Strategic control and performance management

Question 1

STRATEGY, RISK & CONTROL

What does Principle O of the 2018 UK Corporate Governance Code state?

The principles around this suggest that a strategic plan is required to change from what?

Differentiate between strategy, risk and control in the context of strategic control and performance management.

What sits as a fundamental aspect of strategy and why?

Answer 1

The board should establish procedures to manage risk, oversee the internal control framework, and determine the nature and extent of the principal risks the company is willing to take in order to achieve its long-term strategic objectives

to change from the status quo:
(1) Strategy = setting the direction

(2) Risk = the dangers along the route

(3) Control = intelligent parameters

control sits as a fundamental aspect of strategy = need to understand the strategic vision (where heading), the perceived risk (dangers of change), and the required control parameters (the drivers of success)

Question 2

STRATEGY, RISK & CONTROL

It is important for organisations (directors and managers) to develop what and find what?

Why is it essential that the results of the monitoring at various stages are recorded and reported? (3)

Answer 2

appropriate methods and tools to enable the ongoing monitoring of the various strategies that will be taking place simultaneously and to find a way of alerting themselves when the journey is moving outside the perceived parameters

(1) due to the age of increasing transparency
(2) helps with gap analysis
(3) acts as an audit trail of action if organisation or directors are challenged

Question 3

STRATEGY, RISK & CONTROL

What is the basis of emergent strategy?

Therefore, what is the purpose of monitoring and control and its subsequent reporting?

What are the 4 perspectives this is split into? (A 4-fold approach is suggested to control)

Answer 3

Basis = that there will be the need to react and change the original plans

Purpose = to attempt to ensure this is done in a considered manner (rather than through a reaction to the changes in the internal, micro and macro environment)

(1) Analysis = methods to understand what is happening and why (performance and effectiveness).
(2) Audit = oversight and professional review and reporting of what has happened (nature of management control).
(3) Assessment = the alignment of the differing levers of control (strategic control, concept and models).
(4) Assurance = our accountability to stakeholders (using a balanced scorecard)

Question 4

IMPLEMENTATION OF STRATEGY

The ‘strategic journey’ model reflects time as a perpetually moving dimension. What does this mean?

Control therefore can only ever realistically be what?

As we move from today into the unknown, we will encounter what?

In both cases the decisions we make will be based upon what?

Life is lived in what?

What is the perimeter of that circle?

Answer 4

As the ‘future’ is reached, it becomes the today point

be implemented based on knowledge of today, in anticipation of the future

Risks! = some will be the risks that we have perceived might occur, and some will be unexpected

based upon our analysis of today

in the operational circle where we are either implementing, monitoring or adjusting

Perimeter = the control measure for the actions of ourselves, and others (exists as a direct result of previous strategic considerations)

Question 5

PERFORMANCE & EFFECTIVENESS: CONCEPTS, ISSUES & APPROACHES - TAKING AN ANALYSIS PERSPECTIVE

Analysis requires a clarity of understanding of what is happening now, and what the vision requires.

Strategic control requires an analytical understanding of what?

As all strategy exists in the unknown of the future, we need to be able to analyse, assess and measure how the actual performance compares to the strategic perception. What are the 2 concepts used to achieve this and how are they differentiated?

Both of these concepts can be considered and measured from what 2 perspectives?

Answer 5

of the status quo within an organisation, both at the outset of the strategy and at the point where objectives appear to have been realised

(1) Organisational effectiveness = does the performance enable the realisation of the organisation’s strategic goals?
(2) Organisational efficiency = has the performance made optimal use of the stakeholder resources in the implementation of the strategic plan?

Qualitative and quantitative perspectives:
(1) Qualitative = a consideration of performance from the collection and consideration of narrative data (human views and opinions) – often referred to as a subjective approach.
(2) Quantitative = a consideration of performance from the collection and consideration of numerical data – often referred to as an objective approach.

Question 6

PERFORMANCE & EFFECTIVENESS: CONCEPTS, ISSUES & APPROACHES - TAKING AN ANALYSIS PERSPECTIVE

In the assessment of any organisation, it is important to understand what 3 things?

