Assessing Organizational Performance

Assessing Organizational Performance

• Organizational performance is how well an organization achieves its vision, mission, and goals
• It includes financial results, operational efficiency, and employee engagement

Two Important Considerations

• Performance measures are data-driven metrics that assess how well an agency or organization achieves its objectives
• Performance benchmarks involve measuring and analyzing an organization's performance against competitors or industry standards
• This helps businesses compare financial measures and understand areas for improvement
• Performance benchmarking enables businesses to analyze past performance, compare operations against industry standards, and improve processes to increase customer satisfaction

The Balanced Scorecard

• A strategic management tool that offers a complete view of organizational performance
• It considers financial, customer, internal processes, and learning and growth perspectives
• It helps align activities with strategic goals

Goals

• Setting goals is crucial for managing a successful organization
• They provide standards to judge company success
• Goals should be SMART: Specific, Measurable, Achievable, Relevant, and Time-bound

Customer Measures

• Relate to customer attraction, satisfaction, and retention

Internal Business Process Measures

• Relate to organizational efficiency

Measuring Performance Using Triple Bottom Line

• The Triple Bottom Line (TBL) is a sustainability framework
• It considers people (social responsibility), planet (environmental sustainability), and profit
• These factors are considered when making decisions, not just financial performance

Learning and Growth Measures

• Focus on innovation and process
• Recognition that strategies change over time

Quantitative Analysis

• Used to perform organizational analysis

Financial Analysis

• This is ratio analysis
• It enables direct comparisons between firms or annual trends, regardless of firm size

Market-Based Analysis

• Helps determine how the firm compares to its competitors

Measures to Analyze a Firm's Market Position

• Market share is total product revenue divided by total revenue in the industry
• It indicates the firm’s percentage of market presence
• The price-earnings (PE) ratio is the stock price divided by earnings per share (EPS)
• It reflects the cost to invest in the company to earn $1.00

General Quantitative Analysis

• Includes diverse data sets, like trend analysis for tracking annual volume changes or extrapolating economic data for predictions
• Industry-specific data can further support comparisons for firms

Analyze a Firm's Market Position

• Utilizes a SWOT analysis, market analysis, and financial ratio analysis
• Helps assess internal capabilities, external factors, and financial health

SWOT Analysis

• Assesses internal capabilities, external factors, and financial health
• Strengths are internal capabilities that give the firm a competitive advantage
• For example, a strong brand or skilled workforce
• Weaknesses are internal limitations that hinder the firm's performance
• For example, outdated technology or poor customer service
• Opportunities are external factors that the firm can leverage
• For example, emerging markets or favorable regulations
• Threats are external factors that could negatively impact the firm
• For example, increased competition or changing consumer preferences

Market Analysis

• Understanding the overall size and potential for growth of the target market are key
• Identifying customer needs, wants, and behaviors is also key
• Analyzing the strengths, weaknesses, and strategies of competitors is important
• Evaluating the pricing strategies of competitors to identify opportunities for differentiation is also key

Financial Ratio Analysis

• Profitability ratios assess the firm's ability to generate profits
• For example, gross profit margin
• Liquidity ratios evaluate the firm's ability to meet short-term obligations
• For example, the current ratio
• Solvency ratios assess the firm's ability to meet long-term obligations
• For example, debt-to-equity ratio
• Efficiency ratios measure how effectively the firm uses assets
• For example, asset turnover ratio
• Market value ratios compare a company's stock price to its book value
• This is to determine if a stock is under or overpriced

Competitive Advantage

• The concept of Economic Value Creation (EVC)
• EVC is the difference between what a customer is willing to pay (WTP) for a product and the cost incurred to produce it
• Economic Value Creation may vary across firms, even if they sell the same product, due to different production costs
• EVC can be calculated with the equation EVC = WTP - Cost

Competitive Advantage Defined

• Unique characteristics enable a company to outperform competitors, achieving better market positioning and higher profits
• It involves creating value that is difficult for rivals to replicate

Components of Competitive Advantage

• Value Proposition refers to the feature or services that attract customers by offering genuine value
• Target Market is the segment that's been targeted for competitiveness
• Competitors: requires researching and understanding competitors in the marketplace and the value they offer

Types of Competitive Advantage - Michael Porter

• Competitive Advantage is not enough, the aim should be for Sustainable Competitive Advantage
• Cost Leadership involves producing the same quality product as competitors but selling it at a lower price
• Differentiation refers to when the product or service delivers different benefits than competitors
• Cost Focus: Lowest-cost producer in a concentrated market segment
• Differentiation Focus is for customized or specific value-add products in a narrow-targeted market segment

Relationship Between Economic Value Creation (EVC) & Competitive Advantage

• Direct Relationship: If competitive advantage increases, economic value creation will also increase, and vice versa
• A firm's competitive advantage grows if its economic value creation increases or if its competitor's decreases
• An organization holds a competitive advantage over others when it achieves greater economic value creation

External Assessment

• External Audit is used to avoid threats by developing a list of opportunities to benefit a firm
• Finite list suggests limits
• Aimed at actionable responses
• Verifies a company's financial statements, ensuring compliance with accounting standards and regulatory requirements
• In strategic management, external assessment is known as an environmental analysis.
• Identifies and analyzes factors outside the organization that could impact its performance to identify opportunities and threats
• Systematically examines the external environment of a business to identify opportunities and threats

