7.3 Overall performance

Question 1

What does financial information assess

Answer 1

The performance of a business

Question 2

What does the non-financial information assess

Answer 2

The strengths and weaknesses

Question 3

Where does the non-financial data come from?

Answer 3

• Operations functions
• Marketing function
• Human resources function

Question 4

What non-financial information comes from the operations function

Answer 4

• Labour productivity
• Capacity and capacity utilisation
• Quality measures

Question 5

What non-financial information comes from the marketing function

Answer 5

• Sales forecasts
• Brand loyalty and satisfaction data

Question 6

Different types of data that can be compared to indicate performance

Answer 6

• Data from different departments, teas or divisions
• Data from different years
• Data from the business may be compared to competitor
• Data from the business may be compared to the industry

Question 7

Alternative sources of information on a business’ strengths and weaknesses

Answer 7

• Absenteeism
• Labour costs per unit of production
• Labour turnover
• Employee costs

Question 8

Disadvantage of non-financial data

Answer 8

May not provide a full overview of business performance

Question 9

Disadvantage of financial and non-financial data

Answer 9

May not take into account additional factors such as the business’ impact on the environment, or its employee’s wellbeing

Question 10

Core competences

Answer 10

Refer to a business’ ability to combine its skills, knowledge, and processes to provide it with an advantage over competitors, known as competitive advantage

Question 11

Advantages of core competences

Answer 11

• Attracts and retain customers, even in a competitive market
• Adds value throughout their production process e.g Apple’s reputation as an innovative technology manufacturers - customers usually happy to pay higher price for a product associated with the brand

Question 12

Disadvantage of outsourcing non-core competences

Answer 12

Can lead to quality issues as some production processes are passed to third parties who may seek to cut costs during production at the expense of quality

Question 13

Who invented the core competences term

Answer 13

Hamel & Prahalad’s 1990 paper

Question 14

What is Kaplan and Norton’s Balanced Scorecard Model

Answer 14

Seeks to provide managers and leaders with a framework with which business performance can be assessed

Question 15

What are the four perspectives of Kaplan and Norton

Answer 15

• Financial
• Customers
• Internal processes
• Learning and growth

Question 16

KPI’s of Financial perspectives

Answer 16

• Operating margin
• ROI (profitability)
• Growth (sales volume + market share)

Question 17

KPI’s of Customer perspectives

Answer 17

• Levels of returns
• Service rating

Question 18

KPI’s of Internal Processes perspectives

Answer 18

• Unit costs
• New product lead times
• Quality
• Reducing waste
• Turnover
• Efficiency
• Absenteeism

Question 19

KPI’s of Learning and Growth processes

Answer 19

• R&D
• new staff development
• new product development

Question 20

Advantage of the Balanced Scorecard

Answer 20

Provides leaders and manager with a framework to assess and measure the performance of different aspects of the business

Question 21

What is Elkington’s Triple Bottom Line

Answer 21

Another theory which also provides managers and leaders with a framework to assess business performance

Question 22

What performances are involved with Elkington’s Triple Bottom Line

Answer 22

• People
• Planet
• Profit

Question 23

Elkington’s Triple Bottom Line: PROFIT

Answer 23

• Important element of determining overall performance
• states that profit should be used to support the community
  SIMILIAR TO FINANCIAL PERSPECTIVES

Question 24

Elkington’s Triple Bottom Line: PEOPLE

Answer 24

SIMILIAR TO LEARNING AND GROWTH PERSPECTIVES

Question 25

Elkington’s Triple Bottom Line: PLANET

Answer 25

• environment
• sustainability

Question 26

Short term metrics

Answer 26

Help to indicate whether growth and ROI for shareholders can be sustained or whether they will improve or worsen

Question 27

What are the 3 short term metrics

Answer 27

• Sales productivity
• Operating cost productivity
• Capital productivity

Question 28

KPI’s of measuring sales productivity

Answer 28

• Market share
• The ability to add value: sales per store, change in the number of stores per annum

Question 29

KPI’s of measuring operating productivity

Answer 29

• Unit costs (average): the break down of these costs examine areas of efficiency or inefficiency

Question 30

Medium term metrics

Answer 30

Whether a business can maintain or improve the performance over the next few years - performance indicators based on the financial side of the company (usually 5 years) - sales revenue

Question 31

KPI’s of medium term metrics

Answer 31

• Commercial health measures
• Cost structure health measures
• Asset health measures

Question 32

Commercial health measures

Answer 32

• Levels of new product development
• Brand loyalty
• Customer satisfaction
• External risk (Proposed legislation or competitors developing new products)

Question 33

Cost structure health measures

Answer 33

Assess whether there is scope to continue to reduce unit costs, relative to competitors

Question 34

Asset health measures

Answer 34

The extent to which non-current assets, e.g buildings, are being maintained and improved in order to avoid significant deterioration in their future usefulness

Question 35

Long-term metrics

Answer 35

Show the ability of a business to sustain or expand on its current operations and its ability to identify and exploit new areas of growth
They are much more qualitative and require looking at the external environment

Question 36

KPI’s for long term metrics

Answer 36

• Anticipated changes in consumer tastes
• Recognition of new technologies
• Relevance of core competences to future markets
• Potential for joint ventures in order to utilise other firms’ core competences
• Internally: the people, skills and culture of the business
• Share price: investors have faith in the firm’s ability to cope with future changes