Lecture 5 – Balanced scorecard (BSC)
LO1 difference aspects of financial and non-financial measure:
Financial measure only looked at making money, only emphasises on cost and budgeting, does not look at quality of product and customer
satisfaction. It doesn’t seem to look at why people are/are not buying product. Only gives a snap shot of one area of the outcome. it not timely
because it measures performance after it has happened and not timely to take corrective action. gives limited guidance on future action due to
thinking immediate short term. Lastly it focuses on consequence not cause, doesn’t gibe reason why the firm meets the budget. Financial Upside:
allows us to maintain tight resign on financial performance, hold accountability however the Downside is losing sight on what allowed you to maintain
profit and how to maintain those capabilities long term. NON -financial Upsides: focuses on customer quality and internal strength but it lose sight
of short term viability.
LO2: Connect Strategy map and BSC: Prior to 1992 companies were using financial measure. 1992 they created a tool to monitor both perspectives
of financial and non-financial measure. They created BSC to monitor the success of firm’s strategy. Started as performance based measure then
the added non-financial measure to give managers balanced view of the org performance. In 2002 they introduced strategy map, which showed
linkage between all the objectives that firm actually used. Strategy map is designing objectives that allows firm to achieve their overall strategic
objectives and BSC measure the strategy. BSC shows the Financial, customer, internal business and learning &growth. Benefit of both (identify
and measure specific value, align financial with non-financial, communicates the breakdown and improves performance
LO3: Design a strategic map aligned with strategy and BSC:
Manufactured cycle effectiveness (MCE)= processing time/ cycle time (value-add/(value+non Value add)) LO4 Terminology used in creating
strategy map and BSC and other consideration: Measure-good indicator ensures objectives is being met (LEAD and LAG indicators): allows you
see what’s going and make corrective action when needed: Target: performance benchmark (focus, motivation, comparison, efficiency and analysis).
Initiatives: actions to abid in achieving target (need ownership and investment and lead throughout the org, time deadlines, obstacles). Other
consideration: creating a cascade throughout the organisation, it gives them proactive performance system, it communicates and translate the
overall strategy into different level. It allows them to fix problem before it filters through the other level. Allows a corrective action. System is better
utilised when more people understand.
Week 8-ABC/ABM: LO1Understanding of design & implementation of
ABCABC-A costing method that assigns indirect
costs to activities, rather than expense it looks at actives that drives the cost. ABC is what activities we have and what drives does activities,
while traditional cost is based on volume, based on allocating OH on how much you produced. ABC looks at the production
run, what steps of activities involved and what drives those activities. ABM-uses accurate costing and uses it to make
changes, we can identify improvement, value/non value add and custom profitability, Decision side of thinking. (LINK) ABM
uses the costing from ABC. Activities as the Repetitive action. Manufacturing Industry-OH is more dominate than DL and
DM as they are easily calculated. Concept of ABC came About- (KEVIN example) Kevin is under costing because he ate
$30. Overcasting: product consumes low level of resources but allocated high cost. Based on volume. Under-costing:
product that consumes high level of resources by allocated low cost. complex products, allocated less. ISSUES with
Traditional costing (TDC) issues with TDC is that managers won’t be able to identify what expenses related to items of
their activities but when you move to ABC you look at what expenses is related to what activity. TDC allocates total OH cost
on volume based on cost driver. One driver is implied to all products regales of the number of activities and complicity of the
activities. Tend to simpler cost, higher volume (cost overstated or under complex, low volume products (cost understated)
ABC costing allocates overheard based on the activities that drive those overhead costs. (benefits) monitoring.
Improvement, calculates accurately, identifies what cost. LO2 process of ABM, application & implementation. Design
and Implementation (3 important factors when implanting ABC). Degree of correlation/relationship-how close the
activity is to the cost driver. The smaller the degree of correlation the more accurate my assigning cost to the activity is
driver to the activity is. Problem-more accurate it is, more time dispensed designing those cost drivers (cost v benefit). Cost
measurement-implementing an updating is time consuming. Because business is changing rapidly you have to continuously
update and redesign. Behavioural effect-it can have negative effect on soft culture, don’t want to use it as policing but use
as information. Often the once that design will be evaluated so need to make sure you get multi-specialised team to get a
lot of input. When to use ABC-when you have large overhead cost (can’t be directly attributed to product), strong cost
reliance (basing all price on cost), diverse process, product range, low cost implementation.
NEGATIVE OF ABC service /Retail industries- difficult if: facility costs. They tend to have overall expense, it doesn’t tend
to have a lot of repetitive task. Human being is less predictable because of that you can’t look at duration as some customers
can take long while others take short time. BUT ABC is just as appropriate in the service industry as in the manufacturing
industry. Just as in manufacturing firms, diverse services typically consume support activities in varying degrees. ABC
systems are more accurate in tracking the usage of these support activities to the services (products) that are produced
than are traditional, volume-based costing systems. Implementing ABC look at system Information- Interview (asking
questions to people doing the activity). Paper Trail looks at what resources go into each area and other paper work involved.
