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Amsterdam Business School
Performance measurement complexities in the shipping industry.
The impact of different actors of a shipping company on the design
and implementation of performance measurement.
Name: Diana-Iulia Ferenczi Student number: 10681035
Thesis supervisor: prof. dr. D.M. Swagerman Second reader: dr. ir. S. P. van Triest
Date: January 20, 2016 Word count: 19841, 0
MSc Accountancy & Control, specialization Control
Statement of Originality
This document is written by student Diana-Iulia Ferenczi who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
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Abstract
Purpose:
Explore the relationship actors-Performance Measurement System design and implementation in the shipping industry, especially the impact different actors of a shipping company have on the implementation of a Performance Measurement System.
Design/Methodology/ Approach:
This research is based on a case study of a mid-size shipping company based in the Netherlands. The case evidence is constructed from semi-structured interviews with key members of the case company. Apart from the interviews, this research incorporates documentary analysis and direct observations.
Findings:
The main case findings showed that 1) the newly developed performance measurement was positively perceived by actors across all levels of the organization; 2)this perception is created not only by the design and implementation characteristics of Adler and Borys (1996) but also by the enabling character of relationship between the layers of the shipping company and 3) by the fact that the management deliberately took perceptions into account in the design phase of the project.
Research limitations:
This paper is an in-depth case study focusing on one specific situation and generalization of the findings to other organizations implementing a PMS should be done with caution. From a methodological point of view, the internal access of the researcher could be seen as a downsize of this paper in terms of an unavoidable researcher bias.
Practical implications:
Enable managers to take informed decisions in the introducing a PMS while being better prepared for the issues and problems to be expected during the process.
List of tables and figures
Figure 1 Research design
Figure 2 Phases in the performance measurement system implementation
Figure 3 PMS framework
Figure 4 Main performance measure attributes
Figure 5 The conceptual model of the study
Figure 6 Shipco organizational structure
Figure 7 Design and implementation process of the PMS
Figure 8 Dashboard
Figure 9 Supervisor role on different organizational levels
Figure 10 Communication of the strategy
Table 1 Case study tactics for the research quality
Table 2 Interviewees
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Contents
1 Introduction ... 6
2 Literature review ... 10
2.1 Defining performance measurement ... 10
2.2 PMS implementation ... 11
2.3 PMS in the shipping industry ... 15
2.4 Analytical framework: Enabling vs Coercive formalization ... 18
3 Methodology ... 22
3.1 Why case study ... 22
3.2 Research Methods ... 23
3.3 Data collection ... 24
3.4 Data analysis plan ... 26
3.5 Contextual background of the case study ... 27
4 Findings ... 30
4.1 How is PMS perceived by different parties in a shipping company ... 30
4.2 How is this perception created? ... 35
4.2.1 Enabling versus coercive type of formalization ... 35
4.2.2 Role of the supervisor ... 42
4.3 How did the company deal with perceptions? ... 45
4.4 How do users advise to create a PMS that is enabling? ... 48
5 Discussion ... 51
5.1 Implications ... 51
5.2 Lessons learned/generalization ... 53
5.3 Recommendations for the case company ... 54
5.4 Limitations and future research... 54
Acknowledgments... 56
References ... 57
1 Introduction
“Performance measurement is critical to the success of almost every organization because it creates understanding, molds behavior and improves competitiveness.” (Fawcett and Cooper,1998, pp. 341)
This quote from Fawcett and Cooper (1998) emphasize the importance of performance measurement for organizations, a fact that also holds for companies in the shipping industry. Its magnitude is as well recognized in the academic field. As a matter of fact, performance measurement is a widely researched area. The topic has been approached in accounting and
productivity literature since the 19th century (Caplice and Sheffi, 1994; Kaplan and Norton, 1992;
Mentzer and Konrad; 1991). More recently, the debate on measuring performance shifted from what to measure and generating various frameworks to how to implement performance measurement systems (hereafter PMS).
It seems that users’ involvement in the PMS is recognized as a challenge in the implementation process (Braz et. al., 2011; Nudurupati and Bititci, 2005). Some authors advocate for an enabling approach to PMS, that is considering users knowledge and building a bottom-up PMS which is perceived as helping employees in their daily work rather than as a monitoring device (De Haas and Algera, 2002; Wouters and Wilderom, 2008; Groen et. al, 2012; Englund and Gerdin, 2015).
Yet, despite the vast amount of research on performance measurement, little research on this topic has been done in the context of shipping companies. To my knowledge, there is no research on the interplay between actors and the PMS in the shipping industry. This is somehow surprising given the fact that there are various actors both in the internal and external operational field of a shipping company, whose actions contribute to the firms performance. Moreover, different parties in a an organization may have different opinions on the measurement. Studying this relationship would contribute to a better understanding of the complex process of designing and implementing performance measurement. This enables informed decisions to be taken by managers on how to successfully implement a PMS while taking into account the perceptions of different actors involved in the process.
This study therefore aims to explore the relationship actors - PMS design and implementation in the shipping industry. Insight into this relationship and especially how the development team deals with this issue could suggest best practices in how organizations can balance various perceptions and needs of actors in order to develop an optimal performance measurement system.
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The goal is to identify roles different actors play in the performance measurement adoption and especially the impact they have on the implementation of the performance measurement system. The research question is therefore formulated as follows:
How do different actors in a shipping company influence the implementation of a performance measurement system?
The following sub-questions were deductively lead from the research question with the goal of operationalizing the research. Those questions will assist in answering the research question by providing structure. However, it must be mentioned that, as the their nature is topical, demarcation issues might occur. The author kept this limitation in mind while conducting the research. The questions are defined as follows:
1. How is PMS perceived by different parties in a shipping company? 2. How is this perception created by
a. Design and implementation characteristics (as described in the framework of Adler and Borys, 1996)?
b. The supervisors’ act towards the employees in the context of a PMS? 3. How did the company deal with the user perceptions?
4. How do users advise to create a PMS that is enabling?
This thesis contributes to the knowledge in the field of performance management for three main reasons. Firstly, it focusses on an under-researched industry. Regardless of the fact that there is a vast amount of work on performance measurements in the academic literature, the literature offers little evidence of the PMS adoption in the shipping industry (Konsta and Plomaritou, 2012; Otheitis and Kunc, 2015). This study therefore intends to fill the gap in the PMS literature by focusing on the PMS implementation in a challenging setting, the shipping industry.
