Elsevier

Long Range Planning

Volume 42, Issue 3, June 2009, Pages 390-413
Long Range Planning

Measuring Long Term Superior Performance: The UK's Long-Term Superior Performers 1984–2003

https://doi.org/10.1016/j.lrp.2009.05.001Get rights and content

This article examines the issue of determining long-term sustained superior financial performance. We demonstrate that the technique of frontier analysis is a robust and theoretically consistent way to identify relative performance. We show how our approach, although dependent on the reliability of reported financial data (which recent events show needed to be treated with caution for some companies), addresses the three critical issues in the measurement of performance: balancing short-term and long-term performance, capturing the multidimensional nature of performance, and finding the right peer comparators. The approach is particularly important today, given the failure of past performance to signal in any way how firms would be able to weather a pervasive global crisis.

Section snippets

Challenge 1 - balancing short-term and the long-term performance

Although managers face the challenge of managing for both short-term and long-term performance,3 most measures focus primarily on short-term performance; a few years at most and only a few quarters in some cases. Even with supposed longer-term future looking measures, such as share prices, the length of the time horizon is itself subject to the collective foresight of investors and the length of that foresight. Even academics are not immune to this tendency: the majority of academic studies

Problems in measuring performance

Many measurement approaches suffer from the problem of providing a one-dimensional, short-term view of performance that is overly dependent on the measurement's start and end points. While such a view is a poor predictor of future performance - as was found most glaringly in the case of Peter and Waterman's book, In Search of Excellence – it is (as Phil Rosenzweig has so elegantly pointed out) a hallmark of most attempts to attribute performance to specific actions and rules. Representing the

The frontier approach to measuring performance

We have argued above that different companies, especially in different industries, but even in the same industry, can justifiably use different measures of performance at different times. This might imply that even companies in the same industry cannot be compared or ranked in performance terms. But such comparison is vital, both to inform investors and to evaluate and motivate managers. Frontier analysis allows such comparisons (see Exhibit 2 for a brief history of the method), and does so in

Applying the frontier technique

To demonstrate the approach here we conduct two sets of analyses. First, we use an analysis of selected companies in the oil industry in one year to show how frontier analysis can create a rank order of performance across multiple measures. It also reveals the difficulty with averaging across measures and why a more robust approach is needed. Second, we use an analysis of 215 British companies over 20 years to show how the technique can indeed identify long-term superior performers.

Discussion

Prior research studies in strategy, particularly those related to the resource-based and dynamic capabilities theories, have emphasized firm specific advantage and sustainable performance. However, nearly all the empirical modelling of performance has utilised approaches based on central (average) tendencies. Our use of frontier based modelling is better aligned with both theory - in that we address the critical issues underlying what Kirby has called the ‘quixotic quest’ for a singular robust

Acknowledgements

We thank the Editor in Chief and the journal's anonymous reviewers for their encouragement and advice, as well as our colleagues in the Advanced Institute of Management Research for their many comments and suggestions. We acknowledge funding assistance from the Economic and Social Research Council and the Engineering and Physical Sciences Research Council.

George S. Yip is Dean of Rotterdam School of Management, Erasmus University. He was previously Director of Research and Innovation at Capgemini Consulting, a professor at London Business School and Cambridge University, and Lead Senior Fellow of the U.K.'s Advanced Institute of Management Research. He is the author of Total Global Strategy (1992 and 2003, published in ten languages) and Managing Global Customers (2007). The Times Higher Educational Supplement ranked him as one of the UK's

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    George S. Yip is Dean of Rotterdam School of Management, Erasmus University. He was previously Director of Research and Innovation at Capgemini Consulting, a professor at London Business School and Cambridge University, and Lead Senior Fellow of the U.K.'s Advanced Institute of Management Research. He is the author of Total Global Strategy (1992 and 2003, published in ten languages) and Managing Global Customers (2007). The Times Higher Educational Supplement ranked him as one of the UK's twelve most successful academic consultants in any discipline. Rotterdam School of Management, Erasmus University, Burgemeester Oudlaan 50, 3062 PA Rotterdam, The Netherlands. Phone +31 (0)10 408 1901; fax +31 (0)10 408 2296 e-mail: [email protected]

    Timothy M. Devinney is Professorial Research Fellow at the Australian School of Business at the University of New South Wales. While conducting this research he was an International Visiting Fellow of the U.K.'s Advanced Institute of Management Research, a Humboldt Foundation Research Awardee and Rockefeller Foundation Bellagio Fellow. Australian School of Business, University of New South Wales, Sydney NSW 2052, Australia. Phone +61 (2) 8006 0048; fax +61 (2) 9663 4672 e-mail: [email protected]

    Gerry Johnson is Professor of Strategic Management at Lancaster University Management School and also a Senior Fellow of the U.K.'s Advanced Institute of Management Research. His research interests focus on management processes of strategy development and strategic change. He has published a number of books and written numerous papers in the field of Strategic Management. Exploring Corporate Strategy, of which he is co-author, is the best selling text on Strategy in Europe and regularly appears in the Top 10 Business Books in the UK. Advanced Institute of Management Research and Lancaster University Management School, Lancaster, LA1 4YX UK. Phone +44 (0)1524 592374; fax +44 (0)1524 594720 e-mail: [email protected]

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