Performance improvement in twenty-first century organizations: models, tools, techniques

Performance improvement in twenty-first century organizations: models, tools, techniques

Article Type: Guest editorial From: Measuring Business Excellence, Volume 19, Issue 3

Harri Laihonen

Harri Laihonen is a Professor at School of Management, University of Tampere, Tampere, Finland.

Knowledge-based performance management in twenty-first century organizations

Introduction

This special issue consists of revised papers originally presented during the 9th International Forum on Knowledge Asset Dynamics (IFKAD) conference organized in June 2014 in Matera, Italy. IFKAD is an international leading event in the research and management of intellectual capital and intangible assets as well as knowledge-based value creation patterns. The specific aim of the 9th IFKAD was to discuss management models for sustainable growth.

This particular special issue focuses on performance improvement. The papers address the intersections of performance management and knowledge management disciplines. The role of knowledge in performance management is at least two-dimensional. First, knowledge is a resource that is argued to yield sustainable competitive advantage (Barney, 1991; Grant, 1996; Spender, 1996). Second, information and knowledge form a basis for decision-making and management control (Choo, 1996; Anthony, 1965; Otley, 1999). With these two complementary perspectives, knowledge management provides an essential tool for improving organizational performance in the twenty-first century.

To provide valid management models, tools and techniques to overcome the challenges of modern service-oriented and knowledge-driven societies, we need to carefully consider the phenomenon of knowledge-based value creation (cf. Laihonen and Lönnqvist, 2010; Schiuma, 2012). How is knowledge utilized and turned into value in different contextual settings? This question concerns the underlying phenomenon we need to understand before proceeding to management solutions. The phenomenon is evolving together with society and our understanding.

This editorial is organized into the following three parts that are essential for managing performance:

1. a conceptual understanding of the value creation processes;

2. managerial frameworks and practices for coping with the phenomenon; and

3. concrete managerial tools to support management (cf. Lönnqvist and Laihonen, 2013; Carillo et al., 2014).

Performance as a phenomenon evolves

The special issue contributes by bridging the gap between the knowledge management and performance management literature. A shared aim of these management disciplines is to support performance improvement. The literature on performance measurement focuses on design, implementation and the use of performance measures (Bourne et al., 2000) and on gathering performance information (Waggoner et al., 1999), but has paid relatively little attention to the underlying knowledge processes (Nudurupati et al., 2011). At the same time, the knowledge management literature has been criticized for focusing on the role of knowledge as a source of competitive advantage and for justifying the knowledge agenda rather than on integrating the knowledge perspective into more traditional management processes (cf. Kalling, 2003). In light of my experiences, I would see the latter perspective as a promising path forward in promoting knowledge-based performance management in the twenty-first century.

An important aspect for both disciplines is their managerial relevance. The world around us is changing at a tremendous pace, and research needs to provide new understanding and deliver managerial tools that help organizations to perform in the contemporary business environment. This has also been acknowledged by academics. Systemic value creation and customer-perceived value models have been developed (Vargo et al., 2008; Grönroos and Helle, 2010; Pynnönen et al., 2011). The performance measurement literature also increasingly discusses network performance and the performance of service systems (e.g. Bititci et al., 2012; Pekkola, 2013; Laihonen et al., 2014). Further, Bititci et al. (2012), as a result of their review of the performance measurement literature, identified three major challenges for performance measurement. The authors highlight performance measurement in networks, as a social system and as a learning system. As a more general argument, they stated that there is a shift from rational control toward cultural control and learning.

From information provision to knowledge-based management

From the perspective of management practice and performance improvement, it is of critical importance that various management approaches have a shared vision. Management control is then used to ensure that organizations’ vision and strategy are put into practice (Anthony, 1965; Otley, 1999). Specific and clear performance measures and targets are associated with reduced confusion about strategic direction, thereby leading to better goal commitment, behavior and performance (Webb, 2004). Here, it becomes essential that performance information is integrated into daily managerial activities (de Waal, 2004). Nudurupati et al. (2011) stress that to foster performance-driven thinking and behavior, management needs to be trained to interpret and analyze measurement results, define action plans and monitor the results of actions.

Especially from the knowledge management perspective, the quintessential aspect of performance management is the actual use of performance information; mere provision does not lead to performance improvements (e.g. Amaratunga and Baldry, 2002). Performance management necessitates up-to-date and accurate information to guide the organization toward its objectives and proactively respond to various challenges (Nudurupati et al., 2011). This information enables monitoring performance, identifying development areas, enhancing employee motivation, improving communications and strengthening accountability (Waggoner et al., 1999). Furthermore, an ideal management system would also provide information about strategic uncertainties (Simons, 1994) and external phenomena, such as changes in the market situation and customer behavior. Thus, performance management combines the views of internal efficiency and external effectiveness (Keegan et al., 1989; Neely et al., 1995).

Increasingly, especially when the management focus is turning from organizations to customer-perceived value and inter-organizational value configurations (e.g. Laihonen et al., 2014), practical challenges arise from the ability to access, integrate and analyze information across organizational boundaries (Ostrom et al., 2010). Here, the possibilities of knowledge management as a management paradigm of the information-age are emphasized.

