Introduction

Assessing marketing performance is an increasingly important task for managers and other corporate stakeholders. First, many firms are looking to provide fresh growth in profit through increasing sales after years of downsizing (Sheth and Sisodia, 1995). Second, multi-disciplinary perspectives on performance measurement, such as the balanced scorecard (Kaplan and Norton, 1992) are increasing the attention given to non-financial measures of performance in general, raising the issue of which marketing measures, if any, should be included in such schemes. Third, investors and analysts are increasingly asking for information on the marketing performance of firms (Haigh, 1998; Mavrinac and Siesfeld, 1997).

Unfortunately, assessing marketing performance is also very difficult to do. Unlike purely internal measures of performance, such as defects per million, marketing performance depends on external, largely uncontrollable actors, such as customers and competitors. Further, it acts as a mediator between these external actors and various internal corporate processes, such as accounting, manufacturing, research and development, and finance. Bonoma and Clark (1988, p. 2) observe that these factors make “marketing's outputs lagged, multivocal, and subject to so many influences that establishing causes-and-effect linkages is difficult.”

This contribution is intended to introduce the reader to the long history of measuring the performance of marketing, reviewing representative samples of each research tradition. I begin with a discussion of the marketing productivity paradigm, which dominated much of the first 40 years of work in this area, and move on to illustrate expanded conceptions of marketing outputs and inputs, particularly in the distinction between marketing activities and assets.

Introduction

One ostensible objective of research on performance measurement is to determine the characteristics of measurement systems that lead to high performance. To this end, descriptive theories of performance measurement hypothesize relationships between work contexts, the design of measurement systems, the aptitudes and behavior of workers, and the outcomes that result from the work. Normative theories specify principles of design for measurement systems intended to produce desirable outcomes.

Normative theories do not usually specifically assert that high performance results only from performance measurement systems constructed in accord with theory. But high performance achieved via means other than performance measurement should surely operate in a way that is consistent with the mechanisms inherent in these performance measurement theories. Furthermore, some theories in use, such as the one summarized by the widely accepted aphorism “What you can't measure, you can't manage,” seem to imply that a performance measurement system designed according to certain basic principles is a prerequisite for high performance.

This contribution is simple in its layout and objectives. First, we identify a minimal set of principles for designing performance measurement systems that can be extracted from theories in a wide variety of academic disciplines and applied settings. We arrive at three principles that we believe would seem unobjectionable to most performance measurement proponents. Second, we present four vignettes that describe actual events from the airline industry in which the principles of performance measurement seem to be deliberately subverted in order to produce high performance. It is important to emphasize here that these are not merely examples of high performance arrived at via a different means than performance measurement.

Introduction

Recent years have witnessed a renewed emphasis on delivering superior-quality products and services to customers. As cost cutting and downsizing produce diminishing returns, the corporate spotlight has returned to marketing to encourage growth in businesses. Effective marketing can be defined as success in winning and retaining customer preference and thereby achieving the firm's long-term goals. Putting customers at the heart of every business activity is claimed to be key to sustained competitiveness (Kotler, 1997).

Marketing has to be broadly defined as being both the whole company's activities designed to satisfy customers and achieve its own objectives thereby (“pan-company marketing”) and the activities of the functional marketing department (see Webster, 1992). Marketers believe that the marketing paradigm is best for business compared to alternative orientations, such as those towards production or shareholders. But how well is that perception pursued?

Improving product and service quality and satisfying evolving customer needs and expectations requires on-going tracking and responsiveness to changing marketplace needs. Successful marketing requires monitoring of the effectiveness of marketing activities. Allocating resources to marketing, based on past effectiveness and the benchmarked experience of others, can significantly enhance performance. Better measurement leads to better marketing. What gets measured gets attention, particularly when rewards are tied to those measures (Eccles, 1991). The firm's orientation and objectives, how they measure progress towards those objectives, and the impact of measurement on performance are all likely to influence performance.

This study explores how marketing effectiveness is measured. We report how UK firms, in a variety of business sectors, assess marketing performance and whether measurement practice is related to firm characteristics (e. g., size, sector).

