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Appendix 1.

1
Measuring and Benchmarking Organizational
Underperformance
Ozzie Mascarenhas S. J.; Ph.D.
As we argued in Chapter One, in general, organizational underperformance occurs for various
reasons within a company such as:

No clear definition of vision and mission


No timeless core values
No enduring purpose
Compromising standards for the sake of expediency,
No well-planned long-term strategies
Mostly ruled by short-term tactics to make quick money
Short-term gains at the expense of long-term losses
Heedless expansion into non-core business areas
Over-diffusion of skills, expertise and talent
No great innovations or market breakthroughs,
No corporate social responsibility and
No strong social mission and identity

However, how can we translate the above qualitative criteria into measurable quantitative criteria so
that turnaround managers can apply them to predict and control organizational underperformance in its
very early stages?
Corporate board members need, besides traditional financial data, new and reliable measures that
address future performance. In addition, they need immediate response tools to help quickly cut through
the welter of information to judge what is most valuable for making decisions. By instituting
measurement systems aligned with their strategy and business model, organizations can help ensure that
whatever performance measures are employed are measuring what is right for them. By linking
measurement to strategy, leaders can identify and effect measures in light of a business's future direction,
instead of simply its present status or past performance. By upgrading the quality and scope of
performance measures, organizations can clarify and standardize internal and external messages,
increasing transparency and enhancing corporate governance (Miller and Israel 2002).
Appendix 1.1 seeks to explore this question of assessing organizational underperformance. In order
to do this, we do some lateral benchmarking. That is, we benchmark individual companys
performance by its own industry averages on several critical performance indicators.

Formulating Organizational Underperformance Criteria


We define organizational underperformance at several sequential operational and performance
stages. Figure A.1.1.1 captures the value chain of the company along which we wish to formulate and
define organizational performance-underperformance criteria. For illustration, we apply all metrics to the
U. S. automotive companies listed in Fortune 500 of 2007 that produce vehicles and/or auto parts. We
restrict our criteria or metrics as measurable by the annual survey data of U. S. Fortune 500 companies.
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These data are readily available every year, and we propose simple but several criteria that turnaround
scholars can use to assess the performance-underperformance of companies within a given industry.
As per the model suggested in Figure A.1.1, our first six criteria relate to employee inputs, namely,
employee efficiency in driving sales revenues, corporate profits and market valuation.
Company Employee Underperformance for a given year occurs when:
1.
2.
3.
4.
5.
6.

A companys performance measured by dollar sales revenue per employee is lower than
corresponding domestic industry average.
A companys performance measured by dollar sales revenue per employee is lower than
corresponding domestic industry median.
A companys performance measured by dollar profits per employee is lower than
corresponding domestic industry average.
A companys performance measured by dollar profits per employee is lower than
corresponding domestic industry median.
A companys performance measured by market valuation per employee is lower than
corresponding domestic industry average.
A companys performance measured by market valuation per employee is lower than
corresponding domestic industry median.

the
the
the
the
the
the

Our next six criteria are outcome metrics that relate to sales revenue efficiency per dollar of assets
employed, per dollar of equity invested, and profits that sales revenues generate.
Company Sales Revenue Underperformance for a given year occurs when:
7.

A companys performance measured by sales revenue per dollar of total company assets is lower
than the corresponding domestic industry average.
8. A companys performance measured by sales revenue per dollar of total company assets is lower
than the corresponding domestic industry median.
9. A companys performance measured by sales revenue per dollar of stockholders equity is lower
than the corresponding domestic industry average.
10. A companys performance measured by sales revenue per dollar of stockholders equity is lower
than the corresponding domestic industry median.
11. A companys performance measured by profits per dollar of sales revenue is lower than the
corresponding domestic industry average.
12. A companys performance measured by profits per dollar of sales revenue is lower than the
corresponding domestic industry median.

We propose four complementary outcome metrics that relate to the efficiency of corporate profits
per dollar of assets employed and per dollar of stockholders equity invested.
Corporate Profits and Equity Underperformance for a given year occurs when:
13. A companys performance measured by dollar profits per dollar of company assets is lower than
the corresponding domestic industry average.
14. A companys performance measured by dollar profits per dollar of company assets is lower than
the corresponding domestic industry median.
15. A companys performance measured by dollar profits per dollar of stockholders equity is lower
than the corresponding domestic industry average.
16. A companys performance measured by dollar profits per dollar of stockholders equity is lower
than the corresponding domestic industry median.
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We next consider eight supplementary outcome metrics that relate to market valuation as seemingly
generated by sales revenues reported, corporate profits generated, company assets employed and
stockholders equity invested.
Corporate Market Valuation Underperformance for a given year occurs when:
17. A companys performance measured by market valuation per dollar of sales revenue is lower than
the corresponding domestic industry average.
18. A companys performance measured by market valuation per dollar of sales revenue is lower than
the corresponding domestic industry median.
19. A companys performance measured by market valuation per dollar of profits is lower than the
corresponding domestic industry average.
20. A companys performance measured by market valuation per dollar of profits is lower than the
corresponding domestic industry median.
21. A companys performance measured by market valuation per dollar of company assets is lower
than the corresponding domestic industry average.
22. A companys performance measured by market valuation per dollar of company assets is lower
than the corresponding domestic industry median.
23. A companys performance measured by market valuation per dollar of stockholders equity is
lower than the corresponding domestic industry average.
24. A companys performance measured by market valuation per dollar of stockholders equity is
lower than the corresponding domestic industry median.

