J Manag Gov (2013) 17:35–58

DOI 10.1007/s10997-012-9217-6

Understanding performance measurement dynamism:

a case study

Tuomas Korhonen • Teemu Laine • Petri Suomala

Published online: 1 May 2012

Ó Springer Science+Business Media, LLC. 2012

Abstract This paper elaborates on the notion of performance measurement (PM)

dynamism. The paper’s argument is based on a literature review and an interven-
tionist case study. The analysis of the structure of PM dynamism is deepened by
using New Institutional Sociology theory as a tool. PM dynamism was found to
occur at four different levels: in setting the role of performance measures for
decision making in general, in the use of measures, in the selection of measures and
within the components of single measures. PM dynamism allows, for instance,
measures used only for specific and topical purposes (ad hoc), in contrast to the
views presented in the extant literature, which reject measures that are not insti-
tutionalized. The use of up-to-date measures, a major implication of understanding
PM dynamism more thoroughly, could lead to more efficient strategy implemen-
tation and enactment at different levels. The originality of the article consists of
identifying the rationale and the levels of PM dynamism and of the consideration
that the use of ad hoc measures may have a positive impact on managing
performance.

Keywords Performance measurement
Dynamism
Institutional theory

Ad hoc measures

1 Introduction

Performance measurement systems (PMSs) must be dynamic entities that contin-

uously match their unique contexts (Henri 2010; Kennerley and Neely 2002; Wisner

T. Korhonen (&)
T. Laine
P. Suomala

Cost Management Center (CMC), Tampere University of Technology,
P.O. Box 541, 33101 Tampere, Finland
e-mail: tuomas.korhonen@tut.fi
URL: http://www.tut.fi/cmc/

123
36 T. Korhonen et al.

and Fawcett 1991). Such matching of performance measurement (PM) and context,
or updating PM, can be called PM dynamism (Henri 2010). PM dynamism
comprises any changes that concern a PMS and the single measures within this
system. These changes, typically made because of periodic reviews (Henri 2010),
refocus the system and its single measures when the PM focus is lost. A refocused
PMS can then be used as a relevant management tool. The topicality of measures
also dictates the way the management can report to the board and how the board is
then able to extend corporate governance and control to the management.
However, PM dynamism and its implications in managing performance have
received little attention in accounting literature (Henri 2010). Little has been said
explicitly about what PM dynamism actually consists of, although scholars have
attempted to conceptualize it (e.g., Bourne et al. 2000; Henri 2010). A compre-
hensive understanding of the elements and levels of PM dynamism is lacking in the
literature. Moreover, empirical evidence of PM dynamism is scarce, resulting partly
from the fact that firms have failed to introduce dynamic PMSs (Bititci et al. 2000,
p. 694). Actually, Henri (2010) calls for a more holistic, qualitative approach to
research on the subject of PM dynamism:
– changes in PMS may occur over a longer period of time [than 12 months]
and not be completely captured by the instrument [quantitative analysis].
Longitudinal and qualitative approaches will be necessary to provide
complementary evidence. (Henri 2010)
We answer the abovementioned call, as the objective of this paper is to advance
conceptual and qualitative empirical research on PM dynamism by elaborating on
this notion. We seek to explain which different elements and processes exist within
that notion in relation to the larger context of management control. Moreover, we
use New Institutional Sociology (NIS) theory to place PM dynamism in the larger
context of evolving management control practices. This coupling of PM dynamism
and more general management control change is well in line with Ferreira and
Otley’s (2009) recent view of PMS change. We build on Burns and Scapens (2000),
who suggest that accounting systems may change through evolutions in their formal
and informal control mechanisms, that is, official rules and unofficial ‘‘practices
actually in use’’ within an organization (Lukka 2007). Indeed, the theoretical
foundation of our article is built upon the intersection of the New Institutionalist
view of accounting change and PM dynamism. However, we first need to develop
an understanding of the rationale for PM dynamism, in order to understand the basis
of this notion in the wider context of control. Thereby, the research questions of this
article are as follows:
1. What is the rationale for PM dynamism within the wider concepts of
performance measurement and management control?
2. What are the key elements of PM dynamism, and on which levels do these
elements occur?
3. How do the elements of PM dynamism relate to the formal and informal
domains of management control?

123
Understanding performance measurement dynamism 37

In answering our research questions, we advance PM literature by combining the

abovementioned PM dynamism with relevant notions found in NIS theory. NIS
theory offers a way to interpret changes in a PMS as institutionalizing and
deinstitutionalizing new measures. We use the larger context of control and
institutionalized control practices to link the theoretical concept of PM dynamism
and the very practices of management accounting. Indeed, NIS theory explains that,
once PMSs seem to be too rigid in practice (Bititci et al. 2000, p. 694), the change
pressures of the PMS will also be reflected in the informal aspects of accounting
(Lukka 2007).
The practices of an organization or its informal control mechanisms are difficult
to investigate from a distance. Instead, an in-depth case study is a suitable way to
study the informal controls and practices within an organization. A case study is
also an appropriate choice of methodology because there is a lack of empirical
evidence regarding dynamic PMSs, as mentioned earlier. We collected qualitative
data from an interventionist case study (Jönsson and Lukka 2006; Suomala and
Lyly-Yrjänäinen 2010). The case study was carried out in a private healthcare
organization, (pseudonymously) Healthcare Inc., in Finland. Data from Healthcare
Inc. was collected between June 2009 and December 2010, and the more
interventionist phase of the study took place during the first year of data collection.
One of the authors cooperated closely as an interventionist researcher with the chief
executive officer (CEO) of the company and conducted numerous semi-structured,
in-depth interviews with middle managers as well as a compact survey of those
managers.
The researcher’s interventionist work in Healthcare Inc., was very practice-
oriented. The researcher acted as a change agent or even as a catalyst of change
(Gummesson 2000; Yin 2003) in developing Healthcare Inc.’s PMS. PM dynamism
emerged in many ways in practice, as the researcher made interventions. For
instance, the researcher sorted out the flaws in the existing PMS and helped
Healthcare Inc., create more topical measures to support managers’ needs. To show
another form of PM dynamism, the researcher also constructed spreadsheet-form
tools to complement Healthcare Inc.’s PMS. These spreadsheet tools were
adjustable and modifiable according to evolving needs, which further represented
a different form of PM dynamism. The spreadsheet tools could be used either as
integral parts of PM or only when necessary, on an ad hoc basis. The use of
interventionist research, in particular, is reasonable because it is difficult to obtain
empirical data on the multifaceted notion of PM dynamism (cf. Suomala and Lyly-
Yrjänäinen 2010 on interventionism). Addressing oneself to interventionist work
makes it possible to become familiar with an organization-originating call for PM
dynamism and the organization’s willingness to develop its performance indicators
toward a more dynamic PMS.
The contribution of this article lies in the development of a more thorough
understanding of how and at what levels managers need dynamism in PMSs. This
article also contributes to the literature by highlighting the fact that a more rigid
PMS can be accompanied by performance measures that have a more temporary ad
hoc character. In the subsequent sections of the paper, the structure is as follows.
First, the existing literature on PM dynamism, its rationale, elements and potential

123
38 T. Korhonen et al.

links to NIS theory and the larger context of management control is reviewed.
Second, the events of the case are presented, and the findings are described. Finally,
PM dynamism is discussed in relation to the extant literature and case study
findings, followed by concluding remarks. The literature review, case study findings
and discussion follow the order introduced in the research questions: first, the
rationale for PM dynamism is covered, then the elements of PM dynamism and
finally the interpretations made in light of NIS theory.

