7.3 - Overall performance

• Non-Financial Data


  Data that is not numerical, such as qualitative information
• Purpose of assessing strengths and weaknesses

  • Allows a company to consider internal factors (besides financial performance) that can give them a competitive advantage
  • Looks at a number of performance measures to see how they're doing
• Analysing non-financial data


  1. Data is collected from each department (marketing, HR, operations)

  2. Performance measures are calculated and assessed
• HR performance measures


  • Labour productivity
  • Labour turnover
  • Labour retention
  • Employee costs as % of turnover
  • Labour cost per unit
  • Staff skills and qualifications
  • HR plans for training and recruitment
  • Staff morale and motivation
• Operations performance measures


  • Capacity and capacity utilisation
  • Unit costs
  • Fixed/variable costs
  • Age and condition of machinery
  • Operations processes
• Analysing the data


  1. Managers need to ask questions and make judgements

  2. Determine why certain measures have changed

  3. Consider how to address issues (e.g. expand if capacity utilisation is high)
• Analysing overall business performance

  • How well are resources allocated between departments?
  • Does the organisational structure and culture support the company's activities?
  • How good is the company's image?
• Benchmarking


  Looking at successful businesses, identifying what they do well, and trying to apply their strengths to your own business
• Benchmarking


  1. Can be done by looking at data (e.g. unit costs) or by looking at the processes they use

  2. The benchmark business needs to be comparable so their methods will be relevant
• A rival business has much higher productivity


  The business can look at what the rival does differently and try to adopt their methods
• Businesses can look at their data Over Time

  1. Data analysis needs to be repeated at regular intervals

  2. To allow a business to see how things are changing
• Trend


  A general pattern in the data values over a period of time
• Analysing data over time

  1. Allows the business to assess its long-term performance

  2. Allows the business to assess its short-term performance

  3. Helps the business consider whether the data shows a permanent trend or just a temporary change

  4. Helps the business develop its strategy
• Predicting future trends


  1. By extrapolating the data

  2. Helps the business see how likely it is to meet its objectives
• It can be difficult to forecast future trends as there are lots of external factors that are out of the business's control
• Core Competences


  Unique Features that make a business Competitive
• The idea of core competences was developed by Prahalad and Hamel


  1990
• Core competences


  • The capabilities of a business that are unique to that business and give it a competitive advantage over its rivals
  • Capabilities that rivals do not have
• Core competences


  • A specific piece of technology that allows a firm to produce items in a different way
  • Specialist staff training
  • An innovative production process
  • An understanding of their customer base
• Features that are important to a business but are a standard expectation of that type of business are not core competences
• Not a core competence


  • Good customer service in a hotel
• Core competences


  • Fundamental to the success of the business
  • Allow the business to compete in different areas
  • Hard for competitors to copy
  • Offer benefits to the consumer
• Changing core competences


  1. To meet the changing demands of its market

  2. Especially in rapidly-changing areas, such as technology

  3. Allows the business to grow and maintain its competitive advantage
• A business will focus on its core competences when developing its strategy
• Balanced Scorecard Model


  Gives a Balanced View
• Balanced Scorecard model


  • Used to assess business performance and in developing, implementing and monitoring strategy
  • Uses both financial and non-financial data, including measures of efficiency and effectiveness, and links them to the overall strategy and vision of the business
• Balanced Scorecard model


  1. Looks at four different perspectives

  2. For each perspective, managers need to consider the objectives, measures, targets and initiatives that are key to the success of their strategy
• Process of using the Balanced Scorecard model

  Involves asking questions, choosing measures of performance based on the company's key success factors, setting targets, then coming up with ideas on how to achieve them
• Balanced Scorecard model


  • Treats the business as a number of dependent, rather than independent, functions - this means that all departments need to consider how their actions will impact on others
  • Balances the needs of different stakeholders, both internal and external
• There can be problems when implementing the Balanced Scorecard model - there's a possibility of information overload, potential conflict if one target contradicts another and difficulty putting the initiatives into place
• Four Different Perspectives of the Balanced Scorecard model

  • Financial Perspective
  • Internal Business Process Perspective
  • Learning and Growth Perspective
  • Customer Perspective
• Financial Perspective


  How do we create value for shareholders?
• Financial Perspective


  • Objective: e.g. increase profitability
  • Measures: e.g. ROCE, sales growth, etc.
  • Target: e.g. increase ROCE by 3%
  • Initiatives: e.g. promotional campaigns, increase efficiency of production methods, etc.
• Internal Business Process Perspective


  How can we improve our processes?
• Internal Business Process Perspective

  • Objective: e.g. improve efficiency
  • Measures: e.g. capacity utilisation, unit cost, productivity, etc.
  • Target: e.g. increase labour productivity by 15%
  • Initiatives: e.g. try different production methods, introduce new technology, etc.
• Learning and Growth Perspective

  How can we continue to grow and improve?
• Learning and Growth Perspective


  • Objective: e.g. increase employee development
  • Measures: e.g. labour retention, amount of staff development, etc.
  • Target: e.g. increase labour retention by 10%
  • Initiatives: e.g. staff training and development, changing organisational design, etc.
• Customer Perspective


  What do our customers value about us?
• Customer Perspective


  • Objectives: e.g. improve customer loyalty, attract new customers
  • Measures: e.g. market share, number of new customers, brand loyalty
  • Target: e.g. increase number of new customers by 5%
  • Initiatives: e.g. speed up delivery times, improve quality of product, etc.
• Elkington's Triple Bottom Line Model

  Measures Sustainability