The concept of performance measurement

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Data types

Primary data is the data obtained that provides the most facts, are directly applicable to the research and can be collected by means of surveys, interviews and observations (Leedy and Ormrod, 2005). Data that are not collected specifically for this study and that has a different purpose, are referred to as secondary data (Diamantopoulos and Schlegelmilch, 2005). Qualitative studies mostly use observation, focus groups and interviews as primary data collection techniques (Leedy and Ormrod, 2005). Primary data collection in this research, using a phenomenological approach, was done with the use of lengthy semi-structured interviews. Semi-structured interviews are a combination of structured and unstructured interviews (Lee, 1999). This approach was followed since a small portion of the interview had fixed responses. These interviews were used to gather information that provided a holistic picture of the situation and views of the sample SMEs.Organisational profiles, performance related documentation and related documented policies and procedures were collected as secondary data.
 

Data collection

Two hour interview sessions were scheduled and conducted with Directors and Senior Management of the selected participant SMEs. The nature of the semi-structured interview with open ended questions resulted in unconstrained answers from interviewees (Leedy and Ormrod, 2005). This type of interview provided interviewees the opportunity to respond on issues in a way that a formal questionnaire or survey may not allow. The open ended questions were explained in depth to participants to ensure understanding, and were guided by possible answers, for example certain dimensions, barriers or usage patterns. The response from the interviewee was discussed to ensure that the situation was fully understood by the researcher. The interviews were recorded, with the consent of the interviewee, and written notes were taken. The competitive environment and sensitive nature of the information required also created a scenario where participants might have exaggerated certain aspects of their organisation. To counter act this response the researcher ensured the participants that information will be held strictly confidential and would only be used for the purposes of the study while the participants had the option to stay anonymous. The qualitative approach and use of semi-structured interviews with open ended questions, might lead interviews to focus on areas less relevant to the research. The researcher strictly kept to the research instrument and applied it in a consistent manner to ensure that the correct and relevant data was gathered. Another limitation of this research is that only SMEs in a specific geographical area were studied and are not necessarily comparable in all situations. The geographical area also contains a small population which influenced a smaller sample and response rate. This also contributed to a biased sample. The sampling was biased because the whole population did not have an equal chance of selection. Also, respondents that were not willing participate in the study and make time for the interviews, influenced the sample not to be a random selection of the entire population. With the small research sample used, purposeful sampling ensured that participants selected would provide insightful and content rich information on the topic of research, thus enabling a certain extent of generalisation. The low response rate indicates that generalisations to the entire population should be done carefully. The study still provides meaningful insight towards performance measurement and SMEs. Qualitative analysis introduces a sense of the researcher’s subjectivity which was limited by basing the analysis on facts obtained from the data while not make ungrounded assumptions. It was indicated that the benefit of performance measurement was that it provides feedback to management from which informed decisions can be made. Performance measurement also assists this SME to achieve its strategic objectives. The manual performance measurement framework that has been implemented uses targets based on project deliverables and the project charter, employee responsibilities and several financial indicators. Monthly performance review sessions are held with administrative and project based employees to determine their progress and performance. The SME’s management act on performance related information by finding solutions and placing timeframes for achieving these solutions. After the period has lapsed, further actions are taken. Management indicated that performance measurement is a tool that enhances management’s analysis of the business and resources. Responses indicated that the time consumed by performance measurement is helpful as it determines where the organisation and its employees are in relation to what should be achieved. Compensating for external influences that impact measures and metrics was found to be an obstacle when measuring performance. This SME also experienced challenges to continuously have projects in the pipeline as there are periods where certain employees do not have a project to work on.

SME B

The second participant has a flat organisational structure with two directors at the head of the structure. The organisation has been in business for three years and mainly provides services to semi-government agencies and the private sector. Limited government business is conducted by this SME. SME B focuses mostly on hardware supply and installations, Service Level Agreements (SLAs) and networking, where networking was a key strength. SME B did not have a defined strategy or strategic objectives in place although certain equity, empowerment, skills and management structure targets were in place. The organisation had limited knowledge of performance measurement without being familiar with specific performance measurement frameworks. The SME had an internally developed performance matrix that is used as a basis to measure performance. The responses indicated that performance measurement frameworks can assist the organisation in achieving its objectives while removing emotion from the business and implementing the science of business, thus providing balance. Further, it was indicated that performance information should be used for benchmarking purposes, among others, but this was not done in this SME. This SME measures performance mainly from an employee perspective which covers areas from employee commitment to debtors’ days and revenue. Employees are reviewed twice a year where incentive schemes are attached to results. Other performance measurement information such as financial data is reviewed daily. This SME takes action on performance information by attempting to find the root causes of problems or issues and resolving them. Management in this SME indicated that performance measurement can provide value to an organisation, although this value was not realised due to implementation issues. The main problem experienced in performance measurement was the lack of top management support in fully enforcing the implemented performance measurement framework and not allowing employees and management the required time to measure performance. Another problem that was indicated by the participant was that: “measurement is done on hear-say, rather than facts and figures”.
Knowledge about the usage and approach of the implemented system was also lacking as no formal training or induction was provided to employees prior to using the performance measurement framework. Another problem was that of monitoring measures and was indicated as a cost to the SME. Further, although the time required for measuring performance was found to be beneficial to the organisation, the required time was not spent. in the sample used completely unbalanced approaches to performance measurement and with the limited number of measures used it was not adaptable to changes in the environment. The measures used were not measuring any organisational processes and are thus not process orientated. The scope of prominent measures found covers mainly financial aspects of the organisation which is a very narrow scope, while the financial areas that was measured was measured only with limited detail. Although the effectiveness of a performance measurement framework is weakened by a large amount of measures, such a framework should still provide a holistic view of the organisation (Bourne, et al., 2002). There was a relationship between the organisational goals, mainly growth, and the measurements. Only a small number of measures were used, and all being financial in nature, provided for a very simple and clear approach to measurement. The small number of measures will ensure successful implementation and use of the performance measurement framework (Hudson, et al., 2001) but simplicity should not compromise the completeness of such frameworks. The limited number of measures and method of selection and implementation of measures in the sample of SMEs do not allow for an accurate analysis of the performance measurement framework or its measures.

