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2nd semester MAC > Performance Management > Flashcards

Performance Management Flashcards

1
Q

What are the different strategic mentalities within multinational companies?

A
  1. International strategy mentality
    - Domestic focus, product development for domestic market, non-responsive to local environment, controlled by headquarter
  2. Multi-domestic strategic mentality
    - Difference between domestic and foreign market demands, modifies products and marketing to local environment, decentralized decision and responsibility
  3. Global strategic mentality
    - Sees the world as a unit, standardized and homogenous products, non-responsive but powerful, CEO to VP product A worldwide, CEO to VP product B worldwide
  4. Transnational strategic mentality
    - Responsive to local needs, independent network of worldwide operations
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2
Q

What are the advantages/disadvantages of decentralization?

A

Advantages:

  • Motivation for local managers
  • Local knowledge
  • Faster and closer decision making

Disadvantages

  • Dysfunctional competition and friction
  • Goal congruency and sub-optimization problems
  • Top-management lose some control
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3
Q

What is the aim of performance management?

A

The process of formulating organizational goals and ensuring that goals are being met in an effective and efficient manner. The aim is that local performance should the consistent with overall corporate objectives. Design a PM system that support the strategy and structure

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4
Q

What is action control?

A

The actions taken - 4 basic forms:

  1. Behavioral constraints
    - E.g., not being able to pay invoice above 10.000 kr. Without manager approve – avoiding fraud
  2. Pre-action reviews
  3. Action accountability
    - Checklists
  4. Redundancy
    - Doing things twice, backups

Pros:

  • formulation of rules and routines
  • documentation of best practise

Cons:

  • jobs may be difficult to routine
  • may discourage creativity
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5
Q

What is result control?

A

The results produced - tying performance to rewards

Decentralization: Typically, some that we see that evolves and do this to hold units responsible for the bottom line(profit). Measuring and how to reach the profit goals is up to the manager of the decentralized unit –> beneficial for the decentralized managers, but based on extrinsic rewards to might not reflect the more qualitative side

Pros:
o Results accountability, behavior can be influenced, pay for performance motivation

Cons:
o Joint controllability and conflicts
o Dysfunctional employee motivation
- Extrinsic rewards

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6
Q

What is people control?

A
  • The types of people employed and their share values and norms
  • Recruit the right people, sales culture and training

Also self control: exercised by the person, will control themselves and others
Intrinsic ruled, seen within professional areas – one might not be good enough to having pure self-control

Control own behavior and control other’s behavior (=culture control)

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7
Q

What are the different responsibility centers?

A

Revenue, cost, profit and investment

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8
Q

What is the advantages/disadvantages of the system approach by Anthony?

A

Advantages:

  • Decentralization and hierarchy of decision making
  • Long term planning
  • Idea of being in control

Disadvantages:

  • Strategic plan formulated by top-management (no look at lower levels)
  • One way top-down communication of goals
  • Result controls
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9
Q

What are the advantages/disadvantages of Simons diagnostic and interactive control?

A

Levers of control:

  • Belief system
  • Boundary systems
  • Diagnostic control systems
  • Interactive control systems

Advantages:

  • Look-out function at lower-level management
  • Interactive formulation and communication of goals

Disadvantages:
- Diagnostic system is not interactive

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10
Q

Tell about the expense center

A

Manager and employees control input in monetary terms but not output in monetary terms and not investment

Standard cost centers: when the amount of inputs required to produce each unit of output can be specified

Discretionary expense centers: no strong relation between inputs and output

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11
Q

Tell about the revenue center

A

Manager and employees control output in monetary terms but not input in monetary terms and not investments

Measurements: (budget-actual), revenues per salesman

Problems measurements: price decisions, marketing costs
- Problem: sales department can increase the marketing costs to increase revenue, but perhaps not controlled for these costs. Then they should rather be controlled on CM as they then also must consider the costs and not only revenue

Alternative: pseudo profit center: management is made responsible for profit due to an artificial transfer price for goods from another center
- Manufacturing department sell to the sales subsidiary and have an artificial transfer price, so make them responsible for some profit/CM center, since they might have a say on the price which means that the actively can control the CM

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12
Q

What are the three ideal technical qualitiess of a PMS?

