Predicting corporate innovation capability. Proactive process KPIs instead of retrospective business analysis


Master's Thesis, 2019

96 Pages, Grade: 1.0


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I. Table of Content

I. Table of Content

II. List of Figures

III. List of Tables

IV. List of Abbreviations

1. Introduction
1.1. Status Quo - problems with the current measurement approach
1.2. Justification of the relevance of the topic
1.3. Current state of research
1.4. Research Method
1.5. Structure of the Thesis

2. Theoretical background
2.1. Brief historical development of performance measurement and key performance indicators
2.2. Key performance indicators – what are they and how are they used to measure performance
2.2.1. Definition and basic requirements
2.2.2. Financial Perspective – why do companies see the importance
2.2.3. Why and how companies derive at their respective KPIs
2.3. Closing the gap: non-financial measurements and why they should be used
2.3.1. Why innovation matters – innovation capability and innovation culture
2.3.2. Marketing perspective
2.3.3. Human capital capability and their influence on performance and innovation
2.4. Common mistakes and limitations in measuring performance
2.4.1. Neglecting non-financial data and stakeholders
2.4.2. Setting the wrong focus
2.4.3. Confusing data and measuring for the sake of availability
2.4.4. Disconnection between strategy and measurement indicators
2.4.5. Retrospective measurement – reliance on past and present data

3. Research Design and methods
3.1. Best-Practice: Innovation
3.1.1. Sony’s turnaround and how they managed to increase their innovativeness
3.1.2. The rise and fall of BlackBerry
3.1.3. Open Innovation fueled Procter & Gamble’s innovation pipeline
3.2. Best-practice: Marketing
3.2.1. Innocent – from zero to hero
3.2.2. Simplification, Excitement and Atmosphere: Apple’s secrets to successful marketing and product placement
3.3. Best-practice: Human capital
3.3.1. How Google’s empowered employees help to drive business performance
3.3.2. Publix Super Market’s outperforms competitors due to organizational culture and empowered employees
3.3.3. Leadership style at Nike pushes its employees and its performance significantly
3.4. What do the best-practice examples teach us?

4. Analysis and supporting research studies
4.1. Studies supporting best-practice implementations of the companies
4.1.1. Innovation
4.1.2. Marketing
4.1.3. Human Capital
4.2. Why the presented reasoning could be wrong
4.3. Proposed dynamic performance capabilities for companies to predict future outcome
4.3.1. Innovation
4.3.2. Marketing
4.3.3. Human Capital

5. Conclusion, implications and avenues for further research
5.1. Summary and conclusion
5.2. Limitations and suggestions for improvement
5.3. Implications for further research

V. Appendices

VI. List of Cited Literature

II. List of Figures

Figure 1: Influence of different Dimensions of Innovation, Marketing and Human Capital on Future Performance

Figure 2: Dimensions and corresponding proactive innovation KPIs

Figure 3: Dimensions and corresponding proactive marketing KPIs

Figure 4: Dimensions and corresponding proactive human capital KPIs

III. List of Tables

Table 1: Selected Performance Measurement Frameworks

IV. List of Abbreviations

CEO = chief executive officer

cf. = compare (from the Latin word “conferatur”)

CFO = chief financial officer

KPI = key performance indicator

NBA = National Basketball Association

R&D = research and development

WOM = word-of-mouth

1. Introduction

Key performance indicators (KPIs) are still the heart of assessing current business performance. While many companies rely on past financial data to evaluate whether they accomplished certain goals, new research suggests a more holistic picture with non-financial measurements such as innovation, human or marketing capabilities. More precisely, putting the company’s longevity and innovation capability into the hands of retrospective key performance indicators rather than measuring proactive future performance indicators seems paradox

1.1. Status Quo - problems with the current measurement approach

Most companies stress the importance of financial performance as most important since they owe their board accountability over the actions in the past business year (cf. Marr, 2006, p. 127f.). This, however, works against the idea of longevity of firms because the financial view or past performance represents only one pillar of the overall performance picture of a company and even more important can hamper corporate success due to a asymmetry in what the company wants to achieve and what the company actually achieves. To be more concrete, a service-orientated company most likely strives for a high customer satisfaction. Therefore, great emphasize on past financial data does not reflect the company’s goal or strategy adequately and leads to a wrong approach and management actions. The utility of KPIs is undermined by its retrospective validity of the measures. Mainly, past or present information are used to assess the current status quo. Although future will always be unpredictable, proactive KPIs can set the route to a better understanding what might happen. Since future outcome is not determined by the current business situation, it seems paradox that no forward-looking measurement parameters are used by companies. To stay relevant, competitive, and successful, companies must rework their current KPIs to draw the right conclusions in the present in order to be innovative in the future.

Additionally, the intense and fast-changing business environment requires a proactive approach to assess the future performance level and innovation capability of a company (Davis, 2014, p. 3). The current models integrate financial and non-financial performance indicators but have not precisely pointed out which measurement parameters are relevant to predict future performance. In conclusion, there are two problems with the current status quo of measurement approaches: first, most companies measure wrong or measure the opposite of what they are trying to achieve. Second, almost all existing key performance indicators are supported and build with past or current data but do not explain whether they are able to support the management in which decisions shall be made to stay competitive and innovative in the future. It seems odd that rarely any or none KPIs explicitly concerned with the future performance of a company have been developed.

1.2. Justification of the relevance of the topic

Over the past couple years, the average life span of companies steadily decreased (Anthony, Viguerie, Schwartz and van Landeghem, 2018, p. 2f.; Davis, 2014, p. 2). While technology and digital opportunities are evolving, flexibility and the urge to innovate become crucial for a successful firm as product life cycles become shorter and shorter. Over 80% of newly introduced products are out of the market within a year or less (Müller & Schroiff, 2013, p. 11). But companies truly believe they adequately measure and interpret the data they collect correctly. However, firms only measure a tiny percentage of what drives value. This means, that companies just measure the tip of the iceberg while the great rest lies unseen under water. More precisely, what really contributes to the well-being and performance of an organization is often not recognized or not monitored. Therefore, the relevance and need to develop suitable performance measures, that do not only assess the current state of the business operations but are also concerned with the future to give a more realistic picture, is given.

1.3. Current state of research

Recently, research started to rethink the current performance measures of companies as adequate measures claiming to provide a holistic status of the company’s current and future performance (cf. Eccles, 1991, p. 131f.; Spitzer, 2007, p. 11ff.; Bourne, Mills, Wilcox, Neely, Platts, 2000, p. 754f.). While the financial perspective was widely acknowledged, intangible dimensions gain more and more popularity among scholars (Schlüter & Schroiff, 2018, p. 66; Parker, 2000, p. 63; Eccles & Pyburn, 1992, p. 41f.). As Neely, Gregory and Platts (1995, p. 109) point out, predictive performance measurements need to be developed. Researchers introduced different performance measurement frameworks shown in table 1 to assess intangible dimensions of the company and how they interact with each other and impact performance.

Abbildung in dieser Leseprobe nicht enthalten

Table 1: Selected Performance Measurement Frameworks

Not only are innovation, marketing or human capital integrational parts of business activities but also responsible for financial results (cf. Rubera & Kirca, 2012, p. 138-143; Edeling & Fischer, 2016, p. 531; Crook, Todd, Combs, Woehr and Ketchen, 2011, p. 453). New measurement approaches are developed more often and the point of view shifts from static measurement methods to dynamic capabilities able to capture the full complexity of firms’ performance (Teece, et. al., 1997, p. 509ff.; Kaplan, Davenport, Robert, Norton, 2001, p. 519ff.). Critics on the solely focus on financial data are mainly short-term thinking, lack of strategic focus, fail to gain knowledge about stakeholders’ wishes and needs, and encourage biased self-centered task performance rather than proactive contribution to companies’ well-being (cf. Neely, 1999, p. 205f.; Neely, et. al., 2002, p. 11ff.; Bourne et. al., 2000, p. 755f.; Schrage & Kirion, 2018a, p. 5ff.). Although scholars make progress in acknowledging the importance of the influence of non-financial data, there is little research on proactive forward-looking performance measures. Some suggestions and findings come from Sedatole (2003) who defines quality performance measures and their ability to predict future quality-related warranty costs, Williams and Naumann (2011, p. 27f ) and Fornell, Morgeson III and Hult (2016, p. 103f.) who see customer satisfaction levels responsible for future financial results, Koys (2001, p. 110f.) predict a longitudinal effect of employee satisfaction on profitability or Madsen (2007, p. 201f.) who emphasizes the importance of entrepreneurial orientation on performance in the long-run. Indeed, there are more studies on longitudinal effects of intangible assets on financial or overall firm performance, but in conclusion, work on proactive future predicting KPIs is still scarce whereas new frameworks are developed more frequently.

This research gap should be closed or at least narrowed with the presented work and developed proactive KPIs to provide new measures to a widely discussed topic that recently gained more popularity. Overall, scholars provide various frameworks of performance measurement, but little research is done in the field of which data or indicators fuel these frameworks. Therefore, the thesis aims to explore which KPIs can predict future business performance and which indicators might have to be developed to give a consistent set of measures.

1.4. Research Method

Since there is little data or literature on forward looking KPIs, the thesis will explore real-life examples and what impact those changes made for the company. Solely, this information would be not complete and that is why research papers concerned with different influence factors on business performance will also be assessed to provide a more holistic picture and a greater acceptance of the proposed KPIs. This will be done like a meta-analysis approach. The challenge is to translate the static research findings into useful proactive forward-looking measures where the examples and studies function as a foundation for further reasoning.

1.5. Structure of the Thesis

The thesis will explore which performance indicators are essential for companies and finally will add them up to a proposed basic set that can be used by businesses for proactive measurements. Theoretical data as well as practical examples (best-practices) will be analyzed to develop and shape the framework. This will reflect the findings of which KPIs seem to contribute to a proactive measurement approach. Additionally, the thesis should build a discussion basis for further and deeper research and support the common understanding of the importance of forward-looking (non-financial) performance indicators.

In detail, the thesis will present the theoretical background of KPIs, their different measurement perspectives and the problems using them to assess business performance. Because there is hardly any data about forward predicting KPIs available, a mixture of best-practices and supporting literature will be used. The thesis will focus on innovation, marketing, and human capital capabilities. To show successful implementation of new approaches to boost company’s success, real-life best-practice examples will be analyzed. These will be supported by studies, like a meta-analysis approach, that aim to show a relationship between innovation, marketing or human capital on business performance. This dual-approach should provide a 360-degree picture that allows thorough and well-reasoned thinking. Afterwards, conclusions can be drawn on what have led to the better performance compared to the competitors and which KPIs reflect these findings. Then, a proactive set of KPIs should be developed and presented to help companies to understand which tasks or activities they should track to stay relevant and competitive as well as innovative in the future.

2. Theoretical background

There are several KPIs that measure the corporate performance status quo. To get a better understanding on current measurement factors, it is necessary to identify and describe the most used KPIs as well as their possible shortcomings in measuring future business outcome precisely. In this chapter, the different dimensions of performance measurement will be described and how they are linked to performance. A brief historical description how KPIs have been developed will give the reader a better understanding about the current status of performance measurements as well as why KPIs need to further refinement.

2.1. Brief historical development of performance measurement and key performance indicators

Although being old and first used in the third century, the mass usage and popularity of performance measurements just recently became more important. Mainly used by the military, public and industry sector, the first close-to-be performance measurement was introduced by a Scottish miller who placed differently colored signs above each worker’s workplace to monitor their effectiveness. Mainly measures on a small scale and individual measures were developed and used in the following centuries. With the increase of data availability, more and more measures are added. It was not until the late second half of the 20th century before performance measurement shifted from an individual to a company-wide monitoring approach. The first and one of the most famous mainstream KPI-frameworks was developed by Kaplan in Norton in the 1990s by their introduction of the balanced scorecard method. Still a relatively young discipline, constant updates and improvements must be made to catch shifts and changes in the business environment to adequately capture the current and future status quo of a company (Ofori-Boateng, 2017).

2.2. Key performance indicators – what are they and how are they used to measure performance

To have the necessary understanding how one will derive at choosing exactly those KPIs that measure proactively, the basic principles and definitions of key performance indicators will be explained briefly. This is especially helpful since it shows the current status quo of the performance measures used, possible gaps and identified room for improvement. Ultimately, the brief explanations in this chapter will lay the foundation for the proposed proactive KPIs that companies should use when they are assessing future performance and innovation capability.

2.2.1. Definition and basic requirements

From a business perspective, KPIs are defined as quantitative or qualitative measurement parameters for the management that explain how well an organization is performing. With the underlying collected data used to derive the key measurements, KPIs indicate how well a company meets its declared targets and how they track the fulfilment of their declared target objectives (Schrage & Kiron, 2018a , p. 3-4; Marr, n.d. a); Marr, 2006, p. 97-101). On the one hand, KPIs should act as an orientation help to guide and keep organizations on their chosen path and on the other hand, function as a diagnostic tool (Scharff & Campione, 2017, p. 6). According to Parmenter (2015, p. 4), key performance indicators describe how the company is performing in critical areas that contribute to corporate success. By observing the development of the respective KPIs, the management can adjust activities, improve performance, and drive success of the firm. In broader terms, KPIs are viewed as tools to reduce complexity of data and put it into a measurable and controllable form.

Additionally, KPIs are not solely focused on the financial perspective but also include non-financial parameters (Ittner & Larcker, 2003, p. 88-95; Scharff & Campione, 2017, p. 10). In a contrasting view, Parmenter (2015, p. 11f.) argues that KPIs can never be a measurement for financial data since KPIs are only concerned with non-financial measures. He uses the term result indicator for financial measures.

Basic requirements of KPIs should include the following: aligned with strategy, accurate and important, easy understandable, effective and efficient, integrated in organizational culture, drive performance and support management decisions (Parmenter, 2015, p. 10ff.; Keegan, Eiler & Jones, 1989, p. 45-50; Gilad & Liat, 2016, p. 73). Introduced by Drucker in 1954, the SMART-Method can be used to develop KPIs whereas SMART stands for specific, measurable, achievable, relevant and time sensitive (cf. Parmenter, 2015, p. 171f.). Those requirements should be in place to have KPIs that contribute to the firm’s performance and support the CEO’s or management’s decisions. When developing KPIs, checking, whether they match the proposed requirements, is necessary to achieve meaningful and useful indicators.

2.2.2. Financial Perspective – why do companies see the importance

The financial perspective is seen as the cornerstone by most companies since it is used in financial statements and management presentations. Adding to that, quantifiable data and financial outcome is easier to monitor because companies can see it black and white in their financial reports (e.g. balance sheet, income statement) (Scharff & Campione, 2017, p. 8). Often, performance measurement is linked with the financial perspective because companies need to justify their performance to their capital providers. This gives them a relative feeling of security that the company will meet its goals. Furthermore, every company must deal with its financial well-being which makes financial control and measurement evident. (Otley, 2004, p. 8f.; PriceWaterhouseCoopers, 2007, p. 4; Schlütter & Schroiff, 2018, p. 68). Financial measurements are often used since the collection of data and the calculation is considered as easy (Marr, 2006, p. 100). Typically, financial KPIs are concerned with profitability, liquidity or shareholder value (Otley, 2004, p. 6; Kaplan & Norton, 2000, p. 77). Therefore, static ratios like current ratio, quick ratio, return on equity, return on investment, debt-to-equity etc. are most commonly calculated using past or present data (Marr, n.d. b)). Regarding the importance or relevance of financial KPIs, the choice depends on several factors concerning the internal and external business environment of the respective company including the industry the firm is operating in (Parmenter, 2015, p. 26; PriceWaterhouseCoopers, 2007, p. 4-6).

