Performance Measurement, The Importance of Multidimensional Structure

The fourth article in the series discuss the need for constructing a multidimensional structure of business performance in order to achieve the best possible results when conducting performance measurement.

Business performance is a complex multidimensional variable what makes its measurement a difficult task (Brush and Vanderwerf, 1992). Venkatraman and Ramanujam (1985) suggest that measures such as sales growth, net income growth and return on investment indicate for different dimensions. In order to overcome that hurdle scholars used several different measures in order to achieve more accurate estimation of the differences between key dimensions of business performance (Zahra, 1996). Later studies supported such arguments, Brush and Vanderwerf (1992) and Tsai, Macmillan and low (1991) discuss the need for using both profitability and growth dimensions – both dimensions can be defined as financial performance - because it is possible that these two dimensions are polling in opposite directions, it’s means that even if we’re focusing on financial performance measurement a uni-dimensional measurement approach could be inadequate and cause for inconclusive findings. As for Venkatraman and Ramanujam (1986) such arguments reinforced the notion that financial performance measurement is insufficient and operational performance measurement is an important supplemental ingredient for business performance measurement.

Two empirical studies support the need for multidimensional measurement approach. Woo and Willard (1983) statistical analysis indicates that fourteen financial and operational measures grouped into four dimensions – profitability/cash flow, relative market position, change in profitability/cash flow, and revenue growth. A statistical analysis of nineteen financial performance measures conducted by Murphy, Trailer and Hill (1996) results in nine different dimensions, none of these dimensions explain more then fourteen percent of the variance of business performance.