by Jeffrey Harrison and Andrew Wicks
Firm performance is a fundamental issue for scholars and practitioners alike. We need a way of understanding what it means to do well, and what indicates sub-standard performance or failure. Existing financial performance metrics used to determine performance are important, but they are often incomplete and oversimplify the value stakeholders receive.1 Financial measures can be especially problematic when management makes efforts to meet short-term financial goals that reduce the desire of key stakeholders to support the firm and may simultaneously decrease the firms’ ability to create new value for stakeholders.
Instead of focusing primarily on economic performance measures, a stakeholder-based performance measure challenges managers to examine the broad array of ways their firms create value. Managers need to understand the stakeholder goals and aspirations, both as a way of attracting them to the firm, keeping them engaged and performing at a high-level.