Weeks 1-2: Introduction to Business Performance Evaluation

 Define business performance evaluation.

Business performance definition

Overall business performance can be defined as the ability of a business to implement a

strategy to achieve organizational objectives and is considered as an important tool for
businesses to analyze how effective management is at achieving business goals.
It is important to measure business performance to understand whether a business is achieving its
goals in form of key performance indicators (KPIs). Some examples of KPIs could be:
 Labour productivity,
 Net sales growth,
 Looking at how many new customers make purchases,
 Customer satisfaction ratings,
 Monthly traffic generated from the business's website,
 Order delivery and fulfilment speed.
Let's take a look at what impacts business performance and how it can be measured.

Leadership and business performance

Effective leadership is important for business performance. Leaders need to understand how to
motivate employees to collectively achieve business objectives. In a study conducted by Yildiz,
Basturk & Boz (2014), the researchers found that both leadership and innovativeness have
significant consequences for business performance. The study included a questionnaire, where
the responses of 576 people in the service industry were analyzed. The study concluded
that both transformational and transactional leadership, in addition to innovation, have a
positive impact on business performance.

To learn more about the characteristics of different leadership styles, take a look at our
explanation on leadership.

Organizational culture and business performance

Another important factor that affects business performance is organizational

culture. Organizational culture can be a key source of advantage for a business.

Organizational culture includes the shared values and beliefs of a business that impacts the
daily work environment of employees of an organization.
Positive organizational culture can be very motivating for employees, however, a toxic
environment can have a negative impact on business performance. Attributes of a toxic
environment could be:

 Poor leadership,
 Using fear to engage employees,
 Double standards by leadership,
 Unethical leadership,
 Corruption,
 Or when results are the only thing that matters to leadership.

Business performance assessment examples

Evaluating business performance should be an ongoing process within a business. You can
evaluate your business performance in many ways depending on the initial business objectives
you have set. This can be done through both financial and non-financial data. Some examples
include:
 Measuring performance (marketing data): how well your business is performing in
different areas or departments of the business.

How much of the market share is owned by your business.

 Measuring profitability and financial performance (financial data): Profitability is
one of the most prominent ways of measuring your business's financial
success. Profitability is an essential objective for all businesses.
 Leadership and organizational culture (human resource data): understanding how
well leaders are doing their jobs of motivating employees and cultivating a conducive
environment for productive work is also important for performance evaluation.
 Employee output (operations data): measuring the performance of employees in
different departments.

Looking at how many new clients the sales team has acquired in the past month or
looking at labor productivity.
 Benchmarking: measuring how well your business is performing relative to other
businesses in the industry.

Business Performance Evaluation

Two of the most significant means of measuring business performance is

measuring financial performance and benchmarking.

1. Measuring financial performance

Measuring financial performance can be a useful tool to analyze overall business
performance. Financial planning and budgeting can help businesses achieve their business goals
and plan for improving certain areas of the business in the future.
One way to measure business performance is by looking at profitability. Most businesses have a
target profit margin they wish to achieve, so looking at whether the business was successful at
implementing its strategy to achieve this objective can be useful. When looking at profitability,
we can analyze the gross profit margin which shows us how much money the business has
made after accounting for the cost of goods sold.
Therefore, we can measure business performance by looking at the
business's financial statements. The business's cash flow statement represents the amount of
money moving in and out of a business over a defined period. It is essential to assess the cash
flow statement regularly, as it can help us understand whether the cash flow is positive or
negative. If it's negative it means that more money is going out of the business, whereas if it is
positive it means that more money is coming into the business. This statement can provide a
basic overview of the financial performance of the business.

Another effective way of measuring business performance is by looking at the financial

performance of the business over time. It can often be tricky to interpret the real performance of
the business when only looking at the current financial position. By comparing financial
performance over time, it is more likely that we spot certain patterns and trends. This could be
useful especially if we spot long term issues that we would have otherwise missed if we only
looked at financial data from a single period.

