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Performance comparison in SMEs

Abstract

This paper seeks to address the question How to measure different SMEs performances comparatively? An initial review reveals that the literature does not provide o !ective and e"plicit de ate on the su !ect# $onsequently% an approach is developed% informed y the literature% which is used to compare the performances of &' SMEs# The consistency and relia ility of the approach is tested% resultin( in a rankin( of the &' firms accordin( to their performances#

)sin( cluster and factor analysis the paper demonstrates that leadin( indicators are somewhat redundant% and that la((in( indicators have (reater si(nificance for the purpose of comparative measurement of different SMEs performances# *hilst the approach adopted here withstood internal and e"ternal validity tests and can e seen as a ro ust way of comparin( SMEs performances% these results may e limited to this particular study#

Keywords: SMEs% +erformance% measurement% comparisons% enchmarkin(

1. Introduction

Ever since -ohnson and .aplan /,01'2 pu lished their seminal ook% entitled Relevance Lost The Rise and Fall of Management Accounting % performance measurement (ained increasin( popularity oth in practice and research# 3n fact 4eely /,0002% havin( identified that etween ,005 and ,006 over &677 articles were pu lished on performance measurement% has coined the phrase the performance measurement revolution# Today% performance measurement and performance mana(ement practices are common place in all sectors of industry and commerce as well as the pu lic sector% includin( (overnment departments% non8(overnmental or(anisations and charities#

Alon( with this increased interest in performance measurement at all levels of an or(anisation% we have also witnessed an increasin( interest in comparin( the performance of or(anisations in order to identify the performance (aps and improvement opportunities# $onsequently% we have seen a num er of articles from practitioners and researchers on the su !ects of performance measurement% performance comparisons and enchmarkin(# 3n parallel to these theoretical developments we have also seen an increase in performance comparison and enchmarkin( practices and

services# An early review of some of these enchmarkin( services was reported y $oulter et al. /97772# A quick search of the internet reveals a plethora of services /e#(#

www#pm( enchmarkin(#com and www# estfactoryawards#co#uk2 for performance comparison and enchmarkin(#

2. The esearch Prob!em

The research pro lem we are tryin( to address in this paper is simply How to measure different SMEs performances comparatively?: *e have come across this pro lem when we were tryin( to compare the mana(erial practices% activities and processes of a num er of different SMEs with different levels of performance# 3n pursuin( this line of research our first challen(e was how to measure the performance of different SMEs operatin( in different sectors so that we can o !ectively classify them accordin( to their performance# 3n seekin( an answer to this challen(e and havin( reviewed the literature in this area% we identified a ran(e of studies that compare the performances of different firms#

The *orld $ompetitiveness ;eport <ear ook /97702 provides assessments of many aspects of national factors that drive competitiveness# Here there is some a(reement of the type of measures that should e used to measure a firms performance /such as revenue (rowth% profita ility (rowth% productivity (rowth and so on2 i ut the comparison of the performances of different companies to one another usin( these

&

measures in a solute terms

ecomes meanin(less

ecause one company may

operatin( a hi(h (rowth sector /such as food and drinks2 and the other in a declinin( sector /such as electronics2# =ther studies use return on investment type measures% particularly shareholder return /$ollins% 977,> .ratchman et al#% ,0'5> ?@nsiluoto et al#% 9775> 4ohria et al#% 977&> +hillips ,00'; <amin et al#% ,00'2# There are two pro lems with this approach# Airstly% return on investment% whilst ein( an appropriate hi(h level measure for lar(er companies% it fails to provide an o !ective assessment of smaller companies that may e owner8mana(ed /;ue and 3 rahim% ,001> +erry% 977,> Benison and McBonald% ,00C> Auller8 ?ove% 9776> *esthead and Storey% ,0062# Secondly% it still relies on comparin( performance of similar firms within their sector and does not allow for cross8sectoral comparisons# Aurthermore% to compare the performances of firms within the same sector seems to require comple" approaches# Here we also found performance comparisons of firms in different countries /Andersen and -ordan% ,001> Samson and Aord% 9777> Doss and Elackmon% ,0062 or performance comparisons etween (roups of firms% such as SMEs v local firms v lar(e firms /Frando and Eelvedere% 97762# 3n all these cases% lar(e comple" questionnaires were used to collect the necessary data and the comparison did not consider the differences in different usiness sectors#

There are indeed other studies that focus on comparin( the performances of firms from different sectors# However% the ma!ority of these focus on particular processes or function such as supply chain performance /AkyuG and Erkan% 9770> Aynes et al#% 977C> Funasekaran et al#% 977,> .im% 977'> .o!ima et at#% 9771> ?ewis and 4iam% ,00C> SHncheG and +IreG% 977C> <urdakul% 977C2 or manufacturin( performance /Eonvik et al#% ,00'> Eukchin% ,001> Miller and ;oth% ,005> ?au(en et al.% 977C2 without payin( much attention to overall performance of the firm# Aor e"ample% the 3nternational Manufacturin( Strate(y Survey pro!ect /?au(en et al.% 977C2 attempts to identify the manufacturin( practices of hi(h performin( manufacturin( companies /lar(e and small2 y usin( ,' different quality% fle"i ility% speed and cost indicators#

The pro lem here is that it is the manufacturin( performance that is ein( compared rather then the overall performance of the firms concerned#

3t appears that althou(h there are many studies measurin( and comparin( the performances of different firms from different perspectives /such as marketin(% operations% finance% human resource mana(ement2 and for different purposes% there is little or no informed scientific de ate as to which measures are appropriate and how these measures should e com ined and used in order to compare the usiness

performance of different firms operatin( in different sector% whilst accountin( for the industry specific factors /Hawawini et al#% 977&% Ellis and *illiams% ,00&> ;eider%

9777% ;ichard et al#% 97702# 3n fact% ;ichard et al# /97702% havin( reviewed performance measurement related pu lications in five of the leadin( mana(ement !ournals ii /'99 articles etween 977C and 977'2% su((est that past studies reveal a multidimensional conceptualisation of or(anisational performance with limited effectiveness of commonly accepted measurement practices# They call for more theoretically (rounded research and de ate for esta lishin( which measures are appropriate to a (iven research conte"t# 3n short% with this paper we seek to make a contri ution to this (ap y

identifyin( the appropriate measures and how they should e com ined and used in order to measure different firms performance comparatively#

".

esearch Method

3n order to investi(ate the research question posed a ove% we carried out a ri(orous research pro(ramme summarised in Ai(ure ,# The research process was ased on three main phases# Airst% we reviewed literature% includin( oth SMEs and lar(e companies and% covered a road ran(e of overlappin( fields% includin( performance measurement% mana(ement control systems% enchmarkin( and performance

mana(ement and we synthesised it in two main research streamsJ the performance measurement literature in (eneral% and the cross8industry enchmarkin( literature in

particular# Secondly% (iven the lack of scientific de ate on measurement of different firms performances comparatively% we used a focus (roup to review the literature conclusions and identify how and what to measure# As a result we identified nine key performance measures that would ena le assessment of a SMEs overall performance to(ether with an approach for accountin( for intersectoral differences# Thirdly% we empirical tested the proposed approach on a (roup of &' SMEs operatin( in different sectors# Ainally% ased on the empirical evidence we could validate our approach and have an informed de ate on what measures to use and how to use these to measure firms performances comparatively# The methodolo(ical details of each phase of the research are further e"plained in the followin( sections#

Ktake in Ai(ure ,K

#. $ac%&round 'iterature

The literature review presented in this section was conducted to esta lish the current knowled(e pertinent to the research question posed a ove# 3n order to identify the relevant papers% specific mana(ement data ases% such as Eusiness Source +remier% *e of .nowled(e% Emerald 3nsi(ht% Mana(ement and =r(anisation Studies% AE3

3nform and Science Birect% were searched usin( search phrases such as performance

'

comparison% performance measurement in SMEs%

enchmarkin(% and performance

enchmarkin(# ;elevant articles were identified after a review of a stracts followed y full te"t reviews# The selected papers were analysed and inte(rated with key ooks on the areas of interest# Aor the purposes of this literature review% pu lications in conferences proceedin( were omitted#

