CHAPTER EIGHTEEN
How to Analyze and Improve Corporate Profitability and Shareholder Value
MEASURES OF MANAGERIAL PERFORMANCE AND SHAREHOLDER RETURN
How do you measure managerial performance and the return to stockholders?
The ability to measure performance is essential in developing incentives and controlling operations toward the achievement of organizational goals. Perhaps the most widely used single measure of profitability of an organization is the rate of return on investment (ROI). Related is the return to stockholders, known as the return on equity (ROE).
An alternative measure that gained huge popularity is Economic Value Added (EVA™). A problem with just assessing performance with financial measures like ROI, ROE, and EVA is that the financial measures are backward looking. In other words, today’s financial measures tell you about the accomplishments and failures of the past. An approach to performance measurement that also focuses on what managers are doing today to create future shareholder value is the balanced scorecard.
What is return on investment?
ROI relates net income to invested capital (total assets). It provides a standard for evaluating how efficiently management employs the average dollar invested in a firm’s assets, whether that dollar came from owners or creditors. Furthermore, a better ROI can also translate directly into a higher return on the stockholders’ equity. ROI is calculated as:
Example 18.1
Consider the following financial data:
Then
The problem with this formula is that it only tells you about how a company did and how well it fared in the industry. Other than that, it has very little value from the standpoint of profit planning.
What is the DuPont formula?
In the past, managers tended to focus on the margin earned and ignored the turnover of assets. It is important to realize that excessive funds tied up in assets can be just as much of a drag on profitability as excessive expenses. The DuPont Corporation was the first major company to recognize the importance of looking at both net profit margin and total asset turnover in assessing the performance of an organization. The ROI breakdown, known as the DuPont formula, is expressed as a product of these two factors, as shown next.
The DuPont formula combines the income statement and balance sheet into this otherwise static measure of performance. Net profit margin is a measure of profitability or operating efficiency. It is the percentage of profit earned on sales. This percentage shows how many cents attach to each dollar of sales. Total asset turnover, however, measures how well a company manages its assets. It is the number of times by which the investment in assets turns over each year to generate sales.
The breakdown of ROI is based on the thesis that the profitability of a firm is directly related to management’s ability to manage assets efficiently and to control expenses effectively.
Example 18.2
Assume the same data as in Example 18.1. Also assume sales of $200,000. Then
Alternatively,
Therefore,
ROI = Net profit margin × Total asset turnover = 9% × 2 times = 18%
The breakdown provides a lot of insights to CFOs on how to improve the profitability of the company and investment strategy. (Note that net profit margin and total asset turnover are called hereafter margin and turnover, respectively, for short.) Specifically, it has at least four advantages over the original formula (i.e., net profit after taxes/total assets) for profit planning:
1. Focusing on the breakdown of ROI provides the basis for integrating many of the management concerns that influence a firm’s overall performance. This will help managers gain an advantage in the competitive environment.
2. The breakdown emphasizes the importance of turnover as a key to overall ROI. In fact, turnover is just as important as profit margin in enhancing overall return.
3. It explicitly recognizes the importance of sales, which is not there in the original ROI formula.
4. The breakdown stresses the possibility of trading one off for the other in an attempt to improve a company’s overall performance. The margin and turnover complement each other. In other words, a low turnover can be made up for by a high margin, and vice versa.
Example 18.3
The breakdown of ROI into its two components shows that a number of combinations of margin and turnover can yield the same rate of return, as shown next.
The margin–turnover relationship and its resulting ROI is depicted in Exhibit 18.1.
EXHIBIT 18.1 Margin–Turnover Relationship
Is there an optimal ROI?
Exhibit 18.1 can also be looked at as showing four companies that performed equally well (in terms of ROI) but with varying income statements and balance sheets. There is no ROI is satisfactory for all companies. Manufacturing firms in various industries will have low rates of return. Structure and size of the firm influence the rate considerably. A company with a diversified product line might have only a fair return rate when all products are pooled in the analysis. In such cases, it seems advisable to establish separate objectives for each line as well as for the total company.
Sound and successful operation must point toward the optimum combination of profits, sales, and capital employed. The combination will necessarily vary depending on the nature of the business and the characteristics of the product. An industry with products tailor-made to customers’ specifications will have different margins and turnover ratios compared with industries that mass-produce highly competitive consumer goods. For example, combination (4) on the exhibit may describe a supermarket operation that inherently works with low margin and high turnover, while combination (1) may be a jewelry store that typically has a low turnover and high margin.
