A FRAMEWORK FOR ANALYZING CHANGES IN STRATEGIC PERFORMANCE

In this paper we present a framework for analyzing changes in strategic performance. Traditional measures for comparing the strategic performance across firms or over time have been return on investment (ROI) and its component ratio, return on sales (ROS). We decompose the ROS ratio into four separate ratios that capture the impact of changes in a firm's productivity, price recovery, product mix and capacity utilization on its profitability. These ratios help to highlight the micro sources of strategic success or failure. They can be used to assess changes in the performance of a firm compared to itself over time, or to other firms in its industry group. This framework can also be used to evaluate changes in the dynamic performance of an industry as a whole. We illustrate the use of these ratios with a 4-year analysis of the performance of a large manufacturing company. We also demonstrate how the technique can be applied to an industry with an evaluation of the performance of U.S. telecommunications firms between 1975 and 1987, a period during which the industry experienced a progressive increase in competitive pressure.

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