2 Literature review

2.1 Rationale for PM dynamism

To outline the research on PM dynamism, we acknowledge the general theoretical

understanding that measures should depend on the strategy used (Chapman 1997;
Kaplan and Norton 1992; Neely et al. 1995) and that the strategy used can and will
change as the surrounding environment changes (Mintzberg 1978; Neely et al.
1995). That is, the dependence of measures on an ever-changing strategy leaves
little room for error in selecting the most suitable PM methods to steer organizations
and monitor strategy implementation. Such a ‘‘contingency fit’’ of any kind of
control system is discussed widely, for example, by Chapman (1997) and Chenhall
(2003). However, the interplay between strategy processes and management control
(Chenhall and Euske 2007; Miles et al. 1978; Mintzberg 1978; Skærbæk and
Tryggestad 2010) deserves more attention in order to build an understanding of the
evolution and changes that take place in PMSs. To reach that understanding, we
address ourselves to a number of circumstances that put pressure on existing PM.
The circumstances discussed in this section are as follows:
1. the changes in the content of the corporate strategy
2. the changes in the common interpretations of the strategy
3. the changes in the organization (thus yielding changes in roles and
responsibilities)
4. the failure of the PMS (for some other reasons) to reflect the relevant aspects of
a particular business context.
To begin with the strategic management research and contingency research on
MCS, there is a lag between strategy formulation and implementation, stemming
from the inertia that slows down organizational change (see e.g., Gresov et al. 1993;
Williamson 1986, p. 111). This lag has been underemphasized in the design and,
more importantly, continuous development of PMSs (Nørreklit et al. 2008, p. 66).
The lag seems to have partly caused PMSs to lose their relevance as steering tools
for operative and strategic management, particularly when external and internal
changes occur (Bianchi and Montemaggiore 2008, p. 180; Hudson et al. 2001,
p. 1102; Kennerley and Neely 2002, pp. 1224–1225, 2003). Measurement practices
must be modified periodically to make them match the contemporary characteristics
of the environment and allow organizations to react to and prepare themselves for
change, thus improving organizational performance (Ferreira and Otley 2009; Henri

123
Understanding performance measurement dynamism 39

2010; Kaplan and Norton 1993, p. 144; Kennerley and Neely 2003; Wisner and
Fawcett 1991). In such cases, control systems, PMSs included, should provide
useful and relevant information for actual management purposes (e.g., Hopwood
1972; Paranko 1995). Indeed, PMSs should not act as backward-looking or passive
systems (Burns and Vaivio 2001; Laine 2009, p. 70; Lukka 1998).
The changes that cause PM to become outdated come from external and internal
sources and can be either predictable or unpredictable (e.g., Halachmi 2005, p. 502;
Kennerley and Neely 2002, p. 1227). A change that makes a single measure
irrelevant or highlights the need for a new measure can be anything from a
realignment of strategy to a natural disaster or an epidemic (Korhonen 2010, p. 38).
A PMS may have to change due to internal and external factors, such as customers,
the marketplace, legislation, future uncertainty, actual performance, the nature of
work and dysfunctional behavior (Kennerley and Neely 2002, p. 1227). However,
practice has fallen behind theory and resulted in static PMSs (Bititci et al. 2000,
p. 694). This problem of static measurement has arisen even though there is a
general understanding that PM could subdivide a larger strategy into more
handleable and implementable portions (see e.g., Hindle 2008, p. 12). However,
these portions must reflect the contemporary strategy—not an outdated one.
Moreover, once strategic realignments become a necessity, these portions change,
triggering a PMS to change as well.
Second, quite importantly, despite the relative static strategy formulation at the
surface level, the actual interpretation of the strategy perceived by individual
people, the common ‘‘theory of business’’ (Fried 2010), may evolve over time
within an organization. Moreover, different decision makers have their own
interpretations of the surrounding environment and the company’s strategy in
relation to it (Porter 1985). This process can be, for instance, the process suggested
by Bourne et al. (2000). This process consists of the more detailed elements of PM
dynamism and controls the domains in which dynamism can occur, although there
are different kinds of processes and types of use. In a similar vein, in a recent action-
research-based study in the software development industry, Fried (2010) highlights
the context-specific use aspects of the utilization of a PMS. As suggested by Fried
(2010, pp. 120, 130), depending on the common ‘‘theory of business’’ within the
organization and the actual conceptualization of the PMS, different modes of
learning can be enabled that may help the enactment of a strategy within an
organization.
Third, focusing on the actual roles and responsibilities of relevant, internal
stakeholders, a PMS should respond to the pressures emerging from the changes
within an organization. In general, as the division of tasks within organizations
changes, the information needs set for the PMS change as well. On a general level,
the internal organizational change as a trigger for PM dynamism has been widely
recognized in the literature concerning PM dynamism (e.g., Bititci et al. 2000;
Ferreira and Otley 2009; Henri 2010). As a remarkable empirical example of such
dependence of PM dynamism on organizational change (Henri 2010), Simons
(1994) has studied the use of control systems among top managers in order to
enhance the strategic renewal of their companies. Recently recruited top managers,
especially those with a background outside the company at hand, must learn from

123
40 T. Korhonen et al.

the new business environment and the new responsibilities within it in order to
create more successful strategy execution (cf. Simons 1994). For a PMS, this larger,
organization-wide renewal would highlight the necessity of responding to the
personal information needs of the managers in their new positions.
Finally, numerous other reasons for the failure of a PMS to reflect relevant
aspects of business could exist. There can be shortcomings in strategy processes
within companies or in strategy communication and enactment processes. There can
also be shortcomings in the processes through which the PMS actually supports a
company’s strategy. However, if a PMS was already granted a supportive role in the
strategy formulation phase, then the system could more easily be designed to
support strategy execution as well. Recently, Skærbæk and Tryggestad (2010)
promoted the idea that a very important task of a control system is to take part in
strategy formulation, not only to assess strategy execution. Skærbæk and Tryggestad
(2010) even created a proposal that the distinction between strategy formulation and
implementation should or could be abandoned by the active contributions of the
accountants and their accountings. Once again, in such case as well, a PMS should
be able to produce continuously relevant information from the business environ-
ment, in light of the constantly evolving business strategy and the strategy process.

2.2 The levels and elements of PM dynamism

To date, one of the most profound conclusions on dynamic PMSs is Bourne et al.’s
(2000) work, which considers PM dynamism to be a process of reviewing existing
measures and developing them to match a strategy. The authors separate the uses of
dynamic measures into two groups: the assessment of strategy implementation and,
as mentioned earlier, the questioning of strategic assumptions. This is in line with
Fried’s (2010) notion of continuously evolving the ‘‘theory of business’’ as the
common perception of the business environment within the company. Essentially,
Bourne et al. (2000) suggest that single measures must be updated, modified,
replaced, or deleted when needed to avoid the PMS conflicting with the strategy as
time passes. Single, irrelevant measures should be substituted with other, more
relevant measures. That is, there should be a change in the measurement scope or in
what is being measured. Thus, the PM scope must be aligned with the strategy at
specific intervals (Henri 2010). However, what is even more meaningful than the
PM scope per se is that an organization must decide to what extent it will build
decision making upon measures. The role of measures or intuition (Khatri and Ng
2000) in decision making may vary over the course of time, as the locus of
management control changes according to different situations (Chapman 1997;
Chenhall 2003). Moreover, Malina and Selto (2004), as noted also by Henri (2010),
show that measurement attributes, such as informativeness and accuracy, change
and vary in importance according to single strategic decisions.
To conceptualize PM dynamism in more detail, the existing literature points out
that a change in measure targets (Bianchi and Montemaggiore 2008; Bourne et al.
2000; Ghalayini and Noble 1996) and in measure alarm limits (Bititci et al. 2000)
must trigger a PMS to change. Additionally, similar to any attributes of PM or the
structural elements of measures, single measures could vary in emphasis as strategic

