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2021 | OriginalPaper | Chapter

3. Performance Management as a Part of the Management Control System

Author : Claudia Presti

Published in: Integrating Performance and Risk in a Management Control System

Publisher: Springer International Publishing

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Abstract

Performance and management control are strictly related, as there is no control if there is no measurement of the performance achieved—either in qualitative or quantitative (Thomson (Popular Lectures 1:73, 1883), in his physics studies, affirms thus in relation to the quantitative measurements: “[…]when you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science, whatever the matter may be.”) terms—and if there is no consequent comparison with what was established as a goal. In the previous chapter, we explained how the management control system expanded its boundaries, its scope, and its areas of interests. This expansion led to an explosion of studies that analyze a better means of defining, measuring, and managing performances. Consequently, a new evolutionary stage in research on the management control system has started: the era of research on the performance management system.

This chapter starts with a deep reflection on the meaning of the term “performance.” Then, the evolution that led to performance measurement becoming a performance management system is outlined by describing the most important outcome of the performance management system’s evolution. Combining the reflections on the term “performance” and the evolution of the performance management system tools, Sect. 3.3 proposes a clarification of the eventual distinctions, interconnections, and overlaps between performance management, management control, and other relevant systems, highlighting the connections with Chap. 4.

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previous chapter Toward a Contemporary Concept of Management Control

next chapter The Development of Risk Management

The author literally affirms: “Depuis quelques années, le mot performance est au cœur des discours du contrôle de gestion. Rarement défini, polysémique, ce mot contient en outre des métaphores qui suggèrent des représentations additionnelles […] La perplexité s’accroit lorsque, au-delà d’un titre d’ouvrage qui affiche la performance comme objet d’étude central, on cherche en vain une réflexion introductive sur le concept” Bourguignon (1997, pp. 89–90).

Actually, Bourguignon’s point on the declination of the word may have less importance in the English language.

In this regard, Maraghini and Riccaboni (2019:8) affirm that researching the history of the term “performance” brings us to the combination of the Latin verb performare—which means giving definitive form, modeling—and the Germanic root frumjan—which means completing, satisfying.

This is the literal definition of the verb “to perform” retrieved from the Oxford Dictionary Of English, Third Edition, Oxford University Press, Oxford, 2013.

Here, I refer to the PDCA (Plan-Do-Check-Act) model, also known as the Deming–Shewhart cycle or the control circle/cycle. It is a model developed by E. Deming during the 1950s, and it consists of an iterative four-step logical sequence used for the control and continuous learning and improvement of processes and products.

Although a taxonomic study on mono-dimensional models is beyond the scope of this work, it is relevant to highlight that starting from the beginning of the twentieth century, it is possible to distinguish different approaches where the economic value is:

the synthesis of assets stock
the result of a process of discounting economic or financial values
linked to differential and residual revenue results
the result of the application of comparative logic.

Examples of models based on a process of discounting economic or financial values are: free cash flow from operations; free cash flow to equity, shareholder value added; cash value added; cash flow return on investment.

Examples of these models are: residual divisional income; residual income; economic value added; economic profit.

Consistent with the chosen definition of performance, corporate value represents the sum of the managers’ activities results.

It should be emphasized that, still today, the budget represents an effective system for measuring the company’s global performance, as the budget constitutes an integrated system of measures used to quantify objectives distributed among the organizational structure’s centers of responsibility. The budget is a document of synthesis of planning and control that makes explicit the objectives pursued, the choices made about the means to achieve them, and the expected results. In fact, the budget provides signals for the impact produced by the combination of operating variables (sales targets, yield of production factors, sales price/purchase cost ratio, etc.), and for summary variables, represented through economic-financial metrics related to the company’s profitability (Castellano, 2011; Marasca, 2018).

It means the unit of measure is not the currency.

The meaning of “management variable” acquires importance in the comparison with the result variables referred to in Sect. 3.2.1.

The Tableau de Bord represents one of the first control tools born from the need to face the changed conditions of competitive context. It should integrate different categories of measures: stock and flow measures, quotients, variations, and indicators that allow the comparison with the external environment. Moreover, it is based on five principles:

The dashboard must be based on a limited number of relevant indicators.

Through secondary bearings and causal relationships, it is possible to involve different organizational levels.

The calculation frequency must be decided based on the nature of the various measures taken into consideration.

The control process must guarantee a high speed of the information flow.

The system can be improved through certain practical measures.

Although it is one of the first multidimensional measurement tools, it is still a tool strongly conditioned by the economic-financial dimension, with no explicit link between the measures and the strategy (Castellano, 2012).

For these reasons, it appears as a static tool that does not fully belong to the dynamic ones analyzed in this chapter.

Many organizations who claim to use the BSC model are, instead, using only a limited version of the BSC (Speckbacher et al., 2003) or an incomplete one (Rhodes et al., 2008).

In this regard, Bourguignon (1997, p. 90) reminds: “It is certainly not a brutal intrusion of this word in the vocabulary of the accounting field: performance measurement is a traditional tool of management control.”

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Title: Performance Management as a Part of the Management Control System
Author: Claudia Presti
Publisher: Springer International Publishing
Book: Integrating Performance and Risk in a Management Control System
Print ISBN: 978-3-030-87081-2

Electronic ISBN: 978-3-030-87082-9

Copyright Year: 2021
DOI: https://doi.org/10.1007/978-3-030-87082-9_3