Performance Measurement free essay sample

The current issue and full text archive of this journal is available at www. emeraldinsight. com/0263-7472. htm Performance measurement in facilities management: driving innovation? Michael Pitt and Matthew Tucker School of the Built Environment, Liverpool John Moores University, Liverpool, UK Abstract Purpose – This paper aims to examine the state of knowledge of performance measurement in facilities management, in particular regarding the concepts underlying benchmarking in relation to its ability to drive innovation in the industry. Design/methodology/approach – An evaluation of the key issues surrounding performance measurement and the effective application of benchmarking systems are examined, exploring the possibility of applying a benchmarking technique to measure facilities performance. Findings – The paper suggests that a fully developed performance measurement solution via effective benchmarking can deliver as a business tool in facilities management (FM), whilst acting as a driver in the innovation process. Practical implications – With the nature of performance measurement having changed over the past few decades, the paper acts as a catalyst to how performance measurement systems and techniques operate within FM and stimulate innovation. Originality/value – By adopting the notion of innovation to performance measurement, the paper highlights new areas of thought to facilities management and how performance measurement is strategically applied to the industry. Keywords Performance measures, Benchmarking, Facilities, Innovation Paper type Research paper Performance measurement in FM 241 Received October 2005 Revised August 2007 Accepted May 2008 Introduction Performance measurement is an area to which companies have paid much attention recently. Performance is regarded as a major competitive issue (Tran? eld and Akhaghi, 1995). In facilities management (FM), there is a wide range of choices in measuring FM performance, re? ecting the varied nature of the ? eld. The focus on FM skills and techniques should be in the areas that contribute to the overall management of a business, ? nancial and ersonal criteria (Barrett, 1992). This paper aims to review the state of knowledge of performance measurement in FM and seeks to explore how measuring service performance is linked to innovation processes within the organisation. Benchmarking is a key performance measurement tool that allows organisations to achieve added value and â€Å"superior performance† (Camp, 1989). The discussion focuses on the proposition of adopting benchmarking techniques in measuring facilities performance, driving a framework of an FM performance measurement solution. It is important to stress however that by researching such an approach, with the emphasis on benchmarking, it does not contend that benchmarking should be the only performance instrument implemented to organisational performance measurement Property Management Vol. 26 No. 4, 2008 pp. 241-254 q Emerald Group Publishing Limited 0263-7472 DOI 10. 1108/02637470810894885 PM 26,4 systems. It merely identi? es the importance of benchmarking as a stimulant to achieving innovation in performance measurement. Facilities management overview FM is a relatively new discipline. It has developed since around 1978 where the Herman Miller Corporation, the worlds leading furniture manufacturer, staged a conference on â€Å"Facilities Impact on Productivity†. This might be seen as the beginning of FM. FM as a discipline emerged out of practice, just as the great established professions. It emerged with the integration of three main strands of activity: property management, property operations and maintenance and of? ce administration (Kincaid, 1994). More signi? antly it established a focus on the management and delivery of the business â€Å"outputs† of both of these entities; namely the productive use of building assets as workplaces (Varcoe, 2000). The International Facility Management Association (IFMA) and the British Institute of Facilities Management (BIFM) adopt the following de? nition, â€Å"the practise of coordinating the physical workplace with the people and work of th e organisation: it integrates the principles of business administration/architecture/behaviour/ engineering science† (US Library of Congress). FM can be de? ned as the integration and alignment of the non-core ervices, including those relating to premises, required to operate and maintain a business to fully support the core objectives of the organisation. Over the years, FM has been growing as a business ? eld and also as a scienti? c discipline, slowly ? nding and anchoring its position among organisations’ business processes. Nowadays, the dedication of FM organisations to new developments and continuous innovation processes seems to be the way to stay in business, constantly exceeding customers’ expectations and adding value to the core business of the client organisation (Mudrak et al. , 2004). Performance measurement principles and revolution The traditional view determined by Teague and Eilon (1973) of performance measurement is that it has three broad purposes: (1) to ensure the achievement of goals and objectives; (2) to evaluate, control and improve procedures and processes; and (3) to compare and assess the performance of different organisations, teams and individuals. An early attempt at developing ? nancial measures was made by Du Pont (Walters, 1997). Du Pont is widely acknowledged as being the founder of ? nancial performance measurement, by introducing a pyramid of ? ancial ratios as early as 1903. However, in the late 1970s and 1980s, numerous authors expressed a general dissatisfaction with traditional backward looking or lag accounting based performance measurement systems. In the 1990s, attention on performance measurement shifted to quality and consumer satisfaction. A broader conceptualisation of business performance emerged, as the emphasis on operational performance (i. e. non-? nancial performance) was added to indicators to measure business performance (Venkatraman and Ramanujam, 1986). 