123
Understanding performance measurement dynamism 41

realignments are performed. Bianchi and Montemaggiore (2008, p. 198) add that
decision makers can use measures in many ways. Namely, the authors present a case
in which measures were used in scenario building and testing. Bianchi and
Montemaggiore’s (2008) research complements the traditional use of measures as
tools that explain historical information. The use of measures should also question
the strategy and provide a critique of the strategic assumptions being made (Bourne
et al. 2000, p. 768; Wisner and Fawcett 1991, p. 9). Henri (2010) finally suggests
that the dynamism of PMSs can also be seen in a meta-level of measurement. Henri
(2010) sees PM dynamism in terms of the changing weights of importance attached
to measures, the frequency of reporting and the presentation format used for
measures.
Based on the literature review, extant studies seem scattered in the field of
research with sparsely connected, yet intersecting, elements of PM dynamism. A
more unified understanding of PM dynamism is hence needed. For further
elaboration of the notion of PM dynamism, we summarize the existing literature on
the different levels of PM dynamism (Table 1). To explicate the message of
Table 1: we mean that PM dynamism can be observed at different levels of PM and
that the notion of PM dynamism consists of the elements we have identified.
The elements of PM dynamism require systematic processes to be used
effectively (Bititci et al. 2000, p. 696; Bourne et al. 2000; Korhonen 2010). Indeed,
Kennerley and Neely (2002, 2003) state that, on one hand, new static PMSs have
replaced old static ones, meaning that dynamism has occurred merely during the
development of the new PMSs, through the creation of measures for a particular

Table 1 The levels and elements of PM dynamism in the extant literature

The level of The elements of PM dynamism Sources
dynamism

The role of PM in The dynamism of including measures in Derived from Chapman (1997), Chenhall
the control decision making (or not) and to what (2003), Khatri and Ng (2000)
package extent
The use of The dynamism of emphasizing Henri (2010), Malina and Selto (2004)
measures measures
The dynamism of measurement Henri (2010), Malina and Selto (2004)
attributes
The dynamism of measurement uses Bianchi and Montemaggiore (2008),
Bourne et al. (2000), Wisner and
Fawcett (1991)
The selection of The dynamism of the PM scope Derived from Bourne et al. (2000),
measures Wisner and Fawcett (1991)
The components The dynamism of measure alarm limits Bianchi and Montemaggiore (2008),
of single Bourne et al. (2000), Ghalayini and
measures Noble (1996)
The dynamism of measure targets Bianchi and Montemaggiore (2008),
Bourne et al. (2000), Ghalayini and
Noble (1996)

123
42 T. Korhonen et al.

purpose. The very same authors, on the other hand, criticize informally evolving
PMSs. Namely, Kennerley and Neely (2002, 2003) do not encourage the use of ad
hoc measures and classify them as barriers to PM dynamism, since ad-hocism is
hardly supported by predefined and well-structured measurement modification
processes. Ad-hocism is seen as the opposite of the systemized and well-managed
‘‘excellence’’ of PM (Kennerley and Neely 2003). Henri (2010) states, however, that
while targets are fine-tuned and new measures implemented according to the
strategy, outdated measures are not withdrawn. This inability to withdraw outdated
measure implies that ad-hocism still takes place (cf. Kennerley and Neely 2002,
2003). Some measures may have been implemented for a topical purpose, and that
purpose has later become irrelevant.
Interestingly, the aforementioned NIS theories of management accounting
change operate in the interface of formal and informal control systems. According
to Lukka (2007), for instance, the evolution of formal controls or measurements is
not needed if an ad hoc type of informal control takes place and accompanies the
formal metrics. Such informal ad hoc control is a form of valuable PM dynamism.
Theoretical NIS viewpoints are further elaborated on in the next section.

2.3 The institutional domains and processes of PM dynamism

In sum, several drivers seem to exist in evolving business environments, which

represent the rationale for PM dynamism. Moreover, PM dynamism seems to be a
favorable and multi-level phenomenon to match the evolving needs for a PMS to a
specific business context. However, the domains and actual processes of PM
dynamism deserve further attention. As the NIS theory (Burns and Scapens 2000)
has revealed, formal and informal domains of control are found in any management
control system (MCS). Lukka (2007) has built upon this literature and refined it by
arguing that the existing and tightly defined formal control rules may represent the
stability of management control. According to Lukka (2007), the forthcoming
development of control can take place in the domain of informal routines. Lukka’s
(2007) contribution suggests that new and yet-to-be-institutionalized control
mechanisms can either be in the vanguard of developing control as a whole or
they can protect the existing MCS against pressure to change.
In addition to unveiling the existence and interplay between the formal and
informal domains of management control, the NIS theory can aid in identifying and
refining the elements of PM dynamism. As conveyed by Dambrin et al. (2007,
p. 178), in the process of institutionalization, management control change goes
through:
1. changes in the institutional logic of the business (strategic decision making)
2. the new discourses (e.g., the selection and use of the measures)
3. the new techniques (the techniques of a PMS in general and at different levels)
4. the internalization (the actual interpretations from the strategic level to the level
of a single measure).
Only through the completion of the process of institutionalization (Dambrin et al.
2007) can PM dynamism be adopted as part of the formal control domain.

123
Understanding performance measurement dynamism 43

Internal and external pressures

2.3 Management Control

2.1 The rationale for PM dynamism:
Generally the failure of the PMS to
reflect relevant business
Changes in corporate strategy
2.2 Performance measurement System (MCS)
system: Levels of PM dynamism
Formal control rules
The role of PM in the control package

Changes in the common The use of measures

interpretations of strategy Institutionalization
of control
mechanisms
Changes in the organization and its The selection of measures
operational development

Top-management
The components of single measures
Business-unit management Informal control routines

Operational management

Fig. 1 The framework of PM dynamism, its rationale, levels and links with the MCS

Otherwise, individual measures will remain temporary. These ad hoc measures can
be useful for limited purposes. Beckert (1999) tried to rationalize such a process of
institutionalization and observed that strategic opportunities drive institutional
change, which means that the existing institutions must be destroyed and new ones
introduced and established. The institutionalization process guarantees that at least
the most relevant part of the actual needs for PM dynamism turn into action.
Including institutional theory in the context of PM dynamism is also relevant to the
work done, for instance, by Waggoner et al. (1999), who captured Lewin’s (1951)
‘‘unfreezing,’’ ‘‘moving’’ and ‘‘refreezing’’ as tools for understanding organizational
change, thus supporting the idea of contribution potential promoted in this paper. To
sum up our literature review, Fig. 1 conveys a framework that integrates the
rationale for PM dynamism, the levels of PM dynamism and NIS theory.
Figure 1 serves as a guide for understanding how our case study illustrates the
rationale for PM dynamism, the elements of PM dynamism and the links between
PM dynamism and NIS. The rationale dictates the type of PM dynamism needed.
The wider concept of management control offers tools for understanding how PM
dynamism takes place in practice. In the following section, our case study of
Healthcare Inc., further illustrates the concepts found in the framework.

3 Empirical evidence regarding performance measurement dynamism

3.1 The rationale for performance measurement dynamism in the case

environment

The case environment of this research is a private healthcare organization, referred

to by the pseudonym ‘‘Healthcare Inc.’’ and located in Finland in Northern Europe.

123
44 T. Korhonen et al.

Public healthcare is highly sophisticated and vastly used in Finland and, at the same
time, increasingly stressed as the age structure of the population tends toward more
and more citizens on old-age pensions (Hjerppe 2006, p. 18; Parkkinen 2002). In
addition, the costs of nursing services are expected to increase rapidly (Parkkinen
2002, pp. 40–41), which motivates municipalities to consider outsourcing public
services.
At the time of the study (2009–2010), Healthcare Inc., provided geriatric
healthcare in retirement homes and under customers’ roofs. These services included
housing services, home help services and daily activities for the elderly. The
highest-ranking officer was the CEO, who was responsible for the business in total,
marketing and external relations. She was accountable to the board. In the top
management, an office manager, whose main responsibility was the financial
administration of the organization, accompanied the CEO. Below the top
management were two business unit leaders responsible for two retirement homes.
At the operational management level, there were a service manager, a social welfare
supervisor and a senior nurse. The service manager was responsible for taking
orders from clients and organizing the practical nursing outside the retirement
homes. The social welfare supervisor’s main task was to help older customers apply
for social benefits. Nearest to the shop floor, the senior nurse had the deepest
expertise in medical issues in the organization.
In total, Healthcare Inc., was a lean organization with few managers.
Management control seemed to take place formally through periodic reports from
the bottom up. The interventionist researcher who worked with the CEO noticed
that the CEO placed much emphasis on the ways in which she reported to the board.
She seemed to worry about the way in which to convey the message that a strategy
implementation had begun or a goal had been reached.
Indeed, in the fall of 2008, Healthcare Inc., aimed at strong organic growth
through market penetration in the private customer market. This strategic
realignment was performed because, although the large sales volumes were in
housing services, the attractive growth potential was in home help services. Before
2008, the organization had operated almost solely through long-term contracts with
municipalities. To be exact, Healthcare Inc., had mostly operated with one major
municipality. Through the strategic realignment, the organization hoped to reduce
the risks and dependence associated with serving mainly one major client.
Therefore, the organization was devoted to building a more diverse customer base,
which required much effort from the compact organization. The newly formulated
strategy worked well, because the company began receiving orders from potential
home help service clients in 2009.
However, other challenges arose when the growth target was reached, which
happened unexpectedly quickly. Namely, the rapid growth made it more difficult for
management to monitor and control, for example, resource utilization, human
resource management (HRM) issues and capacity planning. It was also difficult to
observe the actual performance via the chosen strategic course. That is, while
strategic decision-making had somewhat succeeded, though with minimal linkage to
PM, basic supervision tasks became more difficult. At the same time, management
intuition became a less and less sufficient justification for decisions. Explicitly,