2.2.3. Why and how companies derive at their respective KPIs

The question arises how companies use performance measurement indicators. As mentioned previously, most companies need to present financial reports to their board or stakeholders. Due to the relatively easy accessibility and calculation of financial parameters, companies rely more on quantifiable data which gives them some sense of certainty on the current company performance. Neely (1998) proposes that organizations use performance measurements to check and communicate their position, confirm priorities, and accelerate progress (cf. Marr, 2006, p. 98). However, Marr (2006, p. 99) is convinced that companies use performance measurements for reporting and compliance, controlling people’s behavior and decision-making. Going into more detail, Meyer (2002, p. 30f.) sees even seven purposes why companies measure their performance. He suggests that firms look ahead, look back, motivate, compensate, roll up, cascade down and compare to gain a holistic picture of their overall performance. Identifying success and whether the companies are meeting their communicated goals as well as failures or room for improvement are other reasons why firms rely on KPIs (Parker, 2000, p. 63).

To arrive there, organizations should use or have a map which guides them through the KPI-choosing-process. The literature suggests a couple of different approaches. Parmenter (2015, p. 105f.) presents a six-stages-process starting with the commitment of the management. Then, the organization should allocate enough resources and lead the change to find the organization’s critical success factors. After determining the right measures that are suitable for the company, measures can be developed to drive performance. Similar but slightly different is the approach of Scharff and Campione (2017, p. 7). They propose to start at the strategy and link it with KPIs derived from business objectives and value drivers. Another idea by Marr (2006, p. 106ff.) is a value creation map. He stresses the importance of data generation through different sources (e.g. surveys, observation, interviews, focus groups and peer-to-peer assessment) as the routes of value drives, followed by the assessment of core competencies of the organization which finally leads to the relevant output deliverables and the right measures for that goal. Parker (2000, p. 65f.) sees the importance of balancing outcome, action, input, and diagnostic measures when choosing the right KPIs. Outcome measures deal with the outcome, action measures are concerned with the activities that led to this outcome whereas input measures describe the input factors used. Diagnostic measures provide information about the current status of action or outcome measures, more precisely, about the current level of fulfilment.

2.3. Closing the gap: non-financial measurements and why they should be used

The first and most recognized scholars to stress the importance of non-financial elements in performance measurement are Kaplan and Norton (1996, p. 78). Companies using non-financial measurements are more likely than their counterparts to improve and drive results (Mauboussin, 2012, p. 7). All mentioned categories share similar ideas and are closely linked to each other. Therefore, non-financial measurement dimensions like innovation, marketing and human capital will be described to give a holistic picture about the firm’s performance (Meyer, 2002, p. 42).

2.3.1. Why innovation matters – innovation capability and innovation culture

When talking about innovation, research and development (R&D) comes to mind. Usually, companies pour a lot of money into their R&D departments to somehow magically come up with new innovations and product concepts. But only spending tons of money, will not increase a firm’s innovativeness per se. It is more likely, that some other factors in the organization also contribute towards innovation capabilities (Kolk & Eagar, 2014, p. 69, 80ff.; Viki, 2016; Iqbal, 2016). However, R&D indeed proves to be important for companies’ innovativeness, but as mentioned above, needs to be managed thoughtfully and measured correctly to improve long-run profitability and to be an effective measurement for firm’s innovation capability (Chiesa & Masella, 1996, p. 49ff.; Kolk & Eagar, 2014, p. 68f.; Artz, Norman, Hatfield & Cardinal, 2010, p. 737).

Although innovation is hard to measure and often considered as fuzzy, a firm’s ability to innovate is one of the most critical factors for staying relevant, unique and competitive (Hurley & Hult, 1998, p. 44; Cavusgil, Calantone & Zhao, 2003, p. 10). Innovative companies often gain competitive advantages over their competitors by exploring and exploiting new business ideas and more importantly outperform them on a steady basis (Tidd & Bessant, 2009, p. 5ff.). The right business environment and organizational culture enable innovative thinking in a company (Martins & Terblanche, 2003, p. 67ff). To fuel creativity and innovations, market-orientation, learning-orientation, and innovative capacity should be characteristics of the organization (Hurley & Hult, 1998, p. 45). Calatone, Cavusgil and Zhao (2001, p. 516ff.) add that commitment to learning, an open mindset and organizational knowledge transfer contributes to the firm’s innovation capability which is linked to the overall performance. They argue that a company that is concerned with learning everything about the business environment and business activities can better implement and generate new ideas. Martins and Terblanche (2001, p. 70) highlight that flexibility, freedom and cooperative teamwork also pushes innovative thinking.

Searching for new innovative concepts, products or ideas can be done internally and externally (cf. Birkinshaw, Hamel & Mol, 2008, p. 839f.). The two main concepts concerned with external idea generation are co-creation and open innovation (von Hippel, 2010, p. 411-425; Piller, Ihl & Vossen, 2011, p. 31-34). Co-creation describes an ongoing, collaborative approach of customers and employees working together to create new ideas and concepts. Co-creation creates a greater pool of resources which allows the company to develop new innovative products (von Hippel, Ogawa & de Jong, 2011, p. 29ff.; Piller et. al., 2011, p. 31; Schlüter & Schroiff, 2018, p. 69). Open innovation focuses on integrating ideas from the external firm periphery from others (e.g. customers, users, etc.) into the innovation process of the company (Piller et. al, 2011, p. 33). Both concepts provide valuable insights and promote the capability of a firm to innovate when implemented correctly because they add external ideas to the internal innovation process of the company.

2.3.2. Marketing perspective

Marketing performance measurement becomes more and more relevant since companies’ executives as well as companies’ stakeholders want to know what marketing achieves and why they should spend money on it (Clark, 2004, p. 22; Ittner & Larcker, 2003, p. 89). Considering the effects of successful marketing, the influence on the buying decision of the customer and therefore the influence on financial figures of the companies are related. Adding to that, studies suggest that the right marketing performance measurement gives advantages over other companies and is positively related to firm performance (Edeling & Fischer, 2016, p. 531; O’Sullivan & Abela, 2007, p. 80-88). However, marketing performance is hard to measure since it relies on external influences like the responsiveness of the target group (Clark, 2004, p. 27).

Schlüter and Schroiff (2018, p. 68) identified four dimensions that contribute towards marketing success: market-orientation, customer satisfaction, customer loyalty and brand equity. Market-orientation describes the use and development of market knowledge and intelligence. Ambler (2000, p. 60) is convinced that market-orientation prevents short-term thinking and fosters long-term success. Customer satisfaction is popular among researchers due to its influence on the perceived quality of the product that can result in greater customer loyalty if the customer is satisfied. Speaking of customer loyalty, a loyal buyer will most likely buy again from the same company and will resist other companies’ marketing efforts and persuasions. Brand equity is related to a strong recognition by the customer and is beneficial for the companies’ financial performance since it allows the firm to charge higher prices without substantially losing customers and also offer different product in different business sectors (Clark, 2004, p. 27-31; Schlüter & Schroiff, 2018, p. 68f.).

2.3.3. Human capital capability and their influence on performance and innovation

Besides the financial, innovation and marketing perspective, the human capital capabilities are important non-financial assets when assessing the overall business performance. Kaplan and Norton (2004, p. 53) describe human capital as “skills, talent and knowledge that a company’s employees possess.” Emphasizing the importance of employees, empowered employees expressing their ideas in an open encouraging environment without harshly being criticized for their ideas tend to be more creative which fosters the innovativeness of a company (Parmenter, 2015, p. 139ff.; Spitzer, 2007, p. 60ff.). Additionally, open-communication, entrepreneurial mind-set, shared vision, leadership style and organizational culture support creativity, idea generation and performance of the firm’s staff which positively influences the overall performance (Calatone et. al., 2001, p. 516; Spitzer, 2007, p. 57; Martins & Terblanche, 2003, p. 66; Simons 1995, p. 80ff.). To fully unleash the creativity potential of the employees and harness the fruits, Simons (1995, p. 80ff.) proposes a four-level control system consisting of a belief (e.g. employee’s commitment to core values), boundary (e.g. rules), diagnostic (e.g. contribution towards goals) and interactive (e.g. ability to respond and act) system. The right selection (e.g. checking the employee’s connection to the firm’s vision, values, and strategy) of workers starts with the recruiting process and human resource management (Martins & Terblanche, 2003, p. 71; Lemon, 2016 p. 47ff.).

It is important to note that not only employees but also all the other stakeholders (e.g. management, customers, investors etc.) in the business environment can positively influence the firm’s performance (Fenwick & Vermeulen, 2015, p. 597ff.; Spitzer, 2007, p. 60; Parmenter, 2015, p. 109f.; Davis, 2014, p. 4f.). As Drucker (1954, p. 37) states “it is the customer who determines what a business is”. Engaged customers can help companies in their innovation efforts (cf. Thomke & von Hippel, 2002, p. 74ff.). As we have seen in chapter 2.1.1, co-creation and open innovation are two concepts where the company profits from ideas generated externally, for example, by customers. Therefore, firms should threat customers as an important resource of input for their innovation process (Davis, 2014, p. 4)

2.4. Common mistakes and limitations in measuring performance

Assessing the performance of organizations with the right performance measures is hard. It comes as no surprise that there are common pitfalls and shortcomings of currently used performance indicators and limitations in their validity. To understand how to improve and propose more suitable KPIs, it is necessary to know the current problems in order to solve them. Thus, the most common and critical problems will be described.

2.4.1. Neglecting non-financial data and stakeholders

If measured what is asked for by the most important stakeholder, then it should not be a problem using mainly financial KPIs to track the company’s performance. But, not only financial investors and capital providers are the most important actors in the business environment but also all the other stakeholders influencing the company (Schlütter & Schroiff, 2018, p. 66ff.; Mauboussin, 2012, p. 5ff.; Eccles, 1991, p. 131f.). This is important to realize as this opens a new perspective on how and what should be measured. Critics on solely focusing on the financial data while neglecting non-financial data have grown over the past couple of years (Ittner & Larcker, 2003, p. 88ff.; Eccles, 1991, p. 132; Schrage & Kirion, 2018b, p. 1). Measuring some financial ratios although being a service and customer-oriented business seems paradox and might be the reason why companies are unable to stay relevant in the competitive business landscape (Neely, et. al., 2002, p. 9). Assuming all performance measurement factors can be transferred and used by any organization, is another common pitfall (Parmenter, 2015, p. 26).

2.4.2. Setting the wrong focus

Most companies fail in using the right measurements and KPIs for their unique situation, strategy or industry. It is critical that the chosen KPIs are linked to performance and change with modified market situations while also being updated on a continuous basis (Parker, 2000, p. 65; Mauboussin, 2012, p. 9). Some organizations still report and pay close attention to financial ratios derived from their financial reports. Additionally, employees will likely accomplish the job that gets rewarded and not the one that moves the organization forward (Spitzer, 2007, p. 39). Thus, instead of accomplishing tasks that drive business performance, employees are more concerned with getting paid and are too distracted getting their bonus rather than actually contribute to the organization’s performance (Parmenter, 2015, p. 28; Ryan, 2015, p.1f.; Spitzer, 2007, p.12f.).

Neely et al. (2002, p. 26f.) points out that short-term thinking mostly in financial terms harms the performance of the company in the long run. Managers might delay processes or booking of sales to the next year when their target is reached. Ittner and Larcker (2003, p. 89f.) add, that self-centered managers manipulate performance measurements to cash-in their bonuses and earning themselves a great reputation. This draws a sloppy inaccurate picture on the current performance of the company. Furthermore, a missing understanding in the lower-company divisions lead to failed or wrong outcome. Managers must assure themselves that everyone in the company, division or team does understand what is wanted and vice versa (Keegan at al., 1989, p. 45f.; Neely et al., 2002, p. 24f., Spitzer, 2007, p. 40). Because managers want to avoid high risk and losses, they try to maintain the status quo rather than implementing more suitable KPIs (Mauboussin, 2012, p. 3).

2.4.3. Confusing data and measuring for the sake of availability

Tracking performance seems easier than before due to the mass of data companies can use for measurement. But instead of getting better results, organizations often get stuck in the easy-to-measure-trap which means, they only measure and use the data that is straightforward and can be interpreted without too much effort (Marr, 2006, p. 7f.). Besides that, lots of firms are overwhelmed with the amount of data they receive and get lost in the data jungle and ultimately choose the wrong data (Ittner & Larcker, 2003, p. 92, Kennerley & Neely, 2002, p. 1225; Neely et. al., 2002, p. 29). Also, only because firms have the data, it does not mean that they should measure everything (Mauboussin, 2012, p. 3). By measuring data for the sake of measuring, focus is easily lost and could harm the business performance due to inefficient measurements and wrong targets which should be matched by the employees or management (Parker, 2000, p. 64f.; Marr, n.d. c); Keegan et al., 1989, p. 46). Not checking whether there is a causal relationship between data measured and performance outcome will lead to irrelevant performance indicators that contribute nothing or little to the success of a firm (Ittner & Larcker, 2003, p. 91).

2.4.4. Disconnection between strategy and measurement indicators

Wrong data interpretation or data usage interferes with the company’s strategy. In a study conducted by Schrage and Kirion (2018a, p. 6) only 26% of the senior executives say that their strategy is aligned with their performance measures. In other words: 74% see a disconnection between their strategy and what their KPIs measure. A misalignment of key performance indicators and the respective strategy leads to wrong measurements, decisions, and conclusions (Ittner & Larcker, 2003, p. 90; Mauboussin, 2012, p. 1; Marr, n.d. c)). A disconnection of the vision, strategy and goals of the company leads to contradicting actions like pulling the rope on the one end when someone else is pulling on the other end in a different direction (Marr, 2006, p. 7ff.). When the KPIs and performance measurement tools in place measure completely random data, the company might fulfil its KPIs but does not generate value. Moreover, inappropriate performance measures report completely fine results to the management although contributing nothing to the dedicated outcome (Neely et al., 2002, p. 9f.; Bond, 1999, p. 1319). Spitzer (2007, p. 69) points out that some executives and managers are satisfied with using standard KPIs that are not supportive in developing the company. Additionally, they usually do not fulfil the targeted goals as they only aim to preserve the current status quo rather than advancing business performance.

2.4.5. Retrospective measurement – reliance on past and present data

Although the future cannot be predicted with high accuracy, KPIs should give the company a hint whether it possess the adequate resources, skills and tools to succeed in the next couple of years and whether they can stay relevant and innovative to withstand fast changes in the business environment. Performance is measured with past or present data, but long-term survival or success is not observed or measured. While past accomplishments can be assessed with certainty, only fragile and guessed conclusions can be drawn from the measures rather than an accurate forecast for the next years (Meyer, 2002, p. 20-23; Schrage & Kirion, 2018a, p. 5, Kolk & Eagar, 2014, p. 70). While meetings on performance usually focus on what has been or has not been accomplished, those meetings should shift their focus towards what can be said about the future according to the past and present developments (Marr, 2006, p. 132). Marr (2006, p. 94) compares the grade students achieve at the end of a course with the limitations of performance measurement based on past data. Both give a good sense on what and how well something has been done but provide no support on what can be improved in the future to become or stay successful.

3. Research Design and methods

Some work needs to be done to assess proactive performance measurements as there is rarely any precise research available regarding this topic. As described above, companies rely on performance measures to increase their awareness about their business environment and current position. The importance and relationship of financial and non-financial performance indicators were shown as well as some typical pitfalls and shortcomings of the current performance assessments.

