Beyond words: testing alignment among inter‐organizational performance measures

Purpose – This paper seeks to measure in a quantitative way the degree of alignment among a set of performance measures between two organizations. Design/methodology/approach – This paper extends Venkatraman's test of coalignment to assess the alignment of a set of performance measures governing a contractual inter‐organizational relationship. The authors applied the test and present coefficients of misalignment across three sets of measures: those used by a service provider involved in the research, those used by customers contracting the services, and those documented in 11 contracts studied. Findings – Results confirmed a high degree of alignment between target and actual operational performance in the contracts. The alignment of customers' financial objectives and contracts' operational metrics was low. Calculations show poor alignment between the objectives of the provider and the contribution received from the contracts. Research limitations/implications – Some limitations of the conclusions include the small sample of contracts used in the calculations. Further research should include not only actual contracts, but also failed ones. Practical implications – It is possible that misaligned goals, represented in misaligned performance measures, lead to tensions in intra‐firm relationships. If these tensions are not addressed properly the relationship could be unstable or terminated prematurely. This method of measuring alignment could detect early potential dangers in intra‐firm relationships. Originality/value – This paper extends Venkatraman's test of coalignment to assess the alignment of a set of performance measures governing a contractual inter‐organizational relationship. Management researchers and business professionals may use this methodology when exploring degrees of alignment of performance measures in intra‐functional and inter‐firm relationships.