E. Strategic control Flashcards
What is internal analysis?
crucial part of developing a strategy
helps the organisation to identify what it is capable of-what skills and assets wit possesses. Understanding this will help the organisation identify which strategies it is capable of implementing
what is a resource audit?
identifies the resources that are available to an organisation and seeks to starts the process of identifying competencies
-assess the relative strength of the resource base-the quantity of resources available, the nature of those resources and the extent to which those resources are unique and difficult to imitate
What are the factors of the position audit M model?
manpower-human assets of the firm, their skills and morale
money-the company’s cash position, gearing, investment plans, short and long term finance
management-the quality, expertise and experience of the top team.
machinery-the physical assets of the business, their flexibility, relative costs and the quality of what they produce
markets-the products and the markets the company currently operated in. the qualtiy and position of the products
materials-the relationship between the company and its suppliers. Cost, quality and future availability of materials
methods-the processes adopted by the business-putsourcing, JIT, AI, use of Big Data, cloud computing
management information-quality and timeliness of information provided to managers. can include Big Data. Will impact on quality of decisions made
make-up-the culture and structure of the organisation. Also, branding and other intangibles
what 4 headings can resources that help auditors be groups under?
physical or operational resources
human resources
financial resources
intangibles
what is a competence?
group of abilities, resources or skills that enable the organisation to act effectively
what are the 3 key tupes of competence that you need to be aware of?
core competences:these are things that you are able to do that are difficult for your competitors to emulate. Competitive advantage ‘the order winners’
threshold competences:these are things that you do well that simply enable to compete in the market. Do not competitive advantage:if they are not satisfied, will not consider. referred to as ‘the order qualifiers’
Coca Cola and threshold/core competences
has bottling plants, access to suitable water and a formulation for its drink
-its competitors also have these so doesn’t give them an edge
core comptetencies:intangible resource of powerful brand, global recognition, memorable advertising
how will core competence become threshold over time?
- cultures adjust and expectations develop
- customers and consumers become more sophisticated in terms f their needs and expectations
- competitors imitate out core competences
what features gave iPhones (2007) its competitive advantage?
- full colour touch-screen interface
- use of premium materials
- aesthetically pleasing design
- user-friendly software interface
- linked to the strong Apple brand
today, rivals imitate these so no longer ‘order winners’ and now threshold competences
what does a competence audit involve?
- analysis of what competences the organisation has, as well as how well resources are being deployed to create them
- categorisation of competences as core or threshold. This will be done by looping at historic data, industry norms sand benchmarking exercises (which will usually be undertaken by specialist teams)
what is a critical success factor?
limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the business
should tie into corporate objectives
what is an example of the mission, CSF and KPI for a supermarket?
mission:be the best value retailer in country
CSF:need to sell its goods for a lower price than its major rivals
KPI:keep its average selling price 10% below that of its rivals. It monitors its rivals
what are the 4 sources of CSFs?
1) The industry that the business is in-each has CSFs that are relevant to any company within it
2) The company itself and its situation within the industry-e.g. its competitive strategy and its geographic location
3) The wider environment e.g. the economy, the political factors and consumer trends i the country or countries that the organisation operates in
4) Temporal organisational factors-these are areas of company activity that are usually causing concern because they are unacceptable and need attention
what is the different between CSFs and competences?
CSFs are what the organisation needs to be good at in order to compete in the market
competences are what the organisation is good at
what is the value system?
looks at linking the value chains of those in the wider organisational ecosystem - suppliers and customers, - to that of the organisation
can add value by:
- enhancing the supply
- controlling of the retail process
- linking it all together to give advantage
What are the benefits of Porter’s Value Chain?
- provides a generic framework to analyse both the behaviour of costs as well as the existing and potential sources of differentiation
- activities that are not adding value can be identifies and addresses
- it emphasises the important of (re)grouping functions into activities to produce, market, deliver and support products, to think about relationships between activities and to link the value chain to the understanding of an organisation’s competitive position
- makes it clear than an organisation is multifaceted and that its underlying activities need to be analysed to understand its overall competitive position
- it an attempt to overcome the limitations of portfolio planning in multidivisional ords.
what is a value shop?
an alternative representations of the value chain based around professional service firms
workshop which mobilises resources to solve specific problems
may involve repeating a generic set of activities until satisfactory solution is reached
what are the criticism of the Value Chain?
it is more suited to a manufacturing environment and can be difficult to apply to a service provider
was intended as a quantitative analysis. However, this is time consuming since it often requires recalibrating the accounting system to allocate costs to individual activities
what are the primary activities of the value shop?
- problem finding and acquisition
- problem solving
- choosing among solutions
- execution and control/evaluation
they are arranged in a circle as they are cyclical
what does management in value shops focus on?
areas such as the assessment of problems and oppurtunities, the mobilisation of resources, project management, the delivery of solutions, the measurement of outcomes and also learning
what are the real options that firms have when deciding on strategic moves?
option to follow on-access to other, more lucrative (higher NPV) projects in the future
option to abandon-an organisation may be able to exit the project if it becomes unfavourable
option to delay-an organisation may be able to delay starting a project until conditions are more favourable
what is performance measurement?
process of assessing the proficiency with which a reporting entity succeeds, by the economic acquisition of resources and their efficient and effective deployment, in achieving its objectives. Performance measures may be based on non-financial as well as on financial information
why id selecting appropriate performance measures important?