42 Traditionally the use of ? nancial indicators has determined the way in which businesses operate – if the cost is low, and the pro? t is high then they are happy. With the considerable in? uence of the changing business marketplace however, this philosophy is no longer sustainable, and the emergence of non-? nancial or qualitative indicators, speci? cally focused on process, structure and change, instead of traditional cost, pro? t, and output, has drastically changed the way in which businesses perceive performance. Drucker (1993) described traditional measures as not adequate for business evaluation and fail to meet new business needs as they are lagging indicators. By this, they mean that traditional indicators are not able to provide real time performance, they are always set on past periods. This was reiterated by Varcoe (1996) terming traditional indicators as being â€Å"past their sell by date†. Kaplan and Norton (1996) contended that â€Å"companies were in the midst of a revolutionary transformation† as they shifted from industrial age competition to information age competition. By this, they urged that it was no longer feasible to gain â€Å"competitive advantage† within business merely through the deployment of new technology (Kaplan and Norton, 1996). To this, a shift has occurred, as Kaplan and Norton (2001) claim that ? nancial measures are historical in nature, they report only on outcomes and the consequences of past actions. Amartunga and Baldry (2003) summarised the views advanced in the debate on traditional performance measurement as follows: . Criticism of traditional management control (Brown and Laverick, 1994; Stone, 1996; Letza, 1996; Rangone, 1997; Neely, 1998). Need to represent non-? nancial measures (Olve et al. , 1999; Ernst Young, 1998). . Lack of prescription on how to implement the measures (Olve et al. , 1999; McFadzean, 1995). . Lack of strategic focus (Hally, 1994). The debate and the criticism on traditional performance measurement show that ? nancial performance measures are not a solution to the measurement of business p erformance. Therefore the principles of performance measurement become revolution, as contemporary ideas and practices of how to strategically measure business performance change. For Nani et al. (1990) performance measurement systems were developed as a means of monitoring and maintaining organisational control: Organisational control may be de? ned as the process of ensuring that an organisation pursues strategies that lead to the achievement of overall goals and objectives. Performance measurement in FM 243 Hronec’s (1993) work emphasises this, de? ning performance measures as a vital sign of the organisation, showing how well activities within a process or the outputs of a process achieve a speci? c goal. According to Zairi (1994) performance measurement is the systematic assignment of a number of activities. Kanter (1995) claims that in today’s dynamic business environment the emphasis has shifted to the â€Å"three C’s† – concepts, competence, and connections, which drives from investments in innovation, education and collaboration. As cited in Wilson (2000), the roles of performance measurement have been intertwined with the premise that organisations achieve PM 26,4 244 success (meet their objectives) by delivering services with greater ef? ciency and effectiveness than their competitors (Ghobadian and Ashworth, 1994). Further themes emerging in contemporary academic literature that relate to adding value to performance measurement systems have been determined and analysed by Wilson (2000). The themes are: . Measurement for improvement, which states that measurement systems are service functions and only have the right to exist if they add value to the organisation (Van Schalkwyk, 1998). . The integration of broad measures, which see the challenge for performance measurement systems as being the ability to balance multiple measures (i. e. cost, quality and time) across multiple levels (i. e. he organisation, the process and the people) (Hronec, 1993). . Clear communication and dissemination, where, if information is poorly presented, it may be misunderstood, poorly assimilated or at the extreme completely ignored (Harvey, 1984). Research by Amartunga and Baldry (2003) described performance measurement as a process of assessing progress towards achieving pre-determined goals, including information o n the ef? ciency by which resources are transformed into goods and services, the quality of these outputs and outcomes, and the effectiveness of organisational objectives. Therefore, the basic foundations of performance measurement are the quali? cations of elements, which impact on organisational objectives, management control and evaluation. Fitzgerald et al. (1991) examined performance measurement in service businesses. They highlighted the complexity of measuring performance within the service sector, as opposed to that of the manufacturing sector, as services are intangible in nature. For example, Fitzgerald et al. (1991) talk about air travel where there are many intangible factors such as the helpfulness of the cabin crew, but also more tangible factors, such as the measure