〔論文〕 弘前大学経済研究第21号 November 1998

An Empirical Study of the Performance Measurement System

in Japanese Manufacturing Industries

Yuta Hoshino

Abstract: The purpose of this study is to investigate the actual performance measurement system in

Japanese industrial firms. Surveyed were 407 industrial companies considered to be leaders and

innovators in high technology. The result of this study provides evidence that performance measure-

ment has been applied to performance evaluation. Furthermore, I have researched the uniqueness of

financial measures and nonfinancial measures. There were important di百erencesin the measurement of

results between the two methods. The work further touched on improvements in the management

accounting system. I then suggested the following three points as performance evaluation that could

activate personnel: (1) show performance evaluation which is connected with the incentives for a task,

(2) examine the use of results-oriented performance evaluation, and (3) examine the use of process-

oriented performance evaluation. In particular, I studied significant differences between results-oriented

evaluation and process-oriented evaluation.

Kり words:Empirical; Performance measurement; Rewarding results; Nonfinancial measures; Japanese

manufacturing industry

1. Introduction

This paper shows the results of an empirical study of the performance measurement system in Japa-

nese manufacturing industries. After having analyzed the results, I suggest some improvements in how

the performance evaluation system can be used to activate human resources. Japanese manufacturing

industries have many things in common in terms of performance measurement, capital investment,

budgeting, and the like, yet there seem to be a number of important differences between them.

In this paper I would like to examine the uniqueness of the performance measurement system in

Japanese firms. I will also clari命theimportant features of performance measurement and performance

evaluation in Japanese firms.

The purposes of performance measurement are not only to predict and measure financial perfor-

mance but also to grasp job related problems, to review budget planning, to improve employees' salary

and promotion opportunities, and to examine personnel training. Before we describe performance mea-

surement in detail, however, it will be useful to address some fundamental questions concerning corpo-

rate strategy. The variance from achievement goals is analyzed before doing performance evaluation.

This variance analysis is useful for motivation to production and performance enhancement. If a prob・

lem of cost non-efficiency is discovered, we can get rid of the causes and make corrections in budget

-111

compilation.

The performance measurement is merely related to出ebudget compilation of each divisional organi-

zation and is also related to promotion, reward, and employment. In Japanese companies, however, the

relation between budget performance and division manager rewards is weak, and the incentives for the

goal achievement of an employee are not very s位ong.

Therefore, the creation of a performance evaluation system that can link performance and rewards is

urgently needed to increase the validity of a manager’s bonus and promotion. It is not clear how per-

formance is related to personal assessment nor is it clear how a superior influences a subordinate

through control. In this paper, I would like to analyze actual performance measurement procedures in

Japanese industrial firms.

2. The Survey of Research

For the problem consciousness issue mentioned above, I used a questionnaire to gather information on

each fi口n’sorganizational structure, budget planning and control practices, and performance evaluation

system. Based on my analysis of the questionnaire, I investigated the status of the performance mea-

surement system in Japanese firms. Surveyed were a total of 407 industrial companies which is

considered to be on the cutting edge of high technology manufacturing listed on the Tokyo First Mar-

ket Stock Exchange. These were grouped into 8 categories: steel, non-ferrous metal, metal products,

machinery, electronics, transpo此 equipment,precision instruments, and other manufacturing. The sur-

vey questionnaire was mailed to all 407 Japanese industrial companies. The questionnaires were ad-

dressed to the Company Controller or the Manager of the Controller Department. Completed question-

naires were returned by 123 Japanese companies, a response rate of 30.2 percent. The highest of the

response rates was 38.5 percent for “metal products”； the lowest response rate was 14. 7 percent for

“other manufacturing”. Table 1 shows the number of companies in the initial survey, the number of

responses, and the response rates by the industry classification.

The survey questionnaire consisted of 20 questions (32 items) such as divisional organization, bud-

geting, capital investment, performance evaluation, and performance measurement. Before I examine

these questions, I must clarify some fundamental questions. concerning a management system in Japanese

manufacturing industries. Table 1 Composition of Surveys and Responses The performance evalua-

Industry classification Survey size (rate) Responses (rate) tion system is base on the

Steel 36 ( 8.8%) 10 ( 27.8%) budget planning and incen-

Non-ferrous metal 25 ( 6.1 ) 7 ( 28.0 ) tive systems. This section Metal products 26 ( 6.4 ) 10 ( 38.5 )

first provides a description Machinery 94 ( 23.1 ) 26 ( 27.7

of management system and Electronics 118 ( 29.0 ) 40 ( 33.9

then discusses the major Transport equipment 53 ( 13.0 ) 18 ( 34.0

questions of performance Precision instruments 21 ( 5.2 7 ( 33.3

evaluation. Other 34 ( 8.4 5 ( 14.7

Totals 407 (100.0%) 123 ( 30.2%)

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An Empiri伺 lStudy of出ePerfonnance Measurement System in Japanese Manufacturing Indus位ies

3. Description of Management System

First, I will describe s位ategygoals. In the questionnaire, the respondents were asked to rank the top

three s位ategygoals taken仕om16 kinds of managerial categories for firms' managers. These results of

the rankings are shown in Table 2. In Table 2 important strategic goals are ranked sequentially accord-

ing to growth of earnings, strengthening of research and development (R&D) e血ciency,improvement

of product quality, and sales growth. It has been proposed that Japanese companies stress sales volume

and market share more than profit.1 There are significant differences between Japanese companies and

American companies. But Table 2 shows that sales growth and growth in market share aren’t ranked

so highly. On the other hand, we must pay attention to the fact that growth of earnings ranked first.