The resultant literature covered a road ran(e of overlappin( fields% includin( performance measurement% mana(ement control systems% enchmarkin( and

performance mana(ement#

The followin( sections provide a synthesis of the

performance measurement literature in (eneral% and the cross8industry enchmarkin( literature in particular#

4.1 Performance Measurement Literature

Burin( the ,017s% with the reco(nition of the limitations associated with traditional performance measurement systems% the interest in the theory and practice of performance measurement started to (row# The main issues associated with traditional performance measurement may e summarised asJ lack of ali(nment etween

performance measures and strate(y> failure to include non8financial and less tan(i le factors such as quality% customer satisfaction and employee morale> mainly ackward

lookin(% thus poor predictors of future performance> encoura(in( short8termism> insular or inwards8lookin( measures (ivin( misleadin( si(nals for improvement and innovation /-ohnson and .aplan ,01'> ?ynch and $ross% ,00,> Eccles% ,00,> 4eely et al#% ,005> Fhalayini and 4o le% ,0062# $onsequently% out of reco(nition of the inappropriateness of traditional approaches to performance measurement% in a (lo aliGed% hi(hly dynamic% market focused and stakeholder driven economy% the contemporary approaches to performance measurement were orn /.aplan and 4orton% ,009% ,006> Eccles% ,00,> 3ttner and ?arcker% ,001> 977&> 4eely% ,0002#

$ontemporary approaches to performance measurement include the intan(i le dimensions% such as pu lic ima(e and perception% customer satisfaction% employee satisfaction and attrition% skills levels% innovations in products and services investments into trainin( and new value streams and so on /see for instance Ahire et al.% ,006> Atkinson et al#% ,00'> Alynn et al#% ,005> Aorslund 977'> Arancisco et al#% 977&> Aullerton and *empe% 9770> Maskell% ,00,> McAdam and HaGlett% 9771> .asul and Motwani ,00C2#

Today% there is a (eneral consensus that the old financial measures are still valid and relevant /<ip et al#% 97702% ut these need to e alanced with more contemporary% intan(i le and e"ternally oriented measures#

The discourse on contemporary approaches to performance measurement hi(hli(hts how shorter term operational measures affect usiness performance and

measures in the lon(er term# This de ate led to the development of the notion of leadin( and la((in( indicators where the leadin( indicators are the indicators that provide an early warnin( of what may happen in the future and the la((in( indicators communicate what has actually happened in the past /Anderson and McAdam% 9775> Eauly% ,005> Eourne et al#% 9777> .aplan and 4orton% 977,> Manoochehri% ,000> 4eely et al#% ,00C> 4i"on% ,001> =lve et al#% ,0002#

The literature identifies a num er of leadin( indicators that serve to predict future performance of an or(anisation# These include customer oriented operational indicators such as delivery performance% lead times% fle"i ility and quality performance /Bi(alwar and San(want 977'; Eeamon% ,000> ?ynn et al#% ,00'> Maskell> ,00,2 as well as human resource oriented indicators such as employee satisfaction and morale /A ott% 977&> Eurke et al#% 977C> Heskett et al#% ,005> Schlesin(er and Heskett% ,00,>

Simmons% 9771> TuGovic and Eruhn% 977C2# 3n fact% authors such as AitG8EnG /,00&2% ;ucci /,0012% ;hian /97792 and *atkins and *oodhall /977,2 hi(hli(ht the stron(% and comple"% relationship etween employee satisfaction% customer satisfaction and overall performance#

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The notion of creatin( performance measures that are predictive adds an important characteristic to the thinkin( ehind performance measurement in (eneral# 3n order for any performance indicator /leadin( or la((in(2 to e predictive a sin(le point of measure would e meanin(less and that prediction would need to e ased around a time series of measures indicatin( how performance is chan(in( in time% thus allowin( one to predict what may lie in the future# 3t is thou(ht that leadin( and la((in( indicators% when used in a time series format% rin(s or(anisations one step closer to havin( predictive performance measurement systems /Eourne et al#% 9777> 4eely et al#% ,00C2#

The literature also contains many empirical studies that call for contin(ency ased approaches to performance measurement /3ttner and ?arcker% ,001> 4anni et al#% ,009> Shirley and ;eitsper(er(% ,00,2# Here the importance of the internal /such as strate(y% o !ectives% structures and culture2 and e"ternal /such as customers% competitors% suppliers% le(al% political and social2 conte"t of the or(anisation is reco(nised /$henhall% 977&> Faren(o and Eititci% 977'2# This emphasis on a contin(ency approach hi(hli(hts the need to consider the contin(ency varia les when comparin( performance results of different companies# 3n short% company performance

,,

could not

e considered in isolation from the characteristics and the needs of the

industry and the environment in which a company operates /;eid and Smith% 97772# 3n the conte"t of SMEs% the performance measurement literature hi(hli(hts the characteristics of SMEs that differentiates them from lar(er or(anisations# These characteristics include% lack of formalised strate(y% operational focus% limited mana(erial and capital resources% and misconception of performance measurement /Erouthers et al#% ,001> Auller8?ove% 9776> Fho adian and Fallear% ,00'> Hudson et al#% 977,> Hussein et al#% ,001> -ennin(s and Eeaver% ,00'> Faren(o et al# 977C22# This literature also su((ests that SMEs require simple measures that provide focused% clear and useful information /Hussein et al# ,001> ?aitinen% 97792# As SMEs lack the resources needed to implement comple" measurement systems a key requirement is that the num er of measures used should e limited /$ook and *olverton ,00C> Hussein et al# ,001> <e 8<un ,0002 without compromisin( the inte(rity of the performance measurement system /McAdam and Eailie% 97792#

3n summary% the performance measurement literature emphasises the need for adoptin( a alanced approach to performance measurement and the need for usin( leadin( and la((in( indicators in a coordinated way# Althou(h different scholars may use different words to descri e this% all the performance measurement models developed after the mid8,017s take a alanced approach to performance measurement% where the

,9

use of leadin( and la((in( measures are coordinated /AitG(erald et al# ,00,> .aplan and 4orton% ,009> .ee(an et al#% ,010> ?ynch and $ross% ,00,> 4eely% ,001> 4eely et al#% 97792# Althou(h the alanced approach to(ether with the notion of leadin( and la((in( indicators provide useful (uidance on what to measure and how to use these measures% it provides little (uidance on how these measures and the firm specify contin(ency factors /such as sector characteristics2 could e used to measure the performance of different firms comparatively#

4.2 Cross-Industry Benchmarking Literature

Here the literature contains diverse interpretations that reflect the level of interest in enchmarkin(# Bespite this diversity one common theme that inds this field to(ether is that meanin(ful measurement is relative /Fre(ory ,00&2# That is% in order to e si(nificant% each measurement needs to e compared a(ainst a point of reference or enchmark /$Guchry et al#% ,00C> Battakumar and -a(adeesh 977&> Di(% ,00C> <asin% 9779> Lairi and <oussef% ,00C> ,0062#

Althou(h the literature proposes a variety of approaches to enchmarkin(% the widely accepted classification proposed y $amp /,0102 makes distinctions etween internal% competitive% functional and (eneric enchmarkin(# However% these all rely on

,&

comparison of similar processes% functions or firms# *atson /977'2 reco(niGes the weaknesses associated with local enchmarkin( and proposes an additional cate(ory called global benchmarking> which attempts to e"tend the oundary of the

enchmarkin( (eo(raphically to (et over the cultural and usiness process distinctions amon( companies# However% *atsons /977'2 approach also does not address the cross8 industry enchmarkin( issue#

The literature also contains many studies investi(atin( how est to enchmark% descri in( the necessary steps /$amp% ,010> $odlin(% ,001> Areyta( and Hollensen% 977,> .arlof and =st lom% ,00&> Spendolini% ,00&> Doss et al#% ,0052# However% none of these studies propose approaches to facilitate cross8industry enchmarkin(# Many of the enchmarkin( pro!ects found in the literature focus onJ Eenchmarkin( within a specific sector 8 such asJ manufacturin( /Miller and ;oth% ,005> ?au(en et al% 977C2> construction /$osta et al# 97762> transportation and lo(istics /Be .oster% and *arffemius 977C> Feerlin(s et al#% 9776> Huo et al., 97712% water supply /Eaad aart% 977'2> metal8castin( /;i eiro and $a ral% 97762> automotive /Bel rid(e et al#% ,00C> SHncheG and +IreG% 977C2> human resources /;odri(ues and $hincholkar% 97762> information services /Ho and *u% 97762# These include international enchmarkin( networks such asJ www# enchnet#com>