Justification of Performance-Underperformance Criteria


We benchmark all twenty-four criteria by domestic industry averages or median performance. Since
the motor vehicles and auto-parts company data are highly skewed, benchmarking by averages will be
biased toward larger companies, and, therefore, unfavorable to smaller companies. Hence, alternately and
additionally, we benchmark performance also by the median. Comparing absolute data (e.g., sales
revenue, profits, stockholder equity, market valuation and the number of employees) across companies is
meaningless since it will always favor the larger companies. Hence, every criterion is a ratio efficiency
measure.
A companys greatest assets are its employees, their talent and skills they bring to bear on their work,
which should translate into good production, good products, good sales, and, therefore, good profits and if
the company is publicly traded, into enhanced stock value (measured by market valuation). Employee
efficiency, therefore, is best measured by sales revenues generated per employee (criteria 1-2), profits
generated per employee (criteria 3-4), and market valuation generated per employee (criteria 5-6). Market
valuation reflects the stockholder value in the company. It is measured by the number of outstanding
(common and preferred) stock shares multiplied by the average value of the stock on a given day (2/23/07
in our data).
We sequence our performance-underperformance criteria from one to twenty-four by the degree of
managerial control the executives can exercise in corporate performance; that is, to the extent
corporate managers can control the variables involved at each stage of the value chain. For instance,
managers can develop and control employee skills, motivation and activities for generating sales
revenues, profits and market valuation. Hence, we start with the employee efficiency criteria in
relation to sales revenues, profits and market valuation (criteria 1-6).

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A key assumption-mandate of criteria one to six is that employees that are responsible for the
companys R&D, production, new products and services in a given year should be assessed by the sales,
profits and market valuation that these products and services generate.
The next most controllable variable for managers are sales revenues (e.g., via new products offerings,
quality control, branding, pricing, packaging, bundling, promoting, advertising, convenient retailing and
servicing), given the number of employees, companys total assets and stockholders equity, such that
sales generate profits and market valuation. Hence, we relate our next set of six criteria to sales revenue
efficiency (criteria 7-12).
Mere increase in sales and profits does not indicate good performance, as this increase could be
brought about, for instance, by easy credit policies giving customers significantly more time than usual to
pay their bills or by increasing inventories to unusual levels in order to meet every customers request
promptly (Hawawini and Viallet 2002: 141). Moreover, these activities increase a firms balance sheet
through higher accounts receivable and augmented inventories. A larger balance sheet implies more
capital has been deployed to finance the firms activities (such as easy consumer credit and expanded
inventories). Since capital is costly, a larger balance sheet is not good for the firm. Hence, we need to
examine the level of sales per dollar of assets employed (Criteria 7-8) and per dollar of stockholders
equity used (criteria 9-10). Additionally, we measure sales efficiency by examining profits per dollar of
sales (Criteria 11-12). Criteria 11-12 measure profit efficiency of sales a measure that is closely related
to ROS (return on sales). ROS measures the ability of managers to generate profits from the firms sales.
Lastly, criteria 13-24 follow from the previous twelve. The first four measure profit efficiency per
dollar of company assets (criteria 13-14) and stockholders equity (criteria 15-16). The remaining eight
criteria assess market valuation generated per dollar of companys sales revenue (criteria 17-18), profits
(criteria 19-20), total assets (criteria 21-22) and stockholders equity (criteria 23-24). Criteria 13 and 14
reflect the traditional financial performance ratio - return on assets (ROA), while criteria fifteen and
sixteen relate to return on equity (ROE). ROA measures managerial ability to generate profits from the
firms assets. ROE is the standard measure of the profitability of the firms equity capital or owners
funds.
Each measure reflects a specific domain of managerial responsibility. Thus, ROS relates to the
marketing managers area of responsibility. ROA reflects a larger domain of fixed and variable
assets that are the charge of a divisional manager or a strategic business unit (SBU) executive.
ROE circumscribes a still larger domain of stockholders equity that funds activities, R&D, new
products, new fixed assets and the updated infrastructure. It is the most comprehensive indicator of
profitability. ROI indicates net profit. It is the ratio of earnings after tax (EAT) to owners equity.
Criteria 17-24 examine the measurable and more tangible sources of market valuation, namely,
sales revenues (criteria 17-18), profitability (criteria 19-20), total assets (criteria 21-22) and
stockholders equity (criteria 23-24).

Financial Underperformance as a function of Organizational


Underperformance
Given the results of the twenty-four performance-underperformance criteria, we further validate these
criteria by judging them against other popular financial performance measures they seemingly command.
Namely, return on investments (ROI), earnings per share (EPS), and price/earnings ratio (P/E).

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EPS is simply the firms earnings after tax (EAT) divided by its total number of outstanding shares.
The numerator is an accounting data while the denominator is financial market data. Thus, EPS is no
more than a normalized measure of the firms earnings after tax (Hawawini and Viallet 2002: 158). The
price to earnings ratio (P/E), also known as the firms earning multiple, is share price divided by EPS. A
higher P/E ratio means that investors in the market are assigning higher values to each dollar of current
earnings per share (EPS) generated by the firm. That is, P/E indicates the level of investor confidence in
the company.
Give our discussions on ROI, EPS and P/E ratios and following the pattern of criteria 1-24, we define
the following financial underperformance measures.

