Purpose  – This paper aims to understand the evolutionary paths of performance measurement (PM) from the 1980s until present. 

Design/methodology/approach – This paper is a narrative review. The sources of literature reviewed are from diverse academic disciplines (e.g. operations management, strategic management, management accounting and organisational behaviour). Three main types of literature were selected, namely  scientific literature, professional journals, and books. The authors’ approach is illustrative and selective. It is based on the belief that societal and organizational contexts provide the clues for the appropriateness in design and use of a managerial innovation. It describes the transition in performance measurement, incorporating a number of PM innovations as illustrative exemplars. 

Findings  – Management needs, arrived from the evolving business ecology and focused on creating and sustaining competitive advantage, drive the destiny of PM systems during their evolutionary progression. Performance measurement has evolved from various perspectives. The evolution took place in four major paths, from operations to strategic, measurement to management, static to dynamic and economic-profit to stakeholder focus.  

Practical implications – Their evolutions embody trends in development and use of PM systems over the long periods that point the way for future PM will develop and evolve. 

Originality/value – The contemporary evolution of PM exhibited in the connection with its evolving contexts that is not explicitly acknowledged in the literature gives the raison d’être to this review.  

Paper type – Literature review 

  The concepts about work, people and organization, which are embedded in management contexts, differ from time to time (Johnson, 1981; Ittner and Larcker, 2001; Otley, 2003). The basic theme underlining this review is a concern in achieving an understanding of the nature and force of the transitionary paths of performance measurement, especially from the 1980s till present. The main paths of evolution appear to flow from: 1) Operations to strategic; 2) Measurement to management; 3) Static to dynamic; and 4) Shareholder values (economic-profits) to stakeholder focuses. These flows reflect the change and shift in competitive, social, environmental, organizational and managerial factors. 

 

  The first path reflected the change in competitive advantage in the early 1980s; from product quality to a marketing-and-strategy view that caused organizations to shift their focus from production to the strategic arena. Although performance measurement was initially developed as operations-oriented in the beginning of the 1980s, it eventually went onward to become strategic tools in the late ‘80s. This trend became more obvious in the 1990s, when innovations in performance measurement were increasingly introduced into the strategic arena. The second path became apparent as the number of performance measurement innovations saturated the marketplace in the late 1990s, leading to the introduction of a new approach of performance measurement to again redirect the management’s attention. The third path, an unpredictable and accelerating change in the 1990s forced senior managements to consider and manage the beyond-control factors that previously had been considered outside of their preview. As a result, they needed a new approach of performance measurement that could be executed in a dynamic mode, and be capable of dynamic adaptability. The last path resulted from understanding and realizing of the importance of stakeholders in running the business. It provides an alternative perspective to the design of performance measurement systems, by paying attention to all stakeholders rather than using a general model of shareholder values. 

  There are a number of forces that cause the change in performance measurement. Figure 1 summarizes that the ongoing development of performance measurement evolved along the change and shift in business ecology. It can be explained that, although there are many existing innovations in performance measurement and they have been increasing, they seem to be incapable  to satisfy senior management in the long-run. It is argued that, as conditions change ever more rapidly, the previous experiences and approaches are ever less applicable to the new contexts. Moreover, the fact that the real needs and satisfactions  of managers are neither constant nor linear is a reason why academia and practitioners are constantly attempting to bridge the gap. This claim perhaps does not reflect all actual conditions that developmental paths of performance measurement are not caused only by managers. A variety of groups including academia, consultants, governmental regulators, and international bodies may determine the choices of innovations. 

 

 Darwinian selection influences not only what theories or practices are valued by the marketplace (Moore, 2006) but also what theories or practices can continuously stay attractive to managers. It is attractive not because of the actual usefulness and effectiveness, but more importantly because of the results of interplay among various groups of people involved. Thus, it is argued that it makes little sense that managers tend to select the most effective choice or select a choice effectively.

  The claim will be given more support if it is taken with the assumption that all management innovations benefits all adopting organizations. In fact, not all 

organizations adopt management innovations with economic rationale, and some reasons may not appear rational to others. Many are forced to adopt the nnovations set by legitimate regulators and some may imitate other organizations’ choices of innovation without a clear understanding and objective.  

 

  The conclusions of this paper are drawn from the review of the relevant literature. Its purpose was to depict the change and shift of performance measurement over two decades with a number of performance measurement systems as exemplars. As noted earlier, the performance measurement innovations presented in this review were selected purposefully, in agreement with some of the reviewed literature (e.g. Yeniyurt, 2003; Garengo et al., 2005; Pun and White, 2005; Taticchi and Balachandran, 2008). That sample may not be sufficiently broad in terms of numbers and time frame to support general conclusions. Nevertheless, this review is of value in framing a brief history of contemporary performance measurement and points the way to frame studies on how future performance measurement will develop and evolve.  

 

  The existence of management tools at any point in time mirrors the result of prior choices in the search for distinct performance measurement capabilities. Their evolution embody trends in development and use of performance measurement systems over long periods, that also points the way for future performance 

measurement to develop and evolve. A new plateau for future performance measurement design and use will be established once the understanding of the recent phenomenon is gained. However, the evolution of performance measurement is an infinite game in which management theory and practice never die. Each should be developed following its destiny, via the accelerated evolutionary process of new possibilities, opportunities, choices, and differences. Competitive advantage via performance measurement is a treadmill where one runs at an ever-quickening pace, to not lose ground. This review as a path-finding research is practical only for a limited period. The phenomenon should be re-reviewed regularly since the different nature and forces of the change in performance measurement continually develop and evolve.