,5

www# enchmarkin(network#com> www#apqc#or(> www#capsresearch#or( /Andersen and -ordan% ,0012# Eenchmarkin( a specific cross8industry measure% such asJ days8sales 8 outstandin( /www#icc#co#uk2> annual8asset8 ased8lendin( /www#cfa#com2 and financial

performance /.ratchman et al#% ,0'5> ?ansiluoto et al#% 97752# Eenchmarkin( a sin(le industry% to assess the competitiveness of that industry /Eraad aart% 977'> Bel rid(e et al#% ,00C> Aowler and $amp ell 977,> Feerlin(s et al#% 9776> Hwan( et al#% 9771> ;i eiro and $a ral 97762 Eenchmarkin( a specific process% such as supply chain performance /?ewis and 4iam% ,00C> Schmid er(er% et al#% 9771> <un( and $han% 977&2#

+erformances

enchmarkin( refers mainly to quantitative comparisons of

performance varia les /such asJ costs% quality% customer satisfaction% productivity and so on2 to identify (aps in performance and thus identifyin( improvement opportunities# $learly performance enchmarkin(% as such% is most useful when it is used for dia(nosis and comparison amon( companies and industries# The literature also raises an important point concernin( performance versus practice enchmarkin(# Fiven the o !ective of our study% we restrict our interest to (lo al performance enchmarkin(# As our interest in enchmarkin( is to compare usiness results of companies elon(in( to different

sectors% *atsons /977'2 findin(s from

enchmarkin( studies were considered

,C

particularly noteworthy# =ne of the main limitations of (lo al performance enchmarkin( seems to e the need for focusin( mainly on financial results ecause% at this level% the o !ective is to determine which or(aniGation performs est accordin( to an o !ective standard that is typically financial 8 like return on investment# Also% whilst enchmarkin( is considered to work well as a method of identifyin( the est

performance in a specific industry% it is also reco(nised that it does not work well across industries as the comparisons ecomes meanin(less due to conte"tual factors /Ellis and *illiams% ,00&> Hawawini et al#% 977&> ;eider% 97772#

4.3 Literature Conclusions

3t seems that there is a plethora of literature on performance measurement% mana(ement control systems% enchmarkin( and performance mana(ement# These

ran(e from measurement and control of or(anisational performance as a whole to mana(ement and control of people performance% and includes or(anisational functions% usiness processes% activities% teams% as well as supply chains and SMEs#

The literature does contain studies where the performances of different firms from different sectors have een compared usin( a scale /e#(# a ove8avera(e% avera(e% elow8avera(e2 to account for intersectoral differences /e#(# ?au(en et al% 977C> Miller

,6

and ;oth% ,0052# However% the ma!ority of these studies use these approaches as a research instrument and there seems to e little scientific research and de ate to enhance our understanding of !"hich measures to use# and !ho" to com ine and use these measures# to com$are the o%erall $erformance of different &M's.

Bespite this lack of specific de ate% there is some (eneral (uidance% in that the measures we use to assess and compare the performance of different firms shouldJ e alanced% includin( financial and non financial measures# include oth la((in( /such as traditional financial measures2 and leadin( measures /such as employee satisfactions% investments in new equipment% personnel% markets and so on2# e ased on a time series /e#(# indicatin( how profita ility of an or(anisation has chan(ed over a period of time2# e sensitive to the conte"tual and environmental conditions the firms operate within and assess firms performances within this conte"t#

(. Measurin& SMEs Performances )omparati*e!y: An Approach

,'

Aaced with the plethora of opinions and approaches with little or no informed scientific de ate on how to measures firms performances comparatively it was decided to develop an approach that would allow us to measure SMEs performances comparatively and then allow us to classify these into hi(h% medium and low performance cate(ories# A focus (roup was formed comprisin( of academics with varyin( ack(rounds /operations mana(ement% manufacturin(% human resource

mana(ement% mana(ement science% strate(ic mana(ement and psycholo(y2 as well as industrial mem ers /two mana(in( directors and two operations directors from four different SMEs2# The conclusions of the literature were reviewed with the focus (roup that identified two areas where decisions had to e madeJ *hat to measure: and How to measure these comparatively:# 3n focusin( on what to measure% it quickly ecame apparent that% as the focus of our main study was SMEsiii in Europe% we would e well advised to consider the key usiness measures these companies would use to assess their own performance# The measures identified lar(ely comprised of traditional financially focused la((in( indicators% as followsJ ;evenue /sales2> +rofits or profita ility> $ash8flow and Market share# 3n a wider conte"t% in makin( comparison etween different countries or sectors% productivity is also a commonly used measure# 3n fact% any chan(e pro(rammes would first show improvements in productivity efore the results are seen in sales% profits or

,1

cash8flow# Thus the focus (roup considered productivity to e a leadin( indicator for ;evenue% +rofit and $ash8Alow measures% a view that is also supported y the literature /see for instance Maskell% ,00,> Misterek et al#% ,009> Alynn et al#% ,005> Fhalayini and 4o le% ,006> +arker% 9777> Bi(alwar and Metri% 977C> Harter et al#% 97792# Arom a customer perspective% the focus (roup considered it important to measure customer satisfaction as an all encompassin( indicator of customer facin( performance of firms operatin( in different sectors and to different operatin( strate(ies#

$onsiderin( the emphasis on leadin( indicators su((ested in the literature% such as introduction of new value stream% new investments% as well as employee satisfaction /AitG(erald et al#% ,00,> .aplan and 4orton% ,009> .ee(an et al#% ,010> ?ynch and $ross% ,00,> 4eely% ,001> 4eely et al#% 9779> ;ucci% ,001> ;hian% 9779; *atkins and *oodhall% 977,2 the approach shown in Ai(ure 9 was adopted#

Ktake in Ai(ure 9K

3n considerin( the question how to measure these comparatively?: it was decided to use a relative scorin( technique /as illustrated in Ai(ure 92 allowin( the performance of each or(anisation to e scored on a five point scale over a specified time period /,7 years2 with respect to its sector# =f course% it was reco(nised that this would

,0

make the whole assessment su !ective# However% after much de ate this was deemed the most appropriate method% with certain qualifications% that would allow cross8 industry performance comparisons whilst ein( sensitive to environmental and

conte"tual factors within which each or(anisation operates# The a ove decision was taken with the qualification that the scores (iven to each or(anisation were trian(ulated% as well as independently validated usin( o !ective data for each or(anisation and the sector they operate within% consistent with previous such studies /Miller and ;oth% ,005> ?au(en et al% 977C2# +. )ase ,ata and Ana!ysis

Havin(

developed

framework

for

measurin(

firms

performances

comparatively% performance data was collected from &' SMEs across Europe# 3n the followin( sections we provide a detailed e"planation of how the data was collected and analysed% as well as our findin(s#

(.1 )ata Collection and )escri$tion

Fiven that we were seekin( to understand the $erformance of each firm relati%e to its sector we decided to adopt a qualitative case study methodolo(y ased on

97

structured interviews /Eisenhardt% ,010> Eisenhardt and Frae ner% 977'2# A case study protocol was developed that (uided researchers throu(h the case study interviews# Eetween -anuary and 4ovem er 9776 performance data was collected throu(h face to face interviews from &' European SMEs operatin( in different sectors% such as Aood and Eevera(es% Electronics% Electrical Equipment% +lastic $omponents% +rocess and Heavy En(ineerin(# 3n selectin( the case study or(anisations% SMEs with less than C7 people were avoided as accordin( to Doss et al. /,0012 they represent different levels of mana(erial capa ilities# 3n fact the &' cases e"amined all had etween ,77 and 9C7 employees#

The interviews were conducted in pairs

y a team of si" researchers# Aor

trian(ulation purposes secondary data in the form of internal reports and media pu lications were also used /Eisenhardt% ,010> Miles and Hu erman% ,0052# 3n each company the mana(in( directorM(eneral mana(er or hisMher equivalent was interviewed as well as hisMher direct reports# Typically% these included an =perations Birector% Ainance Birector% SalesM$ommercial Birector% +roduct Bevelopment Birectoriv#

