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Organisational and Managerial Performance
How, when, where and by whom should organisational, managerial, product and service performance be measured?
Organisational and managerial performance can be measured in a variety of ways. All methods of measuring performance can be guided by a set of common requirements as stated by Pettinger1. For and organisation and its managers, it is essential that “clarity and purpose of direction” is present. The importance here is that without this element, the measurement of an organisation’s performance is meaningless. There is nothing to measure because the meaning of “success” within the organisation has not been defined. A second prerequisite for the effective measurement of successful performance is an adequate level of resources. These may include staff (and related training facilities), information systems and investment. The expertise required to analyse performance results is an obvious requirement. This leads us to the third requirement, an understanding of the market and environment in which the organisation operates. This again is vital because the measurement of performance is usually in done in terms of a specific market or industry. These three fundamentals lead the way for various measure of performance to be carried out with a sense of direction. Performance measurement itself can be divided into a range of areas.
Organisational Performance
Organisational performance is by and large measured quantitavely. This is done using various indicators. In his book “Introduction to Management” Pettinger highlights the following components of performance measurement. In terms of an organisation, I would specify these particular components from the range stated by Pettinger.
Firstly, the profitability of the organisation is an evident indicator of its success. This is a specific, quantitative measure and is simple to calculate and can be evaluated in a straightforward manner. Profit ratios can be presented in reports and this is commonly done due to its simplicity. A profit ratio is defined as follows
Profit ratio = (Net profit / Total Sales)100
This figure can be made readily available to analysts and managers for them to assess the success of the organisation. The use of this indicator is related to when it would be most necessary. For example, seasonal products and services such as holidays and antifreeze will have their profitability assessed in the build-up to periods of high demand and also following such periods.
Market standing and position is also an indicator of the success of an organisation. This can be measured using intelligence information gathered on leading competitors as well as performing market research. The organisations position in the market in relation to its desired position at a particular point in time is clearly a way of evaluating its progression towards it long-term goals. This research should be conducted throughout the industry in order to obtain a clear picture of the organisations market standing. Quantitavely, an organisation’s market position could be measured using concentration ratios similar to those used in economic theory. For example, a five-firm concentration ratio measures the proportion of total sales in a market made up by the total of the five firms with the largest sales. In terms of a single organisation, an equivalent ratio would be
Market share = (Total Revenue / Total Industry Revenue)100
The market share indicator would typically be calculated every six to twelve months using information gathered by finance departments. In the longer term, (for example some firms have a “five-year plan”) market share would indicate the success of the organisation more generally and would be viewed by potential investors to be a key indicator.
Pettinger also mentions “resource utilisation” as an important component of measuring organisational performance. A successful organisation will be efficient in its production of goods and/or services. Wastage would be viewed as a sign of inefficiency. Economic analysis can be used to evaluate to efficiency of a firm. Productive efficiency (i.e. when a firm produces at the lowest average cost) and allocative efficiency (i.e. when a firm produces where price is equated to marginal cost) are two points that firms may wish to aim for. However, this again depends on the firm’s long-term objectives as well as the share of the market which it occupies. As you can see, many of the performance measuring components are related to each other.
Organisational culture is a good way to gauge the level of motivation and morale in a firm. The relationships within a firm are important to its functioning and these interactions (for example, between departments or between regional sites) need to be well oiled to ensure the long-term success of an organisation. Such qualitative measures are commonly conducted using a mixture of in-house research in the form of questionnaires and also external observers such as management consultants. It is important that these types of measure are regularly and consistently executed in order to avoid inefficiencies.
Managerial Performance
Managerial performance measurement is instantly recognised as dissimilar to organisational performance measurement due to its less quantitative nature. It tends to be based more on value judgements and is therefore less straightforward to execute.
Managerial performance can be measured at different levels and across different departments. It includes assessing the strengths and weaknesses of managers and will also aim to gauge the effort put in by the managers to iron out the creases in their performance.
A clear link to managers is the staff that work beneath them. The efficiency, morale and productivity of the staff are, in my opinion, a reflection on the managers that they work under. Staff performance can be measured in terms of productivity (output per worker) and this is one of a few quantitative measures that can be used to measure the performance of managers. The development of the management as a response to changing market conditions and also changing conditions within the organisation is seen as a key indicator of the management’s performance. Managers with such dynamic qualities will tend to perform to a superior standard.
Style of management will also be scrutinised when measuring performance. For example, does the manager take a hands on or detached approach. The amount of time that a manager spends interacting with lower levels in an organisations workforce as a proportion of the total hours worked by the manager can be used to evaluate a manager’s dedication to improving the performance of the organisation as a whole. It is commonly accepted that a manager with detailed knowledge of the working of the organisation at many different levels is in more of a position to introduce effective changes and manage them successfully.