- management must be able to identify whether the strategy is having the desired effect on the organisation’s output
- setting performance measures is a way of communicating targets to staff and other key stakeholders, indicating the organisation’s priorities. Rewards can be linked to the achievement of these measures
What are the four CPs that could control the behaviour of people within the organisation?
Confirm priorities: the fact that management have chosen to measure and report on quality indicates to workers that this is an area that is important and that needs to be prioritised
Compel progress:meet targets, may affect pay and career prospects
Check position:management of the business will be able to monitor progress relating to quality and see whether they are on course to meet their targets or not
Communicate position: measures of production quality can be used by management to assess and understand how the organisation is performing
what are CSFs?
limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the organisation
translated into KPIs
what should management be aware of when changing the performance measurement system?
- too many changes may lead to ‘indicator overload’, confusing employees about what the company wants them to do
- if something is included as part of the performance measurement system, the importance of this item is being highlighter to staff
- if a measure is dropped from the measurement system, you are telling your staff that this item is no longer important
what are financial performance measures?
concentrate on the revenue, profits, cash and capital position of the organisation
typically measured through ratio analysis
e.g. sales margin, net profit margin, ROCE
why is controllability important in performance measures?
should only use those that are controllable by employee otherwise unfair
what are the advantages of financial measures of performance?
- culturally expected
- focus on financial objectives
- comparable across companies
- cheap
- established framework for preparation in many cases
- tend to focus onto resource generation and so survival in the long term
what are the disadvantages of financial measures of performance?
- inflation distortion
- leads to suboptimal and short-termist behaviour
- lack of comparability
- understood by the ‘select few’ ie.e. trained accountants and managers
- subjectivity can exist in calculation e.g. depreciation
what are non-financial performance measures?
measures of performance based on non-financial information that may originate in and be used by operating departments to monitor and control their activities without ay accounting input
what are the advantages of non-financial measures?
- wider view
- easier to calculate
- easy to understand
- not distorted by inflation
- can emphasise broad spectrum of management
- positive motivational implications
what are the disadvantages of non-financial measures?
- some can be difficult to calculate
- subjectivity exists in design, interpretation and calculation
- can lead to indicator overload
- costly
- culture clash implications
- constant change requires constant monitoring
What is Kaplan’s cockpit?
need many pieces of information
co-pilot to C suite
what is the aim of the balanced scorecard?
provide a broad range of both financial and non-financial measures designed to reflect the complexity and diversity of business circumstance
key to implementation of strategy
gains in one area may mean loses in another, should not concentrate on one area
what are some examples of financial balance scorecard measures?
increased revenue improvements to key rations rising market share increased cash flow reduction or increase in gearing
what are some examples of internal business perspective?
reduction in production time
reduction in number of errors/defects
reduced wastage
reduction in time taken to supply customers/deal with customer queries
what are some examples of customer perspective?
increase in number of new customers attracted
increase in number of customers returning
reduction in number of customer complaints
rise in positive feedback from customers
reduction in returns from customers
number of orders delivered on time to customers
what are some examples of innovation and learning perspective?
number of days of staff training
number of new products or services launched
increase in number of sales made through new channels
increase in proportion of sales of new products
reduction in staff turnover
number of new business ideas generated by staff
what are some BC indicators for a train company?
customer:
- % trains on time
- % trained running per hour
- cleanliness levels
- seat availability
internal businss:
- staff attendance rates
- average time taken to process ticket enquiries
- % of trains in full working order
learning and growth
- investment in new rolling inventory
- number of training days per annum per staff memeber
- investment in new passenger facilities
financial perspective
- profit levels
- revenue growth
- revenue by activity
- cost control versus budget
Why was strategic mapping developed?
extension of the balanced scorecard to make implementations of the scorecard more successful
what is at the head of strategy mapping?
overriding objective of the organisation which describes how it creates value
then connected to the organisation’s other objectives, categorised in terms of the four perspectives of the BS, showing the cause-and-effect relationships between them
what are the issues with strategy mapping?
- organisations have often found it difficult to translate the corporate vision into behaviour and actions which achieve the key corporate objectives
- in practice many employees do not understand the organisation’s strategy, and systems such as perofrmance management and budgeting are not linked to the strategy
what are the main benefits of the BS method?
- avoids management reliance on short-termist or incomplete financial measures
- by identifying the non-financial measures, managers may be able to identify problems earlier
- can ensure that divisions develop success measures for their division that are related to the overall corporate goals of the organisation
- can assist stakeholders in evaluation the firm if measures are communicated externally
what are the drawbacks of the BS method?
- does not provide a single overall view of performance. Measures like ROCE are popular because they conveniently summarise ‘how things are going’ into one convenient measure
- there is no clear relation between the BS and shareholder analysis
- measures may give conflicting signals and confuse management
- often involves a substantial shift in corporate culture in order to implement it
what is the performance pyramid?
model designed to show the links between objectives and performance measures at different levels within the organisation
what is the second level of the performance pyramid?
the business unit includes the CSFs in terms of market-related measures and financial measures that need to be achieved to meet the organisation’s overall vision
what is the third level of the performance pyramid?
business operating systems
includes measures which relate to the internal systems and processes which are needed to meet the needs of customers
what is the lowest level of the pyramid?
departments and work centres
contains the day-to-day operational measures that can be used to monitor the status of the level 3 measures
what does the LHS of the pyramis contain?
have an external docue
predominately non-financial
what does the RHS of the pyramid contain?
onternal efficiency of the organisaiont
predominately fianncial
how do objectives and measures and information flow through the pyramid?
objectives: cascade down through the organisation
measures and information flow from bottom up
who does the performance pyramid tend to concentrate on?
two groups of stakeholders: shareholders and customers
what is the relationship between value drivers and the performance pyramid?