123
Understanding performance measurement dynamism 45

more relevant performance measures were needed for decision making. In addition
to the operational changes, Healthcare Inc.’s customer base diversification initiative
manifested itself in the discussion between the CEO and the board. The CEO felt
compelled to report the way in which the diversification and growth strategy had
been implemented in each step. The CEO had to report target accomplishments, or
the lack of these accomplishments, after which new targets were set.
Particularly, new measures gained more emphasis when PM was substituted for
management intuition. This viewpoint illustrates PM dynamism on the level of the
role of measures in the control package as well as on the level of the selection of
measures (see Table 1). The operational and reporting problems represented the
need for PM dynamism to be connected to change in the corporate strategy (see
Fig. 1). The irrelevance of existing measures emerged as old objectives lagged
behind new targets. Therefore, the old measures would be misleading. A PMS had
to be constructed that would change or evolve as the measurement environment
changed. The CEO stated that the forthcoming PMS should be dynamic. She saw
that possible periodic strategic shifts would make static performance measures
irrelevant. She commented on PM dynamism as follows:
We need a PMS that is as utilizable in the future as it is at the moment of
system implementation. –CEO, Healthcare Inc.
The PMS had to become continuously relevant, meaning that replacing the old
measures with new ones would not be enough. The new measures should be
dynamic in order to meet the requirements of the ever-changing environment in the
future as well. Having a more long-term point of view, the CEO needed a dynamic
PMS not only for the intensive growth phase but also for the business that would
take place after the growth. The new PMS would not be automatically ‘‘better’’ than
the old one; the new PMS would be more suitable to the characteristics of a new
setting. Therefore, the CEO decided that the existing PM platform in Healthcare
Inc., the universally multi-usable and inexpensive spreadsheets, would also be used
in the future. Indeed, the information system had to support PM dynamism. Since an
easy-to-use information system was now selected, new spreadsheet-form tools
should be available daily if needed.
To sum up, the rationale behind PM dynamism in Healthcare Inc., was to support
the strategic realignment and the daily operations. The CEO of the firm worried
about the way in which to communicate strategy implementation and performance
monitoring, to the board and to employees. For this communication, the old PMS
had to evolve, representing a practical need for PM dynamism. However, to
understand what PM dynamism consisted of, particularly in Healthcare Inc., the
researcher had to divide it into more handleable elements, and align empirical
findings with the theoretical work done while reviewing the literature (i.e., with
Table 1; Fig. 1). The findings are presented in the following sub-section.

3.2 Case illustrations of the elements of PM dynamism in practice

The in-detail practice of PM dynamism in Healthcare Inc., is used here to illustrate

the elements that PM dynamism consists of and at which levels of PM dynamism

123
46 T. Korhonen et al.

these elements emerge. To begin building a new PMS, the researcher needed to
decide which kinds of measures should be included. This illustrated PM dynamism
in the form of the selection of measures. For this purpose, the researcher informally
interviewed the CEO a dozen times. This way the researcher gained an
understanding of the environment, the ongoing measurement practices and the
change processes that took place in this context, especially the strategic shift toward
the private customer market. Because Healthcare Inc., was such a small company,
the researcher could describe company-wide measurement practices as they truly
were. In a larger company, incorporating all the forms of measurement into one
study on as a detailed level as here would be impossible. This is because a large
company might use hundreds of measures. Instead, in Healthcare Inc., the
researcher could easily list all the measures in use.
The researcher discovered that the existing PMS of Healthcare Inc., was
comprised of very inconsistent measures that had accumulated over the course of
time. These measures represented the former static PM core. The largest problem in
the existing PMS was that the system did not contribute to validating the
accomplishment of new strategic targets. This problem was critical, because
validating strategic targets is a fundamental task for PM, according to the literature
(see e.g., Kaplan and Norton 1992).The PM’s inadequacy in reflecting strategy was
thought to break down PM dynamism into its elements. The use of strategic targets
illustrates how the corporate-strategy-originating rationale is reflected in PM
dynamism, particularly in the components of single measures (see Fig. 1). Over the
course of time, the fact that PM did not reflect the strategy could have impeded
reporting to the board and ultimately even the strategy implementation itself. This
development might have had drastic consequences for the organization’s financial
results.
In addition, the CEO noticed that PM dynamism would enable her to build and
test scenarios. These kinds of new uses illustrate the use of measures level of PM
dynamism. This scenario work would reflect target values to scenarios and therefore
test whether or not she should fine-tune these targets. The CEO could now take
advantage of PM dynamism, because she could review the set targets against the
business plan defined earlier. In practice, the CEO developed a new type of use for
the spreadsheet-form measures. By inputting the short- and long-term target values
into the PMS one after the other, she could tell if the targets or realized values of a
given time were on the trajectory set by the broader strategy. If not, from the
researcher’s viewpoint, realigning target setting to fit its purpose of implementing
strategy would be possible.
Finally, the CEO’s perspective of the scope of the PM was that sometimes there
should be an analysis of the cost structure, and thus the profitability of the offered
service products. However, the allocation of the staff expenses, which accounted for
most of the costs, had a significant impact on service-specific profitability.
Therefore, this measurement was not enough, based on a static measure indicating
just one consolidated figure. Nor could the service offering of 1 year be the basis for
PM in the future, because the offering changes as different customer segments
expand. The result was that a more specific activity-based cost allocation method

123
Understanding performance measurement dynamism 47

was introduced. The CEO saw that, every year, the profitability of each service
product should be studied according to the characteristics connected to that time.
The CEO’s need for topicality in cost management meant that ad hoc measures
should be accepted (in contrast to Kennerley and Neely 2002, 2003) to match the
time-based characteristics of the context every year. Ad hoc measures were also
needed from the viewpoint of middle management. The middle managers seemed to
call for ad hoc HRM measures that could be used to conduct a working environment
analysis. The characteristics of a new time and space would require a new measure
if a problem with a negative atmosphere was noticed. The ad hoc measure was
meant to explain why the atmosphere had changed, if such a change took place.
These ad hoc measures would not require formal institutionalizing procedures as
measures taken as a core PMS do. We will come back to the reflections of PM
dynamism in NIS theory in the following section. Table 2 presents the reasons
Healthcare Inc., needed PM dynamism.
First, new performance measures were needed to keep up with the strategic
renewal. Second, an information platform, namely spreadsheets, was selected to
implement PM dynamism in Healthcare Inc. Third, the informational needs of
relevant stakeholders were organized. Fourth, PM dynamism seemed to exist at
multiple levels in practice. Some stakeholders needed dynamism in the ways PM is
used, others in the scope of PM. What was similar about different managers’ views
was that ad hoc measures were needed at all organizational levels. This point has
implications regarding whether some measures should be institutionalized or not.
This adds to the understanding of ad hoc measures as a useful part of even a static
measurement portfolio. Ad hoc measures represent a form of PM dynamism that is
purposeful, not harmful, to PM. A final question has yet to be answered: how was

Table 2 Reasons Healthcare Inc., needed PM dynamism

Organizational Position Measurement Dynamism needs for PM by the levels of PM
level focus areas dynamism synthesized in the literature review

Top CEO Financial, The use of measures: scenario building, reporting

management marketing The selection of measures: dynamic PM scope (ad
hoc measures in cost management)
The components of single measures: dynamic target
setting
Office Financial N/A
manager
Business unit Business unit Financial, N/A
management leader 1 quality
Business unit Quality, HRM The selection of measures: dynamic PM scope (ad
leader 2 hoc measures in HRM, i.e., employee satisfaction)
Operational Service Quality, HRM N/A
management manager
Social Quality, HRM The selection of measures: dynamic PM scope (ad
welfare hoc measures in HRM, i.e., employee satisfaction)
supervisor
Senior nurse HRM N/A

123
48 T. Korhonen et al.

the institutionalization of new measures and the deinstitutionalizing of old ones

handled? We attempt to illustrate this in the following section.