This raises what 4 core questions?

Answer 6

(1) how to measure and assess performance and behaviour
(2) the different levels at which such performance and behaviour can be measured
(3) what is going to change as a result of having made the measurement and assessment.

(1) How is the effectiveness and the efficiency of the organisation going to be controlled?
(2) What comparative criteria and benchmarks are going to be applied?
(3) What is going to be measured and when?
(4) At what level within the organisation will such measures be taken?

Question 7

PERFORMANCE & EFFECTIVENESS: CONCEPTS, ISSUES & APPROACHES - AREAS TO EVALUATE & MEASURE

Evaluation of performance will need to be related to what?

At the high level, this could be separated into what 2 categories?

What re the 3 sub-categories for both?

Answer 7

the original drivers of the strategy

1. Financial measures
   (A) Profitability = has the performance delivered the anticipated return in line with the projected benchmark or target?
   (B) Liquidity = has the performance delivered the anticipated liquidity?
   (C) Wealth = has the performance delivered the anticipated longer-term wealth for shareholders and stakeholders?
2. Productivity measures
   (A) People = is the existing human resource being used to enable individuals to work to their full potential?
   (B) Product = is the product or service in line with the organisational and stakeholder quality and performance expectations?
   (C) Resources = are all resources being utilised at their optimal level?

Question 8

PERFORMANCE & EFFECTIVENESS: CONCEPTS, ISSUES & APPROACHES - AREAS TO EVALUATE & MEASURE

What specifically needs to be measured and when?

The development of control within any organisation requires measures to be developed that are what? (2)

Answer 8

No generic answer = each organisation will need to determine its own appropriate measures from within its own business model (but required to report their annual financial figures within a formalised ‘financial reporting’ structure governed by accounting standards)

that are in themselves:
(1) Effective = they deliver meaningful awareness of operational performance that can influence future strategy.
(2) Efficient = they are understood by all users and are based on easily obtainable and accurate data

Question 9

PERFORMANCE & EFFECTIVENESS: CONCEPTS, ISSUES & APPROACHES - GOALS

What is an output measure?

What will its usefulness as a control measure depend on?

What 5 goals did Daft (2013) suggest?

Daft (2013) argues that sometimes organisational goals may what?

Name an example scenario.

In the development of strategy, it is important that the goals are aligned with what?

Answer 9

Output measure = strategic goals should be a clear way of measuring both progress along the strategic path and ultimate success

depend on the clarity and precision of individual goals

(1) profitability, (2) market share, (3) growth, (4) product quality, (5) social responsibility

may be in conflict with each other

E.g., market share was growing and delivering an increasing profit, but only through a reduction of standards and hence product quality resulting in a reduction in social responsibility through the distribution of unfit products.

aligned with each other with a clear recognition of mutual impact.

Question 10

PERFORMANCE & EFFECTIVENESS: CONCEPTS, ISSUES & APPROACHES - RESOURCES

An alternative approach to organisational control is to consider what?

What is this referred to and what does it assume?

A useful way to consider this is to look at what?

The reporting organisation is required to consider and reflect on what?

The IIRC core objective is what?

Answer 10

how effectively the stakeholder resources are being used

an input measure and assumes that an organisation will derive success through maximising the efficient use of the resources that it is feeding into its transformation process.

looking at the reporting expectations of the International Integrated Reporting Council (IIRC) represented in their reporting model

consider the inputs into its system and then reflect on how its business model has transformed those resources into outputs.

one of sustainability, requiring the organisation to demonstrate that it is holistically delivering more than it consumes, but the principle is a useful way of considering resources as a control measure.

Question 11

PERFORMANCE & EFFECTIVENESS: CONCEPTS, ISSUES & APPROACHES - STAKEHOLDER INFLUENCE

Dependent on the organisation’s structure, the goals and objectives may be set by who?

What did Daft (2013) research?

What did he find? (requiring the strategist to do what?)

What are the 7 stakeholder expectations/effectiveness criteria?