Financial Underperformance for a given year occurs when:


25. A companys financial performance measured by return on investment (ROI) is lower than the
corresponding domestic industry average.
26. A companys financial performance measured by ROI is lower than the corresponding domestic
industry median.
27. A companys financial performance measured by earnings per share (EPS) is lower than the
corresponding domestic industry average.
28. A companys financial performance measured by EPS is lower than the corresponding domestic
industry median.
29. A companys financial performance measured by price to earnings (P/E) ratio is lower than the
corresponding domestic industry average.
30. A companys financial performance measured by P/E is lower than the corresponding domestic
industry median.

An Illustration of Metrics 1-30 using Automotive Data 2006


As an illustration, we study the organizational performance and underperformance of twenty-eight
motor vehicles and auto-parts companies listed in Fortune 500 for 2007 (Fortune, April 30, 2007, F 64).
Table A.1.1.1 has listed the required data by various categories involving the above 30 metrics. Unless
otherwise noted, all figures are for the year ended on December 31, 2006.
Fortune U. S. 500 includes in its annual survey only US incorporated companies filing financial
statements with a government agency. The survey includes private companies and cooperatives that file a
10-K, and mutual insurance companies that file with state regulators. Revenues are as reported, including
revenues from discontinued operations when they are published on a consolidated basis. Profits are after
taxes. Figures in parentheses indicate a loss. Assets are companys year-end total. Stockholders equity is
the sum of all capital stock, paid-in-capital, and retained earnings at the companys year-end. Market
valuation reflects the stockholder value in the company measured by multiplying the number of
outstanding common shares by the average value of the stock on a given day (2/23/07 in our data).

Data Analysis
Table A.1.1.2 records individual company data of underperformance (Y) and non-underperformance
(N) based on the first 24 criteria. Judged by Y-totals, and the complementary N-totals, the toughest
criterion to verify was the first criterion (21 Y-totals, 7 N-totals): sales revenue per employee is lower than
the industry average. That is, 21 companies verified this criterion and only seven companies exceeded the
industry average in sales per employee (see the last row of Table A.1.1.2).
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Next, two other criteria have similar performance scores ((20 Y-totals, 8 N-totals), namely, criterion
5 (market valuation per employee is lower than the industry average) and criterion 23 (market valuation
per stockholders equity dollar is lower than the industry average).
Easily verified underperformance criteria ((11 Y-totals, 17 N-totals) were criterion 7 (profits per
dollar of sales is lower than the industry average) and criterion 14 (profits per dollar of companys assets
is lower than the industry average).
Across all the 28 auto firms in our study and along 24 criteria, the results are 373 Y-totals and 411
N-totals, thus indicating generally a higher level of performance than underperformance.
At the level of the first 24 criteria, companies that record the highest underperformance are Dana
Automotive Systems (24 Y-total and 4 N-total), Exide Technologies, and Cooper Standard Holdings, both
with (23 Y-totals and 5 N-totals). Accordingly, the best three performing companies are Thor Industries (1
Y-total and 23 N-totals), Johnson Controls (2 Y-totals and 22 N-totals), and Oshkosh Truck (1 Y-total and
23 N-totals).
Table A.1.1.3 presents individual company data of underperformance (Y) and nonunderperformance (N) based on the last six criteria that reflect financial performance ratios, ROI, EPS
and P/E. Judged by Y-totals and N-totals, the toughest criteria to verify are the last two: companys P/E
ratio is lower than the industry average (23 Y-totals, 5 N-totals) or the industry median (22 Y-totals, 6 Ntotals).
Across all twenty-eight auto firms in our study and judged by criteria 25-30, the results are 112 Ytotals and 56 N-totals, thus indicating a decidedly low level of financial performance. Judged by the same
criteria 25-30, fifteen companies verify all six financial underperformance criteria (General Motors, Ford,
Delphi, Goodyear Tire, Lear, Visteon, ArvinMeritor, Dana, American Axle Manufacturing, Tower Motive,
Exide Technologies, Hayes Lemmerz, Dura Automotive System, Cooper Standard Holdings and Affinia
Group Holdings). At the same time, there are five companies that score N on all the six criteria (Johnson
Controls, TRW Automotive Holders, BorgWarner, Oshkosh Truck and Tenneco).
Table A.1.1.4 records Y-totals across the five sets of underperformance criteria considered in this
study, as also across criteria 1-12, criteria 13-30, and criteria 1-30. In general, Y-totals exceed N-totals
across all sets (except under the third set of criteria 13-16). Out of 28x30 = 840 data points, 485 are Ys
(57.74%) and 355 are Ns (42.26%). That is, the auto and auto parts companies verify underperformance
criteria with frequency 57.74%.
Table A.1.1.5 presents correlations between the five sets of performance-underperformance criteria
registered in Table A.1.1.4. In general, the correlation coefficient is a measure of association between two
variables. It ranges from -1.00 to 1.00. A value of -1.00 is a perfect negative correlation between two
variables, 1.00 indicates perfect positive correlation, and a value of 0.00 indicates no correlation.

