Business Performance Measurement Indicators of Selected Uk Companies

European Association for Comparative Economics Studies (EACES) 9th Bi-Annual Conference: Development Strategies - A Comparative View

Business performance measurement indicators of selected UK companies

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BUSINESS PERFORMANCE MEASUREMENT INDICATORS OF SELECTED UK COMPANIES

Dr. Jatin Pancholi

Middlesex University, London, UK. Email: [email protected]

Firoozeh Ghaffari

Middlesex University, London, UK.

Paper Presented at the European Association for Comparative Economics Studies (EACES) 9th Bi-Annual

Conference: Development Strategies - A Comparative View

European Association for Comparative Economics Studies (EACES) 9th Bi-Annual Conference: Development Strategies - A Comparative View

Business performance measurement indicators of selected UK companies

Page 2 of 21

BUSINESS PERFORMANCE MEASUREMENT INDICATORS OF SELECTED UK COMPANIES AUTHORS: Dr. Jatin Pancholi, Middlesex University, London, UK. Email: [email protected] Firoozeh Ghaffari, Middlesex University, London, UK. ACKNOWLEDGEMENTS: Special acknowledgements to Ms. Prutha Gandhi, Student, Middlesex University, London, UK for data collection. Sincere acknowledgements also to Ms Zeba Ahmed, HSBC Plc and Mr. Rushang Jani, Nationwide Plc for sparing their precious time. ABSTRACT: Business Performance Measurement (BPM) has grown in use and popularity over the past twenty years. Firms adopt BPM for a variety of reasons, but chiefly to improve control over the firm in ways that traditional accounting systems have not allowed. Several approaches, or frameworks, for building and managing BPM have evolved including the balanced scorecard as the dominant framework in use today. Despite the growing use of BPM in organizations of all kinds, significant problems cause the companies to experience difficulty in implementing BPM. The problems range across a variety of topics: excessive diversity in the field of study, data quality and information system integration problems, lack of linkage to strategy, fundamental differences in how a strategy is formulated and executed in the firm, ill-defined metrics identification processes, high levels of change in BPM, judgment and decision biases (from prospect theory literature) and organizational defenses that can undermine successful BPM use. In order to survive and succeed, firms need to set strategic directions, establish goals, execute decisions and monitor their state and behavior as they move towards their goal. Once a firm becomes large enough that a single manager cannot sense the firm’s current state and cannot control its behavior alone, the firm must use performance measurement and control systems to replace the eyes and ears of the beleaguered manager. This research presents current evidence of the measuring business performance of primary data of the UK companies. The final stage of decision-making process is to measure the outcomes of the decisions implemented and use the feed back of those result into decision-making of the future. This may lead to reconsideration of objectives or targets which have not been achieved.