This is evidence that there is beginning to be more emphasis on management e旺iciencyunder the

successful leadership of firms' managers. It is characteristic that s住engtheningof R&D efficiency

ranks around 2, and improvement of product quality is ranked around 3. In other words, this means

that Japanese manufacturing industry is proceeding to strengthen its engineering capability, and has re-

alized the importance of high product quality and low cost. The reason that the capital gains of stock-

holders aren’t considered very important the power of stockholders is weakened by cross-holdings.

Second, as to the analyses of budgeting, I examined performance evaluation method of company bud-

gets. It is reasonable to assume that production departments, as cost centers, are responsible for out-

put, whereas sales departments, as profit centers, are responsible for sales volume.2 If we look at

Table 2 Important Strategy Goals

Mean Responses Ranking

First(%) Second(%) Third(%)

Growth of earnings 1.30 68 40 (33.3) 12 00.0) 16(13.3)

Strengthening of R&D e伍ciency 1.09 62 24(20.0) 24(20.0) 14 (11.7)

Improvement of product quality 0.72 46 10 ( 8.4) 22 (18.3) 14 (11.7)

Sales growth 0.59 34 12 00.0) 15(12.5) 7 ( 5.8)

Growth in market share 0.34 25 4( 3.3) 9 ( 7.5) 12 (10.0)

Return on Investment (ROI) 0.31 17 9 ( 7.5) 3 ( 2.5) 5 ( 4.2)

Strengthening of marketing capability 0.31 19 6( 5.0) 7( 5.8) 6 ( 5.0)

Development of human resources 0.30 23 3( 2.5) 8( 6.7) 12 (10.0)

E伍ciencyof production systems 0.29 20 4( 3.3) 8 ( 6.7) 8( 6.7)

New product ratio 0.18 12 2 ( 1.7) 6( 5.0) 4 ( 3.3)

Improvement of product portfolio 0.17 11 4 ( 3.3) 2 ( 1.7) 5 ( 4.2)

E伍ciencyof physical distribution 0.08 7 1 ( 0.8) 1 ( 0.8) 5( 4.2)

Equity ratio 0.08 8 1 ( 0.8) 0( 0.0) 7 ( 5.8)

Improvement in quality of working conditions 0.08 7 0 ( 0.0) 3 ( 2.5) 4( 3.3)

Improvement in public image of the company 0.01 1 0 ( 0.0) 0( 0.0) 1 ( 0.8)

Capital gains for stockholders 0.00 。 0 ( 0.0) O( 0.0) 0 ( 0.0)

Note: The mean scores in the table were culculated as follows: 3 points for the most important goal, 2 for the

second and 1 for the third. The mean scores are aggregated and dividend by the number of responding

companies. The mean is the average value of a weighty score. The scores in Table 4, Table 5, Table 8,

Table 9, and Table 10 are equal as well.

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Table 3 we see that functional per-

fonnance evaluation was 46.8 percent,

evaluation through profit centers was

42.7 percent, and evaluation through

informal profit centers was 8.9 per-

cent. It is clear that the profit center

has the function of the profit and loss

budget, but the point where functional

performance evaluation shows the

highest percentage as the performance

Table 3 Performance Evaluation Method of Budget (short-range planning)

Functional performance evaluation

Evaluation through informal profit centers

Evaluation through profit centers

Non-evaluation

Totals

Responses(%)

58 ( 46.8)

11 ( 8.9)

53 ( 42.7)

2 ( 1.6)

124(100.0)

There were some double responses from respondent companies.

evaluation budget method is an important characteristic. Table 7 shows the fact that many companies

are adopting divisional organization: overall adoption is 56.1 percent and partial adoption is 24.4 per-

cent.

Third, I surveyed the types of capital budgeting techniques. The results of these rankings are shown

in Table 4. According to my survey, it was found that the payback method has been adopted by great

many companies. There are several reasons for this. One reason is that the early collection of capital

was necessary. Another reason is that technical innovation was an important competitive factor. To

sum up, the reason why this method has often been adopted is that it was superior as a measure to

deal with the obsolescence of equipment and product. In addition to this payback method, we must

draw attention to the fact that the accounting rate of return and the internal rate of return are made

much of as an investment evaluation method.3

Table 4 Type of Capital Budgeting Techniques

Mean Responses Ranking

First(%) Second(%) Third(%)

Payback method 2.13 104 63 ( 49.6) 32 ( 31.1) 9 ( 11.3)

Accounting rate-of-return 0.94 56 20 ( 15.7) 20 ( 19.4) 16 ( 20.0)

Internal rate of return 0.70 41 13 ( 10.2) 19 ( 18.4) 9 ( 11.3)

Subjective method 0.63 48 10 ( 7.9) 9( 8.7) 29( 36.3)

