that the performance measurement system matches the firm���s strategy and culture?��� are orienting the development of our research. It is also important to highlight that for improved performance OSMS that encompasses the measurement subsystem, should be conceived to deploy enterprise strategic Performance Management (PM) instead of performance measurement systems, develop dynamic rather than static strategic management systems and enhance the flexibility of performance measurement systems to improve the capability to cope with organisational changes (Neely, 2005). The long-term perspective of the operations strategy is presented in the performance measurement system design, as an attempt to interconnect the resources utilisation with future performance. The capabilities models and the activities and processes play a role to mediate this relationship and give this study its focus (Flynn and Flynn, 2004 Flynn et al., 1999 Maslen and Platts, 2000 Neely et al., 2005 Slack et al., 2004). This paper shows a theoretical development that articulates roles and design specifications of a strategic PM system. This task is carried out in the context of OSMS and it uses the performance measurement system capabilities to mediate the relationship between roles and design recommendations. 2 The operations strategic management approach Frohlich and Dixon (2001) comment that the field of OM, particularly in strategic related themes, has done commendable work putting forward new ideas but has been less effective in validating the concepts after their introduction. Thus, the theoretical construction in this paper is conceived in the trajectory of a validating process, which will further test the developed framework, using refining and validating techniques. It is important to understand the propositions of this research work in three levels. First, it will be related to the rationalities used in the OM ��� field, specifically in the domain of the PM ��� discipline, for producing knowledge that will be consolidated in theories, models, frameworks and processes. For this purpose, the theoretical constructions developed by Neely (2005) and Slack et al. (2004) are used to position this paper. Slack et al. (2004) propose that the OM orientation that must be taken is to continually seek reconciliation between research and practice. In this sense, OM methods provide an important contribution in improving enterprises��� operational and strategic activities. Accordingly, the research presented in this work assumes the role of research and practice reconciliation, contributing to the development and test of practical solutions for OSMS design, implementation and management. Neely���s (2005) theoretical construction, which is represented in Figure 1, may be used as a meta-framework to position the presented discussion in the evolutionary life

The strategic management of operations system performance 111 cycle process that found the PM discipline. There is a specific context that may be used to explain the approach of this paper in producing and testing the models and methodologies developed in the PM domain. The discussion presented in this paper embraces the ���proposed frameworks��� and ���methods of application��� phases. It identifies and proposes a reviewed set of design, implementation and management specifications for OSMS and seeks to understand the role of performance measurement subsystem in this reviewed strategic management system. Therefore, it should be recognised that the OM field is in a continuous, complex and dynamic evolution, which operations managers and professionals face in their day-to-day decision process situations (Slack et al., 2004 Zilbovicius, 1997). For the purposes of this research, the specific context that represents its evolution is presented in Table 1. Figure 1 The evolution of the field of performance measurement Source: Neely (2005). Table 1 The research context Phase Description Problem identification The real benefits of strategic PM systems are not being achieved Proposed frameworks The developed concepts, frameworks and theoretical assumptions area being reviewed Methods of application The design, implementation and management processes are being modified to attend the new specifications of the OSMS Empirical investigation These new methodologies and systems will be tested Theoretical verification A new cycle of knowledge producing will be started as results are consolidated in the OM and PM approaches and theories The second level that the present research is related to explains how it addresses practical issues, in designing, implementing and managing OSMSs. The process approach (the Cambridge approach) may be used for implementing activities, integrating design and management processes (Platts, 1993, 1994 Platts et al., 1996). The underpinning rationality of the design process addresses the implementation and managing processes, creating the conditions for a double-loop learning process development. Slack (2000) identifies three main phases in the process of redesigning a manufacturing system, which are the structuring activity, the suppositional activity and the assimilation activity (Figure 2). The three interrelated activities play a special role in integrating design, implementation and management of OSMS.

112 E. Pinheiro de Lima, S.E. Gouvea da Costa and J.J. Angelis Figure 2 A model of the underlying design activity Source: Slack (2000). The presented approaches were selected to provide some specific features for OSMS, which could be summarised as: ��� The system will structurally provide organisational learning as an important outcome of the design process (Slack, 2000), the implementation process (Platts, 1993) and the management process, which is set by definition as a strategic management system. ��� It will develop a better understanding of the operations processes dynamics, allowing companies to develop a strategic vision based on dynamic capabilities (Slack, 2000 Teece et al., 1997). ��� The learning processes and the enhancing knowledge basis could lead to an improvement of the perception of having the strategic management system under control. This reinforces a continuous and virtuous cycle of learning and improvement (Slack, 2000). The third level of analysis is defined by declaring theoretical assumptions that set the theoretical constructions. These assumptions act as recommendations (Folan and Browne, 2005) informing the theoretical development and delimiting their scope as a strategic management system (Henry, 2006). It is important to formally declare the theoretical assumptions about performance measurement systems, particularly when they are being studied in the context of OSMS: ��� According to Neely et al. (2005), the performance measurement is the process of quantifying the efficiency and effectiveness of action. A performance measurement system is the set of metrics used to quantify both efficiency and effectiveness of actions. Central to these definitions is that action leads to performance and that there are internal and external factors that affect the efficiency and effectiveness of this relationship. ��� Mintzberg (1978) argues that only through a consistent pattern of actions, a strategy could be identified. In fact, the strategy only exists if it is realised. It is assumed that there is an interplay between the actions��� results and the consistency that is established over time the performance measurement system could mediate that interaction.