As the data collection interviews pro(ressed it ecame apparent that only a few of the &' case study or(anisations collected and reported customer satisfaction data# 3t also ecame evident that a lot of the interviewees were not a le to score their customer

9,

satisfaction performance relative to their sector# Thus the customer satisfaction indicator was a andoned durin( the early sta(es of the research#

Eventually data was collected from &' firms a(ainst 1 performance varia les# 3n each company these performance varia les were rated y the C to 1 mana(ers

considerin( their own or(anisations performance over the past ,7 years% consistent with the (rowin( coalition that a ,78year timeframe is the minimum appropriate timeframe to overcome random variation /see .ir y% 977C and ;ichard et al.% 97702#

(.2 )ata relia ility and %alidation

The relia ility and validity of the data collected was tested usin( e"ternal and internal consistency checks usin( an independent researcher# E"ternal consistency of the performance ratin( (iven y the mana(ers interviewed was tested a(ainst actual

performance of these or(anisations# This was done y takin( a sample of five firms from the research sample of &' case studies# The actual performance information for the sample of five firms was o tained from the AAME and similar data ases v% as well as the companies own internal accounts# The team also had access to local industry data ases% as well as news stories% to (ather o !ective information a(ainst each of the ei(ht performance varia les# The actual values for the performance varia les were compared

99

to other companies in the same sector# As the consistency etween self and independent assessment of each performance varia le is a ove '&N /Ta le ,2% it is considered that the data used is e"ternally relia le and valid#

Ktake in Ta le ,K

3nternal consistency was tested usin( $ron ach8alpha statistics /Salkind% 9776% p#,,9% =ktay8Airat and Bemirhan% 97792# This approach indicates whether or not the performance ratin(s used are helpful in e"plainin( the performance of the firms y providin( information a out the relationships etween individual performance varia les in the scale# Aor the ei(ht performance varia les used% $ron achs alpha value was (reater than 7#0,0, for all varia les in the overall scale# This value indicates that performance ratin(s used have stron( internal consistency% as relia ility coefficients a ove 7#1 are considered relia le /Salkind% 9776% p#,,72# Also as e"plained in the ne"t section% $ron achs alpha values were calculated for oth first and second components /factors2 in order to determine relia ilities of la((in( and leadin( indicators and found as 7#096, and 7#1C95 respectively#

These results confirm that the performance ratin(s o tained from the &' case studies are oth internally and e"ternally relia le and consistent#

9&

(.3 *hich indicators are most useful+

Althou(h it is now esta lished that the performance varia les and the ratin( system used have stron( internal and e"ternal consistency% the question as to whether all the ei(ht indicators are required for e"plainin( the performance of a firm still remains#

Accordin( to Hair et al# /,0012% factor analysis% in addition to servin( as a data summarisin( tool% may also e used as a data reduction tool as it assists with the reduction of the num er of varia les# However% there are several su((estions concernin( the appropriate sample siGe for applyin( factor analysis# $omrey and ?ee /,0092 su((est that a sample siGe of C7 is very poor% ,77 is poor and so on# +reacher and Mac$allum /97792 conducted a Monte $arlo Simulation study on the sample siGe effect on factor analysis and concluded that sample siGe had y far the lar(est effect on factor recovery with a sharp drop8off elow sample siGe of 97# Althou(h the (enerally

accepted appro"imation that the sample siGe must e (reater than &7 is still valid and necessary for normality assumption% it is not sufficient for ro ust statistical analysis# Measure of Samplin( Adequacy /MSA2 and Eartletts Test of Sphericity /Eartletts test2 are two different measures that are frequently used in order to check the adequacy of factor analysis /Hair et al#% ,001> Lhao% 97702# The Eartletts test is a statistical test for

95

the presence of si(nificant correlations across the entire correlation matri" /Hair et al.% ,0012# )se of Eartletts test of sphericity is recommended only if there are fewer than five cases per varia le /Ta achnick and Aidell% 977'2# 3n this study% since the ratio of num er of cases /&'2 to the num er of varia les /12 is less than C% Eartletts test has een used in order to check the adequacy and appropriateness of factor analysis# .aiser8 Meyer8=lkin /.M=2 test measures Samplin( Adequacy throu(h an inde" ran(in( from 7 to ,# The .M= inde" reaches towards , when each varia le is perfectly predicted without error y the other varia les# .M= can e interpreted as meritorious: when 7#17 or a ove and as middlin(: when it is etween 7#'7 and 7#17 /Hair et al#% ,0012# Accordin( to Ta achnick and Aidel /977'2% Hair et al,# /,0012 and Lhao /97702 a .M= inde" over 7#67 is sufficient for esta lishin( samplin( adequacy# A .M= inde" of 7#191 to(ether with the statistically si(nificant result of Eartletts test /$hi8SqO9,7#1'1> dfO91#777> pO7#772 su((est that the sample chosen and the set of varia les are conceptually valid and appropriate to study with factor analysis#

Thus factor analysis /Ta achnick and Aidell% 977'% =ktay8Airat and Bemirhan% 97772 and Darima" ;otationvi /-ohnson and *ichern% 9779% p# C7C> =ktay8Airat and Bemirhan% 977,2 was applied to the ei(ht performance varia les to identify a com ination of varia les that est e"plain the performance of these firms# The

correlation matri" in Ta le 9 illustrates that most of the varia les are stron(ly related to

9C

each other# Althou(h the weakest relationship is etween +rofita ility and 4ew value streams% this correlation still remains si(nificant at the level of 7#,#

Ktake in Ta le 9K

The de(ree to which the model descri es data and the interpreta ility of the solution are perhaps the most difficult part of a factor analysis# Methods such as Ei(envalues8(reater8than8unity rule: /Everitt and Bunn% 977,> $udeck% 9777> .aiser% ,0672 and the Scree8+lot are common methods to decide which factors est descri e the data# However% the choice ultimately involves a certain amount of su !ective evaluation on the part of the investi(ators and it is su((ested that personal opinion is not only unavoida le% it is also desira le /$udeck% 97772# Accordin( to the Ei(envalues8(reater8 than8unity rule% the components havin( ei(envalues (reater than , are considered si(nificant and all factors with ei(envalues less than , are considered insi(nificant and are disre(arded /Everitt and Bunn% 977,2# Scree8+lot approach su((ests that the num er of factors should e decided y the num er of ei(envalues that are apprecia le in siGe compared to the others in the distri ution and this usually corresponds to the el ow: in the Scree8+lot /$attell% ,066> Everitt and Bunn% 977,> $udeck% 9777% Ta achnick and Aidell% 977'2#

96

Ai(ure & illustrates the ei(envalues efore and after varima" rotation as well as the Scree8+lot for the data# ;esults show that two principal components /$omponents , and 9 with ei(envalues (reater than ,2 e"plain ''#0' N /cumulatively2 of the total varia ility of performance in the sample# As a result% there are two main dimensions in the performance data% these are the first principle component and the second principle component that e"plains C7#75N and 9'#09N of the total varia ility respectively# This result can also e visually o served from Scree8+lot.