It is necessary to constantly evaluate to performance of managers because they are highly paid and in order to justify their salaries, their performance must be up to standard.
Product and Service Performance
The performance of products and services can be measured in qualitative and quantitative means. Many of the methods will overlap with those used to measure organisational performance. For example, market share and profit ratios are good indicators of the success of a product or service as well as a straightforward measure of the management of their production. And again, market research and sales statistics play a vital role in measuring the success of a product or service.
Performance Appraisal
Performance appraisal is used to measure the performance of different factors of an organisation at the place of work. Pettinger states that for appraisal to be successful and effective, certain elements must be present. For example, a set of aims and objectives is a prerequisite. Targets should be realistic for them to be taken seriously. Also, the process of appraisal must entails regular reviews and these must be done consistently in order for confidence to be built into the system. These reviews should occur every three to six months and the process should be dynamic to cope with changing circumstances between reviews.
Stakeholders
To address the question of “by whom” is performance measured, it is necessary to look to the stakeholders in an organisation. A stakeholder is defined as anyone who has some sort involvement in any part of the organisation or is affected directly as a result of the organisations operations. A few of the potential stakeholders who actively or indirectly may assess the performance of an organisation are summarised below
• The customers � Their interests lie in the organisation’s success at providing a quality service.
• Workforce � Staff working inside the organisation will be eager to get involved in making decisions at different levels and being given the opportunity to do so.
• Investors � This group of people will obviously be interested in the performance of an organisation and its managers because it is what their involvement is based upon.
• Competitors � In order to evaluate their own performance, competitors will need to measure up to an organisation and assess its performance to possibly provide a benchmark to aim for.
• Suppliers � These have a vested interest in the performance of the organisation that they supply because of the derived demand for their own products or services.
Different stakeholders will have interests in different measure of performance. For example, consumers will not be interested to know what percentage of market share the manufacturer of their coffee table occupies. Similarly, suppliers will not have an interest in the quality of service encountered in a particular branch of the organisation that they supply.
As mentioned earlier, it is vital that an organisation has a clear set of aims and objectives otherwise the monitoring of performance becomes a pointless exercise. There are a range of quantitative and qualitative measure that can be utilised when attempting to measure both managerial and organisational performance. As well as these, there are a range of various stakeholders with different interests in various parts of the organisation. In conclusion, it is important for all concerned that effective performance evaluation is executed at the right times and by the correct individuals or groups. Without effective assessment of organisational progress, any aims and objectives that exist within the organisation are themselves made worthless. The Deming cycle of continuous improvement shown below is a useful tool for aiding measurement
PLAN Establish performance objectives and standards.
DO Measure actual performance.
CHECK Compare actual performance with the objectives and standards � determine the gap.
ACT Take the necessary actions to close the gap and make the necessary improvements.
Before this cycle is used however, the questions of why measure, what to measure, where to measure and how to measure must be answered.
Identify specific performance measures that could be used to analyse each of the following products and services from the following points of view (a) the company itself; (b) customers, clients and end users; (c) suppliers; (d) the community at large.
• Easyjet
• People carrier cars
• Madame Tussauds
In order to answer this question, it is important to recognise that each of the above points of view will entail different measure of performance, but possibly with some degree of overlapping. For example, the performance indicators used by the suppliers would be similar to those used by the company itself due to the nature of the demand for the suppliers goods (i.e. the demand is derived). Also, the interests of the community may possibly be a reflection on the interests of the customers, clients and end users.
The company itself would be interested in its own performance in order to monitor its progress towards its fulfilment of the aims and objectives it has set out. Customers, clients and end users would be interested in the continuation of satisfaction and service as well as possible improvements for the future. The suppliers clearly would have a strong interest in the performance of the organisations because the demand for their products and services is derived. The community at large would also have an interest in the performance of the organisation because the operation of the organisation may entail externalities.
The table below will summarise the indicators that I suspect the stated stakeholders would scrutinise
Company Customers, Clients and End Users
Suppliers
Community
Market share
Profitability Price competitiveness Profitability
Revenue performance Externalities eg noise pollution
Market share
After sales service quality Key
Relationships with suppliers. Externalities
Specifically, efforts taken to reduce them
Creativity
Staff Performance
Customer service
N/A
Public relations and image
Apply the measure that you have identified to each of these products and services. Draw conclusions as to the extent to which each of these products and services may be considered successful or not, and from which points of view.
The Company’s Point of View
As stated in my response to question two, the following performance indicators are those which I have selected to assess easyJet.com from the point of view of the company itself market share; and profitability.
