Home Company law Improving the corporate performance of a company

Improving the corporate performance of a company

July 16, 2023

1322

This article has been written by Eshan Sharma, a law student at Maharshi Dayanand University, pursuing a Diploma in Law Firm Practice: Research, Drafting, Briefing and Client Management from LawSikho; and has been edited by Shashwat Kaushik.

It has been published by Rachit Garg.

Table of Contents

Introduction

In a competitive business environment, it is mandatory for a business entity to manage and evaluate its past performance and identify areas where it must improve in the future to meet its stated target. For ideal evaluation of the business, which involves assessment of effectiveness and efficiency, it requires the ability of the management to understand the key determining factors, which brings on the practical approach to execute processes, therefore optimising these determining factors. Once the evaluation process is over, the management now has to focus on implementing or making changes based on the recommendations received from the evaluation.

Why does corporate performance matter

A business entity cannot function properly without managing its corporate performance. Corporate performance management (CPM) refers to a set of methodologies, processes, and tools that organisations use to manage, monitor, and improve their overall performance. It involves the collection, analysis, and interpretation of data related to various aspects of a company’s operations to drive informed decision-making and achieve strategic objectives.

Components of corporate performance and Methods for its Improvement

Business planning

Building a business plan is the most important component, which helps in achieving its purpose through established procedures. A good business plan will formulate such activities through regular review of both strategic planning and financial planning in the business. Which we will be covering next.

Strategic planning

Strategic planning comes into play in determining the direction in which the management wants to take the business in the future. By means of strategic planning, it shall focus on making such regular improvements by which the business prospers but also help in addressing any negative effect on the business as the result of some wrong decision.

Methods to improve strategic planning

By identifying long-term objectives.
Recognising the resources and capabilities needed to achieve or identify objectives and gaps.
By addressing the critical performance issues that are against objectives.
Documenting activities required to achieve objectives within the limited time frame.
Objectives need to be monitored and measured so that they become clear, concise, and achievable.

Financial planning

Financial planning is the constant process of administering and allocating financial supplies or resources for the business to meet its goals. A regular review of the future financial position of the business provides clarity on its capability to meet its strategic direction. It also characterises how the management and employees of a business react to such challenges.

Methods to improve financial planning

At the beginning, the company should have a suitable business plan to accomplish its targets. This includes analysing whether there is a need to expand the business, whether the business needs more equipment, whether it needs to hire more staff, how the company’s plan will affect its cash flow, whether the company needs financing, and if yes, then how much?
Creating financial projections by analysing income with respect to predicted sales and expenses for labour, supplies, etc.
Strict monitoring is required by comparing the results with the financial projections to determine whether the business is on the right track to achieve its targets.
If the desired outcome is not achieved, then there should be some opportunity left to revise or modify the actions.
Hiring an expert is the best option to improve financial planning if management lacks the specific expertise.

Profitability

In simple terms, profitability is the ability of a business or company to generate revenue above its expenses with the expectation of earning a net profit margin. Increasing profitability also helps boost the ability to enhance business performance. Therefore, it becomes mandatory for business management not to ignore corporate performance to increase profitability. To increase profitability, sales and costs play an important role, which is discussed below-

Sales

Sales consist of three components:

Pricing,
volume, and
customers.

Improving these will increase profitability and performance.

Methods for improving pricing

Regularly reviewing prices and setting them accordingly by understanding how customers would react to changes in the price of the service.
Management should have proper knowledge of the effect of discounts on their products and services on their profits and customer demand.
Considering alternatives to discounts to maximise profits.
By analysing sales regularly, it will help identify which can provide a higher margin.

Methods for increasing volume

By understanding the purchasing style of the customers.
Focusing on building customer loyalty.
By setting sales targets at the team or individual level to motivate sales staff.
By regularly monitoring the sales personnel’s performance against targets.
Using visual displays by placing products in groups.
By undertaking regular research, which in consequence helps in entering new markets and building a customer base.

Methods for improving customer service

By developing easy and effortless customer service, which may result in helping businesses retain their customer base.
By using feedback and surveys for the company’s customers, entertaining complaints, and initiating and participating in the social media debate.
By including rewards for a customer loyalty programme, which can help in increasing sales and creating a new customer base.
Records from customer feedback should be stored, which may help in getting an idea of customer likes and dislikes while developing a new product or new offer for customers to gain market share.

Expenses

Methods for improving the management of fixed expenses

Regularly review all fixed costs and compare them against other suppliers’ pricing and industry benchmarks. This may help ensure that the business is asking for competitive prices, which helps in acquiring market share.
By reviewing the skill level of staff, it may help in ensuring that it is in line with business activity and technological advancement.

