PERFORMANCE MEASUREMENT SYSTEMS
IMPLEMENTATION IN SMALL AND MEDIUM-SIZED
ENTERPRISES
Matilla Magali and Chalmeta Ricardo
Grupo IRIS, Universitat Jaume I, Campus Riu Sec, 12071,Castellon, Spain
Keywords: Business performance, Performance measurement, Methodology.
Abstract: This paper describes the PMS-IRIS methodology for designing and implementing performance
measurement systems in small and medium-sized enterprises (SME). Performance Measurement Systems
enable enterprises to evaluate the efficiency and effectiveness of their decisions and operations through a set
of indicators related to the vision and strategy of the company. The methodology embraces activities of
project planning, strategy design, definition of indicators, process improvement, monitoring, and the design
of the computer system required to support the implementation of a performance measurement system.
1 INTRODUCTION
Today, enterprises undergo constant transformations
to enable them cope up with a highly dynamic world
of economic environment characterised by
worldwide scope of markets, increasing customers
demands, technological advances, and by the impact
on the environment. This new action framework
forces enterprises to constantly modify the culture,
the way they operate and how they are structured
internally in order to compete and survive in this
environment.
In this context, one of the tools that enterprises
are using to improve their competitiveness is
Performance Measurement Systems (PMS) as
management methods to measure the efficiency and
effectiveness of the decisions they make (Kennerley
and Neely, 2002). Effectiveness refers to how
skilfully the customer’s requirements are resolved.
Efficiency is a measure of how economic resources
are used to achieve the customer’s satisfaction.
A business performance measurement system is
a set of metrics for measuring and evaluating the
efficiency and effectiveness of business operations
that can be used as a support in making suitable
decisions to enhance the competitiveness of the firm
(Neely et al, 1995). PMS include measures of
financial and non-financial performance that vary
from one organization to another because they are
derived from the firm’s strategy, but in any case they
should always provide relevant information for
decisions making that enable the enterprise to
become more competitive.
Initially, traditional PMS only had cost aspects,
today most of PMS include measurements of
performance both financial and non-financial aspects
such as time, quality, flexibility and efficiency
(Chris, 1999).
Since the early 90s different frameworks have
been put forward for designing PMS: Strategic
Measurement Analysis and Reporting Technique
(SMART) (Lynch and Cross, 1991), Results and
determinants matrix (Fitzgerald et al., 1991),
Performance Measurement Questionnaire (PMQ)
(Dixon et al., 1990), Cambridge performance
measurement process (Neely et al., 1996), Balanced
Scorecard (BSC) (Kaplan and Norton, 1996),
Integrated performance measurement framework
(Medori, 1998) and Dynamic Performance
measurement systems (Bititci et al., 2000).
2 PMS-IRIS METHODOLOGY
The PMS-IRIS methodology is shown in figure 1. It
incorporates and adapts aspects of methodologies
based on BSC, such as (Ahn, 2001; Lohman et al.,
2004), and complements them with useful elements
for SME.
525
Magali M. and Ricardo C. (2007).
PERFORMANCE MEASUREMENT SYSTEMS IMPLEMENTATION IN SMALL AND MEDIUM-SIZED ENTERPRISES.
In Proceedings of the Ninth International Conference on Enterprise Information Systems - ISAS, pages 525-528
DOI: 10.5220/0002367005250528
Copyright
c
 SciTePress

Figure 1: Phases of the PMS-IRIS methodology.
2.1 Planning of the Project
In this phase the organizational unit in which the
project is to be applied is identified. The project
team includes specialists in finances, human
resources, technologies and quality, and members of
other areas of the firm. The project plan is created,
quality control mechanisms and the plan for change.
2.2 Definition of the Enterprise
Environment
This phase focuses on understanding the business in
the competitive environment, its internal situation,
culture and organizational structure. The aspects at
the enterprise level are defined: mission, vision and
strategy. The external and internal analysis and the
strategy of the organization are used to identify the
Critical Success Factors (CSF) for the strategy.
2.3 Design of the Key Performance
Indicators at the Strategic level
In this phase the set of Key Performance Indicators
(KPI) derived from the strategy for the short-term
strategic goals are designed.
The methodology proposes six perspectives:
The financial perspective meets the shareholders’
expectations, focused on the creation of value
through financial indicators.
The customers perspective identifies the
customer segments to compete in reaching the
financial objectives. The indicators to be considered
are: market share, customers increament,
acquisition, satisfaction and profitability.
The processes perspective involves indicators
associated with the key processes of the enterprise,
to satisfy both shareholders and customers. The
indicators are grouped into categories: efficiency,
effectiveness, flexibility, time, quality or cost, and
must be evaluated in each of the internal processes
defined. The processes are divided into two types: 1)
Customer-related processes (marketing, sales and
postsales), and 2) Support processes, which include
supply chain management processes (materials,
production and distribution management), human
resources and computer system.
The technology perspective includes indicators
that express in what technological aspects is
necessary to invest to accomplish efficient
processes, such as information system technologies
and degree of automation process.
The formation perspective includes indicators
related to the aspects of learning the human
resources, such as degree of satisfaction, retention
and productivity.
The corporative social responsibility perspective
evaluates the position and image of the enterprise
within the competitive environment, such as the
number of jobs, health and safety, waste, energy and
water usage.
