Development Potential and Financial Performance: A Strategic Analysis

1. COMPANY DEVELOPMENT POTENTIAL AND PERFORMANCEBrno, May 30 – 31, 2003 Business development and EC Emil Vacík, Jiří Vacek, Jiří Skalický Department of Management, Innovations and Projects, Faculty of Economics, UWB vacekj@kip.zcu.cz http://www.kip.zcu.cz

2. DEVELOPMENT POTENTIAL • U-SME Innovation: A model of a university – SME cooperation in innovations, 2001 http://www.kip.zcu.cz/USME • Leonardo da Vinci programme – CZ, UK, F

3. DP COMPONENTS • Strategy and planning; • Marketing; • Technological process; • Quality, environment; • Logistics (purchasing, distribution, outsourcing); • Organization and human resources.

5. C, AB, B, AClasses • C - not ready to implement development activities • AB - ready to changes necessary for improving performance, must consistently improve basic processes • B - in principle prepared to undergo a certification process • A highly competitive, high performers

6. FIELD RESEARCH • Faculty of Management of Tomáš Baťa University in Zlín, 2-nd quarter 2002 • 13 - rubber and plastics; • 20 - machinery; • 12 – steel and steel product; • 5 – mechanical engineering.. • 5 companies from Pilsen region • 9 AB, 27 B, 14 A, none C

7. STATISTICAL ANALYSIS • Marketing component achieved the lowest values • Rubber and plastics has the lowest average value of IS and human resources component • Steel industry is better than average in Marketing and Logistics, below average in Strategy and planning

8. Cluster analysis

9. Regression Analysis DP = - 0,0037 + 0,1809 * Quality and environment + 0,1683 * Logistics + 0,1938 * Marketing + 0,1488 * IS and human resources + 0,1775 * Strategy and planning + 0,1305 * Production processes and technology

10. DP and Financial Performance Correlation analysis: • value of the development potential influences the financial performance of a company • financial performance of a company positively influences the value of its development potential

11. Correlations • On 95% reliability level between the following coefficients: • ROE and all forms of DP • ROE and ROS • ROE and ROCE • ROA and ROS • ROA and ROCE • ROS and ROCE

12. CONCLUSIONS • DP factors can be influenced by the company owners and managers. • DP has demonstrable effect on the financial performance and correlate with value creation. • The relevancy of development potential components was demonstrated by statistical methods.

13. Marketing • most sensitive factor • its values in our sample were the lowest • companies generally have lack of information about customers behaviour • And this influences management decision making in critical situations involving high risk.

14. Production processes and technologies • component achieves the highest values • for industries in our sample this component is always important • provides the best one-component estimate of DP and its correlation with ROE is the strongest • leading position in technology and high quality products - attractive for top employees, satisfy their customers.

15. Strategy and planning • significantly influences classification of companies according to their DP • its explaining power is low • dependence between the performance measurement and the strategy is rather weak.

16. Recommendations • two-sided correlation between DP and financial performance supports efficient implementation of company goals and objectives • DP together with selected financial indicators can be a valuable tool in evaluation of company owners ambitions and expectations

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