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1. INTRODUCTION: In order to survive and succeed, organizations need to set strategic directions, establish goals, execute decisions and monitor their state as they move towards their goal. Once a firm evolves into large enough then a single manager cannot sense the firm’s current state and cannot control its behaviour alone, the firm must use performance measurement and control systems to replace the eyes and ears of the beleaguered manager. Over the past few decades, firms have used information technology to provide this “sense and control” capability. Several dozen vendors provide business performance measurement information technology solutions. These tools have leveraged the latest advancements in data and application integration approaches, web-based charting and reporting, statistical analysis, artificial intelligence, machine learning and expert system technology. 2. OVERVIEW ON THE BUSINESS PERFORMANCE MEASUREMENT (BPM) OF THE UK COMPANIES: Neely A state that the business performance measurement is on the agenda. New reports and articles on the topic have been appearing at a rate of one every five hours of every five working day since 1994. Identifying the determinants of business performance is a topic which is in progress, if not interest, seems to wax and wane over the years. Prominent authors, such as Lawrence and Lorsch (1967), for example, have explored issues such as the relationship between the match between the business and the environment, and the effect of this on performance. In recent years an interesting development has been the notion of using performance measures as a means of testing one’s theory of business (Drucker, 1990; Eccles and Pyburn, 1992) or to facilitate strategic learning (Kaplan and Norton, 1996; Simons, 1995). Basically the suggestion is that if the appropriate measures can be identified and the right data captured, it should be possible to identify causal relationships between different dimensions of performance. To date, little evidence that this is possible has been presented. Indeed, the only published evidences, of which the authors are aware, are the claim by BT that they have been able to identify a correlation between customer satisfaction and customer loyalty (Johnson and Jakeman, 1997) and the claim by Milliken that they have been able to identify a correlation between customer satisfaction and financial performance (Jeanes, 1996). Given importance to this question, however, the implication, in terms of further research, is clear – the need to explore if and how the relationship between different dimensions of business performance can be mapped. Assuming this proves possible, the benefits will be substantial–not least because this would begin to solve the taxing issue of how predictive performance measures, or leading indicators can be identified. 3. LITERATURE REVIEW: Traditional performance measures, developed from costing and accounting systems, have been criticised for encouraging short termism (Banks and Wheelwright, 1979; Hayes and Garvin, 1982), lacking strategic focus (Skinner, 1974), encouraging local optimisation (Hall, 1983; Fry and Cox 1989), encouraging minimisation of variance rather than continuous improvement (Johnson and Kaplan, 1987; Lynch and Cross, 1991), not being externally focused (Kaplan and Norton, 1992) and even for destroying the competitiveness of US manufacturing industry (Hayes and Abernathy, 1980). At the time, many performance measurement systems in the UK and the USA were heavily financially biased and it has been

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argued that systems which were specifically designed for external reporting were being inappropriately used to manage business enterprises (Hayes and Abernathy, 1980). In an attempt to overcome these criticisms, performance measurement frameworks have been developed to encourage a more balanced view. For example, Keegan et al. (1989) proposed a balance between internal and external measures and between financial and non-financial measures; Cross and Lynch (1988-1989) described a pyramid of measures which integrates performance through the hierarchy of the organisation; Fitzgerald et al. (1991) distinguished between the results and their determinants and Kaplan and Norton (1992) between the four perspectives of their “balanced scorecard”. These frameworks are therefore multi-dimensional, focusing more on non-financial information in an attempt to redress the balance. They are designed to provide a balance by including measures of external success as well as internal performance, and measures which are designed to give an early indication of future business performance as well as a record of past achievements. These new performance measurement frameworks may have answered the question “what types of measures should a company use?” but they do not provide specific advice to a company implementing a performance measurement system. It was necessary to undergo this management process and for that a number of approaches were present in the literature. For example: Bitton (1990) proposes an approach based on the GRAI methodology for enterprise modelling, breaking down the planning and control of manufacturing into discrete decision making units and then attaching appropriate performance measures to each decision;. Dixon et al. (1990) use their performance measurement questionnaire (PMQ) to identify strengths and failings in the current performance measurement system and then propose a workshop to develop, revise and re-focus the set of performance measures; Kaplan and Norton's (1993) approach for the development of the balanced scorecard was based around using interviews with members of the senior management team to surface differences in strategic priorities before resolving these differences through facilitated workshops; there are number of other similar consultancy processes (Vitale et al., 1994). Eccles and Pyburn (1992) described a facilitated process which makes managers' thinking explicit through building a performance model linking the changes in people's knowledge and organizational processes, through performance in the market, to the financial performance of the business. A similar approach is now adopted for the development of the balanced scorecard (Kaplan and Norton, 1996). However, at the end of each of these management processes, participating managers reach the stage of deciding what to measure but nothing is implemented. As Graham Ward, deputy chairman of World Energy Group at PricewaterhouseCoopers pointed out: “It is a sad fact that accounting has often been criticized for reporting today about what has happened the day before yesterday. When what people are really interested in hearing about is tomorrow.” In 1991 Bob Eccles, a former professor of business administration at Harvard Business School, wrote a paper for the Harvard Business Review entitled “The Performance Measurement Manifesto”. In it he heralded a performance measurement revolution and predicted, “Within the next five years, every company will have to redesign how it measures its business performance”. Current evidence suggests that he was right. Towers Perrin, a consulting company based in the United States, surveyed 100 of its largest customers in 1996. It found that 60% of them were using a balance scorecard to measure business performance and that the majority of this 60% had introduced their balance scorecard during the previous two years (David Norton, 1997). According to Marvinac and Siesfeld, following its 1996 survey, the institute of Management Accountants reported similar results. It found that 64% of American businesses were actively experimenting with new ways of measuring, collecting

