The concept of organizational performance is the comparison of an organization's goals and objectives with its actual performance in three distinct areas—financial performance, market performance, and shareholder value. Financial performance refers to an organization's results with regard to return on investment and return on assets. The market performance refers to a company's ability to make and distribute their outputs in the most cost effective way and to set a price that returns a reasonable amount to suppliers. In addition, market performance refers to the ability of a company to meet the demands and expectations of consumers regarding the good or service produced. Some organizations also measure market performance with regard to how great a share of the market they possess relative to their competitors, and some measure their ability to achieve social responsibility (or stewardship of the environment and responsibility to the community). Finally, shareholder value refers to the value of what a person holding shares in the firm possesses. These three measures determine whether an organization is meeting its goals.
The concept of organizational performance is connected to the ideas of effectiveness and efficiency. A business organization must produce the right things and it must produce them using the fewest possible inputs if it is to have a strong organizational performance.
Businesses typically try to perform well in a number of areas of organization. First, they try to perform well financially. That is, they need to realize a good return on their investment. They need to add as much value as possible in their production process. Second, they try to perform well in terms of the market. What this means is that they must gain as much market share as they can (consistent with the goals of their firm). They must be producing a product that is in demand and they must be producing it at a price that allows them to compete on the market. Finally, they need to perform well in terms of creating value for their shareholders. They need to make money that can be distributed in the form of dividends. They also need to have their stock price rise at a reasonable pace.