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Depending upon the nature of the data used1, different types of correlations coefficients are used.
The data in Table A.1.1.4 are counts of Ys, the nature of the data may be construed as real numbers that
can be summarized by certain known parameters or statistics such as mean, mode, median and standard
deviation. Under such conditions, Pearsons r is used as a parametric correlation coefficient. If,
however, we do not know or assume the distribution of the Y-totals, nor can easily estimate the above
mentioned parameters, then we can use nonparametric correlation coefficients such as the Kendalls Tau
and the Spearmans Rho. Both are distribution-free tests of association between two independent vectors
that are rank order data or better. The two tests differ in the way they assign weights to a pair of rankings
(Hollander and Wolfe 1973, Ch. 8). In this sense, Kendalls Tau is a very conservative measure, followed
by Spearmans Rho and Pearsons r. In general, therefore, Tau Rho r (see this verified in Table
A.1.1.5).
Whatever the method used, all the correlation coefficients in Table A.1.1.5 are significant at < 0.05
or better. This result indicates that the associations between sets of performance-underperformance
measures are statistically very significant. Hence, in relation to 2006 automotive and auto companys
data, the following observations follow from the correlation analysis (based on the most conservative
Kendalls Tau) analysis in Table A.1.1.5:
1.

Company employee underperformance (measured by criteria 1-6) is strongly associated


( = 0.381; p < 0.012) with underperformance in sales revenue performance (measured
by criteria 7-12).

2.

Company employee underperformance (measured by criteria 1-6) is strongly associated


( = 0.690; p < 0.000) with underperformance in corporate profits (measured by
criteria 13-16).

3.

Company employee underperformance (measured by criteria 1-6) is strongly associated


( = 0.792; p < 0.000) with underperformance in market valuation (measured by
criteria 17-24).

4.

Company employee underperformance (measured by criteria 1-6) is strongly associated


( = 0.574; p < 0.000) with underperformance in financial ratios (measured by criteria
25-30).

5.

Sales revenue underperformance (measured by criteria 7-12) is strongly associated ( =


0.327; p < 0.036) with underperformance in corporate profits (measured by criteria 1316).

6.

Sales revenue underperformance (measured by criteria 7-12) is strongly associated ( =


0.392; p < 0.010) with underperformance in market valuation (measured by criteria 1724).

1 Data mining researchers usually distinguish between five data types: a) cardinal data (e.g., 20 oranges, 200
families or 6.3 billion world population); b) ratio scale data that have a common zero point origin and hence,
convertible from one measure to another (e.g., pounds to kilograms, miles to kilometers), c) interval scaled data that
have no common zero point origin (e.g., Celsius versus Fahrenheit temperature degrees, or equal interval, bipolar
scaled data as in Osgood & Suci Scale); d) rank order data (e.g., strong versus weak tied ranks) and e) nominal
data (e.g., social security or credit card numbers, or Major League player numbers within a franchise). Data types
(a) and (b) are regarded as metric data, types (c) and (d) are construed as quasi metric data, and data type (e) is
merely classification data. The usual mathematical operators (e.g., addition, subtraction, multiplication and
division) can be strictly applied to metric data, and derivatively, to quasi-metric data.
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7.

Sales revenue underperformance (measured by criteria 7-12) is strongly associated ( =


0.341; p < 0.031) with underperformance in financial performance (measured by
criteria 25-30).

8.

Corporate profits underperformance (measured by criteria 13-16) is strongly


associated ( = 0.595; p < 0.000) with underperformance in market valuation (measured
by criteria 17-24).

9.

Corporate profits underperformance (measured by criteria 13-16) is strongly


associated ( = 0.684; p < 0.000) with underperformance in financial performance
(measured by criteria 25-30).

10.

Lastly, underperformance in market valuation (measured by criteria 17-24) is strongly


associated ( = 0.663; p < 0.000) with underperformance in financial performance
(measured by criteria 25-30).

Results (1) to (10) based on correlation analysis indirectly establish reliability, face validity and
nomological validity of our sets of underperformance criteria (see Churchill 1979; Churchill and Peter
1984; Peter 1981), 2

