Measuring Corporate

Performance
D. Michael Brown and Stuart Laverick

A T ITS MOST BASIC, PERFORMANCE APPRAISAL IS A Resent annuai reports highlighting the corporate
means for corporate organizations to assess the performance of same large well-known Gampaniers such
effectiveness of their decision making. Doing this as &XI, Polty Psck, Traklgar House, Blue Arrow, and
they are able to appraise the success or failure of Maxwell Communications all had an unexpsted
their strategic planning. The notion of corporate feature in common. They turned out to be deliberately
success derives from a company’s performance, misfeading. Uther annual returns axt&ng the vktuers of
which is in turn a reflection of its decision making in company performance could likewise be ru;gar#ed as
relation to strategic objectives, markets and a whole “economic with the tn.&$, Thay aisa lack consistency in
range of internal and external circumstances. their methods and tech&y= of accounting making
Given the unpredictability of these circumstances, interpretation and crosscomparis@ns diiicult,
current methods of measuring corporate perform- The authors review the at&mpts to measure
ance effectively and realistically seem to be remark- corporate perfume effectively and r~&i&alEj
ably facile and even inappropriate. We think it is so that a ‘trur# picturesof an organiratian can be
important before attempting to measure corporate pair&d.
performance to examine three key issues. First, what
are the specific measures that are to be used?
Second, where will the information come from? And of these measures. Next, we review the corporate
third, how should the various measures be combined objectives of the companies and question how con-
to present a ‘true’ picture of the organization? ventional measures can still be utilized when the
Speed and Smith’ advocate that objectives are in fact changing. The third section
the ideal measurable performance would use publicly suggests that rather than customary measures of
available data to produce an unequivocal, agreed database performance there should be greater emphasis on
measure that would thus have some degree of objectivity composite measures of performance. It also identi-
and would produce results that would be repeatable by any fies one unique measure of corporate performance
one who cared to try.
that has gained attention in the USA and the UK.
Unfortunately such a ‘utopian’ measure is not The final section looks at those areas within organ-
matched in reality when one examines the measures izations that need addressing if a comprehensive
that are widely used to assess corporate perform- realistic interpretation of corporate performance is to
ance. be achieved.
This article provides an overview of various
measures of corporate performance that help distin-
guish between successful and unsuccessful imple-
mentation of business strategy. It is divided into four
Conventional Measures
sections. The first section identifies and assessed the Financial Measures
conventional measures of performance that may be Financial information is the most widely available
used, namely, financial, personnel and marketing information source on companies. The availability of
measures. It also draws attention to the limitations this information is due to the requirements in law