But how do companies translate and implement innovative ideas, perfectly marketing messages or a great organizational culture into their business? Are there even any companies that have used some different approaches to boost their performance by challenging their status quo? In fact, there are some examples where a shift in the organizational culture to more empowered employees or an open communication among all departments and different hierarchy levels made a lasting impact on firms’ performance. On the other hand, there are also some examples were missed opportunities or the inability to adapt or innovate, made companies irrelevant in the marketplace.

Some of those ideas will be shown in the following to demonstrate how real-life examples support research findings and studies (chapter 4) conducted to prove that innovation, marketing, and human capital are linked to the success of a business. It is important to note that these three categories are sometimes overlapping and interacting with each other rather than standing solely by themselves. Also, by providing practical examples and linking this to research, a common understanding and more holistic picture is created which helps to find proactive performance measurements. From the presented examples conclusions about suitable proactive KPIs will be drawn.

3.1. Best-Practice: Innovation

As discussed above, innovation plays a great role in the ability of a firm to survive and drive its business performance successfully. Innovation can secure a competitive advantage over competitors (Fenwick & Vermeulen, 2015, p. 604). At the same time, a wrong trend analysis or a mismanagement in foreshadowing general market demand can doom a company. Innovation is an opportunity and a threat at the same time. Different cases will be presented like success stories and failed stories to get an understanding on how innovation influences businesses and how fast one can go from number one to irrelevant.

3.1.1. Sony’s turnaround and how they managed to increase their innovativeness

“Although the company’s financial results have fluctuated during the recent years, our stance to spend a certain percentage of the revenue for R&D has not changed”, says Saori Takahasi, spokeswoman of Sony in 2014 (Huang, 2014). This quote comes after the sixth net loss in the past seven years while at the same time increasing the R&D budget to 4.78 million US-Dollar (a 4% increase from the previous year 2013 to 2014) (Nakafuji, 2016; Huang, 2014). As research suggests, only spending millions and millions of Dollars on R&D is not necessarily contributing to higher level of innovativeness (cf. Iqbal, 2014). Additionally, Sony back then only owned a small research unit separated from its headquarter. The projects often took several years before they were even ready for market launch (Huang, 2014). Obviously, the company lacked a great pool of ideas to choose from and could not pull the trigger fast enough to launch new products into the market within a short time period.

However, Sony recognized it must change and implement a different innovation process. To find the next big thing, the company was in desperate need of a more sophisticated innovation approach and unlike other companies, Sony was motivated to change. For example, the company organized cross-functional international expert meetings to brainstorm about artificial intelligence to harvest its organizational knowledge from internal and external stakeholders (Nakafuji, 2016). Sony also implemented training and job rotation of its engineers to widen the understanding of each employee about technology, market needs and manufacturing processes. Also, prototyping became more important which - the company hoped - encourages knowledge transfer. Eager to increase its innovation efforts, Sony also extended its scope to external partners and suppliers (Harryson, 1997, p. 291ff.). Focusing more on the idea of external knowledge as a source of innovation input, Sony used the open innovation practice to have constant idea inflow via the exchange between its internal departments and outside customers or communities. In 2016, the company launched its Future Lab to “open the innovation […] [and listen to the] real voice of the customers”, says Makoto Murata (Lee, 2017). By solving bugs or problems externally in online communities, companies can save costs as they can get the solutions basically for free without much effort thanks to the engagement of the users inside the community (Munir, Linaker, Wnuk, Runeson & Regnell, 2018, p. 187ff. & p. 214). Recently, Sony got recognized as one of the most innovative companies in consumer electronics which demonstrates that the company – in a certain way - was successful in improving their innovativeness (FastCompany, 2018).

While taking financial losses in the past years, Sony managed a turnaround regarding its financial performance with the first operating profit in the last couple of years. The company restructured itself and opened-up its innovation management (Kelleher, 2015; Inagaki, 2017). Together, this contributed to the company’s well-being after recent struggles. The ability to innovate is a critical influence factor on performance to gain the edge over competition (Tidd & Bessant, 2009, p. 5ff).

3.1.2. The rise and fall of BlackBerry

The first thoughts that come to mind referring to BlackBerry is somewhat between underestimation of competition, inability to adapt or missed market opportunities. In 2008, the company was valued at around 80 billion US-Dollar which decreased to under a single digit billion evaluation. Additionally, the market share decreased to 5% from previously 70% in North America (Taulli, 2013; Gustin, 2013). How could this happen to a big market player in a relatively short period of time who was once named “CrackBerry” (Hohensee, 2013; Gustin, 2013) to show its addictive power and market dominance? As Gustin (2013) emphasizes, BlackBerry failed to envision the market trends and needs of the customers. The company missed the emergence of the app economy and failed to acknowledge that smartphones evolved from a communication device to a personal-assistant all-around device with lots of features. Therefore, a misaligned strategy and vision, in which direction the smartphone market will head and how the products for the market should look like, were the results. The company was stubborn to adapt its keyboard smartphone to a touchscreen phone and only did so when it was too late. When BlackBerry launched its own touchscreen phone, consumers saw it as a bad imitation with inferior performance which harmed BlackBerry’s reputation (Muthukumar, Ramakrishnan & Krishnamacharyulu, 2017, p. 7f.; Gustin, 2013). As Arthur (2013) mentions, BlackBerry had the opportunity to adapt but was unable to make the right management and strategic decisions.

Jim Balsillie, co-CEO of BlackBerry, is quoted when asked about the new launch of Apple’s iPhone in 2007: “The recent launch of Apple’s iPhone does not pose a threat to Research In Motion Ltd.’s consumer-geared BlackBerry Pearl and simply marks the entry of yet another competitor into the Smartphone market” (Tofel, 2013). Although being the leading player in the smartphone industry, the company simply failed to see the impact of the new product, made the wrong adaptions and was wrong about its market trend analysis. Dwindling sales, stock value loss, loss of reputation and sinking brand trust were the results (Muthukumar et. al., 2017, p. 8ff.). Although BlackBerry recently tried to implement a lot of changes, the company still suffers from the missed market opportunity (Jacobides, 2013).

To summarize, the inability to adapt correctly, a wrong strategy and not seeing the market demand as well as the wishes of the customers led to a crushing end of the once so dominant smartphone company BlackBerry. A disruptive innovation new to the market made the company basically disappear from the market landscape. In the case of BlackBerry, trend analysis, customer needs, idea generation and leadership are important factors when it comes to assessing the current status in the market as well as the ability to innovate, adapt and sense market opportunities. Most importantly - to a certain degree - customers are shaping the market not the products companies pour into it (cf. Roberts & Grover, 2012, p. 583f.; Lindblom, Olkkonen, Mitronen & Kajalo, 2008, 230ff.)

3.1.3. Open Innovation fueled Procter & Gamble’s innovation pipeline

The consumer good company Procter & Gamble (P&G) realized that R&D investment and increasing global competition are threats for its business operations. A mismatch in the growth of R&D, innovation and technology cost and the growth of its sales raised concerns because their actions and efforts did not translate 1:1 into sales. Historically, the company relied on innovations to compete with its competitors and identified that it mainly used ideas and sources from within the organization rather than looking for solutions in the business environment (e.g. from stakeholders) (Dodgson, Gann & Salter, 2006, p. 337). Huston and Sakkab (2006, p. 60) state that P&G needs a cultural change from resistance to welcoming outside ideas. Opening and giving up its protective attitude should benefit revenues for its stakeholders (Agafitei & Avasilcai, 2005a, p. 5).

The company implemented the connect and develop strategy which increased their productivity by nearly 60% and the likelihood of successful innovations by over 100% while costs to innovate and R&D investments decreased. Additionally, Procter & Gamble aimed for speed, collaboration, and simplicity by connecting outside innovators with internal departments and therefore launched a new website solely focused on idea generation. This platform allowed P&G to gather data and information and focused on needs of the company and pain points of the customers to propose their solution to a certain problem and simply improvements to an existing product. In 2013, this approach yielded the first results as P&G launched seven of the top ten products into the market. Several other changes included partnerships with academic institutions, joint ventures or other forms of collaborations (Ozkan, 2015, p. 1499f.; Agafitei & Avasilcai, 2015b, p. 2ff.).

Procter & Gamble managed to increase its idea generation pool significantly by harvesting and integrating external knowledge sourcing into its corporate culture. Over 45% of the new product development initiatives have their roots externally and over 35% of new-launched products in the marketplace come from ideas discovered outside the company (Huston & Sakkab, 2006, p. 60). Frishammar and Hörte (2005, p. 255ff.) conclude that collaboration and using external knowledge is linked with the innovation performance of a company. By strengthening the company’s ability to exploit and use external knowledge, Procter and Gamble was able to decrease costs and increase its innovativeness at the same time. Furthermore, the strategy directly impacted the product portfolio of P&G as nearly half of the products contain elements from external partners.

3.2. Best-practice: Marketing

Marketing plays an integrational role in the success of the company when carried out correctly (cf. O’Sullivan & Abela, 2007, p. 80ff.). Communicating the message of the brand and the values are essential to attract customers and persuade them to buy the company’s product. A high visibility and a well-known brand can help to establish a high market power as well as a bigger market share (Chi, Yeh & Yang, 2009, p. 141; Macdonald & Sharp, 2000, 12f.; Hoyer & Brown, 1990, p. 147). The following examples will demonstrate how a well-executed marketing strategy and efforts lead to a lasting superior performance.

3.2.1. Innocent – from zero to hero

The smoothie producer innocent took a remarkable development since its foundation in 1998 and is now considered as one of the leading companies in its industry. Starting with basically no to little budget for marketing, innocent succeeded with its marketing strategy that reached high recognition in the customers’ minds. But how did they do it. First, they changed the labels and packaging strategy on their bottles to more colorful, fun and enjoyable ones and defined their brand values. This shaped their brand image and customers believed their advertisements. Furthermore, innocent used cause-related marketing campaigns (e.g. wool knitted caps by elderly women as a marketing campaign in the winter with a donation for each sold innocent drink) that demands customer involvement and engagement. Also, thanks to their ability of good storytelling, the company reached high customer interactions (e.g. 35% engagement rate on twitter) with this strategy (McEwan & Langdon, 2015). This created high brand awareness and boosted innocent’s brand equity (Brown & Grayson, 2008, p. 175ff.).

As McEwan, the companies head of digital and communities is quoted “[innocent] talked to people on [their] packaging and used it to invite people to get in touch […] and […] always talked like human beings […] [and] use social listening tools to see what people are saying about our brand” (McEwan & Langdon, 2015) which underlines the customer-focused marketing efforts as the company tries to gasp the consumers wishes, desires and expressed experiences with the products. After innocent had established a clear brand image, the company expanded to much larger retail stores which helped it to surpass its competitors in sales and market share (Brown & Grayson, 2008, p. 176).

High brand awareness and a trustworthy brand combined with brand involvement, are beneficial characteristics to push performance of a company (Chaudhuri & Holbrook, 2001, p. 90f.; Delgado-Ballester & Munuera-Alemán, 2005, p. 192). Engagement with the brand leads to an emotional attached customer who is more likely to spread positive word-of-mouth (WOM) which in return leads to higher brand awareness and ultimately to greater firm performance (Grisaffe & Nguyen, 2011, p. 1057f.; Fedorikhin, Park & Thomson, 2008, p. 289f.; cf. Brocato, Baker & Voorhees, 2014, p. 216f.). Even more important, innocent aims to become a learning organization by establishing an own academy to train employees inhouse rather than import external learning (Brown & Grayson, 2008, p. 177). Alegre and Chiva (2013, p. 500f.) show that an organizational learning culture has a positive effect on the performance of the company.

The case of innocent has some key takeaways how great marketing efforts lead to a superior performance of the company. The strong recognizable brand image, clear communicated values and the engagement of the customers are positive influence factors on how innocent performed. More precisely, brand trust, loyalty and attachment are important characteristics of a marketing strategy to build a successful brand. This led to a superior performance compared to innocent’s competitors with the result of higher sales and market share.

3.2.2. Simplification, Excitement and Atmosphere: Apple’s secrets to successful marketing and product placement

Having a powerful established brand influences the customers perception about the product greatly and proves to be one of the most important differentiation factors. Apple understands to transform its positive reputation and market-perception into money. However, the case of BlackBerry proves instead that having a great brand name does not mean infinite and ongoing success. Effective brand and marketing strategies are keys to gain advantage over competition. Apple focuses on customer excitement and involvement (Abimbola, 2010, p. 177ff.) Further, the company strives for simplicity and therefore reaches not only tech-heavy but likewise young and elderly customers. According to a study, simplified decision-making improves the likelihood of buying among the surveyed participants by 86% (DeMers, 2014). Stressing the importance of simplicity, Apple focuses on improving their products, ergo following the principle of quality over quantity regarding its product portfolio. In contrast to its competitors, the firm only spends around 3% of its revenues on R&D. A customer-insight approach drives Apple’s products. (Davies, 2012).

Apple understands how to create buzz around its products. Besides its simplification and intuitive usage for the customer throughout the whole product portfolio, Apple can electricize its users before and after the launch of a new phone or tablet which then leads to positive word-of-mouth among potential buyers which in return leads to greater sales (Bughin, Doogan & Vetvik, 2010, p. 6ff.). The firm is great in leveraging customer reviews to its advantage which leads to a stronger brand image (Kulkarni, 2016). With its Think different marketing campaign, the firm targeted the self-image of its customers to shape its status as unique, different, special and appealing brand. The company targets emotional elements to create brand attachment and its brand image which established Apple in the market. Also, Apple can sell the customer not only a product but lifestyle and a sense of identity which reflects the company’s integration efforts of all its product into a unique ecosystem. Additionally, the firm always creates an aura of curiosity and mystery around its products. Because the company focuses on its unique selling proposition, Apple is able to avoid heavy price wars (Payne, 2017, p. 52ff.; Moormann, 2018; Kulkarni, 2016).

Apple a great example for marketing strategy because the company understands to excite its customers, shifts the focus on emotions and its unique selling proposition rather than solely their product (e.g. provide more to the product than simply the product itself) and simplifies the buying decision for the customers. Therefore, Apple can maintain its market position although having fierce competition and build up huge market-leading capabilities that are hard to imitate.

3.3. Best-practice: Human capital

A company does not work without employees and employees do not work without a company. Besides innovation and marketing, human capital is one of the cornerstones when distinguishing winning from losing companies. The right corporate culture, organizational structure or leadership style can greatly influence the financial performance of an organization (cf. Wilderom, van den Berg & Wiersma, 2012, p. 844ff.; Barney, 1986, p. 663f.). The right incentives and stimuli help to improve the company’s bottom line. Furthermore, competitive advantages can be built when culture is hard to imitate, rare and valuable (Barney, 1986, p. 657ff.). The focus in this chapter lies on the exploration of how companies with good human capital practices are ahead of their competitors and how their financial performance increased due to the practices the companies implemented.

3.3.1. How Google’s empowered employees help to drive business performance

The well-known tech company Google implemented some practices to create an organizational culture where employees are viewed as the source of innovation and drive company’s performance. It all starts by the hiring practices of Google as they try to add people to their workforce that possess the Google DNA and fit into the corporate culture (Wojcicki, 2011, p. 35; Tran, 2017, p. 4). What sounds easy achievable, finding, hiring and maintaining the right employees for the company is harder than on first sight (Palazzo & Kleiner, 2002, p. 51ff.). As Al-Masri (2018) points out being able to hire and maintain the right talent organizations need “to create and customize a comfortable work environment”.