How do you use ROI for profit planning?
The breakdown of ROI into margin and turnover gives management insight into planning for profit improvement by revealing where weaknesses exist: margin or turnover, or both. Various actions can be taken to enhance ROI. Generally, management can employ three alternatives:
1. Improve margin.
2. Improve turnover.
3. Improve both.
Alternative 1 demonstrates a popular way of improving performance. Margins may be increased by reducing expenses, raising selling prices, or increasing sales faster than expenses. Some of the ways to reduce expenses are:
- Use less costly inputs of materials.
- Automate processes as much as possible to increase labor productivity.
- Bring the discretionary fixed costs under scrutiny, with various programs either curtailed or eliminated. Discretionary fixed costs arise from annual budgeting decisions by management. Examples include advertising, research and development, and management development programs. The cost-benefit analysis is called for in order to justify the budgeted amount of each discretionary program.
A company with pricing power can raise selling prices and retain profitability without losing business. Pricing power is the ability to raise prices even in poor economic times when unit sales volume may be flat and capacity may not be fully utilized. It is also the ability to pass on cost increases to consumers without attracting domestic and import competition, political opposition, regulation, new entrants, or threats of product substitution. The company with pricing power must have a unique economic position. Companies that offer unique, high-quality goods and services (where the service is more important than the cost) have this economic position.
Alternative 2 may be achieved by increasing sales while holding the investment in assets relatively constant, or by reducing assets. Some of the strategies to reduce assets are:
- Dispose of obsolete and redundant inventory. The computer has been extremely helpful in this regard, making perpetual inventory methods more feasible for inventory control.
- Devise various methods of speeding up the collection of receivables and also evaluate credit terms and policies.
- See if there are unused fixed assets.
- Use the converted assets obtained from use of the previous methods to repay outstanding debts or repurchase outstanding issues of stock. You may release them elsewhere to get more profit, which will improve margin as well as turnover.
Alternative 3 may be achieved by increasing sales or by any combinations of alternatives 1 and 2.
Exhibit 18.2 shows complete details of the relationship of ROI to the underlying ratios—margin and turnover—and their components. This will help identify more detailed strategies to improve margin, turnover, or both.
EXHIBIT 18.2 Relationships of Factors Influencing ROI
Example 18.4
Assume that management sets a 20 percent ROI as a profit target. It is currently making an 18 percent return on its investment.
Present situation:
The following alternatives are illustrative of the strategies that might be used. (Each strategy is independent of the others.)
Alternative 1: Increase the margin while holding turnover constant. Pursuing this strategy would involve leaving selling prices as they are and making every effort to increase efficiency so as to reduce expenses. By doing so, expenses might be reduced by $2,000 without affecting sales and investment to yield a 20 percent target ROI, as follows.
Alternative 2: Increase turnover by reducing investment in assets while holding net profit and sales constant. Working capital might be reduced or some land might be sold, reducing investment in assets by $10,000 without affecting sales and net income to yield the 20 percent target ROI, as follows.
Alternative 3: Increase both margin and turnover by disposing of obsolete and redundant inventories or through an active advertising campaign. For example, trimming down $5,000 worth of investment in inventories would also reduce the inventory holding charge by $1,000. This strategy would increase ROI to 20 percent.
Excessive investment in assets is just as much of a drag on profitability as excessive expenses. In this case, cutting unnecessary inventories also helps cut down the expenses of carrying those inventories, so that both margin and turnover are improved at the same time. In practice, alternative 3 is much more common than alternative 1 or 2.
What is the relationship between ROI and return on equity?
Generally, a better management performance (i.e., a high or above-average ROI) produces a higher return to investors (equity holders). However, even a poorly managed company that suffers from a below-average performance can generate an above-average return on the stockholders’ equity, simply called the return on equity (ROE). This is because borrowed funds can magnify the returns a company’s profits represent to its stockholders.
Another version of the DuPont formula, called the modified DuPont formula, reflects this effect. The formula ties together the ROI and the degree of financial leverage (use of borrowed funds). The financial leverage is measured by the equity multiplier, which is the ratio of a company’s total asset base to its equity investment, or, stated another way, the ratio of how many dollars of assets held per dollar of stockholders’ equity. It is calculated by dividing total assets by stockholders’ equity. This measurement gives an indication of how much of a company’s assets are financed by stockholders’ equity and how much with borrowed funds.