Secondly, it responds to the call of Adler and Borys (1996) for research which focusses on hierarchy in the context of formalization, especially in analyzing “the enabling or coercive character of relations between layers” (pp.84). The thesis will expand their ideas that hierarchy plays a role in the perception of formalization.
Thirdly, by translating conventional performance management knowledge into this unique context, the paper has a practical implication for the implementation of a PMS in other shipping organizations. By gaining insight into how different actors in a shipping company influence the
Aim of the research
• Explore the relationship actors-Performance Measurement System design and implementation in the shipping industry
Literature review
• What is performance measuremen? • What is known about the implementation of a PMS? • What is known about the PMS in the shipping industry?
• Conceptual framework
Case study setting
Mid-size shipping company based in the Netherlands
Empirical examination
• How do different actors in a shipping company influence the implementation of a PMS?
• Data: semi-structured interviews, documentary analysis, observations Discussion and conclusions
implementation of a performance measurement system, companies can use this behavioral issue when implementing a PMS.
Figure 1 illustrates the research design and the structure of the paper. A case study approach was followed as research method. The choice for this method is determined by several factors. An important consideration when opting for a case study represents the type of the research question. An understanding of real-world issues such as the role and impact of actors in a shipping company on performance measurement can best be gained by gathering data from actual organizational settings. A case study approach would therefore suit with the type of question. Furthermore, access to an interesting setting played a role as well. Having direct access to a company within a sector that is characterized by secrecy of sharing data, together with the fact that certain changes occurred within the organization, strengthened the decision to opt for a case study. A detailed explanation of the choice for the case study including its implications for the validity and reliability can be found in section 3.1.
Figure 1: Research design
Source: Own formatting
The case evidence is constructed from semi-structured interviews with key members of a mid-size shipping company based in the Netherlands. Apart from the interviews, this research incorporates documentary analysis and direct observations.
The case analysis is based on the design principles conceptualized by Adler and Borys (1996), namely the enabling and coercive types of formalization. This represents the framework to analyze perceptions of different actors.
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The reminder of the thesis is organized as follows. The next section will serve introducing the main concepts and the theoretical framework while reviewing related research on performance measurement. The research methods are then outlined and are followed by the description of the case setting of this study. Afterwards the case analysis is provided. The final section will discuss the case findings in the context of the theoretical framework and will suggest some future research directions.
2 Literature review
To provide a theoretical framework for understanding and analyzing the paper’s empirical material, this section explores insights from the academic literature in the direction of performance measurement. The analysis of the literature review will proceed in four stages, namely: understanding performance measurement and its importance, exploring the PMS implementation, examining what the existing literature has yielded in the shipping industry, and setting the actual theoretical framework for this research.
2.1 Defining performance measurement
The topic of performance measurement has been approached in literature since the 19th
century (Caplice and Sheffi, 1994; Kaplan and Norton, 1992; Mentzer and Konrad; 1991). Yet, the debate is still recent with authors like Ahrens and Chapman(2004), Bourne et. al. (2002), Englund and Gerdin (2015), or Nelly et. al. (2002) arguing its importance. Indeed, performance measurement plays a central role in both in the management of enterprises and the academic literature.
In beginning the discussion about performance measurement, it is important to understand the meaning of performance measurement and its importance.
First of all, in general terms performance measurement can be described as the process of quantifying performance. Three interrelated concepts are used in performance measurement, namely the performance measures as the actual metrics or KPI’s, the performance management as a broader concept that incorporated performance measurement, and the performance measurement system (hereafter denoted as PMS) which is the integrated set of performance management, measurement and metrics. Nelly et. al. (2002) defines performance using two factors: efficiency and effectiveness. According to them, “A Performance Measurement System is the set of metrics used to quantify the efficiency and effectiveness of past actions” as “it enables informed decisions to be made and actions to be taken because it quantifies the efficiency and effectiveness of past actions through the acquisition, collation, sorting, analysis and interpretation of appropriate data” (Nelly et. al., 2002, pp.13).
Kollberg et. al. (2005) in addition, propose a more comprehensive definition of performance measurement, while taking into account the process from the quantification to the final use. In their opinion, performance measurement is “the process of collecting, computing and presenting quantified constructs for the managerial purpose of following up, monitoring, and improving organizational performance” (Kollberg et. al., 2005, pp. 98).
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Furthermore, the definition from Kollberg et. al. (2005), includes an important aspect, namely the performance measurement as thermometer, or “attention creator”. Indeed, as Bassioni et. al. (2005) remarks, performance measurement serves the organizations in providing insight into how they perform in terms of both business health, by measuring a wider range of performance, and in terms of strategic performance, by focusing on critical strategic areas (Bassioni et. al., 2005). As a matter of fact, several other authors stress the positive role of performance measurement in organizations. Zsidó and Fenyves (2015) for example, recognize its advantage while referring to the function of performance measurement as a guide for checking position (through benchmarking and variation analysis), communicating position (on one hand aligning management process with the strategy and on the other hand communicate performance externally), focusing on priorities, and compelling progress. Other functions of performance measurement are also illustrated, namely its contribution to good planning and control, to resource allocation, continuous improvement, or to an increased competitive advantage (Enoma and Allen, 2007; Sinclair and Zairi, 1995; Cocca and Alberti, 2010).
All in all, the importance of performance measurement is best captured in the following quote from Fawcett and Cooper: “Performance measurement is critical to the success of almost every organization because it creates understanding, molds behavior and improves competitiveness” (Fawcett and Cooper, 1998, pp. 341).
2.2 PMS implementation
Given the importance of the PMS, the emphasis will now lie on the PMS implementation. PMS implementation has been researched from different perspectives and in various settings with the latest development being the involvement of employees of whom performance is being measured in the development of the performance measurement system (Braz et. al., 2011; Nudurupati and Bititci, 2005; De Haas and Algera, 2002; Wouters and Wilderom, 2008; Groen et. al, 2012; Englund and Gerdin, 2015).