of luggage with passengers. Fitzgerald et al. (1991) contended therefore that â€Å"a range of measures† is required, which act as a â€Å"contingency theory† to the uniqueness of performance measurement within the service sector. Fitzgerald et al. (1991) stressed however that the selection of a range of performance measures should be made according to the strategic intentions of the organisation. What this means in essence is that measures should have a balance so that one dimension is not dominating the performance system and consequently skewing the strategic goals of the organisation. Facilities performance and innovation The objectives and roles of performance measurement to achieve organisation goals have been expounded as FM is growing and enhancing into this business. However, as business performance becomes revolution, the need for learning, growth, and innovation becomes crucial. There are as many de? nitions of innovation as there are of FM. Innovation can be de? ned as a continuous process of bringing new ideas into practical uses (Tidd et al. , 2001). A broad de? nition as cited in Mudrak et al. 2004) is that innovation is: a management process, involving multiple activities, performed by multiple actors from one or several organisations, during which new combinations of means and/or ends, which are new for creating and/or adopting a unit, are developed and/or produced and/or implemented and/or transferred to old and/or new market-partners. Performance measurement in FM 245 According to Tidd et al. (2001) the innovation processes in product and service de velopment are similar in principle; however, they vary in speci? routines and activities performed, by which the innovation processes are enabled. One of the more common debates concerning the de? nition of innovation asks whether innovation should be regarded as a process or a discrete event (Cooper, 1998). Either a process or discrete event, innovation is a synergised element to organisation growth and competition in the market. According to Cooper (1998) understanding of learning processes is a key requirement for the facilitation and optimisation of improvement and innovation in business processes. By understanding and optimising learning processes, managers in organisations will be able to achieve behavioural change leading to performance measurement. With respect to performance measurement and the innovation process in organisations’ it shows that performance measurement is the driver. Buckler (1998) explained the link between learning and performance improvement and stated that by understanding and optimising learning process, managers will be able to achieve behaviour change leading to performance improvement (Figure 1). Therefore the growth in performance measurement within the FM discipline seems to relate and directly impact on the organisations performance and actual innovation of that performance. Facilities performance measurement The focus of facilities management skills and techniques should be in the area that contributes to the overall management of a business by relating accommodation and support infrastructure issues to business, ? nancial and personal criteria (Barrett, 1992). Therefore the issue of measuring facility performance is a critical task to the facilities manager. However, why should FM organisations want to measure performance? From a classical management perspective there is a need to assess performance in order to guide management decision-making, and as FM is a subset of general management, performance measurement applies to management in the FM context (Amaratunga et al. , 2000). Further, performance measurement is a driver to an innovation process in an organisation. Alexander (1996) identi? es measurement of performance as one of the â€Å"three essential issues for the effective implementation of a facilities strategy†. Thus Figure 1. The link between learning and performance improvement PM 26,4 246 performance measurement has become increasingly important both for reasons of justi? cation to general management and to support management and practise within FM organisations. The measurement of facilities has three main components, namely, physical, functional, and ? nancial (Williams, 1996). Physical performance relates to the behaviour of the building fabric and embraces physical properties such as structural integrity, heating, lighting, energy ef? ciency, maintainability, and durability. Functional performance concerns the relationship of the building with its occupiers and embraces issues such as space, layout, ergonomics, image, ambience, communication, health and safety, and ? exibility. Finally, ? nancial performance arises from the physical and functional performances of the building and comprises capital and recurrent (life-cycle) expenditures, depreciation and ef? ciency of use etc. According to Amartunga and Baldry (2003), the contribution made by FM will be judged by organisations’ stakeholders over a wide range of performance criteria, including the hard metrics of ? ance and economics. FM is seen to be able to contribute to the performance of an organisation in many ways, including strategy, culture, control of resources, service delivery, supply chain management, and perhaps most importantly, the management of change. Quality, value and the management of risk also emerge as signi? cant factors. Thus it is important to have systems to measure the ef fect of the FM functions on an organisations core business, together with systems to measure FM’s own performance. There is a wide range of choices in measuring FM performance re? ecting the varied nature of the ? eld, and is regarded