Ktake in Ai(ure &K

Ai(ure 5 shows the contri ution of each performance varia le towards each one of the two principal components and illustrates% throu(h the $omponent +lot% how the performance varia les relate to one another ased on coefficients of each principal component#

Ktake in Ai(ure 5K

As to the la ellin( of the components% accordin( to Hair et al. /,0012 the decision is ased primarily on the su !ective opinion of the researchers% ut if a lo(ical name can e assi(ned that represents the underlyin( nature of the factors% it usually

9'

facilitates the presentation and understandin( of the factor solution# )sually varia les with hi(her loadin(s influence to a (reater e"tent the la el or name selected to represent a factor# This analysis shows that the two principal components are sufficient to represent all performance varia les and that these results are consistent with the performance measurement literature% i#e# the Airst +rinciple $omponent may e primarily la elled as ?a((in( 3ndicators: with the e"ception of Employee Satisfaction indicator# Similarly% the Second +rinciple $omponent may e la elled as ?eadin( 3ndicators:#

The literature on factor analysis also su((ests that the researcher has the option of e"aminin( the factor matri" and selectin( the varia le or varia les with the hi(hest factor loadin( on each factor to act as a surro(ate varia le that is representative of that factor /Hair et al., ,001> Ta achnick and Aidell% 977'2# $onsiderin( these results it can e concluded thatJ ?a((in( performance varia les included in the first principal component are more important than others to indicateMmeasure the performance of the companies in the sample# +rofita ility varia le is the most important performance indicator to e"plain performance levels of the companies in the sample# As its coefficient is si(nificantly

91

(reater than others% it can e used as a sin(le surro(ate: performance indicator y i(norin( other varia les# The factor analysis literature su((ested that as a rule of thum the first one% two or three varia les that have hi(hest loadin( /varia les with loadin(s of 7#&9 and a ove2 in the principal component can e used to represent all the remainin( varia les /Ta achnick and Aidell% 977'% p #69C> =ktay8Airat and Bemirhan% 977,> 97792# Therefore% providin( an opportunity to avoid comple"ity y reducin( the num er of varia les that are required to measure the performance of an or(anisation# 3n this case% for the followin( reasons% it would e possi le to omit Employee Satisfaction from the Airst +rinciple $omponentJ /,2 3n the performance measurement literature Employee Satisfaction is classified as a ?eadin( 3ndicator# Thus it does not naturally fit with the rest of the la((in( indicators in this (roup of performance varia les# /92 The Employee Satisfaction varia le has one of the lowest loadin( coefficients# /&2 Aurther analysis conducted usin( Hierarchical $lusterin( usin( *ards methodvii to discover natural (roupin(s of performance varia les /-ohnson and *ichern% 97792 shows that Employee Satisfaction is clearly distant from other varia les in Airst +rinciple $omponent /Ai(ure C2#

90

Ktake in Ai(ure CK

$onsiderin( also the results of Ai(ure 5 it may e ar(ued that la((in( indicators +rofita ility% $ash Alow and Dalue Added +roductivity may e used e"clusively to measure and assess company performance with a reasona le de(ree of relia ility and consistency#

+erformance varia les /4ew Dalue Streams and 3nvestments2 included in the second principal component are less important% ut these varia les measure different

dimensions of performance% i#e# the ?eadin( 3ndicators% and would serve to predict future performance rather than past performance#

The o !ective of this section was to determine useful indicators that would facilitate a relia le and consistent assessment of firms performances# The analysis presented su((ests that althou(h all the indicators used are capa le of representin( firms performances in a relia le and consistent way% it also presents an opportunity to reduce comple"ity y reducin( the num er of performance indicators# Thus% the e ased on the performance

proceedin( comparative performance analysis will

indicators included in the Airst +rinciple $omponent with the e"ception of the Employee Satisfaction indicator% for reasons discussed a ove# Therefore% the most useful indicators for purposes of performance comparison amon(st firms areJ

&7

Frowth in +rofita ility Frowth in Dalue Added +roductivity Frowth in $ash flow Frowth in ;evenue Frowth in Market Share

(.4 ,o" can "e grou$ firms according to their $erformance+

Havin( identified the most useful indicators for purposes of performance comparison the ne"t research challen(e was how to rank or (roup firms accordin( to their performance# This was achieved y usin( three different approaches% namelyJ Total performance scores% where the scores /, to C2 a(ainst each performance varia le were simply added to determine the total score# Hierarchical clusterin( /i#e# the *ard method2 applied to the data8set usin( S+SS ,6#7 software# The dendro(ram shown in Ai(ure 6 illustrates the results of the hierarchical clusterin( usin( *ards method# .8Means /Puick $lusterin(2 also usin( S+SS ,6#7 software#

Ktake in Ai(ure 6K

&,

Ta le & illustrates the rankin( o tained from three different approaches used to(ether with the final clusterin( decision# 3n compilin( these results% the clusterin( results o tained from three different methods were interpreted as followsJ $ompanies with a total performance score of equal or (reater than 97 were classified as Hi(h performers# $ompanies with a total performance score of less than ,7 were classified as ?ow performers# $ompanies with a total performance score etween ,7 and 97 were classified as Medium performers#

The final clusterin( decision was reached y comparin( the clusters across the three sets of results% i#e# Total Score% .8Means and Hierarchical clusterin(# Althou(h there were hi(h de(rees of consistency etween the three sets of results% in three cases /num ers ,&% 9& and 62 there were conflicts as hi(hli(hted in Ta le &# These conflicts were resolved y lookin( at the ma!ority (roupin(# Aor e"ample% in the case of company ,& .8Means and Hierarchical clusterin( techniques oth place the company into the 9 nd cluster% which is associated with medium performers /see total performance clusters2# Thus% even thou(h the Total +erformance clusterin( approach places them into the hi(h performance cate(ory with a score of 97 they were classified as a medium performer#

&9

Ktake in Ta le &K

-. ,iscussion 3n this paper our o !ective was to e"plore how we can measure firms performances comparatively# *e had a real need to do this o !ectively as in a wider pro!ect we were seekin( to identify mana(erial practices that differentiated hi(h performin( SMEs from others# Therefore% we needed to measure the performance of different firms from different sectors in such a way that we could compare them to one another% rank them accordin( to performance and then (roup them accordin( to their performance in an o !ective way#

*e started our research with a review coverin( performance measurement and mana(ement control systems literature to identify what measures we should e usin( to o !ectively compare the performances of different firms# *e also studied the enchmarkin( literature in order to identify ways of comparin( the performances of different firms operatin( in different sectors# Althou(h the literature provided quite a lot of (uidance on what measures should e used and how they should e used to measure firms performances comparatively% we were una le to identify ri(orous theoretically (rounded de ate on the su !ect# ;ather we found a num er of mana(ement researchers

&&

usin( a variety of performance measures assumin( that the measures they use adequately e"plain performance# $onsequently% informed y the literature% a focus

(roup was formed to develop the approach presented earlier in the paper /Ai(ure 92# This approach was applied to measure and compare the performances of &' different SMEs across Europe# 3n doin( this we have evaluated and tested the consistency and relia ility of approach usin( different tools and techniques# These tests led us to modify our approach resultin( in a classification of the &' firms accordin( to their performances# As a result the followin( insi(hts have een (ained#

The literature (ives clear (uidance as to the nature of the measures that should e used to measure a firms performance# 3t is clearly stated that there should e a alance etween financial and non8financial indicators% as well as a alance etween la((in( and leadin( indicators# However% in contrast to the advice (iven in the literature we discovered that in order to measure SMEs performances comparativelyJ

The distinction etween la((in( and leadin( indicators% hi(hli(hted y the literature% emer(es spontaneously# ?a((in( indicators are hi(hli(hted as the most relevant to measure performance# Althou(h this findin( appears to conflict with the views that emer(e from the literature% this result was somewhat e"pected as the o !ective of the e"ercise was to compare firms performances comparatively ased on results

&5

achieved over the precedin( years rather than to predictin( the potential future performances of these firms# 3n order to descri e the performance of firms adequately we only need to focus on five financial indicators# These are ;evenue% Market Share% +rofita ility% $ash Alow% Dalue Added +roductivity# However% ased on the results further simplification would e possi le y focusin( on only three measures /i#e# Dalue Added

+roductivity% $ash Alow and +rofita ility2 or even y !ust focusin( on +rofita ility# This result su((ests that% dependin( on the conte"t of research /;ichard et al., 97702% it is possi le to simplify the performance measurement pro lem for comparative purposes to one% three or five performance indicators as appropriate# These areJ y +rofita ilit +rofita ility Dalue +roductivity $ash Alow Added +rofita ility Dalue +roductivity $ash Alow ;evenue Market Share Added

&C

?eadin( customer oriented indicators such as> delivery% lead8time% quality and responsiveness were considered to e meanin(less when comparin( across different conte"tual settin(s with different operational strate(ies#

The only leadin( customer oriented indicator was su sequently a andoned as a result of SMEs ina ilities to score or position their customer satisfaction performance with respect to their sector# 3t is envisa(ed that the same pro lem also may have applied to other leadin( customer oriented indicators should we have tried to collect this data% unless of course the firms were part of a sector wide enchmarkin( clu utilisin( these measures#