Chalmeta et. al. (2012) summarized in their research the most widely used performance measurement models, like: Performance Measurement Matrix (Keegan et al, 1989), Performance pyramid system (Lynch and Cross, 1991), Balanced scorecard (Kaplan and Norton, 1996), Performance Prism (Nelly et. al., 2002), or Evaluation of logistics performance measurement (Caplice and Sheffi, 1995). One thing that is similar to almost all approaches is the link with the strategy (Adler, 2011). Bassioni et. al. (2005) for example, in their attempt to formulate a performance measurement framework, advocate that a PMS implementation must start with leadership as a navigator who guides the focus on parties involved and strategic plans, plans which
will be translated into operational language and thereafter into the implementation process. Bourne et. al. (2000) proposed three phases in the implementation of a PMS augmented with four phases for its update. The authors distinguish between the design of the performance measurement (phase one), the implementation of performance measurement (phase two) and the use of the performance measures (phase three). The four phases for the update of a PMS consist of developing (new) measures, reviewing measures, reviewing targets and challenging strategy. Those four phases are illustrated in Figure 2. In effect, reviewing the performance measurement is vital as over time performance measures might convert in false alarms or essential performance measures might be missing (Cocca and Alberti, 2010).
Figure 2: Phases in the performance measurement system implementation
Source: Bourne et. al., 2000, pp. 757
Ferreira and Otley (2009) suggested a comprehensive framework for the design stage of a PMS. The framework is constructed upon eight design questions and four culture and context questions. Figure 3 illustrates the framework with its questions. The questions relate to organizational mission and vision, key success factors, organizational structure, strategies and plans, key performance measures and targets, performance evaluation and reward systems, information flows, PMS change, and to the links between the components of the PMS. By using practical questions, the framework provides a systematic approach to designing a PMS. However, the framework does not emphasize factors such as the involvement of employees, industry or management leadership. Those factors are important in the development of a PMS according to Adler (2011).
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Figure 3: PMS framework
Source: Ferreira and Otley, 2009, pp. 268
An important step in the design of the PMS is choosing the appropriate measure. The main features of a performance measure were identified by Nelly et. al. (1997) and refer to defining the measure, agreeing on frequency of measurement, and the source of data. Braz et. al. (2011) compiled a list of attributes necessary for a well-designed performance measure such as its objective, frequency and drivers among others. The list is shown in figure 4.
Caplice and Sheffi (1994) developed a set of tools to assist the selection of performance metrics in the logistics sector. Their tools contain eight evaluation criteria for the metrics. The first one is the validity criteria which refers to the comprehensiveness of the measure while including relevant activities and controlling for external factors which are not under the manager’s influence. The second criteria represents robustness and focusses on creating widely accepted metrics of which interpretation is uniform across users, and which can easily be benchmarked. Usefulness is the fourth criteria and its purpose is developing not only informative but also actionable metrics. The next criteria is integration. This criteria was further developed in a consequent study (Caplice and Sheffi, 1995) into horizontal and vertical integration. The latter refers to inclusivity of all actors and departments along the process while vertical integration concerns the metric’s link with the strategy.
Figure 4: Main performance measure attributes
Source: Braz et. al., 2011, pp. 753
Economy must be considered as well according to Caplice and Sheffi (1994) in the sense that a trade-off between costs and benefits of the metric should be made. Furthermore, a metric must be compatible with existing systems within the organization, and must provide sufficient level of detail or aggregation. On the other hand, Braz et. al. (2011) demonstrated that in the case of a shipping company disaggregation of measures is a better choice than an aggregated measure, because this improves the identification of problem areas and support in taking actions. The authors recognize however that a more aggregated measure is better suitable for higher levels in the organization (Braz et. al., 2011). To continue, the last criteria developed by Caplice and Sheffi highlights that the metric should be behavioral sound and minimize game-playing (Caplice and Sheffi, 1994;1995).
Needless to say, design and implementation of a PMS is a complex process which needs to be managed carefully. According to de Waal and Counet (2009) the failure rate of PMS implementations is around 56%. In their study, the authors identified 31 pitfalls of PMS implementations and grouped them in seven most severe problem factors organizations face in the process of implementation. The first factor identified in their study is unstable foundation. This factor includes pitfalls such as: starting with unclear goals, unclear uses and unclear strategy, incompatibility with the needs of various organizational needs, too many defined KPI’s, no leadership over the PMS and a company culture which is not ready for PMS. The second factor relates to the immaturity of the system. This factor relates to issues such as careless implementation
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and when the organization was not ready for it, omitting behavioral aspects, wrong KPI definition or missing link to the reward system. Factor three represents the lack or relevancy with problems such as difficulty in defining KPI’s for lower levels in the organization and difficulty of obtaining data. The fourth factor deals with employee resistance, with the pitfalls found here resistance from lower levels of the organization and low commitment and enthusiasm. Next, factor five involves issues with low management priority while factor six deals with insufficient resources, including ICT and training. Lastly, the seventh factor the authors defined is the uselessness. This factor relates to the danger of a PMS not used to support managers in the daily operations (de Waal and Counet, 2009).
All things considered, people, procedures, data, software and hardware are the main building blocks of a PMS (Cocca and Alberti, 2010). Furthermore, commitment of actors in all levels of the organization are crucial in achieving a successful implementation of a PMS. And lastly, organizations need to be aware of the common pitfalls in implementing a PMS as such a system has impact upon emotions, attitudes and behavior of the employees using the PMS (de Waal and Counet, 2009). The paper will now continue by reviewing performance measurement research undertaken in the shipping industry.
2.3 PMS in the shipping industry
Some authors claim that industry characteristics affects performance measurement (Ferreira and Otley, 2009; Jääskeläinen et. al., 2004). The light will therefore be shed on a unique industry, namely the shipping industry. The discussion will begin with a fundamental introduction of the shipping industry followed by an review of the PMS literature in the shipping context.
To start with, shipping is a global service industry that deals with movement of goods by sea. The main assets in the shipping industry are therefore the vessels. Together with other transportations means like rail or road transport, the shipping is part of the greater logistics industry. Like in all transportation segments, capacity in shipping is a perishable inventory, meaning that if space is not used, it cannot be stored for later (Stopford, 2009; Krauth et. al., 2005, June).
There are three main segments in the shipping industry, namely the liner shipping segment, the bulk shipping segment and the specialized shipping segment and a shipping company may choose to operate in multiple segments. The segments differ in the type of cargo carried like general cargo in the liner segment, cargoes that need to be transported in large homogeneous
shiploads in the case of bulk shipping, or specialized cargo such as chemicals, refrigerated products or cars in the case of specialized shipping segment. (Stopford, 2009).