3.3 The reflections of the practice of PM dynamism in NIS

The fact that measures can be changed is worth elaborating on. This is how NIS
theory can be used. Periodic modifications to Healthcare Inc.’s PMS could take
place along with changes in the formal rules and informal routines, as in NIS, and in
the formal and informal domains of control (Burns and Scapens 2000; Lukka 2007).
In Healthcare Inc., the selected spreadsheet-form measures enabled anyone to
input data into tables located on a group server, monitor results and make
conclusions according to his or her own needs. Routines for using measures were
hence dependent on each manager’s own perceptions of using the PMS. Measures
could also be very easily modified, because everyone could use the spreadsheets on
the server. Easy modifications also meant that formal rules were easily changed.
Most importantly, anyone could create new measures when needed, without the
programming skills required if more sophisticated information systems were used.
The formal domain of control seemed to feed input into Healthcare Inc.’s PMS, as
old measures were inconsistent and divergent from the newly aligned strategy. The
creation of new measures meant that the rules of measurement changed in
Healthcare Inc. The company needed to create stability (Beckert 1999, p. 788) by
introducing new measures. Indeed, a static PMS core was needed, and this core
required the institutionalization of measures. Thus, PM dynamism in the form of the
selection of measures took place largely in the formal domain of management
control. The change in the rule system, however, naturally had indirect effects on
the measurement routines and in the informal control domain. New measures could
be used in new ways, such as in scenario building. In this way, the formal
measurement rules form the basis of PM dynamism, and the practices or routines
took advantage of that dynamism.
Just as new measures were easily created, irrelevant spreadsheet measures could
simply be deleted from the server or deinstitutionalized from the PMS. This easy
deletion of measures from an information system made it simpler for the
organization to make a clean sweep of the burden of the past. The only thing
needed to stop using a measure was to decide not to use it anymore. Similar to
Beckert’s (1999) terminology of institutionalization, the old PM institutions must be
destroyed to make room for new PM rules.
However, the most interesting thing about the institutionalizing of measures in
Healthcare Inc., is the notion of ad-hocism. New measures could be used in such a
way that a formal process of institutionalization was not needed. New measures
could also complement the existing PM scope only on an ad hoc basis. Therefore,
the static PM core would be supplemented with temporary measures. The CEO of
Healthcare Inc., could, for instance, set up a survey to measure a relevant issue for
Healthcare Inc.’s workers or customers. This, of course, was something that any
manager can do: an institutionalizing process of a management accounting tool is
not always needed.

123
Understanding performance measurement dynamism 49

Actually, there might not be any need to standardize management accounting

rules within an organization, because decontextualized procedures might not work
universally (Lukka 2007, p. 81). In Healthcare Inc., ad hoc measures were planned
to complement the more static core of PM (the institutionalized measures) by
enabling managers to gather information regarding highly topical issues. These ad
hoc measurements would otherwise be considered some sort of analyses or reports
regarding a specific issue, but now they were made an integral part of the PMS.
Such incorporation of the PMS and ad hoc measures would probably cause ad hoc
measurement to gain credibility in the future. Engaging managers’ attention could
potentially enable ad hoc measures to highlight matters that would otherwise be left
unmeasured and, respectively, without a proper response. In this way, the ad hoc
measure of some issue could be considered a complement to the otherwise
inadequate control system. This is further discussed in the following discussion
section.

4 Discussion

4.1 Synthesis of the findings

The paper elaborates on the notion of PM dynamism by discussing its rationale

within management control, by outlining the key elements of the notion at different
levels and discussing the relationship between PM dynamism and the formal and
informal domains of management control. First, the failure of the PMS to reflect
relevant business aspects is a key rationale for PM dynamism as discussed in this
paper. The rationale can be connected to the changes in the business environment,
the related corporate strategy and smaller scale organizational aspects. In the case
study, for instance, new performance measures were needed in order to keep up with
strategic renewal at different levels. Indeed, PM dynamism seemed to exist at
multiple levels in practice.
Second, based on the literature, PM dynamism exists on at least four different
levels: (a) the dynamic role of PM in the control package, which is dictated by the
extent to which an organization needs to base (or actually bases) decision making
upon measures; (b) the dynamism of PM use in the dynamics that occurred (e.g., in
the form of measure emphases, interpretations and applications); (c) the dynamism
of measure selection, which changes the PM scope (i.e., what is being measured);
and (d) the dynamism of the components of single measures, which are the micro-
level changes that occur in PMSs, changing targets and, for example, alarm limits.
In this paper, such a level structure was grounded in empirical evidence and,
therefore, preliminarily validated. The case study environment was characterized by
a need for a dynamic PMS, as called for by the CEO of the case organization,
Healthcare Inc. The levels of dynamism were noticed once the dynamic PMS was
created during the study (Table 1).
Third, the discussion is extended to the NIS theory of management accounting
change (Burns and Scapens 2000; Lukka 2007; Waggoner et al. 1999). In addition
to unveiling the existence of and the interplay between the formal and informal

123
50 T. Korhonen et al.

domains of management control, the NIS theory can aid in identifying and refining
the elements of PM dynamism. The process of institutionalization (see e.g.,
Dambrin et al. 2007) can be used here to analyze the maturity of the PMS and to
identify the possibility of improving the PMS by employing PM dynamism in a
suitable form. In this context, the ad hoc measurement is interpreted positively, as a
natural part of the institutionalization of the new measures and the PMS as a whole.
In the following subsections, the fundamental elements of PM dynamism and the
institutionalization of the measures are further elaborated on to clarify the paper’s
contribution.

4.2 From the rationale for PM dynamism to its fundamental elements

In this paper, PM dynamism was divided into its conceptual elements. This work
was begun by Bourne et al. (2000), but it is still incomplete because a structural
approach to PM dynamism is absent. Here, we try to elaborate on the understanding
of PM dynamism. PM dynamism is not only the changing scope of measurement or
the process through which this scope is defined, as can easily be seen from some
parts of the extant literature (e.g., Wisner and Fawcett 1991). PM dynamism also
comprises the dynamic use of measurement (Bianchi and Montemaggiore 2008;
Bourne et al. 2000; Wisner and Fawcett 1991), but with an addition that upper and
micro-level tasks can also be seen as parts of PM dynamism. In the case study, the
lack of dynamism and the too-narrow scope of the existing PMS motivated the CEO
of Healthcare Inc., to develop a more applicable and eventually more change-
enabling PMS, with the help of an interventionist case study researcher. The former
measures were, for instance, incapable of showing whether the chosen strategy
directions were implemented successfully or not. Such an interplay of evaluating the
appropriateness of performance measures and redefining the firm’s mission would
be elemental in Wisner and Fawcett’s (1991) view on PM dynamism, as well as that
of Bourne et al. (2000). Although somewhat relevant information was measured in
Healthcare Inc., that information was not sufficient to cover all facets of the current
business. Some very central parts of the strategy, such as the leap toward the private
customer market, were not measured at all. This insufficiency refers to the
inadequacy of the existing scope of the measures and the fact that it was not self-
evident in what way strategic decision making and measures were interlinked.
Theoretically reflecting, the mentioned inadequacy of the scope reflects inadequate
comprehension of PM dynamism at the level of the selection of measures. With
regard to a more general understanding of business, the disalignment of measures
and strategy reflects inadequate PM dynamism on the level of the role of PM in the
control package. However, one may ask if a fixed optimal level of the alignment of
measures and strategy can ever be defined, without becoming quite the opposite of
thinking in an enabling manner about PM dynamism and its flexible character.
On the level of the components of single measures, measure targets (e.g.,
Ghalayini and Noble 1996) or their flagging (Bianchi and Montemaggiore 2008)
could not be modified other than by implicitly acting differently if some measures
indicated poor performance. The researcher created, with the CEO’s help, a
dynamic PMS that allowed the modification of targets, the redesign of the PM scope

123
Understanding performance measurement dynamism 51

and the built-in multi-usability of PM, namely, the scenario-building functionalities.