The leadin( indicators were identified as relevant ut surplus to purpose as the analysis showed that this (roup of measures% with the e"ception of employee satisfaction% only made a mar(inal contri ution towards descri in( the performances of the firms# As discussed a ove% (iven the aim to compare companies performances over the precedin( years% the la((in( indicators are a le to provide adequate comparative data without the need for more predictive future focused leadin( indicators#

The literature also su((ests that the performance of firms should e compared over a period of time and e sensitive to conte"tual factors% such as sectoral and operational differences# Althou(h this was achieved usin( a scorin( system% this scorin(

&6

system was considered to e su !ective and required e"ternal auditin(# 3n this study% the scores were deemed a relia le assessment of actual performance# The quality of data was ensured throu(h the involvement of a num er of mana(ers from each firm% alon( with the independent e"ternal validation of the data#

*ith respect to the time period over which performance should e compared% the literature /;ichard et al.% 9770 and .ir y% 977C2 su((ests a ,78year timeframe as a minimum# As this research was not lon(itudinal in nature /a key limitation of the research method employed2% when collectin( data% the firms were asked to evaluate their performance over a ,7 year timeframe# Althou(h this was possi le in many of the cases% there were few cases where the mana(ement teams were not capa le of assessin( the performance of the firm over a ,7 year timeframe as none of them had een with the firm that lon( and they were not a le to provide a comparative !ud(ement in relation to their sector% ased on the information availa le#

*hilst this paper demonstrates that it is indeed possi le to measure different SMEs performances comparatively% there are some questions over the relia ility and repeata ility of these types of comparative measures# The approach adopted here withstood internal and e"ternal validity tests and can e seen as a ro ust way of

&'

comparin( SMEs performances# However% these results may particular study and the repeata ility of the study remains to e seen#

e limited to this

The empirical data used in this research that led to the classification of companies into hi(h% medium and low performance cate(ories was collected etween -anuary and 4ovem er 9776# At the time of su mission of this paper for review% three of the four low performin( companies had already (one out of usiness% mainly due to the credit8crunch and the (lo al economic recession e"perienced in the second half of 9771 and early 9770# 3n contrast% durin( the same period% some of the hi(h performers in pursuit of their (rowth strate(ies were makin( strate(ic investments into new markets andMor usinesses# This anecdotal% ut si(nificant% insi(ht serves to further stren(then the validity of the findin(s presented in this paper#

.. )onc!usion

The purpose of this paper was to report our findin(s on what measures to use: and how to use these measures: when comparin( overall performance of different SMEs operatin( in different sectors# Also% as the sample or(anisations were all in the ,7789C7 employees cate(ory it could e ar(ued that the findin(s may also e valid for lar(er or(anisations% i#e# or(anisations with (reater then 9C7 employees# A key

&1

limitation of the research was the non8lon(itudinal nature of the research methodolo(y employed#

;ichard et al# /9770J'5C2 in summarisin( their research challen(es in performance measurement state that ithout the abilit! to link managerial prescriptions based on theor! to practical and observable and "ustifiable performance outcomes, management research ill be little more than informed speculation# # 3n fact they su((est that performance measurement is a multi8disciplinary issue spannin( across all disciplines of mana(ement /such as finance% marketin(% operations and human resources2# They ar(ue that various researchers workin( in their own disciplines usin( functional performance measures /such as market share in marketin(% schedule adherence in operations and so on2 need to link their discipline focused performance measures to overall or(anisational performance#

This paper contri utes to this de ate y identifyin( the most si(nificant five performance indicators that ena le us to articulate and compare SMEs overall performance% thus providin( a framework for linkin( functional performance measures and indicators to firms overall performance# 3t also su((ests that these five indicators may e further reduced to three or even down to a sin(le profita ility indicator# $learly% profita ility is hi(hli(hted as the most important performance indicator to e"plain

&0

performance of the SMEs investi(ated# Bespite the emphasis placed on soft measures in todays literature% this findin( is consistent with Bawkins et al. /977'2 findin( that (rowin( relevance is ein( placed on the profit measure# Aurthermore% this paper% in seekin( to rank firms performances comparatively% contri utes to the de ate on how overall performance may e conceptualised in a

comparative conte"t y identifyin( the appropriate indicators and how they should e com ined and used in order to measure different SMEs performance comparatively#

Acknowled(ements# To e inserted after the review process

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enchaction# The T/M Maga0ine vol# ,&J 9C8&5# Auller8?ove 4 /97762 Mana(ement development in small firms# (nternational $ournal of Management Revie s Dol# 1J ,'C8,07 Aullerton ;#;% *empe *#A /97702 ?ean manufacturin(% non8financial performance measures% and financial performance# (nternational $ournal of -perations . )roduction Management vol# 90J 9,58957# Aynes E% Doss $% and Be Eurca S /977C2 The impact of supply chain relationship quality on quality performance# (nternational $ournal of )roduction 2conomics vol# 06J &&08&C5# Faren(o +% EiaGGo S% Eititci ) /977C2 +erformance Measurement Systems in SMEsJ a review for a research a(enda# (nternational $ournal of Management Revie s vol# 'J 9C85' Faren(o +#% Eititci ) /977'2 Towards a contin(ency approach to +erformance MeasurementJ an empirical study in Scottish SMEs# (nternational $ournal of -perations and )roduction Management Dol# 9'J 179819C#

56

Feerlin(s H% .lementschitG ;% and Mulley $ /97762 Bevelopment of a methodolo(y for enchmarkin( pu lic transportation or(anisationsJ a practical tool ased on an industry sound methodolo(y# $ournal of %leaner )roduction vol# ,5J ,,&8,9&# Fhalayini A#M#% 4o le -#S /,0062 The chan(in( asis of performance measurement# (nternational $ournal of -perations and )roduction Management vol# ,6J 6&8 17# Fho adian A% Fallear B /,00'2 TPM and or(anisation siGe# (nternational $ournal of -perations and )roduction Management vol# ,'J ,9,Q,6& Frando A#% Eelvedere D /97762 Bistricts manufacturin( performancesJ A comparison amon( lar(e% small8to8medium8siGed and district enterprises# (nternational $ournal of )roduction 2conomics vol# ,75J 1C800# Fre(ory M#- /,00&2 3nte(rated performance measurementJ A review of current practice and emer(in( trends# (nternational $ournal of )roduction 2conomics vol# &7% 91,8906# Funasekaran A% +atel $# and Tirtiro(lu E /977,2 +erformance measures and metrics in a supply chain environment# (nternational $ournal of -perations and )roduction Management vol# 9,J ',81'# Hair -;% Anderson ;#E% Tatham ;#?% et al# /,0012 Multivariate ,ata Anal!sis. 4ew <orkJ +rentice8Hall 3nternational% 3nc#

5'

Harter -#.% Schmidt A#?% and Hayes T#? /97792 Eusiness8unit8level relationship etween employee satisfaction% employee en(a(ement% and usiness# $ournal of Applied )s!cholog!# vol# 1'J 96189'0# Hawawini F% Su ramanian D% and Derdin + /977&2 3s performance driven industry8 or firm8 specific factors? A new look at the evidence# &trategic Management $ournal vol# 95J ,8,6# Heskett -#?% -ones T#=% ?oveman F#*% et al# /,0052 +uttin( the service8profit chain to work# 3arvard 'usiness Revie March8AprilJ ,6&8,'5# Ho $hien8Ta% *u <un8Shan /97762 Eenchmarkin( performance indicators for anks% 'enchmarking* an (nternational $ournal. vol# ,&J ,5'8,C0# Hudson M% Smart +#A% and Eourne M /977,2 Theory and practice in SME performance measurement systems# (nternational $ournal of -perations and )roduction Management vol# 9,# ,7068,,,6 Huo E% Selen *% <an <eun( -# H% et al# /97712 )nderstandin( drivers of performance in the &+? industry in Hon( .on(# (nternational $ournal of -perations . )roduction Management vol# 91J ''98177# Hussein M% Funasekaran A% and ?aitinen E#. /,0012 Mana(ement accountin( system in Ainish service firms# Technovation vol# ,1J C'Q6'#

