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Related Experiment Videos

The link between benchmarking and shareholder value.

J A Schmidt

    The Journal of Business Strategy
    |April 8, 1992
    PubMed
    Summary
    This summary is machine-generated.

    Measure the spread between return on capital and cost of capital to link strategic performance to shareholder value. If a performance gap exists compared to top companies, managers must redefine strategic goals.

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    Area of Science:

    • Business Strategy
    • Financial Management
    • Corporate Performance

    Background:

    • Shareholder value is a key metric for corporate success.
    • Strategic performance is often evaluated by financial metrics.
    • The spread between return on capital and cost of capital is a critical indicator.

    Purpose of the Study:

    • To establish a clear link between strategic performance and shareholder value.
    • To provide a quantifiable method for assessing corporate financial health.
    • To guide management in strategic goal setting based on performance gaps.

    Main Methods:

    • Calculating the spread between return on capital employed (ROCE) and the cost of capital (CoC).
    • Benchmarking company spread against industry leaders or "premier" companies.

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  • Identifying performance gaps based on comparative analysis.

    • Main Results:

    • A positive spread between ROCE and CoC directly correlates with increased shareholder value.
    • Significant performance gaps indicate a need for strategic re-evaluation.
    • Comparison with premier companies provides a benchmark for optimal performance.

    Conclusions:

    • The spread metric is a vital tool for linking operational performance to shareholder value.
    • Managers should proactively address performance gaps by redefining strategic objectives.
    • Continuous benchmarking against top-performing companies is essential for sustained value creation.