What is corporate success, and how is it measured? In this chapter I explore the strengths and weaknesses of common performance measures by comparing six British supermarket chains. Some people judge success by size. They look at a firm's sales, its market share, and its value on the stock market. Sometimes performance is assessed by reference to rate of return. This can be measured as return on equity, on investment, or on sales. And sometimes success is measured by growth, reflected in increase in output, movements in earnings per share, or prospectively, the firm's price-earnings ratio.
All of these are aspects of successful performance. But I argue in this chapter that the key measure of corporate success is added value. Added value is the difference between the (comprehensively accounted) value of a firm's output and the (comprehensively accounted) cost of the firm's inputs. In this specific sense, adding value is both the proper motivation of corporate activity and the measure of its achievement.
This chapter defines and develops the objective of added value. It introduces the added value statement and the analysis of the value chain as means of making a quantitative appraisal of a firm's operating activities. This contrasts with the usual financial statements which concentrate, appropriate for their purpose, on returns to investors. In Chapter 13 I explore these issues in greater detail and describe how added value is the basis of all the more familiar measures of corporate performance. While this chapter identifies the various stakeholders in the business--employees, investors, customers, and suppliers--I postpone until Chapter 12 the issue of how added value is shared among these various stakeholders. In the final part of the chapter I use the added value criterion to identify the most successful European companies of the last decade.