PergaIIKln Long Range Planning Vol. 27, No. 4. pp. 89 to 98, 1994
0024-6301(94)E0026-Z Copyright 0 1994 Elsevier Science Ltd
Printed in Great Britain. All rights reserved
0024-6301/94 $7.oo+.oo
that British companies must annually disclose has been reduced without there being any real
specific financial information. The extent of the impact on performance.
financial information that must be disclosed
depends on whether the company is public, private, Provisions
listed or unlisted. These requirements produce Provisions are the amount a company may retain for
quantifiable data which, when collated, provide a the purpose of providing for any liability or loss that
number of performance measures. For public limited may occur. Two examples include bad debt pro-
companies, for example, a profit and loss account, a visions or restructuring provisions. Company A may
balance sheet and a funds flow statement must be make two types of bad debt provisions, specific pro-
produced. From these a series of accounting ratios visions and general provisions while Company B
can be derived, including return on capital invested may only make specific provisions. Company A
(ROCI), return on capital employed (ROCE), profit could raise their profits by excluding the general
before and after tax and earnings per share. Together provisions. Following a takeover another company
these financial measures paint a picture of the may make provisions against future losses which
performance of specific companies over the course they then include in goodwill. This is then written
of the financial year and when compared with earlier off to reserves in the balance sheet without going
accounts also over a longer period of time. That is through the profit and loss account.
assuming consistency of accounting practice. The most common practice that companies follow
These figures, however, can be misleading if they is to make general provisions when the business is
have been manipulated or massaged in such a way as successful, only to write back the provisions during
to present a spurious reflection of the company’s the difficult periods, thereby making profits, earn-
performance. It is essential to scrutinize carefully the ings and earning per share look better.
notes to the accounts if one is to obtain a lucid
picture. Even then the accounting techniques
Capitalization of Costs
employed will give a particular picture of the
These are costs that are treated as creating or
company’s performance. Inevitably, the figures paint
increasing assets in the balance sheet rather than as
a facade of the company, in the colours that the
an expense in the profit and loss account. Some
company desires!
The measures of corporate performance derived companies, for example Grand Met, Bass and
from financial accounting have understandably Guinness require extensive property for products
come under a lot of criticism, the most recent being like whisky to mature. Some companies may include
the commercially successful Accounting for Growth the interest on the cost of these buildings in the
by Smith.2 Smith identifies 45 UK companies that balance sheet as a capital cost. Another company
use five or more of the ‘financial engineering’ may put the interest on cost through the profit and
techniques that his book describes. The worst three loss account. This also has the effect of changing the
culprits are Grand Met who incorporate nine of the profits and earnings per share as well as the interest
cover. Guinness’s annual report of 1991 indicates
12 questionable but legal practices, followed by
Ladbroke and Trafalgar House who both use eight of that the interest figure is put through the balance
sheet rather than the profit and loss account.
the dubious methods.
It would be useful at this point to summarize some
of these criticisms. Depreciation
Depreciation is the measure of wearing out, con-
Underevaluation ofAssets sumption or any other reduction in the useful life of
The way privatized electricity and water utilities a fixed asset. BAA for example has expanded the
dealt with the issue of inflation highlights this point. ‘economic life’ of its terminals and runways from 16
The newly privatized electricity and water com- and 23.5 years respectively to 50 and 100 years. This
panies switched from current cost valuation of assets means’ that these assets can be depreciated over a
to historical costing. The impact of this was that longer time interval which has the effect of reducing
measures of profitability such as ROCE have greatly the annual depreciation cost and therefore increas-
improved because the denominator in such a ratio ing profits.

Measuring Corporate Performance

Goodwill Value. This method contrasts with the regular finan-
This is the difference between the consideration cial measures that are limited to the investors.
given and the ‘fair value’ of the assets acquired by Added Value identifies more than just the investor
the company. Companies will try and put as much as and includes employees, customers and suppliers
possible into goodwill because it is written off that assist in adding value to a company’s output.
immediately to reserves on the balance sheet. The This measure of corporate performance is obtained
aim is to make the fair value as low as possible which by subtracting from a company’s operating profit a
is reflected in lower depreciation charges and to charge for the amount of capital the company
make goodwill as high as possible. High goodwill employs. Kay3 incorporates this method in his
means lower reserves, lower capital employed and assessment of UK supermarkets and develops it to
an improved ROCE figure. Saatchi and Saatchi include Europe’s 10 most successful companies
actually had negative reserves having written off so between 1981 and 1990. His top three are Glaxo,
much goodwill. Benetton and Reuters.
Davis Flanders and Star4 extend the Added Value
Brands as a measure of corporate performance further by
This practice is applied by companies who possess producing a set of corporate league tables that
brand items despite being contrary to the Account- separate capital intensive firms from labour
ing Standards Body’s guidelines. Brands are intensive firms. They give a penalty to the company
included in the balance sheet as fixed intangible in accordance to the amount of capital equipment it
assets. The origins of brand accounting came to the employs. The penalty is equal to what the firm
forefront during Nestle and Suchard’s battle to take would have to pay in order to borrow the money for
over Rowntree in 1988. Rowntree possessed branded the assets it uses. Their argument is that there may
items such as Kit-Kat, Polo, After Eight, and Quality be two companies (A and B) with similar turnover
Street. They argued that their brands were under- and profit figures but company A may employ twice
valued on the market. The result was that Nestle as much capital. This makes company A less
acquired Rowntree with a share bid of lO75p, sub- successful as it only earns the same profit while
stantially higher than the 477~ that Rowntree shares incorporating expensive capital that company B does
were trading at earlier. not. Two tables are produced, one giving the worlds
Cadburys introduced the brand value of all largest Added Value companies which list Shell,
products acquired since 1985. This was partly in Exxon and IBM as the top three. The second and
defence of its own brand products such as Trebor more relevant in terms of corporate performance
and Bassett, but also as a defence against predatory evaluates Added Value as a percentage of sales. The
moves by General Cinemas in 1989. The result was top 10 are shown in Table 1.
that Cadbury’s balance sheet increased by one third.
In 1992 the brand figure stood at E350m.

