India is a huge country with developed corporate sector. Over the last 60 years since independence the corporate India have undergone a see change, specially there has been a paradigm shift in the business scenario since 1991 after the liberilisation of economy namely LPG i.e. Liberilisation, Privatization and Globalization.
Since the progress in the corporate have been prolific, so the performance evaluation of the corporate India as well is dynamic. Traditionally Ratio Analysis, Cash Flow are the main techniques and for performance analysis of a business. But with the complexities in modern business centre new technique like Common Size Statement, Balance Scorecard, etc have gained importance throughout the globe. India is not an exception to it. Most of the big corporate house have started performing these exercise to estimate it real performance and to maintain checks and balances for all the activities of the concern.
It is therefore very essential to do a research work as to which technique or combination of techniques are appropriate for which type of corporate entities, along with a comparative look at all the modern techniques. This would help us decide which technique a most appropriate in India.
To make a comparative study of all the techniques used for performance evaluation in India corporate to understand which technique or group of techniques are most effective under different situation.
This area is very rich in literature over last 6 decades a lots of excellent text books, magazines, annual reports research paper been published. After a through study of all the method’s some of them are short listed for further analysis. The following literature are worth mentioning.
The performance measurement system of a firm has a strong influence on the behavior of its people. As Robert W Hall says : “Performance measurement is the basis of every system in company : cost systems, planning systems, capital budgeting systems, personnel assignments promotions, reorganizations, budget allocations – the mechanisms, built up over years, by which everything runs.” In a similar vein, Robert Kaplan and David Norton argue: “An organisation’s measurement system strongly affects the behavior of people both inside and outside the organisation. If companies are to survive and prosper in information age competition, they must use measurement and management systems derived from their strategies and capabilities.”
More than 70 percent of those who responded to a recent Economist Intelligence Unit – KPMG survey said that they were dissatisfied with their company’s performance measurement system. Some of the problems with the performance measurement systems are as follows :
In an interesting 1991 HBR paper titled “The Performance Measurement Manifesto”, R. G. Eccles argued that “within the next five years, every company will have to redesign how it measures its business performance”. The heightened interest in business performance measurement since the early 1990s suggests that he was substantially right.
Apart from these a lots of Annual Reports and Corporate Booklets have spoken about different means. In Indian context Dr. Prasana Chanda in his book Financial Management have discussed all techniques practiced by Indian major corporates and definitely do rationalize the use of these. Prof. I. M. Panday in his text book, The Financial Management states his views on modern techniques of performance evaluation but from his work it revels that he gave more emphasis on the traditional approach than the modern one.
From the detail literature survey it is clear that in modern business focus is on it mainly because of the following, reasons as pointed out by Dr. P. Chandra in his work, Financial Management 6th edition, TMH 2004, which is discussed below:-
Rationale for the current focus on business performance measurement
Business performance measurement is receiving a lot of attention today due to a variety of reasons. the important ones seem to be as follows:
iii) Quality Awards : To recognize outstanding performance and motivate companies to excel, a number of national and international awards have been established. Notable among them are the balridge Award (U.S.), the European Business Excellence Model (Europe), and the Deming Prize (Japan and Asia).
Each of these awards requires a comprehensive self-assessment by the companies who wish to be considered for these awards. As more and more companies are applying for these awards, the interest in business performance measurement is growing.
Research Methodology :
Research Methodology includes through literature survey of the different aspects of performance apprised. Investigation of annul report of Blue Chip India corporate is done. Finally all the different techniques are evaluated based an the need the organization and situation to come to a conclusion from which a suggestion can be made to find the best possible techniques under a circumstances. Relevant website are surfed to collect secondary data. Statistical tools likes trends, pie chart, percentage etc. are used in the analysis portion.
Analysis is done for the following techniques which are commonly used in Indian corporate :-
If we take a clear look at all the above measures use can find that the traditional technique are more concern with the financial indicators like ROI, ROCE etc. but the modern techniques consider both final and non financials. Now lets go through some of the modern techniques frequently used for performance evaluation of modern corporate apart from Ratio Find Flow and Cash Flow Statement which are very basic techniques for performance evaluation.
Most companies have a performance measurement system that includes financial measures as well as non-financial measures. Financial measures are used primarily by senior managers to monitor the performance of the firm as a whole and its business units or divisions; non financial measures are employed mainly by operating managers to control short-term operations. Till recently, not much effort was made to combine financial and non-financial measures in an integrated measurement framework. The balanced scorecard approach pioneered by Robert Kaplan, David Norton and others seeks to develop an integrated performance measurement system.