Story board- (get huge white board and pin activities) Multi-disciplinary Project Teams- (due to behavior issues. You
need to get not just people inside the manufacturing team but also outside people, like accounting and also local knowledge).
Activity Dictionary- list of every activity that goes into the product provides for consistency in the terminology and level of
complexity in the ABC analysis in the org. Organisation Implementation also look at (project or system, Budget or
actual). System (out with old in with new. Get rid of TDC and use ABC for all expenses. Full integration. ANNUAL firms do
this, as cross check to see how costing is, not trying to replace system. AD HOC (the same as annual- determines how
accurate costs are. Project (starting place if looking for a pilot to determine whether you will get benefit. Using budget data
is timelier than projected better to use over actual data. Actual data should be used when budget data is wrong. Problem
with this is, its after the fact and not as accurate. But cost versus benefit. Which Elements of Organizational Architecture
Need Considering When Implementing ABC? Implementing ABC only effects performance evaluation because when
we design our performance evaluation its related to someone’s Job/out-put. when we start recalculating someone’s job or
what activity go into that job. It changes someone’s performance evaluation because we have different information. When
you looking at someone's performance we need to look at their rewards system, if you change the way you evaluate
someone you also might need to change the way you reward then or use the incentive system. The other thing you could
use the incentive system is that you can use it as a buy in for that implementation. Use it as a positive outcome. The other
thing is decision rights as well. Once you have accurate costing. Firms might then change the way the make decisions or
change who does what or restructure what now they know what's driving the system. Soft culture also needs to be a big
thing. Behavioural costs are huge in any time of change in management. Need to make sure that those who will be negatively
affect that you have done something to encourage that. Or you have changed their rewards system. With this changed you
need to make sure that they are all still balanced.
LO3 Benefits & Cost of ABC/ABM decisions AND when to USE ABC. ABM uses ABC infor to support organisational
strategy, improve operation manage cost and it’s a continuous improvement-using info to continuously make decision. 2
types of ABM: 1 strategic ABM (thinking) chose appropriate activities (product, mix, pricing, resource allocation), all about
the firms strategic direction, long term strategic goal and what will help firms achieve those. This is made at high level. 2
operational-ABM-this is more about efficiency, how does the firm do things more better, less about cost and more about
better decision making. Firms choose what they should be doing and making it more effective. Primary objective of AMB is
to identify & eliminate/reduce non-value activity. Enhance value activity and redesign operational procedure to improve
efficiency to generate profit. VALUE adding activities- adds value to product or service as perceived by customer not
business (making products, technical support, instruction Manuel) Express check out, room service for meal. NON VALUE
ADDING- cost to product or service and does not increase its market value (quality checking, transporting between division,
storing or reworking products). 5 Business application in terms of ABM. Products-allows us to question whether we
should reprice e.c.t Processes and Operations- know all the different activities that goes into our product Technologyallows for that question should we be investing in different technology that allows us to do the job more effectively. From
cost perspective Analyse are we getting the benefit from the asset we currently have. Resources-now we know what
resource goes into what activity and what outcome, we can now look at allocation. Now that we have such information can
we make it into something more profitable Customer- they can now determine high profit/low profit customer. Allow to make
more strategic method in relation to customer profitability. 6 Implementation of ABM: Identification & Scope- Determine what we are
trying to achieve by implementing this. Support- need to get the employee buys in, as they are the ones going to make the change. Need to then
thing about the soft-culture (OA). Team Selection- need a multi-disciplinary team in other to make sure we got the knowledge across the board, not
just from the people from manufacturing because the loose sight of things like costing and profitability only thing about efficiency. Information- this
could be where your cost might go up. Firm seems to spend the money. Information overload. Initiation- determines when you will initiate the project
so that you have that benefit of report-ability. Maintenance- if it does work, how will you make sure that the figure being put in is still accurate? If
you doing ABC at an Ad-HOC basis or a Project, how do you know that you continue cost for particular activity base manage might not be accurate
anymore. Need to know how to maintain the accuracy and the efficiency of what you’re getting done. BENEFIT/COST of ABC: (BENEFIT) identifies
what goes into product/activity. Calculates more accurate costing, able to use that for pricing and budgeting. Monitors change being made also
enables firm to make better decision as they have all those information. Continues improvement, being able to utilise the information on an ongoing
basis. (COST) takes time and money making sure it’s been designed n implemented. There are a lot of barriers to change as soon as you tell
employees information will be collected. Influence cost as people choose what they are good at or that is easy. When to Use ABC-large overheads,
strong cost reliance, diverse processes/product range, low cost implementation. Questions and answers why does products-costing system
based on a single volume-based cost driver to over cost high-volume products? What undesirable strategic effects can such distortion of
product costs have? Product costing system based on a single, volume-based cost driver tend to over cost high-volume products, because all
overhead costs are combined into one pool and distributed across all products on the basis of only one cost driver. This simple averaging process
fails to recognise the fact that a disproportionate amount of costs often is associated with low-volume or complex products. The result is that low
volume products are assigned less than their share of manufacturing cost, and high-volume products are assigned more than their share of the costs
Explain why a new product-costing system may be needed when line managers suggest that an apparently profitable product be dropped.
