Whilst in general this is good research practice in

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Unformatted text preview: , the greater the market believes is the future earning power of the company. This measure does not explicitly include the effects of decisions taken in the recent past but it is used here for comparison with the criteria that do. • Prudential Securities ranking (PSR). In 2000, Prudential Securities carried out an energy industry benchmarking study that used nine variables to rank the major oil companies. The variables which they considered were: production incomes, quality of earnings, cash flow, production and replacement ratios (excluding abandonment and disposal), finding and development costs (excluding abandonment and disposal), discounted future net cash flows, upstream returns, adjusted production costs and depreciation, depletion and amortization expenses. Some of the measures above, such as proved reserves, are influenced by the size of the organisation, since PSR is based on financial measures, small and large companies can be compared and hence it provides a useful indication of business success which independent of organisational size. 172 Where possible the data used to calculate each measure will be based on the latest figures released by companies. In the case of the U.K. TBV criterion, the data used will be based on Wood Mackenzie’s latest estimates produced in April 2000. For the ROE, 1998 figures will be used, as these are the most recent complete data set available. Previous strategy research (for example, Goll and Rasheed, 1997; Grinyer et al., 1988; Papadakis, 1998) averaged performance criteria over a five year period, to decrease the chance of a one-year aberration distorting the results. Whilst in general this is good research practice, in this case this is not appropriate since this would involve aggregating criteria across time periods where decision analysis was not used routinely by the majority of the participants (Section 6.2 of Chapter 6). All the measures described above, with the exception of the U.K. TBV, are indicative of each company’s worldwide performance yet, typically, the respondents were employees working within U.K. offices. However, the researcher does not perceive this to present a problem since each interviewee was specifically asked to comment on the techniques that they were aware that their organisation used to evaluate investment opportunities worldwide and how they perceived these tools and the overall process to work organisation-wide. Therefore, the researcher is confident that the observations from the interviewees are not significantly biased by their place of work and that it is acceptable to rank the companies using measures indicative of worldwide performance. Most of the companies included in the analysis have both up and downstream operations. Since very few of the companies differentiate between the two in their publication of financial data some of the measures chosen (for example, MC, PE and NOE) reflect organisational performance in both areas. Since, arguably the downstream business is depe...
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