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Performance measurement system design in service operations: Does size

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Article  in  Management Research Review · July 2014

DOI: 10.1108/MRR-02-2013-0046

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MRR
37,8
Performance measurement
system design in service
operations
728 Does size matter?
Amizawati Mohd Amir
School of Accounting, Universiti Kebangsaan Malaysia, Bangi, Malaysia

Abstract
Purpose – The purpose of this paper is to investigate the influence of firm size on the performance
measurement system (PMS) design in the service context. Focusing on several aspects of the PMS
design, i.e. the significance of the information attributes (PMS attributes), the way the system is used
(PMS use) and the measurement mechanisms (PMS mechanisms), the significance of firm size was
explored.
Design/methodology/approach – Data were collected by administering a mail questionnaire
survey to the top-level management of private service firms operating in Malaysia. The sampling frame
was based on information provided by the Department of Statistics, Malaysia, and the Central Bank of
Malaysia. An extensive search of directories/portals was undertaken to compile the mailing list of each
service sector. Samples were randomly selected from the list using proportionate stratified sampling.
Findings – The findings suggest that firm size influences the way their PMS was designed. The larger the
firm size, the greater the emphasis placed on designing a sophisticated PMS. The results also indicate that
size has a greater effect on the PMS of professional service firms, compared to mass service firms.
Research limitations/implications – The limitation of the study pertains to the objective to
observe the practice among service organizations on a broad scale, thus limiting the ability to
comprehend the reasons for the findings.
Practical implications – To the PMS designers and users, the understanding may offer a basic
knowledge for designing and developing an effective and efficient PMS to be a useful tool in facing the
continuous growth and stringent service market competition.
Originality/value – Rather than restricted to a specific service industry, the study removes the
traditional perception that insists that each service activity and problem is unique, by examining the
practice of PMS among service firms from a broad-based perspective. The focus is on the commonalities
that exist between them in facing the consequences of the service revolution.
Keywords Firm size, Mass service, Performance measurement system design, Professional service
Paper type Research paper

Management Research Review
Vol. 37 No. 8, 2014
pp. 728-749
© Emerald Group Publishing Limited
2040-8269
DOI 10.1108/MRR-02-2013-0046
Introduction
Services are the fastest growing sector and are seen as the engine of growth for the economy.
Services dominate the industrialized economies, while in developing countries and some
least developing countries, the process is still under way (Bretenfellner and Hidebrandt,
2006; ADB, 2007). The continuing efforts to liberalize and globalize the service industry
suggest the likeliness of the continuous growth of the sector. Obviously, the development
creates greater business opportunities that come with greater market challenge. The
increasing intensity of competition is the threat that service managers need to confront in
their day-to-day business activities. The battle for customers is no longer between domestic Performance
competitors, but is also open to global market players. Only through the efficient and
effective control of organizational resources can firms sustain and survive with such
measurement
competition. Certainly, these efforts need to be guided, monitored and controlled, which system design
requires firms to have an effective and efficient control system. In spite of the service
industry being the dominant economic force, the management control theory has been rather
slow in reflecting the significance of the sector. Having evolved within large manufacturing 729
organizations, various facets of management control systems (MCS) were introduced that
fulfil the needs of manufacturers. Often the argument is to directly apply the concepts, tools
and techniques to the service sector. Besides a bias towards manufacturers, there are
circumstances in which the existing instruments may fail to grasp the nature of the service
activities, and the direct application of the theory expounded from manufacturing to services
might not be appropriate, owing to the uniqueness of the service sector (Anthony and
Govindarajan, 2007). Therefore, a number of studies (Chenhall, 2003; Md. Auzair and
Langfield-Smith 2005; Hopper and Major, 2007; Gooneratne and Hoque, 2013) have stressed
the need to study MCS from a service organization’s perspective.
Focusing on the performance measurement system (PMS) as a control tool, this study
observes the design of the system in coping with their dynamic market conditions. Given the
present market situation, firms demand a more sophisticated and contemporary control tool
by which the generated information must be able to assist the managers in planning, making
decisions and control (Widener, 2007). Indeed, a system that only monitors the attainment on
predetermined targets and relies on the traditional diagnostic style of control is no longer
sufficient in managing today’s requirements. Hence, designing an effective PMS is a pivotal
task, as it is a means of maintaining control. This is in line with Merchant and Van der Stede
(2012), according to whom, controllability (i.e. the extent to which responsibility is assigned)
issues must be tackled during the design process. Modell (1996), however, stated that
designing or implementing a formal structure control tool for service firms is a pervasive
challenge. He asserted that the intangibility, simultaneity, heterogeneity and perishability of
services will undermine the implementation of the controllability concept. The proximity
with the customers during the service delivery process, the uncertainty and heterogeneity of
an individual employee’s performance level and the interrelations between employees and
customers increase the variability and unpredictability of service outcomes, which
complicate the controllability issues. Likewise, other researchers (Abernethy and
Stoelwinder, 1991; Lowry, 1993; Pierce and Sweeney, 2005) have postulated that it is less
suitable to monitor service operations activities through a formal control system, using
structure and formal outcome and behaviour control mechanisms; therefore, suggesting that
the uniqueness and high uncertainty in managing service activities require attention in their
own right. Meanwhile, PMS studies in the service sector show that PMS is an effective
control tool among the service providers (Ahrens and Chapman, 2002; Ittner et al., 2003;
Abernethy et al., 2005; Davis and Albright, 2004; Yilmaz and Bititci, 2006). They
acknowledge the significance of the tool in providing information to manage activities and,
therefore, demonstrate the relevance of PMS in service firms.
The emerging trend of the service sector PMS studies demonstrated a very limited
focus either on a single service industry or, in other cases, a single large-size firm.
Extending the empirical work to the present study, the influence of firm size will be
analysed. According to the control theory (Cadez and Guiding, 2008; Pun and
Jaggernath-Furlonge, 2012), size is a contextual factor that influences the management
MRR control approach. Large firms are normally associated with formal control consisting of
formal organizational outcome and behaviour control mechanisms, whereas small firms
37,8 are linked with more informal and personal types of control (Ouchi, 1979; Sharma, 2002;
Dekker, 2004). The fact that service firms are, on average, smaller than manufacturing
firms (Lowry, 1993; Brignall and Ballantine, 1996; Sharma, 2002) suggests the
possibility that size rather than the nature of service operations determines
730 the appropriateness of implementing a control approach. Hence, to address the issue, the
following research question has been considered: does firm size affect the design of
PMS? Using a similar basis in prior studies, the number of employees is used as the
proxy for size by which firms with ⬍ 100 employees are considered as small, whereas
those with ⱖ 100 employees are categorized as large firms (Md. Auzair and
Langfield-Smith 2005).
Extending the argument, the paper then explores the variations of PMS design
between different types of service operations. Classifying the service sector into
professional and mass services allows the practice of PMS among service firms to be
observed from a broad-based perspective. While studies (Ng et al., 2007;
McColl-Kennedy et al., 2008; Jensen et al., 2009; Groen et al., 2012) continue to discuss
managerial issues pertaining to professional and mass service contexts separately,
this study removed the perception that insists that each industry’s activities and
problems are unique. Concentrating on commonalities across the service sector, like
manufacturing, which also consists of multidimensional industries (i.e. where the
different manufacturing process dimensions are grouped into a single category), has
facilitated the sharing of ideas and techniques. Applying a similar argument to the
service environment is expected to stimulate a crossover of ideas and understanding of
appropriate management control methods and techniques to the service sector.
This paper begins with a discussion on the PMS design concept. The paper then
deliberates on the effects of firm size and type of service operations on service firms’
PMS design, and, subsequently, introduces the hypothesized relationships. The
research method is discussed next. Finally, the findings are presented and discussed
with some comments on the limitations and direction for future research.

