When you can say that your company is successful

performance objectives are not only about economic profit

Set performance objectives for your business

the first question to answer is, what is the performance that you want to improve? Many business books just speak about performances without answering this very important question. To set your performance goals you need to have clear in mind what are the expected outcomes and what are the actions that will lead to ti these outcomes.

Usually the performances that are considered are financial performances, but having in mind only financial performances can be not enough to cover all business aspects. There are many issues in corporate situations that are not related at all to financial performances, for example poor reputation, business loss due to the advent of new competitors, the rapid loss of staff.

But let’s start with a financial performance before exploring other types of performances, because it is very clear and highly valued. There is a wide range of financial performances that can be considered, but the economic profit is so far as the highly-rated:

Economic profit = operating profit — taxes — cost of capital

the point here is that we can always boost profits in the immediate future, pushing up prices or cutting expenditures but these actions can have a negative impact on the future profit. So current and historical profits are relevant only if they provide important clues on what will be the profits in the future.

Economic profit trajectory

To evaluate the strategy of a Company it is needed a way to estimate the future trajectory of the economic profit. So we need a way to estimate what impact on the economic profit trajectory will have any action or decision that we consider.

It will be possible to perform different kinds of actions; from minor changes like price reduction to major changes like the launch of a new product. Of course it will be more difficult to convince shareholders to support the launch of a new Product cause it can imply substantial investments to support the product launch. The new product launch, if correctly managed, will bring more advantages to the future than the simple price reduction.

Managing a successful business requires a good amount of courage

In the years up to 2001, Amazon delivered only losses. Despite this fact, investors put their confidence in the company because they had the confidence that it will turn into a successful business in the near future. Also if the losses were bigger than expected the investors continued to put their trust in the company, because the additional losses were due to investments to develop more sources of sales.

Setup for future success is a must to become a successful company

Economic growth cannot be the only measure for success

taking into account only economic growth for your business can make you overlook other important objectives such as social responsibility or reputation. Overlooking these performance aspects can cause problems in the long term profits. Enterprise Managers often set targets that are not expressed in financial terms such as:

• staff numbers
• customer growth
• market share
• reputation

Good managers focus also on these important aspects, cause they know that they drive financial performances. Also Investors are very interested in non-financial performances and they have always a close look at the related numbers.

To drive your activity to a future of success is important to analyze the historical performance that your activity had till today and understand if you are heading in the right direction. Having in mind these things you need to think about how to improve your future performance. Of course if you’re just starting up a new activity you will not have the historical data of your activities performance, but if you have these data you need to give it a close look.

Taking again into consideration the Amazon example, it is interesting observing what are the historical performances. Since its founding in 1994 the Company has delivered business growth but as said before it was not profitable until 2002. Amazon performances followed this historical path because online sales have spread all over the world starting from 1998.

I want to close with this memorable phrase:

Managing a successful business requires a good amount of courage

Thank you for reading!!!