Present value method 0.46 27 8 ( 6.3) 13 ( 12.6) 6( 7.5)

Profitability index method 0.36 21 9 ( 7.1) 5( 4.9) 7( 8.8)

MAPI system 0.05 3 1 ( 0.8) 1 ( 1.0) 1 ( 1.3)

Other 0.16 10 3 ( 2.4) 4( 3.9) 3 ( 3.8)

4. Performance Measurement of Divisional Organization

The next series of questions examined data concerning the performance measurement of divisional or-

ganization. My research aim was to observe the performance measures which division managers con-

sidered important. Table 5 shows sales volume, net profit after allocation of corporate overhead costs,

profit margin on sales, ranked in the order of importance. Looking at Table 5, we see that division

managers make much of sales volume, but do not make so much of return on investment. Table 5

shows that the result is relevant to the characteristics of divisional organization. This tendency was al-

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An Empiri回lStudy of the Perlonnance Measurement System in Japanese Manufacturing Industries

Table 5 Important Performance Measurement of Division Managers

Mean Responses Ranking

First(%) Second(%) Third(%)

Sales volume 1.40 75 36 ( 28.8) 26 ( 21.3) 13 ( 10.7)

Net profit after allocation

of corporate overhead 0.84 44 23 ( 18.4) 14 ( 11.5) 7( 5.8)

Profit margin on sales 0.79 48 15 ( 12.0) 19 ( 15.5) 14( 11.6)

Marginal profit 0.50 30 10( 8.0) 12 ( 9.8) 8 ( 6.6)

Contribution margin 0.44 24 13 ( 10.4) 4 ( 3.3) 7 ( 5.8)

Production cost per unit 0.41 30 3 ( 2.4) 14( 11.5) 13 ( 10.7)

Controllable profit 0.34 19 10 ( 8.0) 3 ( 2.5) 6 ( 5.0)

Growth in market share 0.28 20 1 ( 0.8) 10 ( 8.2) 11 ( 9.1)

Value added productivity 0.27 19 2 ( 1.6) 8 ( 6.5) 9 ( 7.4)

Net profit after charging

imputed corporated interest 0.24 13 6( 4.8) 4 ( 3.3) 3 ( 2.5)

Sales growth 0.20 16 3 ( 2.4) 3 ( 2.5) 10( 8.2)

Return on investment (ROI) 0.12 8 2 ( 1.6) 3( 2.5) 3 ( 2.5)

Asset turnover 0.11 12 0( 0.0) 1 ( 0.8) 11 ( 9.1)

Cost variances 0.o7 7 0( 0.0) 1 ( 0.8) 6 ( 5.0)

Other 0.02 1 ( 0.8) 0( 0.0) 0( 0.0)

so borne out in Bailes and Asada (1991).4

Another look at Tables 2 and 5 shows that the important goals (or measures) vary between top

management and division managers. I would next like to verify these using statistic techniques. I ex-

tracted common performance measures仕omTables 2 and 5 and made a contingency table (Table 6) by

these measures. As a result of the chi square test, the null hypothesis, where there are no dramatic

differences to note between top management and division managers in terms of important goals, was

rejected at 10 percent level of significance. The results show that there seems to be a considerable

difference in s仕ategygoals between top management and division managers.

measure where the divisional Table 6 Top Management・DivisionManager Comparison of Strategy Goals

organization must still empha-

size profits after allocation of

corporate overhead cost is an

example of a factor, which is

ranked highly. Above all, what

is shown in Table 5 is that net

profits after allocation of corpo・

rate overhead cost becomes the

important performance measure

of divisional organization along

with marginal profit, contribu-

tion margin, and controllable

Again, it was found that the

selected goals Top management Division manager

Growth of earnings 68

(Controllable profit) 19

Sales growth 34 16

Growth in market share 25 20

Return on investment (ROI) 17 8

Chi square value=7.294. Significant at the 10 percent level.

Degree of仕eedom=3.

Note: I made this Table仕omTables 2 and 5. Numerical value is the total

number of strategy goals ranked from first to third.

As profit index corresponding to growth in earnings of top manage-

ment, I selected controllable profit as the index most suitable for a

division manager.

Fhd

，i

，t

Table 7 Use of Divisional Organization

Responses(%) Defender ( % ) Prospector{%) Analyzer(%) Reactor(%)

Extensive use 69 ( 56.1) 8 ( 40.0) 21 ( 75.0) 38( 55.9) O( 0.0)

Moderate use 30 ( 24.4) 6( 30.0) 2 ( 7.1) 18( 26.5) 1 (lOO.O)

No use 23( 18.7) 6( 30.0) 5( 17.9) 11 ( 16.2) O( 0.0)

No-response 1 ( 0.8) 0( 0.0) 0 ( 0.0) 1 ( 1.4) 0 ( 0.0)

Totals 123 (100.0) 20(100.0) 28 (100.0) 68 (100.0) 1 (100.0)

Chi square value=8.017. Significant at the 10 percent level.

Degree of仕eedom=4.

Noh!: The meaning according to four s凶 tegytypes is as follows (see Hoshino [1992〕chap.6).

profit.

Defender: This type exploits the advantage of being a“follower ”and tried to reduce risks on the

development of new products and/or markets.