PMS design
PMS is a management control tool, which has been regarded as a significant contributor
towards organizational success (Davis and Albright, 2004; Crabtree and DeBusk, 2008;
Hellqvist, 2011). The system aligns a firm’s strategic objectives and managerial efforts,
ensures the attainment of key success indicators and justifies the use of resources, as
well as provides feedback for driving future improvements. In adapting to the dynamic
business environment, the PMS continues to evolve to denote changes in the markets
and identify ways to achieve the organizational objectives and goals. Indeed, the
literature has discussed the significance of PMS as an instrument to facilitate an
organizations’ decision-making, control, learning and communication, and provides the
motivation for individuals to perform at their best (Rue and Byars, 2005; Tuomela, 2005;
Wu, 2012). Even to some practitioners and researchers, PMS is the key to change
(Brignall, 1997; Kaplan and Norton, 2001; Franco-Santos et al., 2012).
The development of PMS starts with the design of the performance measures. Bourne
et al. (2000) described the design of PMS as a cognitive exercise translating customer
values and other stakeholders’ requirements into appropriate measures. Meanwhile,
other studies (Anthony and Govindarajan, 2007; Braz et al., 2011; Nudurupati et al., 2011) Performance
emphasized that the soundness of the system is extremely important to ensure the
system’s success and relevance in translating the strategy into action. Organizational
measurement
theorists also stress the importance of designing a control system that links and reflects system design
their current business environment (Galbraith, 1977), underlining that without a right
match, the system may lead to dysfunctional behaviour, which may have an adverse
effect on firm performance. Recognizing the importance of PMS design aspects, the topic 731
has started to receive growing attention (Lohman et al., 2004; Neely et al., 2005; Henri,
2006; Ferreira and Otley, 2009; Artz et al., 2012). Past studies have generally observed
the impact attributed to the use of a comprehensive PMS framework on the individual,
group or organizational performance. Extending the PMS design concept, this paper
looks at the dimensions of PMS design that encapsulate the elements of information.
The argument is based on the organizational design theory that strongly emphasizes the
importance of information as a key issue to be dealt with in analysing an organization’s
design (Huber, 1982). The availability of information is pertinent in promoting a sense of
clarity and comfort in an organization (Chenhall, 2003; Hall, 2011). In light of the
significance of information to facilitate and influence behaviour, the development of
information is identified as the underlying foundation in PMS (Eccles, 1991). Thus, the
present study examines the PMS design focusing on the components of:
• information attributes – the underlying features of PMS information (i.e. PMS
attributes);
• style of use – the ways of using the PMS-generated information (i.e. PMS use); and
• measurement mechanisms – the measurement techniques for measuring an
activity (i.e. PMS mechanism).

