Why would a business measure performance?
“You cant manage what you dont measure”
It is then hard to determine if something is improving or getting worse
How has performance measurements for business developed?
Old -
- Financial performance measures
- Profit
- Cash-flow
- ROI
New -
- non-financial and multidimensional performance measures to determine whether an organisation is achieving its goals and requirements.
What is Revenue Productivity?
- Revenue productivity is a useful tool, as it measures the amount of income or revenue that a certain resource produces.
- From a performance perspective, this amounts to doing more with less.
- Optimise productivity -by producing as much output as possible with as little input
How to calculate “Average Revenue productivity”
Total revenue ÷ Number of units of resource
Marginal revenue productivity
The EXTRA revenue generated from adding an additional resource unit.
Do Avg and MR revenue productivity remain constant?
No, they rarely do and they vary when extra resources are added.
What usually happens when additional resources are added?
- The avg and MR productivity figures usually will increase
- However, productivity levels drop once a certain optimum point has been reached
- Businesses would aim to reach and maintain the optimum point
- This is where the average or marginal revenue productivity is maximimised
Define Quantity Productivity
QP is used to determine the relation between the # of product units produced and the # of resource units used (output & input quantity)
Quanity ProductivityQuantity= OC/ IC
How to calculate revenue productivity
RP = TR/ TC
How can the Revenue Productivity formula be broken down -
Revenue productivity -
Out quantity/ Input quantity
multiplied by
Output price/ input price
Output prices ÷ Input prices provides an indication of what?
both product quality and market power.
Product Quality
A high-quality product can be sold at a higher price.
If the output price rises and input prices remain constant, revenue productivity increases.
Market Power
If there is high demand for a product and there are few substitute products, its price will be higher.
Again, assuming input prices remain constant, this increase in output prices can create higher revenue productivity.
Define - Productivity dispersion
The variation in levels of productivity between firms, industries, and countries.
Why does Productivity Dispersion occur?
It is hard to determine exactly why PD dispersion occurs within specific contexts, proposed reasons may be -
- Managerial practice and talent:
- The quality of labor inputs
- Information Technology
- The learning curve
- Productivity innovation
Why is it hard to determine why PD varies?
When looking at the performance of companies, industries, or countries, it is hard to isolate just one factor.
What should management consider the looking at PD?
These are often driven by non-financial factors like market power, leadership, and the quality of inputs.
Can business strategies be applied universally when it comes to PD?
No.
Because companies are so different, PD may vary massively.
Individual business must customise their business objectives and strategies.
What’s the difference between a business objective & a business strategy?
Objective - what they want to achieve
Strategy - how they want to achieve it (their roadmap to success)
The components of strategy
Long-term goals - what the firm wants to achieve
Scope of the firm - what the firm does
Competitive advantage - how does the firm do what is does better than the competitors
Logic - why will the strategy work
What are the 4 components of a strategy?
- Long-term goals
- Scope of the firm
- Competitive advantage
- Logic
What is an industry?
An industry is “a collection of firms that offer similar products or services” (Pearce & Robinson, 2003)
WhyWhat is the difference between a sector and industry?
Sectors are made up of groups of industries.
Why is it complex to define industry boundaries?
- Industries change over time, forcing firms to deal with new opportunities and threats.
- This evolution of industries can lead to the creation of new industries within existing ones and an overlap between industries that previously operated separately (e.g. phones and cameras).
- Industries have evolved to become global in scope and it is more difficult to perceive whether a company is in a global industry for the product or service it sells, or a more local one.
