...unique relative to the products or services of its competitors Leads to brand loyalty and the willingness of customers to pay high prices 2. Cost leadership—an organization’s ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control Leads to lower selling prices 4 Financial Performance Measures Financial performance measures are traditional measures based on financial statements Examples of financial performance measures? Core financial measures Net income Return on assets (ROA) Return on (common) equity (ROE) Sales revenue Sales growth Total costs Cost reduction rate 5 Financial Performance Measures Financial measures reflect outcomes of past actions and do not necessarily predict future outcome well Financial measures are lag indicators Exclusively relying on financial measures can make managers to focus on short-term profitability and sacrifice long-term growth, e.g., Companies can save on R&D, process improvement, information technology and employee training to improve current financial performance at the expense of...
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...scorecard: Judgemental effects of common and unique performance measures The Accounting Review, 75 (3), 283-389. (on CMD) Overview: Lectures 6 & 7 explore the use of Kaplan and Norton’s Balanced Scorecard (BSC) as a strategic performance measurement and evaluation method. Lecture 6 introduces the BSC by providing the performance measurement context, defining financial and non-financial and lead and lag indicators, and providing an overview of the four perspectives of Kaplan and Norton’s Balanced Scorecard. Lecture 7 explores and demonstrates the process of BSC development via strategy maps and KPI selection, before discussing the key findings of BSC-related research. Lectures 6 & 7 are structured as follows: Lecture 6: 1. Introduction 2. What is the BSC? 3. The four perspectives Lecture 7: 4. Strategy maps 5. Creating a BSC 6. What does the research say? 1. Introduction a) Performance Measurement Performance measurement serves the following purposes: Evaluate performance, and provide rewards Communicate the strategy, plans Allow managers to track their own performance against targets and take corrective action Guide senior managers in developing future strategies and operations. Traditional Performance measurement focuses on financial performance measures. The problems with this include: Financial measures emphasise only one perspective of performance. Conventional...
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...Performance measurement (balance score card, financial measures, non-financial measures, divisional versus corporate) ABSTRACT This study aims at understanding the process of elaborating and selecting performance measures in the framework of the balanced scorecard (BSC). Previous studies in the now well-investigated effect that decision makers tend to give a much higher weight to common measures compared to unique measures (Banker et al, 2004; Lipe and Salterio, 2000) did not explore differences between perspectives in terms of commonality of measures used for performance evaluation purposes. We will explain why there are common measures in all perspectives and which their shared characteristics are. Based on a simulation with graduate students, we argue that common measures are found in every BSC’s perspective but with a significant degree of difference. Financial measures are by far the most common ones, internal process measures are the least common ones with customer and learning ranging somewhere in between. Our study implies that the idea of standardization beyond financial measures is based on three performance measures characteristics: 1) reliance on data already available, 2) easy benchmarking, and 3) possibility of being audited by third parties. We advanced implications for managers and for future research on the information generated in the BSC. 1. INTRODUCTION. This paper has been motivated by the evidence of some limitations of the balanced scorecard...
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...Journal of Financial Economics 94 (2009) 150–169 Contents lists available at ScienceDirect Journal of Financial Economics journal homepage: www.elsevier.com/locate/jfec Stock market liquidity and firm value$ Vivian W. Fang a, Thomas H. Noe b,c, Sheri Tice c,Ã a Rutgers Business School, Rutgers University, Newark, NJ 07102, USA Said Business School and Balliol College, University of Oxford, Oxford OX1 1HP, UK c A.B. Freeman School of Business, Tulane University, New Orleans, LA 70118, USA b a r t i c l e i n f o abstract Article history: Received 25 April 2008 Received in revised form 19 August 2008 Accepted 28 August 2008 Available online 21 June 2009 This paper investigates the relation between stock liquidity and firm performance. The study shows that firms with liquid stocks have better performance as measured by the firm market-to-book ratio. This result is robust to the inclusion of industry or firm fixed effects, a control for idiosyncratic risk, a control for endogenous liquidity using two-stage least squares, and the use of alternative measures of liquidity. To identify the causal effect of liquidity on firm performance, we study an exogenous shock to liquidity—the decimalization of stock trading—and show that the increase in liquidity around decimalization improves firm performance. The causes of liquidity’s beneficial effect are investigated: Liquidity increases the information content of market prices and of performance-sensitive managerial...