PP is a useful means to assess the drivers of value in an organisation and to adopt suitable measures of performance within the management system
because many elements of the pyramid can be classified as tangible or intangible
can also use BC to do this
what is the Fitzgerald and Moon building blocks framework?
for the design and analysis of performance management systems
first devised as a solution to performance measurement problems in service industries
can be applied successfully to other manufacturing and retail businesses to evaluate business performance-
what are dimensions in the building block model?
goals for the business and suitable measures must be developed to measure each performance dimension
includes 6 dimensions
what are the 6 dimensions and some measures for them?
profit: successful financial performance and growth, increased sales or margins
competitiveness: number of new customers, repeat business, market share
resource utilisation: optimum use of scarce resources, wastage, idle time
quality issues:minimising defects and errors, reliability of service/delivery to the customers, response times
innovation: product/service development
flexibility: ability to respond to changing needs, customer waiting times, overtime worked by staff
what are the bottom 2 building blocks?
standards: measures sued. To ensure success it is vital that employees view standards as achievable and fair and take ownership of them
rewards: ensure that employees are motivated to meet standards, targets need to be clear and linked to controllable factors
what is benchmarking?
the establishment, through data gathering, of targets and comparators, through whose use relative levels of performance can be identified
by the adoption of identified best practices it is hoped that performance will improve
what are the 3 types of benchmarking according to Seber?
internal
competitor
process or activity
what is internal benchmarking?
one branch or department is used as benchmark
- conformity of services is critical issue:threshold or core competence
- easily arranges, cheaper and culturally relevant
- culturally distorted and unlikely to provide innovative solutions
what is competitor benchmarking?
uses a direct competitor with the same or similar process
- essentially aims to render the competition core competence as threshold
- relevant for the industry and market
- will the competitor really be keen to hand over their basis for success?
what is process/activity benchmarking?
focus upon a similar process in another company which is not a direct competitor
- looks for new, innovative ways to create advantage as well as solving threshold problems
- takes time and is expensive
- resistance likely to be less and can provide the new basis for advantage
what are the steps to implementing a benchmarking shceme?
1) identify what is wrong with current organisation
2) identify best practice elsewhere
3) contacting, preparing for a site visit
4) gathering, evaluating and communicating the results
what is needed for implementing a benchmarking scheme?
- key executive commitment from the outset
- establishment of teams for those ranges of opinions and expertise
- a team to manage the project
- a team for the site visit
- budget allocations and training to be given
- a formalised process
what are the issues with implementing a benchmarking scheme?
- best practice companies unwilling to share data
- what is ‘best practice’
- costly in terms of time and money-oppurtunity cost
- provides a retrospective view in a turbulent environment
- successful benchmarking firms can find themselves inundated with requests for information from much less able firms from whom they can learn little
- managers may become demotivated if they are compared against a better-resourced rival
what measures can be used to measure divisional performance?
economic value added (EVA)
shareholder value analysis (SVA)
triple bottom line
what is EVA?
estimate of true economic profit after making corrective adjustments to GAAP accounting
divisional profit figure, less a charge for capital employed in the period
adjustments:treatment of goodwill and research and development expenditure
why are adjustments made in EVA?
to avoid the immediate write-off of value0building expenditure such as research and development expenditure, advertising expenditure or the purchase of goodwill
produce more accurate reflection
more realistic measure of the actual cash yield generated for shareholders from recurring business activities
what is SVA?
variation of EVA
looks at ways that a company can maximise the returns from its projects/strategies to ensure that it provides sufficient returns for investors
shareholder value if the total return to the shareholders in terms of both dividends and share price growth
what is Rappaport’s model?
suggested that future cash flows should be discounted at a suitable cost of capital and that shareholder value would be increased if this measure were to increase
what are the 7 value drivers in SVA?
SLOW CAT
Sales growth rate-assuming sales are profitable, this should increase cash flow
Life of the project - if the firm can forecast growth over a longer period, there will be more cash flows to discount
Operating profit margin - if this is increased, the amount of cash generated from each sale should rise
Working capital - this should be minimised to reduce the amount of cash tied up in inventory and receivables
Cost of capital-should be minimised as this is the rate that will be used to discount the future cash flows. Lower discount=higher PV
Asset investment - if growth demands high levels of capital investment, this will represent a large outflow of cash
Taxation - clearly, any reduction in this rate will reduce cash outflow
what are the advantages fo the EVA/SVA approaches?
- adjustments made to profit effectively mean we are looking at cash-flow based measures
- consistent with NPV so should ensure better goal congruence between divisional performance and maximising shareholder value
- cost of financing emphasised
what are the drawbacks of the EVA/SVA systems?
