How can you best measure firm performance? The investor and the analysts want to know who’s done well in the past – although (as recent events have shown) that may not signal how firms might weather future crises. Boards need to know which managers are performing best – and managers need to know which performance measures matter most, to their stakeholders, and for their company’s prosperity. Should measures reflect what short-term shareholders want – or what the managers themselves can influence? How should they be weighted against each other, and adjusted for environmental turbulence?

The authors propose ‘frontier analysis’ as an answer to three critical measurement issues: balancing short-term and long-term performance, capturing the multidimensionality of performance, and finding the right peer comparators. They demonstrate the technique on companies in the oil sector, and then on a cross-industry basis to find the UK’s best performers over 20 years. Averages don’t interest them – what matters his how close a firm performs to the frontier – as defined by the best firm/year combinations. And they find a mere 28 - 13% - of all UK firms have consistently delivered dominant, ‘frontier’, performance - over that time.

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