Assessing Organizational Performance
Earlier, we discussed the importance of the control function and monitoring the firm's progress in meeting the goals and objectives contained in that plan. This section reviews the ways that a company assesses performance. Be sure to pay attention to the use of the Balanced Scorecard, which includes not only financial performance goals but operational goals as well.
Financial Measures
Financial measures of performance relate to organizational effectiveness and profits. Examples include financial ratios such as return on assets, return on equity, and return on investment. Other common financial measures include profits and stock price. Such measures help answer the key question "How do we look to shareholders?"
Financial performance measures are commonly articulated and emphasized within an organization's annual report to shareholders. To provide context, such measures should be objective and be coupled with meaningful referents, such as the firm's past performance. For example, Starbucks's 2009 annual report highlights the firm's performance in terms of net revenue, operating income, and cash flow over a five-year period.