And that is exactly what Google did. Google created an open space café where employees from different departments can meet to exchange ideas, interact with each other and support or get feedback on new concepts they are working on. Advancing the idea of knowledge transfer, the company also implemented a project that allows employees to spend 20% of their work time on their own projects. Moreover, ideas from everyone are welcomed as Google encourages company-wide discussions, open communication and a strong knowledge transfer through all hierarchy levels and different departments.

Additionally, Google implemented the concept of trusted working hours, where employees can basically do whatever they want as long as they finish their tasks in time. Employees also have an influence on the managers they are working for. On a steady basis, employees are surveyed about their supervisor. The results are used to improve the leadership skills. (He, 2013, p.1f.; Wojcicki, 2011, p. 35). Google recognizes that great leaders take an inspirational role to push the employees to their maximum rather than just managing the status quo and that leaders influence the corporate culture by providing a vision, leading by example and setting the rules (Tran, 2017, p. 5ff.). Also important are common values across the entire organization to align everyone on the strategy and goal. The alignment does not stop there as Google wants to create a workplace shaped by its employees’ needs (Forbes Technology Council, 2018). Additionally, Google’s culture is welcoming mistakes, failures and wild ideas to encourage idea generation to find the next big breakthrough (Tran, 2017, p. 4).

By implementing the described concepts and others, the employee satisfaction rose by 37% and at the same time the productivity went up by 12%. Google heavily invested in employee satisfaction and the rise of its employee friendliness score. A higher score is associated with a better financial performance and functions as a buffer for harsh business situations (Krapivian, 2018). Therefore, Google’s key to a better performance can be found in their empowered employees, the knowledge transfer in their open space café as well as their 20% policy. All of this contributed to a higher employee satisfaction level and helped to push the productivity of the company. Clearly, this also supports the internal ability to innovate because Google can use the employees’ projects as a new source of idea generation and add them to the idea pool to create new products. The integration and empowerment of employees in combination with the corporate culture Google developed shows how non-financial elements can improve a company’s bottom line, performance and financial well-being.

3.3.2. Publix Super Market’s outperforms competitors due to organizational culture and empowered employees

Another example for outstanding human capital practices is the largest employee-owned company in America - Publix Super Market (Solomon, 2013, p. 97). Publix Super Market, an American grocery chain, is constantly outperforming its much larger competitors (e.g. Wal-Mart, Kroger, Whole Foods). They achieve this by defining a culture of employee appreciation where people get recognized, their hard work is acknowledged and their commitment to the company is strong. The employees can earn stocks in the company, receive tremendous training and development of their skills, and can share their knowledge about possible improvements. Also, the integration and involvement not only of the employees but also of the other stakeholders is highly prioritized. Customer interaction and getting to know the customers is one of the most important success factors of Publix. To achieve this, the company wants to create a shopping environment where customers shop with joy and pleasure. This approach led to the highest score on the American Customer Satisfaction Index for twelve consecutive years. Additionally, the company outperforms the S&P 500 and their respective peer group index in terms of return on investment (Mujtaba & Johnson, 2016, p. 48ff.).

Publix understands superior customer service as “a race without a finish line in today’s fast-paced world” (Mujtaba & Johnson, 2016, p. 50). That is why the company launched a steady and ongoing training program for its departments and employees to continuously improve their skills. To create customer intimacy, customer value and superior customer service, employees at Publix go through four phases mainly concerned with understanding customer needs (e.g. what he or she really expects when grocery shopping) and building up a strong relationship with them. More importantly, because the company collects data about their customers, Publix understands that communication is a leading factor in driving performance. Therefore cross-functional teams come together and discuss failures and successes to find new solutions and room for improvement to improve the overall performance (Mujtaba & Johnson, 2016, p. 48ff.). Speaking of which, Solomon (2013, p. 96f.) who praises Publix as the “Wal-Mart-Slayer” points out that Publix is outperforming its competition regarding the net margin (5.6%, compared to Wal-Marts 3.8%, Kroger 1.6% or Whole Foods 3.9%).

To summarize, Publix achieves a unique position in the hard-fought grocery industry due to its integration of its employees (e.g. stocks, decision-making, training and development, etc.) and its customer service which led to a strong financial and non-financial performance over the last couple years and, more importantly, over its fierce competitors. Linking the theory from chapter 2.4. to the case of Publix, it becomes obvious that the company mastered the communication issue and aligned it operations with its goal of superior customer service.

3.3.3. Leadership style at Nike pushes its employees and its performance significantly

There are many different leadership styles with unique characteristics but which of them describes the style of Nike best? One way to find out is to look at recent media coverage and interviews from employees and how they describe the perceived style of leadership of their chief executive officer (CEO). In this case, a closer look at Mark Parker, Nike’s current CEO since 2006, will be taken.

Phil Knight, Nike’s co-founder, praises his CEO, stating that he has been “a nine-year sensation“ with a “thoughtful [and] demanding style” (Lashinsky, 2015). Parker sees himself as an editor who puts a lot of emphasize on helping others foster their ideas and can recognize potential. Andy Campion, chief financial officer (CFO) of Nike, highlights that “[Parker’s] questions are often either leading or directive” (Lashinsky, 2015) to point out his critical attitude to nudge people to better decision through reflecting their own ideas and come up with the best solution possible. This tactic of encouraging teams to find a solution themselves is proved to have a better record of being successful and boost the overall performance. It also helps the employees’ development (Walumbwa, Avolio, Zhu, 2008, p. 811ff.). Furthermore, Parker is quoted saying that Nike “[has] incredibly strong people [who] know what to do” (Lebowitz, 2015). But Parker is not only pushing internal employees to fulfil their potential but also exploring external options to change the status-quo as he actively sought out for NBA commissioner Adam Silver to talk with him about digital customer services and connections to improve the customer experience. In addition, Nike systematically explores new production technologies such as 3D printing, automatization or next-gen knitting technology (Lashinsky, 2015).

The key findings from those statements are mainly two things: the right leader possesses the ability to critical reflect ideas while pulling people into the right direction and his or her open mind-set allows him to actively seek out innovations to explore game-changing things to challenge the current state-of-the-art. It is important to notify that the leadership style at Nike encourages employees to reach their full potential. Those characteristics match quite well with the ones of a transformational leader who possesses charisma, idealized influence, inspirational motivation, intellectual stimulation and individualized consideration (Metcalf & Benn, 2013, p. 374ff.; Oke, Munshi & Wakumbwa, 2009, p. 65). Since Parker took the reign in 2006, the financial performance of Nike skyrocket. Nike’s stock price took a steep increase of plus 505% and the sales volume doubled at the same time with growth rates of 8.5% per year (Lashinsky, 2015).

The conclusions that can be drawn from the presented leadership style are mainly, that a leader is able to influence, nudge and push his or her employees, to guide and shape the strategy of the company and therefore partly creates the working environment and corporate culture of an organization which – in the end – is important for the performance of the company (Kark, Shamir & Chen, 2015, p. 253f.). Therefore, leadership needs thoughtful consideration when assessing the performance of a company.

3.4. What do the best-practice examples teach us?

The ability to innovate and forward-looking performance measures are not easy to describe or use. There is strong evidence that financial performance and non-financial performance of a company are both equally important when assessing the firm’s success. Especially innovation, marketing and human capital capabilities play an important role. Although there are still many mistakes made by companies when assessing their current level of performance (e.g. misaligned strategy or vision, wrong focus, etc.), the best-practice cases show how some real-life examples improved their bottom line with slight or radical changes in their company or shifts in their strategy. A short summary of each case will be presented.

Sony

R&D spending has to be done wisely and more money does not (necessarily) translate into more innovations. Cross-functional and interdepartmental meetings contribute toward the company’s innovativeness. Knowledge transfer helps to innovate. External knowledge from different partners benefits the innovation pipeline and boosts the quantity of ideas generated. Open Innovation and the integration of the firm’s (internal and external) stakeholders increased the number of concepts, ideas and products.

BlackBerry

Foreshadowing market trends and the ability to adapt or change quickly is necessary to stay relevant. Being able to make the right adaptions and draw suitable conclusions from the market needs is important.

Procter & Gamble

A company needs a corporate culture that is willing to learn, open-up and change from resistance to welcoming outside ideas. An ongoing collaboration between external and internal stakeholders increases the number of ideas. Organizational culture influences the ability to innovate.

Innocent

Know why one is doing his or her business, how one is doing it and what one is doing. Precisely, know the values, vision and mission to create the brand core. Create brand trust, customer engagement and involvement. Customer-oriented marketing strengthens the brand image as wishes, needs and perceptions of the customer about products can be integrated. Emotionally attached customer spread positive word-of-mouth. Customers talking about the product can create high numbers of interactions which increases brand awareness.

Apple

Brand trust, loyalty and attachment are important elements that should be considered in a marketing strategy. Simplifying the decision-making process for a potential buyer proves to have a positive influence on his or her purchase-decision. Influencing or manipulating the unconsciousness of a customer when buying a product increases the likelihood of a purchase. Excitement and the feeling of receiving more than just a product helps to establish strong customer bonds.

Google

Empowered and integrated employees influence the overall performance of a company. An entrepreneurial mindset and the time to work on own projects improves the ideas generated for possible products. Furthermore, encouraging company-wide discussions, open communication and a strong knowledge transfer through all hierarchy levels and different departments opens boundaries and shows that organizational culture plays an important role in the innovativeness of a firm.

Publix

Employees are valuable assets to improve a company’s performance. Shared values and an alignment with the firm’s strategy benefit the well-being of the organization. Customer and market-orientation help to deliver superior performance which in return increases financial performance. Company-wide communication in diverse teams improves the bottom line.

Nike

The right leadership style is important since it influences the performance of the employees, shapes the strategy of the company and therefore partly creates the working environment and corporate culture of an organization. Also, a great leader can push the innovation efforts of a company.

These conclusions build the basis for further analysis and provide a first step toward which dimensions and elements are important to predict whether a company will perform in the future or not. The conclusions should not be viewed separately but jointly as they influence each other or function as a mediating link between them. The presented takeaways will be supported by theoretical research. Even more importantly, the studies will help to add more information or other dimensions not covered or explored by the best-practice cases. The next chapter will therefore help to provide evidence why the conclusions help to identify proactive performance measures.

4. Analysis and supporting research studies

What are takeaways and brief ideas from the best-practices presented? And how do they help to develop a suitable proactive set of KPIs? From the presented success stories or failures, conclusions about what most likely should be measured to be successful in the future can be drawn. To support the presented and implemented practices, there is some research on influence factors linked to the overall company performance. The next step is to explain, derive and present proactive KPIs and how a framework of these could look like.

4.1. Studies supporting best-practice implementations of the companies

Several studies help to support some of the implementations and why exactly these helped the companies to a better performance. Research demonstrates that there are certain direct or indirect links between factors influencing the business performance but hardly explain how there might be connection to future success. However, there are some conclusion that can be drawn and some hints that are useful to develop forward-looking performance measures. This chapter will explain why innovation, marketing and human capital influence performance from a scientific background. Studies will be used to show prove of the proposed categories. The findings from the best-practice examples will be used to refine those terms into sub-categories (see figure 1).

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: Influence of different Dimensions of Innovation, Marketing and Human Capital on Future Performance

4.1.1. Innovation

The best-practice takeaways show that there are some elements that distinguish successful products from failures. Generally, as Calatone et. al. (2001, p. 522) prove in their study, the ability to innovate has a positive and significant influence on the performance of the organization. Similar results come from Jiménez-Jiménez and Sanz-Valle (2011, p. 414f.), Han, Kim and Sivastava (1998, p. 38ff.) and Alegre and Chiva (2013, p. 499ff.). Rubera and Kirca (2012, p. 138ff.) conducted a meta-analysis on the effects of innovation on firm performance and demonstrate a direct link between innovativeness and firm value. Furthermore, they show that innovation is also indirectly linked to firm value via market and financial positions.

As research suggests an influence of innovation on firm’s performance, a deeper analysis into what contributes to high innovativeness or, more precisely, to the ability to innovate will be presented.

External knowledge sourcing

Enhancing the findings of the best-practice approach, external knowledge is one element contributing to a higher degree of innovativeness. As Frishammar and Hörte (2005, p. 259ff.) prove, external knowledge sourcing is beneficial for a firm’s innovation efforts. Scanning the business environment and constantly monitoring it for changes is an important instrument for gathering external information. Additionally, collaboration positively contributes to the ability to innovate. Berchicci (2013, p. 125) supports the view of a positive relationship between external knowledge sourcing and organizational innovation. However, he stresses the importance of a balanced approach between external and internal information exploitation as well as the internal capability to balance them. In a study conducted by Brunswicker and Vanhaverbeke (2015, p. 1258f.) about external knowledge influences on the ability to innovate of small and medium-sized enterprises, the results show that external information gathering offers performance enhancements. A company should scan the whole ecosystem or its supply chain to get new ideas for new products. Frenz and Ietto-Gillies (2009, p. 1132) also support the view that collecting concepts from different ecosystems and environments positively influences innovation performance of a company. A similar result is found by Nieto and Rodríguez (2011, p. 358f.). Using foreign knowledge as a source for a company’s own innovation pipeline produces better innovation results in terms of product innovations. To profit from external partnerships, knowledge or collaborative approaches with horizontal or vertical partners, companies need to match to a certain extent with their respective partner in their intentions and motivations (e.g. strategy, willing to collaborate, similar process and organization). To build a long-lasting and profiting relationship, possible partners need to see trust and collaboration as their primary motivation to enter a value-creating cooperation (Cambra-Fierro, Florin, Perez & Whitelock, 2011, p. 453ff.; Cavusgil et. al, 2003, p. 14f.; Belderbos, Carree & Lokshin, 2004, p. 1486-1490).

Internal knowledge transfer and communication

External knowledge stimulates idea generation and leads to higher innovation. Some researchers point out that the company also needs the internal tools to translate and absorb the external concepts collected into new products or services (Díaz-Díaz & de Saá-Pérez, 2014, p. 439f.; Tsai, 2001, p. 1000ff.). Supporting the internal ability to innovate, internal knowledge transfer and communication is one element that not only fosters innovation but also lies the foundation for an innovative organization with the ability to absorb external knowledge (cf. Sarooghi, Libaers & Burkemper, 2015, p. 727; Birkinshaw et. al., 2008, p. 839f.; Tsai, 2001, p. 1002f.; Clausen, 2013, p. 67ff.; Segarra-Ciprés, Roca-Puig & Bou-Llusar, 2014, p. 210). There are five different elements companies should focus on to guarantee knowledge transfer: enabling and sharing tacit knowledge, explicit knowledge, collaboration, managing the knowledge lifecycle and culture (du Plessis, 2007, p. 23ff.).

Prove for the importance of internal knowledge sharing and cross-functional and interdepartmental communication comes from various researchers. Tacit knowledge transfer among employees in an organization stimulates the innovation capability (Cavusgil et. al., 2003, p. 14f.). The communication of this type of knowledge is needed to enhance firm’s performance. Internal actors need to collect and assimilate shared knowledge. When willingness and enjoyment of helping others are traits in the workforce, this process happens even faster (Lin, 2007, p. 324ff.; Hau, Kim, Lee & Kim, 2013, p. 364). According to van Wijk, Jansen and Lyles (2008, p. 843ff.), trust, teamwork and strong bonds also play important roles to enable knowledge transfer and creative thinking (cf. Lee & Wu, 2010, p. 146f.; West, 2002, p. 379f.). These findings also imply that hiring the right talents with the right skills can be critical for the ability to innovate. Further, this also influences the ability to maintain a high level of innovation capability within an organization.

