In a world of global competition, a company has to deliver services more effectively (i.e. better services) and more efficiently (i.e. more economically) than its competitor. This is especially difficult for small and medium sized enterprises (SMEs) due to their relative lack of organizational and management skills, lack of strategic planning and shortage of working capital. They are more vulnerable than the bigger, more stable companies whenever business circumstances change. They must spend their resources in areas, which ensure their business sustainability in the future.;This thesis provides an alignment of system dynamics and performance measurement. It analyzes how one can use system dynamics in developing a performance measurement framework. Various performance measurement frameworks are reviewed and candidate performance indicators for SMEs are chosen. A real SME is modelled using system dynamics in such a way that the performance, including a spectrum of indicators integral to the model, of the company can be estimated using the indicators. The model is verified against real performance data provided by the case study company. A study of the elements of the model and their relationships, together with a sensitivity analysis, yields a new practical performance measurement framework. An example of the use of the model in strategic planning for a SME is provided.
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