Business 3.7 topic 3

What is the value of using financial performance indicators?

• Provides shareholders with insight into business performance

• Compare with prev. years and other firms

What are 3 limitations of financial performance indicators

• Short-term- focusing on financial performance can encourage decisions that enable financial targets to be met, even though they may have a negative effect on long-term success

• Internal perspective- Success depends on anticipation of external factors rather than just internal operations

Strengths of non-financial measures of performance

• Data like business objectives, marketing objectives and HR objectives are useful

• Assist with decision making to assess strengths and weaknesses

Weaknesses of using non-financial performance indicators of performance

• No standardisation of method to use

• Qualitative info is subjective

• They reflect the past and not the future

Core competencies

Main strengths of the business, unique strengths that cant be easily repeated by competitors, reason for long-term success.

Can give them a USP and competitive advantage

Strategic advantages of a business having strong core competencies

• Opportunity for business to expand

• Potential access to wide variety of markets

• Difficult to imitate by by competitors

According to WHO what 3 criteria does a core competence need to satisfy?

According to Hamel and Prahalad

• Does it provide benefit for the customer

• Is it easy for competitors to imitate

• Does it help provide access to wide variety of markets

Example of core competencies

IKEA- innovative design and unique organisation

What can a short-term approach lead to

• Insufficient spending on R&D

• Greater emphasis on providing shareholders with high dividends rather than retaining profits for investment

• Achieving growth through taking over other businesses rather than growing organically

Elkingtons triple bottom line

Profit, People, Planet

Places importance on the long-term sustainability of the organisation in relation to its employees and the environment as well as on profit

Benefits of ETBL

• Encourages businesses to think beyond narrow measure of performance (profit)

• Encourages CSR ( corporate social responsibility) reporting

• Supports measure of environmental impact and sustainability

Drawbacks of ETBL

• Not very useful as an overall measure of business performance

• Hard to reliably and consistently measure People and Planet bottom lines

• No legal requirement to report it - take up has been poor

Business example

Lego

Bricks made from plant-based plastics

Produced using sustainably sourced sugar cane