Traditional financial measures have many criticisms for the following reasons: the changing nature of work; increasing competition; specific improvement initiatives; national and international quality awards; changing organizational roles; changing external demands; and, the power of information technology. To overcome the limitations of traditional financial measures, many researchers have suggested that for businesses to survive in a competitive marketplace a new set of operational performance measures should be used (Burgess et al, 2007).
These measures should provide managers, supervisors and operators with on-time information that is necessary for daily decision-making. These measures should be flexible, primarily non-financial and able to be changed as needed (Ghalayini & Noble, 1996; Kaplan & Norton, 1992). Therefore, the proponents of strategic performance measurement (SPM) advocate two general approaches for developing SPM systems. The simplest approach calls for companies to measure and use a diverse set of financial and non-financial performance measures (i. e. performance measurement diversity) (Ittner et al, 2003).
This approach emphasizes the importance of using a combination of financial and non-financial measures. This is because such a combination is argued to be more effective for performance measurement (White, 2008; Xiong et al, 2008; Brignall, 2007; Chenhall & Langfiels-Smith, 2007; Chow & Van der Stede, 2006; Van der Stede, Chow & Lin, 2006; Dunk, 2005; Lau & Sholihin, 2005; Hussain & Gunasekaran, 2002; Hoque, Mia & Alam, 2001; Fisher, 1998; Hertenstein & Plat, 1998; Atkinson et al, 1997; Kaplan & Norton, 1996a, 1996b, 1996c 1993, 1992; Abernethy & Lillis, 1995; Fisher, 1995; Govindarajan, 1988).
Don't use plagiarized sources. Get Your Custom Essay on
Ababneh Financial performance
just from $13,9 / page
Performance measurement diversity is a simple approach and refers specifically to the extent to which a company measures and uses information related to a broad set of financial and non-financial measures (Henri, 2006; Ittner et al, 2003). Thus, measurement diversity emphasizes the multiplicity and variety of performance measures that can be grouped into financial performance and non-financial performance to develop a more comprehensive PMS (Hall, 2008).
However, previous research (Van der Stede et al, 2006; Moers, 2005) defined performance measurement diversity as the use of multiple performance measures, including the use of subjective performance measures. Thus, measurement diversity approach focuses mainly on using a broad set of non-financial performance measures. Consequently, more attention has been given to non-financial measures of performance. Non-financial performance measures are defined as measures that provide performance information in non-monetary terms such as customer satisfaction and employee satisfaction (Verbeeten & Boons, 2009).
In this context, Moers (2006) defines two types of non-financial measures. First, the internal non-financial performance measures which consist of non-financial measures that are directly related to the tasks performed such as productivity and efficiency. Second, the external non-financial performance measures which reflect performance in the market such as customer satisfaction and market share. Non-financial performance measures cover many aspects in organisations. These include for example: customers; employees; innovation; quality; community; and, environment.
Non-financial measures are broad and varied (Lau & Sholihin, 2005). Empirically, several studies have focussed on performance measurement practices in different types of organizations in different countries. To determine the scope of current non-financial practices in USA and Canada, Stivers et al (1998) grouped 21 non-financial performance measures in the following five categories: customer service, market performance, innovation, goal achievement and employee involvement.
The results of the study indicated that customer service measures are perceived to be the most important measure, market performance and goal achievement were also perceived to be highly important categories, whereas, innovation and employee involvement categories were perceived to be less important. Chenhall and Langfield-Smith (1998) found that Australian manufacturing companies use a broad set of non-financial measures such as customer satisfaction, employee attitudes, team performance, qualitative measures and ongoing supplier evaluations.
In his study, Hyvi?? nen (2005) found that Finish manufacturing companies put greater emphasis on recently developed non-financial measures of performance than the Australian companies reported by Chenhall and Langfield-Smith (1998). Hyvi?? nen (2005) justifies his findings in that the sample period of these two studies is different. It should be noted that the Australian results were in 1998 and the development of these latest techniques has been quite recent.
