Business Performance Assessment

AbstractBusiness Performance Assessment (BPA) system is an important part of the business management system, which concentrates on post-management control and assessment. Interacting with other integral parts of a business, such as organization structure, management system, etc., BPA has huge implication on the overall performance of a business. A well-structured and well-carried out BPA improves employee morale and encourages employee contribution and creativity, thus balancing the short-term and long-term benefits of a business. A well-designed BPA is an integral part of a management system that carries the business beyond survival. It is impossible to establish a business-wide incentive system without a well-designed BPA, and a poorly designed BPA could even hinder the business's growth.A BPA consists of its intended purposes, intended objects, criteria and standards. The end users of such BPA system are either stockholders, assessing the performance of the management and the business, or the management, assessing past performance and planning future business strategy. For different end-users, there are very different sets of purposes, objects being appraised, criteria and standards.Stockholders intend to evaluate the overall performance of the business the management in order to determine whether and how to design future business strategy, whether the management should be rewarded or reprimanded, how to allocate available resources. Since the intended objects are mostly high-ranking management, it is necessary to hire outside or independent appraisers for fair and objective results. Most stockholders do not participate in the daily operations of a business and, as a result, do not have good understanding of a business. Financial data from annual reports and industry research and data make up their main data resources. Industry-wide or competitors' performance is usually used as assessment standards against company performance.A BPA for internal management purposes are quite different. The end-users consist of all ranks of employee. To have a clear picture of the overall performance of all aspects of a business, including performance from an individual level all the up to business-wide level, all employees of the business will act as independent evaluators for multiple purposes and against multiple intended objects. Financial as well as non-financial categories are assessed against. Annual budget, capital expenditure budget, industry-wide and competitor performance are all used as assessment standards.Items being assessed are the main focus of this article. Commonly used financial criteria include net income, ROI, cash flow, etc; EVA and REVA two new financial items being assessed against. These financial items reflect different aspects of a business's operation. Non-financial criteria' scope is generally wider, including market share, product quality, production efficiency, consumer satisfaction, creativity, etc. How these criteria are quantified varies widely from business to business and is very difficult to control; as a result, non-financial items are used as often as financial criteria for assessment purposes.It is usually very easy to quantify and compare financial criteria and they are still the dominant criteria to be assessed against in a BPA system. Still, non-financial items are a necessary complement to financial items. Business scope assessed by financial criteria is quite limited, financial criteria are also easily manipulated and not forward-looking. Business managers and scholars have long realized that in order to accurately and objectively assess the overall business performance; a BPA has to contain both financial and non-financial categories. Cooperating with 12 companies for over a year, Harvard Business School's Robert S. Kaplan and Renaissance World Strategy Group's founder and CEO David P. Norton invented "Balanced Appraisal System". This BPA contains three sets of non-financial criteria to complement financial criteria:...