7.3 Overall performance Flashcards
What does financial information assess
The performance of a business
What does the non-financial information assess
The strengths and weaknesses
Where does the non-financial data come from?
- Operations functions
- Marketing function
- Human resources function
What non-financial information comes from the operations function
- Labour productivity
- Capacity and capacity utilisation
- Quality measures
What non-financial information comes from the marketing function
- Sales forecasts
- Brand loyalty and satisfaction data
Different types of data that can be compared to indicate performance
- 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
Alternative sources of information on a business’ strengths and weaknesses
- Absenteeism
- Labour costs per unit of production
- Labour turnover
- Employee costs
Disadvantage of non-financial data
May not provide a full overview of business performance
Disadvantage of financial and non-financial data
May not take into account additional factors such as the business’ impact on the environment, or its employee’s wellbeing
Core competences
Refer to a business’ ability to combine its skills, knowledge, and processes to provide it with an advantage over competitors, known as competitive advantage
Advantages of core competences
- 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
Disadvantage of outsourcing non-core competences
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
Who invented the core competences term
Hamel & Prahalad’s 1990 paper
What is Kaplan and Norton’s Balanced Scorecard Model
Seeks to provide managers and leaders with a framework with which business performance can be assessed
What are the four perspectives of Kaplan and Norton
- Financial
- Customers
- Internal processes
- Learning and growth
KPI’s of Financial perspectives
- Operating margin
- ROI (profitability)
- Growth (sales volume + market share)
KPI’s of Customer perspectives
- Levels of returns
- Service rating
KPI’s of Internal Processes perspectives
- Unit costs
- New product lead times
- Quality
- Reducing waste
- Turnover
- Efficiency
- Absenteeism
KPI’s of Learning and Growth processes
- R&D
- new staff development
- new product development
Advantage of the Balanced Scorecard
Provides leaders and manager with a framework to assess and measure the performance of different aspects of the business
What is Elkington’s Triple Bottom Line
Another theory which also provides managers and leaders with a framework to assess business performance
What performances are involved with Elkington’s Triple Bottom Line
- People
- Planet
- Profit
Elkington’s Triple Bottom Line: PROFIT
- Important element of determining overall performance
- states that profit should be used to support the community
SIMILIAR TO FINANCIAL PERSPECTIVES
Elkington’s Triple Bottom Line: PEOPLE
SIMILIAR TO LEARNING AND GROWTH PERSPECTIVES
Elkington’s Triple Bottom Line: PLANET
- environment
- sustainability
Short term metrics
Help to indicate whether growth and ROI for shareholders can be sustained or whether they will improve or worsen
What are the 3 short term metrics
- Sales productivity
- Operating cost productivity
- Capital productivity
KPI’s of measuring sales productivity
- Market share
- The ability to add value: sales per store, change in the number of stores per annum
KPI’s of measuring operating productivity
- Unit costs (average): the break down of these costs examine areas of efficiency or inefficiency
Medium term metrics
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
KPI’s of medium term metrics
- Commercial health measures
- Cost structure health measures
- Asset health measures
Commercial health measures
- Levels of new product development
- Brand loyalty
- Customer satisfaction
- External risk (Proposed legislation or competitors developing new products)
Cost structure health measures
Assess whether there is scope to continue to reduce unit costs, relative to competitors
Asset health measures
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
Long-term metrics
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
KPI’s for long term metrics
- 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
