The Usefulness of Traditional and New Performance Measures Used in Nigerian Companies

Topics: Cost accounting, Manufacturing, Management accounting Pages: 17 (4090 words) Published: April 16, 2013
USEFULNESS OF TRADITIONAL AND NEW PERFORMANCE MEASURES: SOME EVIDENCE FROM NIGERIAN COMPANIES

BY

DR. (MRS.) S. L. ADEYEMI
DEPARTMENT OF BUSINESS ADMINISTRATION
UNIVERSITY OF ILORIN

ABSTRACT

This paper reports the findings of a survey on the usefulness of selected traditional and new performance measures used in some Nigeria companies that have adopted a flexible manufacturing strategy. The results indicate that majority of these companies considered the new performance measures useful particularly among the larger companies and among those with 5 years or less of business experience. Traditional measures are still useful, though to a much lesser extent. These results suggest that a combination of both traditional and new measures would be needed especially when Nigeria companies are going through the transition of implementing changes to their strategies from cost leadership to flexible manufacturing.

INTRODUCTION

The combination of slower economic growth and increased competition has forced firms in every industry to concentrate on efficient and effective deployment of resources. One result of these efforts has been the emergence of a new corporate position devoted to controllership. The controller is concerned with continuous measurement of a firm’s performance. In order to carry out the measurement process, controllership focuses on the assessment of resources deployment and goal attainment

Numerous research initiatives have identified the high correlation between superior performances and the development and use of sophisticated assessment or measurement capabilities. As early as 1985, A. T. Kuarney Consultants noticed that firm engaging in comprehensive performance realized improvements in overall productivity in the range of 14 to 22 percent.

Effort has been expended by establishments to improve the quality of information that their managers have at their disposal to measure, compare and guide performance. In most firms in Nigeria the traditional formats and travel reports are still in used.

TRADITIONAL AND MODERN MEASURES OF PERFORMANCE: AN OVERVIEW OF A REVIEW

The traditional performance measurement system has been designed to report labour productivity, machine and capacity utilization, and standard cost variances. These are cost-efficiency-based measures derived from a strategy to minimize production costs, described as a cost leadership strategy, which is characterized by mass production of a new standard products musing stable technology (hall, 1980; Kaplan. 1986).

The modern manufacturing environment has undergone dramatic changes since the past decades mainly because of intensive global competition, shifts in customer’s buying behaviour, and rapid innovation in manufacturing and information technology product. A cost-minimization and mass production strategy is no longer compatible with this new manufacturing scenario. Instead, issues such as responsiveness to customer needs, improving quality, reducing lead times, technological innovation and enhancing production flexibility have emerged as strategically more important to maintain competitiveness. Direct attention to these issues is the essence of a flexible manufacturing strategy. (Nemetz and Fry, 1988).

Despite this strategic re-orientation among the more progressive companies, performance measurement systems have not kept pace with the change. The theory of organizational lag has been involved to explain this lag in making changes. The theory of organizational lag has been involved to explain this lag in making changes to management accounting systems of which performance system forms a part. According to this theory, administrative innovations in management accounting (and performance) systems tend to lag behind the technical innovations of manufacturing. This is because the potential benefits of administrative innovations are less certain and are likely to take more time to have any recognizable...

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