A shipping company earns revenue in terms of freight rates and its fixed costs (capital costs and maintenance costs) are relatively high. Besides, the vessels usually have a short lifetime (between 15-30 years) after which the assets will be scrapped. The variable costs of a shipping company include operating costs (crew wages, stores, repairs, insurance, administration), voyage costs (fuel consumption, port charges, tugs, canal dues) and cargo handling costs (stevedore costs, loading/unloading cargo) (Stopford, 2009).
Furthermore, shipping is a complex industry and the reasons for its complexity mainly lie in the high cyclicality, volatility, unpredictability, and intense competition. Moreover, shipping companies need to adhere to national and international regulations, regulations that constantly change. Besides, the absence of a physical link between seafarers and on shore personnel makes the complexity even greater not to speak about the various actors in the field of a shipping company influencing its operation, such as charterers, terminal operators and ship agents (Lun et. al., 2010; Konsta and Plomaritou, 2012; Stopford, 2009).
Under these circumstances, one might agree that measuring performance should occupy top priority for the shipping companies in order to survive. Yet, there is limited literature on the subject of performance measurement in the context of shipping companies. The research focus in the shipping industry tends to be on determinants of freight rates, factors affecting investment decisions or shipping contribution to the national economies (Lagoudis et. al., 2006).
Most studies on the subject of performance measurement in shipping focus on developing KPI’s or on the business performance in general. Hector et. al. (2012) for instance, attempted to develop a KPI’s for the container shipping industry. Their approach extended to the supply chain of the container shipping industry, so rail operators, trucking companies, container terminals and shipping lines were all considered. The authors discovered a list of KPI’s based on interviews and questionnaires and validated the indicators through two case studies. However, a drawback of their study is the missing theoretical link. Moreover, the practical implication is limited as the case studies only show to which of the defined KPI’s the targets were met or not but not how the KPI’s were implemented and which challenges might have occurred, especially in their context where several companies would have shared data and use a common PMS.
A more comprehensive approach to KPI’s was achieved by the study of Konsta and Plomaritou (2012). The authors investigated the usage and the benefits of KPI’s in the Greek tanker shipping companies. They identified the following measurement areas: Safety performance,
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operational performance, technical performance, environmental performance, employee/crew performance, navigational performance, customers relations (charterers), and financial performance. Furthermore, the study pointed out some benefits of using KPI’s like improvement in the areas of competitiveness, customer relation, strategy and planning, and internal organization. The results indicated that, while the majority of the investigated companies believe in the benefits of the KPI’s, only 22% of the tanker companies had their daily operations supported by the use of KPI’s (Konsta and Plomaritou, 2012). However, no details are shown into why the companies omit using KPI’s. A possible answer to this question can be found in the study of Otheitis and Kunc (2015), namely the absence of a common measurement system for the shipping industry. They investigated the contribution of PMS to business performance and found, through qualitative evidence, that compliance to regulations, reducing risks and ability to benchmark are benefits of a PMS which might lead to better business performance. The drawback of this study, however, lies in the fact that the authors could not find statistical evidence and needed to base the results on qualitative evidence.
A study that goes further than solely looking at the KPI’s and considers an approach to the process of performance measurement in the shipping industry was applied by Braz et. al. (2011). The authors examined how the PMS was reviewed and improved in an energy company’s maritime transportation while focusing on specific metrics which needed to be adapted (like maritime transportation unit cost, operational availability index, or product spill index) and pointed out some drawbacks of the old system which needed to be overcome. For example they found disaggregation of measures in class of ships as an important improvement point because aggregated measures do not provide decision makers with insights into the source of problems. Furthermore, their study reveals the difficulties in updating a PMS, namely the involvement of users, assessment of performance measures, establishment of targets and data availability (Braz et. al., 2011).
Having had a brief look into the literature covering performance measurement in general and in the shipping context it can be concluded that:
Performance measurement is critical for organizations and also for shipping
The design and implementation of a PMS must be managed carefully
Commitment of actors in all levels of the organization is crucial in the PMS process
A feature of the above literature is that, while the researchers recognize the complexity of the shipping context in measuring performance, they do not directly capture the causes of this complexity. This is important as there is no sense in implementing PMS without considering the difficulties one must overcome. It seems that users’ involvement in the PMS is recognized as a challenge in the PMS process (Braz et. al., 2011; Nudurupati and Bititci, 2005). However, this interplay between actors and the PMS has not been studied deep enough in order to advance a better understanding of this relationship, especially in the shipping industry. Studying this relationship would contribute to a better understanding of the complex process of designing and implementing performance measurement. This enables informed decisions to be taken by managers on how to successfully implement a PMS while taking into account the perceptions of different actors involved in the process.
The paper continues by presenting analytical framework. 2.4 Analytical framework: Enabling vs Coercive formalization
According to Adler and Borys (1996) when implementing a new system, employees will either react positively or negatively to it depending on the type of formalization (rules, procedures and instructions) adopted: enabling or coercive. Formalization has an enabling character when employees regard it as aiding to “master their tasks” (pp. 62). This is the positive perception of the formalization as it makes employees feel effective. On the other hand, formalization has an coercive character when employees regard it as a way of forcing them to comply with the set rules and procedures. This makes the perception negative as it creates the feeling of a “Panopticon” (pp.73) where there are certain expectations from the employees without providing further support or information, which will lead to demotivation and rejection of the system (Adler and Borys, 1996).
Three dimensions contribute to the enabling or coercive nature of formalization, namely: the features of the system, the features of the process of designing the system and the features of the implementation of the system. Those features represent repair, internal transparency, global transparency, and flexibility.
The first feature, repair deals with the possibility that users can improve the systems themselves as opposed to relying solely on specialized engineers. In a coercive regime, employees cannot fix the problems themselves as the management separates the tasks among different departments, adopting a deskilling approach where “any deviation from the standard procedure is seen as suspect” (Adler and Borys, 1996, pp. 71). This is opposed to the enabling approach where
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the system is designed in such a way that it contributes to a two-way communication, enabling users to solve the problems and providing feedback for improvements.
Performance measurement system by their nature should have the repair function in an enabling way, while permitting employees improve both performance measurements and way of working, as Englund and Gerdin (2015) highlight.