The criteria that determine effectiveness and efficiency may differ greatly from organisation to organisation, driven by what?

What is essential to deliver sustainability?

Answer 11

differing stakeholders, with clear measures of control built in to their expectations and based around their anticipated return on their ‘stake’.

Daft (2013) researched the impact of 7 stakeholder expectations as measures of effectiveness

Found that organisations sometimes experienced difficulty in satisfying all 7 stakeholder expectations at the same time, requiring the strategist to consider prioritisation for the anticipated performance of the organisation

1. Owners = Financial return
2. Employees = Worker satisfaction, pay, supervision
3. Customers = Quality of goods and services
4. Creditors = Creditworthiness
5. Community = Contribution to community affairs
6. Suppliers = Satisfactory transactions
7. Government = Compliance with laws and regulation

driven by the particular mix of stakeholder expectation and management abilities

Transparency and accurate and timely reporting

Question 12

THE NATURE OF MANAGEMENT CONTROL - TAKING AN AUDIT PERSPECTIVE

The concept of, and the need for audit underpins what?

What does ‘audit’ mean? (3)

The alignment of these 3 requirements requires what?

We need to have confidence in what?

This will at least partly be based around what?

Answer 12

underpins what we are trying to achieve in our ability to understand and control performance

Audit = means to hear, listen, and understand.

requires us to assess the data and information with which we are presented.

confidence in the integrity of that data and information to the point where we are content that we are dealing with certainty.

based around our judgement of the integrity of the originating source of the data, and the level of bias that is associated with the judgement we make.

Question 13

THE NATURE OF MANAGEMENT CONTROL - CONTROL METHODS

The textbook previously discussed the concept of systems thinking and the need to be able to view an organisation as a system, with its interaction and relationship between the different elements working within the organisational boundary.

We need to consider this from two related but different dimensions to consider what?

What are the 2 dimensions?

Name 2 examples for each.

Answer 13

to consider how we insert control into the system

(1) Internal awareness = in a single-loop system, there is a straight iteration around the system, the control sits as part of the problem solving and is built into the system itself

E.g., (1) a machine will automatically switch off if certain criteria are not fulfilled, (2) a strategy has a goal requiring delivery of a certain volume, production ceases when that volume is met.

(2) External awareness = in a double-loop system (i.e., will usually involve many more than just 2 loops (iterations)), there is an external sense-check built into the system, which is required before it is allowed to continue

E.g., (1) a machine recognises that certain criteria are not fulfilled and alerts the operator, who can then decide whether to proceed or not, (2) a strategy has a goal requiring delivery of a certain volume, and when that volume is met, the operational team are required to consider whether there is commercial benefit in producing a higher volume

Question 14

THE NATURE OF MANAGEMENT CONTROL - ORGANISATIONAL METAPHORS

Flood (1991) suggests the use of a number of different metaphors to help us to understand what?

What are his 5 metaphors and what will they help consider?

Are these an exclusive list?

Answer 14

understand a range of different types of control and behaviour that exist within our organisational systems (can help challenge what is happening)

Argues that 5 metaphors will help to consider the type of qualities that we may be looking for when we start to examine systems more deeply in a business context
1. Machine-control metaphor
2. Organic-control metaphor
3. Brain-control metaphor
4. Culture-control metaphor
5. Political-control metaphor

No = the variations generated by these thoughts will help us to stretch our brains more laterally to enable a wider understanding

Question 15

THE NATURE OF MANAGEMENT CONTROL - ORGANISATIONAL METAPHORS - MACHINE METAPHOR

Suggest the meaning of, and identify 2 types of organisation, which could be aligned with the metaphor of machine-control.

Are there predefined inputs and outputs?

There is a strong reliance on what?

How does control fit in?

Answer 15

MACHINE metaphor = ‘closed system’ single-loop view = a machine is designed to work – you push the button and it operates, in a continuous and repetitive manner, to deliver 1 or more pre-defined outcomes.

E.g., the armed forces, fast-food chains.