ROE is calculated as:
ROE measures the returns earned on the owners’ (both preferred and common stockholders’) investment. The use of the equity multiplier to convert the ROI to the ROE reflects the impact of the leverage (use of debt) on stockholders’ return:
Exhibit 18.3 shows the relationship among ROI, ROE, and financial leverage.
EXHIBIT 18.3 ROI, ROE, and Financial Leverage (Modified Du Pont Formula)
Example 18.5
In Example 18.1, assume stockholders’ equity of $45,000. Then
If the company used only equity, the 18 percent ROI would equal ROE. However, 55 percent of the firm’s capital is supplied by creditors ($45,000/$100,000 = 45% is the equity-to-asset ratio; $55,000/$100,000 = 55% is the debt ratio). Since the 18 percent ROI all goes to stockholders, who put up only 45 percent of the capital, the ROE is higher than 18 percent. This example indicates that the company was using leverage (debt) favorably.
Example 18.6
To further demonstrate the interrelationship between a firm’s financial structure and the return it generates on the stockholders’ investments, let us compare two firms that generate $300,000 in operating income. Both firms employ $800,000 in total assets, but they have different capital structures. One firm employs no debt, whereas the other uses $400,000 in borrowed funds. The comparative capital structures are shown as:
| A | B | |
| Total assets | $800,000 | $800,000 |
| Total liabilities | — | $400,000 |
| Stockholders’ equity (a) | 800,000 | 400,000 |
| Total liabilities and stockholders’ equity | $800,000 | $800,000 |
Firm B pays 10 percent interest for borrowed funds. The comparative income statements and ROEs for firms A and B would look like this:
| Operating income | $300,000 | $300,000 |
| Interest expense | — | (40,000) |
| Profit before taxes | $300,000 | $260,000 |
| Taxes (30% assumed) | (90,000) | (78,000) |
| Net profit after taxes (b) | $210,000 | $182,000 |
| ROE [(b)/(a)] | 26.25% | 45.5% |
The absence of debt allows firm A to register higher profits after taxes. Yet the owners in firm B enjoy a significantly higher return on their investments. This provides an important view of the positive contribution debt can make to a business, but within a certain limit. Too much debt can increase the firm’s financial risk and thus the cost of financing.
If the assets in which the funds are invested are able to earn a return greater than the fixed rate of return required by the creditors, the leverage is positive and the common stockholders benefit. The advantage of this formula is that it enables the company to break its ROE into a profit margin portion (net profit margin), an efficiency-of-asset-utilization portion (total asset turnover), and a use-of-leverage portion (equity multiplier). It shows that the company can raise shareholder return by employing leverage—taking on larger amounts of debt to help finance growth.
Since financial leverage affects net profit margin through the added interest costs, management must look at the various pieces of this ROE equation, within the context of the whole, to earn the highest return for stockholders. CFOs have the task of determining just what combination of asset return and leverage will work best in its competitive environment. Most companies try to keep at least a level equal to what is considered to be “normal” within the industry.
SUSTAINABLE RATE OF GROWTH
The sustainable rate of growth (g*) represents the rate at which a firm’s sales can grow if it wants to maintain its present financial ratios and does not want to resort to the sale of new equity shares. A simple formula can be derived for g* where we assume that a firm’s assets and liabilities all grow at the same rate as its sales, that is,
Recall that ROE is the firm’s return on equity:
and b is the firm’s dividend payout ratio, that is,
The term (1 – b) is sometimes referred to as the plowback ratio since it indicates the fraction of earnings that are reinvested, or plowed back, into the firm. Consequently, a firm’s sustainable rate of growth is determined by its ROE (i.e., its anticipated net profit margin, asset turnover, and capital structure) as well as its dividend policy.
How do you calculate the sustainable rate of growth?
Consider three firms:
Comparing Firms A and B, we see that the only difference is that Firm A pays out half its earnings in common dividends (i.e., plows back half its earnings), whereas Firm B retains, or plows back, all of its earnings. The net result is that Firm B with its added source of internal equity financing can grow at twice the rate of Firm A (33.30 percent compared to 16.65 percent). Likewise, comparing Firms B and C, we note that they differ only in that Firm B finances only 30 percent (1/3.33) of its assets with equity, whereas Firm C finances 50 percent (1/2.00) of its assets with equity. The result is that Firm C’s sustainable rate of growth is 20 percent compared to 33.30 percent for Firm B. This example indicates Firm B was using leverage (debt) favorably.
For this equation to depict a firm’s sustainable rate of growth accurately, three assumptions must hold:
1. The firm’s assets must vary as a constant percent of sales (i.e., even fixed assets expand and contract directly with the level of firm sales).
