Corporate performance analysis

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Corporate Performance Corporate Performance AnalysisAnalysis

Prof. Dr. Ali ElsalmiProf. Dr. Ali Elsalmi

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ContentsContents

IntroductionIntroduction Course objectivesCourse objectives Course contentsCourse contents Course requirementsCourse requirements AssignmentsAssignments Course evaluationCourse evaluation

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IntroductionIntroduction

1.1. The crucial role of corporations in modern The crucial role of corporations in modern business systems,business systems,

2.2. The limited value of function/ department/ The limited value of function/ department/ individual performance evaluation systems, individual performance evaluation systems,

3.3. The multiplicity of stakeholders and the The multiplicity of stakeholders and the need for a fair, objective, and need for a fair, objective, and comprehensive corporate performance comprehensive corporate performance evaluation system,evaluation system,

4.4. The inadequacy of traditional financial-The inadequacy of traditional financial-based performance evaluation systems,based performance evaluation systems,

5.5. The risks and disasters that could happen The risks and disasters that could happen in the absence of a total corporate in the absence of a total corporate performance analysis and evaluation performance analysis and evaluation system.system.

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ObjectivesObjectives

1.1. Introduce the concept of Introduce the concept of corporate performance as a corporate performance as a measure of total corporate measure of total corporate effectiveness and efficiency,effectiveness and efficiency,

2.2. Analyze the components of total Analyze the components of total corporate performance and corporate performance and define the critical variables define the critical variables affecting each of them,affecting each of them,

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ObjectivesObjectives

1.1. Compare different approaches to Compare different approaches to the issue of corporate performance the issue of corporate performance analysis [evaluation],analysis [evaluation],

2.2. Study cases of corporations Study cases of corporations applying successful and less applying successful and less successful total performance successful total performance schemes.schemes.

3.3. Develop an integrated approach to Develop an integrated approach to corporate performance analysis corporate performance analysis and define its organizational, and define its organizational, informational, and behavioral informational, and behavioral requirements.requirements.

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Concept of Corporate Concept of Corporate Performance AnalysisPerformance Analysis

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Concepts of Corporate Concepts of Corporate Performance AnalysisPerformance Analysis

Why Measure Performance?Why Measure Performance?– The basic purpose of any The basic purpose of any

measurementmeasurement

system is to provide feedback, relativesystem is to provide feedback, relative

to corporate goals, that increases theto corporate goals, that increases the

corporation’s chances of achieving corporation’s chances of achieving thesethese

goals efficiently and effectively.goals efficiently and effectively.– Measurement gains true value when Measurement gains true value when

used as the basis for timely decisions.used as the basis for timely decisions.

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The ultimate aim of a performance The ultimate aim of a performance measurement system:measurement system:

To improve the performance of theTo improve the performance of the

organization. If management can getorganization. If management can get

performance measurement right, theperformance measurement right, the

data it generates will tell managers data it generates will tell managers wherewhere

the company is, how it is doing, andthe company is, how it is doing, and

where it is going.where it is going.

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Enterprise Performance Enterprise Performance Management (EPM)Management (EPM)

For competitive reasons, managementFor competitive reasons, managementneeds to measure the end-to-endneeds to measure the end-to-endperformance of the enterprise directly. performance of the enterprise directly. Enterprise Performance ManagementEnterprise Performance Management((EPMEPM),), that can be defined as the that can be defined as the BusinessBusinessProcess Management SystemProcess Management System (BPMS), (BPMS),provides the foundation for new enterpriseprovides the foundation for new enterprisearchitecture.architecture.

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Traditionally, Traditionally, business business measurementmeasurement - what analysts - what analysts call "business intelligence" - call "business intelligence" - has been based on the has been based on the analysis of analysis of datadata extracted extracted after the factafter the fact from past from past operations of implicit operations of implicit business processes.business processes.

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The The BPMSBPMS, on the other hand, , on the other hand, enables business analysts to do enables business analysts to do real-real-time process analysistime process analysis - to directly - to directly measure the business value of measure the business value of explicitly defined explicitly defined business processesbusiness processes. .

These processes can now be These processes can now be optimized on the fly without the optimized on the fly without the need for additional software need for additional software development, tremendously development, tremendously simplifying the management of their simplifying the management of their design over their lifetime.design over their lifetime.

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Balanced ScorecardBalanced ScorecardThe The Balanced ScorecardBalanced Scorecard is a framework is a frameworkfor designing a set of measures forfor designing a set of measures foractivities chosen by management as being theactivities chosen by management as being thekey drivers of the business. key drivers of the business. By having four distinct perspectives By having four distinct perspectives

(financial,(financial,customer, internal process and customer, internal process and

innovationinnovationand learning)and learning) it promotes a more holistic it promotes a more holisticView of the business.View of the business.

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BenchmarkingBenchmarkingBenchmarking is the approach ofBenchmarking is the approach of

continuously measuring products,continuously measuring products,

services, and practices againstservices, and practices against

Tough standards set by competitorsTough standards set by competitors

or renowned leaders in the field.or renowned leaders in the field.