Yes = there are predefined inputs and output

There is a strong reliance on the efficiency of the parts of the machine, which simply
need replacing when they wear out or fail.

The control can be built in as part of the system.

Question 16

THE NATURE OF MANAGEMENT CONTROL - ORGANISATIONAL METAPHORES -
ORGANIC METAPHOR

Suggest the meaning of, and identify a type of organisation, which could be aligned with the metaphor of organic-control.

Are there predefined inputs and outputs?

What does this represent?

Motivation theories and human resource thinking clearly illustrate what?

How does control fit in?

Answer 16

ORGANIC metaphor = ‘open system’ double-loop view.

E.g., most industrial businesses.

The inputs can be determined, but the outputs will evolve.

This represents a direct challenge to the machine view, particularly when one or more of the ‘parts’ of the machine is a person.

illustrate that people do not easily comply with a machine philosophy, not least because different brains react in different ways to the same set of stimuli = the parts of the system are likely to regenerate and rethink themselves to ensure continuity

The organic system within such organisations needs to allow for a range of objective controls.

Question 17

THE NATURE OF MANAGEMENT CONTROL - ORGANISATIONAL METAPHORES - BRAIN METAPHOR

Suggest the meaning of, and identify 3 types of organisation, which could be aligned with the metaphor of brain-control.

Are there predefined inputs and outputs?

The human brain is itself seen as what?

As with the brain, the system needs to have the ability to what?

Answer 17

BRAIN metaphor = a particular category of ‘open system’ with a keen focus on ‘viability’.
E.g., autonomous work groups, innovative industrial firms, consultancy firms.

The inputs can be manipulated to ensure that the outputs are delivered, but the outputs themselves are likely to also be manipulated.

seen as a control system, which will reactively and proactively bring about changes to the operation of the system.

to teach itself to learn and build its own methods of controls, based upon objective external stimuli (e.g., a marketing or advertising firm relying on the creative output of different people)

Question 18

THE NATURE OF MANAGEMENT CONTROL - ORGANISATIONAL METAPHORES - CULTURE METAPHOR

Suggest the meaning of, and identify 3 types of organisation, which could be aligned with the metaphor of culture-control.

Are there predefined inputs and outputs?

Bower’s phrase ‘The way we do things around here’ (1966) has been used by many to epitomise the meaning of culture, and from a systems perspective, emphasises what?

Answer 18

CULTURE metaphor = the unspoken, familiar ways of thinking and acting in all organisations.

E.g., high-technology firms, competitive individualism, machine-like military structures

The inputs may be selected based upon the culture criteria, then the engine of the organisation will operate in a manner dictated by the beliefs, practices and evolving norms of the organisation.
(Firms in identical markets can behave very differently based upon the underlying culture)

emphasises the need to understand the ‘connections between the parts’ of systems, and in particular the impact of culture and its effect on corporate governance

Question 19

THE NATURE OF MANAGEMENT CONTROL - ORGANISATIONAL METAPHORES - POLITICAL METAPHOR

Suggest the meaning of, and identify a type of organisation, which could be aligned with the metaphor of political-control.

Why did Flood use the metaphor of ‘political’ as a separate system structure?

Answer 19

POLITICAL metaphor = describe the pursuit of power by individuals and the impact this has on organisational relationships.

E.g., all organisations show examples of political activity.

to consider how the ‘political’ systems at play frequently influence, damage and drive the effectiveness of the other 4 metaphorical systems.
= the influence of the individual will ultimately drive success and the politics can skew the control output and communication to others

Question 20

THE NATURE OF MANAGEMENT CONTROL - LEADERSHIP & CONTROL

Effective control in the strategic-thinking process needs to be aligned with what?

How does this link to control?

What else needs to be considered?

Why? (2)

Answer 20

aligned with achieving the right balance in the governance process.
(the governance ‘balance’ will differ within every organisation and will continue to vary as the external environment, the organisation and the people evolve)

Control sits as part of the strategic or formal framework which creates the ‘balance’,

Balance together with the triangulation of strategy, risk and control requires the organisation’s reputation to be considered.

