Internal process measures ► ► ►
Internal process measures cover the current, short-term internal activities of the organisation. Appropriate measures will depend on the specific operations of the organisation. Most measures of internal process will actually be operational, not strategic measures. To avoid becoming bogged down in a wealth of operational measures, the organisation needs to consider its strategy and to deduce from that the key operational measures that will impact on that strategy. For instance, an organisation competing on speed of delivery should have internal process measures related to process speed—for example, order cycle time, percentage of deliveries made oh time or within a specified target time. Other strategic issues might include design skill, product quality, productivity, unit cost. % rejects, purchasing skills, brand management and stock availability.
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If cost or internal efficiency is a strategic issue, some financial measures may be appropriate measures of internal process performance. For instance, measures of a specific expense/sales ratio (e.g. R&D/sales, marketing/sales) can give useful information. EBIT/total assets links the profitability of the sales to the assets used regardless of how they are financed. Some organi¬sations are very profitable on a profit/sales basis, but use a lot of assets to achieve this, so that operating efficiency/productivity and shareholder return are unsatisfactory.
Another approach is to compare sales to total assets. This is called the asset turnover ratio, and it indicates how often the assets are being 'turned over’ (a productivity measure), the logic being that the more rapidly the assets are turned over, the less that must be made on each transaction. For instance, supermarkets have very high asset turnover ratios, so their profit margin per sale can be very low ; while steel mills have very low asset turnover ratios, so their profit margin per sale must be very high.