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Economic Value Added (EVA)Economic Value Added (EVA)Economic Value Added (EVA), or Economic Value Added (EVA), or

economic renteconomic rent, is a widely recognized , is a widely recognized tool that is used to measure the tool that is used to measure the efficiency with which a company has efficiency with which a company has used its resources. In other words, used its resources. In other words, EVA is the difference between return EVA is the difference between return achieved on resources invested and achieved on resources invested and the cost of resources. Higher the EVA, the cost of resources. Higher the EVA, better the level of resource utilization.better the level of resource utilization.

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Measuring Coach's Measuring Coach's EffectivenessEffectiveness

In coaching, the coach's In coaching, the coach's effectiveness is measured effectiveness is measured by the success of those he by the success of those he or she coaches. or she coaches.

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Measuring Cleaner ProductionMeasuring Cleaner Production Measuring cleaner production (CP) is of Measuring cleaner production (CP) is of

critical importance. Management must critical importance. Management must use appropriate indicators, which are use appropriate indicators, which are generally applicable, yet specifically generally applicable, yet specifically measurable, and address both the measurable, and address both the productivity and environmental aspects productivity and environmental aspects of the system in an integrated fashion. of the system in an integrated fashion. The indicators should enable not only The indicators should enable not only estimation of the estimation of the CPCP of a product or of a product or process and its comparison with other process and its comparison with other equivalents, but also improvement of the equivalents, but also improvement of the existing process or product and the existing process or product and the development of new products. development of new products.

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Life Cycle AssessmentLife Cycle Assessment (LCA) (LCA) and Total Cost Assessment and Total Cost Assessment (TCA)(TCA) are two types of CP are two types of CP indicators that help indicators that help managers understand the managers understand the practical implications of CP practical implications of CP and make right decisions. and make right decisions.

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Jack Welch, the former legendary CEO of Jack Welch, the former legendary CEO of GE, made quality the job of every GE, made quality the job of every employee. Senior manager's bonuses were employee. Senior manager's bonuses were tied to Six Sigma results. Welch credits the tied to Six Sigma results. Welch credits the Six Sigma quality initiative with "changing Six Sigma quality initiative with "changing the DNA of the company", meaning that it the DNA of the company", meaning that it has had a greater impact on the has had a greater impact on the productivity of GE than any other program. productivity of GE than any other program. To help their businesses to track progress To help their businesses to track progress in the six sigma program, GE designed five in the six sigma program, GE designed five corporate measures: corporate measures: Customer Customer satisfactionsatisfaction; ; Cost of poor qualityCost of poor quality; ; Supplier Supplier qualityquality; ; Internal performanceInternal performance; and ; and Design Design for manufacturabilityfor manufacturability..

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InputsInputs ProcessesProcesses OutputsOutputs

The Corporate Performance Analysis The Corporate Performance Analysis SystemSystem

InformatioInformationn

on Actual on Actual vs.vs.

PlannedPlanned

PerformanPerformance ce

MeasuremeMeasurementnt

ComparisonComparison

DiagnosisDiagnosis

InferenceInference

DecidingDeciding

EvaluationsEvaluations

Corrective Corrective actionsactions

Internal Environment Internal Environment

External Environment External Environment

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Approaches to Corporate Approaches to Corporate Performance Analysis Performance Analysis

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Approaches to Corporate Approaches to Corporate Performance AnalysisPerformance Analysis

The advantages and The advantages and disadvantages disadvantages of each approach,of each approach,

The prerequisites of each The prerequisites of each approach,approach,

Are the different approaches Are the different approaches mutually exclusive? mutually exclusive?

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Approaches to Corporate Approaches to Corporate Performance AnalysisPerformance Analysis

1.1. Use Lagging indicators,Use Lagging indicators, after the fact based on historical after the fact based on historical

data],data],2.2. Single-tracked,Single-tracked,

focuses only on financial measures,focuses only on financial measures,3.3. Strategically isolated,Strategically isolated,

Not linked to corporate strategies Not linked to corporate strategies and strategic plans,and strategic plans,

4.4. Output oriented,Output oriented, Stresses processes an utilized Stresses processes an utilized

resources [inputs] and achieved resources [inputs] and achieved production, but neglect OUTCOMES.production, but neglect OUTCOMES.

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Modern ApproachesModern Approaches

Concurrent ,Concurrent , Multidimensional measurements Multidimensional measurements

of ongoing operations in all of ongoing operations in all segments of the business,segments of the business,

Balance financial and non-financial Balance financial and non-financial measures,measures,

Balance inputs, processes, Balance inputs, processes, outputs and outcomes measures,outputs and outcomes measures,

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Modern ApproachesModern Approaches

Balance tangible and intangible results,Balance tangible and intangible results, Balance leading [future performance Balance leading [future performance

drivers] and lagging indicators,drivers] and lagging indicators, Establish cause – effect links between Establish cause – effect links between

inputs, outputs and outcomes,inputs, outputs and outcomes, Measure performance against strategic Measure performance against strategic

mission, vision, goals, and objectives,mission, vision, goals, and objectives, Aims at performance improvement.Aims at performance improvement.

Education

Corporate performance analysis