51

Hwan( <#B% ?in <#$% and ?yu - /97712 The performance evaluation of S$=; sourcin( process 8 The case study of TaiwanRs TAT8?$B industry# (nternational $ournal of )roduction 2conomics vol# ,,CJ 5,,859&# 3ttner $#B% ?arcker B#A% /,0012 3nnovations in +erformance MeasurementJ Trends and ;esearch 3mplications# $ournal of Management Accounting Research vol# ,7J 97C89&'# 3ttner $#B% ?arcker B#A /977&2 $omin( up short on nonfinancial performance measurement# 3arvard 'usiness Revie 4ovJ 1180C -ennin(s +% Eeaver F% /,00'2 The performance and competitive advanta(e of small firmsJ A mana(ement perspective# (nternational &mall 'usiness $ournal vol# ,CJ 6&8'C -ohnson H#T% .aplan ;#S% /,01'2 Relevance lost The rise and fall of management accounting. Eoston% MAJ Harvard Eusiness School +ress# -ohnson ;#A% *ichern B#* /97792 Applied Multivariate &tatistical Anal!sis. ?ondonJ +earson Education 3nternational# .aiser H#A /,0672 The application of electronic computers to factor analysis# 2ducational and )s!chological Measurement vol# 97J ,5,8,C,# .aplan ;% 4orton B /,0092 The Ealanced ScorecardJ The Measures that Brive +erformance# 3arvard 'usiness Revie -an8Ae J ',8'0#

50

.aplan ;% 4orton B /,0062 )sin( the Ealanced Scorecard as a Strate(ic Mana(ement System# 3arvard 'usiness Revie -an8Ae J 'C81C# .aplan ;% 4orton B /977,2 The &trateg!5Focused -rganisation, 3o &corecard %ompanies Thrive in the 6e MAJ Harvard Eusiness School# .arlof E% =st lom S /,00&2 'enchmarking 5 A &ignpost to 27cellence in /ualit! and )roductivit! ?ondonJ -ohn *iley S Sons# .asul ;#A% Motwani -#F /,00C2 +erformance measurements in world 8 class operations# 'enchmarking for /ualit! Management and Technolog!# vol# 9J 978&6# .ee(an B#+% Eiler ;#F# and -ones $#; /,0102 Are your performance measures o solete?# Management Accounting vol# '7J 5C8C7# .im *#S /977'2 =r(aniGational structures and the performance of supply chain mana(ement# (nternational $ournal of )roduction 2conomics vol# ,76J &9&8&5C# .ir y - /977C2 Toward a theory of hi(h performance# 3arvard 'usiness Revie vol# 1&J &7Q&0# .o!ima M% 4akashima .% and =hno . /97712 +erformance evaluation of S$M in -3T environment# (nternational $ournal of )roduction 2conomics vol# ,,CJ 5&0855&# .ratchman S#H% Malcom ;#E# and Tward ;#B /,0'52 An intra8industry comparison of alternative income concepts and relative performance evaluations# Accounting Revie vol# 50J 6198610# 'alanced

'usiness 2nvironment. $am rid(e%

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?aitinen E#. /97792 A dynamic performance measurement systemJ evidence from small Ainnish technolo(y companies# &candinavian $ournal of Management vol# ,1J 6CQ00# ?@nsiluoto A% Eklund T% Eack E% et al# /97752 3ndustry8specific cycles and companiesR financial performance comparison usin( self8or(aniGin( maps# 'enchmarking* An (nternational $ournal vol# ,,J 96'8916# ?au(en E#T% Acur 4% Eoer H% et al# /977C2 Eest manufacturin( practices 8 *hat do the est8performin( companies do? (nternational $ournal of -perations . )roduction Management vol# 9CJ ,&,8,C7# ?ewis -#$% 4aim M#M /,00C2 Eenchmarkin( of aftermarket supply chains# )roduction )lanning . %ontrol vol# 6J 9C18960# ?ynch ;% $ross . /,00,2 Measure 8p9 :ardsticks for %ontinuous (mprovement # $am rid(e% Massachusetts* Elackwell +u lishers 3nc# ?ynn E#E% Schroeder ;#F% Alynn E#-% et al # /,00'2 *orld8class manufacturin( pro!ectJ =verview and selected results# (nternational $ournal of -perations . )roduction Management vol# ,'J 6',861C# Manoochehri F /,0002 =vercomin( o stacles to developin( effective performance measures# +ork &tud! vol# 51J 99&89&0# Maskell E /,00,2 )erformance Measurement for +orld %lass Manufacturing* A Model for American %ompanies# $am rid(e% MassachusettsJ +roductivity +ress#

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McAdam ;% Eailie E /97792 Eusiness +erformance measure and ali(nment impact on strate(y Q The role of usiness improvement models# (nternational $ournal of -perations and )roduction Management vol# 99J 0'98066# McAdam ;% HaGlett S#A /97712 Bevelopin( a conceptual model of lead performance measurement and enchmarkin(# (nternational $ournal of -perations . vol# 91J ,,C&8,,1C#

)roduction Management

Miles M#E% Hu erman A#M /,0052 /ualitative ,ata Anal!sis* 1rounded Theor! )rocedures and Techni;ues# ?ondonJ Sa(e +u lications# Miller -F% ;oth AD /,0052 A Ta"onomy of Manufacturin( Strate(ies# Management &cience% vol# 57# 91C8&75# Misterek S#B#A% Booley .#-% and Anderson -#$ /,0092 +roductivity as a +erformance Measure# (nternational $ournal of -perations . )roduction Management vol# ,9J 9085C# 4anni A#-% Bi"on ;% and Dollmann T#E% /,0092 3nte(rated performance measurementJ mana(ement accountin( to support the new manufacturin( realities# $ournal of Management Accounting Research vol# 5J ,8,0# 4eely A /,0012 Measuring business performance. ?ondonJ The Economist Eooks# 4eely A /,0002 The performance measurement revolutionJ why now and what ne"t?# (nternational $ournal of -perations and )roduction Management vol# ,0J 97C8 991#

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4eely A% Adams $# and .ennerley M /97792 The performance )rism* the scorecard for measuring and managing stakeholder relationship. ?ondonJ +rentice Hall# 4eely A% Fre(ory M% and +latts . /,00C2 +erformance measurement system desi(n% a literature review and research a(enda# (nternational $ournal of -perations . )roductions Management vol# ,CJ 178,,6# 4eely A% Mills A% +latts .% Fre(ory M% et al# /,0052 ;ealisin( strate(y throu(h measurement# (nternational $ournal of -perations and )roduction Management vol# ,5J ,578,C9# 4i"on E /,0012 ;esearch and development performance measurementJ a case study# Management Accounting Research vol# 0% &908&CC# 4ohria 4% -oyce *% and ;o erson E /977&2 *hat ;eally *orks# 3arvard 'usiness revie % vol# ,1J 598CC# =ktay8Airat S# T% Bemirhan A /97772 Analysis of the +erformance of the Eanks Un ,001 y )sin( Multivariate Statistical Methods% (nternational %onference (n 2conomics (<# Septem er ,&8,6% MET)8Ankara% Turkey# =ktay8Airat S# T% Bemirhan A /977,2 Analysis of the +erformance of the $ommercial Eanks% (nternational %onference (n 2conomics <. Septem er ,78,&% MET)8 Ankara% Turkey#

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=ktay8AUrat S#T#% Bemirhan A /97792 The financial performance of the commercial anks transferred to the Savin( Beposit 3nsurance Aund /SB3A2J Analysis and $omparison# =ktisat =>letme ve Finans ,ergisi vol# ,'J 1'8,77# =lve 4#F% ;oy -% and *etter M /,0002 A )ractical 1uide to 8sing the 'alanced &corecard% En(landJ *iley# +arker $ /97772 +erformance measurement# +ork &tud! vol# 50J 6&866# +erry S#$ /977,2 The relationship etween written usiness plans and the failure of small usinesses in the )S# $ournal of &mall 'usiness Management vol# &0J 97,8971# +hillips -#- /,00'2 (n Action* Measuring Return on (nvestment, Ale"andria% Dir(iniaJ American Society for Trainin( and Bevelopment# +reacher .#-% Mac$allum ;#$ /97792 E"ploratory Aactor Analysis in Eehavior Fenetics ;esearchJ Aactor ;ecovery with Small Sample SiGes# 'ehavior 1enetics vol# &9J ,C&8,6,# ;afiq M% +allett ;#A /,0062 Marketin( implementation in the ). en(ineerin( industry% $ournal of Marketing )ractice* Applied Marketing &cience% vol# 9J ,&8&C# ;eid F#$% Smith -#E /97772 The impact of contin(encies on mana(erial accountin( systems development# Management Accounting Research vol# ,,J 59'85C7# ;eider ; /97772 'enchmarking &trategies* A Tool for )rofit (mprovement *ileyJ 4ew <ork#