(1) If the reputation of an organisation is one of efficiency, then one would expect to find effective control.
(2) If an organisation is known for its poor standards and inefficiency of operation, then one would expect to find poor and inadequate controls and a negative reputation.

Question 21

THE NATURE OF MANAGEMENT CONTROL - LEADERSHIP & CONTROL

The structure requires a challenging balance of what 6 differing leadership skills/groups?

Answer 21

1. Experienced players = people who understand what they are dealing with.
2. Lateral thinkers = people who have the ability to think beyond the obvious.
3. Intelligent listeners = people who will audit (hear, listen, understand) the views of others.
4. Determined challengers = people who are prepared to formulate and ask the difficult questions.
5. Independent unbiased and objective leaders with certain specific and relevant knowledge and skill sets (this is often the expectation of NEDs).
6. Effective leaders of committees and boards (chair)

Question 22

THE NATURE OF MANAGEMENT CONTROL - LEADERSHIP & CONTROL

Simons (1994) argues that to really understand whether we have appropriate and effective controls around and within our strategic thinking and the emanating risks, we need to understand what?

What are the 4 generic concepts that can be applied?

For the 1st and 4th, what are there needs for?

For the 2nd, the strategic boundaries will define what? What will have a particular significance and when?

For the 3rd, the difference between what is happening and what should be happening can require what?

Answer 22

the differing levers of control within an organisation (like an optimal ‘balance’, these will differ between organisations, but there are a number of generic concepts that can be applied)

1. Beliefs = core values within an organisation.
   (need to understand (1) how and why value is created, so where the controls need to be placed, and (2) the human relationships within the organisation and the differing communication methods and systems – how do people know what they are meant to be doing?)
2. Boundaries = every organisation will have its ‘current’ pre-defined limits and parameters.
   (strategic boundaries will define the journey and need for appropriate control measures)

The implementation of control, and the autocratic or consultative approach to compliance will have particular significance when boundaries are broken – how do people know if they have taken too much initiative?

3. People interaction = the people interactivity requires a system thinking approach to be able to visualise how the organisation actually works.
   (The difference between what is happening and what should be happening can require a gap analysis approach = often be aligned to the power culture that exists)
4. Feedback monitoring = need to understand what happens when a control system alarm is activated – who does what, how and why.
   (needs to be an assurance that feedback is taken seriously – how do people know when to deliver feedback and who they should deliver it to)

Question 23

THE NATURE OF MANAGEMENT CONTROL - POWER & CONTROL

Traditional autocratic organisations would restrict power and control to those in positions of seniority.

What has there since been a wide range of recognition of?

The importance of having clarity of where the control lies is clear from which dispute?

Answer 23

There has been a wide recognition that control can often be most effective when used directly at the source of the problem, or the change that is required, rather than waiting for a reactive response after the event.

The contacts between the Post Office and sub-postmasters showed an imbalance of power

Question 24

THE NATURE OF MANAGEMENT CONTROL - STRUCTURE & CONTROL

The growth of enterprise resource planning (ERP) systems, and similar levels of advanced technology within many organisations, has led to what?

ERP systems are structured to do what?

The level of control allowed by such software structures is designed to deliver what?

Answer 24

led to a different level of expectation around control.

ERP systems are structured to place direct control in the hands of the different people using the system across an organisation

to deliver more effective end-to-end control within an organisation on an immediate rather than a retrospective basis

Question 25

THE NATURE OF MANAGEMENT CONTROL - STRUCTURE & CONTROL

How is an ERP system different from historic systems? (2)

Name an example.

The nature of data capture and data efficiency can lead to what?

Name a case example.

Answer 25

(1) Historic ‘legacy’ systems delivered control data at the end of an operational cycle
E.g., an audit firm realises after completing an audit that the time consumed has not been fully recovered in the fee being charged.