Measure selection and usage of performance information

The selection of measures in the sample of SMEs was based on the notion of being in business to create profit and according to the responsibilities of employees. In general measure selection was accidental and done as the need arose. The selection of measures within SMEs was also indicated by Turner, et al., (2005) and Sousa, et al., (2006), as an obstacle faced by SMEs. The measure selection and usage of performance information within the sample is tabulated in Table 4.5. date and reliable and pose no problem or barriers in most SMEs, although they provided only limited information. The limited hardware and software to support performance measurement within SMEs were also found by Hvolby and Thorstenson (2001) and Sousa, et al. (2006). The lack of a formal strategy in these SMEs also indicates a problem towards the implementation of performance measurement and was also found by Migiro (2006). Some SMEs do have a performance measurement framework in place but it is not enforced or implemented efficiently, thus not providing the required results. There are also limited to no knowledge of performance measurement available in the sample of SMEs which is a barrier in itself. Some SMEs have approached advising consultants to assist with strategic and performance related issues. The usage of an advisor in the process of implementing a performance measurement framework was also suggested by Turner, et al. (2005). Organisational culture has also been noted to provide resistance.

Chapter summary

An overview of the participants was provided discussing demographic and relevant organisational information. The knowledge and perceived value and knowledge of performance measurement within the sample of SMEs were discussed. The prominent measures within the sample were found to be cash flow, gross profit, revenue and outstanding debtor’s days. The usage and selection of prominent measures were covered, as well as the problems experienced in using and implementing performance measurement. The main issues were found to be cost, time, management commitment and the lack of human resources.

Conclusion and Recommendations

The outcome of the research is discussed in relation to the degree of organisational performance measurement within SMEs to answer the research question. Figure 5.1 provides a graphical layout of this chapter.

General conclusion

This research can be used as a basis for applying performance measurement in SMEs. It is evident that performance measurement proves to be valuable to all organisations and can assist in overcoming the obstacles faced by SMEs. The limited literature on SMEs, particularly in the ICT industry, presents a gap that should be filled with further research in the field of performance measurement related to SMEs. Further studies are needed to refine a measurement framework that will overcome the obstacles faced by SMEs and provide the potential value to these organisations. There is also a need to focus future research on the successful measure selection and implementation of performance measurement frameworks, as this area has not been fully explored.
An unexpected finding was that all SMEs experienced significant problems in receiving payment from government agencies to whom services were provided for, which could be another area for further investigation.

1 Orientation
1.1 Introduction
1.2 The objectives of this research
1.3 The research question
1.4 Definitions and concepts
1.5 Delimitation of the study
1.6 Importance of the study
1.7 Outline of the research report
1.8 Chapter summary
2 Performance Measurement Review
2.1 The concept of performance measurement
2.2 Performance measurement frameworks
2.3 From measurement to management
2.4 The Balanced Scorecard and Performance Prism
2.5 The strategic significance of performance measurement
2.6 Implementation of measurement frameworks
2.7 Defining SMEs
2.8 Performance measurement and SMEs
2.9 Chapter summary
3 Research Design
3.1 Research method
3.2 Research sample
3.3 Measuring instrument
3.4 Data types and collection
3.5 Data analysis
3.6 Limitations to the study
3.7 Assumptions of the Study
3.8 Chapter summary
4 Research Results
4.1 Overview of participants
4.2 Value and knowledge of performance measurement
4.3 Prominent measures
4.4 Measure selection and usage of performance information
4.5 Problems and obstacles experienced
4.6 Chapter summary
5 Conclusion and Recommendations
5.1 The outcome of the study
5.2 A method for SMEs to measure performance
5.3 General conclusion
6 List of References
Appendix A – Letter of Consent
Appendix B – Interview Schedule 
Figure 1.1 Report outline
Figure 2.1 Layout of Chapter 2
Figure 2.2 Theoretical Performance Measurement Framework
Figure 2.3 The Balanced Scorecard
Figure 2.4: The Performance Prism
Figure 2.5 Plan-do-check-act cycle
Figure 3.1 Layout of Chapter 3
Figure 3.2 The research process
Figure 3.3 South Africa, Limpopo
Figure 3.4 Data analysis process
Figure 3.5 Framework map
Figure 4.1 Layout of Chapter 4
Figure 4.2 SME A framework map
Figure 4.3 SME B framework map
Figure 4.4 SME C framework map
Figure 4.5 SME D framework map
Figure 4.6 SME E framework map
Figure 4.7 SME F framework map
Figure 4.8 SME G framework map
Figure 4.9 Sample framework map
Figure 5.1 Layout of Chapter 5
Figure 5.2 SME Balanced Scorecard

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The degree of organisational performance measurement in SMEs