Question

Discuss the three measures of evaluating a company's performance. Why have multiple measures? Compare and contrast the advantages and disadvantages of each measure.

Answer 1

Performance of a company could be evaluated in following ways:

1) Operational performance: The ways are sales and profitability, like sales turnover ratio, gross profit margin, operating expense ratio, etc. The main evaluation is how much increase or decrease in this period compares to last period, or what is the improvement rate. Suppose profit increases in what rate or expenses decrease at what percentage.

2) Market performance: This is the way of evaluating marketing activities. There are so many market performances, like different segments, different products, etc. A company has to look which are the areas to be improved, such as market segmentation gives better result.

3) Quality performance: Better quality products are always desired by customers. This is the reason why a company goes into product quality research and performance. Such evaluation could be done by seeing the number of repairing work or customer grievance, suppose decreasing warranties claims.

There are multiple measures because a company performs in different fields, such as selling, marketing, production, operation, etc. Each field gives different result importance compare to other. Therefore, individual evaluation is required; rather evaluating as a whole, like whole company performance.

Advantages:

1) Operational performance is advantageous before setting budgets. It helps to understand how much to be spent and in which heads.

2) Market performance is advantageous for increasing sales or for removing bottlenecks.

3) Quality performance is advantageous for valuing customers, improving brand image, and increasing goodwill in the market.

Disadvantages:

1) Operational performance may not give correct result always, such as a sudden improvement of sales turnover is because of crisis of alternative product – sale of tea should increase if there is decrease in supply of coffee; this scenario may not be there in the coming period.

2) Market performance can give only result of happenings but not the solution. All markets are potential if proper approach is taken. Finding this proper approach is difficult.

3) Quality performance is time consuming and expensive. A company must have to stay in budget. Such as a quality could only be improved if an advance quality machine is installed.