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Keywords Biotechnology, Performance measurement, Non-financial benefits
Abstract The limitations of financial metrics in assessing performance in the new economy generate demand for non-financial measures appropriate for evaluation of shareholder value creation. The suitability of non-financial measures for external reporting continues to be explored by professional accountants, capital market regulators, and academics. Investigates research developments and their applicability to the biotechnology industry. Examines the externally published information of public Canadian biotechnology companies with a view to the development of measures appropriate for evaluating corporate performance. Represents the findings from the first of a two-phase research project designed to explore the techniques used to gauge the effectiveness of communication regarding performance in the Canadian biotechnology industry.
Introduction
Traditional financial accounting paradigms do not reflect performance in the new economy. Non-financial factors appear more significant. Internally, the activities that create shareholder value must be identified and managed. Externally, investors need to assess value creation. Internal and external needs would be served by appropriate metrics that capture and communicate activities linked to strategy and vision. In particular, there is a concern that the financial market is unable to evaluate scientific discovery, inhibiting availability of capital. The purpose of this study is to establish the viability of a tailor-made set of multiple measures, unique to a sector that would provide significant insights into value creation. The current research represents the first of a two-phase project designed to explore the techniques used to gauge the effectiveness of communication regarding performance in the Canadian biotechnology industry.
Performance measurement in the new economy
Conventional internal performance evaluation is based on current financial measures, which are reliable, comparable and well accepted. They are also backward looking. Management and boards of directors need to be able to identify those processes and activities that are likely to generate value over the long term. Attention to historic financial data is not enough. Sustainable shareholder value is driven by non-financial factors such as customer loyalty, employee satisfaction, internal processes and the organisation's innovation.
The balanced scorecard (Kaplan and Norton, 1992) is a widely accepted system of integrating financial and non-financial measures to monitor critical activities in value creation. Briefly summarised, balanced scorecards tell you the knowledge, skills, and systems that employees will need (their learning and...