Line mangers are close to the production process and may realise that complex product, which is difficult to manufacture, is under costing by a
traditional, volume-based costing system.
Lecture 9– Decentralisation, Pricing and Product Mix:
Decentralisation: It’s about lowering decision rights lowered down into the organisation. Responsibility Accounting:
system in which managers are held responsible for activities and performance in their Business Unit (BU). Managers are responsible for those
divisions – what are the decision rights they are given & evaluate that and the section performance. To account for decentralisation, they structure
PE around what manager have responsible for in their unit. LO1: Four centre of responsibility accounting, how to report on them
and transfer pricing: Responsibility Centres: performance evaluation and rewards system should be consistent with the decision rights
allocated to the sub-unit manager. Each unit can be categorised into: 1-Cost/Expense Centre: TASK: produce some output. 2-Revenue
Centre: TASK: sell the firm’s output. 3-Profit Centre: TASK: produce and sell. Generate profit as a whole. They have decision over
producing, cost and selling. 4-Investment Centre: TASK: similar to profit centre but unlike profit they also have decision over capital
expenditure. With profit centre and investment centre they get evaluated on their ability to generate a profit. What happens with though is, if a centre
is only producing something to give to something else in the organisation. They end up not making profit. This can effect performance evaluation.
This is where TRANSFER PRICING comes in, it’s an internal selling price. It’s transaction that occurs between profit and investment centre because
they are tired to their performance. Structure internal report so it focuses on each unit responsibility. So you will actually have categorised for each
profit centre, which then gets added together to the final division. This is done because all their performance evaluations are linked to what they
have decision right for. Transfer Pricing (TP): internal selling price used when goods & services are transferred between
profit centres and investment centres in a decentralized organisation. 3 Common Methods: 1. Market-based prices: if
market existed, it looks at external market to determine what price to set the internal product at 2. Cost-plus price: determine
how much it cost then determine the mark up 3. Negotiated prices: cost as the bottom then works their way up (suitable if
both parties have significant bargaining power). 3 ways to set the T.P: 1- managers: have full autonomy to set price as
they work in their division. 2-general policy: firm might have general policy but managers might have a say. 3- purely
dictated by senior managers, this comes with a lot of issues as they have authority over everything else. T.P under 5
scenarios: 1. External Market & Space capacity in supplying unit. 2. An external market and no space capacity in the supplying unit: (opportunity
cost)3. External market and limited capacity in supplying unit (op cost): 4. No external market and space capacity in the supplying unit cost +small%)
5. No external market and no space capacity in the supplying unit (cost + small %). Two reason a firm might have TP: tax implication: transfer profit
bwteen different countires and service level agreement: a contact between two units within an organisation-details of what’s going on. (Slide 18-22
PPt)
LO2: Major influences on Pricing including economic pricing model and the Cost-plus consideration
Cost is critical but with SMA you get that startigic pespectives. Ensures firm make approriatriate pricing decision and product
mix decision.only focusing on cost is more for short term but price is long term. 5 Influence: highest influence 1. Product
price Product Cost- you want to try and charge above the cost, charging under the cost firm won’t make a profit. This is the floor price but we
know we need to charge above that floor price. There might be situation where a firm might charge under the price, example is if a firm is trying to
enter a new market and gain market share, if there had been a huge down turn in the economy and some generation of money is better than none
to cover some of the cost or the market has change to be very competitive. There are situation where you charge under the floor price but it would
only be a short-term measure. There is no way a firm will continue making a product, if they continue making a lost for a particular product 2.
