8. Strategic Control Flashcards
What are the 4 main purposes of a performance measurement system?
- Help determine progress
- Decide when corrective action is needed
- Set expectations between employers and employees
- Provide a yardstick for performance
What 3 factors influence the design of a performance measurement system?
- Environment (turbulent/stable)
- Strategy
- Business type
What are 3 the main benefits of using financial KPIs?
- Easy to gather data
- Enable comparison
- Well establihsed/understood
What are 3 the main limitations of using financial KPIs?
- Encourage short termist behaviour
- Involve some subjectivity
Is strategic management accounting more inward/outward and forward/backwards?
Outwards and forwards
What is strategic management accounting?
A form of traditional management accounting in which emphasis is placed on information which relates to factors external to the entity, as well as non financial and internally generated information
What 4 typical types of information does strategic management accountants use?
- Competitor analaysis
- Customer profitability analysis
- Support for pricing/other strategic decisions
- Portfolio analysis
What are critical success factors?
Components of strategy where the organisation must excel to outperform competition
What are the 4 sources of CSFs?
- The industry
- The company position
- The wider environment
- Temporal organisational factors (situations that require a response)
What are KPIs?
Measures of how good the organisation is in vital areas of performance, underpinning CSFs
What are the 4 perspectives of the balanced scorecard?
- Financial
- Customer
- Internal
- Innovation and Learning
What are the 4 disadvantages of the balanced scorecard?
- Large number of measures can make it difficult to see clearly
- Difficult to understand some measures
- Some measures may conflict
- May take attention away from maximisation of profit
What is strategy mapping?
A method which extends the balanced scorecard to give a clear visual representation of the primary roles of the org, with links to show the cause and effect of relationships between goals in the 4 quadrants. They show how lower level objectives feed into higher level outcomes
What is the performance pyramid?
5 levels of the organisation, each with their own KPIs but with links between them helping insure consistent performance
What does the performance pyramid aim to correct?
The tendency of many commercial organisations to focus on shareholders and other customers and ignore other stakeholders such as staff, suppliers and the government
What are the 2 horizontal elements of the performance pyramid?
Internal (financial) and external (non financial) effectiveness
What is the base layer of the performance pyramid?
Operations
What is the 2nd layer of the performance pyramid?
Departments and day to day work centres - quality, delivery, cycle time, waste
What is the 3rd layer of the performance pyramid?
Business operating systems and internal systems - customer satisfaction, flexibility and productivity
What is the 4th layer of the performance pyramid?
Market share and financial profit
What is the underlying principle of the performance pyramid?
Linking operations to over all corporate vision/business strategy
What are the elements of the Results (2) and Determinants (4) framework?
Determinants:
1. Flexibility
2. Innovation
3. Reliability
4. Efficiency
Results:
1. Financial
2. Competitive
What are the 3 elements of the building blocks model?
- Dimensions (goals)
- Standards (measures used)
- Rewards (clearly, motivational, controllable)
What is Paradigm Blindness?
Thinking ‘the way we do things is the best because it is the way we’ve always done it’
What are the 3 basic types of benchmarking?
- Internal
- Competitior
- Process/activity
What are the 2 risks of confining external benchmarking to one industry?
- Whole industry may be performing badly
- Industry boundaries are blurring
What are the 6 main benefits of benchmarking?
- Challenging assumptions
- Helps cut costs
- Simplify process
- Better quality
- Change behaviour
- Breaks resistance to change
What are the 4 main pit falls of benchmarking?
- If basis is flawed, strategies will be flawed
- Too much information for managers
- Long and expensive
- Doesnt identify reasons
What is gap analysis?
Comparing expected performance with ultimate objectives, in order to come up with strategy to close the gap
What are the 3 types of gap resulting from gap analysis?
- Efficiency gap (first/easiest)
- Expansion gap (market/product development)
- Diversification gap
How do we close gaps?
By considering strategies from Ansoff’s product matrix
What are the 3 advantages of gap analysis?
- Easy to understand
- Good starting point for action
- Allows objective to be re-evaluated
What are the 2 disadvantages of gap analysis?
- Relies of forecasting techniques
- Ineffective in unpredictable environments
What are the 5 benefits of using ROI?
- Easy to calculate
- Widely understood
- Figures taken from fin statements
- Better inter division comparisons (relative measure)
- Doesnt require cost of capital estimation
What are the 2 benefits of using RI?
- Linked to cost of capital
- Fewer dysfunctional decisions
What are the 3 considerations to be made when selecting a profit figure for RI and ROI?
- Controllable/non controllable
- Pre/post tax
- Attributable/non attributable
What are the 3 considerations to be made when selecting an investment figure for RI and ROI?
- Opening/closing/average
- Balance sheet NBVs or historic
- Inclusion of intangibles?
What does EVA aim to address?
Adjusting the profit and asset figures used in RI to better reflect economic reality
What are the 3 main benefits of EVA?
- Linked to cost of capital
- NOPAT better reflection of cash flow
- Reflects economic reality and long term benefits
What are the 3 main limitations of EVA?
- Single period (short termist)
- Many subjective adjustments
- Difficult to compare between sizes
What are the 7 elements of shareholder value added analysis?
- Sales Growth Rate
- Life of the Project
- Operating profit margin
- Working capital
- Cost of capital
- Asset investment
- Taxation
What are the 8 possible types of dysfunctional behaviour caused by poor target design?
- Tunnel vision
- Sub optimisation
- Myopia (short sightedness)
- Misrepresentation
- Misinterpretation
- Gaming
- Ossification
- Measure fixation
