Lecture 10 Flashcards
How is an functional organisation divided in an organisational structure
In a functional structure, the organisation is divided based on specific functions or departments
What are the key characteristics of a functional organisation structure
Key Characteristics:
- Departments operate independently, but they report to a central executive
- Roles are specialised
- Communication flows vertically within departments
- Suitable for smaller organisations
What are the advantages of a functional organisation structure
Advantages:
- Specialisation and expertise in each function
- Clear hierarchy and structure
- Better resource allocation to specific functions
What are the disadvantages of a functional organisation structure
Disadvantages:
- Silos can form between departments, reducing cross-functional collaboration.
- Decisions may take time due to the reliance on vertical communication.
How are organisations divided in divisionalised organisational strucutre
In a divisionalised structure, the organisation is divided into semi-autonomous units or divisions
In a divisionalised structure what can divisions be based on
Divisions can be based on geography, product line, market segment, or customer base
What are the key characteristics of divisionalised organisational structure
Key Characteristics:
- Each division operates independently with its own functional teams
- Leaders of divisions report to the top management
- Cross-functional teams may exist across divisions to collaborate on projects or initiatives
What are the advantages of divisionalised organisational structure
Advantages:
- Enhanced focus on specific markets or products
- Faster decision-making
- Clear accountability and ownership within divisions
What are the disadvantages of divisionalised organisational structure
Disadvantages:
- Duplication of resources across divisions
- Less coordination between divisions
- High administrative overhead at the divisional level.
What does managerial performance focus on
Managerial performance focuses on how effectively managers fulfil their roles
What does managerial performance assess
It assesses how well management meets strategic and operational objectives
What are the responsibilities of management
Planning, organizing, leading, and controlling
What are the metrics for management
Employee satisfaction, team efficiency, leadership quality, resource allocation, risk management, and adherence to policies
How are managers evaluated
Often assessed through performance appraisals, reviews, and feedback systems
What do economic performances focus on
Economic performance focuses on how effectively an organisation utilizes resources to generate profit and financial sustainability
What does economic performance measure
It measures the financial health, profitability, and economic outcomes of an organisation’s activities
What are the responsibilities of economic performance
Cost management, revenue growth, profitability, return on investment (ROI), shareholder value, and market competitiveness
What are the metrics for economic performance
Profit margins, revenue growth, cost efficiency, return on assets (ROA), financial ratios, and market share
How is economic performance evaluated
Often assessed through financial statements, audits, market performance, and shareholder expectations
What are some factors that need to be considered to create an effective performance measurement system
Several factors need to be considered to create an effective performance measurement system:
- Strategic Alignment
- Relevance
- Balanced Approach
- Measurability
What is strategic alignment
Ensure that performance measures are aligned with the organization’s strategic goals and objectives
What does strategic alignment ensure
This ensures that individual and team performance contributes directly to the broader business strategy
Why is relevance important for designing performance measurement
Irrelevant or too many metrics can dilute focus and create confusion
Why is balance approach important for designing performance measurement
Focusing solely on financial outcomes may overlook critical aspects like customer satisfaction, innovation, and employee engagement
Why is measurability important for designing performance measurement
Clear, objective measurements are easier to track, assess, and improve
Return on Investment (ROI)
ROI= Net profit/investment X 100
What does ROI measure
ROI measures the profitability of an investment relative to its cost. It indicates how efficiently an investment generates profits
What is net profit
Net Profit is the profit after deducting all expenses from total revenue
What is investment
Investment is the amount of capital invested in a particular project or asset
What does a higher ROI indicate
A higher ROI indicates that the investment is generating more profit relative to its cost
What does ROI help compare
ROI helps compare the profitability of different investments
Residual income (RI) =
RI=NetOperatingIncome − (Required Return × InvestedCapital)
What does residual income measure
Residual Income measures the excess profit earned beyond the required return on investment
What does residual income show
It shows how well an investment is performing beyond a certain benchmark or minimum expected return
What is net operating income
Net Operating Income is the profit earned from ongoing operations
What is required return
Required Return is the minimum acceptable rate of return for a given investment
What is invested capital
Invested Capital is the amount of capital tied up in the business or project
What does a positive residual income indicate
A positive residual income indicates that the investment has exceeded the minimum required return
What does residual income help evaluate
Helps evaluate the true value created by the investment after accounting for opportunity costs
Economic Value Added (EVA) =
EVA = NetOperatingProfitAfterTaxes(NOPAT) − (Weighted Average Cost of Capital ×
InvestedCapital)
What does EVA measure
EVA measures the financial performance of a business by assessing how much value is created beyond the cost of capital
What does EVA reflect
It reflects the real economic profit of a company
What is net operating profit after tax
Net Operating Profit After Taxes (NOPAT) is the profit generated from operations after taxes
What is weighted average cost of capital
Weighted Average Cost of Capital (WACC) is the average rate a company must pay to finance its operations
What is invested capital
Invested Capital refers to the total capital invested in the business
What does a positive EVA indicate
A positive EVA indicates that the company has created value, exceeding its cost of capital
What does a negative EVA mean
A negative EVA means that the business has not generated enough profit to cover the cost of capital, indicating a value loss
