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2 PERFORMANCE
MEASURMENT SYSTEMS IN
SMES
Performance measurement is at the core of a control
and management system of an enterprise. It plays a
key role in developing strategic plans and assessing
organizational objectives. It is also important in
assessing business ability to gain and sustain
competitive advantage and directing corrective
adjustments and actions as well (Holban, 2009).
Various researchers have linked the success of
businesses to the type of performance measurement
system used by them and to the successful design and
implementation of the measurement system. Other
researchers have considered strategic performance
measurement system as means to attain competitive
advantage, continuous improvement and ability to
respond to internal and external changes (Cocca and
Alberti, 2009).
In this sense, the performance measurement system
is the instrument to support the decision-making either
for launching, selecting actions or redefining
objectives (Bititci, 1995; Globerson, 1985; Neely,
1999). From a global perspective, performance
measurement system as a multi-criteria instrument
consists of a set of performance expressions or metrics
(Melnyk et al, 2004).
The early generations of performance measurement
models focused extensively on financial and
accounting areas and completely ignored the
operational and other non-financial issues. Currently,
the new generation of performance measurement
models makes a strong effort to be strategically
oriented and to address other performance dimensions
including combination of financial and non-financial
areas (Taticchi, Tonelli, &Cagnazzo, 2010).
Nevertheless, according to Tangen: “these new
approaches have a good academic groundwork and are
theoretically sound but they rarely help with the
practical understanding of specific measures at an
operational level”. This is considered a major obstacle
in implementing multi-dimensional performance
measurement system in small enterprises (Tangen,
2004).
Other researchers have tied the failure of
implementing existing performance measurement
systems in small and medium-sized enterprises to the
following issues:
• Use of models or frameworks originally introduced
for large enterprises, the one size fits all, leads to
implementation failure. (Taticchi et al., 2010).
• Improper use of well-known performance
measurement models and frameworks (Tenhunen,
et al., 2001).
• Informal approach to performance measurement
models and frameworks (no rigorous plan or
execution) (Chennell et al., 2005).
Numbers of studies have revealed that many of the
small and medium-sized enterprises did not achieve
the requirements of a strategic performance
measurement system. For example: (Hudson et al.,
2001) found that all companies under the study had a
surplus of financial measures, but their performance
measurement systems were not derived from strategy,
often unclear with complex or obsolete data, and
historically focused on some outdated measures.
Another empirical survey conducted on 83 Danish
enterprises (Hvolby and Thorstenson, 2001) found that
50% of these enterprises have either only one-
performance indicator such as cost or no performance
indicators in place at all. An additional empirical study
(Gosselin, 2005) revealed that majority of small and
medium sized Canadian manufacturing firms continue
using financial measures.
Despite the recommendations from industrial and
academic experts, the proportion of firms that
implement well-known performance measurement
systems remains low (Gosselin, 2005). The results
indicated that the types of performance measures used
by the SMEs were rarely connected to strategy. The
study also revealed that about 70% of the companies
failed to implement well-known strategic performance
measurement models (Gosselin, 2005). The majority
of SMEs according to the previous studies use
traditional management accounting systems.
Nevertheless, the traditional management
accounting systems and financial measures simply do
not provide the richness of information that allows a
company to remain competitive in today's market
place (Dixon et al., 1990) see also table 1. It is
necessary to understand that the metrics and the
measures that are used in performance measurement
system should have the power to capture the depth of
organizational performance, the measures should
reflect their clear relations with a range of levels of
decision-making such as strategic, tactical, and
operational, the metrics should reflect an acceptable
balance between financial and non-financial measures,
and the measurement system should ensure proper
assignment of measures to the areas where they would
be most suitable.
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