- uses accounting data which has been prepared for other purposes and involves subjective provisions and estimates
- ignores items that don’t appear on balance sheets such as brands, staff and inherent goodwill
- confuses management as they are seldom trained fully in its operation and it varies from one company to another
- costly to maintain and resistance is usually high when first deployed
- assumes value can be measured in money terms - judgement involved by used in evaluation and selection of cost of capital rate to be used
what is the tBL?
takes a wider view of divisional performance and includes an additional focus on the division’s environmental impact and the sustainability of its operations
expands traditional accountancy reporting systems, looking at social and environmental performance rather than simply financial performance
can encourage each division and manager within the organisation to act in a socially responsible manner
what are the 3 areas of TBL?
profit (economic prosperity)
-economic value created by the company, or the economic benefit to the surrounding community and society
people (social justice)
-fair and favourable business practices regarding labour and the wider community in which the company conducts its business
planet (environmental quality)
-use of sustainable environmental practices and the reduction of the environmental impact of the organisation
what are the advantages of the TBL>
- attracting ethically aware customers
- attracting better quality staff
- cost reductions
- reduced change of government legisaltion
what are the drawbacks of TBL?
difficult to quantify e.g. social and environmental measures
management conflict e.g. max shareholder return vs social/environmental actions, short term vs long term
how can senior management effectively communicate targets to the rest of the firm?
- communicating the targets being set and how they will be measured
- identification of why the targets have been selected-why they are important and how they feed into the organisation’s overall strategy
- explaining to employees how they will personally be affected by achieving the targets set
- getting feedback from employees about the appropriateness of the targets being set
why is the effective communication of the performance measures important?
- if employees understand the reason for the targets, they are more likely to ‘buy in’ to the performance measurement system and see it as important
- an explanation of how the employee’s performance is going to be measured will increase the likelihood that they will understand how it meet the targets they are being set
- explaining the impact of hitting or missing their targets will ensure that the employee is aware of the advantages to them personally of conforming to the performance measurement system, improving their motivation to meet the targets set
- getting feedback from employees can ensure that targets set are achievable. If employees feel that targets are attainable, they will not be motivated to work to achieve them
what is a stretch target?
where organisation sets goals for its employees that are possible but ver difficult to meet
have to perform extremely well in order to achieve the target
why should care be taken when setting stretch targets?
- if the employees see the stretch target as unachievable it will be demotivating
- a stretch target may encourage unethical or risk-taking behaviour-a student may be more likely to cheat on their exam in order to achieve the required grade
need to avoid behavioural problems
what rewards could be offered when meeting stretch targets?
- pay rises
- bonuses
- promotions
- more responsibility
what are the problems in performance measurement and contol in complex business structures?
- how to co-ordinate different business units to achieve overall corporate objectives
- goal congruence-managers will be motivated to improve the performance of their local business unit, possibly at the expense of the larger organisation
- performance of one unit may depend to some extent on others, making it difficult to implement responsibility accounting effectively
- whether/how head office costs should be reapportioned
- how transfer prices should be set as these effectively move profit from one division to another
what issues do controllability and design poses?
- what exactly is controllable? consider shared assets
- does controllability change when the long run is considered?
- transfer pricing issues-should the sales and purchases be included?
- managerial performance and divisional economic performance are not necessarily the same thing-uncontrollable factors would beed to be included when considering economic performance
- where does the data originate from? not from accounting system usually. Reporting or accuracy-which is most important?
- cultural situation and factors that are likely to motivate the divisional management team
what are some typical measures for a cost centre: incurs costs but has no revenue stream?
total cost
- cost variance
- cost per unit
- NFPIs
what are some typical measures for a profit centre: incurs costs and revenues but manager has no authority to alter level of investment in the division?
total cost measures plus
sales profit sales variances margins market share working capital ratios NFPIs related to customer satisfaction
what are some typical measures for an investment centre: costs and revenue and authority to dictate investments?
all measures for cost centres and profit centres plus
- ROI
- RI
- SVA/EVA
what is sub-optimisation?
actions taken to improve the divisional situation at the expense of the company as a whole
why might sub-optimisation occur?
short-termism
-improve short run performance at expense of long run
problems intrinsic to the targets used
-most measures linked to profit which have a high correlation wit shareholder wealth
wrong signals
-excessive pressure to hit targets may result in a culture where it is felt to be acceptable to use ‘creative accounting’ to achieve results
what are the issues with performance measurement?
divisional companies may face issues
- goal congruence between divisions
- fairness
- whether/how central head office costs should be apportioned
controllability
sub-optimisation
- short-termism
- wrong signals
what are some behavioural problems that can occur from poorly designed performance management systems?
misrepresentation-creative reporting to suggest that a result is acceptable
gaming-deliberate distortion of a measure to secure some strategic advantage
misrepresentation - failure to recognise the complexity of the environment in which the organisation operated
short-termism - leading to the neglect of longer-term objectives
measure fixation-measures and behaviour in order to achieve specific performance indicators which may not be effective
tunnel vision -undue focus on stated performance measures to the detriment of other areas
sub-optimisation - focus on some objectives so that others are not achieved
ossification - an unwillingness to change the performance measure scheme once it has been set up
what role does a management accountant play in performance?
help management to decide on the performance measurement mix itself
help decide what targets to set staff in each area of the performance measurement mix
help the organisation to design systems to capture relevant information relating to the measurement mix
what is Integrated reporting?
key strategic communication tool, both internally and externally
one report captures the strategic and operational actions of management in its holistic approach to business and stakeholder ‘wellbeing’
what is the role of management accounting in providing performance information for IR?
collaborate with top mgmt to communicate financial wellbeing and stakeholder wellbeing
IR brings statutory reporting closer to the management accountant and will make management accountant even more important in bridging the gap between stakeholders and the company’s reports
MA will produce information that is:
- a balance between quantitative and qualitative information
- links part, present and future performance, look more at forward looking nature
- considers the regulatory impacts on performance
- provides an analysis of opportunities and risks that could impact in the future
- considers how resources should be best allocated
- is tailored to the specific business situation but remains concise
what is the IIRC?
formed in August 2010
aims to create a globally accepted framework for a process that results in communication by an organisation about value creation over time
seeks to secure adoption of an Integrated Reporting Framework by report preparers
what is the Integrated Reporting Framework?
sets out several guiding principles and content elements that have to be considered when preparing an integrated report
what are the 7 guiding principles of Integrated Reporting?