Customer Value: This is the ceiling price, quantifying this price is hard. If it’s a new product you might look at what other people are charging for
the product, a firm might have to survey customers or focus group but have some type of determination what that is, the reason for this is, if a firm
end up charging the customer more than the value for product, no one will bye it. This is why its your celling price. You can’t charge above the
customer value, as there will be very low number of people who will buy it . 3. Marketing Positioning: influence on price through customer
value. Eg: family restaurants vs. café. In fact, price-cutting, in a luxury market can damage the products’ image, thereby reducing demand. this is
determining what type of product the company is. Where you will sit in the market. Is the company a luxury product or budgetary product? Determine
where in the market the company sits, they reason we do that is to know who our competitions are. It allows the firm to determine who their customers
are so we can look at their customer value. 4.Competitive Behaviour: need to look at what the competitor are doing, also need to assessing
their quality because there quality is also reflected on there price. So assessing what there behavior is, is a crucial step Eg: airline and retail fuel
industries. 5. Legal, Political & Ethical Issues: Determine what restriction the firm may have, Is there a restriction on how much a firm can
charge (medication). There are some industry that have restriction on price, so its important for a firm to know that. is there also any political restriction
and what attention a firm might have (banks). The last one whether there is any ethical issue that it might impact on the ability to sell the product at
a particular price. If a firm is seen as being unethical in there pricing they loose reputation, and if they loose reputation, they loose market share. This
might happen if you are trying to sell the product in a particular demographic, economy area priced at the right price as this could be seen as being
unethical. 5. Product Cost: lower limit for price. In regular industries, cost is usually the major determinant of reference
prices. Often people consider price based on economic view- based on supply and demand of product. Low demand sells
high. High demand, you sell at low price. Produce and sell to the point where marginal cost=marginal revenue (good position
to begin in). PROBLEM is it assumes that the firm have accurate data; stable, competitive marketplace that firm can consider
exactly what level they should be. Limitations to economic profit: 1. Market data: product is different to what is in the
market then you haven’t got anything to compare data on. 2. Demand affects: demand isn’t always effect by price, also
affected by product quality, design and reputation. 3. Assumption: based on assumption increase on price and demand
goes up (not always case). 4. Measurement costs: cost a lot of money to measure. 3 Common price-setting methods:
1. Value based: price is based on what value we think customer will place on product, determining what the value might be
in order to be able to charge around that price. might run into issues if the customer is below your product cost , then it will
then be a conservation as to whether you discontinue the product or make it cheaply. This is good when a it’s a new product
and a firm is trying to determine what product is in the market and how much to charge customers. 2. Economic value:
looking at similar product (how much customer is willing to pay. 3.Cost-plus: cost plus mark up. Add on- look at what our
add on are. Example added functionality, lower price or if we haven't produced it yet, what other functionality needed for
that particular product. Particular for new technology or new phone a lot of firm will use this because they will look at there
current model (reference point) and work out what functionality they will add and then they will determine what’s the cost
will be for the functionality. ( what will customer willing to pay based on the reference point) 3 cost plus price consideration:
1. Price =Cost (mark-up%*cost). @. Definition of cost and desired mark-up, it based on assumption that cost is accurate.
Needs to consider market positioning, customer value, legal and political issues. (Slide 26). LO3 New product pricing,
competitive bidding and legal restriction on pricing Never truly know demand. You are only guessing what the price of
new product is. Economic always assumes demand is based on price not always the case. Two contrasting pricing
strategies depending on product. 1 Skimming Price: set initial prices very high before it is copied. Eg: home entertainment
products. This is good for new product or different from someone else. Done in industry like technology. Buy a TV set it at
high price then when it’s getting older you reduce it. 2. Penetration price: Initial price is set relatively low to gain early
market share. One market established, gradually increase price. Done in supermarket industry when a product they get
customers to try it and then set the price. Competitive bidding. Construction companies and government companies do this a lot,
especially when they are bidding for a new project. A lot of companies do it if they want to change supplier if they don’t necessary have relationships
yet, they want some way to evaluate the input. All it’s submission of sealed bid for a particular project or product, or whether it is a service. But there
is unknown because you don’t know everyone else's bidding. The buyer tends to base there decision price, its often not an established relationships.
So its harder to based on anything else other than price. This can leave the supplier in an hard decision, if the price is to high, you don’t get the
contract and to low you don’t make a profit. There tends to be a formula as to how they work out how that is. The look at there cost to produce it,
this goes back to transfer pricing, it usually deciding on whether they has excess capacity (if they did this job, will they have to forgo doing another
job, because that changes how the cost product). if they did have excess capacity, they simply look at there bid and work out a reasonable profit
margin and out that in (this tends to be a lower profit margin than they will normally accept. If they don’t have excess capacity then they determine
there opportunity cost. 3 Legal Restrictions. This tends to be in Australia and all Govern by the ACCC (Australia competitor consumer
commission), what they do is prohibit certain behavior, the reason behind this, it that it makes the market place inequitable, it makes it more unethical
from the view of the consumer, so it makes it inequitable for other competitors a lot of the time. It a way to even out the plan filed. 1. Predatory
pricing- is where a large organisation will contiguously undercut competition to allow them no longer to be in the market. This is different from
economic Darwinism (its more that if you fail to compete you will fail to exist). This one is the continuous to undercut competition to allow them no
longer to be in the market. This is the motive that moves it from Darwinism to predatory.2. Resale price maintenance- supplier of the product
stipulates how much it is to be resold for. The reason this is illegal behavior is that it takes the decision right away from the product they now bought.
This is different to the recommended retail price as this is simply recommended. Under law if you bought the price you should put your price on it.3.
