Purpose/ Core Interest
The purpose of the present research is to evaluate the implementation of non-financial measures of performance in small and medium enterprises (SME) as a predictor of enhanced performance. The research aims at examining at least 100 small and medium enterprises, seeking to outline their measurement strategy and define its type – whether managerial accountants employ mainly financial or mainly non-financial measures or a mixed approach.
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The core interest of the research is to discover a causal relationship between a combined approach towards managerial accounting and enhanced performance. The central research question and hypothesis is as follows: “Among other factors, does combining financial and non-financial measurements when assessing business performance account for better overall performance in a long-term perspective?”
Literature Review/ Background
Measuring business performance has always posed a challenge for managerial accountants. The question arises as to how applicable the classic approach that emphasizes financial performance measures to the modern business environment. Today, managerial accountants agree that there is no standard formula for capturing the very essence of business performance. Instead, throughout the last few decades, there has appeared a tendency to develop customized performance measurement systems. Such systems usually include a wide range of both financial and non-financial measures.
While financial measures might provide a company’s managerial accountant with clear, numerical data on growth, development, and performance, non-financial aspects pertain to other important factors such as customer satisfaction. Even though recent literature contains an extensive body of information on business performance and its evaluation, the research on its actual implementation has been fairly limited as of now. Thus, one may contend that there is a clear rationale for researching non-financial measures of manufacturing performance.
Business performance is a broad notion that entails numerous definitions. Within this section, we will be making operational generalizations about the essence of business performance and primarily paying attention to the key characteristics that business performance possesses. The notion of performance permeates numerous fields of scientific research and generally speaking, may be described as a set of tools for assessing the quality of an individual or collective endeavor (Micheli and Mari 148).
Bolland and Lopes state that business performance is the result of decision implementation which is influenced by both controllable and uncontrollable factors (32). The authors emphasize that business performance is measurable and usually can be expressed in numerical terms, which in turn constitutes the ranking of a given business in a field or within a given industry (32).
Now that the definition of business performance is provided, it is essential to outline the primary measurements applicable to businesses. According to Kaplan and Norton, aside from financial measurement, it is possible to single out three more categories, and namely, internal business processes, learning, and growth and customers (100). Thus, in the first case, the efficiency of business processes is being assessed; in the second case, an evaluation of staff training and contribution takes place, and lastly, an enterprise ensures its attitude for meeting customers’ expectations. It is abundantly easy to see how heeding all four categories as per classification by Kaplan and Norton would amount to a viable business strategy that does not only prioritize profitability but also capitalizes integrity and sustainability (101).
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In the process of reviewing recent literature on the topic, recent studies with similar objectives were found. A prime example is a study by Malinova et al. on the assessment of business process management (BPM) success in which the researchers sought to find an association between setting goals and enhancing performance (10). Some of the goals deemed primary by researchers overlap with the categories to be heeded in business performance assessment by Norton and Kaplan.
For instance, Malinova et al. enlist customer satisfaction and staff training among the five criteria for business process management success (11). It is possible to draw an analogy between the proposed study and the study by Malinova et al. since both choosing financial and non-financial measurements and setting goals are comparable (12). The findings of the study which revealed a positive relationship between BPM and improved output only confirms the hypothesis of the proposed research.
So far, it appears that the preferable method design would be a quantitative, cross-sectional study. There is a clear rationale for such methodology for cross-sectional studies that are most appropriate for assessing a situation in a given milieu in a specific period.
We propose to conduct a quantitative study since for exposing patterns and establishing a clear causal relationship between action and result; it is reasonable to draw objective numerical data. The research will be conducted in two steps: first, a questionnaire regarding business performance measurement methods would be developed and sent to respective organizations; second, after a set period, their performance would be measured.
As for the sampling, at least 300-400 companies would be approached via e-mail; it is planned that their contact information would be drawn from a database such as Company Database UK. Thus, the chosen sampling method would be non-probability convenience sampling since it is safe to assume that not every business is registered in the database mentioned above. However, to randomize the sample, the possibility of employing the stratified sampling method is considered.
For this, within the initial pool of companies, specific strata would be created, for instance, by industry or size, after which random sampling would be conducted. Admittedly, the response rate would not be 100%, and the objective at this stage would be to contact and maintain communication with at least 50 companies.
At the first stage, respondents would have to fill in a questionnaire which would contain both yes/ no and open-end questions regarding business performance evaluation. For instance, a questionnaire could involve a question such as “Do you assess customer satisfaction?” A follow-up open-end question would encourage the respondent to share how precisely customer satisfaction is measured. Assessing business performance could be operationalized through a percentage of measuring practices implemented for each category.
