Analysing the existing internal position of a business

  • Created by: Leary103
  • Created on: 14-01-21 15:49

Limitations of financial performance indicators

  • Backward-looking - financial measures tend to describe what has happened, rather than what is likely to happen in the future
  • Limited focus - financial performance tends to reflect the wishes of the shareholders rather than other stakeholders
  • Short term - focusing on financial performance can encourage decisions that enable financial targets to be met even though this may have detrimental effects on the long-term success of the business
  • Internal perspective - the success of the business depends on its anticipation of external factors rather than just its internal operations; non-financial measures of achievement, such as customer satisfaction and quality, may be more relevant to the future success of the business
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Difficulties in using non-financial methods of per

  • There is no standardisation of measures to use
  • When there is the use of standardised measures, such as labour turnover, there is not always widespread agreement on what is considered a desirable level to achieve
  • Often, firms use non-financial measures that are qualitative, and so the measure of performance is likely to be a subjective opinion of a senior manager
  • Non-financial measures are often interdependent, and so the achievement of one measure automatically means that another measure is almost certain to be achieved
  • They often reflect what has happened, rather than what will happen
  • The relative importance of different measures is very difficult to judge and may often change over time
  • Excessive use of monitoring and analysis of non-financial methods can divert resources away from factors that influence performance directly
  • The desire for objectivity may encourage firms to use quantitative measures when qualitative measures may actually be more useful, albeit harder to measure
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Core Competences

Core competences: the unique ability or abilities of a business that enable it to achieve a competitive advantage

  • unique strengths of a business that cannot be easily replicated by a competitor
  • Critical to the success of the business
  • Often known as core competencies
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Short-, medium- and long-termism

Short-term measures:

  • Sales productivity measures
  • Operating cost productivity measures
  • Capital productivity measures

Medium-term measures:

  • Commerical health measures
  • Cost structure health measures
  • Asset health measures

Long-term measures:

  • Anticipated changes in consumer tastes
  • Recognition of new technologies
  • Relevance of core competencies to future markets
  • Potential for joint ventures in order to utilise other firms' core competences
  • Internally: the people, skills and culture of a business
  • The company's share price
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Kaplan and Norton's Balanced Scorecard model

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Kaplan and Norton's Balanced Scorecard model


  • It provides a broader view of the business' performance
  • It provides specific targets that can be monitored so that success or failure can be measured accurately
  • It links objectives more closely to the strategy
  • It allows employees to see more clearly where their role fits within the vision and goals of the organisation
  • It acts as a motivator for employees who are given specific targets and who can be rewarded for their achievement
  • Constant monitoring allows potential weaknesses to be detected quickly and remedial action taken


  • It can be difficult to quantify certain objectives and therefore some objectives may not be given the same level of priority as others
  • Excessive numbers of targets can cause confusion and distract workers from the key objectives
  • Getting the right balance between the four perspectives is difficult
  • Getting the right balance or objectives within each of the four perspectives is also difficult
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Elkington's triple bottom line (profit, people, pl

  • Profit: the traditional, financial measures of performance, (e.g. ROCE, gearing) to assess the short-term financial success of the business
  • People: assessing the non-financial factors that measure the social responsibility demonstrated by a business (e.g. employee welfare, situation for suppliers and customers and support for local communities)
  • Planet: measuring the extent to which a business' activities are environmentally friendly
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