Prospector: This type is always an innovator which activity takes risks on the development of new

product and/or markets.

Analyzer: Strategy formulation in this type is based upon systematic research data and sophisticated

analytical methods.

Reactor: This type is an unstable organization because technology, structure, and process are not

linked to it in an appropriate manner, and management adheres to an outmoded strategy and

S甘ucture.

In addition, I observed the adoption of divisional organizations. These results are shown in Table 7.

The majority of Japanese firms specified that出eyhad divisional organizations as shown in Table 7. In

Table 7 we see that firms adopting a divisional organization overall are 56.1 percent, firms adopting it

partially are 24.4 percent, and firms which don’t adopt it at all are 18.7 percent. Overall, 80.5 percent-

age of all Japanese firms have adopted at least partially a divisional organization. The adoption rate of

出issystem is a rate which αn be considered quite high.

Recently, Japanese firms have reduced the head office function in the sense that organization expan-

sion has been put under review. Japanese firms which have adopted the divisional head office system

have returned to a divisional organization emphasizing a top down approach, because it is judged to

have caused organization expansion and erosion of product development capability. The divisional or-

ganization adoption trend will continue for a while in order to promote the creation of subsidiary com-

panies by scheme simplification and empowerment.

5. Financial measures and Nonfmancial measures

The questionnaire also sought data concerning financial measures and nonfinancial measures. Table 8

shows the mean values and the percentages of each firm that ranked specific financial measures first,

second, and third. According to Table 8, sales volume, profit margin on sales, contribution margin,

gross margin, and sales growth are located according to rank. In Table 8 we focus our attention on the

tendency that profits or profit margin is ranked highly. The fact that the cost of capital, which is con-

sidered an advantage by Japanese firms, is neglected was unexpected. In Japan, we assume that sales

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An Empirical Study of the Perlormance M回 surementSystem in Japanese Manufacturing Industries

Importance of Financial Measures Table 8

Ranking

Second(%)

Responses Mean

Third(%)

7( 6.0)

14 (12.1)

6( 5.2)

9( 7.8)

8 ( 6.9)

7 ( 6.0)

1 ( 0.8)

15 (12.8)

2107.9)

8( 6.8)

14(12.0)

1704.5)

8 ( 6.8)

5 ( 4.3)

First(%)

42 (35.2)

15 (12.7)

16 (13.4)

9 ( 7.6)

7( 5.9)

9 ( 7.6)

7( 5.9)

a

－nυnunL内

44ιτqJ

POa

－q

d

q

d

q

d

q

L

’i

1.33

0.82

0.57

0.52

0.51

0.41

0.26

5( 4.3)

15 (13.0)

9 ( 7.8)

4( 3.4)

6( 5.2)

8( 6.9)

4 ( 3.4)

5( 4.3)

2 ( 1.7)

2 ( 1.7)

0( 0.0)

2 ( 1.7)

5 ( 4.3)

3 ( 2.6)

4 ( 3.4)

2 ( 1.7)

2 ( 1.7)

2 ( 1.7)

2 ( 1.7)

3( 2.6)

2 ( 1.7)

3 ( 2.6)

0( 0.0)

0( 0.0)

4 ( 3.4)

0( 0.0)

0( 0.0)

2 ( 1.7)

1 ( 0.8)

0( 0.0)

1 ( 0.8)

0( 0.0)

1 ( 0.8)

0( 0.0)

1 ( 0.8)

0 ( 0.0)

A苛

QuqdooQUOV司

iQUphdRdtAqfu

’i

’i唱

i

’i

0.22

0.17

0.14

0.11

0.11

0.10

0.09

0.09

O.Q7

0.07

0.02

0.02

1 ( 0.9)

O( 0.0)

0 ( 0.0)

0( 0.0)

0 ( 0.0)

1 ( 0.9)

0( 0.0)

0 ( 0.0)

0 ( 0.0)

0( 0.0)

0 ( 0.0)

1 ( 0.9)

0 ( 0.0)

0( 0.0)

0( 0.0)

0( 0.0)

0 ( 0.0)

4 ( 3.4)

1

0

0

0

0

6

0.01

0.00

0.00

0.00

0.00

0.12

Sales volume

Profit margin on sales (pretax)

Contribution margin

Gross margin

Sales growth

Growth in net profit

Controllable profit

Profit rate of total

liabilities and net worth

Inventory level

Cash flow

Return on Investment (ROI)

Sales per employee

Cost variances

Equity ratio

Cash flow planning

Rate of return on equity

Quality cost

Rate of return on asset

Cost per employee

Profit on economic measures

(price earnings ratio,etc.)

Rate of return on回 pitalstock

Residual income (RI)

Stock price of own company

Cost of capital

Other

volume and profit margin on sales would still be ranked highly, because performance measurement is

accounting information that reflects on the degree of achievement of firm’s overall goals. However，出e

important point to note in our research is the fact that profit margins such as profit margin on sales,

contribution margin, and gross margin are important measures for Japanese firms. The performance

measures which Japanese firms make much of are the indiαtors which show results such as sales vol-

ume, but also measures valued are profit margins showing e血ciencyof management in the future. The

results of出isresearch clearly show that firms are beginning to place an emphasis on e伍ciency.

