A Dynamic Performance Measurement System: Evidence From Small Finnish Technology Companies

Abstract
The purpose of this paper is (1) to present a new dynamic integrated performance measurement
system (IPMS) basedon a managerial view, and(2) to present preliminary empirical
evidenceon the importance of performance measures in small Finnish technology companies
using the IMPS as the framework for the survey. The aim is to develop a useful managerial tool
for measuringandimproving performance in business "rms. The system is intended to include
a comprehensive set of relevant factors andd imensions, which together form an integrated
managerial system ofperformance measurement. The proposedIPMS is linkedto the idea of
activity-basedcosting (ABC). It consists of seven main factors and the causal chain connecting
these factors. The factors areclassi"edas two external factors ("nancial performance and
competitiveness) and "ve internal factors (costs, production factors, activities, products, and
revenues). The main idea of the IPMS is tofollow the use (transformation) of resources from the
point of the very "rst (elementary) resource allocation to the point when the results of the
allocation are realizedas revenues. In the causalchain, the factor at any point along the chain is
regarded as a determinant of the factor that succeeds it. Moreover, the next resource allocation
decision is dynamically a!ectedby the resultsof the former decisions, thus allowing for
learning-by-doing. The IPMS is also used as a framework for a postal questionnaire completed
by 93 small Finnish technology "rms. These companies putgreat emphasis on the importance
of the employee motivation (production factors dimension), customer satisfaction (products),
product pro"tability (revenues), company pro"tability, liquidity,and capital structure ("nancial
performance) in the measurement of performance. Factor analysis is usedto classify the
companies into three groups on the basis of performance measurement.