Measures of corporate performance

Measures of corporate performance
Prepared by: Samah Al-Adra
Under the supervision of:
Dr. Ghassan Al-Omari

Introduction:
Some of methods that are used to evaluate and assess overall corporate performance are:
Balanced Scorecard.
Stakeholder Measures.
Research about the above listed methods will help in comparing the advantages and limitations of using them in measuring corporate performance.
Also this research will help managers in deciding what measure is the best to adopt, regarding the strategies they are pursuing.

Statement of the problem
Research Significance:
What is the advantage and limitations of using the Balanced Scorecard in measuring corporate performance?
What is the advantage and limitations of using the Stakeholder measures in measuring corporate performance
From theoretical point of view, this research is a complementary study of the previous related studies in corporate performance measurements.
From practical point of view, this research will help managers to decide what measures to use regarding their strategies.

Research Objectives:
To find out the advantages and limitations in using the BSC and Stakeholder Measures for corporate performance measurement.
Help Managers to focus on the most important practices that are measured by those methods.

Balanced Scorecard:
The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals

The Balanced Scorecard as a Management System:
The Balance Scorecard is more than a tactical or an operational measurement system. Innovative companies are using the scorecard as a strategic management system, to manage their strategy over their long run. They are using the measurement focus of the scorecard to accomplish critical management processes:
Clarify and translate vision and strategy.
Communicate and link strategic objectives and measures.
Plan, set targets, and align strategic initiatives.
Enhance strategic feedback and learning

The balanced scorecard suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:

The Learning & Growth Perspective

The Business Process Perspective
Robert Simon(2000), states that the internal value chain model provides a handy template that companies can use to customize for their own objectives and measures in their internal business process perspective of the scorecard. The generic value chain model encompasses three principal business processes:
Innovation processes: managers research the needs of customers and then create the products or services that will meet those needs.
Operations processes: represent those processes that produce and deliver existing products and services to customers.
Post-sale service processes: include warranty and repair activities, treatment of defects and returns, and the administration of payments

The Customer Perspective
Studies have shown that businesses with satisfied, loyal customers become significantly more profitable over time. Loyal customers typically :
increase the amount of their purchases,
cost less to serve,
refer new customers to the business,
and are willing to pay a price premium for products or services that they trust.
Thus, a 5% increase in customer loyalty can produce profit increase from 25% to 85%. (Reichheld, Sasser, 1990)

The Financial Perspective
Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. . Some of the most common financial measures that are incorporated in the financial perspective are EVA, revenue growth, costs, profit margins, cash flow, and net operating income. Additional financial objectives can relate to any variable on the profit wheel, the cash wheel, or the ROE wheel

Strategy Mapping
Generally speaking, improving performance in the objectives found in the Learning & Growth perspective (the bottom row) enables the organization to improve its Internal Process perspective Objectives (the next row up), which in turn enables the organization to create desirable results in the Customer and Financial perspectives (the top two rows).

Advantages of using the Balanced Scorecard
Organizational alignment to build collective and individual accountability
Improved communication and transparency
Set strategic priorities
Data-Driven decision making, Measure what matters and focus on results
Enhanced credit ratings
Community involvement and dialogue
Program and service effectiveness
Better manage the environment

Balanced Scorecard Limitations:
Measures that do not focus on strategy
Failure to communicate and educate.
Measures tied to compensation too soon
No accountability
Employees not empowered
Too many initiatives.
No time dimension

Stakeholder Measures
Management
Return on assets
Value added per employee
Stock price
Market share
Reduced operating expenses
Investors
Return on investment
Stock price
Return on assets
Market share
Successful new products
Customers
Reduced cost
New or expanded capabilities
Improved performance
Ease of use
Improved responsiveness
Suppliers
Increased return on investment(supplier)
Improved communications/fewer interfaces
Simplified requirements/fewer changes
Longer contracts
Longer cycle times

Employees
Increased job security
Increased compensation
Improved growth potential
Improved job satisfaction
Improved morale
Employee’s families
Less time at work
Increased job security
Increased salary
Improved benefits
Improved working conditions(safety)
Community/humankind
Employment of more people
Increased tax base
Reduced pollution
Support of community activities
Safety of employees

Advantages of stakeholder measure:
Allow the company to constantly improve organizational effectiveness and adapt corporate strategy to changing circumstances.
Help to satisfy the accountability demands of internal and external stakeholders and can help accompany diagnose relationship problems early and take steps to improve those relationships.
It provides for the possibility of gaining insight into sources of strategic competitive advantage that may have positive implications for firms.
It provides company executives with feedback they need to prioritize and improve the company’s stakeholder relationship.
Because stakeholder relationships all have common features, it allows direct comparison of the quality of relationships across diverse stakeholder groups, companies, and industries.
It promises to predict future impacts of positive stakeholder.

Limitations to stakeholder measure
There are a number of types of stakeholders, and what is good for one stakeholder is not necessarily a benefit for all of the others.
Ideally a stakeholder measurement should be performed regularly or even continuously, since the relevant stakeholders, their power and associations may change quickly.
Since the management of the organization has to assess the position of each stakeholder, it is subjective perception of management that will ultimately decide the way in which the organization will act towards its stakeholders.
It is almost impossible for management to satisfy all demands of all stakeholders completely.

Measures of corporate performance

by SamahAdra

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