In the second stage, respondents would be asked to provide data on four categories outlined by Kaplan and Norton: finances, customer satisfaction, internal work processes, and staff training. Admittedly, each of these variables will need to be operationalized. For instance, finances could be operationalized as annual revenue compared to the revenue of the preceding fiscal year. Customer satisfaction could be assessed through the percentage of clients that reported good experiences working with a company. All in all, for each variable, ideally, there would be found a way to express it using numerical data.
However, if it proves to be not entirely possible, another cross-sectional survey could be conducted in which for instance, respondents could provide their account of the efficiency of internal processes. Even though such an approach may appear highly subjective, a study by Vij and Bedi showed that there was a negligible discrepancy between perceived and actual business performance (617).
One of the significant concerns regarding the present study would be the validity of the relationship between preferred business performance measuring methods and quality of performance. Two statistical approaches will be considered: the implementation of Pearson’s r and Bayesian statistics. In the first case, calculating Pearson’s r could be put to good use since it tests a correlation between values and applies to a linear relationship. However, it is safe to state that correlation does not equal causation. To overcome this difficulty, there might be a need for developing causality models based on Bayesian statistics and graph theory.
The proposed research would have its limitations which could be attributed primarily to the methodology and sampling method. As for the latter, it is abundantly easy to see how a sample of 50 organizations would not be representative of the business sector in a given country. This limitation would apply to the empirical basis provided by the research even if the findings are conclusive. The validity of the proposed research could also be compromised by the lack of replicability. Were a similar study takes place, however, with a different sample, it is rather hard to predict if the results would be identical. The second limitation relates to the presumption of the link between documented actions and results. Even though the research would employ four performance measurement categories, one should not dismiss the possibility of other factors equally if not more significantly contributing to a company’s failures or successes.
Research Proposed Timeline
The present study is proposed to be longitudinal and take place over at least one year. There is a clear rationale for such a period, given the chosen methodology and expected sample size. Since the research aims at finding a strong association between the implementation of financial and non-financial business performance measurements and improved performance, researchers must witness the development of a company over an extended period.
The first stage of the proposed research would be further reading and adopting and/ or developing measurement tools for each of the four categories enlisted: finances, customer service, staff training, and internal business processes. Since it is only readily possible to envisage how to gain numerical data for the first category, a discussion will have to take place as to how to operationalize the rest of the variables.
All points are taken into consideration, method design is projected to take 1-2 months. The initial stage of communication with businesses would take a month during which a questionnaire would be sent to their top management and accountants. At this stage, the respondents would have to define their approach towards assessing business performance. According to Bolland and Lopes, it takes approximately a year for the results of a business decision to manifest (32). Thus, the final stage would be set in a year after the initial communication.
Outcomes and Value
We expect to establish a link between organizations’ decisions to evaluate various financial and non-financial aspects of its business activities and enhanced performance. In the process of developing a research design and conducting a study, we seek to elaborate on a new business performance measurement system applicable to the organizations that would choose to partake. At that, the primary goal would not be the development of a comprehensive system that would inherit the advantages of its predecessors and overcome their faults.
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The present research rather aims at finding a customized solution appropriate for the milieu in which the research will take place. Assuming that the research would be conducted in the United Kingdom, its findings could shed light on the nature of performance measurement strategies in the country.
Moreover, in case the findings are meaningful and consistent with the hypothesis mentioned above, the research has the potential to provide empirical evidence of the advantages of the mixed approach towards business performance measurement. Lastly, since business performance measurement makes part of both management, maths, and accounting theories, a contribution may make a contribution to each of the fields enlisted.
As for future endeavors, we assume that it would be reasonable whether to expand the scope of research including more companies and examining more factors or choose a narrow, more specific topic. For instance, business performance may be measured in different industries to highlight similarities and differences. As a result, the findings may provide insights into workable strategies for each sector and lay a foundation for a future theoretical framework and business practices. Further, an association between accounting methods and business performance may be investigated. Given the nature of business cycles, the timeline of such a study would have to be extended to allow for the observation of both planned measures in action, and the manifestation of results.
Bolland, Eric J., and Carlos J. Lopes. Decision Making and Business Performance. Edward Elgar Publishing, 2018.
Kaplan, Robert S., and David P. Norton. Balanced Scorecard Success: The Kaplan-Norton Collection (4 Books). Harvard Business Review Press, 2015.
Malinova, Monika, et al. “A Framework for Assessing BPM Success.” Proceedings of the 22nd European Conference on Information Systems (ECIS) 2014, 2014. Web.
Micheli, Pietro, and Luca Mari. “The Theory and Practice of Performance Measurement.” Management Accounting Research, vol. 25, no. 2, 2014, pp. 147-156.
Vij, Sandeep, and Harpreet Singh Bedi. “Are Subjective Business Performance Measures Justified?.” International Journal of Productivity and Performance Management, vol. 65, no. 5, 2016, pp. 603-621.