Concluding Remarks
Performance measurements help improve governance and accountability to stakeholders. This
approach can help to convert measurement information into specific beneficial actions. For measurement
to offer a competitive advantage, it needs to be regarded as a core organizational process consisting of
many sub-processes: interrelationships among strategies and risks; measures, measurement objectives and
measurement framework; and alignment, infrastructure, monitoring, reporting, and continuous
improvement. Tying Measurement to Strategies and Risks: By linking measurement to strategy, leaders
can identify and effect measures in light of a business's future direction (leading indicators), instead of
simply its present status (concurrent indicators) or past performance (lagging indicators). This
distinguishing feature is crucial as organizations look to modify rapidly their business models and
strategies (Miller and Israel 2002).
Table A.1.1.6 presents rank order data on the 28 automotive and auto parts companies based on
criteria 1-12, criteria 13-30, and criteria 1-30.
Using the last comprehensive measure of
underperformance, namely, criteria 1-30, Table A.1.1.6 also features the high performance versus low
performance companies by ranks. As expected, the top five performance companies are Johnson
Controls, Oshkosh Truck, Tenneco, Thor Industries and Carlisle. The five worst performance companies
are Hayes Lemmerz, Dura Automotive System, Exide Technologies, Dana, and Lear. Several of the
companies below the rank median are currently struggling, and some have sought bankruptcy protection,
2 Validity, in general, seeks to establish if a given measure measures what it intends to measure. Validity can be
established in various ways: a) Analogical validity also called lateral benchmarking (e.g., the measure can be derived
from similar concepts in other related fields; e.g., consumer satisfaction measures from parallel measures such as
patient satisfaction scales or automobile satisfaction measures, and vice versa); b) Nomological validity relates to
strong association between conceptually similar measures (such as our five sets of underperformance criteria); c)
Discriminant validity (e.g., the measure discriminates between known demographic or ethnic groups); d)
Convergent validity (e.g., different but related measures obtain similar scores) and face validity which indicates that
the measure has intuitive appeal of being objective, comprehensive and believable (see Peter 1981).
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as indicated in Table A.1.1.6. Thus, turnaround executives may also use the 1-30 underperformance
metrics for predicting corporate bankruptcy.
Column 2 lists Fortune 1000 ranks for 2006 and 2005. Of the 28 companies listed, only six have
improved in ranks from 2005 to 2006 (Johnson Controls from rank 75 to 67, Paccar from 157 to 141,
Oshkosh Truck from 625 to 584, Thor Industries from 677 to 643, Cooper Tire from 770 to 701 and
Modine Manufacturing from 948 to 944). Three companies have maintained the same ranks from 2005
to 2006 (GMC, Cooper Standard Holdings and Affinia Group Holdings). The remaining 15 companies
have lost Fortune 1000 ranks in 2006 compared with 2005 ranks. The worst loss is by Visteon who lost
2006 sales revenues by 33 percent from 2005 and hence, plummeted from rank 128 in 2005 to rank 219 in
2006. Tower Automotive lost sales revenues by 12 percent and slipped from rank 551 in 2005 to rank 668
in 2006. Ford reported a decrease of ten percent in sales from 2005, and a corresponding rank of seven
in 2006 from rank five in 2005. In total, 10 out of 28 companies (41.67%) report loss in sales for 2006
compared to 2005. These facts support rankings in Table A.1.1.6.
From a profit performance view, 18 out of 24 companies report negative profits, the worst being Ford
with a loss of $12.613 billion, followed by Delphi that lost $5.464 billion, and GMC that recorded a loss
of $1.978 billion. The 28 companies together lost a total of $20.78 billion in profits in 2006, with a mean
of $-0.74 billion (SD = 2.61) and a median of $- 0.121 billion. These facts also support rankings in Table
A.1.1.6. In general, judged by 18 out of 24 companies (75%) with negative profits, 9 out of 24 companies
(37.5%) with loss in sales, and 15 out of 24 companies (62.5%) losing Fortune 1000 ranks, we could
conclude that, largely, the automotive companies have underperformed in 2006 compared to 2005. The
results of Table A.1.1.6 are based on thirty ratio criteria, while the Fortune 500 rankings are based on
absolute sales data.
Other performance measures worth looking at are: inventory to sales, receivables to sales, payables to
sales, sales to net fixed assets, sales to working capital requirements (WCR), and operating margins.
Similarly, one could study inventory to profits, receivables to profits, payables to profits, net fixed assets
to profits, and profits to WCR.

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References
Churchill, Gilbert A., Jr. (1979), "A Paradigm for Developing better Measures of Marketing Constructs,"
Journal of Marketing Research, 16 (February), 64-73.
______ and J. Paul Peter (1984), "Research Design Effects on the Reliability of Rating Scales: A
Meta-Analysis," Journal of Marketing Research, 21 (November) 360-75.
Hawawini, Gabriel and Claude Viallet (2002), Finance for Executive: Managing for Value Creation, 2nd
edition. South-Western: Thompson Learning.
Hollander, Myles and Wolfe Douglas A. (1973), Nonparametric Statistical Methods, New York, NY: John
Wiley & Sons.
Horngren, Charles T., Gary L. Sundem, and John A. Elliott (2002), Introduction to Financial Accounting,
8th edition, Upper Saddle River, NJ: Prentice-Hall.
Miller, Jack and Eric Israel (2002),Improving corporate performance measures to drive results,
Financial Executive, 18:5, (Jul/Aug), 51-53.
Peter, Paul J. (1981), "Construct Validity: A Review of Basic Issues and Marketing Practices," Journal of
Marketing Research, 18 (May), 133-145.

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Figure A.1.1: Modeling Performance-Underperformance Measurement


Along a Companys Value Chain

Assets and
Technology

Employees
Skills, talent
Training

R&D
Production
New Product
Development
Market
Offerings

Revenue
Earnings

Corporate
Profits

Metrics 7-12

Metrics 13-16

Market
Valuation

Financial
Ratios:
ROI, EPS,
P/E

Stockholders
Equity
Metrics 1-6

Metrics 17-24

Corporate Performance-Underperformance Metrics

90

Metrics 25-30

Table A.1.1.1: Data on Motor Vehicles and Auto-parts Companies for 2006

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Company Data, 2006

Rank
-2005,
2006

Annual
Sales
($B)

%
from
2005

Profits
($B)

General Motors
Ford Motor
Johnson Controls
Delphi
Goodyear Tire
Lear
Paccar
TRW Automotive
Holders
Visteon
Arvinmeritor
Dana
Federal Mogul
Autoliv
Tenneco
BorgWarner
Oshkosh Truck
American Axle & Mfg.
Thor Industries
Tower Automotive
Exide Technologies
Carlisle
Cooper Tire & Rubber
Fleetwood Enterprises
Hayes Lemmerz
Dura Automotive System
Cooper Standard
Holdings
Affinia Group Holdings
Modine Manufacturing
Total
Mean
Std Dev
Maximum
Minimum
Median