How to Measure Financial Performance

profitability

Financial statements

cash flow

Comparing Financial Performance Over Time (Patterns and Trends)

Figure 1. Measuring Financial Performance

2. Benchmarking
Benchmarking includes the process of comparing your business to other high-performance
companies.
Typically, the motive behind benchmarking is to analyze the current position of your business
and identify areas of improvement for your business based on the comparison. During
benchmarking, the comparison is made with high-performance businesses that are not
necessarily in the same industry - they are not direct competitors. Benchmarking can be useful
for understanding best practices and how to improve your business model.
There are multiple types of benchmarking.

Performance benchmarking gathers quantitative data in the form of KPIs in order to find gaps
in organizational performance.

Practice benchmarking is when you gather qualitative data on how an activity is conducted
through people, processes and technology.
Internal benchmarking compares practices from different departments or units within the
organization.
External benchmarking compares the performance of the organization to one or many other
organizations.
Similar to benchmarking is comparing business performance to competitors in the same
industry. To conduct a competitor analysis, a company needs to have access to certain
information about its competitors. The company usually needs to have an understanding of what
its competitors offer, how they price their products, the number of customers they have and their
strengths and weaknesses compared to the company's business model. Competitor analysis is a
great way for investors and management to assess how the business is performing compared to
other firms in the industry.

Overall performance - key takeaways

 Business performance can be defined as the ability of a business to implement strategy to

achieve organizational objectives.

 Leadership and innovation have a positive impact on organizational performance.

  Organizational culture can also have an impact on business performance. Good

organizational culture can motivate employees whereas toxic organizational culture can

significantly decrease business performance.

 You can evaluate business performance through various metrics such as measuring

performance, profitability, leadership or employee output.

 Two effective ways of measuring performance are done through analyzing financial

performance and benchmarking.

 Financial performance can be measured by looking at financial statements like cash

flows, profit margins and comparing financial performance over time.

 Benchmarking is conducted by comparing the performance of the business to other best

practice firms.

 A competitor analysis compares the performance of the business to other competitors in

the industry.

 Discuss the importance of evaluating business performance.

Success in business isn’t usually down to luck. Instead, it requires good strategic decisions,
informed by a detailed understanding of your own business performance and the wider market.
Evaluating business performance doesn’t need to be a complicated process, but it should be
regular: these 6 steps cover all the bases.

1. Review your business activity: have you done what you wanted to do?

Your business goals should keep you focused. Set targets for your business to achieve, then
conduct a regular business performance review to ensure that you’re where you want to be.

Areas to focus on include:

 Sales: have you performed as expected?

  Innovation: are new ideas developing on target?
 People: have employees and teams achieved their individual targets? Are you retaining
staff or is staff turnover too high?

2. Efficiency: could your profit margin be improved?

The efficiency of your business operations is about the best use of resources: how are you doing
what you do, and are you incurring wasteful costs? After all, the key to healthy profits is to
reduce your outgoings as well as increasing your income.

 Operational costs: could these be reduced? Look at your utility bills, rent, staffing costs
and other expenses.
 Time: are you wasting too much staff time on inefficient processes? For example, could
you streamline your finance function so that time can be better spent on more profitable
activities?
 Do your product prices or hourly rates bring in enough income? Do you need to put your
prices up? Are loss leaders paying their way?
 Finance: are your sources of funding secure? Can you think of other ways to bring in
money?

3. Look at the competition: can you take ideas from them?

Business performance doesn’t just depend on what you do within the company. Competing
businesses could seriously affect your bottom line. It’s vital to keep a regular eye on other
businesses in your field.

 How much do they pay their staff? Could you lose your best talent to a competing firm?
 What’s their pricing like?
 What is their target market?
 Are they offering anything that you don’t? And should you be doing it, too?

4. Keep an eye on wider trends: do you need to adapt?

We’ve seen that your business doesn’t exist in a bubble. As well as your competitors, the wider
world needs to be considered when evaluating business performance. That could include the
local and international economy, the market you’re part of, and technological progress.

