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Performance Management Best Practice

Best Practice

Internationally renowned finance leaders, experts and educators distil and summarize the most important aspects of finance best practice. Each Best Practice essay has an Executive Summary for quick reference, outlining the main points. The Making It Happen feature illustrates practical applications, and where relevant authors have provided illustrative case studies and definitions.

  • Aligning Structure with Strategy: Recalibrating for Improved Performance and Increased Profitability
    by R. Brayton Bowen
    Phlebotomy—the ancient practice of bloodletting—seemed logical when medical science centered on the belief that four humors made up the human body: yellow bile, black bile, phlegm, and blood. It was thought at the time that an ailing person could be brought to good health by vomiting, purging, starving, and bloodletting. Unfortunately, in the latter instance, any number of the sick bled to death! By today’s medical standards, the practice is...
  • Creating Value with EVA
    by S. David Young
    The value-based management movement is based on two assumptions. The first is that the main aim of any business in a market economy is to maximize shareholder value. The second is that markets are too competitive for companies to create such value by accident. They must plan for it. And that means having the right culture, systems, and processes in place so managers make decisions in ways that deliver better returns to shareholders.At the very...
  • Enhance Competitive Performance via Critical Key Performance Indicators (KPIs)
    by Zahirul Hoque
    Measuring performance is a fundamental part of every organization, whether it is run by a private sector or a government sector. A performance measurement system (PMS) highlights whether the organization is on track to achieve its desired goals. Performance measures are primarily used to evaluate organizational, as well as employee performance. A PMS develops key performance indicators (KPIs), or metrics, depending on the nature and activities...
  • Everything You Need to Know About Benchmarking
    by Robin Mann
    Organizations are constantly looking for new ways and methodologies to improve their performance and gain a competitive advantage. As they seek improvements to their own business processes, many organizations recognize the importance of learning from best practices that have been achieved by other organizations. By removing the need to reinvent the wheel and providing the potential to adopt proven practices, benchmarking has become an important...
  • Five Routes to Greater Profitability for Small and Medium Enterprises
    by Thomas McKaig
    Although the routes to profitability discussed in this article are particularly important to the small or medium-sized enterprise (SME), they are broadly applicable to firms of any size. When reviewing these five key steps, ask yourself how many you can implement in your firm—or in your division or team if you work in a larger enterprise.Review the following five points, and see how your business stacks up.
  • Generating Increased Revenue and Profitability through Improved Customer Satisfaction:Essential Elements of a Customer Quality Assurance (CQA) System
    by Jeffrey T. Luftig, Steven M. Ouellette
    For most firms, the key to enhancing profitability and achieving steady growth in revenue, sales, and market share is to understand and respond to the needs of their customers. The process, which is often referred to as customer quality assurance (CQA), is that system that allows us to:identify critical customers—those customers who are essential to meeting our strategic and business plans, and who significantly impact the firm’s key performance...
  • Increasing the Profitability of Small and Medium Enterprises—A Practical Guide
    by Tom Brown
    Many managers too often forget that business income should always exceed the cost of doing business. Deni Tato is a good example. She started her Cincinnati-based business, Contract Interiors, in 1986; by 1992, the business needed a large warehouse for the hundreds of chairs and desks in inventory. Contract Interiors employed some 50 employees. Yet in 2000 the company’s $15 million in revenue was generated against the backdrop of an economic...
  • Innovation and the Path to Growth, Profitability, and Competitiveness
    by John Milton-Smith
    As management guru Peter Drucker pointed out, entrepreneurial management and innovation were the drivers of the exceptional employment and profit growth in the United States during the 1970s and 1980s. Drawing on insights from this period, Drucker argued that innovation is due more to purposeful, systematic hard work rather than simply “a flash of genius”. It is, therefore, important to distinguish innovation from invention.1 Whereas creative...
  • Multidimensional Performance Measurement Using the Balanced Scorecard
    by Priscilla Wisner
    For generations, many businesses have measured organizational success based on a narrow set of financial performance measures, such as operating and net profit, return on investment, and earnings per share of stock. Financial performance measures are valuable in that they capture the economic consequences of business decisions; however, they tend to be “lagging” indicators of performance that report the financial effects of operational business...
  • Multinationality and Financial Performance
    by Alan Rugman
    Most of the world’s 500 largest firms have extensive international operations; indeed, these firms average 35% of their sales in other countries. Finance officers and senior executives involved in strategic management usually assume that such firms are operating globally. This is a bad mistake, since recent academic research has demonstrated that the vast majority of the foreign sales of these firms are actually made within the firm’s home...
  • Profitability Analysis Using Activity-Based Costing
    by Priscilla Wisner
    Cost allocation in firms can provide misleading information about the profitability of products, product lines, customers, and markets. Traditional cost allocation practices allocate all manufacturing overhead costs using a single driver such as direct labor hours, direct labor dollars, or machine hours. Sales-related costs are typically ignored. While technically accurate, in most complex organizations a single overhead cost driver is not...
  • Reducing Costs and Improving Efficiency by Outsourcing and Selecting Suppliers
    by Paul Davies
    As a tool for the CFO, outsourcing has an important role to play in reducing costs and improving efficiency. It is important, however, to bear in mind that in addition to the direct and indirect benefits of outsourcing, there are also direct and indirect disadvantages. Outsourcing isn’t the answer on its own, and it has to be part of a holistic analysis to be successful.
  • Reducing Costs and Improving Efficiency with New Management Information Systems
    by Beverly Goldberg
    Management information systems (MIS) make it possible for organizations to get the right information to the right people at the right time by enhancing the interaction between the organization’s people, the data collected in its various IT systems, and the procedures it uses. It brings together the raw data collected by the various business areas of the organization, which, while useful for specific functions such as accounting, does not...
  • Statistical Process Control for Quality Improvement
    by Priscilla Wisner
    Statistical process control (SPC) is an optimization philosophy centered on using a variety of statistical tools to enable continuous process improvement. Closely linked to the total quality management (TQM) philosophy, SPC helps firms to improve profitability by improving process and product quality. Although initially used in manufacturing, SPC tools and methods work equally well in a service environment.SPC methods are used extensively by...
  • The Case for Continuous Auditing of Management Information Systems
    by Robert E. Davis
    Management information systems represent the aggregation of personnel, computer hardware and software, and associated policies and procedures, allowing data processing to generate information that can be used for decision-making. Corporations typically have management information systems with specific objectives designed to comply with external and internal business requirements. In this context, management information systems can exist at three...
  • Turning Around Financial Performance
    by David Magee
    No business, big or small, is immune from needing to address and correct financial performance. Often the reason is obvious, such as when a once-reliable bottom line turns negative, placing employee jobs, ownership equity, and product or service quality at risk. Sometimes, however, the need and potential benefits are not so obvious.Take General Electric as an example. This stalwart American blue-chip corporation, in business for more than 100...
  • Value Creation—Perspectives and Implications
    by John C. Groth
    This article focuses on the creation of value by a company or organization. We assume a competitive environment in the sense that the end user of a product or service has the right to buy or not to buy, to use or not to use a product or service. Although the discussion and examples focus on value creation in terms of economic measures—for example, an increase in share price—we recognize that other important measures of value exist. Quality of...

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