Strategic focus and future orientation
Connectivity of information
Stakeholder relationships
Materiality
Conciseness
Reliability and completeness
Consistency and comparability
what are the 8 content elements of the Integrated Report?
Organisational overview and external environment e.g. PESTEL
Risks and opportunities
Strategy and resource allocation e.g Porter’s, BCG matrix, value chain
Business model
Future outlook e.g. PESTEL, Porter’s
Performance
Governance
Basis of preparation and presentation
what are the 6 capitals of the IR Framework?
FHM SIN
Financial - shares, cash
Manufactured - machines, buildings, tools
-two most reported on
Intellectual - employee knowledge
Human - employee skills and motivation
Social and relationship - partnerships with trade unions and the community
Natural- renewable and non-renewable material resources
what is sometimes referred to as internal IR?
performance management systems
when IR is applied internally
how can an emphasis on financial capitals result in more focused performance management?
- KPIs can be set up for each of the six capitals, ensuring that each of the drivers of sustainable value creation are monitored, controlled and developed
- these can be developed further to show how the KPIs connect with different capitals, interact with and impact each other
- the interaction and inter-connectedness of these indicators should then be reflected in greater integration and cooperation between different functions and operations within the firm
- this should result in greater transparency of internal communications allowing departments to appreciate better the wider implications of their activities
- together this should result in better decision making and value creation over the longer term
what is the GRI?
Global Reporting Initiative
most accepted framework for reporting sustainability
g4: fourth of the guidelines issues in May 2013
what does the G4 principles consist of?
principles help to define report content, quality of the report and give guidance on how to set the report boundary
the disclosure items include disclosures on management of issues as well as performance indicators themselves
what are Reporting Principles?
the required characteristics of the Report Content and Report Quality
what are the Principles for Defining Report Content?
Stakeholder Inclusiveness
Sustainability context
Materiality
Completeness
what are the Principles for Defining Report quality?
BRACCT
Balance Comparability Accuracy Timeliness Clarity Reliability
what are the 2 types of Standard disclosures?
General standard disclosures and specific standard disclosures
what are general standard disclosures?
Strategy and Analysis Organisational Profile Identified Material Aspects and Boundaries Stakeholder Engagement Report profile Governance Ethics and Integrity
what are the Specific Standard Disclosures?
Disclosures on Management’s Approach
Indicators
what 3 categories does the G4 guidelines encourage disclosures of various aspects to be split into?
Economic
- Economic Performance
- Market Presence
Environmental
- Materials, energy and water
- Biodiversity
- Emissions
- Effluents and Waste
Social (split into 4 categories)
- Labour practices and decent work
- Human rights
- Society
- Product responsibility
what are external triggers to change?
2 groups
general (indirect action) environmental factors - PESTEL
Task (direct action factors) - assessed using Porter’s 5 forces model
What are some internal triffers?
philosophy reorganisation personnel conditions technology
Why is problem identification a precursor to change?
reasons why change is considered
what needs changing
What are the 4 type of change?
evolution
adaption
revolution
reconstruction
what is evolution?
transformational change implemented gradually throguh inter-related initiatives; likely to be proactive change undertaken in participation of the need for future change
can take a long period of time
normally taken in anticipation of a need for change
what is adaptation?
change undertaken to realign the way in which the organisation operated implemented in a series of steps
what is revolution?
transformational change that occurs via simultaneous initiatives on many fronts
-more likely to be forced and reactive because of the changing competitive conditions that the organisation is facing
critical that this type of change is managed effectively
what is reonstruction?
change undertaken to realign the way in which the organisation operated with many initiatives implemented simultaneously
-often forced and reactive because of a changing competitive context
what is transformational change?
entails changing culture and represents a fundamental shift in the organisation paradigm
what can Big Bang speed of change also be referred to as?
discontinuous change
why do managers struggle with evolution vs revolution?
how bold does change need to be
- break from the past
- value of continuity and results take time
why is the ‘window of opportunity’ small for achieving revolutionary change?
- competitive pressure:market position eroding, rapid and dramatic response needed
- regulatory pressure: under pressure from govt or regulators to push through major changes, larger organisations can push back
- first mover advantage:a more proactive reason for instigating revolutionary change, is to be the first firm to introduce a new product, service or technology and to build up barriers to entry for late movers
what is culture?
the way we do things round here (Handy)
set of values, guiding beliefs, understandings and ways of thinking that are shared by the members of an organisation and is taught to new members as correct
represents the unwritten, feeling part of the organisation
set of taken for granted assumptions (Schein)
why is inherent culture important?
- existing culture can become ‘embedded’ and hence resistant to change. Overcoming this resistance can be a major challenge
- existing culture can limit the types of strategy development and change that are considered
how are managers likely to react when facing a trigger such as declining performance?
