In: Operations Management
The text states that ROW, ROE and EPS are not reliable indicators of a corporations's economic value. Comment on what are other measures of corporate performance and strategic managment effectiveness.
The corporation can use economic value added (EVA) as the indicator to identify the economic value. EVA measures the actual wealth being created for the shareholders that is over and above the cost of capital. Cost of the capital is the required return that can be earned elsewhere by shareholders. True wealth is only created when the corporation earns above the cost of capital. It is measured by EVA and corporations can rely on it. The second indicator that can be used by the corporation is performance as per the balanced scorecard. That not only measures the financial performance, but also the different dimensions of the efficiency at work. It tells about the learning curve of the employees, risk management framework, customer satisfaction and financial soundness of the corporation. Hence, different dimensions of the value added to the corporation can be measured by the Balance scorecard. Balance score card also explains the success of strategic implementation and realization of vision w.r.t. the corporation. The third indicator is the relative market share & growth of the corporation. It indicates the overall performance of the corporation in the business environment with reference to the other peers & competitors. Hence, it is a measure of strategic success.