as a major competitive issue (Kincaid, 1994). Facilities managers must understand the nature and the business of the organisation and their work process in order to derive the effective and ef? cient measurement tools. Besides this, the facilities manager may also have to clarify the purposes of measurement before deciding on the technique to be applied for assessing facilities management performance. Measuring facilities performance: a practical insight The key determinant in achieving effective performance measurement is to view FM strategically, where FM is aligned to support the core objectives of the organisation. To exemplify how this may operate practically, let us take one element of FM, the reception service. The reception service is at the front-line of the business. Often it is the ? rst service that the customer comes in contact with, and consequently has a signi? cant impact on their initial perception of the organisation. One could assume therefore that the most ef? ient method to measure the performance of the reception service is through customer satisfaction indicators. However, is this comparable for all organisations? Here is where FM performance measurement must be viewed from a strategic context. This can be further exempli? ed by comparing three different organisations delivering a reception service. Firstly, the reception service within a telecommunications of? ce. Primarily, the core business objectives within the telecommunications industry are centred on the customer through the delivery of a product. All business operations must meet the needs of the customer in order to generate mass customer satisfaction and stimulate market sales. Hence, when measuring the ef? ciency of the reception service within a telecommunications of? ce, the primary indicators will be focussed on customer satisfaction, such as the helpfulness of staff, the ability of staff to deal with a query, and the comfort of the waiting area. Second, the reception service within an international bank. Again, primarily core objectives if an international bank are centred on the customer, in this case however through the delivery of ? ancial support and management. Here, the core business objectives differ slightly, as the bank is still primarily selling services to the customer and therefore needs to promote high levels of customer satisfaction, but also has an important security element involved due to the nature of the core business. When measuring the ef? ciency of the reception service within the bank, the indica tors will be different, focussed around two key factors – ensuring high levels of customer satisfaction, and ensuring security measures are in place when dealing with customers. This is likely to involve ensuring that standard identi? cation checks are taking place, such as cross-checking personal details within a database. Third, the reception service within a government security building. Here, the core business objectives differ dramatically to the previous two examples, as the primary focus is centred on security. In this instance, measuring the levels of customer satisfaction of the reception service fall much further down the list of priority indicators, and are overtaken with robust security measures ranging from ensuring that standard identi? ation checks are taking place, to more sophisticated measures involving rigorous scanning and checking of visitors entering and exiting the building. Through using the example of one element of FM, it illustrates the importance of how the practical application of performance measurement must be centred on the core business objectives of that organisation. FM performance measurement however is often too internall y focussed. Measures can therefore be benchmarked in order to understand how an organisation is performing compared to industry overall. However, the scope of benchmarking data depends heavily on the diversity and depth of the particular sector in which the organisation functions. From the examples above, benchmarking reception performance is much more accessible in the ? rst two examples. However, obtaining benchmarking data on high level security buildings is more dif? cult. The paper now seeks to understand how benchmarking can be used as a tool to measure facilities performance, and what impact this can have on driving innovation in FM performance measurement. Using benchmarking as a tool to measure facilities performance Benchmarking is essentially a cost reduction method (McDougall and Hinks, 2000). The principle of benchmarking evolved out of the total quality management movement and allows managers to place their performance measurement in context (Camp, 1989). It is the most powerful technique for gaining and maintaining competitive advantage (Codling, 1992). Sarkis (2001) outlines that from a managers perspective, benchmarking has been de? ed as a continuous, systematic process for evaluating the products, services and work processes of organisations that are recognised as representing best practices, for the purposes of the organisations’ improvement. For Camp (1989), benchmarking in the ? rst instance is about practices, not metrics. Many immediately consider benchmarking as a set of outputs, just like many confuse innovation as a one off invention instead of a process. Benchmarking is not as simple as gathering indicators t ogether so an organisation can evidence that they are measuring something. Because what are they measuring, and how relevant is it to their overall objectives? Hence, there must be a meaning before the measurement, a process Performance measurement in FM 247 PM 26,4 before the output, or in Camp’s case, a practice before the metric. To this, Camp de? nes benchmarking as follows: Benchmarking is the search for industry best practices that lead to superior performance. 