Performance Measurement System Design for Integrated Thinking: Evidence from Japanese Electric Utility Providers
Asian Journal of Economics, Business and Accounting · pp. 250–261 · Published 6 Aug 2024
10.9734/ajeba/2024/v24i81454Abstract
Asian companies are increasingly practicing integrated reporting to create long-term economic, environmental, and social value for investors and other stakeholders. To accomplish such value creation, far-reaching changes in strategies, management control systems, and governance are required, which is achieved through a management approach called integrated thinking. However, findings from previous studies indicate barriers in designing performance measurement systems, leading to misalignment between strategies and managers' decision-making. Therefore, this research study aims to expand existing knowledge on integrated reporting by (1) developing a conceptual framework for the characteristics of performance measurement systems to support integrated thinking and (2) analyzing the current status of performance measurement systems used by Japanese electric utility providers. To support integrated thinking, performance measurement systems should contain multidimensional and connected key performance indicators with quantitative target values and action plans that are integrated into the management reward system. By utilizing primary data, the most recent integrated reports of all 11 Japanese electric utility providers were analyzed trough a manual content analysis and percentage analysis. On average, the requirements of performance measurement system design are fulfilled to a degree of 56 %, while the lowest degree being 39 % and the highest degree being 75 %. In most cases, companies use multidimensional key performance indicators with incomplete target values and vaguely defined action plans. Key performance indicators are insufficiently connected and integrated with rewards systems, indicating the outside-in approach of integrated reporting. Larger companies that explicitly refer to the <IR> Framework tend to use more sophisticated performance measurement systems. The findings suggest several areas for improvement, such as connectivity between KPIs as well as further integrating non-financial KPIs with the rewards system.
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