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...and measuring business unit performance.1 The Scorecard, with four perspectives—financial, customer, internal business processes, and learning and growth—provided a balanced picture of current operating performance as well as the drivers of future performance (see Exhibit 1). Can Business Operate with a Balanced Scorecard? CO Some argue that managers cannot operate with multiple measurements of business-unit performance. While they recognize that aggregate financial measures (such as operating income, return on investment, and economic value added) are not perfect by themselves, they claim that financial measures at least are well understood and provide clear, unambiguous, and objective goals on which all organizational participants can focus. Such people feel that multiple measures—some financial and some non-financial—are confusing and lead to ambiguous, often conflicting, signals about what the organization values. PY We disagree. Imagine entering the cockpit of a jet airplane and observing that there is only a single instrument. How would you feel about flying on that plane after the following discussion with the pilot: Reprinted by permission of Harvard Business School Press. Adapted from The Balanced Scorecard by Robert S. Kaplan and David P. Norton. Copyright ©1996 by the President and Fellows of Harvard College; all rights reserved. CALIFORNIA MANAGEMENT REVIEW VOL. 39, NO. 1 FALL 1996 53 Measures Targets Initiatives ...
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...higher volumes of care at higher costs to one that promotes high-quality care at reduced costs led to the idea of pay for performance and public-reporting quality initiatives. (Calikoglu 2012) Studies have shown patient benefits resulting from pay for performance initiatives to be varied, and one of the key determinants in that variation is the healthcare setting itself. Another key determinant is the design of the pay for performance incentive, such as what aspect of performance is awarded, as well as the size of the reward. Studies have also shown that public reporting initiatives, or requiring hospitals and physicians to provide data on their own performance, have been effective in reducing preventable injuries in the hospital setting. (Leake 2010) There are two types of pay-for-performance initiatives that have been implemented in recent years: processed-based performance measures and outcome-based performance measures. Processed-based performance measures indicate whether protocols were followed in specific situations. For instance, whether or not patients with acute myocardial infarction received aspirin upon arrival to the emergency department is a process-based measure. Outcome-based performance, however, is measured based on patient outcomes, mortality rates, for example. Studies have shown that patients gain the most value from pay-for-performance initiatives in the hospital setting. The two main studies corroborating this claim are Maryland’s Quality-Based Reimbursement...
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...Scorecard: Judgmental Effects of Common and Unique Performance Measures Author(s): Marlys Gascho Lipe and Steven E. Salterio Source: The Accounting Review, Vol. 75, No. 3 (Jul., 2000), pp. 283-298 Published by: American Accounting Association Stable URL: http://www.jstor.org/stable/248614 . Accessed: 11/03/2014 05:15 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. . American Accounting Association is collaborating with JSTOR to digitize, preserve and extend access to The Accounting Review. http://www.jstor.org This content downloaded from 131.181.108.165 on Tue, 11 Mar 2014 05:15:52 AM All use subject to JSTOR Terms and Conditions THE ACCOUNTING REVIEW Vol. 75, No. 3 July 2000 pp. 283-298 The Balanced Effects Scorecard: of Common Judgmental and Unique Performance Measures Marlys Gascho Lipe University of Oklahoma Steven E. Salterio University of Waterloo ABSTRACT: The balanced scorecard is a new tool that complements traditional measures of business unit performance. The scorecard contains...
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...KPIs Selecting the right metric is an art more than a science (Eckerson, 2005). The essential objective in selecting KPIs is to identify the measure that best communicates the meaning of a strategy (Kaplan & Norton, 1996). Each KPI measures the achievement of a certain strategic objective; and therefore managers should (1) understand very well the strategic objective and (2) select the KPI carefully to translate the achievement of this particular strategic objective. If managers do not understand the strategy or fail to select the right measure, management of the company may be misled by not measuring what needs to be measured. As Kaplan and Norton (1996) indicated, the art of defining the KPIs rests in the performance drivers (leading indicators) that enable the outcome KPIs (lagging indicators) to be achieved. Leading indicators are useful to have as they give the time to influence the outcomes KPI (Eckerson, 2005). There is a third type of KPI that can be selected which is the diagnostic indicator. The diagnostic indicators are not leading or lagging indicators; they measure the health of the operations just like measuring the human temperature that should always be under a certain level. While selecting the leading indicators for a certain outcome KPI, managers should do a brainstorm session to understand what drives the performance of this specific outcome KPI (lagging indicator). Good mix of KPIs should be (1) linked and aligned with strategic objectives and initiatives;...