Price fixing contract- where competitors collude to fix the price on something. This is setting it at a particular price so they get profit. Cam be a form
of predatory pricing. LO4 Tactical product mix decision and strategic Mix and important consideration: Product Mix
Decisions determine the optimal range of products & services. 2 maximize total firm profit - both short & long term - Tactical
short term, organisations often have limited resources that restrict the range or quantity of products they can produce.
limitations on floor space, machine time, labour hours or raw materials. Thus, a firm must sometimes choose between sales
orders, deciding which orders to fill and which to decline. In making such decisions, managers need to know which product
is the most profitable. This is not as simple as just comparing relative profits per unit, it involves considering how individual
products utilise the limited resources. - Strategic (long term) product mix decisions: whether new products should be
adopted or existing products discontinued. Usually supported by NPV analysis (investment decision). MA advice on relevant
cash flows. FC relevant. TAT irrelevant. Other consideration: product mix decision or pricing decision- price I charge
the product will affect how much I can make of a product. product complementary effects - often need low profit product
to sell high profit product. Product making a loss-don’t quickly assume it’s a loss. Look at company efficiency. PE,
incentives and decision right. Q&A Top management is unlikely to have the specific knowledge to evaluate whether or not the profit centre
managers made "reasonable decisions." The reason a firm forms profit centres in the first place is because lower-level managers have better
information to make decisions on pricing, product mix, production techniques, etc. by decentralising the decision making allows for a more goal
congruence, meaning managers personal goal line up with the organisation’s goal. managers are more likely to act in good faith of consumer/
company when there pay is NOT largely based on centre’s profits. By compensating mangers based on “reasonable decision aligns the managers
goal with the goal of the company. The prices of our consulting services are determined by whatever our competitors charge for similar
services. “Costs are irrelevant”. Do you agree with this statement? Explain your answer. Costs play a very important role in managerial
decisions especially when a selection between alternative courses of action is required. It helps in specifying various alternatives in terms of their
quantitative values. Buts strategic management accounting central to ensuring the firm makes appropriate pricing and product mix decision. Links
costing and other strategic decision-making only focusing one cost is more of a short-term goal but pricing is a long-term goal. In the long run,
organisations need to price their products above the cost of producing and marketing those products, however it is important to competitive. When
setting the price, it is important to define the product and market correctly. Do you agree with this statement? Provide an example to
illustrate your answer: By defining the product and market correctly allows the firm to value the product correctly in the market, it this is based on
what the value we think the customer will place the product. The definition of the product and the market are vital to setting a price, as a company
needs to position itself to appeal to the right customer group. Explain why different cost and revenue may be relevant when making short-term
product mix decision compared with making long-term product mix decisions. Short-term product mix decisions may involve resource
shortages; customer demands, which are fluctuating therefore variable costs, are necessary. Long-term product mix decisions must consider costs
Wk11 Sustainability: LO1: Sustainability, SMA’s
Roles & Responsibility: sustainability is meeting our society’s needs in ways that don’t compromise the ability of future
generations to meet theirs. Considering other things beside profit, it not just producing the product but also how they produce
their service. There main area it looks at are Economic, environmental and social impacts. Impacts of sustainability to the 8
stakeholders. 1. Customers: Conscious of environmental and social impacts. Assessing what’s important to them and then
making sure its incorporated into strategies. 2. Shareholder: interest in environment and community, want to attract more
employees, once this type of things becomes important to them, then becomes important to staff, maybe using this as
incentives or to motivation for them. 3. Investors: becomes important when reporting on sustainability. 4. Supplier: if
supplier demands more sustainable practice then it becomes important to change your practices. 5. Community groups:
pressure to meet local needs. Non-government organisation: a lot of them establish themselves as a protector of something.
6.Media: reputation and potential to drive the company. 7. Government and regulators: reporting, sanctions and legislation.
Triple bottom line The core thing about incorporating sustainability is to incorporate it in all area like economic,
environmental and social indicators and putting this into organisation vision. Triple bottom line looks at reporting all this
together. But it’s hard to quantify/measure the impact of social (people) and environment (Planet). Benefit –1:
competitive advantage (view point of reputation and the perception of what the firm is doing is good). 2 Reputation and
customer: 3. Employee and resources: positive soft culture with organisation, positive impact on incentive. Its them to
review their raw material. COST: 1 Time and cost retraining managers. 2 technical issues, 3 behavioural issues-making
unreachable target, and not communicating it properly (OA) and 4: inadvertent greenwashing: firms will over emphasize on
what they have done. When firm initially move to sustainability their cost will outweigh their benefit. Long term thinking not
short termLO2: Sustainability application to supply chain, capital expenditure analysis and strategic PE measure:
During planning stage of assessing you have to do lifecycle. Considered who is doing sustainable practice on either side.
Before stage (Supplier)- working with supplier and determining how both can move towards a sustainable practice. In other
to get benefit you need to consider what goes on before you. After (customer): thinking about what happens after the
product leaves the you, and some customers are willing to pay more for product that has less impact. Capital expenditure:
checks whether there would be a financial benefit. Looks at things like productivity how that will be impacted, looks at issues
when trying to determine how sustainable a project is. Performance measure: the use of strategy map and BSC is one
way companies can incorporate sustainability. Strategy map shows cause/effect relationship while BSC allows us to focus
on our capabilities to change the internal sustain-abilities. 3-way sustainability measured: 1: separate scorecard and strategy
map (not good as it lacks relationship). 2 add a perspective: not good as it gives separate perspectives (issues). 3 integrated:
integrating sustainability objectives with each four perspectives.LO3: sustainability reporting incorporating the standard
and benchmark When reporting you need to consider the following 1 measure and communication: what the firms
measuring and who important from stakeholder perspectives and what their issues are for long term sustainability. How they
would communicate. Need to distinguish internal and external reporting as you don’t want to give away valuable information
to your competitors (perception) don’t want to give a lot of information. But want to give enough to get benefits. 2 inside out
that would have remained unchanged in the short-term product mix decisions.
