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