In addition, the organizations presented in Hyvi?? nen's study are leading companies in their field in the world and use the most advanced techniques. Hyvi?? nen (2005) also argued that joining the European Union in 1995 changed the accounting legislation in Finland. Gosselin (2005) developed a questionnaire including a list of 73 financial and non-financial performance measures to measure the extent of their usage among Canadian manufacturing companies.
Study findings indicated that despite all the recommendations to put more emphasis on non-financial measures, management in Canadian manufacturing companies is still giving much more weight in the PMS to financial measures. Widener (2006) surveyed 107 USA firms and found that top managers of these companies place more emphasis on non-financial measures related to employees (employee satisfaction and employee skill development), operational (cycle or lead time and sales from new products or services) and productivity.
Findings of previous research conducted in the UK (Abdel-Maksoud, Dugdale ; Luther, 2005; Bhimani, 1994; Drury, Braund, Osborne ; Tayles, 1993) provided confirmation that UK manufacturing companies are now reporting using a broad set of non-financial performance measures such as customer measures, quality measures, efficiency and utilisation measures and employee measures. Gomes, Yasin and Lisboa (2007) findings indicated the significance of non-financial measures among Portuguese manufacturing companies especially those related to customer and quality.
Verbeeten and Boons (2009) findings indicated that Dutch firms use non-financial measures of performance (i. e. employee measures, customer measures, process measures, quality measures) to a larger extent. In respect to other countries, Ismail (2007) found that Egyptians private companies rely on both financial and non-financial measures of performance evaluation. The profit margin, as a financial measure, is the most commonly used performance measure.
Customer satisfaction is the most commonly used non-financial measure of performance evaluation. In China, Xiong et al (2008) conducted a survey of senior executive and senior financial officers of large or mid-size firms. The purpose of the study was to determine the current usage of nine performance measurement criteria among Chinese firms and to analyse the importance of these measures across twelve different uses. The results of the study show that most Chinese firms currently use both financial and non-financial measures in their PMS.
In particular, the top three performance measurement criteria used are strategy related measures (66. 5%), financial measures (63. 8%) and objective and subjective measures (62. 7%). The bottom three performance measurement criteria are customer oriented measures (49. 8%), internal process measures (49. 3%) and learning and innovation measures (30. 8%). Jusoh, Ibrahim and Zainuddin (2008) found that non-financial measures are used among Malaysian manufacturing companies to a greater extent.
For example, the use of customer measures such as on-time delivery, customer response time, number of customer complaints and surveys of customer satisfaction are high among Malaysian manufacturing companies. Furthermore, the study found that Malaysian manufacturing companies place a major weight on the use of internal business process measures but innovation measures do not seem to be widely used. In the context of Jordan, few studies have investigated non-financial performance practices.
The limitations of these studies are that they take the performance measures in aggregate form (Said, HassabElnaby ; Wier, 2003). Zwelef and Nour (2005) found that Jordanian banks use both financial and non-financial measures to evaluate their performance. In particular, the study findings indicated that Jordanian banks use financial measures, customer measures, internal business process measures and learning and growth measures.
Additionally, Hawamdah (2006) found that Jordanian listed industrial companies use both financial and non-financial performance measures. Zuriekat (2007) surveyed Jordanian listed manufacturing companies and found that the operational and customer category is used to a larger extent. The results also indicated that innovation, employee, supplier and quality categories are used to a moderate extent but the environment category tends not to be used by Jordanian manufacturing companies.
In respect to the Jordanian public sector, Ababneh (2008) found that the customs department pays more attention to the growth and learning dimension of balanced scorecard approach followed by internal process and then customer satisfaction. This study, however, extends previous research concerning the usage and practices of performance measures by investigating the extent of the use of thirty financial and non-financial measures across six categories including financial, internal business process, innovation and learning, customer, community and environment.
Remember. This is just a sample.
You can get your custom paper from our expert writers