As financial measures, I asked the respondents to rank the top three nonfinancial measures. Table 9

shows the mean values and the percentages of each firm that ranked specific nonfinancial measures

first, second, and third. In Table 9 we see that the firms make much of growth in market share and

forecasted sales growth. We must also pay attention to the fact that Japanese firms attach importance

to such differentiation strategies as product quality, effect of product development, and new product ra-

tio (for instance, measures showing product added value). A further important point to note is that

月／，i

，i

Table 9 Importance of Nonfinancial Measures

Third(%)

6( 5.3)

1200.6)

2 ( 1.8)

6 ( 5.3)

4( 3.5)

16(14.1)

7 ( 6.2)

8( 7.0)

11 ( 9.7)

Ranking

Second(%)

8( 6.8)

9 ( 7.7)

9( 7.7)

2107.9)

14 (12.0)

7( 6.0)

9( 7.7)

6 ( 5.1)

7 ( 6.0)

First(%)

33 (28.0)

16(13.6)

16(13.6)

6 ( 5.1)

7( 5.9)

5 ( 4.3)

5 ( 4.3)

6 ( 5.1)

4 ( 3.4)

Responses

司’弓’司t

q

d

p

D

Q

U

司A

O

u

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EqdqLqJqLqLqFuqLqL

Mean

0.98

0.63

0.55

0.54

0.43

0.37

0.33

0.31

0.30

3 ( 2.7)

3 ( 2.7)

4( 3.4)

5 ( 4.2)

5 ( 4.3)

2 ( 1.7)

12

10

0.21

0.15

10 ( 8.8)

2 ( 1.8)

3 ( 2.5)

2 ( 1.7)

0 ( 0.0)

3 ( 2.5)

13

7

0.13

0.12

0( 0.0)

4 ( 3.5)

3( 2.7)

5 ( 4.4)

2 ( 1.8)

2 ( 1.7)

0 ( 0.0)

2 ( 1.7)

1 ( 0.9)

0 ( 0.0)

3 ( 2.5)

2 ( 1.7)

1 ( 0.8)

1 ( 0.8)

1 ( 0.8)

5

6

6

7

3

0.11

0.08

0.08

0.08

0.04

1 ( 0.9)

1 ( 0.9)

3 ( 2.7)

1 ( 0.9)

0( 0.0)

0( 0.0)

0 ( 0.0)

2 ( 1.8)

1 ( 0.9)

2 ( 1.7)

2 ( 1.7)

1 ( 0.9)

O( 0.0)

O( 0.0)

1 ( 0.9)

1 ( 0.9)

0 ( 0.0)

O( 0.0)

0( 0.0)

0( 0.0)

0( 0.0)

1 ( 0.8)

1 ( 0.8)

0 ( 0.0)

0 ( 0.0)

0( 0.0)

0( 0.0)

q

d

q

d

a唖

qL

胃

A

’i

’Aq

L

’A

0.04

0.04

0.04

0.03

0.02

0.02

0.02

0.02

0.01

0 ( 0.0)

0 ( 0.0)

0 ( 0.0)

0( 0.0)

O( 0.0)

0 ( 0.0)

0 ( 0.0)

1 ( 0.9)

0 ( 0.0)

0( 0.0)

0( 0.0)

0( 0.0)

Aり

nυnU唱

i

0.00

0.00

0.00

0.02

Growth in market share

Effort to achieve goals

Prediction of sales grow出

Product quality

Effort to achieve production planning

Inventory turnover

Effect of product development

New product ratio

Customer satisfaction

Total factor (labor, equipment, and

raw material, etc.) productivity

Ratio of distribution cost to total sales

Production engineering capability

(e.g., process innovation)

Safety

Jidoka of production

(i.e., manufacturing automation)

Development of human resources

Ratio of R&D cost to total sales

Engineering level (defect rates)

Important technique holding degree

Register number of industrial property

(e.g., intellectual estate productivity)

R&D capability of technological experts

Human cost-benefit

Output (performance) for one day

Return on investment to R&D

Sales according to distributors

Order number (value) of R&D

Degree of global environment protection

Reduction of labor turnover

Elasticity of equipment

(e.g., technical tie-up)

Reward and promotion system

Cleanliness

Other

customer satisfaction and safety ranked high. On the other hand, we must not overlook the fact that

firms usually ignore such issues of personnel evaluation as the reduction of labor turnover, reward and

promotion systems. These results appear in Table 9. The question we have to ask here is whether the

present performance evaluation system is capable of showing the results of the overall company activi-

ties. The method of the current accounting system is not an appropriate one to prepare financial state-

men ts. In other words, it should be clear that the current accounting system reform is necess訂 yto

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An Empirical Study of the Perfonnance Measurement System in Japanese Manufacturing Indus甘ies

make decisions that the firm is operating effectively. We need to incorporate both financial and

nonfinancial measures to appropriately evaluate production results.

In any case, it is important for the firm to establish a new performance measurement system. In-

deed, management decision-making is influenced by the character of its incentive system for division

managers and top management. In my understanding, it has not always clear that we have been mak-

ing steady progress in the study of the relationship between managerial accounting as budget control

and the performance measurement system as a reward scheme.

