Performance Measurement – Organization Theory

Nancy B. Alston

Business performance is probably one of the must widespread dependent variable used by scholars, while at the same time its remains one of the most vague variables (Rogers and Wright, 1998). In order to minimize the level of ambiguity regarding the construction and definition of business performance, as well as to suggest for performance measurement alternatives in a way to provide with the most accurate and effective measurement, both for small business and large business, I present a series of articles focusing on seminal papers discussing the issue of performance measurement and a literature review of studies using business performance as dependent variable.

The first article presents a discussion on organization theory by Murphy, Trailer and Hill (1996), which argue that much of the research on performance has come from organization theory and strategic management. The view taken by Venkatraman and Ramanujam (1986) in their paper was that business performance, which reflects the perspective of strategic management, is a subset of the overall concept of organizational effectiveness.

Murphy et al., (1996) argue that in organization theory, three fundamental theoretical approaches to measuring organizational effectiveness have evolved: The goal-based approach – suggests that an organization be evaluated by the goals that it sets for itself Etzioni (1964). However, organizations have varied and sometimes contradictory goals, making cross-firm comparisons difficult. Reinforcement for the notion that organization are varied in various aspects is that scholars often restricted their study sample to definite industries in order to control the disparities between the various industries with respect to performance and the firm’s profitability (Beard and Dess, 1981; Miller and Tolouse, 1986). The systems approach – this approach partially compensates for the weakness of the goal-based approach by considering the simultaneous achievement of multiple, generic performance aspects (Georgopolous and Tannenbaum, 1957; Yuchtman and Seashore, 1967; Steers, 1975). Both the goal and system approaches fail to adequately account for differences between stakeholder groups perspectives on performance. The multiple constituency approach – this approach factors in these differences in perspectives and examines the extant to which the agenda of various stakeholders groups are satisfied (Thompson, 1967; Pennings and Goodman, 1977; Pfeffer and Salancik, 1978; Connolly, Conlon and Deutsch, 1980).

Venkatraman and Ramanujam (1986), which discuss organizational performance measurement in terms of three hierarchically construct (i.e., organizational effectiveness, operational performance, financial performance) argue that these three organization theoretic perspectives are reflecting the writings on organizational effectiveness construct. The coming articles discuss about the other two constructs – operational performance and financial performance.

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