Operating characteristics of high performance companies: Strategic direction for management

Abstract

Purpose

The present study investigates whether companies that exhibit high performance characteristics in the pre-financial crisis period can maintain their high performance in the financial crisis period of 2007–2009 and, in particular, the post-financial crisis period of 2010–2011.

Methodology

The current study of 1,473 companies in 25 countries and 66 industries (MSCI index) (1) extends the empirical research of prior studies through the year 2011; (2) identifies the operating characteristics (performance drivers and performance measures) and associated risk factors which were most critical with regard to sustaining, exiting, and entering HPC companies during the five 10-year periods since 1998–2007, and (3) summarizes conclusions about HPC results from the 13 ten-year periods (1989–1998 to 2002–2011) in this stream of research.

Findings

(1) Companies that sustain high performance over periods of financial stress clearly excel in asset turnover performance driver and on the performance measures of growth in revenues, profit margin, return on equity and return on assets. Sustaining HPC had less debt than other companies and consistent cash flow yields. Operating turnover ratios became less important in recent years as an indicator of high performance. (2) Although exiting companies maintained profitability, financial risk and liquidity, the key factor in their dropping out of HPC status is their failure to grow revenues. (3) Entering companies did not exhibit the superior performance in all categories.

Practical implications and value

The results provide strategic direction for management of companies that aspire to HPC status and to maintain HPC status once gained, particularly in times of global financial stress.

Citation

Needles, B.E., Powers, M., Frigo, M.L. and Shigaev, A. (2014), "Operating characteristics of high performance companies: Strategic direction for management", Performance Measurement and Management Control: Behavioral Implications and Human Actions (Studies in Managerial and Financial Accounting, Vol. 28), Emerald Group Publishing Limited, Leeds, pp. 25-51. https://doi.org/10.1108/S1479-351220140000028008