The essence is to ensure that the elements of design (i.e. PMS attributes, use and
mechanisms) do not exist in isolation from the environment or from each other.
Matching the PMS characteristics to the service context permits the design of a more
effective system (Olson et al., 2005).
The PMS attributes focus on the availability and integration of a broad set of
contemporary performance measures (financial and non-financial, internal and external
factors and past and future measures) (Malina and Selto, 2004; Chenhall, 2005;
Franco-Santos et al., 2012), while PMS use looks at how the generated information is
used. According to Henri (2006), the effectiveness of PMS depends on the availability of
the right information attributes as well as how firms are using them. Given the
dynamics of today’s service market, relying solely on accounting financial measures
and diagnostic style of use is no longer adequate. Instead, a more interactive information
exchange process based on a broader scope of information is required to identify the
right approach to capture the opportunities and position the businesses. However, most
studies have been conducted in manufacturing settings. In view of the paucity of
research on the service sector’s PMS attributes, the purpose of the present study is to
identify desirable PMS attributes and use those that are perceived to be important for
the service context.
Clearly, having the right set of measures, without taking into consideration suitable
mechanisms to operationalize them, is insufficient in designing an effective PMS. A
number of researchers (Neely et al., 2000; Lilis, 2002; Tangen, 2004, 2005; Tuomela, 2005)
MRR have emphasized that for any framework to be of practical value, the process of
operationalizing the framework should also be understood, and the way activities are
37,8 measured (i.e. measurement mechanisms) should be part of the PMS design agenda.
Accordingly, this paper also attempts to explore the variation in PMS mechanisms,
concentrating on the service sector’s key success factors (i.e. service quality, flexibility,
resource utilization and innovation).
732
Hypotheses development
PMS has been seen to be as equally important in service firms as in manufacturing.
However, the uniqueness of service operations is claimed to have a profound effect
on the management control approach, which might differ from manufacturing.
Researchers have emphasized that a direct application of control theory developed from
manufacturing may not be appropriate (Silvestro et al., 1992; Chenhall, 2003; Anthony
and Govindarajan, 2007). To avoid any potential organizational crisis, the investigation
is based on the service sector perspective. In the following subsections, the significance
of firm size and the variations within the service sector is further clarified.

Firm size
Several studies have supported the link between firm size and the adoption of advance
management control system practices including PMS (Cadez and Guiding, 2008; Pun
and Jaggernath-Furlonge, 2012). The assumption is that as a firm grows larger, the need
for managers to handle the amount of information increases to a point that they have to
institute formal controls. At the same time, size is also positively associated with the
demand for coordination, direction, control and reporting activities, which can be
accommodated using PMS. Although large and small firms are fundamentally different
in respect of the amount of activities that need to be managed, it does not suggest that
PMS is unfit for a small-size firm. With the increasing market complexity, a small firm
is deemed to be exposed to greater market uncertainty that needs to be managed to
ensure its sustainability. The intensified competition requires all service firms,
regardless of their size, to be able to compete on several levels simultaneously.
Knowledge, competence, reputation and customer relationship are among the factors
that are becoming critically important in developing competitive advantage. Hence,
firms require a sophisticated system that can help them in monitoring, controlling and
making decisions pertaining to business operations (Abdel-Kader and Luther, 2008).
PMS is a sophisticated control system in the sense that it provides contemporary and
interactive use of relevant information for the managers to monitor and control their
organizational activities with the aim of enhancing organizational performance.
However, small firms still do not perceive the need for a proper PMS (Garengo et al.,
2005; Groen et al., 2012), as the owners are personally involved in managing and
controlling the business, and can control their business operations effectively through
an informal process based on spontaneous decision rather than as a result of planning.
In addition, the PMS process is perceived to be a time-consuming activity that comes
together with extra workload, greater costs and increased job-related tensions
(Franco-Santos et al., 2012). Thus, organizational capabilities and strong support in
terms of financial resources, technical expertise and managerial capacity are pertinent
for the success of PMS implementation. Baird et al. (2004) asserted that the more
resources that are available to support the systems, the better such practices are likely to
be and, therefore, the higher the perceived benefits. Unfortunately, these factors are Performance
often considered as obstacles towards implementing PMS among small firms (Garengo
et al., 2005). Extending the argument to service firms, it is expected that large-size firms
measurement
will place greater emphasis on sophisticated PMS design and, hence, contemporary system design
attributes of PMS measures, use the information more interactively and measure their
operation using sophisticated measurement mechanisms. Small firms, on the other
hand, may not have such sophisticated PMS, as the owners are closely involved in the 733
managing and controlling of the business, as well as due to resource constraints.
Therefore, it is hypothesized that:
H1. Large service firms will place greater reliance on sophisticated PMS design than
small firms.

Types of service operation

The management control theory affirms that the degree of task uncertainty determines
the way to control. The nature of service operations is often associated with high task
uncertainty and a low degree of routine. For that reason, the high variability within
service operations (i.e. the way tasks transform inputs into outputs) is an important
determinant for a suitable control approach (Chenhall, 2003). In applying these
arguments to service operations and PMS, it is expected that the type of service
operations will have an effect on the form of PMS. As highlighted by Fitzgerald et al.
(1991), the service type will be a factor that explains how performance will be measured,
which is expected to differ between the service firms. Service type refers to how the
service processes operate. Through the service type model, Fitzgerald et al. (1991)
integrated and unified disparate service industries based on six measurement
dimensions:
(1) equipment/people focus;
(2) contact time per customer;
(3) degree of customization;
(4) degree of discretion;
(5) value added back office/front office; and
(6) product/process focus.