2. The firm’s liabilities must all vary directly with firm sales. This means that the firm’s management will expand its borrowing (both spontaneous and discretionary) in direct proportion with sales to maintain its present ratio of debt to assets.
3. The firm pays out a constant proportion of its earnings in common stock dividends regardless of the level of firm sales.
Since all three of these assumptions are only rough approximations to the way that firms actually behave, the equation provides crude approximation of the firm’s actual sustainable rate of growth. However, an estimate of g* using the equation can be a very useful first step in the firm’s financial planning process.
ECONOMIC VALUE ADDED
Why is EVA gaining popularity?
EVA is a concept similar to residual income but is often applied at the overall firm level as well as at the departmental level. It is a registered trademark of Stern Stewart & Co. (www.sternstewart.com), which developed the concept.
EVA is a measure of economic profit, but not the accounting profit we are accustomed to seeing in a corporate profit and loss statement. It is a measure of an operation’s true profitability. The cost of debt capital (interest expense) is deducted when calculating net income, but no cost is deducted to account for the cost of common equity. Hence, in an economic sense, net income overstates “true” income. EVA overcomes this flaw in conventional accounting.
EVA is found by taking the net operating profit after taxes (NOPAT) for a particular period (such as a year) and subtracting the annual cost of all the capital a firm uses. EVA recognizes all capital costs, including the opportunity cost of the shareholder funds. It is a business’s true economic profit. Such economic profits are the basis of shareholder value creation.
Note
The calculation of EVA can be complex because it makes various cost of capital and accounting principles adjustments.
The formula is:
EVA = NOPAT – After-tax cost of total capital
= Earnings before interest and taxes × (1 – tax rate) – (Total capital × After-tax cost of capital)
Total capital used here is total assets minus current liabilities. Hence, it is long-term liabilities plus equity (preferred stock and common equity). Thus, EVA is an estimate of a business’s true economic profit for the year, and it differs sharply from accounting profit. EVA represents the residual income that remains after the cost of all capital, including equity capital, has been deducted, whereas accounting profit is determined without imposing a charge for equity capital. Equity capital has a cost because funds provided by shareholders could have been invested elsewhere where they would have earned a return. In other words, shareholders give up the opportunity to invest funds elsewhere when they provide capital to the firm. The return they could earn elsewhere in investments of equal risk represents the cost of equity capital. This cost is an opportunity cost rather than an accounting cost, but it is quite real nevertheless.
Example 18.7 illustrates how an operation’s economic profit differs from its accounting profit.
Example 18.7
A company with $100,000 in equity capital (stated at fair value) and $100,000 in 8 percent debt (also at fair value) had $60,000 in earnings before interest and taxes (EBIT). Assume also that $200,000 equals capital employed. The corporate tax rate is 40 percent. If that company’s after-tax weighted-average cost of capital (WACC) is 14 percent, the EVA is $2,000, calculated as:
| EBIT | $60,000 |
| Minus taxes (40% × $60,000) | (24,000) |
| NOPAT | $36,000 |
| Capital charge (14% × $200,000) | (28,000) |
| EVA | $ 8,000 |
The company’s traditional income statement reports income of $31,200, calculated as:
| EBIT | $60,000 |
| Minus interest (8% × $100,000) | (8,000) |
| Income before taxes | 52,000 |
| Income taxes (40% × $52,000) | (20,800) |
| Net income after taxes | $31,200 |
Initially, a 31.2 percent return on equity ($31,200 of net income/$100,000 of equity capital) seems favorable, but what is the cost of that equity capital? Given equal amounts of debt and equity, the cost of the equity capital must be 23.2 percent because the after-tax WACC was 14 percent and the after-tax cost of debt capital was 4.8% = 8% (1.0 – 40%).
Since 14% = (4.8%)(1/2) + ×(1/2), × = 23.2%
Thus, $23,200 of the $31,200 of net income is nothing more than the opportunity cost of equity capital. The $8,000 of EVA is the only portion of earnings that has created value for the shareholders. Accordingly, if income after taxes had been only $20,000 (a 20 percent return on equity), shareholder value would have been reduced because the cost of equity capital would have exceeded the return.
EVA and Value Creation
In the previous example, the $2,000 of EVA is the only portion of earnings that has created value for the shareholders. EVA provides a good measure of whether the firm has added to shareholder value. Therefore, if managers focus on EVA, this will help to ensure that they operate in a manner that is consistent with maximizing shareholder value. Note also that EVA can be determined for divisions—it is more often called residual income—as well as for the company as a whole, so it provides a useful basis for determining managerial compensation at all levels.
