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Tailored measures of performance

Every organisation develops specific measures to assess its performance. This is fundamental because industry boundaries are difficult to draw and only the managers within the firm have full oversight of the scope and range of activities invested in.

In the computer software and hardware industry, for example, it is not possible to directly compare Apple to Microsoft because, despite similarities, taken as a whole their products, services, markets and value chain differ a great deal.

In reading Versarien’s results, you would have noticed ‘exceptional costs’ incurred through global expansion and growth through acquisition.

You would have also noticed the company’s drive for international collaborations and accreditations. The outcome of these activities over time will constitute Versarien’s tailored measures of performance.

As CFO Chris Leigh stated on page 8: ‘We are confident that whilst revenues of any material amount have yet to be achieved, with the investment that we have made, the accreditations awarded and progress of our collaborations this year, significant future revenues will be achieved.’

Such speculation is not unique to Versarien. Companies work to build up steam over time before achieving breakthrough and very little is known of them in the formative years. See the chart below depicting Airbnb’s build-up years from 2008 to 2012. Over this period, the company secured multiple rounds of funding until it experienced a tipping point in the number of nights booked by users.

Image displaying a graph of Airbnb's breakthrough in 2013, which saw a steep increase in the millions of nights booked from a few million to around 30 million in the space of three years.

Other tailored measures of performance for technology companies such as Versarien may include Research and Development (R&D) expenditure as a percentage of sales, calculated by:

R&D expenses ÷ total sales x 100%

This measures the proportion of R&D undertaken comparative to sales.

It is also possible to measure innovation by the proportion of new product sales within total sales using this formula:

Sales from new products ÷ total sales x 100%

Your task

Having understood Versarien’s corporate purpose and activities, what tailored measures of performance will you recommend to CFO Chris Leigh?

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This article is from the free online course:

Strategy as a Process and Measures of Success: An Introduction

Coventry University