3, 3
4, 5
71, 75
63, 77
120, 112
127, 127
188, 157
178, 179

192.60
177.21
28.019
27,201
19.723
17.089
14.057
12.643

8
-10
16
-2
3
4
17
4

-10.6
2.024
0.909
-6.369
0.228
-1.381
1.133
0.204

280000
283000
136000
171400
77000
104000
21000
63800

475.284
269.476
16.144
17.21
15.627
8.288
13.715
10.23

16.734
12.957
6.058
-5.314
0.073
1.111
3.901
1.208

11.949
14.558
14.749
0.2753
2.431
1.09
12.026
2.441

118, 128
244, 242
201, 234
326, 345
329, 351
453, 463
506, 475
692, 625
501, 556
716, 677
570, 551
643, 651
654, 680
470, 770
626, 662
718, 710
646, 728
N.A, 814

16.976
9.816
10.092
6.286
6.204
4.441
4.293
2.959
3.387
2.558
3.443
2.69
2.55
2.155
2.623
2.405
2.344
2.164

-33
0
-2
1
-1
5
7
16
-6
20
-12
5
8
24
-4
-4
-6
18

-0.27
0.012
-1.379
-0.334
0.292
0.058
0.239
0.16
0.056
0.121
-0.832
1.281
0.106
-0.009
-0.161
-0.131
0.001
-0.008

45000
27500
45000
43100
38750
19000
17400
9387
10000
9363
11850
13982
11577
13361
11500
10500
15800
16266

6.736
5.87
7.877
7.735
5.065
2.94
4.089
1.718
2.666
0.857
2.321
2.29
1.563
2.152
1.01
2.272
2.075
1.911

-0.048
0.875
1.057
-2.433
2.316
0.129
1.644
0.818
0.994
0.597
-0.44
0.427
0.73
0.938
0.125
0.549
0.339
0

0.576
1.051
0.293
0.031
4.848
0.95
3.358
4.302
0.828
2.922
0.004
0.058
2.34
0.905
0.665
0.082
0.042
0

N.A, 816
N.A, 948

2.16
1.543
27753.4
991.19
5136.85
27201
1.543

1
11
88
3.142
11.651
24
-33

-0.005
0.061
-14.594
-0.521
2.420
2.024
-10.6

10497
7896
1523929
54426.04
75855.77
283000
7896

1.381
1.152
889.654
31.773
100.315
475.284
0.857

0
0.659
46.004
1.643
4.1976
16.734
-5.314

0
0.974
83.74
2.991
4.52
14.749
0

4.367

3.5

0.034

18200

3.515

0.695

0.962

91

No. of
Employees

Assets
($B)

Stock
($B)

M.V.
($B)

Table A.1.1.2: Assessing Corporate Underperformance of Automotive


Companies by Metrics 1-24
(Data: Fortune 500 Survey Data for Year Ending December 31, 2006)
Company
by #s

YTotals
1-24

Corporate Underperformance Criteria Verified (Y = yes; N = No)


1

10

11 12

13 14 15 16 17

18

19

20

21

22

23

24

14

18

20

12

20

18

10

15

11

22

12

22

13

14

15

16

17

20

18

19

20

20

23

21

22

18

23

24

24

25

23

26

17

27

15

28

Y Totals

21

14

13

13

20

14

11

14

18

14

19

12

14

17

15

19

14

20

15

373

92

11 13 15 18

16

Table A.1.1.3: Assessing Corporate Underperformance of Automotive


Companies by Metrics 25-30
(Data: Fortune 500 Survey Data for Year Ending December 31, 2006)
Financial Underperformance
Criteria verified (Y=Yes; N=No)

#
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Company
General Motors
Ford Motor
Johnson Controls
Delphi
Goodyear Tire
Lear
Paccar
TRW Automotive Holders
Visteon
Arvinmeritor
Dana
Federal Mogul
Autoliv
Tenneco
BorgWarner
Oshkosh Truck
American Axle & Mfg.
Thor Industries
Tower Automotive
Exide Technologies
Carlisle
Cooper Tire & Rubber
Fleetwood Enterprises
Hayes Lemmerz
Dura Automotive System
Cooper Standard Holdings
Affinia Group Holdings
Modine Manufacturing
Total (Y-Totals)
Mean
Std Dev
Maximum
Minimum
Median

ROI
(%)

EPS

-6.4
-7
9.6
n/a
-10.9
-22.2
19.8
0.8
-16.9
-15.6
n/a
27.7
11.2
3
8.2
4.7
-13
23.6

-4.17
-6.07
5.53
-9.73
-3.24
-9.94
6.06
0.39
-2.55
-4.7
n/a
-5.34
4.67
1.03
3.59
2.61
-4.3
2.85

-16.6
16.5
-4.4
-12.7
-21.9
n/a
n/a
n/a
5.8
-16.6
-0.754
14.90
27.70
-22.2
-1.80

-5.9
3.39
-0.85
-0.76
-4.36
n/a
n/a
n/a
1.31
-30.48
-1.234
4.67
6.06
-9.94
-0.850

P/E
Ratio
n/a
n/a
18.84
n/a
n/a
n/a
14.13
103.5
n/a
n/a
-25.00
n/a
12.08
29.39
22.65
22.92
n/a
14.11
-41.00
n/a
15.3
n/a
n/a
n/a
n/a
n/a
n/a
17.7
234.62
19.55
30.48
103.5
-25.00
16.50