Although most companies adopt EVA for purposes of internal reporting and for calculating bonuses, some are publishing the results in corporate annual reports. For example, Eli Lilly reports EVA in the Financial Highlights section of the annual report. SPX stated clearly in its 2010 annual report: “EVA is the foundation of everything we do. . . . It is a common language, a mindset, and the way we do business.”
More on NOPAT
Before computing NOPAT, analysts routinely adjust the company’s reported earnings figures. These adjustments fall into three broad categories:
1. Isolate a company’s sustainable operating profits by removing nonoperating or nonrecurring items from reported income.
2. Eliminate after-tax interest expense from the profit calculation so that profitability comparisons over time or across companies are not clouded by differences in financial structure.
3. Adjust for distortions related to as accounting quality concerns, which involve potential adjustments to both income and assets for items such as the off-balance sheet operating leases.
NOPAT is used to improve the comparability of EVA calculations. Otherwise, firms with different debt structures could have the same operating performance but different net incomes.
Example 18.8 illustrates the NOPAT computation.
Example 18.8
We are given the following income statement for years 2X11 and 2X12:
| Comparative Income Statement | ||
| 2X12 | 2X11 | |
| Sales | $5,199.0 | $5,954.0 |
| Cost of sales | (2,807.5) | (3,294.4) |
| Gross margin | 2,391.5 | 2,659.6 |
| Selling, general, and administrative expenses | (1,981.0) | (2,358.8) |
| Restructuring charges and gains | 113.4 | 1,053.5 |
| Interest expense | (106.8) | (131.6) |
| Other revenue and expenses | (1.5) | (2.2) |
| Before-tax income | 415.6 | 1,220.5 |
| Income taxes (40%) | (166.2) | (488.2) |
| Net income | $249.4 | $732.3 |
| NOPAT CALCULATIONS | ||
| 2X12 | 2X11 | |
| Net income as reported | $249.4 | $732.3 |
| Restructuring charges and gains after-tax | −68.04 | −632.1 |
| Interest expense after-tax | 64.08 | 79.0 |
| NOPAT | $245.4 | $179.2 |
For example, for year 20X2,
Capital Charge
The capital charge is the most distinctive and important aspect of EVA. Under conventional accounting, most companies appear profitable, but many in fact are not. The capital charge equals the after-tax WACC (calculated based on fair values of debt and equity) times the investment base or total capital employed (total assets minus current liabilities or the sum of long-term debt, preferred stock, and common equity).
Key Features of EVA
The main characteristics of EVA can be summarized in this way:
- For internal purposes, EVA is a better measure of profitability than ROI because a manager with a high ROI would be reluctant to invest in a new project with a lower ROI than is currently being earned, even though that return might be higher than the cost of capital. Thus, including a capital charge on departmental income statements helps managers to make decisions that will benefit the company.
- There is evidence of a direct correlation between EVA and increases in stock prices. For example, AT&T found an almost perfect correlation between its EVA and its stock price. In fact, many analysts have found that stock prices track EVA far more closely than other factors such as earnings per share, operating margin, or ROE. The argument is that simply having a continuing stream of income is not enough; that income must exceed the cost of capital for a stock to rise significantly in the stock market.
- EVA uses dollars instead of percentages to measure changes. For example, it is much more appealing to report that the company generated $1 million in shareholder value than to say that the ROI increased from 10 to 15 percent.
- EVA is the only financial management system that provides a common language for employees across all operating and staff functions and allows all management decisions to be modeled, monitored, communicated, and compensated in a single and consistent way—always in terms of the value added to shareholder investment.
What can value-driven managers do to improve EVA?
As a simplified form,
Another way to look at it is:
Assuming other variables stay constant, EVA increases when return on net assets (RONA) increases, when WACC decreases, when net assets increase (assuming profitable growth), or when net assets decrease (in the case of money-losing assets).
Evidence from EVA adopters shows six ways to achieve improvements.
1. Increase asset turnover.
2. Dispose of unprofitable businesses.
3. Refurbish assets.
4. Structure deals that require less capital.
5. Increase leverage and use less equity finance.
6. Invest in profitable growth.
Note that three of these actions (increasing asset turnover, repairing assets, and structuring deals with less capital) increase EVA through improvement in RONA. Disposing of unprofitable businesses increases EVA, providing improvements in the spread between RONA and WACC are greater than the reduction in net assets. Increasing leverage increases EVA by reducing WACC, assuming that the company is underlevered when it begins taking on more debt. Investing is profitable and increases EVA, as long as the RONA on the investment exceeds the WACC.