In the CEO’s opinion, dynamism was simply making the PMS match a new
situation when a change in the measurement environment had taken place. In
practice, the people in the organization could, if properly trained, create new
feasible spreadsheet measures by themselves whenever needed. However, the
theorization of such simple, practical perception of PM dynamism, although very
coherent with the literature on contingency theory (e.g., Chapman 1997; Chenhall
2003), was not approved by the authors in such a simple form. We felt compelled to
scrutinize the notion more thoroughly and extend PM dynamism to cover the larger
and smaller-scale notions around evolving measurement.
On the levels we have described, PM dynamism can tangibly fulfill the need for
more relevant measures expressed in the extant literature (Bianchi and Monte-
maggiore 2008; Bititci et al. 2000; Bourne et al. 2000; Henri 2009; 2010; Kaplan
and Norton 1993; Kennerley and Neely 2002, 2003; Waggoner et al. 1999; Wisner
and Fawcett 1991). In particular, a new, perhaps more dynamic, use of even those
extant measures might answer this call. Indeed, as the literature suggests, and the
case illustrates, the use of measures varies among people (Simons 1994), in time
(Bianchi and Montemaggiore 2008; Henri 2010), and in relation to the environment
(Bourne et al. 2000; Kennerley and Neely 2002) and strategy as well (Fried 2010).
Moreover, through the use of scenarios PM dynamism can be an integral in
formulating that strategy (cf. Bourne et al. 2000; Skærbæk and Tryggestad 2010;
Wisner and Fawcett 1991). It is up to decision makers to identify their own uses for
their PMS in a manner that supports the scheme of decisions, which can be
obstructed when no usable data is available. When this need cannot be fulfilled by
changing the way in which the measures are used or perceived in decision making,
new measures can be implemented. To complement the existing literature on PM
dynamism, we claim that in this situation, measures are either institutionalized to
supplement the existing measurement portfolio or used ad hoc to prevent the
unnecessary accumulation of measures. We highlight this aspect, since the
accumulation of obsolete measures could make everyday work more difficult by
potentially making managers’ focus inconsistent.
However, PM dynamism can also be harmful on some occasions, which has been
brought up at least by Henri (2010). First, a highly dynamic approach can confuse
managers (Henri 2010), especially if they are unsure of to what extent they can or
should use measures in decision making (cf. Khatri and Ng 2000). Second, the use
of a PMS can become more complex because of challenges in determining which
problems can actually be tackled at all and—if so—by which elements of PM
dynamism (see Table 1). The discussion on PM dynamism could make these
decisions less ambiguous. We contribute to that discussion by giving a structure for
the levels and elements of PM dynamism that can then be used to guide decisions in
PMS review situations. Third, if the abovementioned ad hoc measures are not used,
new measures are periodically introduced but some of the existing measures are not
deleted (Bourne et al. 2000; Henri 2010), organizations may have far too many
measures and measures that have lost their significance. However, then again, the
excessive deletion of measures and the insufficient introduction of new ones will
also lead to a disintegration of PM and practices. Somewhat opposed to the idea of

123
52 T. Korhonen et al.

PMS dynamism, a more static PMS could give a longitudinal view of the
development of certain measures and make managers accountable for the
developments toward strategy implementation (cf. Bourne et al. 2000; Chapman
1997; Kaplan and Norton 1992; Neely et al. 1995).
Finally, if the components of a single measure are altered too often, targets
become pointless. Therefore, some stability is needed, although PM dynamism
seems a favorable method to make the pressures for change inherent in the world of
PM more handleable. The aforementioned issues point out the need for a processual
aspect to PM dynamism, together with commonly approved rules for using such a
notion.

4.3 The origin and use of PM dynamism and the institutionalization of measures

To facilitate decision making, managers need to be conscious of the current state of

their organizations as well as their possible development routes. In these situations,
it is easy to face a tradeoff between using measures depicting the longitudinal
development of set goals of a strategy and tools concretizing the timely or acute
aspects of daily operations. In such situations, it is inevitable that an applicable
measurement portfolio will fulfill both needs. This kind of portfolio could include
static, already institutionalized measures as well as dynamic, even ad hoc, ones that
do not require the institutionalization processes introduced, for example, by Bourne
et al. (2000) and Beckert (1999), which together formulate one part of the control
package of an organization (Ferreira and Otley 2009). Indeed, the institutionali-
zation of performance measures seems to explain the observed PM dynamism at
multiple levels.
First, the level of ‘‘the role of PM in control package’’ seems to involve
dynamism in the institutionalization of new theories of business (Fried 2010) or
logics of business (Dambrin et al. 2007). What this means is that through using
theory and the case of Healthcare Inc., the institutionalization of new or the
destruction of old strategic objectives (Beckert 1999) and the linking of these to the
practice of PM (e.g., Ghalayini and Noble 1996) are manifestations of dynamically
embedding measurement in decision making. The CEO of the Healthcare Inc., for
instance, had started a strategic realignment toward the private customer
market already before the case study started. However, as was pointed out by the
case, that strategic realignment was not a result of evaluating the appropriateness of
measures (cf. Bourne et al. 2000; Wisner and Fawcett 1991). Rather the growth
initiative was the trigger for change. A new strategy was to be implemented, but no
institutionalization process of measures against targets was brought up until the
CEO had realized that her PMS was inadequate to show how successfully the
strategy had been implemented. In a way, the CEO had detached her common logics
(Dambrin et al. 2007) and theories of business (Fried 2010) from the assemblage of
tools needed in the strategy implementation. In other words, the role of PM in the
control package had become too rigid—or perhaps it was stuck on being too
limited.
Second, regarding ‘‘the use of measures,’’ PM dynamism can be seen in the
institutionalization of measurement rules and ‘‘how-to uses.’’ PM dynamism also

123
Understanding performance measurement dynamism 53

appears in the informality of routines or practices. This facet has a reflection on the
formal side of measurement: some routines need tight coupling with rules, and
therefore, the routines need to be institutionalized or, as ad hoc measures, to be
systemized only to some extent. For example, setting tight rules regarding the
frequency of reporting (Henri 2010) can be seen as a form of change in the use of
the PMS. Regarding the scope of measures, more undecided routines may produce
more timely data with ad hoc measures, which would not be approved of by a
strictly formal PMS. A practical example could be an employee satisfaction
measurement that takes place every year after a predetermined period, but with a
scope suited yearly to the situation at hand. In line with Lukka (2007), Burns and
Scapens (2000), and Dambrin et al. (2007), the dynamism of measurement uses or
the institutionalization of new rules regarding how to measure performance would
be central notions in developing management control. However, the dynamic use of
measures can, as Lukka (2007) points out, protect the existing measurement system
from pressures to change. This change agent role of the informal domain of control
was seen in our empiric findings, as the CEO of Healthcare Inc., was able to use the
created measures (e.g., in reporting and building scenarios). As illustrated by our
case study, the use of the PMS may indeed vary. A scenario-building leader, such as
the CEO of Healthcare Inc., may need proactively usable measures, whereas a more
reactive leader may need measures more inclined toward monitoring purposes. Both
decision makers need modifiable PM to fill the gap between their information needs
and the shortages of the existing PMS.
Third, on the level of ‘‘the selection of measures,’’ institutional theory explains
that deleting measures (Bourne et al. 2000; Henri 2010) and destroying obsolete
institutions (Beckert 1999, p. 788) may create uncertainty. This is then fought with
the process of creating measures (Bourne et al. 2000), which is necessary to create
stability and embeddedness (Beckert 1999). The case illustrates not only that easy
destruction (or deletion) of measures was considered a huge factor in selecting the
measurement platform (i.e., the spreadsheets), but also that such platform
facilitating the institutionalizing of new measures is convenient for using and
maintaining a PMS.
Finally, on the level of the components of single measures, formal rules (Burns
and Scapens 2000; Lukka 2007) are needed to make measures consistent. The
problems faced in Healthcare Inc., in making the measure targets adhere to the
strategic objectives of the organization are simple examples of the need to consider
the component level of PM. However, when the notion of PM dynamism is
extended to such a profound level of measurement as the level of measure
components, institutional theory might interpret this practical angle of incident as
being too open. Measure targets and alarm limits, which are very formal, need not
be institutionalized in their numerical value, but in reflection of how the measures
are used and how the targets are reached.