25
Y
Y
N
Y
Y
Y
N
N
Y
Y
Y
N
N
N
N
N
Y
N
Y
Y
N
Y
Y
Y
Y
Y
Y
N
17

26
Y
Y
N
Y
Y
Y
N
N
Y
Y
Y
N
N
N
N
N
Y
N
Y
Y
N
Y
Y
Y
Y
Y
Y
N
17*

27
Y
Y
N
Y
Y
Y
N
N
Y
Y
Y
Y
N
N
N
N
Y
N
Y
Y
N
N
N
Y
Y
Y
Y
N
16

YTotals
25-30

28

29

30

Y
Y
N
Y
Y
Y
N
N
Y
Y
Y
Y
N
N
N
N
Y
N
Y
Y
N
Y
N
Y
Y
Y
Y
N
17*

Y
N
Y
Y
Y
Y
N
Y
Y
Y
Y
Y
N
N
N
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
23

Y
N
Y
Y
Y
Y
N
Y
Y
Y
Y
Y
N
N
N
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
N
22*

6
0
6
6
6
2
0
6
6
6
4
2
0
0
0
6
2
6
6
2
5
4
6
6
6
6
1
112
4.000
2.426
6.00
0.00
6.00

* Technically speaking, these column totals should be exactly 14 since the median is the dividing benchmark for this criterion.
Given many missing variables, however, that are automatically estimated as mean of that column, and given that the median is
calculated independent of the missing variables, the median criterion tends to overestimate the Ys and approximates the mean
criterion.

93

Table A.1.1.4: Performance-Underperformance Data of Motor Vehicles and


Auto-parts Companies for 2006
#

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Automotive or
Auto-parts Company
General Motors
Ford Motor
Johnson Controls
Delphi
Goodyear Tire
Lear
Paccar
TRW Automotive
Holders
Visteon
Arvinmeritor
Dana
Federal Mogul
Autoliv
Tenneco
BorgWarner
Oshkosh Truck
American Axle & Mfg.
Thor Industries
Tower Automotive
Exide Technologies
Carlisle
Cooper Tire & Rubber
Fleetwood Enterprises
Hayes Lemmerz
Dura Automotive System
Cooper Standard
Holdings
Affinia Group Holdings
Modine Manufacturing

Y-Totals of Criteria Numbers:

Y-Totals along Criteria:

1-6

7-12

13-16

17-24

25-30

1-12

13-30

1-30

3
3
1
6
3
6
0

2
4
1
4
2
2
4

1
4
0
2
2
4
0

8
7
0
7
5
8
0

6
6
0
6
6
6
2

5
7
2
10
5
8
4

15
17
0
15
13
18
2

20
24
2
25
18
26
6

3
3
4
6
6
2
2
1
0
3
0
5
6
1
5
3
6
6

2
3
1
4
6
4
0
4
2
6
1
6
5
2
3
0
6
5

0
1
4
4
2
0
0
0
0
4
0
2
4
0
3
3
4
4

3
8
6
8
8
1
1
1
0
6
0
7
8
0
5
3
8
8

0
6
6
6
4
2
0
0
0
6
2
6
6
2
5
4
6
6

5
6
5
10
12
6
2
5
2
9
1
11
11
3
8
3
12
11

3
15
16
18
14
3
1
1
0
16
2
15
18
2
13
10
18
18

8
21
21
28
26
9
3
6
2
25
3
26
29
5
21
13
30
29

4
4
2

4
2
2

2
2
1

7
7
1

6
6
1

8
6
4

15
15
3

23
21
7

1-28

Y-Totals

94

87

53

130

121

181

304

485

1-28

N-Totals

74

81

59

94

47

155

200

355

94

Table A.1.1.5: Correlation Coefficients among sets of Organizational


Performance-Underperformance Criteria
Criteria
Numbers
Pearsons r:
1-6

Performance-Underperformance Criteria Numbers:


1-6
7-12
13-16
17-24
25-30
1.000

0.404
0.008*
1.000

0.775
0.000
0.390
0.040
1.000

0.874
0.000
0.500
0.007
0.767
0.000
1.000

0.739
0.002
0.420
0.026
0.801
0.000
0.896
0.000
1.000

1.000

0.381
0.012*
1.000

0.690
0.000
0.327
0.036
1.000

0.792
0.000
0.392
0.010
0.595
0.000
1.000

0.574
0.000
0.341
0.031
0.684
0.000
0.663
0.000
1.000

1.000

0.482
0.008*
1.000

0.798
0.000
0.397
0.037
1.000

0.871
0.000
0.506
0.006
0.731
0.000
1.000

0.723
0.000
0.420
0.026
0.796
0.000
0.805
0.000
1.000

7-12
13-16
17-24
25-30
Kendalls
Tau:
1-6
7-12
13-16
17-24
25-30
Spearmans
Rho:
1-6
7-12
13-16
17-24
25-30

* The second figure under each correlation coefficient is its two-tailed statistical significance (df =27).