248 In order to achieve this, Camp identi? es four basic steps that are fundamental to benchmarking success: (1) Know your operation – evaluate internal operation strengths and weaknesses. 2) Know the industry leaders or competitors – know the strengths and weaknesses of the competition. (3) Incorporate the best – emulate the strengths of the leaders in competition. (4) Gain superiority – go beyond the best practices installed and be the best of the best Hence, benchmarking techniques can signi? cantly help FM organisations to gain â€Å"superiority†, a nd can signi? cantly drive innovation in their performance measurement systems. Benchmarking within FM began to take shape in 1984, where the IFMA started to collect data on facilities trends and demographics. This was expanded in 1987 to include occupancy costs, which coincided with the initial interest in such data in the UK (Varcoe, 1996). In FM, benchmarking as a performance measurement technique is now well known however, and the application of benchmarking to FM performance criteria is now apparent within large organisations (McDougall and Hinks, 2000). It is the ideal tool for setting corporate goals and transforming them into tangibles which are delivered to the end customer and it is the tool that enables the senior manager to answer questions such as: where are we now? Where do we need to be? How do we get there? How could we remain there? The desired standards of performance are therefore to optimise process performance in order to deliver total quality and 100 per cent value to the end customer (Zairi, 1994). Gilleard and Yat-Lung (2004) stated that FM benchmarking issues are typically driven by ? nancial, organisational, change management, and customer-related needs. They may be either internally focussed or external driven. Therefore it has put pressure on FM teams that value customer-driven issues such as delivery of quality and timely services. It also fails to take into account how an organisation performs at a strategic level, whether from the worker or the workplace perspective. The Department of Trade and Industry (DTI, 1993) produced an executive guide and point out the importance of benchmarking against: . The best you can ? nd whether within your industry or outside. . What is relevant to your customers view of what is important. . That thing that affects ? nancial performance. From an FM context, many people think that benchmarking is only about comparing cost levels. However Wauters (2005) revealed there are other aspects of FM that can be benchmarked. The most prominent of these aspects are: . Space use: Benchmarking the space use is a prime aspect as it drives all of the premises costs. The ? oor areas need to be known for the purpose of comparing costs of maintenance, cleaning etc; . . FM management: Benchmarking the effectiveness and cost of the facilities management operation on a strategic/tactical level; and Computer-aided FM systems: Benchmarking of the costs and effectiveness of the help desk. Performance measurement in FM 249 In addition, Hinks and McNay (1999) emphasise the need to measure performance gaps between service delivery and customer satisfaction. Hence, Hinks and McNay stress the need to rank benchmarking criteria, linking these to performance and service in such a way that their overall in? uence may be evaluated against business-driven imperatives. Further, Hinks and McNay suggest that the application of a manage-by-variance tool. The tool identi? es business and facility key performance indicators (KPI), helping to create a rank order among the benchmarking criteria. Further literature on benchmarking techniques focused within the FM discipline has come from Wauters (2005), Gilleard and Yat-Lung (2004), Loosemore and Hsin (2001), Massheder and Finch (1998), Akhlagi (1997) and Varcoe (1996). According to Wauters (2005) benchmarking is one of the techniques that has been used by many organisations and if applied correctly will lead to effective value management of facilities services. By this Wauters means that to use benchmarking effectively, you must identify the â€Å"ideal performance†, and hen emulate it. Benchmarking and service performance in FM Most services are provided through facilities (Brackertz and Kenley, 2002) and it has been suggested that the measurement of facilities should relate to the core business objectives such as customer satisfaction or service delivery (e. g. Walters, 1999; Tucker and Smith, 2008). As an integrated approach in managing the workplace, service is one of the key components facilities managers put for ward and seriously consider in achieving the set-up goals of the organisation. In service provision, FM is wide in scope, concerned with the major strategic decisions to the very detailed decisions such as posting the signs to the ladies’ toilet in a restaurant (Looy et al. , 2003). Therefore, in order to achieve organisational objectives, measuring service performance is crucial to the facilities manager. However, applied models that link facilities performance measurement to organisational strategy have to date, been limited (Brackertz and Kenley, 2002). It has been noted that in service ? ms, the importance of the physical setting depends on the nature of the job as well as the consumption experience. Consequently, she presented a typology of service environments or â€Å"servicescapes†, being those categories of a service based on who is performance in the servicescape (the customer, employees, or