Economic performance
For many firms, organizational performance is synonymous with economic
results because profits are needed for firms to continue in business. In the
current environment, many organizations are mainly concerned with profit
and return on investments, and formulating a strategy which will achieve
economic performance. Research suggests that strategic planning actually
leads to an increase in profit and that managers need a thorough understanding
of what drives the organization’s costs in their attempts to plan for
performance improvement. Of course, problems can arise with the definition
of an acceptable level of profit performance, owing to an emphasis placed on
products and markets that are the most tangible or which promise the greatest
returns. As profit reports are prepared within public companies and judged by
outsiders (financial commentators, shareholders, tax authorities),
organizations need effective accounting systems and numeracy skills. This
may explain why many accountants rise to top jobs in large companies.
Managerial difficulty is compounded when good performance on one
dimension may mean sacrificing performance on another, which may result in
trade-offs. A firm’s research and development capability, for example, may
be curtailed because of short-term problems with cash flow. In planning for
future performance, it is often harder to “sell” a potentially beneficial future
project to shareholders or a cynical boss against a more “cast iron” option.