Market Share
According to information taken from a press release posted on the easyJet website (easyjet.com) “the airline has grown organically at over 40%, added eight new routes from London Gatwick, increasing the number of services to eleven (as British Airways scaled back its operations) and gained a foothold in Paris Charles de Gaulle and Orly from which it operates on four routes.”
The low cost airline industry has seen the emergence of a new market leader. The acquisition of Go Fly in July 00 meant that easyJet could emulate the effect of many years of “organic growth” in one single step. Therefore in terms of the market share indicator, easyJet has succeeded in becoming the largest airline of its type in Europe. This is positive news and reflects on the performance of the management in executing the acquisition of Go Fly as well as the management of change associated with such a large scale operation.
Profitability
The profit made by easyJet has jumped by 78% to £7 million following the acquisition of Go Fly. Profit before tax, goodwill and exceptionals is up 86% to £81.8m (001 £44.1m). This substantial increase in profits can be put down again to the success of the management because it is related to the acquisition of Go Fly. There is limited support for this argument however. Making such an assumption in this case is justified because of the nature of the source. Overall, I would say that easyJet has performed well in terms of profitability.
The Customers’, Clients’ and End Users’ Point of View
The indicators that I am going to use to assess the company from this point of view are as follows price competitiveness.
Price Competitiveness
To gauge price competitiveness between easyJet and a competitor, I checked the price of a one way evening flight on 1th December 00 from London to Amsterdam.
I used the two airlines’ websites to find this information (www.easyjet.co.uk and www.buzzaway.com). The prices are shown below.
£50.40
£87.50
For an almost homogenous product, the prices are significantly different. This would imply that easyJet is possibly benefiting from economies of scale and passing these benefits on to the consumer in the form of lower fares. The press release mentioned earlier also stated that the average net fare is down 4% to £46.
As an obvious stakeholder, the customer will have a vested interest in the continuation of low fares and a satisfactory level of service. Therefore, I would say that easyJet has succeeded in fulfilling consumer requirements because their interests will predominantly lie in paying the lowest price available for the service in question. A fact that supports this is that passenger number’s are up 4% to 10.m (001 7.1m). The following table also illustrates passenger number performance
November 00 November 001 Year-on-year increase Rolling 1 months ending 0 November 00
Passengers1 1,48,75 60,8 114.5% 1,056,645
Load Factor 80.5% 85.% 84.%
The Suppliers’ Point of View
The main supplier to easyJet is Airbus. In October 00, this company was selected by easyJet to supply 40 new aircraft in a deal which is expected to provide easyJet with “significant financial benefits.” The two indicators that I selected to asses the company from this point of view were, profitability and revenue performance.
Revenue Performance
Profitability has already been analysed and the conclusion was that it easyJet is performing well as a result of the acquisition of Go Fly. Revenue on the other hand has not been analysed. According to the press release, revenues were up by 55% to £55m in 00 (001 £75m). This would be encouraging news for Airbus. This is due to the fact that demand for their aircraft is derived from the demand for flights. The increase in revenues would suggest that in the following year(s), even more aircraft may be required by easyJet and therefore Airbus would be able to execute the required investment in order to cope with future demand.
The Community at Large Point of View
Externalities
The indicator that I have selected to assess the performance of easyJet from the point of view of the community at large is the extent to which it yields externalities such as noise and visual pollution.
Hard evidence to support the existence of such externalities is limited. However, recent controversies involving airports and flight routes over surrounding urbanised areas have brought this issue to light. Local people are far from satisfied with noise pollution as a result of regular flights over their houses in the vicinity of Gatwick airport, where the bulk of easyJet’s flights are from in the UK. In this respect, it would be fair to say that easyJet has underperformed. In spite of this, easyJet are fortunate that the finger has not been pointed bluntly at them due to the fact that many other airlines fly to and from Gatwick every day and this helps to mask them from each other.
The company that I have chosen to assess for my people carrier performance indicators is Toyota UK Plc. The specific vehicle is the Toyota Previa, the car that launched the concept of the people carrier in the mid 180s.
The Company’s Point of View
The indicators that I have selected to assess the performance of the Toyota Previa as a product from the company’s point of view are as follows market share.
Market Share
Toyota was the world’s third largest producer of vehicles in 001 with 5,8,000 vehicle sales. In the UK, the Toyota Previa is the second best selling people carrier with 18% of the market. The market leader is the Ford Galaxy with % of the market. The graph below shows the top three people carriers and their market shares.
From the graph it is clear to see that there is a large three-firm concentration ratio of 58% indicating that the market is dominated by these firms. Toyota can be pleased that their product is in second position in the market but if they want to dominate, then they need to address the relevant marketing strategies and prices.