1) first managers will try to improve the effectiveness and efficiency of the existing strategy
2) if this is not effective, then a change in strategy may occur but in line with existing strategies
3) even when managers know intellectually that more radical change is needed, they find themselves constrained by existing routines, assumptions and political processes
Why did Johnson develop the cultural web?
to attempt to explain why firms often failed to adjust to environmental change as quickly as they needed to
concluded that firms developed a way of understanding their organisation (a paradigm_ and found it difficult to think and act outside this paradigm if it was particularly strong
what questions should be asked in the stories and myths part of the cultural web?
- what stories do people relate to within the organisation?
- how pervasive are these beliefs?
- what do current staff tell new staff when they join?
- do stories relate to:strengths or weaknesses, successes or failures, conformity or mavericks?
- what norms do the mavericks deviate from?
what questions should be asked in the routines and rituals part of the cultural web?
- what behaviour do routines encourage?which would look odd if changed?
- what are the key rituals that staff undertake regularly?
- what do training programmes emphasise?
- how easy are the rituals/routines to change?
- what do employees expect when they come to work?
what questions should be asked in the organisational structures part of the cultural web?
- is there a very formal structure?informal reporting mechanisms?
- how flat/hierarchical are the structures?how formal/informal are they?
- do structures encourage collaboration or competition?
- what type of power structure does the overall organisational structure support?
what questions should be asked in the control systems part of the cultural web?
- what is most closely monitored/controlled in my organisation?
- is emphasis on reward or punishment?are there many/few controls?
- are all employees aware of the control mechanisms in place?
- is the organisation well controlled?
what questions should be asked in the power structures part of the cultural web?
- what are the core beliefs of the leadership in my organisation?
- who has the power to make decisions?
- is power used effectively and appropriately?
- how is power distributed in the organisation?
- what are the main blockages to change?
what questions should be asked in the symbols part of the cultural web?
- what language and jargon are used in the organisation?
- how internal or accessible are they?
- what aspects of strategy are highlighted in publicity?
- what status symbols are there?
- are there particular symbols that denote the organisation to the outside world/customers?
what questions should be asked overall in the cultural web?
what are the key underlying assumptions that are the paradigm?
what is the dominant culture?
how easy is this to change?
How did McKinsey see culture?
7 interconnected elements
change in one of these can have a knock on effect
e.g. staff having inadequate skills could affect structure and management style
what are the ‘hard’/tangible factors of the 7S model?
structure
strategy
-plans to gain competitive advantage
systems
-daily activities and procedures followed by staff
what are the ‘soft’/intangible factors of the 7S model?
skills
-the skills, abilities and competences of the organisation’s employees
style
-style of leadership
staff
-the people that make up the organisation
shared values
-the core values of the organisation i.e. the paradigm
what is resistance to change?
action taken by individuals and groups when they perceive that a change that is occuring is a threat to them
what is resistance?
any attitude or behaviour that reflects a person’s unwillingness to make or support a desired change
what are the 3 reasons for resisting change?
job factors
- fear of tech unemployment
- fear of changes in working conditions
- fear of demotion or reduced pay
personal factors
- implied criticism of current working method
- feel less valued
- work becomes more monotonous
social factors
- dislike need to break up current social environment
- personal dislike of people implementing change
- lack of consultations leading to rejection of change
what form can resistance take?
active or passive
overt or covert
individual or organised
aggressive or timid
what are the sources of resistance and possible responses to them?
need for security and the familiar>provide info and encouragement, invite involvement
having the opinion that no change is needed>clarify the purpose of the change and how it will be made
trying to protect vested interests>demonstrate the problem or the opportunity that makes changes desirable
According to Kotter and Schlesinger (1979), what are the 4 reasons that explain why certain people resist change?
parochial self-interest:some people are concerned with the implication of the change for themselves and how it may affect their own interests, rather than considering the effects for the success of the business
misunderstanding:communication problems, inadequate information
low tolerance to change:certain people are very keen on security and stability in their work
different assessments of the situation:some employees may disagree on the reasons for the change and on the advantages and disadvantages of the change process
what is a change leader?
in order to successfully implement change, most organisations will require someone to take overall control of the change process
what does the change leader do?
responsible for articulating what change is needed and why, acting as a figurehead for the change process, as well as helping to deal with any problems or conflicts that arise during the change process
what is Kotter’s 8 step process to leading change?
1) Establish a sense of urgency
- otw will lead to lack of motivation
- no buy in
2) Creating the guiding coalition
- assemble powerful group to help lead change
- can be different levels of seniority
3) Developing a change vision
- needs to create an overall vision of the future
- otw could lead to a lack of focus and goal congruence
4) Communication the vision
- maximises buy in
- involve many levels
5) Empowering broad-based action
- remove obstacles to change
- encourage staff to get involved
- use Lewin’s forcefield analysis
6) Generating short-term vibes
- interim achievements
- can take a long time to implement
7) Never letting up
- maintain change process, hiring, promoting and developing employees
- complete major projects
- could slip back into old habits (last step of Lewin’s model)
8) Incorporating changes into the culture
- reinforce change and communicate and reward achievement
- ensure that they show staff how the changes have improved performance
what is a group?
a collection of individuals
what is a team?
more than a group
a set of individuals who must work together in order to accomplish shared objectives
- share a common goal
- enjoy working together
- are committed to achieving certain goals
How does team building help develop a team?
improved communication:problem solving, force discussions and participation
building trust:between team members, will help them work together effectively
social interaction:can help reduce conflict and increase their ability to work effectively
what are the benefits of teams?
- mixture of skills and abilities within the team
- better control, with opportunities for individual performance to be reviewed and controlled by other team members
- improved communication-this can also lead to increased buy-in by the rest of the organisation
what are the problems with teams?