Off Balance Sheet Finance Corporate Objectives

This involves removing assets and liabilities from
Profitability measures are the financial measures
the balance sheet of a company which in turn is
which are most often used when comparing com-
reflected in the company gearing. If a company takes
out a loan for a new machine then this is accounted pany performances. Profit maximization is seen by
neo-clasical economists and the classical manage-
for in the balance sheet. If, however, the company
leases the piece of equipment then this is accounted ment theorists such as Taylor and Fayol as the
for off the balance sheet and will lead to an improve- legitimate objective of all private organizations.
However, this assumption has more recently come
ment in the company’s gearing ratio. Burtons
accounts show evidence of ‘sale and leaseback’ of under considerable attack from economists and from
twentieth century management theorists. This attack
assets to another company.
has been based on three main arguments: firstly, the
Added Value pricing policies of companies pay little attention to
One financial measure that is not conventional but equating the marginal costs and marginal revenues
has attracted increasing attention has been Added of their products in order to maximize profits;

Long Range Planning Vol. 27 August 1994

 TABLE1.The world’s 10 most successful companies.

Added value
Company Country Industry Sales %

1. Glaxo UK Pharmacy 27.8

2. Cable &Wireless UK Telecom 23.1
3. Public Service USA Services 22-9
4. Merck & Co. USA Pharmacy 22.3
5. Lilly (Eli) & Co. USA Pharmacy 21.7
6. American Home Prod. USA Pharmacy 21.5
7. PSI Resources Inc. USA Utilities 20.7
8. Ohio Edison USA Utilities 20.3
9. Baltimore Gas & Elec. USA Utilities 20.1
10. Cathay Pacific H. Kong Airlines 19-9

secondly, the profit maximization theory is con- expenditure per employee (to mention only a few).
cerned with the short-run and ignores companies’ Management Today (1990) produced company in-
long term objectives; finally, company objectives are formation in terms of company employees, by rank-
not confined to profit maximization. Other object- ing the top 100 UK companies in terms of a company
ives should be considered. employee’s average wage. Levering, Maskowitz and
Baumol” suggests the pursuit of size, measured by Katz rank as the top 100 American companies to
turnover, is more likely to serve the needs of work for when looking at the rewards and conditions
management than profit maximization, although he within the organizations.
does recognize the need for a satisfactory level of Norburn and Birley” avoid the use of profitability.
profits. Marris” also feels that business success is Their interesting study was based upon dual criteria
achieved by continuous growth. This may be of sales revenue and revenue growth percentages
achieved by internal methods such as product or with employment levels and employment growth
market diversification, or alternatively by external percentages. The data they collected consisted of
methods, for example acquisition of other companies personnel statistics such as age, sex, status, etc.,
either by vertical or horizontal integration. William- educational backgrounds, and employment tenure of
son7 suggested that management utility was a companies’ top management personnel. Their
function of a number of factors including power, results gave a picture of companies in growth
prestige, security, salary and leisure with the need (GOGOs), those in turbulence (YOYOs) and those in
only to earn satisfactory profits. One current decline (DODOs). Their analysis identified top
example of how companies have moved away from management personnel of GOGO companies as
the classical view of profit maximization can be seen having a tendency to be younger having been at the
in the annual report and accounts of Rentokil (1992) company for a shorter length of time, worked for
who acknowledge that they are not seeking to fewer companies and tended to come predominantly
maximize profits but rather from a liberal arts background. DOD0 companies
had contrasting management characteristics to those
rvhose consistent aim is to pro~~idr for its shareholders u
of GOGO companies and managers were more likely
grorvth of at least 20 per cent per cmnum in profits und
earnings per share to have studied science subjects.
The objectivity of these personnel measures of
Morris” suggests that only 15.9 per cent of corporate performance have much to recommend
companies surveyed were effectively aiming to them, but these too have their limitations in that
maximize profits. there are different criteria of success. For example, if
creation of jobs is regarded as the key measure of
Personnel Measures success by some, such as the Government, unions
An alternative to financial performance meausures is and society, then British Steel, British Airways, and
to focus on personnel measures such as job creation, British Telecom are major industrial disasters since
employee productivity or research and development they gained financial respectability by rationalizing