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;hian S /97792 Bispellin( the modern myth# (nternational $ournal of -perations . )roduction Management Dol# 99J &78C7# ;i eiro ?#M% $a ral -#A#S /97762 A enchmarkin( methodolo(y for metalcastin(

industry% 'enchmarking* An (nternational $ournal Dol#,&J 9&8&C# ;ichard +#-% Bevinney T#M% <ip F#S% et al# /97702 Measurin( or(anisational performanceJ Towards methodolo(ical est practice# $ournal of Management vol# &CJ ',18175# ;odri(ues ?#;% $hincholkar A#M /97762 Eenchmarkin( the H; practices of an en(ineerin( institute with pu lic sector industry for performance enhancement# (nternational $ournal of Training and ,evelopment vol# 0J 6897# ;ucci A#-% .irn S#+% and Puinn ;#T /,0012 The employee8customer8profit chain at Sears# 3arvard 'usiness Revie -an8Ae J 1980'# ;ue ?#*% 3 rahim 4#A /,0012 The relationship etween plannin( sophistication and performance in small usiness# $ournal of &mall 'usiness Management vol# &6J 958&9# Salkind 4#- /97762 27ploring Research% Si"th Ed# +earson +rentice Hall# Samson B% Aord S /97772 Manufacturin( practices and performanceJ $omparisons etween Australia and 4ew Lealand# (nternational $ournal of )roduction 2conomics vol# 6CJ 95&89CC#

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SHncheG A#M% +IreG M#+ /977C2 Supply chain fle"i ility and firm performanceJ A conceptual model and empirical study in the automotive industry# (nternational $ournal of -perations . )roduction Management vol# 9CJ 61,8'77# Schlesin(er ?#A% Heskett -#? /,00,2 ?eonard A# Schlesin(er and -ames ?# Heskett ;espondJ $ustomer Satisfaction 3s ;ooted in Employee Satisfaction# 3arvard 'usiness Revie , vol# 60J ,518,50# Schmid er(er S% Eals ?% Hartmann E% et al# /97712 Fround handlin( services at European hu airportsJ Bevelopment of a performance measurement system for enchmarkin(# (nternational $ournal of )roduction 2conomics vol# ,,'J ,758 ,,6# Shirley B#-% ;eitsper(er *#B /,00,2 ?inkin( quality strate(y with mana(ement control systemsJ empirical evidence from -apanese industry# Accounting -rgani0ations and &ociet! vol# ,6% 67,86,1# Simmons - /97712 Employee si(nificance within stakeholder8accounta le performance mana(ement systems# T/M Maga0ine vol# 97J 56&85'C# Spendolini M#- /,00&2 How to &trateg! vol# ,5J C&86'# Ta achnick E#F% Aidell ?#S /977'2 8sing Multivariate &tatistics% Eoston% )SAJ +earson# uild a enchmarkin( team# $ournal of 'usiness

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TuGovic S% Eruhn M /977C2 3nte(ratin( customer orientation% employee compensation and performance mana(ementJ a conceptual framework# (nternational $ournal of 'usiness )erformance Management vol# 'J 9CC89'5# Di( S#4 /,00C2 Eenchmarkin(J a select i lio(raphy# )roductivit! vol# &6J C9,8C&5# Doss $#A% $hiesa D% and $ou(hlan + /,0052 Bevelopin( and Testin( Eenchmarkin( and Self8assessment Arameworks in Manufacturin(# (nternational $ournal of -perational . )roduction Management vol# ,5J 1&8,77# Doss $% Elackmon . /,0062 The impact of national and parent company ori(in on world8class manufacturin(J Aindin(s from Eritain and Fermany# (nternational $ournal of -perations . )roduction Management vol# ,6J 018,,C# Doss $% Elackmon .#?% $a(liano ;% et al# /,0012 Made in EuropeJ Small $ompanies# 'usiness &trateg! Revie vol# 0J ,8,0# *atkins $% *oodhall M /977,2 The measurement of emplo!ee satisfaction in 3andbook of )erformance Measurement. ?ondonJ FEE +u lishin(# *atson F#H /977'2 &trategic 'enchmarking Reloaded +ith &i7 &igma* (mprove :our %ompan!?s )erformance 8sing 1lobal 'est )ractice # Ho oken 4ew -erseyJ -ohn*iley S Sons# *esthead +% Storey B /,0062 Mana(ement trainin( and small firm performanceJ why is the link so weak? (nternational &mall 'usiness $ournal vol# ,5J ,&Q95#

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*orld $ompetitiveness ;eport <ear ook /97702 <ear ook 3MB# Availa le atJ httpJMMwww#imd#ch <amin S% Mavondo A% Funasekaran A% et al# /,00'2 A study of competitive strate(y% or(anisational innovation and or(anisational performance amon(# (nternational $ournal of )roduction 2conomics vol# C9J ,6,8,'9# <asin M#M /97792 The theory and practice of enchmarkin(J then and now#

'enchmarking* An (nternational $ournal vol# 0J 9,'895&# <e 8<un ?#$ /,0002 Success factors of small and medium8siGed enterprises in TaiwanJ an analysis of cases# $ournal of &mall 'usiness Management vol# &6J 5&QC6 <ip F#S% Bevinney T#M% and -ohnson F /97702 Measurin( ?on( Term Superior +erformanceJ The ).Rs ?on(8Term Superior +erformers ,015Q977&# Long Range )lanning. Dol# 59J &0785,& <un( *#.#$% $han B#T#H /977&2 Application of value delivery system /DBS2 and performance enchmarkin( in fle"i le usiness process reen(ineerin(#

(nternational $ournal of -perations . )roduction Management vol# 9&J &778 &,C# <urdakul M /977C2 Bevelopment of a performance measurement model for manufacturin( companies usin( the AH+ and T=+S3S approaches# (nternational $ournal of )roduction Research vol# 5&J 56708565,#

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Lairi M% <oussef M /,00C2 A review of key pu lications on enchmarkin(J part 3# 'enchmarking for /ualit! Management and Technolog! vol# 9J 6C8'9# Lairi M% <oussef M /,0062 A review of key pu lications on enchmarkin(J part 33# 'enchmarking for /ualit! Management and Technolog! vol# &J 5C8C0# Lhao 4 /97702 The Minimum Sample SiGe in Aactor Analysis% last ed# March 9&# Availa le atJhttpJMMwww#encorewiki#or(MdisplayMVnGhaoMTheWMinimumWSampleWSiGeWinW AactorWAnalysis

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The ack(round to some of these measures and the academic de ate on this area is further discussed in the ack(round literature section of this paper# ii Academy of Mana(ement -ournal /AM-2% Administrative Science Puarterly /ASP2% -ournal of 3nternational Eusiness Studies /-3ES2% -ournal of Mana(ement /-=M2% and Strate(ic Mana(ement -ournal /SM-2 iii 3ndependent companies employin( less the 9C7 people and with turnover not e"ceedin( XC7m or with a alance sheet total not e"ceedin( X5&m# iv Here the term Birector is used as a synonym to Mana(er# v AAME is a data ase that contains information for companies in the ). and 3reland# Aor AAME and similar data ases coverin( other re(ions httpJMMwww# vdinfo#comM+roductsM$ompany83nformationM4ational#asp" vi Darima" is the most commonly used of all the rotation techniques availa le and is applied to further differentiate the level of importance etween principal components /-ohnson and *ichern% 9779% p#C7C% =ktay8Airat and Bemirhan% 977,2# vii At this sta(e several hierarchical clusterin( al(orithms were usedJ complete linka(e% avera(e linka(e% nearest nei(h our linka(e methods which use Euclidean distance /similarity2 matri"# ;esults o tained from all methods were appro"imately same# *ards method was considered most suita le as it minimises information losses that could arise from !oinin( two (roups /-ohnson and *ichern% 9779% p#6072#