and outside in approach: inside out means comes as part of the organisation vision, mission and strategy and its fully
integrated with organisation then reporting outwards (proactive). Outside in approach is more legislative, regulation and
standard (reactive). 3: voluntary reporting. 2 types of reporting. 1 internal reporting, make sure it’s a decision driven tool,
used to form performance evaluation, incentives, motivation and soft culture. More info you get into the report, the more buy
in you get from employees because you increased their understanding of what the firm is trying to do with sustainability
effort. 2 External reporting: driven my perception and it how your firm will be see. 5 Sustainability reporting process;
articulate the purpose of the report, internal or external. 2 determine the target and the outcome. 3 collect enough
information to have reliable data. 4 analyse and be able to justify. 5 provided-regardless if bad reporting for internal you
should provide exactly in the manner so as to use it as learning tool but externally, you might take out a few things. Firms
use to following 3 standards as benchmarks for sustainability indicator. 1: global reporting initiative-what you should
do (GRI) framework, looks at what should and can be done. Firms incorporate this into their reporting, used to indicate how
they are going with sustainabil. 2 international integrated reporting-used as creating value across the board, 3 ISO 2600all about social responsibility, provides guideline. Large firm like use the GRI reporting as a way to balance some of the
effect. Small companies wouldn’t spend too much time reporting. LO4: core component of environmental management
accounting including 5-tiers of environment cost and 4 analysis categories and the applicable standard
Environmental management accounting-ways companies look at impact rather dollar. Financial oriented- looks at cost of the expense
and revenue. Physically oriented-looks at production side of things and how the categorise them. EMA system- systems organisation
put in place to manage their environmental performance. EMA Incorporated into sus reporting once you what you want to established
& want to track and measure. Might incorporate some type of cost/performance measure relevant to environment and social aspects
of business.
Lecture 11 Ethics and management Innovation (MI)
Ethics: business ethics is an agreed-upon code of conduct based on societal norms. Determining what action is going to
be considered ethical/non ethical using that as a conduct for QA. What society think is normal. Ethics is not feelings or
conscious guides personal choice but not guide everyone’s personal choice. Religion-never going to keep up with
everyone’s point of view. The law-changes over time, like law it doesn’t keep up. Following what everyone does. Just
because everyone is doing it doesn’t man its ethical. Science-what we do versus what should be done, not always the
case. Strategic Ethics- THREE questions. 1- spending one corporate social responsibility from management
perspectives, it’s not your money. To determine what is ethical you have to see it from reputation and value maximisation
side because its ethical to then spend some else’s money. 2-Market infant formula in central: what nestle did wasn’t
illegal and there was no restriction. But people thought it was unethical to be marketing to someone they knew couldn’t
afford it. Flow on effect was that people boycotted their product (law and ethics: popular society opinion about the issue).
3-Use lab animal for testing: this is where personal choice comes in, in a lot of places it’s not illegal but some people
have opinion in whether something is ethical or not. Important of Ethics from business perspectives: 1 society
demands certain things practice. So you will end up having to follow the practice. 2- competitive advantage: using ethical
practice to gain a comp advantage. 3-stakeholder Opinion- they are becoming more conscious. Consider what their
ethical stance is on practical things. 4 Reputation: tied to media just like nestle that was a huge reputation nightmare.
How firm make ethical decision: Based on maximising firm value, firms think about how this will effect there share value,
will it affect my ability to generate profit and will it affect my supplier relationship, it’s all about the bottom line. This is where
Economic Darwinism plays a huge role in firm’s ethical decision, it’s all about survivor of the fittest, only those able to adapt
to changing situation will survive. The same can be applied to this case. If the car dealership does not continue to have
the ability to generate profit, it will sist to exist. So if they are trying to be 100% ethical from everyone’s view point but it’s
at the expense of them generating profit, produce a product and have customer relationship. The company will sist to exist.
It’s all about maximising value in other to operate. But it’s also need to Consider brand value when considering ethical
decision. If something is found out it might affect the brand value of the company or share value. Also looking at the
regulation just like the Solomon brothers there could be a flow on effect from an illegal action, that cause the most damage
and most money. Also we look at the human capital from our employee perspective if they are not considering what we
are doing as ethical then they leave, if they leave we lose all they knowledge. And have to train new people and we might
have to compensate the employees in other to overlook their ethical issues. This are all considered in the base of
maximising firm’s values. Firm has ethical responsibility to its stakeholder and NON-stake holder (local schools/ universityparticularly is a lot of their families whose kids does to that school, creates a lot of soft culture within the org. Environmental
issues- done to balance out other environmental impacts they have as well. Ethic is tired into corporate social responsibility
it’s about being green and being socially conscious as well.). How firms can structure their ethical making decision
(policy) 1 Compliance based: tiring into the regulation and accounting standard and using it that way, problem is law
doesn’t always consider everything ethical. 2-character reliance: assume that because they have told their employee,
that they are going to follow them. 3- encouragement: tired into incentives, formal way of aligning interest problem is tends
to be stable, but people’s opinion changes all the time. Managing value best as this starts from the core of the organisation.