95

Table A.1.1.6: Performance Rank of Motor Vehicles and Auto-parts


Companies for 2006
#

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Automotive or
Auto-parts Company

General Motors
Ford Motor
Johnson Controls
Delphi
Goodyear Tire
Lear
Paccar
TRW Automotive Holders
Visteon
Arvinmeritor
Dana
Federal Mogul
Autoliv
Tenneco
BorgWarner
Oshkosh Truck
American Axle & Mfg.
Thor Industries
Tower Automotive
Exide Technologies
Carlisle
Cooper Tire & Rubber
Fleetwood Enterprises
Hayes Lemmerz
Dura Automotive System
Cooper Standard Holdings
Affinia Group Holdings
Modine Manufacturing

Ranks Based on YTotals of Criteria


Numbers:
1-12

13-30

1-30

Ordered
Rank
Based on
Metrics
1-30

11
17
3
22.5
11
19
7.5
11
15
11
22.5
27.5
15
3
11
3
21
1
25
25
5.5
19
5.5
27.5
25
19
15
7.5

17.5
23
1.5
17.5
12.5
26
6
9
17.5
21.5
26
14
9
3.5
3.5
1.5
21.5
6
17.5
26
6
12.5
11
26
26
17.5
17.5
9

13
19
1.5
20.5
12
23
6.5
9
15.5
15.5
25
23
10
3.5
6.5
1.5
20.5
3.5
23
26.5
5
15.5
11
28
26.5
18
15.5
8

1.5
1.5
3.5
3.5
5.0
6.5
6.5
8.0
9.0
10.0
11.0
12.0
13.0
15.5
15.5
15.5
15.5
18.0
19.0
20.5
20.5
23.0
23.0
23.0
25.0
26.5
26.5
28.0

Automotive or
Auto-parts Company re-listed
by Performance Rank

Johnson Controls
Oshkosh Truck
Tenneco
Thor Industries
Carlisle
Paccar
BorgWarner
Modine Manufacturing
TRW Automotive Holders
Autoliv
Fleetwood Enterprises
Goodyear Tire
General Motors.
Cooper Tire & Rubber
Affinia Group Holdings
Visteon
ArvinMeritor
Cooper Standard Holdings
Ford Motor
Delphi
American Axle & Mfg
Tower Automotive
Federal Mogul
Lear
Dana
Exide Technologies
Dura Automotive System
Hayes Lemmerz

Filed for
Bankruptcy

?
?
05/01/05
?
?
10/17/05

01/01/06
03/01/06

12/06/01*

* The company emerged from bankruptcy in 2003, but apparently, it did not positively affect its underperformance.

96

Turnaround Executive Exercises


A.1.1.1: Continue the analysis of organizational underperformance as presented in Appendix A.1.1 by doing the
following:
a) Identify the foreign auto vehicles and auto parts companies and their performance data for 2006 as per
Table A.1.1 (e.g., see Fortune Global 500 for 2007 for a list of these companies).
b) Apply the 30 organizational performance-underperformance criteria to these foreign auto companies and
present results as in Tables A.1.1.2, A.1.1.3 and A.1.1.4.
c) Investigate the validity (face and nomological) of your criteria scores via correlation analysis and report
results as per Table A.1.1.5.
d) Given your analysis under (b) and (c), rank-order the foreign companies by their performance. Research if
some of the worst underperformers have filed for bankruptcy during the last five to six years.
e) Next, combine data in (a) with data of domestic auto companies in Table A.1.1 and re-do exercises (b), (c)
and (d) on the combined sample of domestic and foreign auto companies.
f) Examine the patterns of Y-totals and N-totals in: 1) the domestic companies, 2) the foreign companies, and
3) the combined set of domestic and foreign companies. Which performance-underperformance criteria
significantly separate the domestic from the foreign auto companies, and why? Hence, what do you
conclude?
g) Study the global performance-underperformance ranks of the combined set of auto companies. Which
companies under-perform worst, along which criteria, and why?
h) Which companies report high performance, by which criteria, and why?
i) Based on findings from (a) to (h), what strategies would you recommend for improving organizational
performance among domestic companies, and why?
A.1.1.2:
Study the organizational performance-underperformance of the forty-nine U. S. Gas and Electric
companies listed in Fortune 500, April 30, 2007, F-71.
a) Collect their performance data for 2006 on sales revenue, Fortune 500 ranks for 2006 versus 2007, profits,
companys total assets, stockholders equity, number of employees and market valuation, and derive
descriptive parameters of each variable in terms of mean, mode, median, standard deviation, maximum,
minimum, and range.
b) Next, apply the 30 organizational performance-underperformance criteria to these companies and present
results as in Tables A.1.1.2, A.1.1.3 and A.1.1.4.
c) Investigate the validity (face and nomological) of your criteria scores via correlation analysis and report
results as per Table A.1.1.5.
d) Given your analysis under (b) and (c), rank-order these companies by their performance. Research if some
of the worst underperformers have filed for bankruptcy during the last five to six years.
e) Next, identify the foreign gas and electric companies and their performance data for 2006 as per Table
A.1.1.1 (e.g., see Fortune Global 500 for 2007 for a list of these companies).
f) Execute steps (b) to (d) on these foreign companies.
g) Next, consolidate data in (a) with (e) and re-do exercises (b), (c) and (d) on the combined sample of
domestic and foreign auto companies.
h) Examine the patterns of Y-totals and N-totals in: 1) the domestic companies, 2) the foreign companies, and
3) the combined set of domestic and foreign companies. Which performance-underperformance criteria
significantly separate the domestic from the foreign gas and electric companies, and why? Hence, what do
you conclude?
i) Study the global performance-underperformance ranks of the combined set of gas and electric companies.
Which companies under-perform worst, along which criteria, and why?
j) Which companies register higher performance, along which criteria, and why?
k) Based on findings from (a) to (j), what strategies would you recommend for improving organizational
performance among domestic gas and electric companies, and why?
97