Measures of corporate performance


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Measures of corporate performance

  1. 1. Measures of corporate performance<br />Prepared by: Samah Al-Adra<br />Under the supervision of: <br />Dr. Ghassan Al-Omari<br />
  2. 2. Introduction:<br />Some of methods that are used to evaluate and assess overall corporate performance are:<br />Balanced Scorecard.<br />Stakeholder Measures.<br />Research about the above listed methods will help in comparing the advantages and limitations of using them in measuring corporate performance.<br />Also this research will help managers in deciding what measure is the best to adopt, regarding the strategies they are pursuing.<br />
  3. 3. Statement of the problem<br />Research Significance:<br />What is the advantage and limitations of using the Balanced Scorecard in measuring corporate performance?<br />What is the advantage and limitations of using the Stakeholder measures in measuring corporate performance<br />From theoretical point of view, this research is a complementary study of the previous related studies in corporate performance measurements.<br />From practical point of view, this research will help managers to decide what measures to use regarding their strategies.<br />
  4. 4. Research Objectives:<br />To find out the advantages and limitations in using the BSC and Stakeholder Measures for corporate performance measurement.<br />Help Managers to focus on the most important practices that are measured by those methods.<br />
  5. 5. Balanced Scorecard:<br />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<br />
  6. 6. The Balanced Scorecard as a Management System:<br />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:<br />Clarify and translate vision and strategy.<br />Communicate and link strategic objectives and measures.<br />Plan, set targets, and align strategic initiatives.<br />Enhance strategic feedback and learning<br />
  7. 7. 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:<br />
  8. 8. The Learning & Growth Perspective<br />
  9. 9. The Business Process Perspective<br />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:<br />Innovation processes: managers research the needs of customers and then create the products or services that will meet those needs. <br />Operations processes: represent those processes that produce and deliver existing products and services to customers. <br />Post-sale service processes: include warranty and repair activities, treatment of defects and returns, and the administration of payments<br />
  10. 10. The Customer Perspective<br />Studies have shown that businesses with satisfied, loyal customers become significantly more profitable over time. Loyal customers typically :<br /><ul><li>increase the amount of their purchases,
  11. 11. cost less to serve,
  12. 12. refer new customers to the business,
  13. 13. and are willing to pay a price premium for products or services that they trust. </li></ul>Thus, a 5% increase in customer loyalty can produce profit increase from 25% to 85%. (Reichheld, Sasser, 1990)<br />
  14. 14. The Financial Perspective<br />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<br />
  15. 15. Strategy Mapping<br />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).<br />
  16. 16. Advantages of using the Balanced Scorecard<br />Organizational alignment to build collective and individual accountability<br />Improved communication and transparency<br />Set strategic priorities<br />Data-Driven decision making, Measure what matters and focus on results<br />Enhanced credit ratings<br />Community involvement and dialogue<br />Program and service effectiveness<br />Better manage the environment<br />
  17. 17. Balanced Scorecard Limitations:<br />Measures that do not focus on strategy<br />Failure to communicate and educate. <br />Measures tied to compensation too soon<br />No accountability<br />Employees not empowered<br />Too many initiatives.<br />No time dimension<br />
  18. 18. Stakeholder Measures<br />Management<br /><ul><li>Return on assets
  19. 19. Value added per employee
  20. 20. Stock price
  21. 21. Market share
  22. 22. Reduced operating expenses</li></ul>Investors<br /><ul><li>Return on investment
  23. 23. Stock price
  24. 24. Return on assets
  25. 25. Market share
  26. 26. Successful new products</li></ul>Customers<br /><ul><li>Reduced cost
  27. 27. New or expanded capabilities
  28. 28. Improved performance
  29. 29. Ease of use
  30. 30. Improved responsiveness</li></ul>Suppliers<br /><ul><li>Increased return on investment(supplier)
  31. 31. Improved communications/fewer interfaces
  32. 32. Simplified requirements/fewer changes
  33. 33. Longer contracts
  34. 34. Longer cycle times</li></li></ul><li>Employees<br /><ul><li>Increased job security
  35. 35. Increased compensation
  36. 36. Improved growth potential
  37. 37. Improved job satisfaction
  38. 38. Improved morale</li></ul>Employee’s families<br /><ul><li>Less time at work
  39. 39. Increased job security
  40. 40. Increased salary
  41. 41. Improved benefits
  42. 42. Improved working conditions(safety)</li></ul>Community/humankind<br /><ul><li>Employment of more people
  43. 43. Increased tax base
  44. 44. Reduced pollution
  45. 45. Support of community activities
  46. 46. Safety of employees</li></li></ul><li>Advantages of stakeholder measure:<br />Allow the company to constantly improve organizational effectiveness and adapt corporate strategy to changing circumstances.<br />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.<br />It provides for the possibility of gaining insight into sources of strategic competitive advantage that may have positive implications for firms.<br />It provides company executives with feedback they need to prioritize and improve the company’s stakeholder relationship.<br />Because stakeholder relationships all have common features, it allows direct comparison of the quality of relationships across diverse stakeholder groups, companies, and industries.<br />It promises to predict future impacts of positive stakeholder.<br />
  47. 47. Limitations to stakeholder measure<br />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.<br />Ideally a stakeholder measurement should be performed regularly or even continuously, since the relevant stakeholders, their power and associations may change quickly.<br />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.<br />It is almost impossible for management to satisfy all demands of all stakeholders completely. <br />