Internal transparency, the next characteristic, deals with the way the users understand the underlying logic of the system. In a coercive manner, the employees are supported to follow the instructions in doing their work without having access to the rationale behind the instructions. This is in contrast with the enabling logic where the employees have the rationale of the rules clarified (Adler and Borys, 1996). Relating this to performance measurement, Englund and Gerdin (2015) add that a transparent PMS provides feedback, codifies best practices and highlight elements of the working process.
To continue, global transparency is related to the possibility offered to users to understand the broader context of their actions. Instead of providing information “on a restrictive need-to-know basis” as in the case of coercive formalization, “Workers’ understanding of the entire process is considered a valuable resource” in an enabling approach (Adler and Borys, 1996, pp. 73). The last feature, flexibility, refers to facilitating users to make modifications to the systems and procedures in order to suit their specific demands (Adler and Borys, 1996, pp. 74).
As described above, the design principles presented by Adler and Borys (1996) help understanding why employees react positively or negatively to the introduction of formalizations. This can also be translated in understanding why certain forms PMS are more likely to be positively perceived than others. This research will therefore be built on the framework of Adler and Borys (1996) in order to understand how different actors perceive (whether enabling or coercive) the introduction of PMS. Furthermore, according to Adler and Borys (1996), hierarchy plays a role in the perception of formalization as “Middle managers can coerce compliance and intensify work or they can provide guidance, support and coordination”(pp. 84). In responding to their call for more research which focusses on hierarchy, especially “the enabling or coercive character of relations between layers” (pp.84), this paper will expand their ideas further in the following propositions:
Employees at different levels in the organization will have distinct perceptions of the performance measurement system. This is determined partly 1) by the characteristics of the design and implementation of the system (repair, internal transparency, global transparency, flexibility), 2)by how superiors act towards the employees in the context of the PMS. 4) The actors’
perceptions will influence the design and implementation of a PMS . These propositions are illustrated in figure 5.
Having broadly addressed the concepts of enabling and coercive formalization which provide the analytical framework for this paper, the following section provides details regarding the methods adopted and focusses as well as information regarding the chosen shipping company for the case study in order to contextualize the case analysis.
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Figure 5: The conceptual model of the study
3 Methodology
This section outlines the research and data collection methods used to conduct the investigation. Special attention will be given on motivating the choice for a case study approach. 3.1 Why case study
According to Yin (2014) the choice for a research each research method has its advantages and drawbacks and opting for a particular method is determined by several conditions, like the type of research question, the degree of control of behavioral events and the focus on contemporary as opposed to historical events. Yin mentions that in the case of a study that seeks to explain contemporary (as opposed to historical) events, using “how” or “why” questions and where the extend of control over behavioral events is limited, the research method most relevant would be the case study. Furthermore, he argues that a case study would be in particular relevant in situations where answering the research question requires an in-depth description of a phenomenon (Yin, 2014). Given the fact that this study seeks to answer the question of how different actors in a shipping company influence the implementation of a performance measurement system, an in-depth description is needed to understand the PMS phenomenon in its natural settings. Therefore, a case study approach suits the best.
Apart from this, Malmi and Granlund (2009) stress the need of case studies in order to provide a basis for theories, especially “why certain combinations work together and others not, in various circumstances, needs more attention”( Malmi and Granlund, 2009, pp. 610). The call for in depth research using case studies is also done by Otheitis and Kunc (2015) who particularly mention the need for insight into the driving factors of PMS Adoption. Sharing on their view, this paper analyses the PMS implementation in an challenging circumstance, that of a shipping company where multiple actors are involved with performance measurement and focusses on the human factor driving adoption of PMS.
Last but not least, the choice for the case study was led by the fact that the author had direct access to an interesting case study setting. Having direct access to a company within a sector that is characterized by secrecy of sharing data, together with the fact that certain changes occurred within the organization strengthened the decision to opt for a case study.
To summarize, the choice for conducting a case study is determined by several factors. The first consideration is related to the type of research question. Since the research question, formulated in a ”why” form, aims at understanding real-world issues such as the role and impact
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of actors in a shipping company on performance measurement, case study approach would therefore suit with the type of question. The second consideration represents the academic need for more case studies. And finally, having direct access to an interesting case setting played a role as well in determining the choice for the appropriate research method.
3.2 Research Methods
A case study approach was therefore followed as defined by Yin (2014) “an empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident”(Yin, 2014, pp. 16).
Case studies can be categorized in five types according to Ryan et. al. (2002), namely descriptive, illustrative, experimental, exploratory, and explanatory. The approach of the present study belongs to the exploratory category as it explores the reasons for particular accounting practices (enabling vs. coercive formalization) within a specific context (shipping company). Furthermore, this thesis can also be categorized as descriptive case study because it describes accounting systems procedures used in practice (the implementation process of a PMS in the chosen organization). Theory helps explaining the observed practices and this research could be described as theory refinement according to the typology of Keating (1995).
An important consideration in doing case study research lays in the choice between single versus multiple case studies. According to Yin (2014), in some situations multiple-case studies might be preferred. However, it all depends on the rationale of doing the research when deciding between these two forms, as both single and multiple case studies can be used to draw conclusions. In this research, the choice has been made for single-case design. The rationale behind this choice lays in the fact that the objective is “ to capture the circumstances and conditions of an everyday situation” (Yin, 2014, pp.52) with the aim of learning lessons from this specific case that enhance our theoretical knowledge in the field of performance measurement. The specific context for this case study will be explained in section 3.5.
Choosing for a particular research method also implies understanding its disadvantages as well and striving to deal with the drawbacks and achieve high levels of reliability and validity (Yin, 2014). In designing the case study, the quality of the research was ensured by following the tactics proposed by Yin(2014). Table 1 sketches the tactic used in this case study approach.
Special attention is given in order to improve the construct validity and reliability of this research. In order to achieve a greater reliability, which is considered an important issue in qualitative research, the advice of Yin (2014) was followed namely: “make as many steps as
Table 1: Case study tactics for the research quality
Test Case study tactics applied in this research Research stage
Construct
validity Data triangulation: Multiple sources of evidence was used, like interviews, observations and documents Data collection and analysis Internal
validity Pattern matching was done while analyzing the three sources of data Data analysis External
validity The study can be generalized based on the framework adopted - Adler and Borys (1996) enabling and coercive types of formalization Research design Reliability A case study protocol was developed prior to conducting the research, and a case
study database was developed during the research process Research design. Data collection
Source: Adapted from Yin (2014)
operational as possible and conduct research as if someone were looking over your shoulder” (Yin, 2014, pp. 49). Therefore, in this research a detailed case study protocol was developed prior to conducting the research, and a case study database was developed during the research process. Moreover, the steps taken and the specific setting of the case study were explained in detail in the methodology sections. In order to overcome the shortcomings of construct validity triangulation approach was used which is described in the following section.