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and reporting non-financial data. Philips, Sadler and Edington reported a 1996 corporate performance measurement study of 312 American organizations which showed that financial measures accounted for only 27% of participants’ measurement criteria; the remaining 73% covered areas such as quality, productivity, customer’s satisfaction, workforce and market indicators. Neely A (1998) reported that UK government declared: “To achieve sustainable business success in the demanding world market place, a company must … use relevant performance measures.” In the United States the National Academy of Engineering asserted: “World-class manufactures recognise the importance of metrics in helping to define goals and performance expectations for the organisation. They adopt or develop appropriate metrics to interpret and describe quantitatively the criteria used to measure the effectiveness of the manufacturing system and its many interrelated components.” 4. BUSINESS PERFORMANCE MEASUREMENT INDICATORS: 4.1 Measuring Business Performance: It is widely accepted that business performance is a multi-faceted concept and hence it is not surprising that once again the question of how business performance can best be measured has been tackled by a variety of people from different disciplines. There are also substantial bodies of literature, which explore how key constructs such as customer satisfaction, employee satisfaction (Beer et al., 1978), innovation (House and Price, 1991), and productivity can be measured. Indeed one of the difficulties people are facing, as they enter this area, is which of the thousands of possible measures they could adopt and should adopt? Work to rationalise the alternatives and summarise their strengths and weaknesses, and taking into account different country and cultural settings, would undoubtedly be beneficial, as would further academic studies to establish the rigour of the various measures that are available – given that many of them are proposed in the practitioner literature (Chakravarthy, 1986). Despite its apparent simplicity, the question of how business performance can be measured is complicated by two factors: (1) it is not always obvious which measures a firm should adopt; and (2) the measures that will be most relevant to the firm will change over time. These two factors give rise to two sub-streams of work. The first of these seeks to answer the question – “how to decide which performance measures to adopt”, while the second, which is much less well-developed, addresses the topic of – “how to manage the evolution of the measurement system”. 4.2 Choosing the performance indicators: As already suggested, the issue of which performance measures a given business should adopt is a topical and complex one. Various authors offer prescriptions such as that measures should be derived from strategy (Keegan et al., 1989). Numerous authors have proposed performance measurement frameworks, which prescribe which dimensions of performance organizations should consider monitoring (Fitzgerald et al., 1991; Kaplan and Norton, 1996). Others have adopted a different stance and developed audits that help organisations identify the strengths and weaknesses of their measurement systems in terms of “gaps” and “false alarms” (Dixon et al., 1990). While still others have accepted the argument that measures have to be derived from strategy and hence sought to document processes designed to help management teams decide which measures are appropriate for their organization (Neely et al., 1996). Much of this work focuses on the issue of designing measures and measurement systems. Once the systems have been designed, however, they have to be implemented, and

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then they have to be used to manage the business on an ongoing basis. These two topics – the implementation of measurement systems and using them to manage business performance – both appear to be areas in which further research effort is required. 4.2.1 Balance Scorecard: Kloot has stated that accountability to both central government and the local community is measured by financial and non-financial performance measures. Performance measurement is thus important for both external and internal accountability. Another way of categorizing these sets of indicators is to refer to them either as upstream or as downstream indicators, where, for example, improved quality of service upstream leads to better financial performance downstream stated by Brignall (1991). Theme of goals and measures was put forward by Kalpan and Norton. (Broadbent, 1999 and Kloot, 1999) Table:1 - THE RESULTS AND DETERMINANTS FRAMEWORK: Performance Dimensions Types of Measures

Competitiveness Relative market share and position Sales growth, Measures re customer base

Financial Performance Profitability, Liquidity, Capital Structure, Market Rations, Ratios etc.

Quality of Service

Reliability, Responsiveness, Appearance, Cleanliness, Comfort, Friendliness, Communication, Courtesy, Competence, Access, Availability, Security etc.