(2) An ERP system allows ongoing control
E.g., audit firm realises early in the audit process that time is being consumed faster than anticipated and can either adjust accordingly or renegotiate the fee with the client.

lead to different perspectives and problems of structure and control

New workplace technologies gathering data on workers can increase safety and efficiency but also result in unfair/abusive practices
(e.g., wristbands that track the movement of workers shifting packages around a warehouse. “If it plots the most efficient line for you, that’s good. But if the same algorithm bullies workers into working extra hard, that’s bad.”)

Question 26

STRATEGIC CONTROL, CONCEPT & MODELS - ALIGNING CONTROL WITH STRATEGY: TAKING AN ASSESSMENT PERSPECTIVE

Why does control matter?

At the top of any organisation. those empowered with the governance have to establish what?

What will there need to be?

What is a traditional single feedback loop?

What is a double-loop?

Answer 26

we are all accountable to someone = required to deliver effective control and governance to give assurance to stakeholders that the levels of control are appropriate
(FRC Guidance makes clear the Board should identify the assurance it requires and address any gaps)

establish the appropriate levels of control to deliver stakeholder assurance = cannot
be formulaic, generic or simply a box-ticking approach

There will need to be a cost–benefit justification for governance activity

Single feedback loop moves through 3 stages in a one-way loop =
(1) develop strategy –> (2) implement strategy –> (3) control strategy (then start again)

Double loop = 2 way arrows between develop strategy and implement strategy, implement strategy and control strategy, and control strategy and develop strategy

Question 27

STRATEGIC CONTROL, CONCEPT & MODELS - ALIGNING CONTROL WITH STRATEGY: TAKING AN ASSESSMENT PERSPECTIVE

What is the advantage of a double-loop over a single feedback loop?

In a double-loop, what does the linkage between development and control rely upon?

In a double-loop, what does the linkage between implementation and control rely upon?

Effective control will only come from what?

What does this require to enable this to happen?

Answer 27

The use of a double-loop learning control structure allows us to build a far more effective control structure = it will build the people dynamic into the control structure and ensures that every aspect of control is sense-checked against the goals, values and beliefs of the people

The linkage between development and control relies upon appropriate levels of information (is the organisation ‘doing the right things’?)

The linkage between implementation and control relies upon the behaviour of the people within the organisation (is the organisation ‘doing things right’?)

from periodic and regular challenge and review of the strategic environment to ensure that the strategic direction and parameters are still relevant

requires a continuous process of monitoring, reviewing and testing, and the development of appropriate tools

Question 28

STRATEGIC CONTROL, CONCEPT & MODELS - DIFFERENT TYPES OF CONTROL PROCESS

Simons (1995) suggested that there are 4 main characteristics that are required from an effective control system. What are they?

Answer 28

(1) A focus on and capture of the constantly changing informational demands of senior managers, and their potential strategic importance.

(2) A recognition that control information must be important enough to demand frequent and regular attention from operating managers at all organisational levels.

(3) The need to interpret, discuss and challenge the generated data and information in face-to-face meetings between differing levels of an organisational hierarchy.

(4) The control system itself should be seen as a key catalyst for the ongoing debate about the validity of underlying data, assumptions and plans

Question 29

STRATEGIC CONTROL, CONCEPT & MODELS - DIFFERENT TYPES OF CONTROL PROCESS

Simons (1995) suggested that there are 4 main characteristics that are required from an effective control system.

The common denominator in Simons’ view is the need for people within an organisation at differing levels to take an active role through the challenging of all aspects of the strategy process – development, implementation and delivery of goals.

How can the organisation do this?

What are the 6 core control questions?

Name an example for each.

Answer 29

The organisation needs to develop the right questions = use of the core 6 question words can provide a useful starting point for the company secretary/governance professional.

1. WHO: can make changes to process?
2. WHAT: do we need to review?
3. WHEN: should we collect the data?
4. WHERE: should we place the controls?
5. HOW: do we prioritise stakeholder expectations?
6. WHY: do we need to introduce control measures?

Question 30

STRATEGIC CONTROL, CONCEPT & MODELS - HACCP

The use of a hazard analysis and critical control points (HACCP) approach is prevalent particularly within which sector?

The control is a double-loop iterative approach requiring what 6 things?