Clustering these dimensions against the volume of service processes shows a pattern
among service providers – professional services are at one extreme, while mass services
are at the other extreme. The definition of the professional versus mass services is
provided in Table I. Although such classification in areas as diversified as the service

Professional services: organizations with relatively few transactions, highly customized, process-
oriented, with relatively long contact time, with most value added in the front office, where
considerable judgement is applied in meeting customer needs

Mass services: organizations where there are many customer transactions, involves limited contact Table I.
time and little customization. The offering is predominantly product-oriented, with most value being Definition of professional
added in the back office and little judgement applied by the front office staff versus mass service types
MRR sector will have some exceptions, minor exceptions will not necessarily undermine the
taxonomy (Silvestro, 1999).
37,8 Professional services, such as consultants and lawyers, which are highly customized,
with long customer contact time, tend to be more unpredictable and heterogeneous.
Because of the high percentage of “people” components and low level of task routine,
most of the work done by professional service firms encapsulates a high degree of
734 inherent risk, indicating that the professional services are highly uncertain. In contrast,
mass services are relatively stable. Mass services have many customer transactions
with limited contact time and little customization. Given the limited scope for tailoring
products to an individual customer’s needs, mass service products, such as
telecommunications and transportation services, are often standardized and could be
pre-planned, as the provider’s role and task specification are relatively clearly defined.
When the level of task uncertainty is low, an informal form of control instead of a
formal control seems to be more appropriate (Md. Auzair and Langfield-Smith, 2005).
The use of formal performance measures has been reported to cause greater job-related
tension and persistent poor performance (Brownell and Hirst, 1986), suggesting that
informal rather than formal control is more suitable when the task is uncertain. Studies
specifically done on professional service firms (Abernethy and Brownell, 1997; Pierce
and Sweeney, 2005) are indeed in agreement with the prior theory signifying that
professional service firms are associated with informal forms of control, such as
professional/peer control. Even though most professionals may not have formal training
on MCS, the education and socialization process undergone by professionals prepares
them with the knowledge concerning control and trust that fits with their professional
settings. Conversely, the rapid shift in the development of professional services from
self-employed to salaried employment has challenged the extent to which relying on
informal-based control remains relevant in professional service firms (Abernethy et al.,
2005). High professional standards alone are no longer sufficient to ensure the long-term
survival of the firms. Certainly, the growth and stringent marketplace demand
professional service firms to have an effective and efficient control system that can trace
the market factors and guide towards achieving a competitive advantage. To create a
shared understanding for attaining strategic goals among the employees, firms need to
have a system that ties the organizational insights into a comprehensive set of measures.
An interactive PMS is required to allow timely actions by which the measurement
process needs to be supported with the right mechanisms. Consistent with this rationale,
the following hypotheses are posited:
H2a. For professional services, large firms will place greater emphasis on
contemporary PMS attributes than small firms.
H2b. For professional services, large firms will place greater emphasis on interactive
PMS use than small firms.
H2c. For professional services, large firms will place greater use on PMS
mechanisms than small firms.
Evidently, mass services are considered to be more standardized and stable, and,
therefore, a structured and formal control is more appropriate. Low task uncertainty is
often associated with high reliance on standard operating procedures, policies and plans
(Daft and Macintosh, 1981; Chenhall, 2003). Because mass service tasks are relatively
easy to define, formal control is reported to be necessary to ensure that people behave Performance
and act in line with the firms’ expectations (Md. Auzair and Langfield-Smith, 2005).
When task uncertainty is low, greater use of PMS information would be appropriate, as
measurement
managers’ existing task cause – effect knowledge enables task completion. Similarly, system design
earlier studies (Hirst, 1983; Lau et al., 1995; Chong and Eggleton, 2003) associated
job-related tension with less emphasis on formal control in situations of low task
uncertainty, when the decrease in the use of formal control leads to less precise 735
performance specification and, subsequently, results in role ambiguity. In short, these
findings validate the argument that reliance on sophisticated PMS is a form of control
for mass services that operate in low task uncertainty environments. Accordingly, the
study predicts that:
H3a. For mass services, both large and small firms will place great emphasis on
contemporary PMS attributes.
H3b. For mass services, both large and small firms will place great emphasis on
interactive PMS use.
H3c. For mass services, both large and small firms will place great emphasis on the
use of PMS mechanisms.