A
  1. Responsibility – controllability
    a. Need to be a match between the responsibility and controllability – need to be controlled on what you can control/be responsible for
  2. Ability to measure the results effectively
    a. Cannot only look at one thing and neglect the other
  3. Must know the right norm

–> the quality criteria are important but need to have an eye out for the pragmatic effect (needs to fulfill the goal of the system, what is the effect in practice)

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13
Q

How can one evaluate a PM system?

A

There is no best form of control, what works in one situation may not work in another.
Evaluation:
1. Best fit
- What can they control and what type of responsibility center fits with this?

  1. Pro-active judgment of response
  2. Observation of pragmatic effects
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14
Q

What are the problems of controllability and measurebility?

A
  1. Interdependency between the units
  2. What gets measured gets done
  3. Dysfunctional employee behavior
  4. Intrinsic motivation vs. extrinsic
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15
Q

What are the differences between the mechanical (Anthony) and the actor approach?

A

Mechanical:

  • measurements represent the objective truth
  • observes at a distant
  • automatic reward

Actor:

  • measurement and reflection
  • interactive observation
  • considered reward
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16
Q

Explain the profit center

A

Manager and employees control both input and output in monetary terms but not the level of investment

Types of centers
o	Contribution margin center
o	Complete and incomplete
o	Pseudo profit
--> Could be responsible for the CM (hence only variable costs), or pseudo profit where they are responsible for actions they cannot control (transferred in costs, indirect costs)

Aim: the reporting system should not create goal congruence

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17
Q

What is the issue with profit centers in regards to controllable vs. influenceable

A

Indirect/fixed costs that are allocated by a centralized decision

important: we investigate the decisions about why the costs are allocated. What does the allocation consist of? How is HR allocated, is it on numbers of employees or just divided to all units, are the units able to influence the allocation? It is beneficial to hold units accountable if they can influence this allocation (e.g., number of employees determine HR allocation)

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18
Q

What is the general transfer price rule?

A

Transfer price: outlay costs + opportunity costs

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19
Q

What are the main objectives of transfer prices?

A
  1. Should include goal congruent decisions = the system should be designed so that decisions optimizing business unit profit will also optimize company profit
  2. Should provide a measure of the performance of the division manager
  3. Preserve or maintain divisional autonomy
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20
Q

What are the general principles for market vs. negotiated prices vs. cost based prices

A
  1. Competitive or imperfect at capacity = market prices
  2. Imperfect competition (external+internal purchase/selling, difference in operating at or below capacities across departments) = negotiated prices
  3. No external market = ABC, marginal, or standard
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21
Q

What is the strategic approach to transfer pricing?

A

Another view is that the transfer price should reflect the strategy.
Needs to consider if the product is in the start or middle of the Lifecyle, whether the technology is important or not, and if the company is diversified and high or low integrated.

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22
Q

What is an investment center

A
  • Manager and employees control both output and input in monetary terms including the level of investments
  • Investment center can decide on what to invest in, and has thereby a high degree of autonomy
23
Q

What is the general issue with functional departments within performance management?

A
  1. allocation of costs (how to allocate the work to the operational departments)
  2. Transfer pricing: who is controlling the consumption of services?
  3. Should the operational departments be allowed to go outside of the organization, or do they need to “buy” from the e.g., IT dep.
  4. The greater good of the company vs. department performance:
    - If the support department is being measured on entries of x in a system (could be sales orders), and an employee has an issue and calls them –> the support department is not measured on this task, but would from an organizational view need to be done –> PM system should be changed. Issue of goal congruency
24
Q

What are the different types of support departments?

A
  1. Departments inter-linked by flow of regular operations
    - invoicing, inventory handing
  2. Service providers to operational dep when they ask
  3. Assessment of operational dep controlled by support dep
25
Q

What are the benefits and issues with shared service centers and outsourcing?

A

Benefits:
Gathering the knowledge in one place, and more cost efficient

Issues:

  • Loss of flexibility
  • Could take longer time to get help, but now there is a larger knowledge base. But could be frustrating for the local employees as they now not have the more daily contact with the department. Could be cost savings globally, but on a more local level more costly as the local department cannot get the help that they need
26
Q

What is the service oriented performance management model?

