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“Organizational performance is an illusive concept”. Discuss.
Intro
I disagree that organizational performance is an illusive concept. I believe through our study of strategy throughout this course we have been equipped with the tools to identify the sources of superior business performance and the ability to identify strategies that exploit these sources of superior performance.
For the purpose of strategy formulation, profit maximisation is a convenient and reasonable assumption. Once we look beyond a single period, maximising profit translates into maximising enterprise value.
Past Performance
As a basis for any study of organisational performance the most logical first step is to analyse past performance. In doing this, accounting ratios can be very useful. Some of the more useful ratios are Return on Invested Capital (ROIC), Return on Capital employed (ROCE), return on assets (ROA) and return on equity (ROE). In assessing the results we get for these ratios it is important that we look at them in terms of whether they are improving or deteriorating, and how they stack up in terms of industry averages or in comparison to other firms in general (e.g. companies listed on the Fortune 500.)
Performance Diagnosis (Current Performance)
If we see a problem in the results we get for the ratios, it is necessary to find the cause of these poor results. In doing this we will be evaluating the next step in organisational performance; current performance. In determining current performance, disaggregating can be useful. Disaggregating means splitting up certain figures into their constituent parts and thus providing us with useful insights into how the firm is performing, and a means of h ...