3.7.3 Analysing the existing internal position of a business to assess strengths and weaknesses: overall performance

Question 1

Explain why businesses compare performance over time instead of over one year.

Answer 1

• A danger with just looking at one year’s results is that the numbers can hide a longer term issue in the business
• By looking at data over several years, it is possible to see whether a trend is emerging. Public companies in the UK are required to publish a five-year summary of the income statement to help shareholders assess trends

Question 2

Why do businesses compare performance against competitors or the industry as a whole?

Answer 2

• Assuming that the detailed information is available, a comparison against competitors provides a useful way for management and shareholders to assess relative performance.
• Has the business’ revenues grown as fast as close competitors? How has the business performed compared with the market as a whole?

Question 3

Why do businesses do benchmarking against best-in-class businesses?

Answer 3

Comparison against other businesses who are not direct competitors can also be useful – particularly if they help set the standard that the business aims to achieve. Care has to be taken with this, though. The benchmark business might operate in a very different industry, with significantly different profit margins and balance sheet norms.

Question 4

What are core competences?

Answer 4

something unique a business has or can do strategically well

Question 5

What is the test of core competencies?

Answer 5

Do they provide access to a wide range of markets?
Do they contribute significantly to the end product received by the customers?
Are they difficult for competitors to imitate?

Question 6

What are short term metrics of performance?

Answer 6

Helps to indicate whether growth and return on investment for shareholders can be sustained (e.g. sales productivity and capital productivity)
These measures or performance indicate the current health of the business

Question 7

What are medium term metrics of performance?

Answer 7

Helps to predict whether a business can maintain or improve its performance over the next few years (e.g. commercial health, cost structure health, asset health)

Question 8

What are long term metrics of business performance?

Answer 8

Helps measure the ability of a business to sustain or expand its current operations (e.g. anticipated changes in consumer tastes, new technology, share price)

Question 9

What is The Kaplan and Norton Balanced Scorecard?

Answer 9

a framework based on four perspectives which is a strategic planning and monitoring system used to ensure that a firms a citizens are linked to its vision statement

Question 10

What are the four perspectives of Kaplan and Norton’s

Answer 10

• Financial – how does the firm look to shareholders
• Customer – how to customer view the firm
• Internal – how well does it manage its operational processes
• Innovation and Learning – can the firm continue to improve and create value, and it examines how an organisation learns and grows

Question 11

What are the advantages of the Balanced Scorecard?

Answer 11

• Provides a broader view of business performance
• Allows business progress to be monitored through the use of specific (SMART) targets
• It links objectives closely to strategy
• Targets can act as a motivator
• Consistent monitoring allows weaknesses to be identified and hopefully solved

Question 12

What are disadvantages of the Balanced Scorecard?

Answer 12

Some objectives are not easily quantifiable
Excessive numbers of targets can cause confusion and apathy
Getting the right balance between the four perspectives

Question 13

What is Elkington’s Triple Bottom Line?

Answer 13

this is a bottom line that continues to measure profits, but also measures the organisation’s impact on people and the planet (a way of expressing a company’s impact and sustainability on both a local and global scale)

Question 14

What does Elkington’s Triple Bottom Line look like?

Answer 14

Question 15

Explain the people aspect of the Balanced Scorecard.

Answer 15

• Considering the impact the firms actions have on all people involved with them
• Everyone’s being taken into consideration
• Companies should offer health care, goods working hours, opportunities, clean and safe working places, and doesn’t exploit their labour force
• Include the community where the company does business

Question 16

Explain the planet aspect of the Balanced Scorecard.

Answer 16

• Reducing or eliminating their ecological footprint
• They strive for sustainability – going green can be more profitable in the long run
• Triple bottom line companies look at their entire life cycle of their actions
• Reduce energy waste

Question 17

Explain the profit aspect in the balanced scorecard.

Answer 17

• The financial bottom line is the one that all companies share
• Profits empower and sustain the community as a whole, and not just flow to the CEO and shareholders