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...Summary of Case 6: Thoughtful Forecaster 1. Understanding the Financial Relationships of the Business Enterprise: Financial statements provide information of business’s financial activities in a period of time such as the income statement, profit and loss statement, and measures flows of costs, revenue, and profits. Thorough analysis of financial statements help the company understand the mechanics of the systems that make up business operation. 2. Interpreting Financial Ratios: Financial ratios help the company identify and compare relationships across financial – statement line item. The comparison of ratios provides diagnostic tools for assessing the health of the various systems in the company. * Growth Rates: Growth rates capture the year – on – year percentage change in a particular line item Growth rates sales = (sales in this year – sales in previous years) / sales in previous years * Margins: Margin ratios capture the percentage of revenue accounted for by profit or the percentage of revenue not consumed by business costs. Gross margin = Gross Profit / Total revenue Operating margin = Operating profit / Total revenue Net Profit margin = Net income / Total revenue * Turnover: Turnover ratios measure the productivity, or efficiency, of business assets. The turnover ratio is considered by dividing a related measure of volume from the income statement by a measure of investment from the balance sheet. Productivity or efficient assets produce...
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...Reimbursement and Pay-for-Performance HCS/531 March 25, 2013 Reimbursement and Pay-for-Performance With health care reform taking full effect, various changes are emerging with regard to health care provider reimbursements. Third-party and government payers are rapidly moving toward pay-for-performance approaches that emphasize the quality rather than the quantity of health care services. Pay-for-performance initiatives have the capability of significantly impacting reimbursements based on whether or not and to what extent certain performance outcomes are met. At the same time, health care providers and consumers are both positively and negatively affected by pay-for-performance programs. While the future of pay-for-performance programs is unknown, it can be assumed that health care providers will likely carry increased pressures with regard to outcome responsibilities. With the continual addition of regulations set forth by the Centers for Medicare and Medicaid Services (CMS), demands to consistently provide high-quality care will increase. Pay-for-Performance Pay-for-performance is a payment model that rewards physicians, hospitals, medical groups, and other healthcare providers with financial incentives based on performance on select measures (Epstein, 2012). These performance measures can cover various aspects of health care delivery including: clinical quality and safety outcomes, efficiency, health care access and availability of care, patient experience and...
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...January 2005 Re-examining the cause-and-effect principle of the Balanced Scorecard* Per Nikolaj Bukh, pnb@pnbukh.com, Aarhus School of Business Teemu Malmi, teemu.malmi@uts.edu.au, University of Technology, Sydney & Helsinki School of Economics Abstract There seems to be a wide variety of methods in how organizations apply the Balanced Scorecard (BSC) concept in practice and how it is interpreted in the literature. Consequently, it is not quite clear what the core features of BSC, or its variants, are and if all its variants are equally effective in producing expected outcomes. Moreover, the usefulness of BSC as a practical theory has been questioned by referring to some of its assumptions, especially the cause-and-effect relationship (Norreklit, 2000, 2003). In this paper we re-examine the cause-and-effect principle, which can be seen as one of the corner-stones of the BSC. Further, we outline alternative ways to apply cause-and-effect in practice, both analytically and organizationally. To facilitate research on BSC, we discuss some of the contingencies that may limit or support the usefulness of the causeand-effect concept. These include strategy, organization, environment and communication related issues. Key Words: Balanced scorecard, cause-and-effect, non-financial measurement, performance management, strategy, strategy map. * We wish to thank the editors, Sten Jönsson and Jan Mouritsen, for their guidance in the process of writing the paper. Further, we thank...
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...Memo To: Management Committee From: Student, Vice President Controller Date: June 6, 2012 Subject: Maintain Current Business Process vs. Modify Internal Business Process Dear Professor, As per your request, attached is the report that we have prepared, outlining the course of action Clearwater Small Appliances management team should adopt in designing and planning for the operation, given the opportunities and constraints faced at present. This report gives a complete analysis of the situation and different alternatives available, followed by a final recommendation using our criteria. Please let us know should you have any questions or require further clarifications on this report. Yours truly, Student, Vice President Controller of Clearwater Small Appliances Introduction and Problem Statement Clearwater is a small appliance manufacturer that has been in existence for approximately 50 years. The company produces a large spectrum of small household appliances such as coffee makers, toaster ovens, microwaves and irons. Recent changes to the retailing industry by “power retailers” have required Clearwater to alter its way of doing business. The board of directors have developed a new strategy to become a profitable supplier to “power retailers” but do not have the means to monitor and evaluate the success or failure of the strategy. Issues 1. Clearwater is suffering from declining sales. Category retailers have become powerful...