Constantly revising their vision, mission and value and integrating that into the organisation. 4-ways Setting ethical
Policies (managers should take into account when making decisions). 1 Diversity of input: managers need to elicit
the view of the wider management team. Key stakeholders such as shareholder and employees, ensures it is the
representative of their stakeholders. 2 legal standards: important to understand legal consequences as well as possible.
3-Business norm-possible comp advantage or simply keeping up with the completion. 4: press standard: useful to help
determine which behaviour are ethical. Consider Organisational architecture: ethics and OA are closely related.
Structuring your incentives system that it creates perversive incentives, then your pushing employee to act unethically.
Consider what kind of decision right your using, making sure you have the right people making decision, also how your
evaluating employee, make sure they look long term. Vision and mission link to OA. Evaluating ethics of business. 1
Newspaper coverage: change if negative. 2-Social good: minimise negative impacts that is occurring and balance that out.
3-Ensure ethical principle doesn’t interfere with anyone’s right to gain knowledge or training a community right to engage
in activity with how product is produced. Maximise firm value consider short and long term. Benefit of ethics. Improves
business awareness and recognition. Employment motivation and recruitment, competitive advantage. Cost: higher cost
and overhead cost- especially when you are starting new as you have to determine what firm things is ethical, how to
maintain and collect it. Its restrictive-going to ethical you might forget the human element. Lastly who decides on what is
ethical. Signs that OA is contributing to unethical behaviour
Innovation: innovation is something different that has impact when it generates revenue. firm isn’t considered innovated
until it has created something new and it has got a changes for the better. Improve a process, it has to have an impact if it
increases market share. Innovation process: allows employees to put to have input, as they are at the ground level and
know what customers want. Having function an activity that allows individual to make changes and suggestions. Lastly
allowing OA to complement the process. Management innovation is a type of innovation- it’s the invention and
implementation of management practices, process or structure, that is new and intended to further organisational goal.
Objective is to make something better. Examples of management innovation: ISO 9001:2015: set of international
efficiency standard, builds on 7 qualit6y management principle for continues improvement. Benefit: long term improvement
and reductions. Long term benefit in efficiency, less defects rates, employee sanctified as there is high level of transparency.
Shareholder appeal: external certification as you have implemented quality and continues improvement into the
organisation. Cost: lack of understand-ability because standard is hard to understand, time and cost to implement,
requires a lot of documents. Total quality management TQM: entire process is make sure that quality is embedded,
meeting customer need in terms of quality. Like before benefit is LT improvement and reduction. COST: ST increase in
cost and resistance (focuses on Decision right and PE no reward system). Business process reengineering (BPR):
fundamental rethinking and radical redesigning of business process: linking decision rights &specialised knowledge.
Benefit increase in customer satisfaction because decision tend to be faster, effective. Decrease in LT cost and
unnecessary activities. COST: Increase satisfaction costs. Does not consider PE or incentives (only decision right no PE
or reward system). Why demand for management Innovation: deregulations occurred in a lot more industry. Technology
advances- customers has huge amount of information at their figure tips. Global competition- can’t just do what you’ve
always done, adapt to changes. Lessons from innovative companies
Implementation: Benefit: increase in productivity, used as competitive advantage. More effective use of natural
resources. And increased employee motivation because the feel valued and enriched in soft culture.
Discuss the dilemma LDS faces in terms of using its computer system to improve quality: problem here was that they are ranking
them in terms of their patients stay in complications and that’s sometimes isn’t to do with their care but it might be due to how the
patient might react. Sometimes some people better healers than others. Every patient is different. Good that they are keeping score
but can’t judge a surgeon performance by their patient. This can be problematic. Expecting performance improvement without using
a system based from a manufacturing injury can be problematic. The statistics needs to be recorded.
Lecture 12 –Great Game of business:
great game of business (GGB) builds business and people. Sets people up for
success through education, involvement and opportunity through rewards-improve financial and their quality of life. Helps companies
understand that when employees win, companies win. Uses game to teach business owners how business worked. 1-Critical
Number- not always profit, it’s what makes business stronger by address key issues/weakness (get financial, market, employee and
management perspectives, helps everyone understand what drives the success. 2-Follow action/keep score thorough Scoreboard
(employees know whether they are winning), Forwards Forecasting (not looking at past, FF allows changes to be made when team
is off track, helps improve error), Huddling- (provides rhythm where everyone is engaged. Recognises/celebrating winning, helps
share team knowledge, this helps in making better decision, hold people accountable for their action. Using huddle to forecast bonus
gets people fired up. GOOD Huddle (Everyone know agenda/role, commitment made to improve score, challenge each other,
comfortable to ask question). 3-Know/Teach rule - educating people through “opening the book”. Connects people to the bottom
line. Teaching them where the money came from. Makes people curious. Makes sure everyone in organisation understand/accepts
the company goal, cause their plan is direct result of the input. (it’s about people getting to buy in and set the outcomes themselves.