A

The traditional model:
Costs/inputs –> process –> results/output

Service model:
Intrants –> process –> output –> outcomes

27
Q

What are the challenges to PM in regards to services?

A
  • Difficult to determine and measure objectives and results
  • Co-production and co-responsibility: who is responsible for the results?
  • Lack of physical context
28
Q

What are the motivators within R&D?

A
  1. Autonomy
    - Could be getting one day a year to work on whatever you want (this can lead to good ideas)
  2. Purpose
  3. Mastery
    - Getting better at stuff
29
Q

What are the issues when dealing with R&D

A

It is often one of the most costly departments, but it is difficult to control - how to measure if the time spend on developing a new product is well spend?

30
Q

Explain intrinsic and extrinsic rewards

A
  • Intrinsic rewards: satisfaction from the job, happiness

- Extrinsic rewards: recognition, awards, pay based performance

31
Q

Explain short term and long term compensation systems

A

Short term compensation system
- Typically to motivate the employees to reach a specific budget

Long term compensation system

  • The goal is to tie the company’s long term value creation to the employee contribution
  • Methods: stock options
32
Q

What is motivation crowd theory?

A
  • Extrinsic rewards influence both extrinsic and intrinsic motivation
  • If extrinsic rewards increases, then extrinsic motivation will increase but the intrinsic will decrease = overall motivation will decrease
    o Note: if it is a collective reward then it is less likely to crowd out intrinsic motivation
33
Q

What are the conditions for effective incentive contracts?

A

Ideal conditions

  • Well defined and measurable objectives
  • Controlled objectives for the management
  • Extrinsic motivation

Non-ideal conditions

  • Not well defined and measurable objectives
  • Result influenced by long term decisions
  • Intrinsic motivation
34
Q

What is a PM package?

A
  • Combines financial and non-financial measurements
  • Couple the measures together to create a more fixed and strategical measurement of variables –> done to make the performance measurement system more feed-forward oriented
35
Q

What are the different packages?

A
  1. critical success factors
  2. Liket
  3. Performance pyramid
  4. balance scorecard
  5. pragmatic constructivist
  6. performance prism (stakeholder approach)
  7. Tablet de bord
36
Q

What is dysfunctional behavior?

A

What gets measured gets done

37
Q

What is culture/social control?

A

Culture is values, beliefs and norms, and ways of communicating an acting on problems

Social control: Often a powerful social pressure by groups on individuals within a group who deviate from the group’s culture

38
Q

What is ideology?

A

Thoughts, ideas and beliefs used to make hierarchies, make people act and manage uncertainty
–> Tools of PM are ideological embedded – hence the PM tools/system must be aligned with the ideology, the people and their culture and needs

39
Q

What is professional driven control?

A
  • Members of a specialized occupation (are governed by deals of the profession before profit)
  • Justify self-control abilities
40
Q

How can culture and strategic mentality be linked?

A

International strategic mentality: headquarter culture is universal applicable

Multinational strategic mentality: local culture is optimal and should be adopted

Transnational strategic mentality: synergy of ideas from different countries

Expats, training and communication can form the culture

41
Q

What is enabling and coercive?

A

Enabling: organic, guide behavior and not enforce it

Coercive: mechanic

42
Q

What is important to establish first when dealing with a company regarding PM?

A
  1. Establish the type of company (private vs. public, large vs. small, strategic mentality)
  2. Establish type of responsibility center (expense (standard or discretionary(service)), revenue, profit or investment)
43
Q

What is the S.E.P case concerning?

A

Formal vs. informal - Decentralized organization with communication issues

Is formally decentralized, but informally centralized as all division managers talk directly to the president, and not their assigned VP

Transfer prices: departments are measured on profit but some costs cannot be influenced

44
Q

What is the Ameripill case concerning?

A

Evaluation of subunits - Focus on corporate earnings

The divisions are controlled on profit and investment, but they can only control sales and CM

Very large focus on the overall group performance, and little eye for the local performance

Decisions made from the top influence the individual contry’s performance, but is beneficial for the overall group

45
Q

What is the Grand Jean Company case concerning?

