After the organisation chooses to pursue cost leadership or differentiation, systems or mechanisms are needed to assess the success or failure of the strategy being implemented.
There are three generic steps involved in assessing the performance of an organisation:
- Decide what performance criteria to observe and measure.
- Establish the standards against which to measure performance.
- Analyse and draw conclusions.
Let us discuss these in turn.
The performance criteria to observe and measure falls into four categories of financial performance, organisational trends, key stakeholder requirements and operational performance.
Financial performance measurements include revenue, profit, return on investment and return on equity.
Organisational trends are measured by revenue growth, profit growth and market share growth.
Key stakeholder requirements are assessed by the interest of those stakeholders. For example, a Non-Governmental Organisation (NGO) may measure how many youth employment workshops it facilitated, how many young people attended the workshop and how many of these secured decent jobs down the line.
Operational performance measures are specific to various departments within the organisation. For instance, the research and development department may measure the number of new or improved products delivered in a year, the human resource department may measure the rate of employee turnover, and the production department may measure the number of defective products.
The organisation must decide the benchmarks it seeks to emulate as a yardstick. These standards are either internal or external.
Internal standards are set by comparing departments, divisions, business units or markets within the organisation to extend best practices.
External standards are set by comparing performance with competitors in the same industry (industry standards) or world-class companies, regardless of industries (best practices standards). Nowadays, several companies look at Amazon’s customer-centricity as a benchmark to measure and boost performance.
Organisations must analyse and draw conclusions using a combination of qualitative and quantitative analyses. Senior managers at the corporate level owe a duty to stakeholders to clearly verbalise whether performance is good, mediocre, bad, improving or worsening. They should be able to communicate which particular functions, business units, markets or products are performing well or badly. And, ultimately, performance results should demonstrate whether the organisation has a distinctive competence and competitive advantage.
In the next few steps of this short course, we will be analysing Versarien’s preliminary financial results for the year ended 31 March 2019, provided in the PDF.
Pay particular attention to the operational, financial and post-period highlights provided on pages 1 and 2.
Also read the CEO’s (Neill Ricketts) statement from pages 2-6, along with the financial review on pages 8-9 by the CFO (Chris Leigh) for some context in interpreting the results.
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