4.4 The introduction and use of ad hoc measures

On occasions when there are no formal procedures to introduce new measures, but
there is still a need to cope with the pressures of change, organizations easily adopt

123
54 T. Korhonen et al.

informal ad hoc measures. The ad hoc measures, once introduced, can respond to
temporary information needs, but these measures can also be used in the long term.
If they are useful, the ad hoc measures may be institutionalized as a part of the
formal PMS. Essentially, the process, from the introduction of an ad hoc measure to
its abandonment or institutionalization, can also be considered a formal procedure
within PM dynamism. This is connected, in particular, with the introduction and use
of measures. Contrary to the existing literature, in which an ad hoc measurement
was judged merely as an incomplete measurement system (Kennerley and Neely
2003), we suggest that ad hoc measurement is a natural and reasonable phase of the
life-cycle of any measure. Indeed, the Healthcare Inc., case showed the positive side
of ad-hocism. Moreover, the emphasis on the ad hoc measurement in a particular
business context refers to a certain phase of the measurement system, but is not
necessarily a sign of a less applicable or beneficial PMS. This notion is based on the
ideology of the measurement portfolio and the ad hoc measures within, thus
highlighting the potential variety among the different measures within the PMS in
terms of the elements of PM dynamism.
The introduction and use of ad hoc measures may also remain at the level of
individual routines, thus fulfilling certain temporary information needs of the
managers, without any significant contribution to the formal PMS. Lukka (2007,
pp. 96–97) points out that there can be developments with such drastic
consequences that the informal domain of control is no longer adequate to protect
the formal domain from change pressures. That is, not all information needs are
continuous and remain relevant as time passes. Moreover, fulfilling those
information needs and the actual use of PMS can be personified, as in the case
organization of this study. Boards, together with the CEOs and executive teams, set
higher-level goals for strategy, and thus, based on the routines evolved, set the
targets for the measures used at the lower levels of operation. In other words, there
might be a need to supplement the formal control with temporary, yet-to-be-
institutionalized, measures. As Dambrin et al. (2007) described, adopting a
technique, like a measure, can remain a ceremony at the surface level, but the
institutional process is completed no earlier than the so-called internalization takes
place. In other words, change, as understood here, does not always result in the
development of the official control of an organization, but it more readily causes
development in the routines of individuals trying to keep up with changing
environments.
The process of learning from PM dynamism as a prerequisite for managing such
a phenomenon remains a theme worth discussing. Here, the interplay between the
formal and informal domains of control enables such a learning process. For
instance, acknowledging the role of the ad hoc measures in formal and informal
PMSs raises the question of learning how to incorporate ad hoc measures into the
measurement portfolio or the wider context of the control package. Building on the
division between single-loop and double-loop learning promoted by Argyris and
Schön (e.g., Argyris 1995), Fried (2010) divides the learning processes within a
PMS into single-loop learning, mainly for control purposes, and double-loop
learning, for change purposes enabled by the participatory development of the PMS,
as well as ‘‘deutero learning,’’ for establishing a culture of constant learning within

123
Understanding performance measurement dynamism 55

the organization and the PMS. In sum, besides the technical solution of constantly
fulfilling the information needs of the managers, the development and use of ad hoc
measurements and PM dynamism could enhance the awareness of timely business
aspects among all the internal stakeholders. Perhaps, double-loop learning and so-
called deutero learning could represent processes through which the organization
becomes aware of the potential sources of new measures and learns to monitor and
select the most promising measures for long-term use. In other words, deutero
learning could represent learning about the elements of PM dynamism, thus also
enabling the choice of the most applicable PMS in terms of PM dynamism.

5 Conclusion

The findings concerning PM dynamism synthesized from the extant literature and
realized in the case study environment were discussed above. It seems that the
existing literature on the subject is on the right path but fails to provide usable
managerial implications of the many facets of PM dynamism. Therefore, this study
presents the practice of PM dynamism, which is expected to help managers identify
the needs of their PMSs to change on the micro-level as well as in broader
directions. In particular, reviewing systematically the existing institutions and
constructing new ones based on the experience of ad hoc measurement remains a
topic for further elaboration. Importantly, such an unsystematic form of PM
dynamism as ad-hocism can be seen as a facilitator of the efforts of an organization
to manage target-oriented performance measurement. This reduces the risk of a
PMS losing relevance in the eyes of its users, as informal control is not omitted from
a measurement portfolio, but encouraged and considered to complement the existing
performance indicators. In brief, using and institutionalizing ad hoc measures
represent one relevant example of the interplay between the formal and informal
domains of control within the elements of PM dynamism.
As an answer to our research questions the contribution of this article is not
merely that the notion of PM dynamism and its rationale exist, but in building a
more thorough understanding of why and at what levels managers need dynamism
in PMSs. More than in a PMS itself, dynamism can be witnessed in the different
measures used. In other words, it can be seen in making dynamism a part of
everyday work, in the form of the accountability of various accounting objects. We
argue that PM dynamism should be dependent not only on internal and external
changes in the measurement environment but also on the uses and interpretations of
information provided by the dynamic PM. The uncertainty that then comes from
changing measures and their uses periodically is not an implication of antecedent
organizational dysfunctionality; rather, it is a sign of concern about verifying
strategy implementation at different levels of an organization.

Acknowledgments We wish to thank the case company for making the research efforts possible by
granting access to such a fruitful data set. We also wish to thank the guest editors of this special issue in
JMG, the two anonymous reviewers and Dr. Matti Sievänen at CMC. Our paper largely benefited from
their helpful comments. Finally, we wish to address our gratitude to the Academy of Finland, for partially
funding the conceptual analysis and theory development of this paper.

123
56 T. Korhonen et al.