Research method
The sampling frame for this study was private service firms operating in Malaysia,
based on data provided by the Department of Statistics, Malaysia, and the Central Bank
of Malaysia. An extensive search of directories/portals was then undertaken to compile
the mailing list for every service sector. Proportionate stratified random sampling was
applied with the intention to reduce the variability between the samples by creating
relatively homogenous strata. The data were collected by administering a mail
questionnaire survey to the top management of service firms or general managers of
strategic business units of 1,000 service organizations, randomly selected from the lists.
Respondents covered a variety of service sectors representing the diversified service
industry. A total of 121 usable questionnaires were received with a response rate of 12
per cent. It should be noted that the low response rates for mail academic surveys are a
common pattern in Malaysia (Che and Foong, 2005).
Consistent with prior studies (Pugh et al., 1969; Mills, 1986; Ezzamel, 1990; Hoque and
James, 2000; Baird et al., 2004; Cadez and Guiding, 2008), the number of equivalent
full-time employees was used as the proxy for firm size. On average, service firms are
relatively smaller than manufacturing firms. Studies in the USA, Sweden and Australia
identified that more than half of the service workers population were employed in firms
with ⬍ 100 employees (Mills, 1986; Lowry, 1990). This phenomenon is not unique to
those developed nations, but is pervasive throughout developing economies, such as
Malaysia. Therefore, following the work of Mills (1986), and Md. Auzair and
Langfield-Smith (2005), the study used 100 as the cut-off between large and small service
firms. Table II provides the detailed profile of responding firms by sector, number of e
The responses were subjected to the usual tests for randomness compared with the total
sample, and no discernible differences were observed.
MRR Service activities Frequency Per cent
37,8
Computer and related services 11 9.2
Consumer banking 8 6.7
Corporate banking 6 5.1
Education 14 11.8
Health services 9 7.6
736 Hotels 15 12.6
Insurance 9 7.6
Post and telecommunication 8 6.7
Professional (i.e. accounting, consultancy, engineering and legal firms) 13 10.9
Restaurants 3 2.5
Transportation 11 9.2
Wholesale and retail trades 12 10.1
Total 119 100.0
Missing 2
Total 121
Total number of employees
Below 100 59 49.5
Between 100-149 8 6.7
Between 150-199 6 5.1
ⱖ 200 46 38.7
Total 119 100.0
Missing 2
Total 121
Firm size
Small 59 49.5
Large 60 51.5
Table II. Total 119 100.0
Profile of the responding Missing 2
firms Total 121

Measurement of variables
Service type was measured using the six-measurement scheme of Fitzgerald et al. (1991),
which Md. Auzair and Langfield-Smith (2005) reconstructed into survey questions. On a
scale of seven, scale 1 indicated a greater emphasis on mass services, while scale 7 indicated
a greater emphasis on professional service process. After being subjected to factor analysis,
all the items were equally divided and loaded on two components. Although all loadings
were ⬎ 0.50, the reliability of the second component was ⬍ 0.5 and, therefore, excluded from
further analysis. The classification of service process type was based on the length of contact
time per customer, value added back/front office and product/process focus. Only the results
of the final principal component analysis (PCA) are reported in this paper (Table III).
The PMS attributes were measured using a 22-item instrument, which was partly
similar to Chenhall (2005), and mainly concentrated on the integrativeness aspect of
PMS. As an extension of Chenhall’s (2005) measurement, this research incorporated
additional attributes of PMS, emphasizing the importance of the attributes to service
firms. Respondents were asked to indicate on a 7-point Likert-type scale ranging from 1
(not at all) to 7 (to a very great extent), the extent to which particular characteristics
described the PMS of their firms. As presented in Table III, four components of PMS
 Factor Per cent of Cronbach’s
Performance
Factor label Items loadings Eigenvalue variance alpha measurement
Service Product/process focus 0.791 1.653 55.097 0.592 system design
process type Short/long-term contact 0.745
Back/front office 0.704
PMS attributes
Performance Impact on others 0.859 3.925 19.384 0.870
737
evaluation Link activities/objectives 0.795
Evaluate performance 0.660
Systematic basis 0.628
Benchmarking Service flexibility 0.867 3.196 18.799 0.822
Service resource utilization 0.691
Service innovation 0.663
External factors 0.564
Service quality 0.551
Timeliness Continuous reporting 0.862 2.947 17.338 0.875
Timeframe 0.839
Immediate reporting 0.642
Link operations/strategies 0.585
Scope Lag indicators 0.848 2.947 16.416 0.851
Internal factors 0.814
Objective measures 0.680
Precise measures 0.531
PMS use Frequent attention 0.880 5.161 64.517 0.913
Face-to-face discussions 0.870
Recurring agenda 0.837
Formal reporting procedures 0.835
Achieving predetermined 0.821
targets Table III.
Informing on divergence 0.818 Service type, PMS
Generating new ideas 0.762 attributes and use factor
Exceptions basis 0.556 loadings

attribute dimensions were extracted – evaluation purposes, benchmarking, timeliness

and scope.
PMS use was measured using a modified version of Abernethy and Brownell’s (1999)
instrument. Instead of using a forced-choice statement option, the present study refined
the question into an eight-item survey question, demonstrating the properties of
diagnostic and interactive styles of control. Respondents were asked to rate on a 7-point
scale how an eight-item question described the way they use their PMS information. All
items were successfully loaded onto one component in measuring the style of PMS use
(Table III). Scale 1 indicated high diagnostic use, while scale 7 indicated high interactive
use.
PMS mechanisms were measured using a 40-item instrument, which was partly
based on the discussion of Fitzgerald et al. (1991) on service quality and flexibility of
measurement mechanisms. In an attempt to increase the generalizability of the findings,
the study transformed Fitzgerald et al.’s (1991) qualitative findings into 7-point Likert
scale questions in which managers were asked to identify to what extent a particular
MRR mechanism was implemented in their firms, ranging from “not at all” (1) to “intensively”
(7). Meanwhile, a review of the literature in related disciplines, such as service operations
37,8 management and management science, was undertaken to identify the recent
measurement techniques associated with the four determinants identified in the Results
and Determinants framework – quality of service, flexibility, resource utilization and
innovation. Additional measures were adapted from Edgett and Snow (1997) and the UK
738 R and D Scoreboard (2010) to form the survey questions. However, only common
measurement mechanisms were listed as the possible responses, as the aim of the
measurement was not to identify the mechanisms. Instead, the aim of the study was to
test whether there is a significant difference in service firms’ measurement mechanisms.
Focusing on the four dimensions of competitive success measures, PCA were run
separately for each dimension. The results of the analyses are presented in Table IV.
Service quality items were loaded onto one component, while service flexibility items
were loaded onto four components:
(1) short-term capacity flexibility;
(2) long-term capacity flexibility;
(3) labour temporal flexibility; and
(4) labour functionality flexibility.