both) as well as the complexity of the servicescape. According to Looy et al. (2003), the customer perceives the servicescape holistically. They sug gest the environmental dimensions where customers value the service. Environmental dimensions comprise ambient conditions, spatial layout and process, and sign, symbols and artefacts (Figure 2). Ambient conditions refer largely to background characteristics such as noise, temperature and scent. In short, all the elements of our human environment affect the human ? ve senses. Spatial layout and process includes elements of the environment that are closely related to the core elements of service delivery. These dimensions refer to the way of arrangement and the physical and psychological effects on the customer. PM 26,4 250 Figure 2. Servicescape environment The other dimension relates to sign, symbols and artefacts. It is the item in the physical environment that serves as explicit or implicit communications to its users about the place. Tucker and Smith (2008) explored the importance of user perceptions within an organisational context, and how their perceptions can be evidenced and applied within FM. Tucker and Smith contended that there is a â€Å"logical customer performance ladder† (LCPL) that organisations should aspire to climb in order to achieve optimum levels of service delivery (Figure 3). The ladder acknowledges the importance of the initial user input to determine innovative ways of delivering what is important; to the internal business processes that will enable this delivery to be successful; to the strategic direction of the performance measures in line with their core business objectives; and to the consequent added value by increased customer satisfaction. Figure 3. Logical customer performance ladder Performance measurement is integral to the effective implementation of continuous improvement and added value within business (Tucker and Pitt, 2008a) and can act as a key driver for embedding innovation into the mindset. Tucker and Pitt (2008a) illustrate the importance of incorporating a performance-focused strategic concept in FM (Figure 4), emphasising that in order to achieve strategic FM, organisations should incorporate performance measurement through a balance of competitive service delivery and the application of best value principles, which will in turn feed directly into the core objectives of the organisation. Research in benchmarking and innovation in FM Generally the review of the literature has determined the area of proliferation in measuring FM performance. Measuring facilities performance contributes to the organisational successfulness to the innovation process. Benchmarking is among the accepted approaches involved in measuring â€Å"hard† and â€Å"soft† issues in facilities performance without denying the weaknesses of the technique itself. Hence, the innovation process of performance measurement systems, can be signi? cantly enhanced via the application of effective benchmarking techniques. Focusing on measuring service performance in a facilities context, benchmarking seems to be an approach to be considered. However, questions to be asked as an ngoing research project before applying a benchmarking technique are as follows: (1) How do customers value the service performance and how is it distinct from the service itself? (2) What are the mechanisms to measure the service performance and how is it measured? (3) How does one differentiate between the appreciation of service provided and the physical environment? Thes e questions and the general application of benchmarking and achieving customer satisfaction and added value within organisational performance measurement systems form the basis for the authors’ further research in this area. An example of this is through Tucker and Pitt (2008b) attempting to enhance the level of performance measurement sophistication in FM by ? lling the existing void of strategically applying customer satisfaction systems. Tucker and Pitt are implementing a strategic management approach to develop a customer performance measurement system (CPMS). The concept of the CPMS is to integrate generic industry benchmarks into a customised organisation framework in order to kick-start a gap Performance measurement in FM 251 Figure 4. Performance-focused strategic FM PM 26,4 nalysis process and stimulate continuous improvement. It is hoped that in turn this research will generate innovation within FM by applying performance measurement strategically. Conclusions Performance measurement is an established concept that has taken on renewed importance in varieties of organisations. In FM, performance measurement is important to contributing to organisational success in terms of effectiveness, ef? cie ncy-adding value. The review of the literature suggests that the key components that impact on FM implementation are the synergistic blend of â€Å"hard† and â€Å"soft† issues. The principle of benchmarking seems to be techniques that can be applied in measuring facilities service performance and a catalyst in generating innovation to the performance process. It is important to highlight that the characteristic of the services itself are very subjective to measure, and the acknowledgement that benchmarking should not be the only performance mechanism within an organisations overall system. However it does suggest that benchmarking techniques are sparse and can directly generate innovation processes to performance in FM. Hence, the questions put forward will be scrutinised in whole or in part through further extensive research. References Akhlaghi, F. 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