New approaches and tools are needed

Along with digitalization, social media and “Internet of Things” a significant change is taking place in developed societies. It is not only business and management that are changing – a more fundamental change is under way in society. This will change our perceptions of organizational performance and significantly transform our understanding and perceptions about management. The change is already taking place – lower hierarchies, participatory approaches, ecosystems and customer-driven approaches, etc. New tools are needed to adapt to this change and renew the management agenda.

With regards to performance measurement, we need more flexible measurement approaches and methods. Yearly reporting is not able to fulfill managerial knowledge needs in a rapidly changing environment. Also, horizontal and inter-organizational value processes challenge vertical reporting silos and information systems that are built on a different management ideology. Top-down measurement strategies need to be complemented with approaches that report customer-perceived value (Jääskeläinen and Laihonen, 2014). In addition, capturing the performance of knowledge work, which continues to be a highly relevant management issue, requires new measurement frameworks. There are already several interesting initiatives in this area. For example, approaches like work engagement (Bledow et al., 2011) and inner work life (Amabile and Kramer, 2007) shed light on the motivational and well-being aspects of performance, which are crucial elements of knowledge work performance in twenty-first century organizations. This brings us to a discussion concerning the use of performance information – how do we use it to manage our employees, to control them or to promote learning?

Introducing the papers

The special issue focuses on the phenomenon of knowledge-based performance management and brings researchers from the knowledge domain to contribute on issues of performance management. This endeavor has high practical relevance because performance-driven organizations are increasingly striving toward knowledge-based decision-making and management more generally. Practitioners struggle with questions like: “with what information should I manage and make decisions?” and “how should I gather and condense this information?”

The six papers selected for this special issue represent the variety of themes and approaches presented at IFKAD 2014. They provide many interesting and valuable insights on performance as a phenomenon and approaches that support the management of this wide phenomenon in the twenty-first century.

The first paper “The boundaries of a performance management system between learning and control” by Paolo Canonico, Ernesto De Nito, Vincenza Esposito, Marcello Martinez, Lorenzo Mercurio and Mario Pezzillo Iacono addresses a very important and timely discussion about the role of performance management systems in fostering performance improvements. The paper illustrates an excessive focus on control and calls for more holistic approaches supporting learning.

The second paper “Technological strategy, open innovation and innovation performance: evidences on the basis of a structural- equation-model approach” by Davide Aloini, Luisa Pellegrini, Valentina Lazzarotti and Raffaella Manzini applies a structural equation modeling to elaborate the linkages between technological strategy and innovation performance. The paper contributes both methodologically and theoretically to the highly relevant discussion on open innovation and innovation performance.

The third paper “Does environmental performance affect companies’ environmental disclosure?” by Stefano Fontana, Eugenio D’Amico, Daniela Coluccia and Silvia Solimene examines an important and timely issue in environmental reporting and its relations to environmental performance in Italy. Environmental performance is definitely a major concern of the future.

The fourth paper “Assessing Performance and Impact of the Technological Districts (TDs): General Modelling and Measurement System” by Antonio Lerro and Giovanni Schiuma proposes a model to identify and assess performance and the impacts of technological districts. As a result of a literature review and a Delphi analysis, the paper proposes a measurement framework for the performance of technological districts.

The fifth paper “Dynamic Modelling of National Healthcare System” by Miroslav Jankuj and Jan Voracek focuses on health systems and deploys system modeling for structuralizing the possibilities and limitations of a quality-based health-care system. This paper provides a fresh methodological approach to performance improvement and highlights the dynamic nature of the national health-care system.

Finally, the sixth paper “A Review of Program and Project Evaluation Models” by Roberto Linzalone and Giovanni Schiuma reviews the literature on project and program evaluation models and illustrates the variety of models available. As a result of the review, the paper provides a typology that helps in identifying an appropriate model for different evaluation purposes.

Summary

What does the performance improvement in twenty-first century organizations actually look like? Very different, I would argue. I would like to raise two issues that need further investigation. First, the papers of the special issue and this brief editorial suggest a need for a careful analysis of the underlying phenomena. Too often new measurement systems are built on the implicit assumption that the phenomenon is the same as ever. Instead of serving old wine in a new bottle, we need to pay special attention to what is happening around us – value drivers, the value creation processes as well as the expected outcomes are not the same as they were only a decade ago. The solutions proposed the need to help in responding to timely management challenges; the relevance of the new frameworks and practices has to be ascertained.

Second, a critical aspect relates to the use of performance information. More research is needed on the knowledge and information processes that follow the performance measurement process. What do we do with all the performance information? Who uses it and in what situations? There is not yet enough empirical research on how organizations could move on from the mere provision of performance information to its actual use in decision-making.

The support by Professor Giovanni Schiuma, Co-Editor of Measuring Business Excellence and the Co-Chair of IFKAD 2014 is greatly appreciated.

References

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About the author

Harri Laihonen is Professor at the University of Tampere, School of Management. His research focuses on knowledge-based performance management and management of service systems. Recently, the emphasis has been on public organizations and public service systems. Harri Laihonen can be contacted at: mailto:harri.laihonen@uta.fi