Flexibility Volume Flexibility, Specification and Speed of Delivery Flexibility

Resource Utilization Productivity, Efficiency, etc.

Innovation Performance of the innovation process, Performance of individual innovations, etc.

(Source: Brignall et al. 1991) Kaplan and Norton's “balanced scorecard” approach (1992) has achieved widespread recognition as measuring all aspects of performance. The balanced scorecard measures performance over a range of dimensions which affect an organization’s outcomes. 4.2.2 Activity-Based Costing: Activity based costing (ABC) method is a new dimension of cost analysis that has been gaining acceptance in many organizations, mainly in manufacturing industries. The concept behind activity-based costing is that costing should be much more than a financial system used by accountants; it should be part of the profit – making process of the business. Costs should be planned for and managed before they are incurred, rather than simply monitored after the event (Mabberley, 1996). This method is based on premise that activities that occur within a firm cause overhead costs. By identifying these activities, a firm can achieve a range of benefits, including the ability to cost products more accurately. Essentially, activity based costing is a more sophisticated version of the traditional product costing system. (Jones, 2002)

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Activity based costing is specifically used for various purposes like to control and manage costs, accurately relate costs to products and types of business, to set price and fee levels, to manage performance and analyze cost behaviour, etc. It is an approach to cost analysis that helps an organisation analyze its cost base in more meaningful way than conventional departmental accounting. It analyzes cost behaviour by activities, linking actions to the consumption of cost and enabling the identification of factors that cause the expenditure to be incurred. It lets management use cost information for decision making at all levels within the organization, focusing on the factors on the over all profitability of the institution or a specific section of it. Activity based costing can be used in a variety of ways, including:

Strategic cost management Product costing Customer profitability Operational cost management (Mabberley, 1996).

The emergence of ABC has undoubtedly forced management accountants to reappraise their costing systems and to identify improvement opportunities. The findings of Kennedy and Affleck-Graves (2001) are important in this regard in which they show that for a matched sample of the UK firms, those adopting ABC, outperformed the non-adopters by 27% over a three year period. They suggest that ABC adds value through cost control, assets usage and access to greater financial leverage. Innes and Mitchell (1995) reported adoption rates in the UK of less than 14%, while in the USA Ness and Cucuzza (1995) report that fewer than 10% of ABC adopters continue to support the innovation. 4.2.3 Economic Value Added (EVA): Developed by the Stern Stewart Corporation as an overall measure of financial performance, EVA is both a specific performance measure and the basis for a larger performance measurement framework (Otley 1999). According to its creators, EVA is a financial performance metric that is most directly linked to the creation of shareholder value, over time (Stern Stewart 2002). Mathematically it is:

EVA = (Net Operating Profit after Taxes) – (Capital X Cost of Capital) It is designed to give managers better information and motivation to make decisions that will create the greatest shareholder wealth. The EVA framework is typically used as a manager incentive plan. Since EVA is a single metric (although it can cascade down and across an enterprise to evaluate the performance of specific investments), it is complementary to the balanced scorecard. (Otley 1999) Using EVA alone can cause managers to invest in less risky, cost-reducing activities rather than in growth activities and as a pure financial model, EVA cannot serve as a vehicle for articulating a strategy. But coupled with the Balanced Scorecard, the trade-offs between short-term productivity improvements and long-term growth goals can be managed (Kaplan 2001). 4.2.4 Risk Measurement: Pike and Neale (2003) state that a well–known politician once proclaimed, “Forecasting is very important–particularly when it involves the future.” Thus, quantifying risk requires determining the output probability. Risk/uncertainty analysis consists of sampling each unknown parameter from statistical distribution functions, combining the sampled values into scenarios (factor combinations), and conducting a simulation experiment for each scenario. The outcome of this procedure is an estimated probability distribution of the performance measures. This chapter looks at modelling methods to see how a company can match