Consequently, as for the evaluation of the firm, it is important to evaluate invisible capabilities such

as management power and the potential of the firm, in addition to the financial measure analyses men-

tioned before. Although it is extremely important to evaluate qualitative factors which show the poten-

tial efficiency of the firm, it is my opinion that no investigation has taken place concerning the evalua-

tion of factors. To evaluate overall performance further, top management places more emphasis on

nonfinancial than on financial measures. To summarize, top management is not satisfied with the per-

formance evaluation information provided by the present accounting measurement system.

6. Improvement of the Management Accounting System

In this study I would like to examine how to improve managerial accounting systems. These results

町 eshown in Table 10. According to the Table 10, the improvement of numerous performance mea-

sures such as s位engtheningof long-term profitability, a responsibility accounting system, measurement

Table 10 Improvement of Performance Measurement System

Mean Responses Ranking Study Group

First(%) Second(%) Third(%) Responses(%)

Strengthening of long term profi也bility 1.13 59 32 (25.8) 16 (13.0) 11 ( 9.0) 40 (36.7)

Responsibility accounting system 0.93 47 26 (21.0) 15 (12.2) 6 ( 4.9) 45 (41.3)

Measurement of productivity 0.69 45 13 (10.5) 14 01.3) 18 (14.6) 29 (26.6)

Analysis of variances仕ombudget 0.63 37 12( 9.7) 17(13.8) 8 ( 6.5) 40 (36.7)

Measurement of product development cost 0.40 25 9 ( 7.3) 6 ( 4.9) 10 ( 8.1) 35 (32.1)

Strengthening of engineering e伍ciency 0.29 16 7 ( 5.7) 6( 4.9) 3 ( 2.4) ( 4.0)

Return on investment (ROI) 0.28 18 4 ( 3.2) 8 ( 6.5) 6 ( 4.9) ( 4.0)

Increase in market share 0.25 19 3 ( 2.4) 6( 4.9) 10 ( 8.1) 19 (17.4)

Application of nonfinancial measure 0.21 12 5 ( 4.0) 4( 3.3) 3 ( 2.4) 21 (19.3)

Measurement through cost variances 0.20 15 3 ( 2.4) 4( 3.3) 8 ( 6.5) ( 5.0)

Ratio of R&D cost to sales 0.20 15 1 ( 0.8) 8 ( 6.5) 6 ( 4.9) （）

Strengthening of exceptions report 0.15 10 3 ( 2.4) 3 ( 2.4) 4( 3.3) 16 (14.7)

Not necessary 0.11 5 4( 3.2) 1 ( 0.8) 0 ( 0.0) ( 5.0)

Measurement of inventory control cost 0.11 10 0 ( 0.0) 4( 3.3) 6( 4.9) 20 (18.3)

Strengthening of short term profitability 0.03 3 0 ( 0.0) 1 ( 0.8) 2 ( 1.6) （）

Other 0.07 5 1 ( 0.8) 1 ( 0.8) 3 ( 2.4) ( 3.0)

No-response 0.33 29 1 ( 0.8) 9( 7.3) 1905.5)

Note: This Table compares my survey with the results of Study Group (1989). Effective answer number of this group’s research is 109 companies. However, blanks show no・response.

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Table 11 Level of Satisfaction of Performance Evaluation Systems

Responses(%)

greately

dissatisfied

1

4 ( 3.3)

2

25(20.3)

Mean=3.008 Standard deviation=0.805

moderately

satisfied

3

62 (50.4)

Note: Mean (standard deviation) according to each type is as follows.

Defender=2.700 (0.865) Prospector=3.143 (0.756)

Analyzer=3.147 (0.738) Reactor=2.000 (0.000)

4

30 (24.4)

greately

satisfied

5

2 ( 1.6)

of productivity, analysis of variances from budget, and so on, are listed in order of rank. Likewise,

studies of the Japan Accounting Association Study Group (1989) 5 have found the same tendencies and

reached the same conclusions as I have led about the improvement of the performance measurement

system. I employed new measures and studied the firm to discover the characteristics of perfo口nance

measurement in the Japanese manufacturing sector. In any case, since these measures are ranked in

accordance to improvement prioritization, I find that each company is moderately satisfied with the

present performance measurement function of their system (see Table 11). In light of this result, it is

clear that the desire for the improvement of managerial accounting systems is considerably high.

The question we have to note in Table 10 is that the improvement order of the ratio of R&D cost

to sales and the strengthening of short-term profitability is listed as low. In an environment where

firms are住yingto intensify their international competitiveness, it is difficult to survive so long if the

firm doesn’t recognize出eimportance of such measures. Wi出 achange of times, measures of perform-

ance evaluation should be changed.

So far we have analyzed and examined the significant features of the performance measurement sys-

tem in Japanese firms. The result of this research clearly shows that Japanese firms share the follow-

ing major characteristics. The key emp仕icalfindings are:

1 . When the firm executes co叩oratestrategy, top management places emphasis on management effi-

c1ency.

2. However, division and department managers place emphasis on sales volume. There seems to be

a very important difference in goal treatment between managers.

3 . There is the tendency that firms have adopted the investment evaluation methods which are re・

lated to the innovations that the firm recognizes as an important competition factor.