Introduction

This chapter reports on the loosely coupled performance measurement practices of a high-performing restaurant chain. Over a period of four years we observed a series of initiatives aimed at “tightening up” the performance measurement systems of the case company. Yet none of these initiatives resolved the desire for what the finance director towards the end of the research period called “unambiguous performance information.” Head office managers of all grades continued to demand performance measurement systems that allowed more comprehensive and detailed control over the operational decisions of restaurant managers. Whilst it was easy to see in principle how such systems could have been implemented, successive working parties did not impose them. This was not for lack of market competition, and it did not result in lower performance. Indeed, managers felt competitive pressures intensified during the research period and still managed to both increase market share and profitability of the case company. What we were faced with was a high-performing company in a competitive industry that espoused to rectify the flaws of its performance measurement system, yet did not. We think that this case holds a lesson for those who are interested in performance measurement system implementation, because it combines high performance with a handling of performance measurement issues that would seem to violate an implicit cornerstone of much of the performance measurement literature. We hypothesize that managers’ “failure” to address the obvious shortcomings of their performance measurement systems may have been related to the management style that enabled the company to perform so remarkably well.

Introduction

The objective of this chapter is to provide an insight in to the background research, development, and practical application of the Integrated Performance Measurement Systems (IPMS) Reference Model and the associated audit method. The research described was conducted by a multidisciplinary team based at the Centre for Strategic Manufacturing, University of Strathclyde. The research was funded through EPSRC and industry.

The point of departure for this work was that:

1. 1 There are various performance measurement systems models, frameworks, and methodologies available – such as SMART (Cross and Lynch, 1988–9), Performance Measurement Questionnaire (Dixon, Nanni, and Vollmann, 1990), Performance Measurement for World Class Manufacture (Maskell, 1989), Performance Criteria System (Globerson, 1985), Cambridge Performance Measurement Design Process (Neely, Gregory, and Platts, 1995; Neely et al., 1996) and Balanced Scorecards (Kaplan and Norton, 1992 and 1996).

2. 2 Other fields, such as Quality Management and Environmental Management, have auditable reference models and standards that describe the structure and content of a robust management system, i. e. ISO9000, QS9000, and ISO14000.

3. 3 However, an auditable reference model, which describes the structure and constituent parts of a robust, integrated, efficient, and effective performance measurement system, was not available (Bititci, Carrie, and McDevitt, 1996).

The overall aim of the work was to establish whether an auditable reference model for IPMS could be developed. The more specific objectives included:

• to research and model the hierarchical structure and relationships between performance measures.

• to research and develop a reference model for comparison and benchmarking of integrated performance measurement systems;

• to provide a workbook and computer-based analysis tool to assist companies in auditing their performance measurement systems;

• to illustrate the methods developed using industrial case studies.

Measuring eBusiness performance: Key findings

In the first quarter 2000 members of both Accenture's Managing With Measures team and the Centre for Business Performance at Cranfield School of Management began a study of performance measurement in the new economy. During the course of the investigation senior managers from over 70 bricks-and-mortar, clicks-and-mortar and dot. coms offered their views and opinions on the strengths and weaknesses of their organization's performance measurement systems. The ten key findings of the study were:

1. 1 Everyone wants to improve their organization's measurement systems. Despite the vast time and effort that many management teams have exerted on their measurement systems over the last few years, still there is immense frustration. Survey respondents from 96 percent of bricks-and-mortar, 96 percent of clicks-and-mortar, and 100 percent of the dot. coms said they wanted to improve their measurement systems.

2. 2 When it comes to performance measurement, the dot. coms have different improvement priorities to the bricks-and-mortar and clicks-and-mortar firms. While everyone wants to develop more comprehensive strategic measurement systems, the dot. coms are also particularly interested in using technology to track performance – especially for click stream analysis and customer relationship management.

3. 3 Everyone understands the importance of measuring customer satisfaction. One hundred percent of those surveyed said either that they measured customer satisfaction or that they should measure it.

4. […]

Introduction

In this contribution the questions of what performance is and how to create it are addressed. A series of nine propositions that, taken together, provide an answer to the questions are developed.

After a brief overview of the reasons that led to this questioning and a review of the relevant literature that shows the extent of diversity of meanings, the authors develop step by step the process that leads to performance, showing it to be a social construct which results from the identification and the sharing of a causal model. That observation leads to the conclusion that performance is meaningful only within a decision-making context. The concept of performance is, therefore, specific to a given set of decision makers. Creating alignment between decision makers both inside and outside the firm is a prerequisite for performance to occur.

In the last sections of the contribution, the impact of responsibility assignment and of measurement on the operational definition of performance are shown. All in all the nine propositions form the basis on which performance can be defined, identified, measured, and managed.