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...The Institute of Chartered Accountants in Australia GAAP-based financial reporting: measurement of business performance charteredaccountants.com.au Professor Stephen Taylor, The University of New South Wales, Sydney, Australia The Institute of Chartered Accountants in Australia The Institute of Chartered Accountants in Australia (the Institute) is the professional body representing Chartered Accountants in Australia. Our reach extends to more than 53,000 of today and tomorrow’s business leaders, representing some 43,000 Chartered Accountants and 10,000 of Australia’s best accounting graduates who are currently enrolled in our world-class post-graduate program. Our members work in diverse roles across commerce and industry, academia, government, and public practice throughout Australia and in 107 countries around the world. We aim to lead the profession by delivering visionary thought leadership projects, setting the benchmark for the highest ethical, professional and educational standards and enhancing and promoting the Chartered Accountant brand. We also represent the interests of members to government, industry, academia and the general public by actively engaging our membership and local and international bodies on public policy, government legislation and regulatory issues. The Institute can leverage advantages for its members as a founding member of the Global Accounting Alliance (GAA), an international accounting coalition formed by the world’s premier accounting...
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...Muhammed Mughni Atique B.sc (Hons), Business Administration Gift University Gujranwala IMPACT OF HUMAN RESOURCE PRACTICES ONORGANIZATIONAL PERFORMANCE: A STUDY OF BANKING SECTOR OF GUJRANWALA Keywords: Organizational Performance, Employee Satisfaction, Recruitment &Selection, Training & Development, Performance Appraisal and Compensation Abstract: The purpose of this study is to evaluate HRM practices and their impact on organizational performance in banking sector. People believe that HR is not important it’s just a sunk cost and have no significant positive effect on org. performance. The aim of this study was to check the impact between Human resource management and organizational performance. The research was conducted in banking sector of Gujranwala .We have evaluated the impact of functions of HR like Selection, Training, Appraisal and Compensation (as Independent Variables) on Organizational Performance (Dependent Variables). We have done research with the help of questionnaires. The conclusion and results are presented at the end of this paper. The analysis showed the positive relation between the dependent and independent variables. Introduction: Our financial sector evolved very differently from banks in the developed world. For nearly a year after partition, Pakistan had no central bank. Habib Bank – established in 1941 – filled this gap initially, until the State Bank of Pakistan (SBP) was set up in 1948 under quasi-government ownership. Commercial...
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... Solomon Appel Robert H. Ashton Reza Barkhi Metropolitan College of New York, New York, NY, USA Fuqua School of Business, Duke University, Durham, NC, USA Pamplin College of Business, Virginia Polytechnic Institute and State University, Blacksburg, VA, USA School of Management, University of Michigan-Dearborn, MI, USA College of Business Administration, San Diego State University, San Diego, CA, USA Department of Accounting, University of Arkansas at Little Rock, AR, USA Zicklin School of Business, CUNY – Baruch College, New York, NY, USA Belk College of Business, University of North Carolina at Charlotte, NC, USA College of Business and Economics, West Virginia University, Morgantown, WV, USA RSM Erasmus University, Department of Financial Management, Rotterdam, The Netherlands Mohamed E. Bayou Chee W. Chow Cynthia M. Daily Harry Z. Davis Nabil Elias Arron Scott Fleming Frank G. H. Hartmann vii viii LIST OF CONTRIBUTORS Fred A. Jacobs Frances Kennedy James M. Kohlmeyer, III Leslie Kren John Y. Lee Michael S. Luehlfing Adam S. Maiga School of Accountancy, Georgia State University, Atlanta, GA, USA Department of Accountancy and Legal Studies, Clemson University, SC, USA College of Business, East Carolina University, Greenville, NC, USA School of Business, University of Wisconsin, Milwaukee, WI, USA Lubin School of Business, Pace University, Pleasantville, NY, USA School of Professional Accountancy, Louisiana Tech University, LA, USA School of Accounting...
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