Ch 16 Performance measurement

Question 1

different measure are appropriate for different business what are the factors that should be considered for designing the measurement ?

Answer 1

1. short and long term achievement
2. measurement should be fair
3. variety of measures should be used
4. measurement needs resources
5. Performance must be measured in relation to something
6. Measures must be relevant
7. Realistic estimates
8. Measurement needs responses

Question 2

Define critical success factors of a busines

Answer 2

those components of strategy in which the organisation must excel to out-perform competition

For each critical success factor, there should be a measure of performance. These performance measures might be called key performance indicators or KPIs. A target should be set for each KPI and actual performance can be
measured against the target.

There may be critical success factors for the products and services which can be defined as The CSFs of a product or service that must be related to customer needs. They are the features of a product or service
that will have the primary influence on the decisions by customers to buy it

Question 3

explain the critical success factors at different stages in strategic planning process or relation of CSFs and KPIs

Answer 3

strategic position
Management need to understand the main reasons why particular products or services are successful

Strategic choices
business entity should select strategies
that will enable it to achieve a competitive advantage over its competitors. These are strategies where the entity has the ability to achieve the critical success factors for its products or services.

Strategy Implementation
Performance targets should be set for each CSF. This involves deciding on a measurement of performance, that can be used to assess each CSF and then putting a quantified target for achievement within a given period of time.

Question 4

explain johson and scholes six steps aproach to using CSFs

Answer 4

step 1: Identify the success factors that are critical for profitability (long-term as well as short-term).

Step 2: Identify what is necessary (the ‘critical competencies’) in order to achieve a superior performance in the critical success factors. This means identifying what the entity must do to achieve success.

Step 3: The entity should develop the level of critical competence so that it acquires the ability to gain a competitive the advantage in the CSF.

Step 4: Identify appropriate key performance indicators for each critical competence

Step 5: Give emphasis to developing critical competencies for each aspect of performance

Step 6: Monitor the firm’s achievement of its target KPIs

Question 5

explain the balanced score card aproach

Answer 5

concept of the balanced scorecard is that there are several aspects of performance and targets should be set for each of them. The aim should be to achieve a satisfactory balance between the targets for each of the different perspectives on performance to avoid conflicts

critical success factors are identified for four aspects of performance, or four
‘perspectives’:
 Customer perspective
 Internal perspective
 Innovation and learning perspective
 Financial perspective.

Question 6

explain the customer’s perspective in a balanced scorecard

Answer 6

What do customers value?
By recognising what customers value most, the entity can focus its performance targets on
satisfying the customer more effectively. Targets might be developed for several aspects of performance such as cost (value for money), quality or place of delivery.

Question 7

explain the internal perspective in a balanced scorecard

Answer 7

To achieve its financial and customer objectives, what processes must the organisation perform with excellence?

Management should identify the key aspects of operational performance and seek to achieve
or maintain excellence in this area. For example, an entity may consider that customers value
the quality of its service and that a key aspect of providing a quality service is the
effectiveness of its operational controls in preventing errors from happening

Question 8

explain the Innovation and learning
perspective

Answer 8

How can the organisation continue to improve and create value?
The focus here is on the ability of the organisation to maintain its competitive position, through the skills and knowledge of its workforce and through developing new products and services, or making use of new technology as it develops.

Question 9

explain the financial perspective

Answer 9

How does the organisation create value for its owners?
Financial measures of performance in a balanced scorecard system might include share price growth, profitability and return on investment.

Question 10

explain the pyramid structure: linking performance targets throughout the organization.

Answer 10

Traditional performance has the narrow financial focus whereas dynamic business environment, achieving strategic business objectives depends on a good performance
with regard to:

customer satisfaction
flexibility
productivity

these driving forces can be monitored at the operational level. there are different levels of management and each has its own focus. However, there must be consistency between performance measurements at each management level, so performance measures at the operational level support the corporate strategy.

Question 11

interpreting the pyramid

Answer 11

1. the objectives and targets are set at the top level while the measurement is made at operational level because the if targets are achieved at the operational level this will enable the target achievement at the corporate objectives.
2. A key level of performance measurement is at the operating systems level achieving targets for customer satisfaction, flexibility and productivity. the exception of flexibility, which has both an internal and an external aspect, performance measures within the pyramid can be divided between:
   (I). market measures, or measures of external effectiveness, and
   (ii). financial measures, or measures of internal efficiency
3. The measures of performance are inter-related, both at the same level within the pyramid and vertically, between different levels in the pyramid.

performance measures that are chosen should link operations to strategic goals.
(I) All operational departments need to be aware of how they are contributing to the achievement of strategic goals.

(ii)Performance measures should be a combination of financial and non-financial measures that are of practical value to managers.