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Scope and Aims of Performance Measurement Practices: Evidence from Jordan

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Introduction

Scope and Aims of Performance Measurement Practices: Evidence from Jordan Abstract This study provides empirical evidence on performance measures practices in Jordanian industrial companies. It identifies the type and extent of usage of a broad set of financial and non-financial measures. The results indicate that Jordanian companies place more emphasis currently on non-financial measures such as customer response time, on-time delivery, customer retention, employee training, number of new product launches and defect rates. Although Jordanian companies place more emphasis on the use of performance measures to evaluate organisational and managerial performance, they also use them for other reasons. The results also indicate that Jordanian industrial companies still operate under significant institutional and government controls. Keywords: Performance measurement diversity; Non-financial performance measures, Medium and large Industrial companies; Developing country; Jordan. Scope and Aims of Performance Measurement Practices: Evidence from Jordan Introduction Performance measurement is an important management control tool for business firms in the currently competitive environment. It is directly related to the formation of a firm's core competency and has a significant impact on the firm's growth (Xiong, Su & Lin, 2008). Different definitions for performance measurement system (PMS) exist. Neely (1994) defines PMS as the set of metrics used to quantify both the efficiency and effectiveness of actions (cited in Neely, Gregory & Platts, 2005, p. 1229). In respect to performance measurement, Marshall, Wray, Epstein and Grifel (1999) define performance measurement as a development of indicators and collection of data to describe and analyse performance. To be more precise, performance measurement refers to the use of a multi-dimensional set of performance measures. This set of measures is multi-dimensional if it includes both financial and non-financial performance measures. Both internal and external measures of performance are included and both measures quantify what has been achieved. These measures are used to help predict the future (Bourne, Neely, Mills & Platts, 2003, p. 3). However, Neely et al (2005, p. ...read more.

Middle

The proposed sampling frame consisted of 372 industrial companies. The questionnaires were conducted using financial managers or those in a similar position such as the head of the accounting department, assistant financial manager or management accountant. Each company was contacted by telephone before sending out the questionnaire to give them some idea of the study's objectives, to invite them to participate in the study and to check the accuracy of postal address details. Based on the results of the telephone calls, the questionnaires were then sent to respondents who agreed to participate in the study by post with a covering letter and a prepaid self-addressed return envelope. Only 27 companies refused to participate in the study. The main reasons cited for not participating were: management policy of non-participation and the lack of time. Another 6 companies were eliminated from the original sample because their phone numbers were disconnected and they ceased service with the Jordanian Telecommunication Company. Thus, the questionnaire was sent out to 339 companies. The questionnaires were left with the respondent for about ten days to enable completion. Follow-up telephone calls were made. A total of 179 questionnaires were returned including 168 usable questionnaires with a response rate of 49.9%. Details about the number of employees, sales turnover and sector classification are presented in Table 1 (see list of tables at the end of the paper). The questionnaire was pre-tested based on a pilot study with 15 academics and financial managers of industrial companies in Jordan. The first two sections of the questionnaire include some demographic questions about the organization itself and the respondent. The third section of the questionnaire covered the extent of usage of a diverse set of financial and non-financial measures of performance by Jordanian industrial companies. This section of the questionnaire investigated the extent (i.e. frequency) of usage of a broad set of financial and non-financial measures across six categories including thirty measures drawn from the literature (Jusoh et al, 2008; Lau & Moser, 2008; Iselin, Mia & ...read more.

Conclusion

5.4 31.0 55.3 3.54 1.13 C29 Environmental certification 8.3 8.3 30.4 53.0 3.53 1.19 C10 Rate of material scrap loss 8.9 13.1 26.2 51.8 3.36 1.15 C14 Time-to-market new products 10.7 10.1 32.7 46.4 3.29 1.15 Continued Table 2 Performance measures usage among Jordanian industrial companies Code Performance measures % rating 1 % rating 2 % rating 3 % rating 4 or 5 Mean S.D C24 Community involvement 7.7 11.9 42.9 37.5 3.15 0.96 C9 Manufacturing lead time 14.9 13.1 28.0 44.0 3.12 1.22 C18 Employee authorization 6.5 22.6 37.5 33.4 3.01 0.97 C26 Support of social activities 8.3 26.8 38.7 26.2 2.88 1.01 C27 Support of charity projects 11.3 25.6 35.7 27.3 2.86 1.08 C25 Participation in training and education 9.5 26.8 40.5 23.2 2.81 0.98 C7 Economic value added (EVA) 17.3 23.8 32.1 26.8 2.69 1.06 C12 Number of new patents 36.3 17.3 22.0 24.4 2.38 1.27 Table 3 Descriptive statistics for the usage of different performance perspectives Performance perspectives Mean S.D Customer Financial Environment Employee Internal business process Innovation Community 4.08 4.00 3.71 3.59 3.42 3.07 2.92 0.73 0.79 0.93 0.74 0.94 0.94 0.84 Table 4 Descriptive statistics for the usage of financial measures, non-financial measures and all measures Table 5 Specific aims of performance measurements Code Purpose of usage % rating 1 % rating 2 % rating 3 % rating 4 or 5 Mean S.D D9 Comply with legal requirements 0.0 2.4 11.9 85.7 4.29 0.77 D1 Evaluate organisational performance 0.0 1.8 9.5 88.7 4.27 0.71 D10 Supervise managers' productivity 0.6 3.0 17.9 78.6 4.04 0.80 D2 Evaluate managerial performance 1.2 2.4 21.4 75.0 4.01 0.85 D6 Encourage improvement of business processes 0.0 5.4 25.0 69.6 3.89 0.84 D3 Reward employees 1.2 5.4 32.1 61.3 3.80 0.94 D4 Manage operations processes 1.2 6.5 31.5 60.7 3.67 0.86 D7 Provide better understanding of the cause-effect relationship 1.2 16.7 31.0 51.2 3.49 1.00 D5 Inform decision making 0.6 15.5 33.9 50.0 3.46 0.93 D8 Communicate strategy 2.4 19.6 28.6 49.4 3.39 1. ...read more.

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