Measuring Corporate Performance

their manpower. Lyonski and PecotichlO point to the Composite Measures
limitations of organizational measures of perform-
Corporate development during the twentieth century
ance, which they say are both conceptually and
has witnessed the steady decline of the owner-
methodologically unsound.
controller of organizations. In its place has come the
emergence of the managerial class, a powerful group
of employers who do not necessarily own the
company but who make all the decisions pertaining
Marketing and Other Measures
to the running, and ultimately the performance of
Many people who investigate business strategy use
the company.
sales and market share statistics as indicators of
Management theorists such as Cyert and MarchI
performance. For instance Doyle et al.ll and Hooley
and Simon16, who introduced the notion of ‘satisfic-
et al.” use sales volume and market share along with
ing’, both argued that within organizations there
profits and return on investment as measures of
exist different groups with different objectives.
performance. Here another difficulty occurs, what is
the best measure of market share performance? Sales Employees, for example, seek adequate working
increase on last year, sales increase relative to conditions and adequate remuneration for their
competitors or sales increase relative to plan? work. Unionists seek to maintain employment;
Equally, which company should be classed as the management may wish to introduce greater mechan-
best performer, the one whose sales volume has ization in order to raise productivity. Even the com-
increased by 5 per cent in a static market or one that munity may be concerned, for example with the
has grown 15 per cent in a market growing at 12 per organization’s impact on the environment. A realis-
cent? tic model of corporate performance is therefore a
These performance measures are based on how a highly complex paradigm and certainly requires
business has dealt with the past. It is often implicitly more than a single criterion to define it.
assumed that such success can be extrapolated into What is required is a composite performance
the future. Perhaps more attention should be measure, a multi-factor function of performance.
attached to an organizations ability to adapt to Some academics such as Chakravarthy18 have
changes that are occurring and will occur in its attempted to construct multi-factor functions. One
environment. Boeker and GoldsteinI in their article early attempt was a development of the so called
‘Organizational Performance and Adaptation . . .’ Bankruptcy model by Altmanlg. The researchers
analyse the effect of environmental change on the studied a number of corporate bankruptcies and
performance of companies and subsequently on devised a multi-factor function that was extremely
changes in the composition of companies’ boards of accurate in determining the likelihood of a company
directors. Performance acts as a ‘mediator’ of corpor- going bankrupt. If the value of the z factor was less
ate action. The board of directors is one mechanism than l-8 then the company was almost certain to go
through which organizations respond to and manage bankrupt. If z was greater than 3 they were almost
environmental changes. certain not to.
Gordon and DiTomaso14 go a stage further and However, despite the originality of this method,
investigate the potential for predicting corporate the function was still composed of financial
performance from analysing an organization’s measures. Financial superiority is only one element
culture. Using a sample of insurance companies and of corporate performance, whose benefits are
measuring performance by growth in assets and focused solely on the welfare of the investor. They
culture by the standard deviation measure of dis- ignore other stakeholders such as employees,
persion they concluded that there is evidence that a customers and the environment whose objectives
strong culture predicts positive short-term future must also be assessed. Therefore for a truly success-
company performance. However, they found that a ful measure of corporate performance a company
changing culture also produced similar results! must satisfy all stakeholders.
Another shortcoming is that their study considered Kaplan and Norton z” have devised a composite
growth over a period of time but culture only at a measure of performance which they have called the
point in time. ‘balanced scorecard’. This includes financial