Regarding internal validity, special attention was given to how the data was analyzed in order to draw conclusions. In this sense, the author has matched patterns of the three sources of data with the beforehand made prepositions. Facts stated in the interviews were checked against documents. Observations notes were regularly used. It was a back and forward process between documents, interviews and observations versus the propositions. Finally, the problem of reduced external validity is solved on one hand through the type of research question, namely by addressing a “how” and “why” questions and on the other hand by using an existing theory and trying to refine it. The goal is therefore analytic generalization and not statistical generalization. (Yin, 2014) 3.3 Data collection
According to Yin (2014), while conducting case studies, the main sources of evidence are interviews, documentations, archival records, direct observations, participant observations and physical artifacts. Given the nature of the problem statement of this research, the data collection is firstly relayed on interviews. According to Yin (2014), “interviews are an essential source of case study evidence because most case studies are about human affairs of actions” (Yin, 2014, pp. 113). Needless to say, using interviews as data collection method, contributes to a lack of internal validity. Especially construct validity will be an issue due to possible bias that can occur as a
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consequence of poorly articulated questions and interviewees giving desirable responses (Yin, 2014).
In order to cope with the weakness of conducting interviews as a data collecting method, the author made use of the technique called triangulation. According to Yin (2014) triangulation means using multiple sources of evidence as a solution for making case study findings more convincing and accurate. From the four types of triangulation (data triangulation, investigator triangulation, theory triangulation and methodological triangulation) data triangulation will be used, so the study collected information from multiple sources in order to support the case findings. Therefore, the case evidence in this study is constructed from semi-structured interviews with key members of a mid-size shipping company based in the Netherlands and apart from the interviews, this research incorporates documentary analysis and direct observations.
The interview instrument is utilized in order to gather perceptions of different actors in the case study. Semi-structured interviews are used because of the exploratory nature of this research in order to be able to offer enough flexibility in covering other issues that participants may introduce for the study and in order to explore issues in depth and real-time during the interviews (Scapens, 2004). The interviewees are drawn from various departments of the organization and are approached personally by the author.
Interviewees which are based on another location were approached by e-mail and were send a summary of the research project and the importance of the research was explained. All interviewees were informed about the purpose of the study, and their confidentiality was explained as well. In order to maintain the anonymity of the respondents all interviewees will be referred to by a code (a random numerical value). Table 2 illustrates the interview details. Beforehand, the author planned to conduct around 12 interviews. However, this number was only an indication as the number of interviews depended on the richness of data. If the data gained through those 12 interviews was not be rich enough to ensure theory saturation, the author would have conducted more interviews. This was, however not the case as the evidence from the 12 interviews proved to be rich enough.
Interviews were mainly conducted between November and December 2015 and in face-to-face meetings. In situations where interviews were not possible to be conducted face-to-face-to-face-to-face, like for example the crew who was sailing at the moment on the interviews, interviews were conducted through telephone. The length of the interviews ranged from 35 to 150 minutes.
The interviews started with a short introduction and with asking permission to record the interview. It was explained to the interviewees that information will be treated confidential in the
sense that only the author and her thesis supervisor will have access to the records and that the names will not be used when providing quotes in the paper.
The interviews were based on preselected questions regarding performance measurement in the case company. An interview guide was developed beforehand in order to provide structure and to make sure that all relevant questions for this research are included. The interview guideline can be found in the appendix of this document and belong to the following main themes: perspectives towards performance measurement, design and implementation characteristics, and influence on the implementation. In choosing the interview questions, the author consulted the framework of Adler and Borys (1996) as their framework constitute a comprehensive guide to understanding the PMS perspectives. Starting from this framework, other questions emerged which are more relevant for this particular study. Those questions are based on the insights provided from the literature review. One remark about the interview questions is that the term performance measurement will be in some cases replaced with terms which are more accessible to crew on board like operational excellence programme, or SEEMP 2.0 (a reporting tool). On the operational level, those terms will sound more familiar to the interviewees than “management” concepts like KPI’s or performance measurement system.
In addition to the interviews, evidence is supplemented with company documents to which the author has direct access, like strategy presentations, emails regarding the progress of the implementation, e-mails and memo’s regarding the test of the performance measures, introduction materials and evaluation reports. Furthermore, the author participated as observer in various meetings throughout the PMS process, where notes were taken. These notes were used as well as additional source of evidence.
3.4 Data analysis plan
The interviews were fully transcribed within 48 hours after the interview took place and in case of interviews held in Dutch, quotes were translated in English, while trying to avoid
Table 2: Interviewees
Department Number of interviewees and designation Type of interview
Upper management 3 interviewees (designated 1,8 and 9) Face-to-face and telephone
Fleet management 4 interviewees (designated 2,5,6 and 7) Face-to-face
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distortions due to language differences. Transcriptions were checked against tape recordings and corrections were made where necessary.
The transcribed interviews were analyzed in three phases: data reduction, data display, and conclusion drawing according to the guide of O'Dwyer (2004). Key themes were identified and a coding scheme was built for each theme. Careful attention has been given to contradictions among interviews (O'Dwyer, 2004). As usual for a qualitative research, this paper will make use of quotations. This will illustrate the results at one side, and allow the readers to use their own interpretation on the other side.
Prior to moving to the results section, the following paragraphs provide information on the case setting in order to contextualize the case analysis.
3.5 Contextual background of the case study
As mentioned above, this research is based on a case study of a mid-size shipping company based in the Netherlands which will be referred to as “Shipco” due to confidentially matters. The shipping company was chosen as a case study for several reasons. Firstly, the access reason played an important role. This is an issue in the shipping industry since this industry is dominated by secrecy in sharing data. Secondly, the limited literature in the field of performance measurement in this industry determined the choice as well. Thirdly, the size of the company was beneficial for this case study as this factor contributed to gaining a better picture of how the process developed at every level of the organization. And lastly, the organization went through change recently and was busy with the design and implementation of a PMS, which generated the perfect setting in analyzing the complexities of a PMS in a shipping company.
