Strategic control and performance management Flashcards
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)
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)
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?
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.
ANALYSIS PERSPECTIVE: 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?
the original drivers of the strategy
- 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? - 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?
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?
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.
AUDIT PERSPECTIVE: 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.
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
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?
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
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?
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
ASSESSMENT PERSPECTIVE: 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.
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.
- WHO: can make changes to process?
- WHAT: do we need to review?
- WHEN: should we collect the data?
- WHERE: should we place the controls?
- HOW: do we prioritise stakeholder expectations?
- WHY: do we need to introduce control measures?
ASSESSMENT PERSPECTIVE: STRATEGIC CONTROL, CONCEPT & MODELS - GAP ANALYSIS
Strategic projections of the route from A to B are unlikely to be accurate because there will be different influences and forces along the route that will deliver variations upon the expected path.
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?
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.
ASSESSMENT PERSPECTIVE: 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.
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)
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?
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
