18. Analysing and measuring strategic performance

1. 18. Analysing and measuring strategic performance

2. Outline • Introduction • The domain of business performance • Concepts of value • The link between shareholder value and business models • The balanced scorecard • The balanced scorecard as a strategic management system • The strategic management system in practice

3. Domain of Business Performance

4. Accounting-based Performance Metrics • Return on investment ROI = net income / capital investment • Return on equity ROE = net income / shareholders’ equity • Return on sales ROS = net income / sales revenue • Return on assets ROA = net income / total assets

5. Accounting-based Performance Metrics (continued) • Earnings per share EPS = net income / number of shares outstanding • Price/earnings ratio P/E = stock price / net income

6. Alternative Concepts of Value • Accounting-based performance metrics • Economic value added (EVA) EVA = net operating profit after tax – weighted average cost of capital (WACC) • Shareholder value approach (SVA) • Calculate net present value (NPV) for each strategic option available, using WACC as discount rate • Select strategy with the highest NPV

7. Elements of a Business Model

8. Translating Vision and Strategy

9. The Balanced Scorecard as a Strategic Management System

10. The Balanced Scorecard Strategy Map

11. Concluding Remarks • The performance feedback loop is critical for assessing and making strategic choices. • Performance assessment underpins organizational and individual learning. • There are a range of alternative conceptions of value. • The balanced scorecard provides a means of integrating different conceptions of value and relating strategy to KPIs.