Meanwhile, two components were extracted from the resource utilization (i.e. efficiency
of internal capacity and labour productivity) and service innovation (i.e. service
acceptance and knowledge creation) dimensions.

Results
The descriptive statistics for the variables in this study are presented in Table V. In
general, the statistics show that the PMS components have means ⬎ 3.5, indicating that
the distribution of scores was skewed towards agreement. The scales, which ranged
from not at all to a very great extent, signify the availability of particular attributes and
interactive use of PMS services. Nonetheless, the variations within PMS mechanisms’
responses are relatively high because the responses range between 1 and 7 points,
suggesting that some of the service key factors were not monitored by firms.
Prior to testing the variations between the service operations (i.e. H2 and H3), the
service firms were classified into sets of similar group. Using a two-step cluster
analysis, the optimal or “best number” of clusters was automatically determined.
Consistent with the classification of service type by Md. Auzair and Langfield-Smith
(2005), Table VI shows that the service type was successfully clustered into two
service groups, i.e. professional and mass services. The means of professional and
mass services were 5.59 and 3.83, respectively, presenting a clear distinction
between the two service groups.
The clustering process grouped the 121 total responses into 52 professional and
68 mass service firms, with one case excluded. Table VII specifies the distribution of
the respondents, which becomes the basis for analysing the findings. To some
extent, the classification pattern matched the description of service type, in which
the majority of transportation and wholesale/retail services fall into mass services,
while firms that are more management consultancy are within the professional
category.
 Factor Per cent of Cronbach’s
Performance
Factor label Items loadings Eigenvalue variance alpha measurement
Service quality Quality control 0.872 4.324 61.776 0.888 system design
Quality audit 0.860
Inspection 0.800
Facilities quality measures 0.762
Complaints analysis 0.756
739
Appraisal 0.728
Surveys 0.708
Service flexibility
Short-termism Negotiation 809 2.244 18.699 0.782
capacity Redefine service scope 0.801
Extended operating hours 0.762
Longer-termism Intermediary 0.844 2.222 18.515 0.753
capacity Externalized 0.771
Automated self-services 0.524
Temporal flexibility Part-time worker 0.942 2.149 17.912 0.926
Temporary worker 0.929
Multi-skilling 0.799
Functional flexibility Job scheduling 0.730 2.058 17.152 0.705
Job rotation 0.600
Staff transfer 0.552
Resource utilization
Efficiency of internal Investment in facilities 0.872 2.539 42.322 0.825
capacity Facilities utilization 0.843
Investment in new 0.715
knowledge
Productivity index 0.712
Labour productivity Labour utilization 0.912 1.858 30.971 0.792
Labour costs 0.866
Service innovation
Services acceptance Service performance level 0.877 2.217 36.949 0.807
Customer acceptance 0.841
Timing measures 0.781
Knowledge creation New knowledge creation 0.923 1.984 33.073 0.710 Table IV.
Application of knowledge 0.835 PMS mechanisms factor
Project costs 0.573 loadings

Hypotheses testing
Subsequently, the hypotheses were tested using the t-test analysis. The adequacy of the
data was assessed by testing for the normality, homogeneity of variance of residuals
and the appropriateness of the linear models. The results indicated that the inherent
assumptions of the model used were validated.
Test of H1. Services firm size and PMS design – H1 stated that firm size is
positively related to the extent service firms placed on sophisticated PMS design. As
shown in the first column of Table VIII, there are significant differences (p ⱕ 0.05)
between large and small firms with regards to PMS attributes and use. The high
means for all the PMS attribute dimensions (evaluation, benchmarking, timely
MRR Variables Theoretical range Actual range Mean Standard deviation
37,8
Service types 1-7 2.33-6.67 4.592 1.063
PMS attributes
Evaluation purposes 1-7 3.00-7.00 5.067 0.928
Benchmarking 1-7 2.80-7.00 5.121 0.866
Timeliness 1-7 3.50-7.00 5.275 0.815
740 Scope 1-7 3.00-7.00 5.127 0.902
PMS use 1-7 3.25-7.00 5.143 0.832
PMS mechanisms
Service quality 1-7 2.29-7.00 5.030 0.982
Short-term capacity 1-7 2.33-7.00 4.546 1.079
Long-term capacity 1-7 1.00-7.00 3.731 1.698
Temporal flexibility 1-7 1.00-7.00 3.767 1.731
Functional flexibility 1-7 2.75-7.00 4.964 0.982
Internal capacity efficiency 1-7 3.00-7.00 4.888 0.961
Labour productivity 1-7 2.50-7.00 5.038 1.091
Service acceptance
Table V. measures 1-7 3.67-7.00 5.340 0.899
Descriptive statistics Knowledge creation 1-7 3.33-7.00 4.991 0.870