The specification for each indicator includes:
identifier, objetives, person who guarantees
fulfilment, category, algorithm for calculation,
standard value, maximum and minimum value,
scale, period of validity, time interval in which it is
to be calculated, degree of importance, analysis and
interpretation of the result, initiatives for fulfilling
the indicator, actions to be followed if it is out of
range
2.4 Process Analysis and Redesign
In this phase the processes related to the Critical
Success Factors of the strategy for implementing
improvements that facilitate the fulfilment of the
proposed KPI are redesign.
The first step is to identify the processes and
analyze their activities, through a map of processes
that describes the current situation (as-is model),
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deficiencies and opportunities for improvement are
reflected and changes are introduced, thus
establishing what processes should be like in the
future (to-be model).
The map of processes includes: Name and
description; Type of process (support/customer),
Inputs and Outputs, Process diagram showing the
sequence of activities, Indicators for evaluating the
process, Critical Success Factors and Plan of
improvements of the process.
Different graphic representation techniques can
be used to model the business processes, such as
IDEF0 or UML activity diagrams (Chris, 1999).
2.5 Development of the Measurement
by Levels
In this phase the objectives and indicators defined at
the strategic level are taken for deploying the set of
indicators throughout the different business units or
processes. The objective here is to adjust the
indicators proposed by management to a lower level:
the operating level. This way it becomes possible to
achieve the commitment of the operating levels and
to stimulate the fulfilment of the business strategy
with the participation of all members of the SME.
2.6 Validation
In this phase a complete validation of the system of
indicators designed with the cause-effect relations is
realized. The idea here is to use the results achieved
over a period of time to look for a relation among
the cause and effect indicators, and to measure the
relation among the variables chosen for adjustments
to be made to the proposed system. Regression
analysis can be used to adjust the indicators.
2.7 Implementation
In this phase the Computer System that aids the
PMS is implemented and is integrated to the
information system of the enterprise. Training the
Human Resources to understand the PMS designed
and how to use the computer system is a key
element in the success of the project.
2.8 Monitoring
In this phase a set of procedures for keeping track of
the PMS are designed. For that the implementation
of the PMS is regularly checked and evaluated by
monitoring the system in real time and honing it to
peak efficiency.
As more results become available, the
hypotheses formulated in the strategy can be tested
and a process of feedback and ongoing learning is
started. Depending on the organizational level
(operational, strategic), the strategy is reviewed
periodically, readjusting the indicators or
undertaking actions to fulfil the goals proposed.
3 COMPUTER SYSTEM
From a practical point of view, a PMS is composed
of two elements: a set of key indicators of
performance at strategic and operational level and a
computer system capable of acquiring data,
analysing and communicating them to generate
information that is converted into knowledge.
The functional requirements of computer system
covers the following aspects:
 Administrative: Provide support for the
organizational model. Configure perspectives,
indicators and relations of cause and effect
 Monitoring: Implements the monitoring of the
strategy in real time with detailed reports.
 Decisional: Take decisions based on the
indicators that reflect the internal and external
situation for the objectives to be prioritised.
 Alert: Provide a system of warning signals
when indicators are beyond limits.
 General: Generate reports and graphic
representations about the objectives.
 Human Resources: Analyse the performance of
each member who is assigned objectives.
 Technology: Facilitate mechanisms of
interoperability between the business-
employee. Integrate with the existing
computer systems
The computer solution is defined as a system of
integrated components that combines different
technologies. ERP provide part of the information
that is required by the PMS to evaluate the
indicators. Integration of the PMS computer system
with the ERP is an important factor for the success
of the project (Rom and Rohde, 1996). Like other
business intelligence technologies they are capable
of automating, informing or transforming the
organization (Chand et al., 2005).
The solution consists in storing the information
in a Data Warehouse (DW) that is set up following a
process involving the integration of data in specific
business systems: ERP, CRM, SCM, which are a
mixture of operational and decisional systems. The
system uses the data integrated in the DW to
generate models for the analysis of the organization
METHODOLOGY FOR PERFORMANCE MEASUREMENT SYSTEMS IMPLEMENTATION IN SMALL AND
MEDIUM-SIZED ENTERPRISES
527

with data-mining tools. The system also includes
On-Line Analytical Processing (OLAP) techniques
that make it possible to carry out complex analyses
of the information contained in the DW.
4 DISCUSSION
The main contributions made by the PMS-IRIS
methodology is the improvement of the different
existing frameworks, by including aspects that had
been successfully applied in the field of enterprise
integration (Chalmeta et al, 2001).
Applying the PMS-IRIS methodology to 22 SMEs,
the following aspects were confirmed: 1) Staff need
to be trained in performance evaluation, 2) Although
they have some operational computer systems, their
results are not used to formulate long-term
objectives, 3) To ensure the successful
implementation of a PMS an organizational culture
and capacity must exist within the enterprises to
process and interpret information.
5 CONCLUSIONS
Designing a PMS requires careful preparation,
perseverance and the conviction of management.
The application of the PMS-IRIS methodology will
produce changes in the SME, enabling them: Define,
evaluate and update their strategy, Regular reviews
of objectives accomplishment; Support decision
making, Increase communication capabilities, Have
access to more detailed information for drawing up
the strategy, Deploy the strategy to the operative
levels; Incorporate continuous process improvement,
Emphasize the need to utilise information
technology at process level as support for strategy
management, Improve strategy communication for
all members of the organization.
ACKNOWLEDGEMENTS
This project has been founded by CICYT DPI2006-14708
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