The Customers’, Clients’ and End Users’ Point of View
After Sales Service
From this point of view I will use quality of after sales service as a measure of performance. I researched after sales service options and my results are as follows
I visited the Toyota website (www.toyota.co.uk) and localised my search to the “Owner’s Services” page. I found that the company offers a number of post purchase services to its customers. For example, there is “Club Toyota” and also “Toyota After Care Services and Products.” In terms of this particular investigation, the “Toyota After Care Services and Products” is the more important feature. This service includes extended warranties (at competitive prices), and Toyota’s own brand of after sales mechanical care in the form of “AutoBase Offers.” This service offers the customer to bring back their vehicles for regular maintenance in parts such as brakes, clutches, tyres and exhausts.
In conclusion, Toyota seems to be performing well in the after sales service department. Having spoken to a Toyota owner, I have deduced that there is a high level of customer satisfaction. And, as he put it, “the one time that my Celica did fail to start, Toyota were professional in their approach to the untimely inconvenience and had me on the road in no time.”
The Suppliers’ Point of View
Key relationships between suppliers and the firm are vital to the long-term success of the organisation. The age of such relationships is a key indicator of their reliability. Toyota’s main suppliers are located in Japan and below I have documented their names and the years of their establishment
Company Component Established
Aichi Steel Corporation Steel suppliers March 140
Hino Motors Trucks and buses January 14
Kanto Auto Works Ltd Steel body parts April 146
Toyota is a well established manufacturer of vehicles and the key to its success has partly been its long term relationships with its suppliers. As you can see from the table above, its main suppliers have been providing raw materials and prefabricated components since the 140s. These long term relationships instil confidence in the suppliers and this is a mutually beneficial scenario.
The Community at Large Point of View
The community at large is going to be concerned with the externalities associated with the production and use of the vehicles. In this section I will limit my investigation to the externalities associated with the use of the vehicles. Road transport imposes significant externalities on the community at large. Therefore, it would be in Toyota’s best interest to take steps to improve the efficiency of the engines that they produce (in terms of their public relations).
Below is data on Toyota’s research and development expenditure over the recent years
18 ¥444,400,000,000
000 ¥45,00,000,000
00 ¥5,500,000,000
This research and development expenditure has had tangible results in the form of technologically advanced engines. For example, the new hybrid engines that are available in the Previa (Japan only) are the world’s first. Their gasoline engines using new fuel injection systems are now 0% better on fuel economy and 0% lower on CO emissions. They have also made significant breakthroughs in the use of electric engines.
Toyota need to make this information available to the general public in order to satisfy the community at large that they are taking the necessary steps to reduce the externalities associated with private motoring.
The Company’s Point of View
Creativity
Being in the leisure industry, it is important to be constantly creative and this is why I have chosen this measure to assess the Tussauds group. This is a qualitative measure and therefore its execution requires value judgements. Evidence of creativity at Madame Tussauds is apparent. The main examples of this are the new features that are introduced with the latest waxworks. For example, the new Kylie Minogue waxwork has been positioned in the “sexiest pose ever” (Madame Tussauds spokesman) and features real breath and perfume odours. Having viewed the figure and other new figures, I would agree that Madame Tussauds has been very innovative in an effort to refresh its image.
Staff Performance
To assess the mood and productivity of the staff at Madame Tussauds, I interviewed an ex-employee, Sanaa Sheikh. I was investigating the working conditions at Madame Tussauds. Her general attitude to the attraction’s management was that they were “out of touch” with the workers at the lowest level in the staff hierarchy. This meant that they were made to do shifts where no work was actually done and time and therefore money was “shamelessly” wasted. She also said that the management were reluctant to take on ideas from the lower level staff and this meant that any suggestions to improve the efficiency of MT were never taken seriously. Therefore I would say that MT has failed to optimise the capabilities of their staff which has in turn resulted in low morale and lower productivity.
The Customers’, Clients’ and End Users’ Point of View with the Community at Large
MT’s mission statement includes the line “[we are] always striving to satisfy our visitors”. Having been to MT for the purposes of this investigation, the informal chats that I conducted with visitors on their way out of the building had a common theme. Most of them were happy with the customer service that they encountered inside. There were, however, complaints about the quality of service in the gift shop. Some of the interviewees also said that the younger members of staff (students etc) were less helpful than the older ones. In my own personal experience, I have found that the staff at MT are helpful and welcoming. This level of service helps to improve MT’s public image and will help to attract more visitors in the future. As a result, there will be increased business in the local area and these positive externalities will spread throughout a wider region.
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