unit 9 | performance mangement systems

Question 1

Corporate Strategy

Answer 1

Describes a company’s long-term future vision (what does it want to become?), its purpose (why does the company exist?), outlines a company’s target customers, & the product and/or services it offers

Question 2

Who sets Corporate Strategy & what do they do?

Answer 2

Management set strategy & make decisions aligned with corporate strategy to advance its strategic position & achieve a competitive advantage

Question 3

Why is Corporate Strategy necessary?

Answer 3

Companies need to set strategic goals & objectives & measure its performance against these to understand if decisions are advantageous

Question 4

3 Strategic Avenues to Provide Better Value

Answer 4

1. Product differentiation
   - Offer better products/services (more user friendly, better technology) at higher price points that customer are willing to pay
2. Cost leader
   - Offer better prices for its products/services than its competitors (similar products/services) at lower price points
3. Customer experience
   - Offer better customer service than its competitors

Question 5

Performance Management System

Answer 5

A system that monitors & measures a company’s overall performance

Question 6

Performance Management System - Strategic Perspective

Answer 6

1. Industry key success factors include the things a company must do really well to gain a competitive advantage in the industry
2. Strategic avenue management is taking to differentiate its products/services from competitors
3. Business model → outlines how the company will make money

Question 7

Performance Management System - Corporate Governance Perspective

Answer 7

Company should know its priorities from an environment & social perspectives + financial expectations of external shareholders

Question 8

Key Performance Indicators (KPIs)

Answer 8

• Important metrics that helps executive management teams understand a company’s overall performance
• Financial & non-financial

Question 9

Financial KPI Example

Answer 9

gross margin % to understand how much revenue is left over after considering all product costs

Question 10

Non-financial KPI Example

Answer 10

customer satisfaction to understand how satisfied clients are with products/services & customer experience

Question 11

How does modified balanced scorecard relate to KPIs

Answer 11

Modified balanced scorecard is used to understand which KPIs matter from different perspectives

Question 12

Goal/Objective

Answer 12

What the company targets the KPI to be over a short or long-term period

Question 13

Example of Goal/Objective

Answer 13

achieve 40% GM by end of fiscal year/customer satisfaction score ⅘ stars in google reviews

Question 14

Employee Rewards Systems

Answer 14

Programs which companies put in place to motivate employees to achieve company targets

Question 15

Employee Reward System Example

Answer 15

[money] bonuses if employee meets target by end of a period

Question 16

Modified Balanced Scorecard

Answer 16

A tool that is used by management teams to understand company performance from the following perspectives: Financial, customer, environment, internal business processes, + learning & growth (+ social)

Question 17

Modified Balanced Scorecard | Financial

Answer 17

Measures & monitors business performance from a financial perspective

Question 18

Modified Balanced Scorecard | Customer

Answer 18

Measures & monitors business performance from a customer perspective

Question 19

Modified Balanced Scorecard | Environmental + Example

Answer 19

Measures & monitors business performance from an environmental perspective

How is the company doing at being eco-friendly, achieving net zero & operating sustainably?

Question 20

Modified Balanced Scorecard | Internal Business Processes

Answer 20

Measures & monitors business performance from an efficiency perspective

Question 21

Modified Balanced Scorecard | Learning & Growth

Answer 21

Measures & monitors business performance from an employee perspective, including the ‘social’ aspect of ESG

How happy & engaged are the employees?

Question 22

Responsibility Centers

Answer 22

Segments within a company that are expected to effectively manage revenue, profit, investments and/or costs

Question 23

If management can only control & influence revenue (make pricing, sales decisions)

Answer 23

Revenue centre

Question 24

If management can only control & influence costs (make costing decisions)

Answer 24

Cost centre

Question 25

If management can control & influence both revenue & costs, but does not have authority to approve investment decisions

Answer 25

Profit centre

Question 26

If management can control & influence revenue & costs, and has authority to approve investment decisions

Answer 26

Investment centre

Question 27

Importance of Responsibility Center

Answer 27

Need to understand a business segment’s responsibility to make sure KPIs being used to measure performance makes sense

Question 28

Management Reporting Cycle

Answer 28

Process that involves setting budget targets, producing management reports, making decisions to improve performance & continuously motivating employees to meet company targets

Responsibility of management teams

Question 29

Variance Analysis

Answer 29

Compares actual results against
1. Budgets
2. Prior period(s)
3. Other (ex. forecast)