4 . The percentage of firms adopting a divisional organization is quite high. In the firms adopting the

divisional head office system, there is the tendency that出emanager reviews the expanded organ-

ization and returns to a divisional organization of the top down approach.

5 . Japanese firms place emphasis on such nonfinancial measures as customer satisfaction and safety.

6 . The demand to improve the managerial accounting system is very strong.

In this section I describe the findings of this research that provides the implications of the perfor-

mance measurement and incentive system actually used in Japanese firms. Based on my analysis here,

I offer the following proposals.

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An Empiri但 lStudy of the Pertormance Measurement System in Japanese Manufacturing Indus廿ies

1 . So long as the firm gets rid of its expansionist orientation and runs itself in a low-growth econo-

my, we will need to place more emphasis on management e血ciency.

2 . As to performance evaluation, it is not enough to explain that financial measures such as profit are

at work. I suggest that nonfinancial measures are to be explained in the performance of the firm.

3 . To increase the effectiveness of an organization using responsibility accounting and analysis of

variances from budget, I offer a scheme which matches rewards to performance and strengthens

management incentives.

In the future, we will also need to verify the theoretical model based on this research data and to

analyze the relevant strategies and factors of individual firms. My findings have provided some empiri-

cal evidence of how the budget performance and rewards system may contribute to managers’incen-

tive.

In the next section, I consider two contrasting examples of the results-oriented system and the

process-oriented system.

7. Results-Oriented versus Process-Oriented Performance Evaluation

7 .1 Compensation and Incentives in Results-Oriented Evaluation

In the final section of this study we consider how organizational goals are directly related to the per-

formance appraisal of professional employees. There are still many questions which must be asked

about the relationship between performance and compensation. What kind of personnel performance

evaluation can be adapted to increase the effectiveness of the organization?

Let us begin this analysis by comparing Japanese performance evaluation and American performance

evaluation. Japanese performance evaluation is done by measuring the result of the group, but it isn’t

measured in terms of personal efficiency. On the other hand, research has revealed that the perfor-

mance evaluation system in American firms functions not only to evaluate organizational e鉦ectiveness

but also to evaluate personal e血ciency.There seems to be an important difference in the treatment of

performance evaluation between these two approaches. This difference between the individualism and

“groupism”of the two countries applies to decision-making as well. Japanese firms have the tendency

to reach decisions within group and these訂 ealso evaluated within group. Consequently, in the Japa-

nese system it is hard to explain the causal relationship between personal endeavor and eventual re骨

sult. Generally, it is said that performance and remuneration aren’t always linked and an employee is

warmly rewarded by promotion and job rotation in Japan.

The characteristics of the Japanese style management is the lifetime employment system, the se-

niority wage system, and in-house unions. These systems have played an important part in maintaining

good business results. That is, they are beneficial when the company enjoys steady growth and there

is not much variety in work contents. As for the seniority wage system, performance-based incentives

訂enever high. Most Japanese firms have not used performance-based incentives as an important part

of management control systems. From the standpoint of employees, however, it reduces the percent-

age of labor turnover, so that future wages depend on current e百ortand performance. If we don’t es-

tablish an objective indicator such as one based on performance evaluation or remuneration contract for

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performance, it will be difficult to get an accurate understanding of an employee. When the economic

~owth rate drops and business profits fall, it also becomes necessary to reform the seniority system.

Therefore, in this low growth age Japanese firms will have to change the investment preference be-

havior and improve the low labor’s distributive shares and the low returns to shareholders which has

attracted criticism仕omEuropean and North American.

Let us consider now the implications of the performance evaluation system used to increase出ein-

centives for remuneration. Levinson (1970) suggests the following process regarding management by

objectives or performance appraisal:

・To measure and judge performance.

• To relate individual performance to organizational goals.

・To clarify both the job to be done and the expectations of accomplishment.

・To foster the increasing competence and growth of the subordinate.

• To enhance communications between superior and subordinate.

• To serve as a basis for judgments about salary and promotion.

・ To stimulate the subordinate’s motivation.

・ To serve as a device for organizational control and integration. 6

In recent ye訂 s,when the firms which have adopting techniques of management by objectives assess

the financial performance, evidence that the firms are taking this process under consideration can be

seen in many cases.7 Mohrman, Jr. et al (1989) suggests that Management by objectives and review

systems are examples of results-oriented method and define performance in terms of measurable out-

comes or objectives (p. 64 and p. 142).

After all, I should note that the development of effective performance evaluation methods increases

production efficiency and reinforces incentives and rewards.

7. 2 The Use of Process-Oriented Performance Evaluation

Meyer (1994) states that the design of any performance-measurement system should reflect the basic

operating assumption of the organization it supports.8 Even if it is assumed that the measurement

system is effective with control-oriented, functional organizations, it may not always be effective in

faster and flatter team-based organizations. If the organization changes and the measurement system

doesn’t, the latter will be at best ineffective. Meyer (1994）訂gued出at:

Many managers fail to realize that results measures like profits, market share, and cost, which

may help them keep score on the performance of their businesses, do not help a multifunctional

team, or any organization, monitor the activities or capabilities that enable it to perform a given

process. Nor do such measures tell team members what they must do to improve their perfor-

mance.9

We must build a performance system thatαn use process measures effectively to activate activities in

multifunctional organizations. Mohrman, Jr. et al (1989) said:

The results-oriented appraisal was focused on planning and evaluating performance results. The

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An Empiri回 lStudy of the Performance Measurement System in Japanese Manufacturing Indus甘ies

system had other purposes beyond evaluating performance (p. 70).