The company owns and manages vessels in the short-sea and off-shore shipping. Shipco owns vessels divided in five different categories. The vessels belonging to the same category are sister vessels in terms of ship specifications and ship design. The management of the vessels includes technical support, crewing and nautical services as well as administration, financing and insurance. The chartering of the vessels is done by external partner companies.
Shipco enjoyed a substantial grow during a short period of time, and presently owns 21 vessels. Some relevant changes that occurred during the last two years include: renewal of the strategy, development of new partnerships with two important chartering companies, and the change of the director of operations. The approximately 72 employees who work for Shipco are divided among ashore departments like crewing, QHSE, support, finance, projects and nautical staff on board as depicted in figure 6.
Figure 6: Shipco organizational structure
Source: Internal documents of Shipco
Begin 2014 the company redefined its strategy with the help of an external consultant. The strategy was communicated both to the supervisory board in the form of a “strategy dialogue” and to the employees. The employees were mobilized to contribute to the new strategy by means of the creation of “must do” teams in various areas supporting the strategy. Those areas constituted three “engines” for the new strategy, namely : 1) Operational Excellence, 2) Product Leadership and 3) Customer Intimacy.
For the purpose of this research the focus will be the Operational Excellence programme. For each programme brainstorm sessions on strategic level were first held in order to develop the main themes which should be covered in order to relate it to the new strategy. This is the moment that the design of the performance measurement started. After the strategic brainstorm sessions the “must do” teams continued developing the ideas further into performance measures. A champion was designated for each team and the teams were assisted by an external consultant and a facilitator (the director of operations). The teams were furthermore composed of both on shore personnel and employees working on board of the vessels.
29 ja n -1 4 fe b -1 4 m rt -1 4 ap r-1 4 m e i-1 4 ju n -1 4 ju l-1 4 au g-1 4 se p -1 4 o kt -1 4 n o v-1 4 d e c-1 4 ja n -1 5 fe b -1 5 m rt -1 5 ap r-1 5 m e i-1 5 ju n -1 5 ju l-1 5 au g-1 5 se p -1 5 o kt -1 5 n o v-1 5 d e c-1 5 Strategy definition and communication
Des i gn of the performa nce mea s urement
Impl ementation of the performa nce mea s urement
Figure 7: Design and implementation process of the PMS
Source: Own formatting based on information from company documents
The first task of the teams was to rate the ideas generated by the strategic brainstorm sessions. Based on the ratings ideas were clustered, some ideas deleted and new ideas were added. Afterwards, the teams created and fine-tuned performance measures in various brainstorm sessions in the areas of cash flow improvement, efficient sailing and be in control, followed by an initial design of the dashboard showing the performance status. It should be noticed that efficient sailing had the greatest priority. The dashboard relating to this theme has been named SEEMP 2.0, making reference to the Ship Energy Efficiency Management Plan.
In the same period, history data was gathered which helped testing the dashboard and later setting targets. The dashboard was adjusted various times based on the inputs from the team. Thereafter, the dashboard has been tested on board of a few vessels (at least one vessel from each vessel series). After feedback has been received from the vessels the dashboard with performance measures was further improved and from November 2014 the performance measurement was implemented fleet wide. The process of designing and implementing the performance measurement system at the Shipco is illustrated in figure 7.
Having discussed the contextual background of the case study, the next session presents the results of the study.
4 Findings
This section presents and analyses the case findings. Based on the literature review, four propositions were predicted in section 2.4. The findings presented below are linked to these propositions. The case narrative is structured into four sub-sections analyzing how different actors in a shipping company influence the implementation of a performance measurement system. The implications of the case findings will be shown in the discussion.
4.1 How is PMS perceived by different parties in a shipping company
Respondents at the shipping company were in general positive about performance measurement. Most of the respondents acknowledged the main advantages of performance measurement, namely working together towards a set goal, having more focus, and defining and analyzing parameters which can indicate whether the company is doing well.
We now navigate the company by ourselves rather than let us be driven by the everyday happenings. Ultimately, it is about focus, jointly setting a goal and eventually make the company perform better….Through the PMS you get more unity in your company, a company instead of departments which are independent of each other. So the main advantage is being able to navigate in the right direction and the second advantage is creating awareness. It’s like when I step in my car and I set the dashboard on the consumption per KM. I will drive differently than I usually do. I am now aware of the gasoline I am burning. I think everyone has that kind of confrontation when they can see the consequences. – Interviewee 8, Management
I am interested in the performance of our vessels. We manage on good performance on several levels like fuel efficiency and maintenance. We also look at how the ships perform in terms of port state controls, deficiencies or inspections which we do ourselves. Those are all parameters which can tell you if a ship is performing well or not. – Interviewee 7, Fleet Management
The way performance measurement is perceived differs however between the actors. While the management and the employees ashore are familiar with the performance measurement term in general and how this is applied in the company, the crew on board thinks more operational than management language regarding measuring performance. By instance, while asking crew on board if they are familiar with performance measurement, two of the interviewees responded negatively.
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I am not really familiar with performance measurement. What is performance measurement. I do not actually know. – Interviewee 4, Crew on board
Really I have never thought about it. I am just working for shipment. For me that’s enough but I know some indicators of shipping like waiting for orders. I do not think in management terms, I am only a simple seaman on board. – Interviewee 11, Crew on board However, when asking it differently, like how the respondents know when their vessel is performing well, the answers were more elaborate, showing the crew on board use performance measurement in their daily operations without explicitly thinking of the term itself.
I always check SEEMP report from last voyages at least for the same period during the year and same cargo. In this way I can easily manage the average speed which I can calculate for this voyage. Previous voyages which I made my self, considering the period of the year of course. Also I look to the voyages of my colleague. It is helpful information. – Interviewee 11, Crew on board
What I can see in my voyage report, daily report. In the daily report I can see that during filling in the report there is already some actual data inserted and the report is calculating the average consumption, speed, all other data which we really need to compare with other vessel and finally to compare the efficiency of the use of our fleet. – Interviewee 12, Crew on board
It must be noted however, that while designing the PMS, the development team did not deploy the project to the employees as a new performance measurement system but as a way of achieving the new strategy. The company redefined its strategy and in order to communicate it to the lower levels, employees were placed in groups with the goal of finding ways to improve operations and cut costs in areas of operational excellence, customer intimacy and product leadership, the three main pillars of the strategy. The PMS was therefore used to help the company to carry on the strategy to every level of the organization. Performance measurement flowed naturally from the working groups starting with strategy, ways to improve, and ways to keep an eye on the improvements done. So while management saw it as measuring performance to see the advancements within the new strategy, the operational departments saw it more as tools to improve their work.