Long Range Planning Vol. 27 August 1994

measures and also operational measures such as has gained increasing attention in the UK (Econo-
customer satisfaction, use of information technology mist) and the USA (Fortune) is the ‘informed specta-
plus innovation and improvements to the company’s tor’ method. This is an externally devised series of
activities. The scorecard provides a set of measures measures that are applied internally by those senior
that give senior managers a fast single report on the executives who are best placed to provide the most
organization performance. It allows managers an accurate data. Expert opinions from leading city
overview of the company from four perspectives as analysts complete the ‘informed’ element of the
shown in Figure 1. First from the customers’ technique.
perspective: ‘how do the customers see the com- The peer and expert assessments indicate the
pany?’ Second, from an internal perspective: ‘what degree of admiration or esteem gained by
must the company excel at?’ Third, an innovative companies. Most admired companies are those who
and learning perspective: ‘how can the company have successfully identified and balanced the com-
continue to improve and create value?. Finally, from peting claims of the stakeholders. This measure of
a financial perspective: ‘how does the company success or excellence should be regarded synono-
regard shareholders?’ mously with performance. This is not an excessive
The balanced scorecard technique is essentially an exaggeration, Peters and WatermanI and Chakra-
internal measure of corporate performance. A more varthy’” both regard those factors that affect per-
widely applicable measure that balances the compet- formance as similar to the factors considered by
ing claims of the stakeholders and provides cross peers and experts when assessing companies. With
company comparisons is required. One method that few exceptions a strongly performing company that

Financial perspective
Goals Measures

How do we look to What must WB

How do customers
shareholders? excel at?
see us?
Internal business
Customer perspective
perspective
Goals Measures
4 e Goals Measures

Can we continue to improve

and create value?
Innovation and learning
perspective
Goals Measures

FWJRE1. Kaplan and Morton’s “balanced scorecard’ and its links with performance measures.

Measuring Corporate Performance

satisfies stakeholder’s objectives will be a highly in each of the 24 industrial sectors. Table 3 collates
admired organization. these together and produces the UK top 20 most
The latest UK Most Admired Companies (Econo- admired corporate performers and finally Table 4
mist, 1992) asks senior executives in 240 British indicates the top three corporate performers in each
companies and business analysts to give a rating of of the nine stakeholder characteristics.
the reputation of each company, other than their Despite the subjective nature of this view of
own, within their industrial sectors. They are to corporate performance it does look beyond the finan-
provide a score from O=poor to lO=excellent for cial measures that address only the concerns of the
each of nine characteristics that cover the major shareholders. It provides a dynamic insight into the
stakeholders. For the shareholders this includes esteem attracted by each company, through its
Quality of Management, Financial Soundness, Value attitude to customers, towards employees and to the
as a Long Term Investment, and Use of Corporate community as well as to shareholders. Furthermore,
Assets. For the customer this includes Quality of the not only does it highlight successful companies but
Product, the firms Capacity to Innovate and its it also provides a method of identifying problem
Quality of Marketing. For the employee this includes companies. Like a medical team’s opinions on the
the companies Ability to Attract Develop and Retain health of an individual, the ‘informed spectators’
Top Talent. Finally, for the community this includes provide a diagnosis on the health of companies. A
the company’s Community and Environmental company’s health may change annually when the
Responsibility. survey is repeated; however, the ‘super-health’
Companies that appeal to all the stakeholders organizations will be those who continue to consider
when their scores are summed together are the most all their stakeholders’ objectives and thereby remain
admired and thus have the highest reputation.21 a most admired company year after year. Three good
Table 2 illustrates the top three corporate performers examples of this are Glaxo and Shell in the UK who

