Chapter 7 - Alternative measures of performance

Question 1

Shortcomings of financial inidicators

Answer 1

1. only covers limited, past time period
2. not future outlook
3. vulnerable to manipulation
4. non strategic and vulnerable to short-termism

Question 2

non-financial performance indicators

Answer 2

used to monitor and control operating departments without accounting input.

Question 3

Tom Peters on strategic advantages

Answer 3

What gets measured gets done

Question 4

Non Financial Performance Indicators (NFPIs)

Competitiveness (3)

Answer 4

sales growth by product or service
size of customer base
market share

Question 5

Non Financial Performance Indicators (NFPIs)

Activity level (4)

Answer 5

Number of Units sold
Labour and machine hours worked
Number of passengers carried
Number of overdue debts collected

Question 6

Other NFPIs (5)

Answer 6

Productivity
Quality of service
Customer satisfaction
Quality of staff experience
innovation

Question 7

Benchmarking

Answer 7

technique increasingly adpoted as a mechansim for continuous improvement.

Measure a firm’s products, services and activities against other best-performing organisations.

Types:

• internal
• competitive
• functional (compare functions across industries)
• strategic (competitive among collaborative study members)

Question 8

Benchmarking (2003 - Bob Scarlett)

Answer 8

1. Metric
2. Process
3. Diagnostic (review processes with problems and offer improvement)

Question 9

Balanced Score Cards (BSC)

Kaplan and Norton

Answer 9

A. FINANCE Perspective
survival - cash flow
success - sales growth
prosperity - market share or ROI
B. INTERNAL business perspective
% of sales from new products, from proprietary products
mfg process capabilities
time to market for in-house development
C. LEARNING and GROWTH Perspective
employee satisfaction, retention, productivity
time to market

D. CUSTOMER Perspective
customer profitability, retention, satisfaction,
market share
percentage of sales from new products or on time deliveries

Question 10

Beyond budgeting

Definition
6 principles

4 benefits

Answer 10

Budget complexity drives out meaning and relevance.

The idea that companies need to move beyond budgeting. Rolling forecasts and market related targets can take their place.

1. clear principles and boundaries
2. relative success, linked to shareholder value (BSC)
3. high degree of freedom (flat org chart, empowerment)
4. front line teams (value generating decisions with teams)
5. relationships
6. IT systems
7. faster response time
8. better innovation
9. lower costs
10. improved customer, supplier loyalty