Performance Metrics.pdf

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Feb 10, 2024
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Performance Objectives And Metrics - Many factors contribute to a firm's overall performance, which makes it hard to find a single metric to evaluate performance - One approach is to compare a firm's performance over time or to competing firms, using common financial metrics such as sales and profits - Another method of assessing performance is to view the firm's products or services as a portfolio - Depending on the firm's relative performance, the profits from some products or services are used to fuel growth for others Financial Performance Metrics - Some commonly used metrics to assess performance include revenues, or sales, and profits - For instance, sales are a global measure of a firm's activity level - A manager could easily increase sales by lowering prices, but the profit realized on that merchandise (gross margin) would suffer as a result - Clearly, an attempt to maximize one metric may lower another - Managers must therefore understand how their actions affect multiple performance metrics - It's usually unwise to use only one metric because it rarely tells the whole story - The metrics used to evaluate a firm vary depending on (1) the level of the organization at which the decision is made and (2) the resources the manager controls - For example, while the top executives of a firm have control over all of the firm's resources and resulting expenses, a regional sales manager has control over only the sales and expenses generated by his or her salespeople Social Responsibility Performance Metrics - As Canadian companies become more convinced of the importance of social responsibility, we will likely see an increasing number of companies reporting corporate social responsibility metrics, such as their impact on the environment, their ability to diversify their workforce, their energy conservation initiatives, and their policies on protecting the human rights of their employees and the employees of their suppliers Strategic Planning Is Not Sequential - In portfolio analysis, for example, management evaluates the firm's various products and businesses—its "portfolio"—and allocates resources according to which products are expected to be the most profitable for the firm in the future - Portfolio analysis is typically performed at the strategic business unit (SBU) or product line level of the firm, though managers can also use it to analyze brands or even individual items - A strategic business unit is a division of the company that can be managed somewhat independently from other divisions since it markets a specific set of products to a clearly defined group of customers
- For example, Loblaw Companies Limited consists of its general merchandise, drugstores, President's Choice brand, and financial products and services operations. Each of these is an SBU - A product line, in contrast, is a group of products that consumers may use together or perceive as similar in some way - There are several product lines within Loblaw's PC Financial SBU: PC banking, PC MasterCard, mortgages, and insurance Boston Consulting Group's Portfolio Analysis - One of the most popular portfolio analysis methods, developed by the Boston Consulting Group (BCG), requires that firms classify all their products into a two-by-two matrix, as depicted in Exhibit 2.9
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