Industrialsector First Score Second Score Third Score Total sector

Agencies Abbott Mead Vickers 57.80 Gold Greenlees Trott 56.60 Lowe Group 52.92 420.38*
Banks Lloyds 61.17 Abbey National 58.88 Bank of Scotland 57.10 505.95
Building, Timber & Roads Redland 67.83 RMC Group 60.08 Wilson Connolly 56.86 518.17
Business Services Rentokil 71.33 lnchcape 57.33 Hays 55.67 456.38*
Chemicals & Plastics Allied Colloids 64.65 Courtaulds 62.92 ICI 55.18 503.45
Conglomerates RTZ Corporation 64.17 BTR 63.06 Hanson 61.56 538.33
Drapery & Stores Marks & Spencer 69*80 Body Shop 66.55 Kingfisher 60.24 550.06
Drinks Guinness 70.74 Grand Metropolitan 61.56 Bass 57.97 530.50
Electricals Vodafone 62.36 British Telecom 58.95 Cable & Wireless 57-31 550.23
Electricity Yorkshire Electricity 63.80 Southern Electricity 62.00 East Midland Electricity 59.93 579.03
Engineering (Auto & Aero) Smiths Industries 59.86 Rolls Royce 54.93 GKN 52.25 494.41
Food & Groceries J. Sainsbury 68.26 Cadbury Schweppes 66.31 Tesco 63.15 543.53
Health & Household Glaxo 7444 Unilever 72.83 SmithKline-Beecham 68-25 595.74
Hotels, Catering & Travel British Airways 59.08 Ladbroke Group 54.17 Compass Group 53.50 499.00
Industrials BOC Group 63.08 Tomkins 59.83 Williams Holdings 56.79 527.72
Insurances Prudential Corporation 54-06 Commercial Union 52.06 Lloyds Abbey Life 51.75 471 a67
Leisure & Communications Central TV 66.92 London Weekend TV 59.20 Granada Group 56.83 527.87
Newspaper & Publishers Reuters Holdings 70.00 Daily Mail & General Tr 62.29 Pearson 61 .OO 563.07
Oil & Gas Shell 69.62 British Gas 58.64 British Petroleum 58.50 524.15
Paper & Printing Bowater 59.00 De La Rue 58.33 Arjo Wiggins Appleton 57.71 492.85
Property Land Securities 54.83 Brixton Estate 54.33 The British Land Co. 52.27 459.57
Textiles Courtaulds Textiles 58.20 Allied Textiles 57.50 Dawson International 55.13 494.55
Trusts & Finance S G Warburg 60.78 Schroders 59.65 M & G Group 53.75 484.03
Water Wessex Water 60.04 Thames Water 58.27 Yorkshire Water 56.93 541.34

*This total sector score consists of only nine companies.

Long Range Planning Vol. 27 August 1994

 3. Britain’s most admired companies 1992.
TAUPE Conclusion
How can corporate renewal occur when an organiza-
1992
tion’s traditional response to improving performance
1 Glaxo 74.44 has been to give priority to cost cutting measures?
2 Uniliver 72.83 Whenever serious conflicts arise within organiza-
3 Rentokil 71.33 tions it is inevitable that financial considerations
4 Guinness 70.74 override all other alternatives. However, as Curti?
5 Reuters Holdings 70.00 suggests:
6 Marks & Spencer 69.80
7 ‘Shell’ Transport & Trading 69.62 Academics and practitioners have begun to demonstrate
8 J. Sainsbury 68.26 that accrual-based performance measures are at best
obsolete, and often more harmful.
9 SmithKline-Beecham 68.25
10 Redland 67.83 Instead of yesterday’s performance measuring
11 Wellcome 67.75
yesterday’s decisions, what are needed are measures
12 Central Independent TV 66.92
that provide today’s decisions which will benefit
13 Body Shop 66.55
tomorrow’s performance.
14 Cadbury Schweppes 66.31
15 Allied Colloids 64.65
Quality measures are increasingly being applied to
16 RTZ 64.17 goods and services, quality requirements from
17 Yorkshire Electricity 63.80 suppliers, employee and customer satisfaction, com-
18 Reckitt & Colman 63.17 petitive benchmarking plus appreciation of environ-
19 Tesco 63.15 mental issues. Eccles2” suggests that:
20 BOC Group 63.08
Revolutions begin long before they are officially started.
For several years senior executives have been rethinking
how to measure the performance of their businesses. They
have continued to figure in the top three on each
have recognised that new strategies and important realities
occasion the survey has been carried out and, in the demand new measurement systems.
USA, Merck who have topped the US survey several
times. In his article ‘The Performance Measurement
This method also provides a prognosis of the Manifesto’ Eccles identifies and details five areas of
unhealthy, even terminally ill, companies. The activity that should be addressed when considering
headstones of Coalite, Plessey, Abbey Life, Rose- new corporate performance measures. These are
haugh and Midland Bank are testimony to this. illustrated in Figure 2.