People own what they create). 4-Provide a stake in the outcome- giving people stake help change attitude on how they approach
their day to day job, because there is common interest on the success of the job. This is done through Bonus Plan – helps employees
see the goal line, they know what the target are and what they have to do to get to the target. However, this does not guarantee
success unless they are educated about it and that its structured properly. Effective bonus plan need to be simple and understandable,
focus to the point and only one thing, makes the payment progressive. Providing a stake can be done through rewards and
recognitions, make job enjoyable and people feel like winners. Impact of Implementing GGB- increase in (revenue, business literacy,
profit and employment engagement), rewards/promotes great ideas, suggestion. Shift in thinking, rather than complaints people come
up with solutions to problem. There is a continuous improvement mentality, this becomes part of the daily activity and ultimately it
becomes part of commitment to doing better. Improves moral and job satisfaction- because in an environment where there is a
common goal, people’s opinions are valued, they feel like they are contributing in a meaningful way. Retaining team member is a lot
easier, there is less turn over as people want to stay in the company. They see themselves learning/growing with the business. There
is a shift in financial management, strategic thinking/excursion. It forces people to monitor their performance. Bring more structure to
management and to plan continuously. Succession- It gives opportunity to pass the running and daily plan of the business from owner
to engaging teams. Forces people to understand the business plan just as the owner. Business success can be done through
Employee Share Ownership Plan (ESOP)-enables equity to be shared in the business with team members. ADAVNTAGESprovides equity as a base line thinking, great way to achieve lasting success. Provides team member with wealth of the business.
Educates tams on how the cam influence the value of the firm. All about educating employees on how they can influence the business.
Benefit of GGB outside office-engages employees creating their own future rather than just the companies, companies that educate
their employees with financial literacy are educating them on life. Giving them opportunity to elevate their thinking, provides a sense
of purpose by including them in developing and owing a business vision and value, team members takes that sense of performance
home. TUTORIAL QUESTIONS- LIKELIHOOD Success to Implementing GGB- 2-step to this is- (1) adequately and thoroughly
explain the organisational goal to all employees before implementing the game. Increase the understandability and allows employees
to question why it is being implemented and possibly offer ideas for greater success. Ensure culture of trust and open communication
right at the start. (2) to gain acceptance and understandability from the top level managers. These managers need to have full
understanding of the process and policies involved in the game. Once these managers have a full understanding and are committed
to the game, it can be communicated to lower levels. Commitment from top managers encourages employee by-in from below. Is it
also an essential to start at the top as the new performance evaluation and reward systems will need to be driven by these managers. How does
implementing the “Great Game of Business lead to better decision making in an organisation? Give an example to support your
answer. One of the challenges of business is ensuring the right people have the right information to make the right value increasing
decisions. in Powering employees to track company performance. Enable them to answer questions. When employees have
information they can understand what’s going on in the business. They can be free to innovate and allocate resources more
sensibly. Make smarter decision and take ownership of their work. When you understand how business operates you are able to
provide a more informed answer in different situations they encounter with employees. Discuss the five features that the Great
Game of Business requires. Leadership-for employees to make a significant difference they have to be informed. Education– if we
are going to involve everyone in the game they need to be educated, the game required that everyone understand the contexts of
their role, have to have a line of sight to what they’re doing with what the company is doing. Information- in-depth financial
information is shared with all. Education- if you’re going to share the information make sure everyone is educated in what the
information need and how it is to be used especially. Involvement- need a structure for involvement, need to be a motivation tool.
Involving the employees in business affairs. Leads into rewards so as a team everyone is rewarded as everyone had a stake in the
success of the firm. Why would an organisation want to run their business as a game? It’s to get people competing as team, to
keep them motivated and engaged in what they are doing. Everyone love to be on the winning team, by building through the team
aspects. Wining isn’t just restricted to the employee of the organisation, but also to the customers. What organisational
characteristics make implementation of the Great Game of Business easier and why? Some characteristics that makes
implementation of the great game easier are through giving employees a stake in the outcome through decentralising at whatever
geographical or up physical location your working as a part of the game. People become empowered and sending trust around the
organisation so that you can have open communication. There is much more information sharing. Communication and information
received is understood, there has to be high level of training. Having transparency and education, high involvement planning,
specially the people closest to the action and the critical number
Discuss four (4) common mistakes organisations could make when implementing the Great Game of Business. 1-The centre the
game just around the work place employment rather than employees personal experience.2-They don’t’ educate their employees
on the bonus share or the employee share ownership plan3-Attention is paid to the past transaction instead of forward fasting.4Critical number is only based on financial elements, instead of focusing on both financial and non-financial elements. 5-losing focus
of the game.6-commiting sufficient resources/time in the game.