- slower decision-making, could lead to conflict
- decisions may be compromises, rather than decisions that are beneficial to the business and change process as a whole
- group pressure to conform can lead to team members agreeing to decisions that they know are wrong because other team members support it
- teams may have a lack of individual responsibility, as responsibility is shared between all members, more willing to take riskier course of action.
What are Kotter’s Leadership styles to overcoming resistance?
Participation Education and communication Power/coercion Negotiation Manipulation and co-optation Facilitation and support
what are the key consideration when deciding upon a leadership style?
- the speed at which change must be introduced
- the strength of the pressure for change
- the level of resistance expected
- the amount of power you hold
- how much information you need before you can implement the change and how long it will take to get that information
which leadership style breaches the CIMA code of ethics?
manipulation and co-optation
-distorts facts to support the proposed change to be made
what is the participation style?
aims to involve employees by allowing input
could result in raised levels of autonomy
what is the education and communication style of leadership?
used as a background factor to reinforce another approach
strategy relies upon the hopeful belief that communication about the benefits of change to employees will result in their acceptance of the need to exercise the changes necessary
what is the power/coercion method of leadership?
involves the compulsory approach by management to implement change
finds its roots from the formal authority that mgmt possesses, together with legislative support
often required where the speed of change needs to be rapid and where possible crises occur
what is the facilitation and support style of leadership?
employees may need to be counselled to help them overcome their fears and anxieties about change
management may find it necessary to develop individual awareness of the need for change
what is manipulation and co-optation?
involves covert attempts to sidestep potential resistance
information that is disseminated is selective and distorted to only emphasise the benefits of the change
co-optation involved giving key people access to the decision making process
what is negotiation?
often practices in unionised companies
process of negotiation is exercised, enabling several parties with opposing interest to bargain
bargaining leads to a situation of compromise and agreement
What is Lewin’s three-stage ‘ice cude’ model?
argued that in order for change to occur successfully, organisations need to progress through three stages
unfreeze: convince staff of the need for change
movement/change: enacting the change
refreezing:ensuring staff fo not fall back into the old ways
what is the unfreezing stage of the ice cube model?
need to make change obvious
create initial motivation to change by convincing staff of the undesirability of the present situation
effective communication and explaining the need for change is vital
During unfreezing, how can destabilising the present stability occur?
- identifying and exploiting existing areas of stress or dissatisfaction
- creating and introducing additional forces for change, such as tighter budgets and targets or new personnel in favour of the change
- increasing employee knowledge about markets, competitors and the need for change
what is the change/movement phase of the ice cube?
new information is communicated concerning the new attitudes, culture and concepts that the organisation wants to be adopted, so that these are internalised by employees
involves:
- establishing new patterns of behaviour
- setting up new reporting relationships
- creating new reward./incentive schemes
- introducing a new style of management
what is involved in the refreezing stage of the ice cube model?
ensure change is embedded and employees don’t slip into old ways
- larger rewards for those who embrace new culture
- publicity of success stories and new ‘heroes’ e.g. through employee of the month
How did banks employs the ice cube model in the economic crisis of 2008?
unfreezing
- convincing them of need for automation
- explain economic situation and competition
- benefits to employees
change
- where change occurs
- training to deal with different queries and complaints
- communication is vital at this stage
refreezing
- ensure bank staff do not return to old system
- new reward schemes to encourage adoption
- managers reinforce the new approach by publishing success stories
what are the criticisms of the three-stage model?
too simplistic
based on assumptions that organisations are stable and static so change results only from concentrated effort and only in one direction
argue that change is multi-directional and ubiquitous, that it happens in all directions simultaneously and that is often a continuous process
What is Lewin’s forcefield analysis?
managers should consider change situation in terms of:
- the factors encouraging and facilitating the cahnge (the driving focus)
- the factors that hinder change (the restraining forces)
change will only be successful if the driving forces are larger than the restraining forces
encourages identifying the various forces impinging on the the target of change, to consider the relative strengths of these forces and to explore alternative strategies for modifying the force field
how does forcefield analysis suggest changing the equilibrium to bring about change?
- strengthening the driving forces
- weakening the restraining forces
- both
What was Beer and Nohria’s Theory E & Theory O?
initiatives failing was due to managers becoming overwhelmed by the detail of the process and failing to focus on the overall goals of the change itself
Theory E: based on measures where shareholder value is the main concern. Change usually involves incentives, layoffs, downsizing and restructuring
Theory O: ‘softer’ approaches to change, often involving cultural adjustment or enhancing employee capabilities through individual and organisational learning
What are the drawbacks of the heory E and THeory O apporach?
Theory E: tend to ignore the feelings and attitudes of their employees, which will often lead to a loss of motivation and commitment from staff members. Can damage the competitive advantage of the organisation
Theory O:will often fail to take the ‘tough’ decisions that may be needed
which approach should be implemented according to Beer and Nohria?
both should be applied simultaneously and try to balance the associated tensions
what are change agents?
key figures who support the change process and play a major role in dealing with resistance
-usually familiar and non-threatening to other people
what are the advantages of the change agents?
define the problem and its cause: should be able to identify restraining forces or potential resistance and help management to understand the root causes behind them
diagnose solutions and select appropriate courses of action: help mgmt select best course of action
implement change: well informed about change and reasons behind it so best person to implement it
transmit the learning process to others and the organisation overall: document the learning process and take the lead in spreading this information throughout the company
what are the goals of the change agent?