Maurer, Bartsch and Ebers (2011, p. 173) give evidence that knowledge transfer links social capital to firm performance. They see the mobilization, assimilation and use of the employees’ knowledge as critical success factors for value creation. Also, communication within an organization proves to have an influence on performance (cf. Chen & Huang, 2009, p. 112, Yates, 2006, p. 79). According to Martins and Terblanche (2003, p. 72f.) open and transparent communication within an organization promotes the ability to be creative and to be innovative. Additionally, Pincus (1986, p. 412) demonstrates that the perceived communication within an organization influences the job satisfaction and job performance of the employees. According to White, Vanc and Stafford (2010, p. 74ff.) employees feel more appreciated when the communication flow is cross-hierarchical which gives them trust into the management which in return leads a sense of community and affiliation with the company. Karanges, Johnston, Beatson and Lings (2015, p. 130) come to a similar conclusion as they discovered that internal communication leads to greater social exchange and a stronger organization-supervisor-employee relationship based on appreciation and acknowledgement. In combination with the findings of Hatane (2015, p. 627), who shows an indirect and direct link between a learning organization and financial performance where employee satisfaction and performance function as mediators, those findings demonstrate the relationship between the different dimensions and how they relate to each other.

Organizational culture

Albertini and Berger-Remy (2019, p. 236f.) see organizational capital as a major influence factor on financial performance since it is not tradeable, owned and sustainable. The culture of an organization stimulates innovativeness and proves to be another critical factor when boosting the bottom line (cf. Barney, 1986, p. 663f.; Sarros, Cooper & Santora, 2008, p. 154). Also, critical for an organization is the adaptability and response to change, flexibility and the willingness to learn. Calantone et. al. (2002, p. 522) prove that an organization with a learning-orientation is more innovative (cf. Argote & Fahrenkopf, 2016, p. 156). An organization committed to learning wants to gather information from its environment, customers and competitors. Jiménez-Jiménez and Sanz-Valle (2011, p. 414f.) demonstrate that organizational learning influences performance and innovation. Similarly, Alegre and Chiva (2008, p. 323) show that the ability of an organization to learn enhances product innovation performance. Lundvall and Nielsen (2007, p. 219) argue that a long-term advantage over other firms can only be sustained when the company has a certain capability of learning and forgetting. Therefore, the key competence is to widen the learning horizon and to build up a learning organization which can adapt to changes. Also, a high degree of receptivity of an organizational culture toward new ideas has a positive impact on the firm’s innovation performance (Hurley & Hult, 1998, p. 51). The findings of a study conducted by Prajogo, and Ahmed (2006, p. 510) show that the right organizational stimulus (e.g. supporting the generation of new ideas) and the capacity for innovation play important roles in the firm’s innovation process and innovation performance.

A culture that is open for mistakes and discussions where employees are encouraged to present their ideas without being harshly criticized also supports creativity and innovativeness of the organization (Martins & Terblanche, 2003, p. 72; DiLiello & Houghton, 2006, p. 329). Song, Dyer and Thieme (2006, p. 351) support a positive conflict environment and show an influence of constructive discussions on the innovation performance of the company (cf. Paul, Seetharaman, Samarah, Mykytyn, 2004, p. 316). Organizational cultures concerned with respect and appreciation for the employees’ work, focus on team orientation and interpersonal relationships even influence the retention rate of the workforce which cuts costs of hiring and training (Sheridan, 1992, p. 1049ff.). These findings are useful since they show that the right stimuli, values and tools within an organization significantly influence the performance of the company via many different mediating factors (e.g. employee satisfaction or innovation capacity).

Market-orientation

External knowledge sourcing, internal capability, knowledge transfer and a supportive organizational culture have a positive and significant influence on the ability to innovate of a company. However, a firm must be able to foreshadow and sense customer needs and market trends. The example of BlackBerry demonstrates what can happen when a company misses shifts in desires and needs of customers.

A meta-analysis by Cano, Carrillat and Jaramillo (2004, p. 191) demonstrates that being more efficient and effective than competitors in sensing, satisfying and integrating market and customer needs gives the company an edge over industry rivals (cf. Iyer, Davari, Zolfagharian & Paswan, 2018, p. 5). More precisely, using macroeconomic factors as a source of idea generation as well as the ability to respond to market changes quickly, contributes to the longevity of businesses (cf. Roberts & Grover, 2012, p. 583f.). A similar conclusion is presented by Ellis (2006, p. 1101f.) who provides evidence for a link between market-orientation and business performance. Additionally, the author shows how a culture responds to changing customer needs and why this leads to superior results over competing companies. In another study, Han, Kim and Srivastava (1998, p. 40) show that market-orientation impacts business performance where the organizational ability to innovate functions as a mediating link between those two. Therefore, the combination of organizational innovation capability, market-orientation and sensing shifts in the industry environment are connected and contribute to a higher innovation performance. The ability to sense new trends and to draw the right conclusions plays a vital role in the longevity of a company. Lindblom et. al. (2008, p. 230f.) show that sensing, sense-making and response ability affects business performance in terms of growth and profitability (cf. Slater & Narver, 2000, p. 71). Not only does external market-orientation play a great role in the ability to innovate but also the internal market-orientation and networks. A company must possess willingness to learn, knowledge transfer, shared culture, market knowledge, and an open mindset to benefit from internal market-orientation (Cambra-Fierro, et. al., 2011, p. 458). According to Olavarrieta and Friedmann (2008, p. 629), market-orientation significantly influences the performance of a company and additionally proves to stimulate innovativeness within an organization where knowledge transfer is the important mediator between market-orientation and performance. Noble, Sinha and Kumar (2002, p. 36) add a more detailed view on market-orientation. Even though they also conclude that market-orientation is an important factor for firm performance, the researchers point out that there are different nuances of market-orientation (e.g. selling orientation or competitor orientation). For different firms depending on their business environment there is also a different market strategy (cf. O’Cass & Ngo, 2007, p. 19). Furthermore, Noble et. al. (2002, p. 36f.) stress the importance of branding in a company’s marketing strategy.

4.1.2. Marketing

Besides different elements for the innovativeness of a company, the right marketing strategy also leads to greater business success when organizations utilize on existing market-based resources (cf. O’Sullivan & Abela, 2007, p. 80ff.; Hooley, Greenley, Cadogan & Fahy, 2005, p. 25). In a meta-analysis conducted by Edeling and Fischer (2016, p. 531), the two researchers show the influence of marketing on firm value and performance where brand and customer assets are the most important factors. However, they also say that not every single Dollar spend on marketing activities translates 1:1 into revenues. Important evidence also comes from Schroiff and Schlüter (2018, p. 68) who define four essential marketing dimensions: market-orientation, customer satisfaction, customer loyalty and brand equity which will be picked up in the next sections.

Brand performance

A widely known strong brand helps companies to outperform competition and to gain more market share because customers develop attachment and trust towards the company (cf. Esch, Langner, Schmitt & Geus, 2006, p. 103; Aaker, 1997, p. 353f.; Hoyer & Brown, 1990, p. 147; Gromark & Melin, 2011, p. 407). A brand is a resource owned by the company (Urde, Baumgarth & Merrilees, 2013, p. 14) which is evolving over time as the brand integrates, uses and reshapes elements gathered from the market (Urde et. al., 2013, p. 18). Brand strength or brand image with elements of brand awareness or recognition, identity, trust, loyalty, reputation, involvement and communication contribute towards desired marketing outcomes and a great brand performance. These factors all impact the perceived image and positively influence the overall strength of the brand.

Brand awareness

In a study conducted by Hoyer and Brown (1990, p. 147), the authors provide evidence that brand awareness in general influences the purchase-decision of customers. Hoyer and Brown show that customers tend to buy a product from a brand they already know. In a replication of the study of Hoyer and Brown (1990), Macdonald and Sharp (2000, p. 12f.) derive at a similar conclusion as they point out that brand awareness is an important factor when a customer makes a purchase. Therefore, reducing the brand uncertainty (e.g. increase the brand awareness of a product) of customers about a product should positively influence the performance of the brand (cf. Ghosh, Chakraborty & Ghosh, 1995, p. 19). Chi et. al. (2009, p. 141) support these findings as they state that higher brand awareness leads to a greater intention to buy a product. Also, the researchers add that brand awareness is related to the perceived quality of a product. Because many customers spend little time on their purchase-decision, brand awareness helps to influence the unconsciously decision-making process for a specific brand or product. Customers follow an awareness-trial-reinforcement tunnel where little to no cognitive thoughts are spent (Huang & Sarigöllü, 2014, p. 126f.). These findings are important as they demonstrate that brand awareness influences the purchase-decision of customers who in general decide unconsciously. Therefore, a strong brand is easily recognized by potential buyers which in return should lead to more sales and a higher repurchase rate.

Brand identity

Brand identity consists mainly of the company’s core values, vision, mission, positioning, characteristics, culture and perceived presentation (cf. de Chernatony, 1999, p. 166; Urde, 2013, p. 750f.; Harris, de Chernatony, 2001, p. 453). The identity of a brand needs thorough consideration as well as constant reevaluation to respond to changed market conditions. However, this does not mean that the identity should always change. Primarily, this should help to establish consistency in the different dimensions rather than re-creating the identity every other week (da Silveira, Lages & Simões, 2013, p. 33ff.). Brand identity is an essential element in the branding strategy of a company consisting of different assets (e.g. core values but also packaging, colors or logo) (Mindrut, Manolica & Roman, 2015, p. 401). According to Buil, Catalán and Martínez (2016, p. 9f.) corporate brand identity positively influences employees’ commitment, brand performance and job satisfaction. Additionally, Casidy, Prentice and Wymer (2018, p. 11) demonstrate that brand identity affects the customers’ willingness to pay in their study conducted in the service industry. Also, brand identity is positively related to the intention of purchasing a product or service (Chi, Yeh & Yang, 2009, p. 141). Concluding from the presented studies, brand identity functions as an important element to reach desired brand performance outcomes while also positively affecting the working attitude of employees.

Brand trust

To build up brand equity, research suggests that companies possess high brand trust (Delgado-Ballester & Munuera-Alemán, 2005, p. 192f.). Brand trust impacts the business performance of a company since it is directly linked to purchase loyalty, and indirectly to market share and price (Chaudhuri & Holbrook, 2001, p. 90; Chaudhuri & Holbrook, 2002, p. 51ff.). A higher market share is in general favorable for companies as this increases their respective market power. Delgado-Ballester and Munuera-Alemán (2001, p. 1253f.) conclude that brand trust plays an integrational part for customers’ expectations. More precisely, the researchers show that brand trust influences customer commitment, involvement and overall satisfaction with the brand. These advantages give companies a more loyal customer-base who is more tolerant to price, quality and service changes. As customers try to reduce their perceived risk and simplify their decision-making, a focus on credibility and benevolence leads to more attached customers with a higher commitment and trust toward the brand which in return positively affects brand loyalty (Matzler, Grabner-Kräuter & Bidmon, 2008, p. 158f.).

Brand loyalty

Speaking of brand loyalty, a loyal customer-base is a beneficial asset for companies as it provides them with more forgiveness for mistakes or price increases as discussed in the previous section. In a study conducted by Amine (1998, p. 314ff.) keeping customers loyal and committed to the brand in the long run should be of high interest of companies as this helps to maintain the edge over competitors. Also, brand loyalty helps companies to make purchase patterns of customers more predictable which supports more constant financial results. Furthermore, a vital customer-brand relationship helps to position the brand in the market and enhances market performance (cf. Schouten, McAlexander & Koenig, 2007, p. 364f.; Chaudhuri & Holbrook, 2001, p. 90). Customers will most likely not change their (re-)purchase-decision under changed environmental influences when their brand loyalty is high. Also, brand awareness is positively linked to brand loyalty whereas brand loyalty is positively linked to perceived quality of the product (Chi, Yeh & Yang, 2009, P. 141). Increasing the repurchase rate and the general willingness to buy the product, companies can reach favorable performance outcomes when building up high brand loyalty.

Brand reputation

Chaudhuri (2002, p. 38) sees brand reputation as an important mediator between advertising, market share and price which ultimately contributes to brand equity. According to Selnes (1993, p. 30f.), the quality of a product affects the reputation of a brand. When the product underperforms this has a negative effect on the reputation and vice versa (cf. Jung & Seock, 2016, p. 29f.). However, companies can influence the tolerance level of customers when brand trust and identity are high. But, brand reputation, when customers have negative associations, also influences brand loyalty. As Sarkar, Krishan and Balaji (2014, p. 694f.) describe, brand reputation can function as a buffer for failures of the product and an increased likelihood of customers to forgive highly respected firms. Kuenzel and Halliday (2010, p. 174) add that a company with high brand reputation has stronger brand loyalty and identification which results in greater financial performance. Therefore, positive reputation increases the willingness of customers to forgive negative brand experience. On the other hand, it also helps to enhance financial outcome while also influencing loyalty, market share and price.

Brand involvement

Emotional attachment towards a brand improves financial results and influences the customers purchase-decision (Fedorikhin et. al., 2008, p. 286; Grisaffe & Nguyen, 2011, p. 1057). Companies should aim for strong ties with its customer base and try to get them involved to increase and drive business performance. Brand involvement or attachment can be used as a predictor for repurchase rates and post purchase management (Ball & Tasaki, 1992, p. 168ff.). Higher repurchase rates and staying loyal to one brand, makes future sales and revenues more predictable and therefore provides companies with a sense of security. Additionally, emotionally involved customers are less-likely to decide rational but unconsciously which provides an important element for possible influence on the purchase-decision and shifts the focus from hard facts (e.g. price or quality) to soft facts (personality, packaging, satisfaction, experience or colors) (cf. Hoyer, 1984, p. 826ff.; Hoyer & Brown, 1990, p. 147f.; Lynch & de Chernatony, 2004, p. 412ff.).

Brand communication

When customers are aware of a brand, companies need to make sure that people recall the firm’s values and the desired marketing message. The right positioning in the market can give organizations a competitive advantage over competing firms while also contributing to a better overall performance (Strandskov, 2006, p. 122; Butt, Kumar & Kumar, 2017, p. 632; Blankson & Crawford, 2012, p. 315f.). The market position should reflect the desired image how the company wants to be seen by its stakeholders. A coherent and consistent communication of the firm’s values is necessary to build up a strong brand identity (cf. p. Harris & de Chernatony, 2001, 450f.). Customers should know what values the brand stands for and what they can expect from buying the products from one specific company.

Brand communication and presentation

The right marketing strategy aims to translate marketing efforts into financial returns (cf. Luxton, Reid & Mavondo, 2015, p. 44f.). Classic ways are advertisement in analog media or advertisement via events or sponsorships. More and more important is the digital marketing and interaction with the customers as more users use digital services daily. Digital content on social media and influencer-marketing can increase a firm’s visibility, reputation and customer relationship significantly (Wang & Kim, 2017, p. 21ff.; cf. Stephen, 2016, p. 17f.; Vinerean, 2017, p. 31f.). For companies the question arises how they can bring the desired message across to the customers to stimulate purchase intention. The thesis will focus on (but not solely) psychological elements as they play an important role in the marketing strategy of a company and provide more insight into why people buy certain products. With the generated insights, companies should be able to align their marketing mix, efforts and strategy accordingly.

Packaging & Design

Verbal and visual elements like color, size, material, form, product information, brand and brand message need consideration in a firm’s marketing strategy. Slight changes to the shape of the package can influence sales. From color, design and packaging, customers draw conclusions about the quality and the likelihood of the product to satisfy their needs. Due to the halo-effect, where one characteristic of the product influences the overall perceived characteristics (e.g. packaging is perceived as great, therefore, the overall product must be great), the first impression is critical as this decides about initial and further behavior toward the product (Krishna, Cian & Aydınoğlu, 2017, p. 51, Kohli, Harich & Leuthesser, 2005, p. 1513f.; Leuthesser, Kohli & Harich, 1995, p. 65). Aaker and Keller (1990, p. 38ff.) demonstrate that brand extensions and how they are perceived depend on the customers’ association with the main brand.

