Performance Measures, Research Paper Example

Two important measures of profitability are gross profit margin and net profit margin. Gross profit margin allows an organization to measure its production efficiency as well as compare it with the competition and net profit margin also takes into account the operating efficiency of an organization. If gross profit margins are similar to the competition but the net profit margins are lower, this means the first needs to control its operating costs. Another important measure is current ratio which measures the short term liquidity of the organization, i.e. does it have enough cash and liquid resources to carry out its regular operations. The firm may be profitable on the paper but still could go out of business due to lack of liquidity. Thus, the firm’s short term liquidity should be compared with the competition to determine whether the firm is in a stronger or weaker condition than the average industry to survive through difficult economic times.

The organization should also measure employee retention rate and compare it with the competition. Employee retention rates give various clues such as the satisfaction of employees with their jobs and their corporate citizenship. The firm could also set performance benchmarks based on either the best performer in the industry or a standalone number that the firm intends to achieve. The organizations could also implement Total Quality Management (TQM) program and aim for near-perfect quality.

The organizations should also set market share targets they want to achieve. Competitors’ market share data can help the organization understand the relative market power of different industry players as well as the marketing strategy being pursued by them. Knowing all these performance measures tell the organization where it stands relative to the competition. These performance measures reveal both strong and weak points of the organization and the management can use this knowledge in its strategic planning process to take further advantage of the organization’s core competencies as well as tackle its weaknesses.