- clarity in defining the achievable
- sensitive to the impact of change on all stakeholder
- flexibility to adapt to internal and external triggers
what are the roles of change agents?
- team-building skills to establish work groups
- networking skills inside and outside the company
- tolerance of ambiguity and uncertainty
what skills do change agents need?
communication: with colleagues and subs, personal enthusiasm, meeting management
negotiation: creating vision and selling plans, resolving conflict, contract negotiation
managing up: political awareness and influencing skills, balancing goals and perceptions, helicopter perspective
what are the 7 power skills Kanter identified for change agents?
- ability to work independently
- ability to collaborate effectively
- ability to develop relationships based on trust
- self-confidence, tempered with humility
- respect for the process of change
- ability to work across different business units and functions
- a willingness to stake personal rewards on results
what are the advantages of using external consultants as change agents?
- they can bring a fresh perspective to the problem
- may have state-of-the-art knowledge of the required change e.g. TQM intro
- being a dedicated resource they may be able to give it more time and energy
- they may have more experience and hence be better able to avoid traps and pitfalls
- greater objectivity as they have no personal stake in the outcomes of the change
what is mentoring?
a process where a manager offers help, guidance, advice and support to facilitate the learning and development of another
who would typically be a mentor?
- offer practical advice and support
- can give technical and general guidance
- can help with the development of key work skills
- can act as a role model
what are the key features of mentoring?
- has no specific periodL indefinite and may be ongoing until it is no longer considered necessary
- does not have to be a formal process
- seeks to build wisdom: seeks to help mentee apply skills and experience to new situations
what is coaching?
developing a person’s skills and knowledge so that their job performance improves, hopefully leading to the achievement of organisational objectives
targets high performance and improvement at work
what are the key features of coaching?
- tends to be one-to-one
- has a formal, set purpose
- tends to have a planned programme that is followed over a set period
what are the similarities between coaching and mentoring?
- neither is about teaching, instruction or telling someone what to do
- both are flexible and evolutionary approaches
- they require similar skills from the individual acting as the coach/mentor
how can mentoring/coaching help change management?
need to believe in the change process as they can be a key part
important at all levels within the business
ensure relevant leadership and management skills are being developed
when attempting to help a business recover from a period of decline, a manager’s strategic priorities are likely to be what?
- reducing costs to improve efficiency
- improving competitiveness in order to increase revenue
How can management cut costs?
reduce employment costs
- full time to part time
- eliminate overtime payments
- if this doesn’t work, voluntary or compulsory redundancies
might affect quality and staff morale
Why is cutting employment in the UK public sector difficult?
heavily unionised
causes strikes and protests
harder to attract good quality staff members in the future as public sector jobs may no longer be seen as secure
Other than redundancies and changes in factory layout, how can managers drastically change business strategy?
retrenchment-cost cutting drastically
turnaround-repositioning the business within its current market
divestment - sale or closure of business units
liquidation-sale of the organisation as a whole, normally last resort
what potential ethical dilemmas need managing for a change to be implemented ethically?
- is the change justified?
- management approach: manipulation vs participation
- managers exploiting change for personal benefit
- managers may resist change to protect their own interests
- extent to which plans are made available of is a ‘need to know’ culture is adopted
- whether ‘misinformation’ is used to drive certain phases of the change process e.g. to unfreeze the existing culture
- accountants ay be asked to manipulate figures to exaggerate the case for change
How did the Chrysler CEO deal with having to close plants?
through a series of associated plans designed to get the employees into self-employment of into other forms of work
some employees reskilled and moved to jobs in other parts of the Chrysler group but the majority found employment elsewhere locally
what methods have authors suggested using when looking at change as an ongoing process?
change-adept organisations (Kanter)
excellent firms that seek to create a climate of change (thrive on chaos) (Peter)
what is the change-adept organisations (Kanter)?
focuses on 2 main issues
1) 3 attributes of companies that manage change successfully
- the imagination to innovate
- the professionalism to perform
- the openness to collaborate
2) 7 key skills for leaders in these change-adept organisations
- communicating a compelling aspiration
- building coalitions
- transferring ownerships to the work team
- making everyone a hero
- learning to persevere
- challenging the prevailing organisational wisdom
- tuning in the environment
What did Kanter suggest the attitude to change should be?
should be naturally accepted as natural part of their existence
should not be seen as threat but opportunity for change
need to be fast, agile, intuitive and innovative
what is Peter’s thriving on chaos theory?
successful companies have succeeded by seeking to create a climate of continual and radical change
- incremental change is the enemy of true innovation, because it makes an organisation less willing to be truly innovative
- excellent firms don’t believe in excellence, only in constant improvement and constant change
- a constantly changing environment does not necessarily mean chaos, instead it may mean that companies can handle the introduction of change successfully
what are the advantages of having a climate of change according to Peters?
- innovation and the introduction of new products and new methods are actively sought and welcomed
- people who are used to change tend to accept it without resistance
- employees develop an external viewpoint, and are less insular and defensive in their outlook
what are the diadvantages of having a climate of change according to Peters?
- with a climate of change morale might be damaged
- staff might become involved in office politics because of their concerns about the possible changes that might occur in the organisation
when is change more likely to success?
- clearly understandable goals
- realistic time frames, rather than merely looking for a ‘quick fix’
- clear guidance as to how each individual’s behaviour needs to change
- clear, unified leadership with no conflict between managers
- management support for training and other necessary investment