References

Argyris, C. (1995). Action science and organizational learning. Journal of Managerial Psychology, 10(6),
20–26.
Beckert, J. (1999). Agency, entrepreneurs, and institutional change. The role of strategic choice and
institutionalized practices in organizations. Organization Studies, 20(5), 777–779.
Bianchi, C., & Montemaggiore, G. B. (2008). Enhancing strategy design and planning in public utilities
through ‘‘dynamic’’ balanced scorecards: Insights from a project in a city water company. System
Dynamics Review, 24(2), 175–213.
Bititci, U. S., Turner, T., & Begemann, C. (2000). Dynamics of performance measurement systems.
International Journal of Operations & Production Management, 20(6), 692–704.
Bourne, M., Mills, J., Wilcox, J., Neely, A., & Platts, K. (2000). Designing, implementing and updating
performance measurement systems. International Journal of Operations & Production Manage-
ment, 20(7), 754–771.
Burns, J., & Scapens, R. W. (2000). Conceptualizing management accounting change: An institutional
framework. Management Accounting Research, 11(1), 3–25.
Burns, J., & Vaivio, J. (2001). Management accounting change. Management Accounting Research,
12(4), 389–402.
Chapman, C. S. (1997). Reflections on a contingent view of accounting. Accounting, Organizations and
Society, 22(2), 189–205.
Chenhall, R. H. (2003). Management control systems design within its organizational context: Findings
from contingency-based research and directions for the future. Accounting, Organizations and
Society, 28(2–3), 127–168.
Chenhall, R. H., & Euske, K. J. (2007). The role of management control systems in planned
organizational change: An analysis of two organizations. Accounting, Organizations and Society,
32(7–8), 601–637.
Dambrin, C., Lambert, C., & Sponem, S. (2007). Control and change—Analysing the process of
institutionalisation. Management Accounting Research, 18(2), 172–208.
Ferreira, A., & Otley, D. (2009). The design and use of performance management systems: An extended
framework for analysis. Management Accounting Research, 20(4), 263–282.
Fried, A. (2010). Performance measurement systems and their relation to strategic learning: A case study
in a software-developing organization. Critical Perspectives on Accounting, 21(2), 118–133.
Ghalayini, A. A., & Noble, J. S. (1996). The changing basis of performance measurement. International
Journal of Operations & Production Management, 16(8), 63–80.
Gresov, C., Haveman, H. A., & Oliva, T. A. (1993). Organizational design, inertia and the dynamics of
competitive response. Organization Science, 4(2), 181–208.
Gummesson, E. (2000). Qualitative methods in management research (2nd ed.). Thousand Oaks, CA:
Sage.
Halachmi, A. (2005). Performance measurement is only one way of managing performance. International
Journal of Productivity and Performance Management, 54(7), 502–516.
Henri, J.-F. (2009). Taxonomy of performance measurement systems. In M. Epstein & J. Y. Lee (Eds.),
Advances in management accounting (Vol. 17, pp. 247–288). Bingley: Emerald Group.
Henri, J.-F. (2010). The periodic review of performance indicators: An empirical study of the dynamism
of performance measurement systems. European Accounting Review, 19(1), 73–96.
Hindle, T. (2008). Guide to management ideas and gurus. London: Profile Books.
Hjerppe, R. (2006). Suuret ikäluokat eläkkeellä—Palvelukysynnän nousukausi edessä? VATT. Tutkijo-
iden ja kansanedustajien seuran (TUTKAS) keskustelutilaisuus 14.2.2006: Kansantalouden
dynamiikka—Onko Suomen taloudessa vielä potkua? (In Finnish).
Hopwood, A. G. (1972). An empirical study of the role of accounting data in performance evaluation.
Journal of Accounting Research, 10, 156–182.
Hudson, M., Smart, A., & Bourne, M. (2001). Theory and practice in SME performance measurement
systems. International Journal of Operations & Productions Management, 21(8), 1096–1115.
Jönsson, S., & Lukka, K. (2006). There and back again. Doing interventionist research in management
accounting. In C. Chapman, A. Hopwood, & M. Shields (Eds.), Handbook of management
accounting research (Vol. 1, pp. 373–397). Oxford: Elsevier.
Kaplan, R., & Norton, D. (1992). The balanced scorecard—Measures that drive performance. Harvard
Business Review, 70(1), 71–79.

123
Understanding performance measurement dynamism 57

Kaplan, R. S., & Norton, D. P. (1993). Putting the balanced scorecard to work. Harvard Business Review,
71(5), 134–147.
Kennerley, M., & Neely, A. (2002). A framework of the factors affecting the evolution of performance
measurement systems. International Journal of Operations and Production Management, 22(11),
1222–1245.
Kennerley, M., & Neely, A. (2003). Measuring performance in a changing business environment.
International Journal of Operations & Production Management, 23(2), 213–229.
Khatri, N., & Ng, H. A. (2000). The role of intuition in strategic decision making. Human Relations,
53(1), 57–86.
Korhonen, T. (2010). Change dynamics of the performance measurement system in a healthcare group.
Master of Science thesis, Tampere University of Technology, Tampere, Finland (in Finnish).
Laine, T. (2009). Exploring pilot projects of a manufacturer on service R&D to understand service as an
accounting object. Doctoral dissertation, Tampere University of Technology, Tampere, Finland.
Lewin, K. (1951). Field theory in social science. New York: Harper & Row.
Lukka, K. (1998). Total accounting in action: Reflections on Sten Jönsson’s Accounting for Improvement.
Accounting, Organizations and Society, 23(3), 333–342.
Lukka, K. (2007). Management accounting change and stability: Loosely coupled rules and routines in
action. Management Accounting Research, 18(1), 76–101.
Malina, M. A., & Selto, F. H. (2004). Choice and change of measures in performance measurement
models. Management Accounting Research, 15(4), 441–469.
Miles, R. E., Snow, C. C., Meyer, A. D., & Coleman, H. J., Jr. (1978). Organizational strategy, structure
and process. The Academy of Management Review, 3(3), 546–562.
Mintzberg, H. (1978). Patterns in strategy formation. Management Science, 24(9), 934–948.
Neely, A., Gregory, M., & Platts, K. (1995). Performance measurement system design—A literature
review and research agenda. International Journal of Operations and Production Management,
15(4), 80–116.
Nørreklit, H., Jakobsen, M., & Mitchell, F. (2008). Pitfalls in using the balanced scorecard. Journal of
Corporate Accounting and Finance, 19(6), 65–68.
Paranko, J. (1995). Poistot laskentatoimessa. Konetekniikan osasto: teollisuustalous. Tampere University
of Technology, Tampere, Finland (in Finnish).
Parkkinen, P. (2002). Hoivapalvelut ja eläkemenot vuoteen 2050. Valtion taloudellinen tutkimuskeskus.
VATT-tutkimuksia 94. Helsinki, Finland. (In Finnish).
Porter, M. (1985). Competitive advantage: Creating and sustaining superior performance. New York:
Free Press.
Simons, R. (1994). How new top managers use control systems as levers of strategic renewal. Strategic
Management Journal, 15(3), 169–189.
Skærbæk, P., & Tryggestad, K. (2010). The role of accounting devices in performing corporate strategy.
Accounting, Organizations and Society, 35(1), 108–112.
Suomala, P., & Lyly-Yrjänäinen, J. (2010). Interventionist management accounting research: Lessons
learned. CIMA, Research Executive Summaries Series, (Vol. 6, No. 1, pp. 1–9).
Waggoner, D. B., Neely, A. D., & Kennerley, M. P. (1999). The forces that shape organisational
performance measurement systems: An interdisciplinary review. International Journal of Produc-
tion Economics, 60–61, 53–60.
Williamson, J. N. (Ed.). (1986). The leader manager. New York: Wiley.
Wisner, J. D., & Fawcett, S. E. (1991). Linking firm strategy to operating decisions through performance
measurement. Production and Inventory Management Journal, Third Quarter, 32(3), 5–11.
Yin, R. K. (2003). Case study research: Design and methods (3rd ed.). Thousand Oaks, CA: Sage.

Author Biographies

Tuomas Korhonen holds a M.Sc.(Tech.) in Industrial Management, received from Tampere University
of Technology (TUT). He is a Ph.D. candidate at the Cost Management Center (CMC) at TUT, majoring
in management accounting. His research interests lie in studying performance measurement dynamism
and the potential of management accounting in contributing to research and development management,
and conducting interventionist research within real-life organizations.

123
58 T. Korhonen et al.

Teemu Laine received a Dr (Tech.) in Industrial Engineering and Management in 2009. Currently, he is
Associate Professor in the Cost Management Center (CMC) research team at Tampere University of
Technology and Postdoctoral Researcher in the Academy of Finland. His current research interests
include Management accounting in Service Business and R&D management contexts. He has published
in journals, such as Managing Service Quality and Management Research Review.

Petri Suomala holds Dr (Tech.) in Industrial Management and Engineering. He is the head of department
of Industrial Management and the director of Cost Management Center (CMC) research team at Tampere
University of Technology. He has published in several international journals including e.g. Industrial
Marketing Management, International Journal of Innovation Management, International Journal of
Production Economics, and European Journal of Innovation Management. His research interests relate to
the versatile utilization of management accounting in industrial companies and other organizations.
Interventionist research as a methodological approach is one of his topical areas.

123