Ch2 - Assessing Organizational Performance Flashcards
Learning Objectives
- What are organizational vision, mission, values, and goals, and why
are they important to organizations? - How should executives analyze the performance of their
organization? - What is competitive advantage and how is it calculated?
Three foundational questions to ask when assessing the strategic management of an organization?
Where are we?
- Where are we going?
- How are we going to get there?
How is where we are answered?
Organizational performance indicators are used to assess an organization for answering the first question •
Both quantitative/qualitative
How is where are we going answered?
By having a vision, mission, and core set of values
How is: how are we going to get there answered?
Through strategies developed to achieve the vision. This is at the heart of strategic management
Vision
states what the organization aspires to become in the future
describes what the organization hopes to become and guide strategies
- well-constructed visions articulate an organization’s aspirations
- vision statements are relatively rare and good visions are even rarer
Mission
states why the organization exists and what role it plays in society
capture an organization’s identity
- answer the fundamental question “Who we are?”
- captures the key elements of the organization’s past and present
SMART goals
specific
measurable
attainable
realistic
time-bound
Corporate Value Statements
are explicit principles that the company endorses and lives by, and expects their employees to embrace
- usually related to integrity, diversity, and customer service
- developed to demonstrate to employees and stakeholders the important principles that the organization lives by
- should be seriously considered when developing strategies and goals
Organizational Performance
Organizational performance refers to how well an organization is doing to reach its vision, mission, and goals. • executives must know it to make strategic changes • good decisions do not always lead to good performance, e.g. COVID-19
Performance measure
Performance measure is a metric by which an organization’s progress can be gauged, e.g. profits, stock price, and sales
Performance benchmarks
Performance benchmarks are used to assess whether an organization is doing well
used to make sense of an organization’s standing compared to its own or competitors’ financial measures or performance indicators
3 Types of Financial Measures
- Liquidity - helpful to understand if debt can be paid when due
- Leverage - helpful to understand if debt level is too high
- Profitabilitity - helpful to understand if profit is being made
Current Ratio
Current assets/current liabilities
Debt to Equity Ratio
Varies across industries, so you have to compare apples to apples.
What is the idea behind the Balanced Scorecard?
provide a “balance” between financial measures and other measures that are important for understanding organizational activities
What are the 4 perspectives the Balanced Scorecard looks at?
The four perspectives reflected by the balanced scorecard
- • financial
- • customer
- • internal business process
- • staff learning and growth
3 Quantitative Analysis approaches used by organizations?
- Financial
- Market-based
- General
3 customer measures of performance
- Attraction - # of new cust.
- Satisfaction
- Retention - % of repeat cust.
Internal business process measures
measures performance related to organizational efficiency
For example: the time it take to manufacture goods or deliver services
Learning and growth measures
relate to the future. They answer the questions:
can we continue to improve and create value, if so, how and what are we doing to get better?
Economic Value Creation Formula
EVC = WTP - Cost
Economic value creation is equal to the difference between what a customer is willing to pay (wtp) for a product and the cost incurred to produce the product
(If you recall microeconomics, this is a repeat of SP-C)
competitive advantage
A firm has a competitive advantage over a competitor if it has a larger economic value creation than that competitor
- does not change based on random perturbations as measures do
- better reflect the strategic health of firms that reinvest in their business
Triple Bottom Line
Measure of performance
the three P’s: people (making sure that the actions of the organization are socially responsible), planet (making sure organizations act in a way that promotes environmental sustainability), and traditional organization profits.
people/planet/profits