Service types Frequency Per cent Mean Standard deviation

Cluster
Professional service 52 43.3 5.5897 0.50967
Mass service 68 56.7 3.8284 0.66789
Table VI. Combined 120 100.0 4.5917 1.06332
Distributions of service Excluded cases 1
types Total 121

assessment and broad scope) signify the presence of such information attributes in
the PMS of large firms. The information is important to encapsulate information to
enhance the understandability of the business process and subsequently establish
their competitive advantage. Through the system, large-size firms monitor their
activities continuously on a real-time basis by using the generated information.
Similar to prior studies (Sharma, 2002; Cadez and Guiding, 2008), the results confirm
that size does influence the form of control. An increase in size will result in greater
emphasis on formalization on communication channels, increase the frequency of
communication and place more reliance on standardized evaluation schemes for
coordination, communication and control purposes (Merchant, 1981; Davila, 2000;
Chenhall, 2005). Likewise, significant variations are reported on PMS mechanisms,
suggesting that large-size firms use measurement mechanisms more intensively to
monitor the service delivery process, except in dealing with service flexibility. The
insignificant distinction between large and small service firms on the mechanisms
used to cope with service flexibility implied the likeliness of other elements, such as
the nature of service operations, to be the factor influencing the choice of suitable
Industries Professional services Mass services Total
Performance
measurement
Computer and related services 3 8 11
Consumer banking – 8 8 system design
Corporate banking 5 1 6
Education 8 6 14
Health services 7 2 9
Hotels 10 5 15
741
Insurance 1 8 9
Post and telecommunication 1 7 8
Professional 12 1 13
Restaurants 2 1 3
Transportation – 11 11 Table VII.
Wholesale and retail trades 3 9 12 Classification of
Missing – 1 1 professional and mass
Total 52 68 120 services service

techniques. Therefore, the evidence could only offer partial support for H1 due to the
mixed findings on the PMS mechanisms.
The subsequent hypotheses observe the implications of firm size within each service
type, professional and mass service firms on the PMS design.
Test of H2. Professional services firm size and PMS design – Referring to the second
column in Table VIII, there were significant differences between small and large
professional service firms in terms of PMS attributes (H2a) and use (H2b).
Conspicuously, the evidence provides support that large-size professional service firms
are more inclined towards having contemporary attributes of performance measures in
their PMS and using the information interactively. Considering that most large-size
professional service firms hire professionals as their employees, the employer and
employees’ relationship demands that firms have a proper and systematic control
system. Additionally, a well-designed PMS can be an effective control tool to facilitate
goal congruence and thereby motivate employees to behave accordingly. The likelihood
of small firms being a self-owned business explains the tendency to rely on an informal
means of control. For PMS mechanisms, coinciding with Hl, the result of the t-tests did
not provide support for H2c.
Test of H3. Mass service firms’ size and PMS design – The hypotheses observed the
need for formal control among mass services. As hypothesized, there is insignificant
variation between large and small mass service firms (refer to column 3 Table VIII) in
relation to the design of their PMS attributes (H3a), use (H3c) and mechanisms (H3c).
The findings certainly support the notion that sophisticated and formal controls are a
common approach among mass service firms regardless of size. Likewise, the reliance
on formal control, such as PMS, is consistent with Md. Auzair and Langfield-Smith
(2005), who found that mass service firms placed greater emphasis on a more formalized
form of control, thus indicating support for hypotheses H3a, H3b and H3c.

Conclusion
In essence, the evidence elicits the significance of firm size in designing PMS for service
operations, which validates the argument that larger-size firms are more likely to
MRR H2 professional service
37,8 Variables H1 service firms firmsa H3 mass service firmsb
Mean T Mean T Mean T