A

(evaluation of plant and marketing)
Both plant and marketing managers are being rated 1-5 and get their bonus accordingly - but, marketing managers get award higher by their supervisors

Plants are expense centers, but marketing is revenue –> marketing can make changes to the schedule to boost sales, which influence the costs, but plants wants to mimics costs
–> dysfunctional behavior and goal congruence

46
Q

What is the Birch case concerning?

A

Transfer pricing
Four production divisions evaluated upon profit

One division needs to decide which of 3 offers that they should take:

  1. From external suppliers
  2. From another internal division
  3. From a external supplier which gets materials from a internal division

Bid 1 is the best as it is the cheapest one.

But from the managers perspective, it would be better to accept bid 2 as this would give the highest individual performance measure (lowest variable costs)

issues: they are not using market prices, and margins as disproportional between the divisions

47
Q

What is the Chambray case concerning?

A

If a subsidiary manager in Brazil can get the permission to build his own manufacuring plant

Mother company says they rather will produce the additional units at the existing plant in belgium

But, NPV is higher for the project of building a new

Our proposal: make the sales subsidiaries revenue centers (cannot control products costs from belgium) + enforce non-financial measures to encourage innovation

48
Q

What is the Westport Electric Corporation case concerning?

A

(evaluation of discretionary costs from functional departments)

Issue with the process of reviewing and approving the administrative staff budgets - current proces is very mechanical and the finance team is only fact checking the numbers not looking at the efficiency

How to evaluate the efficiency/effectiveness of the support departments:
Look at number of request, number of man hours used, number of contracts reviewed, look at the impact of the output (for legal dep.: we are sure that we do everything legal)

Introduce personal controls (expertise employees) as there are differences in how long time lawyers need

49
Q

What is the visionary design system case about?

A

(compensation system)

Current compensation system:

  • Bonuses and commissions (short-term)
  • Stocks (long-term)

Tries to increase intrinsic motivation by making the employees part of the company through stocks

Issue:

  • employees underestimates the value of their stocks
  • bonus plan for additional stocks relies upon creating ideas for cost saving or more revenue –> this is extrinsic motivation and will diminish motivation
50
Q

What is the McDonalds case about?

A

Issue is how to reward restaurant managers. currently these is a complicated system that does not work

Not all costs can be influenced (marketing expenses, purchasing prices) but the efficiency in the use can be influenced.
Goal of the restaurant’s should be to provide a good service (include this in the system)

Solution:

  • have a system that is easy to understand
  • Use non-financial measures
  • Pseudo profit centers (only controlled on the costs they can influence)
51
Q

What is the Volvo case about?

A

(acquisition)
Ford acquired Volvo and there is a clash between the ideologies and control systems

Volvo:

  • Actor based and decentralized building on trust
  • Decisions should be delegated

Ford:

  • Goal focused (working 120%)
  • Centralized decision making
  • Believes in written routines, principles and policies

Suggestions:

  • Integrate the two companies into mixed teams (avoid “us and them” culture”
  • Increase communication about the other party
  • Focus on understand ing differences in culture
52
Q

What is the Chadwick case about?

A

(BCS)
Innovative company and their process of making BCS.

Strategy issues:

  • “minimize costs” “people development” –> not clear how the employees should follow these strategy
  • Missing what they want to be, innovative leader?

Measure issues:

  • Financial oriented
  • Does not encourage and motivate

Process issues:

  • Assigns busy employees to make the BCS and leaves them only 1 day
  • Need more communication and interaction (perhaps see the pragmatic effect)
53
Q

What as the Citibank case about?

A

(performance scorecard)
Performance evaluation of branch manager. He scores high in all but customers satisfaction, and can thereby not get the bonus

Measures: financial, strategy implementation, customer satisfaction, control measures, people, and standards

Issues:

  • survey questions used are not relevant for manager and sample is only 25
  • Might be difficult for junior employees to negatively evaluate their manager
  • Missing a benchmark

The scorecard is supporting the strategy due to the focus on customer satisfaction

Should he get the bonus? Need to decide if the customer satisfaction part is the most important measure (but needs to be measured the right way=

2nd semester MAC (2 decks)

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