Purpose

• Primary goal is to understand how external factors can influence an organization's ability to achieve its strategic objectives
• Managers rank the identified opportunities and threats from most to least important individually
• Consensus Building is used to find a consensus on critical factors

Communication of Findings

• The findings are shared to provide a prioritized list of opportunities and threats with stakeholders
• Strategies are formed to address the identified opportunities and threats

Tools and Techniques

• PESTEL Analysis is for examining political, economic, social, technological, environmental, and legal factors
• Porter's Five Forces is for analyzing industry rivalry, potential new entrants, substitute products, supplier power, and buyer power
• External Factor Evaluation Matrix (EFEM) evaluates the external environment and identify opportunities and threats
• Competitive Profile Matrix (CPM) compares a company's strengths and weaknesses against its competitors

The Industrial Organization (I/O) View

• Developed by Michael Porter
• The I/O View states that organizational performance is primarily determined by external industry forces
• It focuses on the external environment as the main driver of strategic success
• Emphasizes the need to analyze industry structure, competitive forces, and market trends

Key External Forces Divided

• Economic Forces
• Social, Cultural, Demographical, and Environmental Forces
• Political, Governmental, and Legal Forces
• Technological forces
• Competitive forces

Economic Forces

• Encompass macroeconomic factors that significantly impact a company's operations, competitiveness, and profitability
• Rising prices can erode consumer purchasing power, impacting demand and potentially leading to higher production costs
• Interest rate changes influence borrowing costs, affecting business investment decisions and consumer spending habits
• High unemployment rates can lead to decreased consumer spending and lower overall economic activity
• Economic growth creates opportunities, while recessions can lead to reduced demand and lower profits
• Exchange rate fluctuations can affect the cost of imported goods, impacting international businesses
• Government policies and regulations can have a significant impact

Consumer Spending

• Consumer confidence and disposable income levels directly influence demand
• Global economic conditions, such as trade wars, can create uncertainty and impact businesses operating internationally

Social, Cultural, Demographic, And Natural Environment Forces

• Significantly influence an organization's opportunities and threats, impacting decisions and success
• Trends are shaping the way people live, work, produce, and consume
• Social and cultural forces encompass societal values, beliefs, customs, and lifestyles, which shape consumer behavior and preferences
• Examples include changing attitudes towards sustainability and evolving family structures
• Demographic forces relate to the characteristics of a population, such as age and income
• Examples include an aging population and urbanization trends
• Natural environment forces involve ecological factors, including climate change, resource availability, and environmental regulations

Monitor Key Variables

• Consumer Behavior
• Ethical Concerns
• Attitudes Towards Saving
• Racial Equality

Political, Governmental, and Legal Forces

• Significantly impact an organization's operations and strategies
• Political forces encompass government policies, political stability, and the overall political climate that can influence business operations Government policies and trade restrictions can influence profits
• Political stability: creates certainty for businesses
• Political issues and trends can influence consumer behavior
• Businesses need to stay informed about political developments and adapt their strategies accordingly

Governmental Forces Defined

• Forces focus on the role of government in shaping the business environment
• Government regulations related to labor laws can impact operational costs and processes
• Government agencies can influence compliance and risk management
• Businesses need to anticipate changes in government policies and funding
• Businesses need to ensure compliance, navigate regulatory landscapes, and potentially influence policy decisions

Legal Forces Defined

• Encompass laws and legal frameworks that govern business activities
• Legal frameworks for contracts and agreements are crucial for business transactions and partnerships
• Laws related to consumer rights and safety can impact marketing
• Laws can affect human resource management Businesses need to ensure legal compliance and understand how legal frameworks can shape their competitive landscape

Technological Forces

• Encompass innovation and advancements in technology and impacts how businesses operate
• New technologies create new business models, requiring adaptation or risk obsolescence
• Automation can revolutionize production and improve efficiency
• Digital marketing and social media transform customer reach, brand building, and sales
• Internet enables faster communication, collaboration, and data sharing
• Technological innovation leads to industry disruptions, requiring new strategies
• The need to protect systems and data from cyber threats must be balanced as technology is used

Technological Examples

• Artificial Intelligence (AI) can automate tasks, analyze data, and personalize customer experiences
• Internet of Things (IoT) devices and sensors collect and transmit data, enabling real-time monitoring
• Cloud Computing offers flexibility, scalability, and cost savings
• Big Data Analytics helps companies gain insights to inform strategic decisions
• Augmented Reality (AR) and Virtual Reality (VR) can create immersive experiences and enhance training

Strategic Implications with Technology

• Companies need to develop a technology strategy that aligns with their overall business goals and leverages technology
• Adaptability and the rapid pace of technological change requires companies to be adaptable and agile
• Companies must manage their innovation processes to identify new technologies
• Companies must collaborate with technology providers to access new technologies and expertise
• Companies should allocate resources effectively to support technology investments
• As technology grows, companies need to consider the ethical implications

Competitive Intelligence (CI)

• A systematic and ethical process of gathering and analyzing information about competitors
• Used to further a business's own goals
• The more information a firm obtains about its competitors, the more effective strategies are formulated
• In CI, competitor weaknesses are opportunities and strengths pose key threats to a company

Three Basic Missions of Competitive Intelligence (CI) Program

• To provide a general understanding of an industry and its competitors
• Identify areas in which competitors are vulnerable and assess the impact of strategic actions
• Identify potential moves a competitor might make that would endanger a firm's position

Competitive Forces

• Can be analyzed through Porter's Five Forces
• Helps organizations assess their industry's attractiveness