Benchmarking to economic value added

Abstract

PurposeTo describe and analyse the adoption of economic value added (EVA) income as a benchmark for setting pricing and other policies of a monopolistic state‐owned enterprise in the absence of normal benchmarking mechanisms.Design/methodology/approachBy earning zero economic value added profits the enterprise earns its cost of capital and escapes claims of monopolistic pricing and possible regulation. To test the success of this policy the financial series of the enterprise are developed from the date of incorporation in 1989 along with the economic value added series. The normal accounting profits are compared with the value added results. The value added results are used as a proxy for the pricing and other operational decisions of the firm that are not directly observable. The validity of the economic value added approach to provide a suitable benchmark is examined.FindingsProvides evidence that the enterprise was successful in avoiding charges of monopolistic pricing and subsequent regulation by linking pricing and other policies to its economic results. This was in a period when similar enterprises were regulate or threatened with regulation. The economic environment in the later years of the study have changed the goals of the enterprise.Research limitations/implicationsThis is a case study, so the success of this New Zealand based enterprise in benchmarking its policies to economic value added cannot be generalised to other companies and environments.Practical implicationsProvides a useful way to benchmark profits where a monopoly position may attract regulation. It also provides a system of benchmarking if other industry information is not available.Originality/valueThis paper identifies a unique position where the objective was to minimise economic income, rather than the usual goal of income maximisation.

The effect of customer orientation on frontline employees job outcomes in a new public management context

“…Government‐owned companies in New Zealand are known as SOEs, and they are required to operate as successful businesses (i.e. maximise profits), to be good employers, and to exhibit social responsibility (Austin, 2005; Luke and Verreynne, 2006). They were established out of government trading departments in response to concerns with performance from both a consumer and an ownership perspective.…”