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methods with data availability, in order to explain and predict returns as well as evaluating risk. 5. RESEARCH METHODOLOGY: A social researcher is faced with a variety of options and alternatives and has to make strategic decisions about which to choose (Denscombe, M 2003:p3). The survey approach is one kind of research strategy. Many methods can be incorporated in the use of a social survey (Denscombe, M 2003:p7). Different methods of the survey approach have been used for the purpose of data collection for this research. Methods were selected based on their suitability to the type of data to be collected and the study target group. The research design was based on local companies. The companies have been chosen from London Stock Exchange. The request for the interview and questionnaire will be sent to approximately 5-7 companies and 40 companies respectively. The research will be based on the responses received from them. Banking, General Retailer soft good (Clothing) and General Retailers (Super stores) industries will be focused mainly for the purpose of the research. Data of last 5 years is going to be used in this research to analyse the statistical performance of the 15 companies. These companies were selected from the London stock exchange. Market size of the Financial Industries is 9.10%, and the General Retail Industries is 6.7%. The research will help students because the financial performance measurement is occurring nation and worldwide. It is conducted from the top levels of the federal government to the smallest organization locally. Within each entity, the measurement is commonly conducted within the departments of budget and finance, auditing, and/or other various departments. Through the measurement, analysis, and evaluation of performance data, public officials can identify ways to maintain or improve the efficiency and effectiveness of activities and provide the public with objective information about their results. 5.1 RESEARCH OBJECTIVES: The main purpose of this research paper is to demonstrate how existing performance measurement techniques may be adopted to measure and manage performance in selected UK companies. The purpose of this research is to provide the overview of current performance measuring techniques used by different UK companies. Three different industries of the UK have been chosen and analysed for this purpose. “The research objectives address the purpose of the project. These may be research question(s) and associated investigative questions. The co-relational or casual studies, the hypothesis statements are included.” (Cooper and Schindler, 2001) The following are the research objectives:

To study contemporary practises in business performance measurement indicators among the UK companies.

To evaluate as to what kind of indicators are being practised and what are the improvements in effectiveness and efficiency gained by using these different aspects of measurements?

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To identify the obstacles that are faced in measuring performance. The final stage of decision-making process is to measure the outcomes of the decisions implemented and so use the feedback of those result into decision-making of the future. This may lead to reconsideration of objectives or targets which have not been achieved. 5.2 DATA COLLECTION: “This part of the report describes the specifics of gathering the data. Its contents depend on the selected strategy. How many were involved? How were they managed? When were the data collected? How much time did it take? Typically, this research would include a discussion on the relevance of secondary data that guided these decisions. Again, detailed material such as field instructions should be included in an appendix.” (Cooper and Schindler, 2001) The progression of data anthology involved accumulating primary data from different types of companies based on different industries. Primary data is acknowledged as the information lately and personally collected to comprehend and unravel the focussed problem and in consequence endeavour to resolve it. The primary research for this study encompassed the usage of Quantitative and Qualitative research methods. This twofold approach assisted in uncovering valuable information from the primary sources by incorporating the advantages of both research techniques. Two types of primary data were collected for this research: 1) Questionnaire – questionnaires are to be prepared to send to head office of the corporate. 2) Semi-structured interview – It is normally appropriate to conduct interview if the data to

be collected is based on emotions, experience, personal issues or privileged information. (Cooper, 2001)

A postal questionnaire permits data to be collected from a representative sample across many industries and geographical regions. In order to improve the validity of the responses, it was designed with both open and closed questions, and an “other” category was provided to allow participants to give personal response. This allowed both quantitative and qualitative data to be collected and analyzed (Collis, 2002) (Denscombe, M 2003). The survey consisted of closed ended questions. Such questions are very convenient for collecting factual data, usually easy to analyse for the reason that range of potential answers is limited. Some of the closed questions consisted of multiple-choice and ranking style questions in the questionnaires. The questionnaires furthermore incorporated open-ended questions to accumulate comprehensive information from the respondents. There categories of questions permit the respondent to elaborate on a particular subject matter and thereby facilitating the researcher to collect additional information beyond the limits of the particular questions. Such questions assist in achieving a thorough explanation on a particular problem. Questionnaires were sent to 40 companies along with a covering letter stating the purpose of the questionnaire and assuring confidentiality of the data and a paid envelope for sending back the responses. Questionnaires were based upon the interview questions and were aimed at collecting information associated with the financial and non financial performances. The research questions included the details as to find their techniques, the frequencies of its use, the