TABLE 4. Britain’s top three companies for each of the stakeholder characteristics,

Stakeholder characteristics First Second Third

Financial
Quality of management Rentokil Guinness Unilever
Financial soundness Central TV Land Securities Shell
Value as a long term investment Glaxo Central TV Unilever
Use of corporate assets Hanson BTR SmithKline-Beecham
Customer
Quality of products Glaxo Unilever Marks & Spencer
Capacity to innovate Glaxo Body Shop Rentokil
Quality of marketing Unilever Rentokil Glaxo
Employee
Ability to attract, dev. and retain talent Unilever Guinness Redland
Community
Community and environmental resp. Body Shop Marks & Spencer British Gas

Measuring Corporate Performance

93

tion should be a structured and continuous set of

measures that provides essential data.

I Develop an information architecture A final element of the information needed are the
criteria that regulate the flow of information.

I
Questions such as, who is responsible for the
measures taken? Who requires and has access to the
Provide technological support
data? Who analyses the data?
Having devised the information architecture, the

c
most appropriate technology should be employed to
Aligning incentives to new system manage the system. Inappropriate consideration of
this factor may result in an expensive fiasco similar
to the one witnessed by the Stock Exchange when it
abandoned its untried Taurus system. It is essential
I Draw on outside resources
I that the best hardware and software plus communi-
cation links be considered by senior executives and
potential users before expensive IT equipment is
Design a process to ensure success installed.
Aligned to a performance monitoring system
should be performance related incentives (PRIs).
These are incentives to reward people in their efforts
to achieve specific targeted performance measures
that have been set. Examples of these can be
increasingly found in industries today, for example
zero defects, minimum customer complaints and
reduced response times. To complement these
Information Architecture is a general term that
internal efforts, external organizations such as trade
includes three important characteristics, the in-
associations, Government departments and consul-
formation needed to manage a company’s business,
tancy firms should also contribute facts and figures
the methods the company adopts to obtain this in-
that assist companies in achieving their performance
formation and the rules regulating it.
measure. Professional bodies such as the CBI, the
Senior executives must decide what data need
TUC, and the DTI should also co-ordinate bench-
collecting in order to assess the performance of their
company’s corporate strategy. Some form of com- marking practices either between similar companies
munication process is required that standardizes the or with companies in different industries. Bench-
company’s vocabularly, thereby reducing confusion. marking provides the opportunity for firms to learn
Finally specific rules are required that govern the from the best practices of other successful
flow of information. companies.
How the company obtains this information is Devising a process to accommodate all these
inevitably problematic. Financial performance features in such a way that a better balance of per-
figures are obviously available. However, the vast formance measurement is achieved is difficult. An
discrepancies in accounting techniques need to be integrated, co-ordinated effort with top management
standardized in such a way that a true and reliable taking the lead will go some way towards contribut-
impression of a company can be obtained. Other ing to its success. Also an open-mindedness about
methods must be developed that provide measures the structure and processes required is essential not
of such aspects as market share, product quality, just within the organization but also in the external
customer service quality, innovation, R & D expendi- environment. Eccles concludes, ‘We are talking
ture plus employee and customer satisfaction. Rather about a new philosophy of performance measure-
than acting merely as ad hoc findings for corporate ment that regards it as an ongoing, evolving
senior executives within a company, this informa- process’.

Long Range Planning Vol. 27 August 1994

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Measuring Corporate Performance