Wednesday, June 22, 2011

Strategy - 23

Continuing the discussion on measures of performance; in today's blog we would discuss Survival of a firm as a measure of Performance.

We could clearly see in our discussion on economic profits as a measure, that the firms which survive over a relatively extended period of time must be generating at least normal economic performance. Those firms, whose performance is below the normal performance, wouldn’t be surviving for long (assuming no govt subsidy). Thus it is clear that the very survival of the firm is at least one measure of performance.

The strength of this approach is that it is easy to use. One doesn’t need detailed information about a firm’s economic condition, just its continuation in the business.

The weakness of his approach could be seen as these:
  • It is extremely difficult to say when a firm no longer exists
  • The death of a firm can happen over a long period of time
  • This approach doesn’t give any insight into the above normal performance

Read in Kannada:

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