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statistical analysis and the information regarding the participation of the employees and the companies’ obstacles, if any. With the help of these questionnaires, an analysis was made about the financial performance it should improve, the most beneficial performance to the Business, also an analysis of the research gap. 6. DISCUSSION AND FINDINGS: The research presents an empirical study of measuring business performance used by the UK companies to illustrate current practice and provides details of the important measurement related to financial and non-financial performance. The findings are from the semi structured interview with Mr. Rushang Jani, Branch manager of Nationwide Hempstead branch and Miss Zeba Ahmed, Branch manager of HSBC Kingsbury branch as well as the questionnaire received from the companies here in the UK. The collected data was analysed with the help of basic calculations and charts prepared in Microsoft excel. The conclusions and recommendations followed on the basis of the results of these calculations and charts. Total 40 questionnaires were sent to the companies nationwide, out of which 18 responses were received till date making the response rate of 45%. The questionnaire consisted of quantitative as well as qualitative questions for the companies. The responses, received from different companies from different industries, were then transferred to graphical and percentile form for the analysis and conclusion purposes. The results show that both the financial and non-financial performances are widely used by the companies taken into consideration. Even the interviewees mentioned in the interview that they have been using both the measurements to improve the effectiveness and efficiency of the business and to set targets in the existing market. The survey and responses collected also clearly indicate that the companies in the UK give an equal importance to both financial and non-financial performances and thus the first hypothesis that the companies emphasise on financial performance than the non-financial one is discarded. The main aim of all the respondents in measuring the business performance was to set targets, to check financial health of the company, to stack up against the market competition, to establish position, to improve the effectiveness and efficiency of the organization. Table 2 gives details of how frequently companies set the targets and on what basis. The results show that 61.11% of the companies set targets on quarterly basis and 38.89% of the companies set targets on half yearly basis. Thus it can be proved that setting short term goals is practiced on a greater scale among the UK companies as compared to setting long term goals. Table-2: Frequency of Target Setting Frequencies to set target No. of the companies % Quarterly 11 61.11% Half yearly 7 38.89% Yearly 0 0 Other 0 0 Total 18 100% Reviewing the interviews conducted along with the results from the questionnaires, different industries mentioned to have different current objectives. Some of the main objectives of the

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leading companies like Nationwide, Barclays, HSBC and Peacock are focusing on lending loans, credit cards, mortgages, etc. to the existing and new customers; deliver best financial services to its customers, minimize investment risk and deliver good value of products, fair prices with no quality compromise thus attracting more new customers. Out of the total responses received through the questionnaires, 13 of the responses were from the banking industry whereas 5 were from the general retailer industry. A preliminary analysis of the results of the survey indicates that employees of all organisations always participate in setting the targets for measures. One of the purposes of this paper was to assess the extent to which the companies have adopted new performance measurement approaches such as the balance scorecard, activity-based costing and statistical methods for performance measurement. As it is clear from the following table, all the eighteen respondents have been using Balance Scorecard and Benchmarking while 83.33% of them have been using the Statistical Method and 61.11% have been using Activity-based Costing. None of the organisation mentioned the date of adoption and date of implementation of new performance measurement techniques. All these measures have given excellent performance to the all companies as per the responses. Table-3: Usage of Business Performance Measurement Indicators Name of the measurement No. of the company % Activity-based costing 11 61.11% Balance Scorecard 18 100% Benchmarking 18 100% Statistical Method 15 83.33% Other 0 0 Out of the 11 companies that used Activity based costing as a method of performance measurement, 9 were able to achieve excellent results, 1 company got very satisfactory results whereas the outcome stood to be average for one of the companies. As it is clear from the above table, all the 18 respondent companies used balanced scorecard and benchmarking as their performance measurement method, whereas on the other hand, 15 of those respondents also used statistical methods. It can be understood from the responses of the questionnaires that balanced scorecard proved to be giving excellent performance to all the 18 companies, whereas results were excellent for 15 companies that used benchmarking, 2 of them received very satisfactory results and for 1 of them the results were average. Statistical methods delivered excellent performance to 8 of the 15 companies. For the rest of them the results were quite satisfactory. Moreover, it was quite interesting to know from the responses that all the companies used all the dimensions for each and every method of performance measurement they implemented. This research provides details of the performance target such as time to serve one customer, time to scan items in one minute, how many calls one attends within a minute, etc. selected by companies. Above stated are some the major measures which they track regularly to assess their performance. Looking at the most significant barriers the organisations have faced in improving their performance during the past few years, 12 of the total responses received had at least 1 barrier in common. Those firms found it too difficult to retain a customer in this competitive market.