PMS attributes
Evaluation purposes
Large 5.275 2.588* 5.500 2.282* 5.114 1.619
742 Small 4.843 4.954 4.750
Benchmarking
Large 5.327 2.679** 5.448 1.920*** 5.240 1.934***
Small 4.907 4.992 4.838
Timeliness
Large 5.446 2.366* 5.550 2.295* 5.371 1.099
Small 5.095 5.019 5.161
Scope
Large 5.463 4.543** 5.610 3.677** 5.357 2.842**
Small 4.767 4.732 4.797
PMS use
Large 5.329 3.141** 5.475 2.209* 5.225 1.595
Small 4.934 4.966 4.907
PMS mechanisms
Service quality
Large 5.386 4.207** 5.594 3.005** 5.237 3.141**
Small 4.633 4.841 4.457
Service flexibility
Short term capacity
Large 4.461 ⫺0.828 4.346 ⫺0.835 4.543 ⫺0.422
Small 4.626 4.590 4.656
Long term capacity
Large 5.449 1.416 5.521 1.431 5.400 0.568
Small 5.161 5.037 5.266
Temporal flexibility
Large 4.392 4.160** 4.680 2.461* 4.186 3.546**
Small 3.025 3.370 2.734
Functional flexibility
Large 5.123 1.518 5.219 1.494 5.057 0.922
Small 4.814 4.769 4.852
Resource utilization
Internal capacity efficiency
Large 5.108 2.583* 5.270 2.263* 4.993 1.453
Small 4.661 4.667 4.656
Labour productivity
Large 5.300 2.536* 5.580 2.415* 5.100 1.402
Small 4.814 4.907 4.734
Innovation
Service acceptance
Large 5.476 2.145* 5.514 1.287 5.510 1.604
Small 5.081 5.200 5.103
Knowledge creation
Table VIII. Large 5.161 2.080* 5.194 1.885*** 5.135 1.095
Summary results of t-tests Small 4.804 4.733 4.872
between firm size and
Notes: *** p ⬍ 0.10; ** p ⬍ 0.01; * p ⬍ 0.05; a Professional service firms: large n ⫽ 27; small ⫽ 25; b Mass service firms:
PMS design large n ⫽ 32; small ⫽ 35
implement formal controls. The findings show that as size increases, greater reliance is Performance
placed on having contemporary PMS measures, the attributes of which encapsulate
broad scope information, timely, internal and external measures, which may assist
measurement
service managers in managing their business operations (Chenhall, 2005; Merchant and system design
Van der Stede, 2012). Having such PMS information attributes are pertinent, especially
in facing today’s globalized, intensified competition that demands reliable and
relevant information to assist management in making the right decision at the right 743
time. In conformity with the measurement attributes, the use of the information in
large-size firms is more interactive, which facilitates the communication process
within firms (Abernethy and Brownell, 1999; Henri, 2006). To have the system, firms
obviously need to invest in the technology, which is somewhat expensive, and
therefore, suggests that the financial stability associated with large-size firms
enables them to invest and provide sufficient resources to support the system. This
validates the argument of Burns and Waterhouse (1975) that larger-size firms are
more likely to implement formal controls, which comprise sophisticated
technologies, as opposed to smaller-size firms that choose to use informal controls.
Pertaining to the mechanisms in measuring the performance of service processes,
size also appears to be an important factor. Large-size firms implement various
mechanisms to measure and assess their key operational factors – service quality,
resource utilization and service innovation. Considering that some techniques are
rather expensive, small firms choose not to have those techniques, except for service
flexibility, where the findings suggest that all the firms are measuring and
monitoring their ability to respond to the fluctuation in service demand. However,
firm size has less effect on mass services, as sophisticated PMS design is equally
likely to be implemented in both large- and small-size firms, suggesting that the
control approach also depends on the type of service operations.
The results of this study contribute to the literature in several ways. The findings
shed light on the structural and operationalized aspect of PMS design. A number of
researchers have emphasized that the benefits of the PMS framework will only be
realized when the organization is able to translate the measurement dimensions into
actionable measures (Lilis, 2002; Tangen, 2004, 2005; Tuomela, 2005). Hence, the
findings provide a preliminary understanding of PMS design components, looking at
the features of performance measures, style of use as well as the measurement
techniques to support the measurement process. Concentrating on PMS design in the
service sector, the paper acknowledges the uniqueness of service operations, which
demand management control approaches somewhat different from the management
control in manufacturing companies (Modell, 1996; Anthony and Govindarajan, 2007).
Looking at a range of service firms, the findings contribute meagre knowledge
concerning the effect of firm size on the PMS design. Besides firm size, the nature of
service operations does, to a certain extent, determine the appropriateness of the control
approach, and thus explains why studies continue to observe managerial issues
separate between professional and mass services. To the PMS designers and users, the
understanding may provide a basic knowledge concerning the design and development
of an effective and efficient PMS to be a useful tool in facing the continuous growth and
stringent service market competition. Growing in size inevitably demands a greater
need for and reliance on a sophisticated PMS. However, the PMS design should also
match with other organizational characteristics, such as the nature of service operations,
MRR and there should be a fit between the elements of design (attributes, style of use and
measurement mechanisms).
37,8 However, the results should be interpreted in light of several limitations. First,
the study suffered from all the limitations inherent in using cross-sectional research
design in which the data are a snapshot of the firms’ practices in a dynamic
environment. A single empirical study, such as this, in any case, could not be viewed
744 as conclusive. Hence, the study should be part of a larger empirical longitudinal
investigation to enhance the understanding of PMS practices among service firms.
Certainly, the preliminary investigation, particularly the measurement
mechanisms, need to be further explored to add to the practical aspect PMS.
Nonetheless, the results could be a fruitful input for future study. Second, the
objective to observe the practice of PMS among service organizations on a broad
scale limits the ability to go into depth. For manageability purposes, the trade-off
between broad scope and in-depth investigation results in a limited set of variables
under study. No effectiveness variable was included in the study. However, it is
claimed that firms are adopting the PMS with the intention of improving both
managerial and organizational performance (Davis and Albright, 2004; Tuomela,
2005). To enhance the understanding, further investigation could be undertaken in
light of the study’s preliminary findings. It is thought that the findings of this study
would have a higher degree of confidence if the sample size is larger. A larger sample
size results in more reliable findings and allows the sample to be categorized and
analysed according to a particular industry sector. Next, the questions are based on
perceptions. Thus, the responses may represent what the respondents perceived to
be the fact rather than the actual fact. The final limitation is the low response rate,
which limits the statistical power of the results and application of more advanced
statistical techniques. However, the credibility of the findings can be scrutinized in
future research.

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About the author
Amizawati Mohd Amir is a senior lecturer in the School of Accounting, Faculty of Economics and
Management, National University of Malaysia. She obtained a master’s degree in Accounting
from the University of Birmingham, UK, and a bachelor’s degree from the Indiana University,
Bloomington, USA. Her research interests include management accounting, MCS and
performance management systems for all types of organizations. She received a PhD degree from
the International Islamic University Malaysia. Her PhD research focused on Performance
Measurement Systems Design, in which she was deeply involved in identifying the design of the
systems in Malaysian service organizations. Her current research includes projects focusing on
designing performance measurement systems suitable for small and medium enterprises. She has
published books and several papers in local and international journals and conference
proceedings. Amizawati Mohd Amir can be contacted at: amiza@ukm.my

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