 Have prices gone up or down? The cost of raw materials could dramatically affect the
profit you make on your products.
  The exchange rate: is it affecting your profits? Could you source materials from
elsewhere?
 What’s the next big thing in your field? Are you keeping up with new developments, or
are customers likely to look elsewhere for what they need?

5. Review customer satisfaction: are people loyal to your business?

Customer satisfaction is an important measure of success, the happier customers are, the more
likely they are to return to your products or services. Listening to feedback is also a great way to
improve on your current offering, taking these learnings and actioning them. But how do you
measure customer satisfaction? Here are some easy ways:

 Create a survey and share it with email subscribers

Monitor customer reviews and look for any recurring themes - what do they like? What’s
missing from your offering? What are their pain points?
Explore customer retention rates. How many are returning customers? Do customers shop
elsewhere, and if so, where?

6. Conduct performance reviews: are your employees happy?

Employees are the backbone of a company and so their happiness and productivity are a core
measurement of overall business performance. An effective way to measure employee
satisfaction is with performance reviews which provide insight into what employees are doing
well, what they need support with and what motivates them. Here are some key questions to ask
during performance reviews:

 What recent accomplishments at work are you most proud of?

What goals have you met and which have you been unable to meet?
What motivates you at work?
What can I do to make your job more enjoyable?
What are you enjoying most in your role?
What are your most important goals for the business?

What are the benefits of evaluating business performance?

Evaluating business performance allows you to make informed decisions and plan ahead,
knowing which areas require extra attention. Assessing performance enables goals to be set and
improves overall efficiency, let’s take a look at some of the main benefits:

 Improves communication — evaluating business performance opens up a conversation

between management and employees. This honest discussion promotes the sharing of
ideas and feedback — key to the success of a business.
 Solves existing problems — taking an in-depth look at business performance will
quickly identify problems, giving you the opportunity to resolve them.
Evolves new strategies — business performance evaluations also shine a light on what’s
working. This insight helps develop new strategies, especially when researching
competitors and customer satisfaction.
Fuels growth — measuring success is critical to the growth of your business. Regularly
evaluating performance allows you to weed out any issues and double down on effective
strategies. Constantly seeking improvement will only help the business grow further.

How the right accounting software is vital for evaluating business performance

A proper evaluation of your business can only take place if you have the means to access all the
facts and figures with the tools to analyses them. With cloud accounting software from
AccountsIQ you can access instant, customized reports on all areas of business performance.

 Explain the connection between evaluation and strategic decision-making.

The Complete Guide to Strategy Evaluation
Updated on: 4 November 2022

All organizational strategies are constantly reviewed and revised. As the internal and external
environments of an organization change, so should the company strategy to aid in the survival
and growth of an organization. A standard process to evaluate the effectiveness of an
organizational strategy is therefore essential. It ensures that the organization is on the right path
and is constantly adapting in a dynamic market.

In this post, we will be explaining what strategy evaluation is and how to effectively implement
the process.

What is Strategy Evaluation

Strategic evaluation constitutes the final stage of strategic management and is considered one of
the most vital steps in the process.
Strategy Management Process
Strategy evaluation is the process by which the management assesses how well a chosen strategy
has been implemented and how successful or otherwise the strategy is. To simply put, strategy
evaluation entails reviewing and appraising the strategy implementation process and measuring
organizational performance.

In the instance, the implementation of the strategy is not taking place as planned, say due to the
limitations in the strategy that are blocking the achievement of organizational goals, necessary
corrective actions should be identified and applied.

At the end of the evaluation, you’ll have gathered insight to either reformulate the strategy or to
plan and develop new ones.

Evaluating the strategy helps improve it, distinguish between what works and what doesn’t, and
contribute to the ongoing development and adaptation of the strategy to the changing conditions
and complexities in the industry.

Strategy evaluation operates at two levels; strategic and operational. At the strategic level, the
focus is given to the consistency of the strategy with the environment, and at the operational
level, how well the organization is pursuing the strategy is assessed.