Features at Balanced Scorecard.
Is the company attractive to shareholders?
Does the company provide value to its customers?
What must the company excel at ?
Innovation and Learning
Is the company improving and innovating continually?
Robert Kaplan and David Norton believe that these four perspectives are fairly robust for a wide range of businesses. Fig. 4.1 shows the structure of a Balanced Scorecard.
iii) The balanced scorecard represents a linked series of objectives and measures. The linkages capture cause effect relationships obtaining in a business. As Robert Kaplan and David Norton say : “The multiple measures on a properly constructed balanced scorecard should consist of a series of objectives and measures that are both consistent and mutually reinforcing. The linkages should incorporate both cause and effect relationships and mixtures of outcome measures and performance drivers.” Fig. 4.1 shows how the important measures under the four perspectives are linked in a cause effect relationship
Fig. 4.2 Shows the detail and systematic view of key measurement and cause effect relationship.
A variant of Balance Score Card is ABB’ Balance Score Card which is shown in Fig 4.3.
B. PARTA SYSTEM
The ‘parta’ system is widely used in Birla Companies as a performance measurement and control system. Its salient features are as follows:-
Evaluation of an indigenously developed responsibility accounting, the parta system is eloquently supported and defended . This is evident from the following observations :
Siddharth Birla : “Essentially, it emphasizes the speed of reporting, even sacrificing some accuracy in the process. So there is a mental pressure on the manager to perform daily. It is a very short reaction time”
Sudarshan Birla : “The parta system is not a static or hide bound system. It is adapted to the changing needs and we that principles work very well”.
C. The European Business Excellence Model
Launched by the European Foundation for Quality Management (EFQM) in 1992, the European Business excellence Model is the European version of the Balridge Award.
The European Business Excellence Model consists of two separate sections, viz., Results and Enablers. Companies are marked out of 1000 and the weightages assigned to various categories of criteria are as shown in Fig. 4.4
Patterned after the Balridge Award, the Tata Business Excellence Model, adopted by the business house of Tata in India, evaluates the performance of Tata companies along seven criteria. The criteria and the points assigned to them are as follows :
Now, let us understand how Indian corporate could use these concepts to there benefits, and business control. The 30 Sensex Corporate are observed and it is seen how many of these are using which techniques. It is shown in Table 4.1 followed by a graphical representation in Fig. 4.5.
From the above table and figure it is evident that all the corporate do still use the traditional techniques but at the same time they use another parallel technique like Balance Scorecard, Parta System to confirm and complement the financial measures. Thus it is easily understood that modern techniques namely Balance Scarecard is the most widely used techniques now a day since 20 of 30 companies are using the technique. It is mainly because of it uniqueness to take care of both financials and non financial aspects to make an overall balanced evaluation.
Another observation made out of 100 blue chip companies over last 3 years on Balance Scorecard in Indian corporate which is show table 4.2 and fig. 4.6.
From all the table and graph it is clear that Balance Scorecard is gaining more and more popularities since it is very effective and is a balance measure. It is to be noted that most of the companies, are using the Keplan Model but they have restructure it a bit as per there unique need.
From the analysis and finding it can be concluded that both financial and non financial aspects should be considered to have a perfect performance means of a modern Companies, the weightage depends upon the nature of business and the corporate philosophy.
The commonly used fiancé measure used traditionally are :
Again the commonly used non financial measurement are –
Based on the salient features of both of these Balance Scarecard and other modern technique techniques are invented which compliments the financial as well as non financials of an organization to have a performance measure which is very much balanced in approach.
It is often said that Balance Scarecard is balanced, mainly because of it’s capacity to take care of most of the key aspects of the corporate to be reflected in the performance measure. This is the reason why most of the blue chip now a days are going for Kaplan Model or a variant of this which may be a parta system, Tata Business Excellency Model etc.
The study suffers from the following the major limitation.
Since the sphere of the study is huge so there are tremendous scope of further research. Some of these can be maintained below:-
iii) A cost benefit analysis of using multi technique approach for performance measure can be done.
Based on the entire study, its conclusion, findings, scope the following suggestions are provided:-
Instituted in 1987, the Balridge Award inter alia seeks to stimulate American companies improve quality and productivity for the pride and recognition while obtaining a competitive edge through increased profits.
Balridge awards are given annually to companies that have achieved the highest levels of performance excellence. The criteria for judging performance consist of seven categories as shown.
Source : National Institute of Standards Technology home page (www.NIST qualiy.gov).
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