EVA Compensation
EVA bonus plans do not just motivate managers to think about current EVA. If they did, managers would focus entirely on short-term performance at the expense of the future. Value-creating investments might be avoided because their immediate effects on EVA are negative. The solution is to give managers a direct economic state in future EVA, not just the current period. The performance evaluation will be more meaningful if the current EVA is compared to EVAs from previous periods, target EVAs, and EVAs from other operating units or companies.
A Caveat
EVA is no panacea, and it is no substitute for sound corporate strategies. But when EVA and management bonus systems are linked together, alignment between the interests of managers and shareholders improves. The effect is that when managers make important decisions, they are more likely to do so in ways that deliver superior returns for shareholders.
BALANCED SCORECARD
How does a balanced scorecard to evaluate performance work?
A problem with assessing performance only with financial measures like ROI, ROE, and EVA is that the financial measures are backward looking. In other words, today’s financial measures tell you about the accomplishments and failures of the past. An approach to performance measurement that also focuses on what managers are doing today to create future shareholder value is the balanced scorecard.
Essentially, a balanced scorecard is a set of performance measures constructed for four dimensions of performance. As indicated in Exhibit 18.4, the dimensions are financial, customer, internal processes, and learning and growth. Having financial measures is critical, even if they are backward looking. After all, they have a great effect on the evaluation of the company by shareholders and creditors. Customer measures examine the company’s success in meeting customer expectations. Internal process measures examine the company’s success in improving critical business processes. And learning and growth measures examine the company’s success in improving its ability to adapt, innovate, and grow. The customer, internal processes, and learning and growth measures are generally thought to be predictive of future success (i.e., they are not backward looking).
EXHIBIT 18.4 Balanced Scorecard
How is balance achieved in a balanced scorecard?
A variety of potential measures for each dimension of a balanced scorecard are indicated in Exhibit 18.4. After reviewing these measures, note how “balance” is achieved:
- Performance is assessed across a balanced set of dimensions (financial, customer, internal processes, and innovation).
- Quantitative measures (e.g., number of defects) are balanced with qualitative measures (e.g., ratings of customer satisfaction).
- There is a balance of backward-looking measures (e.g., financial measures like growth in sales) and forward-looking measures (e.g., number of new patents as an innovation measure).
Note: The balanced scorecard measures vary with a company’s strategy and industry. Exhibit 18.5 lists examples of performance indicators for each balanced scorecard dimension across a wide range of industries.
EXHIBIT 18.5 Examples of Balanced Scorecard Measures by Industry
You can log on to numerous web resources to learn more about the balanced scorecard and performance evaluations. For example, managers frequently look to industry “best practices” or examples of successful implementations at other firms when developing measurement programs. The next list provides valuable resources for evaluating performance and business decision making across a wide range of industries.
- The Balanced Scorecard Institute (www.balancedscorecard.org). The Balanced Scorecard Institute is an independent educational institute that provides training and guidance to assist government agencies and companies in applying best practices in balanced scorecard and performance measurement for strategic management and transformation. Its web site provides background information about implementing the balanced scorecard and the proper selection of nonfinancial measures. It also provides several examples of past successes.
- American Productivity and Quality Center (www.apqc.org). The APQC, an internationally recognized nonprofit organization, provides expertise in benchmarking and best practices research. APQC helps organizations adapt to rapidly changing environments, build new and better ways to work, and succeed in a competitive marketplace. It has a membership of over 450 prestigious global firms including 3M, AT&T, Cisco Systems, and Ernst & Young. The objective of this collaborative center is to “Understand how innovative organizations create succession management programs to identify and cultivate potential leaders who will provide a sustainable business advantage.” The Best Practices and Free Resources links lead to many useful resources.
- Management Help (www.managementhelp.org). This web site offers a robust library of decision-making tools and resources. The site offers many resources on such topics as strategic planning, performance measurement, employee development, and make-or-outsource decisions. It also includes online discussion groups, decision-making guidance, and free reference material.
- Performance Measurement Association (www.performanceportal.org). This web site, home to the United Kingdom’s PMA, covers references to valuable articles, a free newsletter, and insight into current trends in performance measurement. It is representative of the types of professional associations that managers join to share ideas and continue the development of their personal and managerial skills.