Through the process of strategy evaluation, strategists can make sure that the,

 Premises made during strategy formulation are correct

 Strategy is guiding the organization towards accomplishing its objectives
 Managers are doing what they are supposed to be doing to effectively implement the
strategy
 The organization is performing well, schedules are being followed, and resources are
being properly utilized
 Whether there’s a need to reformulate or change the strategy
Participants of the Strategy Evaluation

The stage of strategy evaluation requires the contribution of several participants who will be
playing different roles throughout the process.

The board of directors: takes on the formal role of reviewing and screening the executive
decisions in light of their environmental, business, and organizational implications. Although
they are not directly involved in the evaluation and control of the strategy implementation
process, they periodically take part in reviewing the organization’s performance and results.

Chief executives: are responsible for all the administrative tasks of strategy evaluation and
control.

The SBU or profit-center heads: monitor strategy implementation at the business unit level and
give feedback to the corporate parent who can intervene as necessary.

Financial controller, company secretaries, and external and internal auditors: responsible
for operational control based on financial analysis, budgeting, and reporting.

Middle-level managers: carry out tasks assigned to them by SBU heads or the strategic
planning group, and provide them with feedback and information. They will also be participating
in the corrective actions, in the case of mid-term revisions in the implementation process.

Importance of Strategic Evaluation

The phase of strategy evaluation helps ensure that the implementation of the particular strategy
will help the organization achieve its objectives. Without this step in the strategy management
process, it would prove difficult to identify whether the strategy implemented is generating the
desired effect. In addition, strategy evaluation also helps,

 Check the validity of the strategic choices the organization makes

 Assess whether the decisions made during the strategy implementation stage meet the
intended strategy requirements
 Provide insight and experience into the strategists that can be used in reformulating or
planning new strategies
 Shed light on issues caused by changes in the internal and external environment and take
precautions and avoid making wrong decisions

Strategy Evaluation Process

The strategy evaluation is carried out in order to determine that the strategy is helping the
organization achieve its objectives. It compares the actual performance of the organization with
desired results and provides the necessary insight into the corrective action that needs to be taken
to improve the performance of the organization. Following are the steps in the process of
evaluating strategy.

Establish standards

This step starts with determining what standards to set, how to set them, and the terms used to
express the standards. To do this,

 Identify the key areas of performance which are usually based on the key managerial
tasks pertaining to strategic requirements. Standards should be set within these identified
key performance areas.
 The special requirements needed to perform each of these key tasks can be used to
determine the type of standard to be set.
 Performance indicators that can satisfy these special requirements can then be identified
for evaluation.

Performance indicators have to be set on the basis of quantitative or qualitative criteria in order
to make measuring performance easier.

 Quantitative criteria – on the basis of this criteria, performance can be evaluated in two
ways: Either by comparing how the company has performed against its past achievements
or against the performance of the industry average or that of the competitors.
 Qualitative criteria – in order to assess factors such as core competencies, capabilities,
risk-bearing capacity, workability, and flexibility, companies need a set of qualitative
criteria such as the ones suggested by Glueck and Jauch,
o Consistency (evaluating strategy against company objectives, environmental
assumptions, and internal conditions)
o Appropriateness (evaluating strategy with regard to resource capabilities, risk
preference, and time horizon)
o Workability (evaluating the feasibility and simulation of the strategy)

Measure Performance

The standards of performance set will serve as the benchmark against which the actual
performance will be evaluated. Based on these standards, managers should decide how to
measure the performance and how often to do so.

The methods used to measure performance may vary on the standard set; usually, data such as
the number of materials used, units produced, the monetary amount of services utilized, the
number of defects found, processes followed, quality of output, and return on investment, are
used.

Once the methods of measuring performance are identified, how often it should be done for
control purposes needs to be then decided. Whether it should be on a daily, weekly, monthly, or
annual basis is decided on factors such as how important the objective is to the organization, how
quickly the situation might change, and how difficult or costly it would be to fix a problem once
it has actually occurred.