Methods for improving variable expenses

If profits are declining, then reducing expenses should be done with care by knowing the costs and identifying which one contributes to sales.
Variable expenses can be improved by conducting regular reviews of margins, mark-ups and break-even by the accountant and finance team of the company.
Variable expenses can be reduced by including the latest technologies in business processes, which may help in completing more value-added tasks.

Business efficiency

Business efficiency involves increasing the utilisation of company resources, which results in producing more, reducing costs, and increasing profits. Improving work conditions and customer satisfaction can be good for business efficiency and reduce the negative impact on business.

Methods for improving the performance of technology

Identifying areas where technology can streamline operations and implement software solutions for tasks such as project management, customer relationship management, or supply chain management. Automation and digitization can reduce errors, save time, and enhance productivity.
After introducing any new technology or machines in the business, proper training should be provided to the employees for the efficient operation of such technology.
Regularly reviewing technology used by competitors in your industry.
Take the right approach to adopting any new technology by ensuring that it is integrated with existing technology to save on any additional expenses.
Conduct a comprehensive cost-benefit analysis before introducing a new technology.

Methods for improving stock management

Understanding the stock of goods and services depends upon what moves quickly, what gives the highest gross margin, what is in excess, and what is seasonal. This evaluation will help in determining how much stock should be kept ready and how much to supply in case of re-order.
To improve stock management, the business owners have to think about and identify how much stock is needed, how much bulk stock should be ordered or kept, and whether to choose or change the supplier, which thus ensures that there is no overreliance on a particular supplier.
Implement and maintain optimum physical controls to minimise perished stock and/or the risk of theft.
A stock management record system should be present for a business that holds large quantities of stock.

Methods for improving debtor management

By including and establishing a credit control policy that may check credit limits, which means that the company will stop supplying a customer unless all their debts are cleared.
Payment terms are to be negotiated before an order is placed and documented on each such invoice.
A proper book of rules and regulations is to be handed over to salespeople, who agree to the terms when completing a sale.
Have standard procedures documented for debtor collection.

Methods for improving stakeholder engagement

Investor relations: Maintain regular communication with investors, providing updates on company performance, financials, and strategic initiatives. Address investor concerns promptly and transparently.
Supplier partnerships: Develop strong relationships with suppliers, collaborating on initiatives such as cost reduction, quality improvement, and supply chain optimisation. Seek mutually beneficial partnerships that drive value for both parties.
Community engagement: Engage with the local community through corporate social responsibility initiatives, volunteering programmes, or partnerships with nonprofit organisations. This fosters a positive brand image and strengthens community ties.

Methods to improve innovation and adaptability

Innovation culture: Foster a culture that encourages creativity, risk-taking, and innovation. Create platforms for employees to share ideas, collaborate on projects, and experiment with new approaches.
Agile workflows: Implement agile methodologies to promote adaptability and responsiveness. Break down large projects into smaller, manageable tasks, and empower teams to iterate and make course corrections as needed.
External partnerships: Explore partnerships with startups, research institutions, or industry experts to leverage external innovation. Collaborate with external entities to access new technologies, ideas, and market opportunities.

Risk management

Risk management has a major role in reviewing the performance of the business. Management has to make such risk management policies to reduce injury to business operations in case of certain events. Risks shall range from activities within the business to external business operations. There are two types of risk:

Internal risk

Internal risk exists within the business. Internal risk can be very injurious to businesses, as it is difficult to identify or manage as it exists within the business.

Methods for improving the management of internal risk

To improve the management of internal risk, the plans, internal processes, and control mechanisms should be shared with employees as a manual, which may include: those who have the responsibility to execute the procedures made by management.
How internal controls are enforced and the extent to which information regarding internal controls is communicated to employees or staff members.
Establish a framework within the business for employees to easily communicate a breach of internal controls.
To create a framework and establish a regular review mechanism to maintain the efficacy of such control.

External risk

Risk of damage to the company due to some certain event, either financially or strategically, on which management does not have the power to avoid or control it.

Methods for Improving the management of external risk

Improving the management of external risk involves identifying the risk, its impact, likelihood of a certain event, and its consequences
The company should possess a proper insurance policy to protect itself from such events involving external risk.
The company’s management has to regularly review the strategies to ensure they are suitable for current conditions.

Conclusion

Corporate performance has a deep impact on the overall aspects of the business. Corporate Performance management is essential for organisations to achieve their goals. By effectively managing various elements of corporate performance, businesses can enhance their decision-making ability, improve financial stability, increase profitability, optimise resource utilisation, enhance innovation, and reduce risks. There are even more noteworthy aspects on which action is required depending on the classification and type of business. Therefore, for improving business performance after all such regular evaluations of business operations, recommended improvements should be utilised efficiently and effectively at all times, resulting in good governance, growth, and more profits in the business.

References

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

https://t.me/lawyerscommunity

Improving the corporate performance of a company

Introduction

Why does corporate performance matter

Components of corporate performance and Methods for its Improvement