The role of strategic performance measurement systems on overall strategy and organisational performance : a focus on selected manufacturing companies in KwaZulu-Natal

Abstract

Both domestic and international markets are facing intense competition, customers have become more assertive, educated and demanding. Internationalisation of businesses, more advanced technology and easier payment, delivery and importation of goods globally have now placed immense pressure on manufacturing companies to become more innovative and to stay ahead of competition. However, a sustained competitive advantage is not only about strategic choice but also about appropriate performance measurement systems to support a firm’s strategic priority. In the past, manufacturing companies have managed to evaluate operative, process-based performance effectively and efficiently. This, however, resulted in the strategic performance of a manufacturing company, be it a network or a single site, being seldomly monitored and evaluated since manufacturing managers are usually occupied with daily business operations while missing the importance of innovating strategic tools for a goal-oriented strategic development and evaluation.This study aimed to assess the performance measurement systems being used in KwaZulu-Natal manufacturing companies and evaluate to what extent these manufacturing enterprises use integrated performance measures in the form of SPMMSs, the extent of utilisation and perceived relevance related to their actual financial and non-financial results. A survey was conducted to gather data. Quantitative techniques were employed for analysing the data. The relative importance of financial as well as non-financial measures in relation to the performance evaluation process in the context of manufacturing enterprises was investigated. The result of the analysis indicated that the majority of respondent enterprises in KwaZulu-Natal focus on very few non-financial measures and more financial measures, using historical data, accounting profits and financial ratios which are compared with industrial trends. Despite the fact that the non-financial measures are as important as the financial measures, little or no attention is being paid to nonfinancial dimensions. The result of the analysis revealed that there is a clear and strong relationship between the financial performance and the nonfinancial performance measures (customer satisfaction, internal process/operational, employee satisfaction and supplier performance). In addition, empirical findings suggested that the non-financial measures are significant explanatory factors of financial performance. More importantly, findings show that manufacturing companies that consistently employed both financial and non-financial measures performed better than those that do not. These empirical findings and also findings from literature review revealed that there is no performance measurement system appropriate for manufacturing companies. This thesis therefore addressed this practical and scientific gap by developing a generic strategic performance measurement and management system (SPMMS) for manufacturing companies which enables practitioners to define and implement a company-specific SPMMS and monitor the strategic performance of their manufacturing network or sites. The balanced scorecard (BSC) was used as a reference model. Supporting findings for the successful design, development, implementation as well as the applicability of the developed SPMMS were validated with a detailed case study.