Analyze Variances

Evaluating the actual performance against the standards of performance will reveal whether;

 The actual performance matches the budgeted performance

 The actual performance differs from the budgeted performance in a positive way
 The actual performance differs from the budgeted performance in a negative way

A predetermined set range of tolerance limits can be used to determine whether the results can be
accepted satisfactorily. If the actual performance deviates from the budgeted performance within
the set tolerance limit, the performance can be considered acceptable and the variance
insignificant.

On the other hand, if the performance is below standards, effort must be directed to finding the
root causes of the deviation and coming up with corrective action to fix it.

Take Corrective Action

In the case the actual performance falls out of the tolerance limit, corrective action must be taken
to solve it. The deviation can be caused internally or externally, predicted or random, or
temporary or permanent.

If the actual performance is below the standards consistently, a thorough analysis should be
carried out to find the root causes. If the organizational potential can’t meet the performance
requirements, consider adopting attainable performance standards. In the case of an extreme
deviation, you might have to consider formulating the strategy, which might require you to start
from the beginning of the strategic management process.
Corrective Action Plan (Click on the template to edit it online)

Strategic Evaluation Technique

Evaluating the effectiveness of a strategy entails assessing the internal and external forces that
affect strategy implementation. Following are a few techniques that you can use to examine these
factors and make well-informed strategic decisions.

Gap analysis

A gap analysis is performed to identify and measure the gap between your current state of
organizational performance and the desired state. It can be utilized to evaluate various aspects of
the business from production to marketing.

Learn more on how to conduct a gap analysis and the tools you can use to accelerate the process
and the gap analysis templates to simplify the steps.
SWOT analysis

A SWOT analysis is another helpful tool that strategists use to assess the current situation -both
internal and external environments – of an organization. It helps you gain insight into your
internal landscape by analyzing strengths and weaknesses, and insight into your external
landscape by scanning opportunities and threats.

SWOT Analysis Template (Click on the template to edit it online)

Learn how to effectively use a SWOT analysis.

Value chain analysis

This analysis examines the set of activities the company performs to produce and market a
product or service. It helps identify which activities are most valuable to the company and which
needs to be improved to help perform better.

Weeks 3-4: Financial Metrics and Analysis

 Explore revenue and profitability metrics.

 Analyze gross profit, operating profit, and net profit.
 Calculate and interpret profit margins.
 Dive into financial ratios: liquidity, solvency, efficiency, and profitability.
 Understand cash flow analysis and its significance.

Weeks 5-6: Non-Financial Performance Indicators

 Focus on customer satisfaction measurement.

  Explore methods for collecting customer feedback.
 Understand employee productivity and engagement metrics.
 Examine operational efficiency metrics.

Weeks 7-8: Balanced Scorecard Approach

 Introduce the Balanced Scorecard framework.

 Discuss the four perspectives: financial, customer, internal processes, and
learning/growth.
 Align performance indicators with organizational strategy.
 Develop and use a Balanced Scorecard.

Weeks 9-10: Benchmarking and Comparative Analysis

 Emphasize the importance of benchmarking.

 Explore industry standards and identification of improvement areas.
 Conduct a comparative analysis, including competitor analysis and SWOT analysis.

Weeks 11-12: Reporting and Communication Strategies

 Teach effective reporting strategies.

 Discuss tailoring reports for different stakeholders.
 Utilize visualizations for clear communication.
 Present findings to stakeholders.

Weeks 13-14: Advanced Financial Analysis Techniques

 Explore advanced financial analysis techniques such as discounted cash flow (DCF).
 Understand financial modeling and forecasting.
 Apply scenario analysis to assess potential impacts on performance.

Weeks 15-16: Case Studies and Practical Application

 Analyze real-world business performance cases.

 Conduct practical exercises applying evaluation techniques.
 Facilitate group discussions and presentations.

Weeks 17-18: Conclusion and Integration

 Summarize key takeaways from the entire course.

 Emphasize the continuous nature of performance evaluation.
 Encourage proactive decision-making based on evaluation results.
  Discuss integrating evaluation into overall business strategy.

 Transaction and aggregates

 Data archi