Kuvykaite, Dovaliene and Navickiene (2009, p. 446) explain that the presentation of the product might be the most important element in the marketing communication strategy of a company because the visual and verbal package design influences the decision-making process of customers when deciding which product they want to buy (cf. Underwood & Klein, 2002, p. 64f.; Ahmad, Billoo & Lakhan, 2012, p. 8f.). Contradicting other research results, under time pressure verbal elements seem to be more significant than visual ones. When customers have a low level of involvement with the brand, visual attributes have a strong impact on the purchase-decision. The design and packaging of the product should not be overloaded with too much visual and verbal stimuli as this overwhelms the potential buyer (Clement, Kristensen & Grønhaug, 2013, p. 237ff.).

Concluding from these findings, especially when trying to persuade non-customers (e.g. customers with a low level of involvement) into buying a product, companies should focus on their visual presentation to create attention that translates into the decision to buy (Clement, 2007, p. 924f.). Since the usual amount of time from entering an aisle and purchasing a product is short (under fifteen seconds), the right mix of the amount and design of visual elements can decide about a success or a flop of the respective product (cf. Hoyer, 1990, p. 145; Hoyer, 1984, p. 826). Additionally, the design of the logo and the colors used influence the image that customers get from a product (cf. Müller, Kocher & Crettaz, 2013, p. 86; Javed & Javed, 2015, p. 12; Gómez, Martín-Consuegra & Molina, 2015, p. 209).

Purchase-decision

Influencing the purchase-decision of customers to persuade them into buying a firm’s product over the competitors’ products is a critical task in a marketing strategy. The ability to persuade and shift customers’ perception should lead to an advantage over rivals which translates into better financial results. Generally, price, placement, product and promotion better known as the four marketing P’s are tools used by companies to persuade customers in buying a product (cf. Meissner & McCarthy, 1978, p. 103; van Waterschoot & van den Bulte, 1992, p. 84;).

However, getting the customer unconsciously involved and attached to the company has a great influence on whether the respective product is chosen over the competitors’ product or not (cf. Martin & Morich, 2011, p. 493ff.). Companies should be aware of local culture and country differences in customer perception about a product and desired product attributes as this can vary significantly and impacts the customers’ product choice (Klein, Völckner, Bruno, Sattler & Bruno, 2019, p. 532ff.).

As Hoyer (1990, p. 145), Hoyer (1984, p. 826) and Macdonald and Sharp (2000, p. 12f.) in repeating studies show, the time of customers arriving at the aisle, choosing, taking and buying a product is short. Companies have only a short amount of time to convince the customer of their product which means that they should focus on eye-catching, emotional or other elements to shift the customers attention to the respective product. The design of the logo (Müller et. al., 2013, p. 86; Park, Eisingerich, Pol & Park, 2013, p. 186), music, atmosphere, light, display of product, color, temperature and other in-store elements prove to have an impact on consumer behavior (cf. Hussain & Ali, 2015, p. 40; Sherman, Mathur & Smith, 1997, p. 373; Lynch & de Chernatony, 2004, p. 412ff.). For example, a product striving for naturality and purity should use natural colors and elements to present a consistent image rather than plastic packaging, artificial coloring or other non-consistent items. The urge for companies of co-creation along their supply or value chain to possibly co-design the display of the respective products in-store becomes obvious. This opens new ways to maximize the effectiveness of the external in-store factors on the purchase intention of the customers (cf. Donovan, Rossiter, Marcoolyn & Nesdale, 1994, p. 291f.; Sherman et. al., 1997, p. 373f.).

Also, in a digital context, recommendations, reviews and electronic word-of-mouth affect the purchase-intention of a customer (Kostyra, Reiner, Natter & Klapper, 2016, p. 24f.; von Helversen, Abramczuk, Kopec & Nielek, 2018, p. 8f.). Influencer marketing in social media, besides high reach depending on the influencers number of followers, especially affects the younger generation of customers and increases customer engagement and firm performance (Jaakonmäki, Müller & vom Brocke, 2017, p. 1157; Wang & Kim, 2017 p. 23f.; Vinerean, 2017, p. 32f.; Smith, 2012, p. 89f.). The ability to persuade customers in their purchase-decision helps companies to gain a competitive edge and should result into higher sales, revenues and overall better financial performance.

Word-of-Mouth

Increasingly important are recommendations by peers, previous buyers, friends or relatives as a trusted source of the performance of a product which helps possible buyers reduce their perceived risk of a purchase (cf. Kim, Ferrin & Rao, 2008, p. 556; Bettencourt, 1997, 398f.; Brown & Reingen, 1987, p. 360f.; Sweeney, Soutar & Mazzarol, 2008, p. 359f.). This word-of-mouth propaganda needs to be managed with much care as positive WOM as well as negative WOM influences the decision-making process (cf. Anderson, 1998, p. 15). Highly dissatisfied customers are more likely to spread their dissatisfaction with others than highly satisfied customers (Anderson, 1998, p. 15; Richins, 1983, p. 76). In a study conducted by Luo (2009, p. 161f.) negative WOM negatively influenced financial results (e.g. lower cash flow or lower stock price). The first impression or the first-time usage of a product should therefore satisfy the customers’ expectations and if not, highly dissatisfied customers should be compensated to avoid complaints or negative reviews and a possible influence on other possible buyers. Satisfaction, commitment and identification with the brand positively influence the customers’ willingness to share positive WOM, which means that companies could manage – to some extent – the likelihood of spreading positive WOM and integrate it into the marketing strategy of a company (cf. Brown, Barry, Dacin & Gunst, 2005, p. 133f.; Stokes & Lomax, 2002, p. 355).

According to Berman (2016, p. 27), companies should focus on the referrer and the referred customers using purchase data. Today, not only does physical WOM play a significant role but also the electronic WOM as this influences the decision of customers in an online environment. The high reach and information spread in an extremely short amount of time makes it necessary for companies to pay close attention to what is being said, shared and written about a company in an online context (Erkan & Evans, 2016, p. 627; Lipsman, Mudo, Rich & Bruich, 2012, p. 52).

Customer satisfaction

A customer satisfied with the experienced product or service is a happy customer likely to buy again and develop a certain attachment and loyalty toward a brand. Williams and Naumann (2011, p. 27f.) show that higher customer satisfaction leads to increased level of customer retention, revenues and income. The researchers also demonstrate that customer satisfaction impacts financial performance over the long run. Similar results come from a longitudinal study of Fornell et. al. (2016, p. 103f.) or from Sedatole (2003, p. 557ff.). Providing more insight, Luo and Homburg (2007, p. 145) add that customer satisfaction – besides its impact on financial performance - eases promotion and advertising efforts and influences human capital performance. However, Lee and How (2019, p. 1657) see no direct link of customer satisfaction on financial performance but add that strong financial performance leads to increased customer satisfaction because of higher investments into customer related fields (e.g. service and employees). Besides the contradicting findings, customer satisfaction level is an important intangible marketing asset to increase firm performance. Therefore, thorough management of customer satisfaction levels and customer knowledge is necessary because it impacts many dimensions related to firm performance since high customer satisfaction level is linked to positive WOM, human capital and financial performance, and higher retention rate of customers. Combined, this influences future company results and shows to be a vital aspect when assessing future performance outcomes of a company (cf. Luo & Homburg, 2007, p. 145; Ittner & Larcker, 1998, p. 32; Mithas, Krishnan & Fornell, 2005, p. 207; Cooil, Keiningham, Aksoy & Hsu, 2007, p. 78).

4.1.3. Human Capital

Crook et. al. (2011, p. 453) show the general influence of superior human capital performance on firm performance drawing their conclusion from several other related studies (cf. Hitt, Bierman, Uhlenbruck & Shimizu, 2006, p. 1149f.; Unger, Rauch, Frese & Rosenbusch, 2011, p. 352f.; Cooper, Gimeno-Gascon & Woo, 1994, p. 389). However, human capital is not human capital. There are different nuances that shape the successful usage of human capital resources to derive at superior performance which translates into greater financial results.

Leadership

Concluding from the example of Nike, a great leader drives superior performance. The leadership style can have significant impact on the organizational results since it influences, inspires, nudges and pushes employees, innovation and well-being of a company (cf. Kark et. al., 2003, p. 253; Zhang & Bartol, 2010 p. 120f.). According to Hogan, Curphy and Hogan (1994, p. 505ff.), leaders affect team building, team effectiveness and team performance (cf. Xu & Cooper-Thomas, 2011, p. 410ff.). Walumbwa et. al. (2008, p. 815f.) show that transformational leadership impacts employees’ individual performance. A suitable and strong leader with the right characteristics and skills decides about an effective or chaotic team and therefore pushes or hampers a company’s bottom line (cf. Keller, 2004, p. 255). Similar results come from Lam and O’Higgins (2012, p. 163ff.). The researchers hold the skill set of the leader (e.g. style or emotional intelligence) responsible for employees’ job performance, satisfaction and overall organizational commitment (cf. Bantel & Jackson, 1989, p. 118f). Additionally, leadership style contributes to empowerment, cooperation and external orientation that positively affects organizational culture and results into better financial and organizational performance (Wilderom et.al., 2012, p. 844, Zhang & Bartol, 2010, p. 121f.; Srivastava, Bartol & Locke, 2006, p. 1246ff.). Not only does leadership style affect employee performance or overall company performance, but also the ability to innovate (Oke et. al., 2009, p. 71f.; Sarros et. al., 2008, p. 153f.). Clearly, research shows the vital role that a great leader plays in inspiring, pushing and empowering employees, and driving and enhancing firm performance.

Employees

The best-practice examples show that employees are a valuable asset of a company that is highly influential on overall performance (Berman, Wicks, Kotha & Jones, 1999, p. 501; Chen, Cheng & Hwang, 2005, p. 174). Talent management, employee engagement and employee satisfaction will be discussed in more detail.

Talent management

To maintain a high level of performance, the right employees need to be hired and their skills need to be developed (cf. Brody, 2010, p. 220; Sheridan, 1992, p. 1050; Cloutier, Felusiak, Hill & Pemberton-Jones, 2015, p. 124; Youndt & Snell, 2004, p. 353f.). Also, employee skills and traits determine the customer service and employee performance (Brown, Mowen, Donavan & Licata, 2002, p. 115f.). High turnover rates are costly investments for companies not only in terms of money spent but also considering time and knowledge loss (Anitha & Begum, 2016, p. 27). Chen (2014, p. 356ff.) stresses the importance of the interrelationship of intellectual, social and psychological capital of employees. He adds that training influences the employee’s retention because the employee develops commitment and trust toward the organization.

Luthans, Norman, Avolio, and Avey (2008, p. 233f.) emphasize the importance of the psychological capital and skill set of employees which plays a significant role in explaining employees’ performance, satisfaction and commitment (cf. Avey, Reichard, Luthans & Mhatre, 2011, p. 149; Albertini & Berger-Remy, 2019, p. 236f.). Anitha and Begum (2016, p. 26f.) demonstrate a close relationship between employee retention, organizational culture and commitment. Especially, open communication and clearly articulated values and mission are factors valued by employees. High employee loyalty, commitment and emotional attachment to the organization rather than toward the job are vital factors influencing the employee’s decision to stay or leave (cf. Cloutier et. al., 2015, p. 124f.). Additionally, a strong employer branding attracts high skilled talents, increases job satisfaction and helps to retain them (Tanwar & Prasad, 2016, p. 202). Studies support the conclusion that high levels of employee retention are achieved via organizational culture, employer branding, employee involvement and the right (pre-)hiring practice (Barrick & Zimmerman, 2009, p. 199ff.; Sundaray, 2011, p. 57).

Employee engagement

Markos and Sridevi (2010, p. 94) see employee engagement as one driver of business performance (cf. Sundaray, 2011, p. 57; Rich, Lepine & Crawford, 2010, p. 631). Similar to increased rates of employee retention, employee engagement is driven by feeling valued by the management, communication between employees and employer, personal interest for the employee and growth opportunities for the employee’s talent. Additionally, engaged employees are more satisfied, less likely to quit and more committed (Saks, 2006, p. 615). Again, the interrelationship between two dimensions becomes clear and must be managed as such rather than separately.

Macey and Schneider (2008, p. 6ff.) propose three different types of engagement: trait, state and behavioral engagement. Traits refer to the employee’s personality, state to involvement, empowerment, commitment and satisfaction, and behavior to organizational citizenship behavior. The dependency and interaction of these dimensions influence the engagement and therefore the performance of the employees and company. Luthans and Peterson (2002, p. 384f.) say that an environment where employees get emotionally involved (e.g. strong relationships with the organization, co-workers and managers) as well as cognitively engaged (e.g. shared vision and information exchange) affects business outcomes like retention and effectiveness (cf. Gupta & Pirsch, 2006, p. 322ff.).

Clearly, elements of the organizational culture, leadership style and the degree of involvement impact employee engagement and has similar effects on talent management (cf. Salanova, Agut & Peiró, 2005, p.1223f.). Anitha (2014, p. 318) adds that training and well-being besides work environment, leadership and team relationship influence the level of engagement. Concluding from the studies, several factors increase employee engagement and higher levels of engagement influence organizational performance (cf. Harter Schmidt & Hayes, 2002, p. 276; Laschinger, Finegan, Shamian & Wilk, 2004, p. 538f.). Furthermore, engaged employees tend to perform better in their jobs than their peers (Carter, Nesbit, Badham, Parker & Sung, 2018, p. 2497ff.)

Employee satisfaction

Harter et. al. (2002, p. 276) conclude from their meta-analysis that - besides engaged employees – satisfied employees have a significant impact on meaningful business outcomes. Results from a study conducted by Koys (2001, p. 110f.) predict a longitudinal effect of employee satisfaction, organizational citizenship behavior and turnover on next year’s profitability. Other researchers also demonstrate the influence of employee satisfaction on financial performance of a company (cf. Chi & Gursoy, 2009, p. 251f.; Edmans, 2011, p. 634; Dotson & Allenby, 2010, p. 905). Additionally, satisfied employees, committed and motivated in their job, build a strong frontline in building customer loyalty (Brown & Lam, 2008, p. 252).

Bernhardt, Donthu and Kennett (2000, p. 168f.) demonstrate a relationship between employee satisfaction and customer satisfaction, and in the long run an increase in financial performance when those also increase (cf. Yeung & Berman, 1997, p. 326ff.). A long-term investment into employee satisfaction therefore boosts the company’s financial results with a certain time delay which means that the effect of an increase in the satisfaction level is visible afterwards and not when measured at the same time. Also, trust in the skills of the management and colleagues impacts the satisfaction level of employees which then translates into employee loyalty and most likely into a reduced turnover rate (cf. Matzler & Renzl, 2006, p. 1267).

Customers

Customers are usually the biggest stakeholder group and responsible for revenue generation of the companies via purchases. A strong loyal customer base is essential for the survival of businesses as customers impact WOM referral frequency, (re-)purchase rates and the perceived brand characteristics (cf. Ahearne, Bhattacharya & Gruen, 2005, p. 580f.; Haumann, Quaiser, Wieseke & Rese, 2014, p. 95). Two important factors are the satisfaction and engagement level of customers.

