To be effective measures of strategic
performance ought to enable a firm itself to judge its performance relative to
its true rivals and its strategic peers[2], i.e. rather than measuring
performance using a single ROA measure to have a composite measure comprising:
- the firm’s actual ROA;
- the firm’s ROA ranked in relation to
other firms in the same industrial sub-sector;
- the firm’s ROA ranked in relation to
other firms which are in the same industrial sector;
- the firm’s ROA ranked in relation to
other similarly sized firms;
- provide a competitive map which
reveals the position of a firm in relation to those factors which are
pre-eminent in determining performance;
- provide guidance on strategies which
are likely to enhance performance;
- provide a framework for managerial
discussion and external stakeholder[3] discussions which will redress
strategic and operational weaknesses and build on firm strengths.
A new approach: the competitive analysis model
(CAM) approach
The CAM unit of analysis
The traditional unit of analysis in research
into strategic success factors for firms is the firm itself or a strategic
business unit (SBU) within the firm. Because of the nature of small businesses,
CAM has adopted a broader view and regards the firm not as an entity but as the
pivotal element in a coalition illustrated as in Figure 1.
The rationale behind this molecular view of the
firm, is that small businesses tend not to have the resources necessary to form
complete teams for the development and implementation of strategies and often
their teams comprise:
- the firm itself: the source of
development, usually dominated by an owner-manager;
- a development agency: this provides
advice and support;
- consultants or advisors: these
provide strategic and operational direction;
- a bank: in addition to providing
finance it will often provide advisory services.
Consequently the firm’s development must be
considered in the context of the relationships that obtain in this coalition.
The performance measures used
As shown in Table II, two sets of performance measures are provided
for the firm and the other members of the coalition: one set showing the growth
of the firm and the other set showing its profitability. (It should be noted
that the owner-managers tend to be most interested in measures of profitable
turnover growth.)
These performance measures are computed in two
ways:
1. actual performance;
and
2. relative
performance.
CAM assumes that a strategically comprehensive
measurement of firm performance must be conducted at four levels. These are the
firm’s:
1. actual
performance;
2. performance
relative to others in the sub-sector;
3. performance
relative to sector; and
4. performance
relative to similarly structured firms.
Each of these performance measures is now
considered and the approach is illustrated by reference to a CAM participating
client: Glangras Foods[4]. This firm is a manufacturer of convenience foods and
employs around 45 people and details of its performance are provided in Table III. Although the table shows the five measures of
performance, for illustrative purposes, just one measure – ROA – is considered
below:
- Actual performance. CAM
provides every firm in the database with absolute measures of its average
performance over a three-year period. Thus, Glangras Foods’ actual ROA of
35.2 per cent is its ROA average over the past three years.
- League 1: The
sub-sector. At a strategic level most small businesses do not
compete in an industrial sector, rather, they compete in a clear
sub-sector. Thus Glangras Foods[5] competes mainly against other players
in the convenience food sub-sector, and so in terms of performance
benchmarking it is against this sub-sector that it has the greatest
interest. In the database Glangras Foods’ ROA is ranked number three out
of a total of 14 firms which are in the convenience foods firms
sub-sector.
- League 2: The
sector.
Although most small businesses do not compete in an industrial sector it
can be important that they are informed about their performance relative
to others in the sector. Such information shows the attractiveness or
otherwise of contiguous or related sub-sectors, Glangras Foods’ ROA is
ranked number ten out of a total of 56 firms which are in the food firms
sector.
- League 3: All firms.
Irrespective of industry sector, it is useful for firms to benchmark their
performance against similarly structured firms. To illustrate, it is
instructive to benchmark the performance of Glangras Foods which employs
45 people with other firms, irrespective of their industry sector, who
employ less than 100 people. Glangras Foods’ ROA is ranked number 64 out
of a total of 290 firms in the database.
