Traditional and Contemporary Performance Measurement

1 Introduction

In the past, the company performance was measured by asking ‘how much money the company makes?’ To a certain extent, they are right because gross revenue, profitability, return on capital, etc. are the results that companies must bring to survive. Unfortunately, in today business if the management focuses only on the financial health of the company, numerous unwanted consequences may arise.

With the dramatic changes of business environment, the traditional measure that focuses on minimising production costs is no longer well-matched (Hall, 1980). As a result, contemporary performance measurement which adopts both financial and non-financial has been developed in prior to business strategies.

2 Traditional Performance Measurement

Traditional performance measurement designs system of measures that mostly are cost-efficiency-oriented and are measured only in financial terms. This system does not provide non-financial measures that are also link to the organization’s business strategy. The application of this system is basically suitable for mass production companies with the purpose of minimizing cost.

The factors, such as global competition, technology improvement and the economic growth force the company to modify its performance measurement system. By only evaluating the performance from accounting information and putting aside the performance process, the manager’s responsibility to increase the value of company cannot be done. Large scale of the business requires the process-oriented measurement, which is suitable for mass customization manufactures, rather than result-oriented.

By 1980s, the use of traditional performance measurement was perceived insufficient to help the managers maintain the company ...

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...ement systems which combines both financial and non-financial measures which are considered more appropriate with the growing market. For instance, the two well-known performance measurements used by wide range of companies: Balanced Scorecard (BSC) and Performance Prism.

However, BSC is not a template that can be applied to businesses in general. In this circumstances, different market situations, product strategies, and competitive environments need different scorecards. The businesses must devise customized scorecards to fit their vision, mission, strategies, technology, as well as their culture. On the other hand, the Performance Prism is an alternative for the BSC which is worth considering for companies looking for a system to measure and manage their performance. Based on a stakeholder approach, it is more flexible and more integrative than other systems.