Customer satisfaction

Customer satisfaction is affected by the expected and experienced quality of the product or service which is related to the perceived value offered by the product. When satisfied with the product’s performance, the number of complaints decreases and the attachment toward the brand increases (cf. Fornell, Johnson, Anderson, Cha & Bryant, 1996, p. 8). According to Anderson, Fornell and Lehmann (1994, p. 63f.), firms with high customer satisfaction also have superior financial results. Ittner and Larcker (1998, p. 32) conclude that customer satisfaction influences purchase behavior, retention, revenues and financial performance. High levels of customer satisfaction also impact customer loyalty and ultimately translates to greater financial performance (cf. Anderson, Fornell & Mazvancheryl, 2004, p. 181; Brown & Lam, 2008, p. 252; Bernhardt et. al., 2000, p. 168f.; Hallowell, 1996, p. 37).

Gruca and Rego (2005, p. 127f.) show that customer satisfaction is statistically and significantly responsible for changes in future cash flows. This is especially true for companies demanding a high market share as these companies can translate customer satisfaction efficiently into greater financial results. Not only does customer satisfaction influence intangible assets like loyalty, purchase behavior or WOM, but also tangible assets like cash flow and revenues. Additionally, Gupta and Zeithaml (2006, p. 734ff.) prove in their study that customer satisfaction has various impacts on future behavior and performance.

Like the results of employee satisfaction, customer satisfaction – with a certain time delay – can significantly influence future performance of a company. Also, different product attributes can become more important for customers depending on their satisfaction level which means that possible inconvenient service or product attributes can be camoflashed as long as the satisfaction level remains high (Haumann, et.al., 2014, p. 97; Matzler, Sauerwein & Heischmidt, 2003, p. 127). When the customer is satisfied, he or she is more likely to increase his or her (positive) WOM referral to others (Anderson, 1998, p. 15), and retention rates and therefore market shares are higher when high customer satisfaction is present (Rust & Zahorik, 1993, p. 212; Anderson & Sullivan, 1993, p. 141). Therefore, a close management and relationship to customers with the aim to achieve high customer satisfaction must be of high priority for firms.

Customer engagement

A study by Sorenson (2013, p. 2) shows that high employee engagement leads to lower turnover rates, increased profitability, productivity and higher customer ratings (cf. Little & Little, 2006, p. 117f.). Kumar, Aksoy, Donkers, Venkatesan, Wiesel and Tillmanns (2010, p. 307f.) identify five dimensions how customers can engage and contribute to a firm’s well-being: purchase behavior, transactions, referring prospects, influencing other customers to make purchases and feedback on ideas for improvements or innovations. The active involvement of customers in the innovation process via an ongoing collaborative co-creation process between employees and the organization (e.g. employees) fosters innovation (cf. Piller et. al., 2011, p. 53f.; Sawhney, Verona & Prandelli, 2005, p. 14; Schlüter & Schroiff, 2018, p. 69f.). Vega-Vazquez, Revilla-Camacho and Cossío-Silva (2013, p. 1951) show that co-creation with customers positively influences the customer satisfaction with the company’s product or service. Also, engaged customers involved in the co-creation process tend to build trust, are more satisfied and more loyal which strengthens their relationship toward the company (cf. Banyte & Dovaliene, 2014, p. 487f.). To harness and maximize customer engagement, companies need to identify, develop and enable customers to express their needs, share their ideas and solve company-related problems (cf. Harmeling, Moffett, Arnold & Carlson, 2017, p. 331f.).

Entrepreneurial spirit

Maintaining an entrepreneurial spirit in the organization can have a significant long-run influence on the innovation capability and therefore the financial performance of an organization (Madsen, 2007, p. 201f.; Wiklund, 1999, p. 44; Bjørnskov & Foss, 2013, p. 65). Additionally, an entrepreneurial mind-set among the workforce and all employees enables constant thinking, integrating and reconsidering the current firm’s strategy which creates openness for change and respond ability to changed market environment or circumstances (cf. Covin & Miles, 1999, p. 59; Lumpkin & Dess, 2001, p. 445f.). Lumpkin and Dess (1996, p. 152) define entrepreneurial orientation as a mixture of autonomous decision-making, innovativeness, risk-affine thinking and acting, proactive decision-making and competitiveness which via organizational and environmental factors influences the firm’s performance. Companies gain competitive advantage over their competitors when they pay close attention to the right degree of entrepreneurial thinking in the company which goes along with organizational resources and culture (e.g. communication or empowerment of employees) (cf. Wiklund & Shepherd, 2003, 1312f.; Lumpkin, Cogliser & Schneider, 2009, p. 62ff.). Not only newly found companies (startups) but also established companies need to be entrepreneurial in their strategic thinking to increase their well-being and success (cf. Hitt, Ireland, Camp, Sexton, 2001, p. 488; Ireland, Hitt & Sirmon, 2003, p. 983). Therefore, using an entrepreneurial mindset in the strategy decision-making and building a competitive positive organizational culture open for innovation, enhances the overall performance of the firm.

4.2. Why the presented reasoning could be wrong

Before all pieces can be put together to a holistic picture on what influences future corporate performance and which measurements adequately reflect the fit of the company to the likelihood of success, possible misinterpretations or flaws in the interpretation of the best-practice examples and the presented theoretical research will be assessed.

Although, the thesis might have presented some reasonable evidence for possible influence factors on future performance, it has mainly used past examples or static research rather than obvious proactive approaches on how to measure performance. Research is scarcely sown in the area of proactive performance measurement which makes it necessary to rely on data from previous studies. This bears the risk of focusing on past data to make predictions about the future as the thesis discussed in chapter two. There is no guarantee that past studies adequately reflect today’s business environment and they might have lost their accuracy due to changed economic circumstances. However, the quintessence from each paper, study or best-practices example supports the thinking process to make the right conclusions on what might be critical for future assessment of the well-being of a company.

Additionally, the conclusions from the best-practice examples might be flawed in that sense that there is a weak or no relationship between the practices implemented and the resulting performance. Maybe exogeneous shocks such as financial crises, insolvency of the biggest competitor or other external factors influence the success (or failure) of a company. The reasoning that the past ten years of a company were successful and that the implemented practices can just be translated identically for the next ten years to foreshadow the financial performance of a firm is not possible. Stretching this thought, static or a never-change-a-winning-team approach cannot predict future outcome with accuracy. Therefore, the concluding thoughts from those examples might be flawed since they do not provide adequate information for developing proactive KPIs. The results of the studies might be wrong themselves or might have been interpreted wrong. The presented studies can be biased, wrongly calculated, wrongly measured, include a non-representative sample, used the wrong research method or something else. The fact that there are studies with contradicting results could prove that the reliance on the conclusions might not be beneficial when using them. Also, the studies themselves do not prove that the presented results directly or indirectly contribute toward proactive forward-looking measurements. Furthermore, not every dimension of proactive influence factors on firm performance might have been adequately identified or discovered. Although a lot of different dimensions are explained, the thesis could overlook some other equally important ones. However, if this is the case, this thesis wants to present a first step toward deeper research on the field of forward-looking performance measurement.

4.3. Proposed dynamic performance capabilities for companies to predict future outcome

The thesis explored many different sources and influence factors on innovation and how certain factors impact business performance. The thesis has been very theoretical thus far but lied the foundation and possibility for adequate and well-reasoned conclusion. Therefore, the main challenge is to translate the mainly static retrospective findings into proactive KPIs. The presented evidence should be used to create an understanding about which elements have a proven record of boosting the company’s bottom line, innovativeness and well-being. Since chapter 4.1. clearly shows that certain dimensions within and outside of an organization influence innovation and performance of a company, the right conclusions, about which KPIs could, for example, predict a greater pool of external sourced ideas, need to be drawn.

Rather than relying solely on best-practice examples and studies, the next step will include more creativity and some thorough thinking which uses the findings from the previous chapter as a starting point for the development of forward-looking performance measures. The next three sections will present forward-looking KPIs, why companies should track them, what they measure and how they could do it. Also, the number of KPIs should be manageable and the proposed KPIs should contribute to the corporate’s longevity. Appendix 1 shows the assumed influence of the respective proactive measurement indicator and its indirect influence on future performance depending whether the effect is positive or negative.

4.3.1. Innovation

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Dimensions and corresponding proactive innovation KPIs

Degree of collaboration between internal and external players to generate ideas

Co-created values with external partners or ideas from outside the company can be used to collect different views and think-outside-the-box approaches while working on actual pain points (e.g. customer needs). External partners can provide valuable insight into hard-to-get sticky information whereas internal partners have the access to the resources of the company. A high degree of collaboration should provide the company with many new ideas for the innovation pipeline. First, identify useful external partner with a suitable skillset and the willingness to share and present their ideas. Then, establish an ongoing constructive communication and integrate ideas into the innovation pipeline to derive at new products.

Scanning and using ideas of the business environment

Scanning the business environment for ideas extends the number of possible new ideas for companies without necessarily using many resources. Additionally, the first-mover or inventor of a product has a couple of advantages (e.g. time, learning from mistakes or response from the market) but the one who uses and integrates it the best will be more successful. Therefore, looking for best-practice approaches of competitors or others and observing users actively creating, developing or reshaping existing products fuels the innovation pipeline and increases the innovation potential. Observing users in their natural environment, communities or in their way of using the product, provides the company with valuable insights. However, companies should not necessarily ask customers about what they want since they are sometimes not even aware about their own needs and therefore give biased feedback.

Geographical diversification of idea generation for innovation

To deepen and increase the amount of ideas generated, companies should target for a geographical diverse portfolio of idea contributors. Using sources not only from one country integrates cultural differences and different viewpoints on one and the same problem which gives a better understanding and a higher numbers of proposed solutions with a higher likelihood of one of them being successful.

Degree of vertical and horizontal integration of value chain and stakeholders

To increase the sources of idea input, companies can integrate their supply or value chain into their innovation efforts. Synergy effects, the pooling of resources and the co-creation of value benefits all involved parties since information is shared, different point of views are integrated, and a common goal is targeted. Working together could therefore save time, increase the number of ideas, reduce costs, strengthen relationships for future collaboration and increase the likelihood of a thorough product concept.

Learning-Orientation

An organization able to learn can process, integrate and use new information and is able to respond to new challenges better. The degree of learning-orientation is not only beneficial for new ideas and concepts but also for adapting and reacting to changed circumstances. Additionally, constant learning opens new views and keeps up with (technological) developments related to the company’s field of operations.

Interdepartmental teams and cross-functional collaboration

Internal collaboration unleashes the full potential of knowledge and information between different departments. Usually, employees have a great knowledge about their department and the organization but lack the understanding of motives and visions of other co-workers. Also, interdepartmental teams unify different viewpoints, create better solutions and can use a greater pool of human capital which translates into greater and faster idea generation.

Ability and openness for change

Sensing changed market conditions and constant learning are important indicators for a company’s well-being. However, the company must possess the ability and openness to welcome, react and implement change. High barriers and resistance slow down progress and can harm the company’s success.

Knowledge Transfer

Tacit and explicit knowledge transfer among co-workers, supervisors and organization wide enhances common understanding, performance and the overall degree of knowledge about different aspects, processes and ideas within a company. Organization-wide communication supports interaction and collaboration, strengthens the community spirit and translates to higher employee engagement.

Organizational Innovation Stimulus

Organizational stimuli nudge, push and encourage employees to actively think, try, communicate and develop their ideas or ways of improving processes. Giving employees time, besides letting them firefighting at their current job all the time, to openly talk about their ideas with co-workers or their supervisor generates and opens a new source of innovation input. Employees could be allowed to use a certain amount of time per week for own projects, actively contribute their ideas on issues publicly available in a specific intraorganizational forum or have access to cross-departmental employees. Welcoming wild ideas and encouraging employees to follow their first draft and develop a first prototype are other stimuli towards a greater ability to innovate.

Organizational Capability to Innovate

Like the organizational stimulus, the organization should create the capacity, hence time, to work on own ideas to increase the idea inflow. The capability depends on the skill set, environment and learning ability of the employees. This indicator shows a company whether the organization has the capacity to process the information and ideas collected, and what should be improved to increase the overall capability of the company.

Ability to integrate new ideas

The capacity and capability (e.g. the framework) to innovate is only one piece of the puzzle. The integration and development of the ideas into the organization, that is, the usage of the collected data for innovation, is the other half. Being able to process the information but failing to translate the gained insights into different kinds of innovation (e.g. process, product, or organizational), is useless for a company.

Cross-hierarchical information flow and communication

Not only should a company track organization-wide communication (horizontal communication) but also the information flow from top-to-bottom and vice versa. Employees gain more trust in their bosses, understand what and why they should do something and are more committed to their job. Supervisors, on the other hand, can create alignment within the workforce by creating understanding of visions and targets and contribute to better employee performance. This indicator should track the information shared and the frequency of interactions beyond career levels.

Organizational Culture Score

This indicator should show a company how well their organizational culture contributes and enables innovation processes. Encouraging, nudging and pushing employees, and fostering, welcoming and supporting ideas are some traits that an organization culture should possess. A great organizational culture should save time, cut cost and increase innovativeness, satisfaction and engagement. The score should indicate whether a company has a great culture in place to support its innovation efforts or not.

Time-to-market (ability to innovate with great pace)

Working years on new inventions costs money with no guarantee that the product, concept or service will work. Rather than wasting time, companies should build a minimum viable product to measure the response in the marketplace and learn from previous failures or identify room for improvement. The amount of time passed from the first idea to the final market launch should give the company a sense about how efficient its innovation process functions.

Ability to foreshadow market demand, changes in the business environment and trends

Constantly evaluating trends (e.g. digitalization or sustainability) or changed conditions (e.g. new market entry of competitor or legal frameworks) prepares the company for various scenarios. Additionally, being able to sense upcoming and trending customer demand, uncovers previously untouched market fields and therefore shows new market potential. Companies should listen to the voice-of-customer, conduct market analyses, ask experts or engage in cooperation with academic research or other companies.

Respond-Ability

Only sensing market trends will not be enough for companies seeking to withstand changes in the business environment. Like the organizational stimulus – organizational capability relationship, sensing and responding to market trends or changes is vital for a company’s longevity and innovation efforts. The respond-ability should indicate how fast, how well and to what extent companies are able to respond.

Market-orientation Score

To assess whether the company uses the full potential of the market resources, the market-orientation score should help to find untapped resources which can be used for new ideas and a better overall market and industry knowledge. Additionally, this indicator should show how well the customers’ needs and the voice-of-customer are integrated into the innovation process of a company.

4.3.2. Marketing

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Figure 3: Dimensions and corresponding proactive marketing KPIs

Customer Relationship Intensity

To increase the engagement, trust and emotional attachment to the brand, companies should pay close attention to their customer relationship. Listening to the customer, learning from reviews and integrating them into new products or ideas is one way to increase customer satisfaction and innovativeness. Additionally, creating trust increases the customers’ willingness to forgive and decreases the likelihood of negative peer-to-peer referrals.

Product Purchase-decision Indicator

This indicator should show the company why customers decided to buy or not to buy the product. Observing the customer how he or she derived at purchasing the product and what reasons had the greatest influence on the decision are valuable insights for improvement. The data collected should be used to stimulate and positively influence the purchase-decision of the customer. Also, companies get access to the motives and opinions about product characteristics, visual impressions and decision factors which can be translated into greater financial performance.

Brand recognition score

To achieve high brand performance, customers need to be aware and recognize the brand and then transfer that knowledge on the product characteristics (e.g. halo-effect) and quality. The indicator should show how well the brand is known, which picture and characteristics come to mind and how the customer sees the brand compared to competing brands. Great brand recognition shapes the brand identity and associated values which helps to communicate certain brand characteristics to the customer.

