Strategic control and Evaluation Flashcards
Controls and incentives can include:
- Direct supervision
- Peer pressure
- Operating & capital expenditure budgets
- Standardised processes
- Targets and measures (company-wide, operating unit, individual)
Pitfalls include goal displacement:
-Behaviour substitution
What you measure/inspect is what you get.
Easily quantified activities can drive out things that are important but not easily quantified.
-Sub-optimisation
Department/Division performance vs Firm performance
Top-down control cycle (dysfunctional)
Ownership of Accounting info empowers Senior management To plan, analyse, and transmit instructions to the workforce. Who manipulate processes and cajole customers to achieve accounting results
Approaches to control
Input controls
social controls
output controls
administrative controls
Input controls
- planning systems
- budgets
- standardised inputs
social controls
-behaviours
-culture
-motivation
THEORY Y
output controls
- financial goals and measures
- performance targets
- internal markets
administrative controls
-rules
-procedures
-targets
THEORY X
Cost leader strategy
Efficient processes
Tight cost control
Detailed budgets
Quantitative targets
Differentiation strategy
Innovativeness Loose control Emphasis on culture and values Market-based incentives Quality goals
Planning control style
- Strong planning influence from the center
- Units only weakly accountable for performance
- Often regarded by firms as too rigid
Financial control style
- Planning is mainly at unit level
- Strong performance targeting
- Units accountable for success or failure
- Often seen as too short-term in outlook
Performance Targeting Systems: The Balanced scorecard
- Aims to move from a short-term, narrow perspective to a longer-term strategic view
- Forces management to translate general statements of vision/strategy into measurable goals on the scorecard
Financial lens
ROCE, operating margins, EVA, cash flow, sales growth
Customer lens
Market share, brand image or awareness, customer satisfaction, customer relations, customer acquisition
Internal process lens
% of sales from new products, manufacturing cost, manufacturing cycle time, inventory management, quality indices, supply chain management processes
Learning and growth lens
New product development capabilities, R&D or technological capabilities, HR development and capabilities, improved manufacturing or business processes, improved sales methods or techniques
Notable points for use: Balanced scoreboard
Integrating strategy and budgeting processes
Testing assumptions about cause-effect relationships against actual outcomes
Potential drawbacks: Balanced scoreboard
Orientation towards administrative control
Complex and costly to implement in full
Often unsuccessful if strategy linkages are incomplete
Relatively inflexible once implemented
May divert attention from financial performance to internal processes
Pitfalls in evaluating performance
- Effective systems of performance measures are characterised by; Flexibility,Accuracy of information, Timely provision
- Unfortunately, it is seldom possible to achieve all three criteria simultaneously.
Economic performance measures
Current performance and trends over time in measures including: Sales volumes Market share Revenues Profits Capital position
Other effectiveness measures
Needed to give a full picture of performance:
Economic performance measures can be narrow and short-term in focus
Performance comparisons
Company and internal targets
Trends over time
Comparison with competitors
Share price trends and comparisons can be useful but don’t directly reflect performance
Can also try to compare revenues, profits, sales volumes, market share, capital strength etc.
Compare different companies’ shares in percentage terms!
