Why Do We Need Performance Measurement Systems
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The performance measurements systems help the companies to perform according to the strategic goals and objectives of the company and to analyse the performance of the organization from time to time. It also helps the companies to identify issues and deficiencies in the current performance of the company and to develop proper strategies for eliminating these deficiencies. The continuous and sustainable growth of a company depends on the performance measurement and performance management processes of the company (Shapiro and Globerman, 2012). The companies need to set some standards to evaluate and monitor their day to day operations and actions for achieving desired goals and objectives of the organizations.
Fan et al., (2013) communicated that there has been several changes observed in the performance measurement systems since the past few decades; traditional performance measurement process were just focusing on the financial aspects of the performance whereas the current performance measurement systems focus both on financial as well as non-financial aspects of the performance. Besides that, companies also find cause and effect relationship between the strategic and operational dimension of the business in order to measure their performance (Victor, 2011). However, the current research measures the performance of State Owned Enterprises (SOEs) operating in the energy sector by using both financial and non-financial performance indicators such as the corporate governance.
The financial performance indicators include important business aspects which help the managers in strategic financial decisions. Managers decide about the shareholder value of the business by evaluating different financial performance indicators. The increasing competition in the energy sector and energy shortages highly impacted the economy of South Africa (Shapiro and Globerman, 2012). Therefore, the managers in the energy sector must examine the shareholders return expectation for maximizing their profits. The information about the financial resources of a company can be extracted through financial statements and the publicly available annual reports of the companies.
The non-financial performance indicators put emphasis on strategic success factors and heir integration for the success of the business. Strategic success factors can be defined as those processes of the organization which needs to monitor regularly such as the maintenance, security, cost reduction, revenue growth and some others (Capobianco and Christiansen, 2011). The strategic success factors help the managers in making good decision for the company's operations. For instance, the companies build strong brand reputation and positive brand image through effective corporate governance practices. The corporate scandals, criminal liability, fraud and organizational scams can be monitored and prevented through strong corporate governance activities. The performance of the SOEs can also enhance through effective corporate governance practices which may lead to sustainable social and economic growth of SOEs.
The state-owned enterprises are not performing according to their set standards and guidelines; there are various reasons behind the poor performance of the state owned enterprises. The most important reason is the unclear goals and objectives of the state-owned entities. Furthermore, the lack of transparency gave rise to the political involvement in the operations of the enterprises. Unlike public or corporate organizations, the state-owned enterprises have to face comparison with the public and corporate organizations (Capobianco and Christiansen, 2011). They also do not have clear, concise and brief communication strategies for taking feedbacks and suggestions. The leading state owned enterprises need to clearly communicate their goals and objectives to the government and stakeholders when they carry out negotiations with them. Moreover, they also need to communicate their social and financial goals as well as the long term benefits of these goals to the stakeholders and government.
The research focuses on the implementation of corporate governance principles in SOEs and measured their performance. The most effective tool for measuring the performance of financial and non financial indicators is the Balance Scorecard (BSC) approach. Organizations must incorporate their financial performance measures with the non financial measures in order to get more concise and complementary view of the companys performance (Fan et al., 2013).
Background to the Research
Despite the fact that the South Africa has received international recognitions for implementing good corporate governance practices in the country, the country also experienced some serious concerns related to the rule of law and corruption in the region. This scenario has presented a contrast view of the country where the country has divided among different levels of peace and democracy.
The overall performance of the country reflects the governance of a country, however, governance can be defined as a way in which government control and regulate the operations of a country (Menozzi e al., 2012). The governance and management are distinct from each other as the governance focuses only on the conformance and performance of the companies. In the public organizations, governance is termed as public sector governance whereas the corporations called governance as corporate governance. However, the state owned enterprises are entirely different from the public and corporate organizations and they operate at the middle of the corporate and public organizations. The state-owned enterprises have their own dynamics which are different from the public and corporate operations and the performance of the state-owned enterprises cannot be evaluated on the set criteria of the public and corporate organizations.
The boundaries of the corporate and public organizations keep on shifting from time to time, for instance, the private sector organizations are now focusing more on the social, environmental and governance issues but previously, they were only focusing on the financial performance of the companies (Rosnes and Shkaratan, 2011). On the other side, the government organizations are following some practices of corporate organizations by becoming more professional, efficient and smart in their business dealings. The reflection of such practices can be seen in the business environment of South African Revenue Services which transformed itself into the most professional and well-organized state organization by adopting the practices of the corporate organizations.
The fundamental principles of governance are same for both the private and the public organizations such as the transparency, honesty and accountability (Shapiro and Globerman, 2012). These three principles serve as the foundation for the good and effective corporate governance. Therefore, the SOEs also need to have some corporate governance practices for social, political and economic development of the country. The SOEs can overcome the challenges of the corporate governance by utilizing different matrices developed by different organizations (Celasun, 2013).
SOEs serve as a reflection of the vision of the government and they also support government in achieving economic growth for South Africa as well as the neighbouring regions of the country. There are three main SOEs operating in the energy sector of South Africa which are as follows:
SOE A: The generation, transmission and distribution of electricity are handled by the SOE A.
SOE B: The search for appropriate energy solutions such as the wind, renewable energy resources, biomass. Low smoke fuels, solar energy, electrical power, gas and oil are performed by the SOE B. Besides that, the development and operations of oil and gas assets are also managed by the subsidiaries of the SOE B.
SOE C: SOE C has taken the responsibility for the socio-economic development of the country by taking initiatives for the utilization, development and management of nuclear technology. Moreover, handling the regulation of the uranium industry is also the major responsibility of the SOE C.
Thus, it can be said that all of the above mentioned SOEs are collectively working for generating primary energy source for the country which is called as electricity. Although SOE A is highly responsible for different operations involved in the generation of electricity but the other SOEs are also indirectly involved in the generation of primary source of energy (Victor, 2011). Besides that, the SOE A also utilizes, oil, nuclear technology, solar energy, wind energy and other energy resources for generating electricity.
Since the past few years, the country has achieved significant growth due to improved performance of the SOEs but the current issues in the energy sector has declined the performance of the SOEs. These issues are related to the operational and production processes of the energy sector resulting in the poor performance of SOEs. Due to the current problems, the SOEs are unable to achieve their desired goals and objectives and are also failed to manage their productivity in industrial and economic sectors of the country (Farole, 2011). Although, all the major sectors are affected by the poor performance of SOEs but mining has been considered as the worst affected sector. The SOEs are operating under the authorization of the government for supporting economic growth of the country; however, these entities are highly influenced by the political intervention. The higher involvement of the political parties in different operations of SOEs has also affected the overall performance of the SOEs (Fan et al., 2013). Due to weak relationships between the shareholders and board of directors of the SOEs, the SOEs are not able to implement the corporate governance practices completely. The current challenges for implementing corporate governance practices involved the inefficiency towards business goals for achieving sustainability as well as the governments response towards the public enterprises (Conger et al., 2012).
Aims & Objectives of the Research
The main aim of the research is to evaluate the implementation of corporate governance practices in the SOEs in the energy sector in South Africa and measure their performance; however, the following objectives help the researcher to achieve the main aim of the study:
- To evaluate the successful implementation of the performance management and performance measurement systems for achieving high performance and high quality standards within the energy sector in South Africa.
- To determine the best performance metrics for measuring performance of SOEs in the energy sector in South Africa.
- To examine the impact of the shareholders involvement on the performance of Corporate Governance of SOEs in South Africa.
Research Questions
The main research question is:
What factors are responsible for the current energy crisis...
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