The concept and cerebral process that sits behind HACCP is a useful approach to a control process for any organisation to consider what 4 things?

Answer 30

the food sector, but has useful control principles for other organisations. (In the food sector, it is an industry expectation and is seen as a systematic and preventive approach to food safety)

(1) an analysis and understanding of all stages in a production process, (2) the identification of critical control points, (3) the establishment of crucial limits and parameters, (4) the establishment of monitoring procedures and reporting of those results, (5) the establishment of the corrective actions required when a risk moves outside its tolerance levels, and (6) the establishment of a verification level to ensure that the HACCP process in itself is robust and iterative

(1) What does the system look like?, (2) Where can it go wrong?, (3) What can we do about it, and what are we going to do about it?, and (4) How do we recognise when the parameters change?

Question 31

STRATEGIC CONTROL, CONCEPT & MODELS - GAP ANALYSIS

Why are strategic projections of the route from A to B unlikely to be accurate?

Why is gap analysis important?

What forms the basis of gap analysis?

Gap analysis is one of the most powerful control tools as long as what?

If we know the future is likely to differ from our expectations, then intelligent/sensible control will require us to what?

Answer 31

Because there will be different influences and forces along the route that will deliver variations upon the expected path

We need to know why the route differed.

Benchmarking (sometimes called exception analysis or exception reporting), enabling analysis of the cause of all differences.

as long as it is embedded into the structure, culture and system, and does not wait until the end of the process before being considered.

will require us to understand the key drivers of the original projection and then to be able to judge, through our analysis of the gap(s), how and why these have changed the anticipated path.

Question 32

STRTAEGIC CONTROL, CONCEPT & MODELS - KPIs AS A MEASURE OF CONTROL

In many organisations the transition and measurement of risk is designed around the use of what?

What are the 4 core requirements to be able to use KPIs for measurement, assessment and control?

Name an organisational example.

Answer 32

key performance indicators (KPIs) as the measures of control.

(1) The word ‘key’ is fundamental = there should only ever be a closely defined set of measures which are agreed by all affected parties

(2) A KPI must be based upon accurate and reliable data and information to ensure integrity and trust of the reports being generated.

(3) The business measurement aspect covered by a KPI must be relevant to the core strategic drive of the organisation, and not used just as a confidence booster.

(4) A KPI must have a forward impact = there is no point in purely measuring the past, without being able to use that knowledge to help to drive the strategy, mitigate the risk and/or implement more effective control.

GSK have an interesting mixture of financial and non-financial, quantitative and qualitative KPIs (also have clear alignment between the performance against these KPIs and the
director remuneration policy)

Question 33

STRTAEGIC CONTROL, CONCEPT & MODELS - OWNERSHIP & CONTROL

The reality of a corporate structure is that it is owned by its shareholders. The directors have a legal duty to drive success and value through the strategy for the benefit of the owners.

A company where the long-term funding is split 50:50 between shareholder funds and other external lines of credit in effect has what?

What are likely to be the different expectations of control for each group?

In the development of strategy, the differing layers of control need to be fully what to enable what?

Answer 33

2 different ownership groups, with potentially equal demand rights, but also potentially differing expectations of control

(1) The shareholders may be focused on longer-term success, happy to sacrifice short-term profit for longer-term share value (their measures of control would be based around market-perception, market value of shares, and company reputation)

(2) The external financial providers would require tighter control measures on a shorter-term basis to ensure that the organisation is able to fulfil its contractual obligations and to ensure that profitability was at a level to generate sufficient free cash to both pay interest and reduce capital.

need to be fully understood to enable the strategic drivers, goals and objectives to be aligned with the differing stakeholder expectations

Question 34

THE BALANCED SCORECARD AS A STRATEGIC CONTROL METHOD - TAKING AN ASSURANCE PERSPECTIVE - THE BALANCED SCORECARD

Who first developed the concept of the balanced scorecard?

Strategic thinking requires us to challenge what?

How does the balanced scorecard help?

The original balanced scorecard model uses which 4 perspectives?