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As stated earlier, the interviews for the purpose of this research were conducted with two of the major high street banks viz. HSBC plc and Nationwide. These were semi-structured interviews and consisted of 15 different questions which mainly focused on the performance measurement done, being done and to be done by the management for the company. It also focused on the future implications that are being planned, the past obstacles faced by the companies and the remedies to resolve those issues. Considering the outcomes from the responses, it was very clear that all the financial statements from the annual report were equally important for both the companies and they emphasised on considering all the financial statements for the purpose of measuring financial performance. While discussing the different methods of financial measurement, it was made clear by the HSBC that they used the balanced scorecard method, benchmarking, activity based costing as well as statistical methods for measuring financial performance of their company. They described very specific reasons for using each of the above four methods. According to them, balanced scorecard is a very important tool for the strategic management system. Benchmarking is useful in standing against the market competition as it helps in continuously measuring products, services and practices against tough standards set by the competitors or the said ‘leaders’ in the field. Activity based costing has its own importance as it helps in making realistic allocations of overhead costs to products. On the other hand, statistical methods help in analysing statistical data which, in turn, is used to prepare various control charts, product experiments, economic indicators, budget forecasting, etc. Considering the case of Nationwide, the company has been using the balanced scorecard method of performance measurement for quite a long time because of the similar reasons as those of HSBC, as it is reflected from the interview. But it has recently started implementing other methods of measurement such as activity based costing and budgeting. Market strategy, when discussed with the companies, it seemed that HSBC was not much co-operative on revealing their strategies as compared to Nationwide. The only statement that HSBC disclosed was that its market strategy was mainly dependent on its competitors and their behaviour in the market. It has to lower the rates to stand in the market if its competitors did so. Considering the strategies of Nationwide, they were very committed to remaining a building society because they believed it was in the long-term interests of its current and future members. The core business of Nationwide is to provide personal financial services but they were also engaged in commercial lending and treasury operations just to generate additional revenue for its members. Coming to the risk measurement of the firms, it was found that HSBC takes the account of almost all the types of risk factors. Some of the major factors it mentioned are credit risk, liquid risk, market risk and operational risk. Whereas Nationwide also included equity risk as the risk management factors in addition to all the above stated factors by HSBC. As a procedure of managing risk, Nationwide stated that they do manage these risks through appropriate controls of treasury in most of terms and loss mitigation actions. These actions include a balance of policies, appropriate procedures and internal control to ensure compliance with law and regulations. If the banks were to develop a new process for performance measurement, HSBC insisted that an ideal procedure for them would be inexpensive to implement, user friendly, should

