The performance measures/metrics used to assess organizational performance are many. The measures employed by managers must be applicable/relevant and vary depending on certain issues. Once we are able to measure strategic initiatives, we can manage them. Listed below are three corporate-level strategies/initiatives discussed in class. For each corporate-level strategy/initiative listed below, offer three (3) performance measures relevant (i.e., especially meaningful) for monitoring the success of that particular strategy/initiative. Offer the measure and explain why it is especially relevant for that particular strategy/initiative. Make sure each measure has its own explanation accompanying it. Keep in mind that I am asking you for actual measures/metrics! Product Development Backward Vertical Integration Related Diversification
Let me give you a hint using horizontal integration. When I think of horizontal integration, I think of the airline industry when an airline buys another airline. To measure the success of say Delta Airlines buying Northwest Airlines, I would look at cost per gallon of jet fuel because the now larger airline should have more bargaining power over fuel suppliers and thus command a better price. This lower fuel cost should in turn increase the airline’s GPM since its part of Cost Of Services Delivered. Another measure I would use would be ROE because a larger airline should be able to increase its NPM due to efficiencies gained in variable and fixed costs (as reported on a common-sized income statement). An increase in NPM would then positively impact ROE because as you know from your finance class when discussing the DuPont decomposition for ROE, ROE = NPM*TAT*(1+D/E).
You may use generic measures/metrics (e.g., ROE, ROA, current ratio, etc.) or specific to an industry (e.g., cost per gallon of jet fuel, profit per thousand cigarettes, extraction cost per barrel of oil, etc.). Keep in mind that indirectly financial measures are also acceptable (e.g. measures relating to quality, customer satisfaction, employee morale, etc.). Additionally, you may even want to answer the question drawing upon the industry in which you work or have chosen to analyze for your group project.