Customer-based brand equity score

To create a trustworthy, likeable and recognized brand, companies should pay attention to the customers’ desires and needs and how customers experience the brand (self-perception of brand by company versus external perception of brand by customer). Neglecting the view of the customers may create a mismatch in the relationship between targeted customers and actual customers. This means that companies think that they reach their desired target group but instead reach a completely different set of customers who have a completely different perception of the brand and product.

Brand-Market fit

The company must know how its brand (image) fits to its market segment its operating or plans to operate in. More precisely, how well do the current brand identity and core values of the brand match with the requirements and demand of the customers in the market. When entering new markets or assessing current perception about the brand, companies should pay attention on different aspects of their product presentation and whether they should be adjusted to be successful in the targeted market segment. A balanced brand-market fit should enhance brand trust, identity, engagement and customer satisfaction.

Repurchase Rates

Although repurchase rates are measuring the current status quo, companies should use different sources of information to fuel this indicator with significance for future predictability. Therefore, sources like the reason why customers bought or did not buy again and the level of satisfaction with the product are influence factors that need to be considered.

Brand Performance Score

The brand performance score is a complex but critical indicator on future performance. The company should get a feeling how well the brand is performing in the market (compared to its competitors or compared to its desired performance and actual performance). Additionally, the brand performance indicator should measure or hint toward the level of satisfaction, loyalty, engagement, attachment and identification with the brand. The score is fuelt by measures from brand awareness, identity, trust, loyalty, reputation and engagement. More precisely, the unified data and insights from these dimensions is presented in one indicator.

Reach and Interaction Score

To assess the brand awareness and how many customers and potential customers get in touch with the brand or product, companies should use a reach and interaction score which focuses on digital and personal interaction and reaction between customer-customer, customer-brand and brand-customer. Not only does the spread and reach of the marketing message, core values and desired brand image influence the customer’s perception about the product or brand but also whether the overall content and image associated with the company is positive or negative.

Customer Retention Rate

The ability to maintain customers indicates whether customers are satisfied with the product or service experience and should translate into constant cash inflows. Companies should also engage in a close customer interaction and communication to identify the true reasons for the decision to buy or not to buy. Meeting expectation and stimulate loyalty translate into greater customer engagement. Knowing why customers remain loyal or switch provides insight information about which factors must be improved to increase product quality, brand performance and satisfaction.

Product Presentation Score

The answer how well the product is presented via its design and marketing communication elements (e.g. color, light or atmosphere) within its purchase environment (digitally or in-store) generates valuable data to see how well environmental factors, visual elements or written elements influence the pre- and purchase-decision of the customer. Persuading the customer to buy the product by tapping his or her unconscious thinking, emotions and degree of attachment influences his or her willingness to pay, repurchase likelihood and likelihood to choose the product over others.

Willingness to pay

Competition on price is always fierce and cuts companies’ profits. The ability to increase the willingness to pay by stimulating customer attachment, involvement, trust and satisfaction enables companies to charge a higher price without losing a substantial number of customers. Also, providing the customer with the feeling of buying more than a product, factors like price, design or quality become less relevant whereas the community feeling, emotions and bonds toward the brand get more important. This increases the customers’ tolerance for mistakes or forgiveness for underperformance of the product.

Customer Satisfaction

Perceived quality, expectations, complaints, WOM and loyalty toward the brand influence the level of customer satisfaction. Solving their problems, stimulates their positive WOM sharing rate. Meeting the customers’ expectations lead to an increased level of customer satisfaction which then translates into higher profits and better financial performance in the long run. Satisfied customers tend to be more attached and engaged with the brand which creates a strong customer-relationship and a high barrier for other companies to change the customer’s purchase behavior.

Expected Product Quality and Perceived Quality Score

The ability to provide the customer with the quality he or she expects, increases the customers satisfaction with the product which most likely increases the overall perception of the brand. Meeting the expectations also increases the trustworthiness of the brand which then translates into loyalty and engagement. Furthermore, the tolerance level of satisfied customers is greater for future purchases. Therefore, when they experience a lower level of quality, the customers have lower intentions to spread negative WOM or switch to another brand.

Service level provided for customers

Closely related to the expected versus perceived quality, the service level provided for the customers increases the customers’ loyalty and satisfaction with the brand. Service delivered as expected by the customer improves the likelihood of positive spread of WOM and the decision to purchase again. When exceeding or providing exceptional service, customers build trust, commitment and loyalty toward the brand which translates into superior financial performance. Also, better service can camoflash underperformance of the quality of the product.

4.3.3. Human Capital

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Figure 4: Dimensions and corresponding proactive human capital KPIs

Leadership Score

The right traits, skill-set and social capital of leaders influence the employee performance. Great leaders drive performance as they nudge employees, share an inspiring vision, encourage a climate for innovations and develop employee empowerment. Not only does the handling of human capital show leadership quality but also the perceived leadership by employees as well as their performance and effectiveness level.

Alignment between Leader’s Vision and Company’s Vision

Common understanding and therefore aligning strategic objectives to the vision of the company is a critical task that decides about success. The leader, as a great influence factor on many levels of firm performance, should share the same vision as the company he or she is working for. A misalignment of the leader’s or manager’s vision within a company can cause friction within departments, miscommunication, opposite business outcomes or a distorted overall image of the company.

Ability to lead change

Sense and respond to change are vital for companies to react to different market conditions. Also, the ability to lead change influences employees and the company performance because leaders can accelerate or procrastinate the implementation of change. A great ability to lead change depends on the overall skillset of the leader as well as on his or her (entrepreneurial) open mindset.

Ability to nudge employees to increase their performance and share their ideas

Instead of solely providing feedback on a regular basis on individual or unified employee performance, leaders should give employees feedforward feedback to discover areas for improvement and enhance future results. Encouraging employees and giving them the feeling to openly talk about their ideas without being harshly criticized fosters the ability to innovate. The ability to nudge employees strengthens and boosts the level of empowerment and therefore is beneficial for entrepreneurial thinking.

Employee-Company Fit

Getting a feeling for the social, psychological and intellectual capital of the employees gives the company the necessary data for training, reshaping hiring practices and which level of innovativeness the employees possess. A company that knows whether it hires the right talents can lie the foundation and influence the framework for sensing, using and integrating innovation efforts and change. Additionally, uncovering the true motives and motivations of the employee eases the hiring process which then translates into better job performance, employee satisfaction and commitment.

Employee Satisfaction Score

Satisfied employees perform better in their job, develop commitment and are less likely to quit which saves cost and increases performance. Companies should try to build trust between employees, management or leaders and the organization itself. Furthermore, creating an environment of appreciation for work input, empowerment, open communication, development of skills and training increases the overall satisfaction of employees.

Employee Engagement Score

Highly engaged employees have a positive impact on firms’ performance (e.g. higher satisfaction, lower turnover, effectiveness and job performance) and are more committed to the company. Engagement can be the source for internal innovation and enables strong bonds between employees, and among employees and the organization. Additionally, engaged employees tend to be more productive in completing certain tasks than employees with low engagement levels.

Innovation and Creativity Time per Employee

Actively spending time and having the opportunity to work on ideas increase the innovation output of a company. Knowledge exchange, actively seeking for solutions and working in an encouraging environment produces better innovation outcome from within the organization while utilizing the human capital of the company. Supporting employees in their innovation efforts fuels the input (e.g. ideas, concepts or improvements) for the company’s innovation process.

Employer Branding

The attractiveness of a company impacts the decision of applicants to apply for a certain job at a certain firm. Attracting the right talents contributes to performance as it influences the ability to innovate, job performance, intellectual, social and psychological capital of the workforce. Therefore, measuring the attractiveness of the company gives an accurate indicator on the likelihood to find suitable employees who are committed and want to engage with the company.

Heterogeneity of Teams

Not only should the company have interdepartmental teams but also teams with employees possessing different academic backgrounds, characters and skill sets to integrate different viewpoints and enable a constructive conflict environment which in return leads to increased innovativeness. Diverse teams might need more time to develop new product concepts, however, the process will include thoughtful critical thinking and the evaluation of a greater source of intellectual resources.

Customer Engagement Score

This indicator should show the company how deeply it integrates customers into their business activities. Using customers for idea input and integrate them into the innovation process of the company increases the overall innovativeness. Additionally, engaged customers are more loyal, committed and more likely to spread positive WOM. Through engagement, companies can build strong customer relationships which translates into attachment toward the company or brand, and brand trust.

Customer Promoter Score

Referrals, recommendations and reviews digitally or face-to-face are an important indicator for assessing customer satisfaction with the product and the loyalty toward the brand. Using text-mining or customer feedback surveys gives the company valuable data to understand why customers promoted the product to others or why they did not. Since more and more potential customers check reviews and recommendations or listen to electronic WOM, companies should integrate and use satisfied customers for positive referrals to increase their reach and utilize customers as a resource for marketing.

Conversion Rate

Attracting customers without being able to convert them into purchases might be an indicator for weak brand characteristics, negative WOM or a mismatch between product presentation, identity and envisioned product by the costumer. Measuring the conversion rate off- and online and understanding the reasons why customers are attracted but refuse to buy provide valuable insight information into the customers’ needs and most likely also into the current brand performance. Using the data on why or why not customers buy the product enables companies to work on these issues.

Customer easiness to information access

The easiness to get in touch with a product or service and the level of effort for the customer to buy the product can indicate customers’ satisfaction with the touchpoints and visibility of the product or service. Indirectly, the indicator should give information about brand awareness, product presentation and purchase-decision by gathering customer feedback about their shopping experience. The easier the access to the product or service for a customer is, the better should be the financial results due to increased awareness and satisfaction levels of the (potential) buyer.

Entrepreneurial Thinking Ability

The ability of the employees and leaders to envision new ideas, stay open-minded, be risk-taking, and make autonomous and proactive decisions challenges the current status quo which leads to an increased level of innovativeness. Great entrepreneurial spirit shows the curiousness for new ideas and openness for new trends which also indicates the general willingness to adapt to changed market conditions.

Utilization of company’s resources

Knowing how well the company utilizes its resources can give information about the degree of efficiency and productivity within an organization. This should uncover potential for faster and better implementation of change or new ideas. Unleashing the full potential of the company can help to improve performance from within rather than investing money to force improvements. Discovering room for improvements allows an adequate resource allocation which increases the flexibility and helps to stay open for change.

5. Conclusion, implications and avenues for further research

In summary, the thesis arrives at 17 innovation, 14 marketing and 16 human capital KPIs which should indicate the innovativeness and performance of companies in the future. These parameters are based on the findings from the best-practice approaches as well as the supporting studies and research presented. Concluding thoughts, limitations and suggestions for further research on the topic are discussed in the following.

5.1. Summary and conclusion

The current approach to measure performance is static and mainly carried out with a focus on the financial dimension. Although latest research emphasizes the power of intangible measurements on performance (e.g. customer satisfaction), there still needs to be more research about concrete proactive KPIs able to predict the future ability to innovate. As of today, the thesis is one of the first to explore potential and suitable KPIs for future innovation capability and corporate performance.

Greater capability to innovate in the long term by using proactive measurements with implicit impact on the future innovativeness of a company can be achieved by using different performance indicators. Companies need to use proactive measurements to predict their likelihood of future innovation success and performance because assessing the current status quo of the company’s well-being is not enough. The process of exploring and defining proactive performance measures is carried out throughout the thesis by evaluating best-practice examples as well as studies. Ultimately, this leads to the conclusion that there are forward-looking KPIs and that different dimensions namely innovation, marketing and human capital provide valuable insight into what indicators are most likely great predictors for assessing future performance. Refining these dimensions, the identified measures should influence the ability to innovate, idea generation, employee satisfaction, employee engagement, employee loyalty, customer satisfaction, customer engagement, customer loyalty, purchase behavior, brand and customer behavior. These sub-dimensions have a great impact on performance. In total, the thesis presents 47 different KPIs able to predict future innovativeness and performance where 17 are from the innovative perspective, 14 from the marketing perspective and 16 from the human capital perspective. This provides a great amount of indicators companies can use to analyze how well suited they are for business activities and which areas they should improve to stay successful in the future.

There is theoretical and empirical as well as practical support for the findings and the concluded KPIs. Through this combination, the validation and significance of the proposed measurements is strengthened although – as discussed in the next section – there is still room for improvement to fully backup the conclusions with more detailed field studies. Keeping in mind that the field of forward-looking proactive performance measurements is still in the exploration phase where new things need to be developed from scratch, the thesis sheds light on some possible indicators able to concretizes future success and performance.

5.2. Limitations and suggestions for improvement

The thesis mainly theoretical explores which dimensions have an influence on future performance and innovation and therefore which KPIs should be used to achieve high scores in the respective areas but does not provide quantifiable field data. The results are limited in that sense that there is no proven relationship of the proposed KPIs and the actual future performance of the companies. Further research is needed to prove or disprove the accuracy of the proposed KPIs, and data collected over a greater amount of time needs to be evaluated. Additionally, the thesis might miss some important yet to be developed KPIs significantly influencing the future innovation capability and success of a company. On the other hand, the thesis might also include KPIs that are not suitable for proactive measurements since there is no empirical evidence of their influence in practice. Although providing a couple of indicators, there is no prove for them to be equally important when assessing the future capability to innovate. Also, the thesis does not explore whether there are indicators besides innovation, marketing and human capital which contribute to a more holistic picture of proactive assessment of future performance. Dimensions like sustainability or digitalization (when considered as isolated factors which are not captured under trends or the ability to integrate and sense change) can provide external influence factors from the environment significantly impacting the sensing, processing and usage of information. Not much emphasize is put on factors from the outside-the-company-environment like governmental influence or exogenous shocks. More precisely, the believe of success in some business ideas (e.g. Tesla) or the sudden crash of one industry (finical crisis 2008) makes positive or negative predictions almost impossible.

5.3. Implications for further research

Further research is needed to concretize the presented KPIs. Research should focus on the validity of the measures by conducting longitudinal studies with the proposed KPIs and their predictability of future performance. The question which information and data fuels the respective KPIs best arises and needs to be addressed. Studies should focus on quantifiable data to support or dismiss the developed proactive KPIs. Tests about the equal importance of the KPIs and whether some of them should be dropped or new ones should be added should help and contribute towards clarification of the issue. Furthermore, an adequate scaling or rating of the different KPIs needs to be developed to use, compare, and distinguish between terrible and awesome scores. Scholars and researchers should also focus on the question how performance measurement will be done in five or ten years to take a different viewpoint and approach of developing forward-looking KPIs. No boundaries should be set but an open discussion how business performance and success can be measured to capture the full picture and potential. Thereby, focusing on how todays shape and state matches the requirements of tomorrows success formula, should be addressed by scholars. Also, envisioned trends or core competencies of businesses and business models should be used to derive at proactive measures. Overall, the thesis lies the foundation for further and deeper research in the topic of successful forward-looking performance measurement.

V. Appendices

Appendix 1: Proposed influence of indicators on different dimensions influencing company performance and their relationships

Abbildung in dieser Leseprobe nicht enthalten

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Details

Title
Predicting corporate innovation capability. Proactive process KPIs instead of retrospective business analysis
College
RWTH Aachen University
Grade
1.0
Author
Year
2019
Pages
96
Catalog Number
V947370
Language
English
Tags
KPI, Proactive Performance Measurement, Innovation economics, innovation predictability
Quote paper
Malte Hans Georg Schneider (Author), 2019, Predicting corporate innovation capability. Proactive process KPIs instead of retrospective business analysis, Munich, GRIN Verlag, https://www.grin.com/document/947370

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