Measuring coherence of performance measurement indicators in complex and changing environments

Abstract

PurposeThis paper discusses and integrates the concept of complexity in the performance measurement and management (PMM) theory by providing a comprehensive framework to design and evaluate the overall coherence alignment of an indicators hierarchy in unstable and changing environment.Design/methodology/approachAn original, comprehensive and dynamic framework has been proposed and then applied on a sample case of a large-scale retail trade (LSRT) company, starting from relevant frameworks and criteria in the scientific literature.FindingsThis research shows that organizational changes may significantly impact the coherence alignment of an organization's indicators hierarchy. In addition, it finds that even though the alignment at the operational level is obtained, its effectiveness should be evaluated in relation to the organization's strategic orientation. Indeed, without assessing the strategic alignment of an indicators system, an aligned hierarchy at the operational level could lead to ineffective results.Research limitations/implicationsThis paper focuses on the topic of measuring the coherence inside an indicators hierarchy, which seems not to be addressed in the literature. Thus, it opens a new research stream, integrating the studies on performance indicators with an essential element that often causes flawed performance measures in organizations.Practical implicationsOrganizations could adopt this framework to design effective PMM systems and maintain them in light of the organizational changes.Originality/valueThis study introduces different metrics to evaluate the coherence and alignment of an indicators system, being one of the few research studies to address this topic in the context of complex and changing environments.

Key activity indicators: critical review and proposal of implementation criteria

“…Henceforth, for the success of their implementation, a proper definition of Key Activity Indicators and their scope should be provided, as well as the information provided to the shop-floor level. Indeed, through KAIs and their relationships with KPIs, the management should steer the organization towards the alignment between strategic goals and operational activities (Di Luozzo et al, 2021). For this reason, the absence of an operational framework enabling the KAIs introduction seems to be a significant barrier to their implementation, along with the absence of a clear definition that is recognized to be as a common shortcoming of the performance management field (Tangen, 2005).…”

“…Note that to obtain a proper alignment between the different indicators and a coherent Performance Measurement and Management system, Key Activity Indicators may be integrated within the methodology for measuring PMM's coherence proposed by the contribution of Di Luozzo et al (2021). Moreover, Table VII reports the references that can be adopted to implement the procedure's steps.…”

“…However, having said that, PMMs are typically focused on high-medium level performance, and lower attention is paid to the alignment between strategic critical success factors and operational performance (Di Luozzo et al, 2021;Tangen, 2004). This shortcoming hinders the organization's strategy deployment since no clear direction is provided on how to align strategic goals with day-to-day activities (Villalba-Diez, 2017).…”

“…This limitation leads organizations without guidelines for integrating KAIs within daily operational activities. Considering the latter observation, a possible solution for connecting KAIs to upper levels of the indicators hierarchy is by using intermediate metrics such as Result Indicators (RIs) and Performance Indicators (PIs), as defined by the paper of Di Luozzo et al (2021) and of Tangen (2004). Indeed, while the RIs summarize the activity of more than one team and are helpful in getting an overview of how teams are working together (e.g., potential examples in the service industry may be the "number of initiatives implemented from the staff survey" or the "number of employees' suggestions implemented in the past 30 days"), the PIs are those non-financial indicators that can be traced back to an individual team (e.g., potential examples in the service industry may be the "late deliveries to customers" or the "number of planned abandonments of reports, meetings, processes that are no longer functioning").…”

“…Clear causeeffect relationships should link KPIs and KAIs: the improvement of a KAI should also cause the improvement of at least one KPI. This connection would facilitate the alignment between the organizational strategic objectives and the operational level, which is crucial to attaining superior business performances (Giordani daSilveira et al, 2016;Di Luozzo et al, 2021). Indeed, while Key Performance Indicators measure organizational performance and are not actionable in the short term, Key Activity Indicators should be actionable on a daily/weekly basis.Lastly, in the contribution ofKatayama et al (2019), KAIs are considered as intermediate indicators between shop-floor activities and KPIs.…”