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incorporate customer requirements and should be benchmarked against best-in-class performance. On the other hand, the characteristics of an ideal procedure for Nationwide should include financial considerations as well as should satisfy its customers, employees, community and stakeholders. Finally, when the companies were asked about their future plans, HSBC was quite precise in clarifying the point that it wants to maintain its goal of being the best in its class and providing excellent services worldwide. Moreover, the company is constantly trying to implement various new measures to improve the already proven excellent performance. Nationwide, on the other hand, wants to concentrate primarily on personal financial services and avoid any acquisition of other business or diversification in the areas where it is unable to apply its expertise. It also wants to increase the overall value with the help of targeted quality growth, improved efficiency and sensible margin management. In addition to this the company also wants to retain adequate profit margins and the confidence of its members and markets to support its future growth. 7. RECOMMENDATIONS: The research recommends that strategy and measures should remain in alignment and processes are required to review the measures regularly against the strategy. The categorization of reviewing the targets, measures and set of measures can prove useful for the management team and result in the widest single change to the measurement system. Measuring and managing performance in extended enterprises is proposed which includes intrinsic and extrinsic inter-enterprise coordinating measures. Data analyzing would give a more reliable market growth of the company. The outcomes of the research will be useful to measure and maintain growth, to decide for future investment in new projects. A company's challenge is selecting the right performance measures as their key objectives and the right outcome and activity measures to accurately monitor progress toward those key objectives. Organizations have the best chance of successfully putting the performance measure pieces together if they first simplify the process and are willing to weed out all but the most essential, meaningful measures. 8. LIMITATIONS OF THE RESEARCH AND FUTURE SCOPE: No research is spare from some limitations and this research is not an exception. Time constraint is one of the most prominent limitations of this research. As the time period available for carrying out this research was less than 6 months, it was least probable to enlarge it on a greater scale. There is a potentiality to develop this research with some statistical analysis and establishing co-relationships between the indicators and the other aspects of organizations’ performance measurements. 9. CONCLUSION: This research attempts to identify the contemporary practices in performance measurement. There is growing trend towards managing performance improvement through focusing on the underlying drivers of performance. Companies are increasingly being asked to explain not only what their profitability is, but how they have achieved it.

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Outcomes of the research reflect the company's key objectives and are used to determine whether the company has reached them. Key objectives are those goals that articulate what a company expects from a business process. They are big company goals that are inspirational and motivational in nature. It is not possible to control or predict all of the factors that influence the final outcome of any company’s decision. Nor is it possible to have available all of the information that would be ideal. But business effectiveness and efficiency can be improved by using available information and through effective financial and non-financial performance. It also provides an out come that it is not only the performance measurement that is important, but also the risk assessment. The risk assessment reduces the risk of the companies. The recent research paper has demonstrated that the measuring of business performances is a primary means of “knowing” (coordinating what a firm knows and learns) and “doing” (how it alters what it does). Through the performance measurement system the companies at a large scale have achieved a great difference in their results, while the use of these various measurement techniques in the small scale companies is still developing and yet to reach at its peak. The research indicated that among the various prevailing techniques of the performance measurement, the balance score-card technique was used by the highest number of companies followed by Benchmarking. The reason behind so many companies using the balance score card technique was that it involved both financial and non-financial performances and the same was the case with the bench marking technique also. BPM systems could benefit from a dominant theory of judgment, decision-making and organizational learning. Right now, BPM seems much more art than science.

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Electronic Resources and Internet websites:

Abbey National Plc - http://www.aboutabbey.com/home/inst_inv/inst_inv-fin_res.htm

Alliance & Leicester plc - http://www.alliance-leicester-roup.co.uk/html/investor/annual_report.asp

Barclays Plc - http://www.investorrelations.barclays.co.uk/BRC1/jsp/brccontrol?site=inv&task=channelFWgroup&value=51&target=

French Connection Group Plc - http://www.fcuk.com/index_1.htm

HSBC Holding Plc - http://www.ukpersonal.hsbc.co.uk/hsbc/fin_reps

http://www.performancesoft.com/balanced-scorecard.asp

John Lewis Partnership plc - http://www.johnlewispartnership.co.uk/TemplatePage.aspx?PageType=ARA&PageID=6

Lloyds TSB Group plc - http://www.investorrelations.lloydstsb.com/

Marks and Spencer Group plc - http://www2.marksandspencer.com/thecompany/investorrelations/pastannualreports/2004.shtml#

Matalan Plc - http://www.matalan-ir.co.uk/

NEXT plc - http://order.next.co.uk/aboutnext/index.asp

Peacocks Plc - http://www.peacocks-investor.co.uk/_reports.asp

Sainsbury plc - http://www.j-sainsbury.co.uk/index.asp?pageid=20

Tesco Plc - http://www.tescocorporate.com/investor_centre.htm

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The Boots Group PLC - http://www.boots-ir.com/boots/results/

Wm Morrison Supermarkets - http://www.morrisons.co.uk/365.asp