Measuring Corporate Performance  

Our corporations are expected to perform. When they perform it is natural to think of measuring the performance. After all, so goes the well-established saying, what cannot be measured is not done. An equally powerful saying also asserts, what you measure is what you get. Indeed such is the power of measurement that it has become a tool   for inducing behavioural change in the organisation. For proof, consider the targets which are routinely set and witness the entire organisation getting geared to achieving them!  

If measurement is so central to our functioning, the question is: what should be measured and how? Consider the first part of the question. We do have an array of measures which may appropriately be called financial measures. These include, for example, sanctions, disbursements, recoveries, profits, earnings per share, cash flow, and productivity. Such measures, however, suffer from a severe handicap. They are short-term measures. As a result they encourage and indeed re-inforce short-sightedness in our corporations. The issues of sustainability and growth, so vital to survival, are ignored.  

Of course it could be argued, and with justification, that the CEOs get frequently changed which deprives the corporations of consideration of issues like sustainability and growth. Frequent change of  CEOs is hard fact of our corporate life and has to be accepted as such. However, this is only a part of the problem and less significantly at that. More importantly, it is our mind-set which is responsible for the present unproductive short-sightedness.  

The way out of the situation is to re-orient our thinking from short-term to long term to promote sustainability and growth. This can be achieved by changing our perspective from financial to non-financial,  say, economic. After all, financial perspective is a part of a broader  economic perspective, which in its turn, could be said to be a part of   still broader socio-economic perspective. Every CEO knows, for  example, that he can do precious little if there is a recession in the  economy.  

If economic perspective is adopted in measuring performance,  another array of measures is unfolded. These include, for example,  customer satisfaction, quality of product or service, market share,  customer retention rates, and human resources. If many of our corporations have been found napping in the ongoing information technology  (IT) revolution, the blame must lie squarely on their short-sightedness.  

The forces of globalisation, liberalisation, and privatisation  unleashed since 1991 have been gathering momentum since then making  the external environment uncertain, more demanding, and very competitive. Every public organisation is now required to give convincing  justification for its continued existence. Such an external  environment has made the issues of sustainability and growth very  pressing concerns indeed.  

As to the second part of the question - how the performance is to  be measured - the emerging information technology (IT) - computers,  internet, intranets, e-mail, etc. - come to our rescue. An enormous  quantity of data can now be stored, retrieved, and processed and that  too quickly and cheaply as never before. This enhances our capability   very remarkably for developing and expanding the existing performance  metrics.  

The need, and it is urgent, is to change our mind-set, extend our  time horizon to think long-term, design appropriate corporate performance measures which, not only reflect the current state, financially  and non-financially, but also reflect the direction in which our corporations are headed. This way we can competently address the issues of sustainability and growth. Herein lies a challenge to our  CEOs and they must accept it.