ELSEVIER Int. J. Production Economics 42 (1995) 137-147 Modelling of performance measurement manufacturing enterprises Umit S. Bititci pro&&ion economics systems in Department of Design Manufacture and Engineering Management, University of Strathclyde, James Weir Building. 75 Montrose Street, Glasgow GI IXJ, UK Received 13 January 1995 accepted 11 October 1995 Abstract In this paper the analysis, modelling and design of performance measurement systems is demonstrated through a case study example. The paper starts off with reviewing the current developments in the area of performance mea- surement. It then goes on to specify a set of requirements which future research on performance systems should address. The remainder of the paper summarises an attempt to modelling performance measurement systems using three views in a similar manner to that of information systems modelling techniques commonly used today. Keywords: Performance measurement Modelling Integration 1. Introduction Business Performance improvements arising from increased manufacturing integration contin- ues to be one of the primary competitive issues of the 1990s. Recent research into manufacturing systems integration [l] has identified the need for effective deployment of business objectives down through the organisation and the subse- quent measurement of performance in critical areas as key elements of sustainable competitive advantage. The objective of the current research is to pro- vide industry with a comprehensive and rigorous set of tools, techniques and procedures to allow auditing of existing performance measurement sys- tems against a reference model and consequently design more robust, flexible and integrated perfor- mance measurement systems which could be used as a management tool by strategic, tactical and operational levels of management. This objective is being pursued through a collaborative research programme between the academic and industrial research partners at the Universities of Liverpool, Loughborough and Strathclyde. The deliverables of this research will provide manufacturing industry with an approach to auditing their performance measurement systems to ensure consistency and to provide reference models against which such performance measure- ment systems can be benchmarked and designed. The objective of this paper is to report the work carried out thus far at the University of Strathclyde with particular emphasis on the tools and techniques used for the analysis and model- ling of performance measurement systems. 0925-5273/95/$09.50 0 1995 Elsevier Science B.V. All rights reserved SSDZ 0925-5273(95)00172-7

138 US. Bititcillnt. J. Production Economics 42 (1995) 137-147 2. Background and non-financial measures that fit within a strate- gic framework. The hypothesis behind the research described in this paper was borne directly from the previous research aimed at developing integrating methods based on analysis of information, material flow and organisational systems [l]. This previous pro- gramme identified the value of Viable Systems Configurations Modelling [2,3] as a frame work for analysis of manufacturing integration and the benefits of using performance measurement to deploy business objectives and to pinpoint and monitor performance improvements. Other researchers have also noted the links between per- formance measures and strategic plans and/or crit- ical success factors of the business. The research by Neely [4], Grady [5] and Eccles and Pyburn [6] supports the same conclusions drawn in the earlier research programme. Furthermore, based on research carried out by Bititci [18], Blenkinsop and Burns [19] and Gelders et al. [20] there is evidence that, even in companies where quality oriented performance measures are employed, these are still being used in a manner which does not promote integration. There has been several cases cited where the company���s strategy, improvement projects and performance measures were in conflict. Research by Yoshikawa et al. [21] and Sakurai [22] illustrate that the Japanese research shows a significant difference from the Western research, rather than emphasis on performance measure- ment which tends to reinforce an ���as-is��� view, they tend to put greater stress on ���targets��� and the measurement of the gap from the targets to facil- itate continuous improvement. In summary, the need for an integrated set of performance measures which support rather than contradict business objectives is now clearly estab- lished [7]. 3. The future In addition, there is already considerable work being carried out by the accounting profession on performance measurement. Indeed, most manu- facturing organisations have extensive perfor- mance measurement systems based on cost and financial accounting practices. However, because these techniques are often based on old fashion overhead absorption methods they fail to support the current business objectives and do not enable continuous improvement [8]. More recent innova- tions such as Activity Based Costing improve allo- cation methods but still do not promote continuous improvement and strategic orientation. Notable work has been carried out by Kaplan [9, lo] and Johnson [l l] in recognition of these weaknesses. Neely [12] summarises the short com- ings of the current accounting practices with respect to performance measurement in manufac- turing enterprises. In the context of the above discussion future research on performance measurement systems must place emphasis on the following points: l Performance measurement systems must be researched in a holistic context applying to all aspects of a manufacturing business in order to avoid suboptimisation. l Performance measurement systems must pro- vide a vehicle for deploying business objectives and strategies through all levels of the organi- sation to maximise integration. l Performance measurement systems must facili- tate continuous improvement in line with the strategic objectives of the business. l Performance measurement systems should facilitate understanding of the structures and relationships between various measures and promote conscious management of inevitable conflicts. Because, financial measures that are currently in l The traditional accounting based performance place are not supporting the change process, there measures and the non-financial performance is a case for new styles of measurement systems measures should not be mutually exclusive but that are appropriate to the needs of the modern should be integrated under one system of per- manufacturing industry. Green [13], McNair et al. formance measurement. [14, 1.51, Druker [16], Russell [17] and Kaplan [9] l Performance measurement system design should show that there is a need for alignment of financial consider information systems capabilities to