Business performance model of Czech manufacturing companies

The aim of our study is to identify nonfinancial factors of business performance, i.e. factors that are theoretically supposed to have a positive impact on performance in the long-term horizon, analyze these factors and their relationships, and create a complex model of business performance.

First we identify internal factors affecting the business performance in the so-called new economy and subsequently verify the influence of potential factors on business performance in terms of both market and financial performance in the manufacturing companies in the Czech Republic.

Based on the literature review, four basic factors affecting business performance in the new economy are defined. Measurement of constructs is performed by scoring scales that are applicable for the variables that cannot be measured precisely. The measurement is carried out through a questionnaire. We receive usable data from 777 companies. Questions covering individual aspects of business performance are aggregated into 10 numerical indices using factor analysis. Due to the nature of the data, aggregation modus or median of questions within the group are not appropriate and therefore we determine weights for the questions by performing a factor analysis on a given set of questions using the method of principal components. Factor coefficients of individual questions obtained from the first factor are used as basis weights in the weighted average of the questions. Consequently, we analyze relationships among indices by using path analysis and create a path equations model.

The model identifies three exogenous variables - information technology, employee motivation and education. Relationships among these exogenous variables are shown by values of the Pearson correlation coefficients. We find that most of the business performance factors do not have a direct impact on financial performance, but they are a part of the mediating mechanisms. Two of the three exogenous variables- information technology and employee motivation directly affect financial performance.

A path equations model of business performance indicates that the essential performance factors are three exogenous variables and so top managers should focus their attention on those factors in the decision-making process. Simultaneously, the model shows that all decisions in the examined performance factors are reflected, either directly or indirectly, in the company image, which directly influences financial performance.

This paper is one of the research outputs of the project IGA VSE F3/2/2014.