To continue, the respondent also acknowledged the difficulty of measuring performance in shipping. Interviewee 8 pictured the complexity of a shipping company while comparing it to a small multinational company.
It is quite difficult (measuring performance in shipping). You should compare it with a factory, each ship being a different factory. Actually, a shipping company is a small multinational with a lot of ships, so a lot of small factories, operating worldwide, plus a head office who guides the ships. Besides, there are also some partner companies, the chartering companies. You can see them as the commercial divisions of the company. Having three or four ships you know what is going on with them, but when you reach above 21 you should have a good system to monitor things, otherwise you will run out of control…However, not everything can be quantitatively measured….and it takes a lot of time and energy to monitor. – Interviewee 8, Management
This quote emphasizes the complexity of implementing a PMS, as the implementation will need to take place on more than 21 “worldwide factories”. Complementing the former perspective, another interviewee added the fact that not only are those “factories” distinct from each other, but also the type of people who manage those companies represent a challenge.
It is about organizations where independent people work. People who are used just to do their thing. For example, captains obviously did not became captains to be checked, they became captains because they want to do their own thing. They think the organization is there to support them and not to control or dictate them. This small detail really needs to be considered when deciding to implement a PMS. – Interviewee 9, Management
The same respondent 9 claimed that there is a major difference in measuring performance
on board versus the performance of a factory. The difference lays in the visibility of the output. In a factory it is visible what is going wrong. Take a bike factory for example, the amount of bikes produced at low quality is visible at inspection. Now taking a ship, fuel consumption for example is not as visible as the bikes, I mean you can’t directly watch inside the fuel tank. – Interviewee 9, Management
By far, the most comments regarding difficulties in measuring performance in shipping relate to the difficulty of benchmarking, and to the various external conditions which influence how a vessel is performing.
The information from other shipping companies is only partially made public so you can only partly benchmark yourself. If we look at QHSE aspects we can benchmark ourselves because the information is available, but if we look at more financial aspects, or at fuel usage for example no shipping company will directly share this information. Shipping is a very conservative world in this aspect. Besides, every vessel is unique. If you take Philips or Samsung you can compare them because they produce the same. One should think it
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works the same in shipping but it is not true. It depends on the market, type of vessel, type of cargo…– Interviewee 9, Management
Some factors cannot be influenced, like the weather. Of course you can sail around and try to avoid it, or you can wait until the weather has improved, but how will you measure the contribution of those decisions?– Interviewee 7, Fleet Management
The reactions listed above indicate, despite the difficulties of measuring in the shipping company, a clear positive reaction towards performance measurement in general. The interviewees were also asked to recall their reaction with respect to the implementation of the PMS in ShipCo. Most of the employees were initially reserved or even skeptical. The majority of them initially considered the plan too optimistic given the limited time resources. People were already busy enough with their own daily tasks. However, this was quickly changed as they soon realized the ambitious project works and that they receive the needed resources in time and support. When being busy with the project and being able to see the results the initial reaction changed for the most respondents in enthusiasm and commitment. These perceptions are best illustrated by the interviewee 5.
We shall see. It’s a nice strive, the so-called “Champions League”. I did not expect so much at that time. That’s because it was such a big step to make in one time from where we were to where we wanted to arrive…So yeah I was a bit reserved. The initial impression is for sure changed as you can see where we were and where we are now, within the same personnel occupancy and with more ships to manage. So seeing the results gives you motivation and hope. – Interviewee 5, Fleet Management
The enthusiasm also arose from the feeling of having influence in the company, of being heard and the space to think of creative solutions.
Take the trim optimization for example. It was quite surprising to see its influence on fuel consumption. Also with additives, you will do research and find out what for influence they can have. – Interviewee 5, Fleet Management
Especially the feeling of being a voice for the people on board into the company was appreciated by the interviewed captains.
I liked it. It’s so nice to be involved in the company and to hear that better performance can actually be achieved. It was interesting and I appreciate for being asked to take part of the working groups. – Interviewee 4, Crew on board
The creative solutions came from the people on board as well, which a respondent saw as positive, as he states:
You notice that the project is received positive on board too. There are many ideas that the office people do not always think about. This created a positive interaction. – Interviewee 6, Fleet Management
There was a respondent from the crew on board whose reserved perceptions did not changed throughout the process. He was particularly concerned that the PMS would impediment creativity and thinking in solutions on board.
If you focus too much on telling people how things must be done, there is a chance that employees will work in a king of auto mode and just work according to the prepared lists. That’s the wrong direction when you are sailing. – Interviewee 3, Crew on board
A particular example reinforces that the perceptions about the implementation of the PMS are determined especially by the feeling of being heard and having the impression that the management actually does something with the insight gained from the employees and not only by participating in the development team. As mentioned before, operational excellence was one of the three main pillars of the project. Within operational excellence several working groups were developed on different themes. Fuel efficiency and maintenance were two of these themes. One of the respondents recounted the difference in the way fuel efficiency and maintenance projects evolved. According to him, developing performance measures for maintenance failed as opposed to the success of fuel efficiency. When probed as to the possible reasons for this failure, he indicated that the link with practice was missing when setting the goals. The goal for maintenance was developed on the upper level of the organization without consultation with the technicians and they stepped in too late into the process. The goal was to do condition-based maintenance rather than maintenance based on operating hours. This would result in a very accurate monitoring while relying on the information from aboard. He felt that relying at such a high level on information for doing maintenance is not desirable for the critical equipment.
It sounds wonderful in theory, but in practice it's a bit lacking still. The consequences would be so high and you would have to monitor in such a gigantic proper manner. Yet such a monitoring is difficult when you deal with 21 assets worldwide. You can’t just step in the car and visit the ship whenever you want to, so you are dependent on the people aboard. And the information that you need to receive from aboard you can’t rely on it for such critical equipment. – Interviewee 7, Fleet Management