To build an effective analysis of a range of different potential future scenarios, it is important to understand and identify what?

Answer 34

Kaplan and Norton (1992)

challenge the quantitative nature of financial thinking with other qualitative aspects of organisation dynamics and culture

balanced scorecard takes a structured approach that requires us to consider our organisation today and then the strategic changes envisaged from a number of formalised perspectives

(1) Customer perspective = What do our customers think of us? Why do they buy from us? Will they continue to buy from us? Etc.
(2) Internal business perspective = What do we look like from the inside? Are we efficient? What do our employees say about us? What does our culture look like?
(3) Innovation and learning perspective = What does our ‘today’ point look like? Has it stayed still for too long? When did we last change the way we do things?
(4) Financial perspective = How robust is our financial infrastructure? What could make us fail?

(Their four perspectives were designed to ensure a holistic analysis of an organisation)

identify the key parameters that are likely to change in the future, and how these parameters interact with each other

Question 35

THE BALANCED SCORECARD AS A STRATEGIC CONTROL METHOD - THE BALANCED SCORECARD - TESCO

Many organisations have evolved the original balanced scorecard concept to a bespoke tool for their own particular drivers and business dynamics.

What is Tesco’s approach? Name 3 examples from it.

What s Barclays Bank’s approach? (5)

Answer 35

Tesco plc created the Tesco wheel = reflect 6 core strategic dimensions:
E.g., (1) grow sales, (2) customers and colleagues recommend us and come back time and again/recommend as great place to work, and (3) we build trusted partnerships

used a similar approach, but with 5 key dimensions:
(1) Customer and client = we are the ‘go-to’ for our customers and clients.
(2) Colleague = our colleagues are fully engaged
(3) Citizenship = we positively impact the communities in which we operate.
(4) Conduct = our products and services are designed and distributed to meet client needs
(5) Company = we create sustainable returns above the cost of equity

Question 36

THE BALANCED SCORECARD AS A STRATEGIC CONTROL METHOD - ALTERNATICE APPROACHES - RESULTS & DETERMINANTS FRAMEWORK

Who proposed the results and determinants framework?

Why?

What are results? (2)

What are determinants? (4)

Answer 36

Fitzgerald and Moon in 1991

to illustrate the difference between organisational results and organisational determinants = the result enabling control of performance, and the determinants enabling control of the rationale behind the performance

Results = (1) financial performance at all levels, (2) competitive positioning and market alignment.

Determinants = (1) quality, (2) flexibility, (3) resource utilisation, (4) innovation

Question 37

THE BALANCED SCORECARD AS A STRATEGIC CONTROL METHOD - ALTERNATICE APPROACHES - EUROPEAN QUALITY FRAMEWORK MANAGEMENT MODEL

What does the European quality framework management (EQFM) model for business excellence suggest? (3)

How is the model applied?

Answer 37

suggests that organisational performance can be measured and controlled through a wide awareness of:
(1) satisfied people
(2) satisfied customers
(3) a positive impact upon wider society.

The model is applied within an organisation through the development of appropriate KPIs for each of the categories

Question 38

THE BALANCED SCORECARD AS A STRATEGIC CONTROL METHOD - ALIGNING A SCORECARD WITH STRATEGY & CULTURE

What are the 5 control lessons from the textbook chapter?

Answer 38

1. Control lesson 1 = Make sure the control is being considered in the light of the latest possible analysis of data, information and knowledge.
2. Control lesson 2 = The control of risk, and the protection of the strategic objectives, long- and short-term, has to happen at a re-analysed ‘today’ point, based upon the operational realities of the day-to-day progress along the route from today to the future.
3. Control lesson 3 = As far as possible, try to understand the mindset of the people involved in the control process (What are their beliefs? Why do they behave in the way they behave?)
4. Control lesson 4 = Identify the levers that are required to deliver the anticipated result from the strategy and the aligned financial thinking.
5. Control lesson 5 = (1) Make sure you have the optimal data and information, (2) Ensure you have a healthy scepticism, (3) Align the various levers of control, (4) Remember that assurance relies on integrity.