Because the improvement of process and the creation of result are closely related, business organi-

zation can grow smoothly. The most commonly used result measures in product development are

schedule and cost (Meyer, 1994, p. 97). One goal which is realized, for example, is a substantial sav-

ings through reduction of inventory or shortening of a business cycle. The process is different by de-

pending upon the undertaking, but it is clear that the condition common to successful businesses is

having a system to evaluate such factors as quality, cost, and time.

From the viewpoint of organizational change, the balanced scorecard procedure, Which Kaplan and

Norton (1992) suggested, 10 is probably useful to better refine and understand existing strategies. In

other words, more than a measurement exercise. the balanced scorecard is a management system出at

can motivate breakthrough improvements in such critical areas as product, process, customer, and mar-

ket development. A balanced scorecard can supplement financial indicators by measuring such elements

as customer satisfaction, reengineering, and improvement.11 Therefore, the balanced scorecard is not

just a measurement system; it is a management system to motivate breakthrough competitive perform-

ance (Kaplan and Norton, 1993, p. 142).

Because Japanese firms can anticipate good business opportunities in the future, we need to rear-

range human resources in the direction of management innovation. We will need to build a perfor-

mance measurement system, in particular, that measures the long-range strategy goals of the divisional

organization仕omsuch perspectives as customer orientation, organizational change, and competitive ad-

vantage.

8. Summary and Conclusions

I attempted to analyze the characteristics of the performance measurement system used in Japanese

firms. In this paper I have proposed the introduction of a performance evaluation which could be used

to activate employees. The reform of the managerial accounting system is necessary for firms to en-

courage new personnel policies. In particular, the refinement of the performance evaluation system as

a foundation of rewards is indispensable to stimulate employee incentives to improve performance.

Traditional financial accounting measures such as return on investment and earnings-per-share can

give misleading signals for the continuous improvement and innovation which today’s competitive envi-

ronment demands. Financial performance measures merely indicate whether the company’s strategy,

implementation, and execution are contributing to bottom-line improvement. In light of today’s business

environment, however, the another factor must be added. Should senior management even look at the

business仕oma financial perspective? Shouldn’t managers want operational measures related to cus-

tomer satisfaction, organizational innovation, and internal processes?12 Traditional financial m回 suresdo

not evaluate customer satisfaction, quality, production lead time (parts issued-products completed），加d

employee motivation. Performance measures we have considered here are not only仕omthe financial

perspective but also as a management system to improve a firm’s competitive edge.

Finally, I would like to emphasize that it is necessary to build towards a perfo口nancemanagement

system that fits organizational goals for managers and that incorporate accounting measures which sup-

port various processes. Of course it should contribute to work incentives by informing individuals

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about performance results. Even if salary and promotions don’t effect performance directly, there will

be an incentive effect for the employees. Performance measurement itself will be linked to technical

contributions, customer satisfaction, and the image of the firm.

Acknowledgement: This study was partially supported by scientific research grants仕omJapanese Min-

istry of Education.

Notes

1. Kagono et al. (1985), p. 25. In particular, they examined a number of important differences

between Japanese and American co叩oratestrategies.

2 . Hoshino (1995), p. 127.

3. See Bromwich and Inoue (1994) for a detailed empirical survey of management practices in Japa-

nese-affiliated companies in the United Kingdom.

4. See Bales and Asada (1991). They argued that the most dramatic difference between Japanese and

American companies in division budget goals was found for sales volume and return on investment

(p. 137).

5 . Japan Accounting Association Study Group (1989), p. 18.

6. Le吋nson(1970), p. 126.

7 . See, for example, Mohrman, Jr. et al. (1989). According to Mohrman, Jr. et al. (1989), an appraisal

system involves the following key issues: (1) Appraisal tools and methods, (2) Degree of fit be-

tween other features of organization and the appraisal system, (3) System design, and (4) In仕0-

duction of the system and training of individuals (p. 12).

8 . Meyer (1994), p. 95.

9. Ibid., p. 97.

10. Kaplan and Norton (1992) state that managers want a balanced presentation of both financial and

operational measures. According to Kaplan and Norton (1992), the balanced scorecard allows man-

agers to look at the business from four important perspectives. It provides answers to four basic

questions: (1) How do customers see us? (customer perspective), (2) What must we excel at? (in-

ternal perspective), (3) Can we continue to improve and create value? (innovation and learning

perspective), (4) How do we look to shareholders? (financial perspective) (pp. 71-72).

11. Kaplan and Norton (1993), p. 134.

12. See Prietura and Simon (1989). They argue that innovation comes仕omthose employees with ex-

tensive job experience and knowledge, good intuition, and the ability (and desire) to see their jobs

仕omseveral perspectives (p. 124).

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An Empirical Study of the Performance Measurement System in Japanese Manufacturing Indus出回

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