Background

In the Fall of 1995, the French Conseil National de la Comptabilité1 organized committees to revise the 1982 Plan Comptable Général. As part of the revision of the whole text, 2 the charge of the Comptabilité de Gestion (Management Accounting) Committee was to update the third part (Title III)) of the Plan that dealt with management accounting. Although the Title III is not compulsory, unlike the first two parts, it was felt that the field of management accounting had sufficiently evolved to deserve a radical update.

The importance of defining the critical few

In today's complex and rapidly changing business environment, a strategic plan is an executive team's blueprint for changing the organization and growth. The process undertaken to develop that plan provides executives and other stakeholders with the opportunity to periodically re-think the business in a creative manner. In doing so, they can develop a shared understanding of what will be critical for future success, as well as enhance their knowledge of the business and its possible future environment. In our experience, if during this process executives are forced to make hard choices about what is critical, and focus future strategy around a limited (3–5) set of initiatives with associated specific, measurable objectives, the critical few, implementation effectiveness will be significantly improved, and organizational performance will be enhanced.

In this chapter, we provide the results of a research study which makes the case, previously only supported anecdotally, that building shared understanding among the executive team, of the critical few corporate initiatives, has a positive impact on strategic planning effectiveness, and hence on organizational performance. In describing our study more fully, this introductory section is followed by a discussion of the practical challenges in creating a shared understanding of the critical few. We then outline the process we have found useful for overcoming these challenges, enabling the definition of a highly focused strategic agenda – something we believe can be done for any organization, no matter how large or small. The chapter concludes with a discussion of our research approach, the research findings, and the implications of these findings for corporations and the executives who lead them.

Introduction

It has become widely accepted, as we approach the end of this century, that organizations’ abilities to create, retain, communicate, and use knowledge are critical to their success (Davenport and Prusak, 1998; Nonaka-Takeuchi, 1995). Management of knowledge has become a frequently acknowledged source of “core competencies” (Prahalad and Hamel, 1990), which themselves give rise to sustainable competitive advantages (Leonard and Barton, 1995). The explosive growth of information-related sectors of industrialized economies has seen concomitant growth in the demand for products and services with potential to help organizations apply what they know more profitably. That same rapid growth has created entirely new occupational categories – web designer, network manager, software engineer, to name just a few – which produce economic value mostly by creating and manipulating thoughts, ideas, and symbols. Even in traditional occupations, ways of working have come to depend on intellectual activity, perhaps more than on physical activity. Factory workers invent and share process improvement ideas; salespeople develop novel ways to use the web to reach or retain customers.

One consequence of this shift in the nature of work is that the relationship between an organization's measured resources and its market success has become more tenuous. Unlike materials or equipment, core competencies are not listed on balance sheets; neither are the distinctive abilities of employees and teams, which can be an obviously significant reason for a firm's success. In some sectors of the economy, factors that contribute substantially to a firm's market success largely elude traditional means of quantification. This fact not only makes valuation of individual firms harder, it also complicates traditional analyses aimed at figuring out where to allocate resources, how to improve processes, and whom to reward.

Introduction

Variable pay for performance may undermine employees’ efforts: Rewards crowd out intrinsic motivation under identified conditions. A bonus system then makes employees lose interest in the immediate goal. Moreover, monetary incentives in complex and novel tasks tend to produce stereotyped repetition, and measurement is often dysfunctional. Therefore intrinsic motivation is crucial for these tasks. However, for some work extrinsic incentives are sufficient. We offer a framework of how managers can achieve the right balance between intrinsic and extrinsic motivation.

Variable pay for performance and motivation

Variable pay for performance has become a fashionable proposal over recent years in private companies as well as in the public sector. Many firms have given up fixed salaries and have adopted performance-related pay. Firms try to match payment to objectively evaluated performance. It is reflected in such popular concepts as stock options for managers and various types of bonuses. In the public sector, efforts to raise productivity in the wake of New Public Management have also resulted in attempts to variably adjust the compensation of public employees to their performance. This means that firms and public administrations increasingly rely on price incentives, i. e. on extrinsic motivations.

We argue in this contribution that variable pay for performance under certain conditions has severe limits. In situations of incomplete contracts – and these dominate work relationships – an incentive system based only on monetary compensation of work is insufficient to bring forth the performance required. In many situations monetary incentives even reduce performance. Work valued by the employee for its own sake or by fulfilling personal or social norms is often indispensable. These values or norms may be undermined or even destroyed by offering monetary incentives.