ORGANIZATIONAL STRUCTURES Functional Structure - Grouped by tasks - Centralized decision-making Information Needs - Data passed from functional to senior management - Aggregated and analyzed by senior management for planning and control Implications for Performance Management - Advantages: - Economies of scale - Standardization of outputs and systems - Comfort for specialists - Career opportunities quality - Disadvantages: management - Empire building and conflicts between functions - Slow adaptation to market changes - Inability to cope with functions rapid growth or diversification Divisional Structure - Divided into divisions - Decentralized decision-making Information Needs - Lower hierarchy needs information due to autonomy and decision-making - Senior management measures and controls divisional performance Implications for Performance Management - Advantages: - Enables growth and diversification - Clear responsibility - Training of general managers - Decision-making speed and - Strategic focus for top - Goal congruence - Controllability - Interdependence of divisions - Head office costs - Transfer prices - Duplication of business RESPONSIBILITY ACCOUNTING - System of accounting based on identifying parts of a business (responsibility centres) under the control of a single manager Areas of Responsibility: - Cost Centre - Profit Centre - Investment Centre - Divisional structures align with responsibility accounting - Each division acts as a responsibility centre Importance of Accountability: - Divisional managers should be held accountable only for areas they can control Information Requirements: - Correct information - Correct form - Correct intervals Management Accounting Systems: - Designed to reflect responsibility structure - Trace costs and revenues to responsible managers Senior Management: - Measures and controls division performance - Uses similar performance measures as overall organization NETWORK (VIRTUAL) STRUCTURES Characteristics: - Few or no physical premises - Remote work and virtual teams - IT connectivity for collaboration and coordination - Integration of suppliers and customers Information Needs: - Co-ordination, communication, and decision-making - Sharing of knowledge, skills, and resources - Control through shared goals and targets Implications for Performance Management: Advantages: - Flexibility for project-specific needs - Assembly of components for market opportunities - Competitiveness with larger organizations - Lower costs due to low asset investment Disadvantages: - Difficulty establishing cohesive teams and common goals - Loss of control and potential problems (e.g., quality, risk) - Challenges in knowledge sharing, leadership, and monitoring - Difficulties in planning and control using traditional methods - Risk of information confidentiality - Integration and compatibility issues - Potential reduction in competitive advantage SERVICE LEVEL AGREEMENTS (SLAs) Key Components: 1. Common Goals and Measures: - Agreement on shared objectives and performance metrics. 2. Areas of Responsibility: - Identification of each partner's responsibilities. - Actions to be taken if Key Performance Indicators (KPIs) are not met. 3. Activities and Minimum Standards: - Clear definition of expected activities and minimum quality standards. 4. Confidentiality Agreement: - Agreement to maintain confidentiality of information. 5. Workforce Standards and Procedures: - Agreement on standards and procedures for the workforce. - Consideration of additional management actions (e.g., payment by results, cultural controls). 6. Information and Reporting Procedures: - Defined information and reporting processes. - Possible use of a common interface system for data gathering. Benefits of SLAs: - Addressing problems and challenges in virtual structures. - Establishing clear expectations and accountability. - Enhancing communication and collaboration. - Facilitating effective performance management. Joint Venture Definition (JV Entity) Reasons to Form a JV - New product development - Market expansion - Resource sharing - Cost sharing - Risk sharing - Skills and expertise Examples of Successful JVs - Ford and Toyota (Hybrid trucks) - Samsung and Spotify (App integration) Challenges in JVs Planning Performance Difficulties Measurement - Differing - Lack of objectives common IS - Time scales - Reluctance - Risk appetites to share info - Resource - Disagreements allocation on measures Control Difficulties - Comparing actual vs. target performance - Accountability attribution Planning Difficulties - Lack of common goals, measures, and targets - Challenges in resource and cost sharing - Geographic, cultural, and management differences - Need for effective JV board Performance Measurement Difficulties - Lack of integrated or common IS - Reluctance to share necessary information - Disagreements on calculation of measures Control Difficulties - Comparing actual performance to targets - Attribution of accountability in diverse skills Strategic Alliances Definition Similarities with JVs - Formation reasons - Performance challenges - Performance measurement Unique Aspects of Alliances - No separate entity formed - Greater flexibility - Challenges: - Establishing common goals - Collecting and sharing information (more difficult due to independence) - Security of information (lack of separate entity) - Lack of other benefits associated with a separate legal entity Strategic Alliances Definition Similarities with JVs - Formation reasons - Performance challenges - Performance measurement Unique Aspects of Alliances - No separate entity formed - Greater flexibility - Challenges: - Establishing common goals - Collecting and sharing information (more difficult due to independence) - Security of information (lack of separate entity) - Lack of other benefits associated with a separate legal entity Needs of Modern Service Industries Characteristics (Challenges for Performance Management) - Unique set of characteristics - Overheads as a significant cost - Services consumed at the time of purchase - Costing system and cost tracing Measuring Service Quality (Competitive Advantage based on) - Soundness of advice given - Attitude of staff - Ambience of premises - Speed of service - Flexibility/responsiveness - Consistent quality Role of Management Accountant (In identifying KPIs and providing insights) - Identifying appropriate KPIs - Assembling KPI information - Analyzing information for insights - Guiding the organization based on insights - Supporting strategic objectives Technology as an Enabler - Management accounting system capabilities - Assembling and analyzing relevant information - Presenting information effectively - Facilitating timely and effective decisions Business Integration and Value Chain Business Integration (Alignment of all aspects) - Efficient use of resources - Effective achievement of objectives - Consideration of the entire process Hammer and Davenport's Solution: (Linking operations, people, strategy, and technology) 1. Processes as complete entities 2. Use of IT for integration Frameworks for Integration Porter's Value Chain Model - Activities that create value and drive costs - Focus on improving value-creating activities - Primary activities (customer interaction and value) - Secondary/support activities Value System and Value Chain Value System in Organizations - Links the value chains of suppliers, customers, and the organization - Organization's performance depends on managing the value system Uses of Value Chain in Performance Management - Strategic Analysis: - Identify strengths and weaknesses - Focus on adding to competitive advantage - Ongoing Performance Management: - Emphasize Critical Success Factors (CSFs) in each activity - Set and monitor targets accordingly - Consideration of Support Activities: - Highlight the importance of support activities (e.g., HRM) - Avoid dismissing support activities as overheads - Highlighting Linkages Between Activities: - Value creation through linking activities - Free flow of information across activities and departments - Job descriptions and reporting reflecting activities - Extension to Value Chains of Key Stakeholders: - Consider value chains of customers and suppliers - Address stakeholder needs - Ensure consistency across the value chain McKinsey's 7S Model Organisation as Seven Interrelated Elements Hard Elements Soft Elements Strategy (Overall strategy) Skills (Employee skills aligned with goals) Structure Staff (Organizational (Types of employees, structure) remuneration packages) Style Systems (Corporate culture) (Processes, procedures, - Management style information systems) - Interactions with staff - Interaction with stakeholders Shared Values (Organizational mission) - Alignment of attitudes, beliefs, and behaviors - Achievement of mission and objectives Use of McKinsey 7S Model - Identify realignment needs for performance improvement - Maintain alignment and performance during periods of change (e.g., restructuring, new systems, change in leadership) - Enhance performance through alignment of elementsMcKinsey's 7S Model Business Process Re-engineering (BPR) Definition: - Fundamental rethinking and radical redesign of business processes - Aims for dramatic improvements in performance measures Influence on the Organization: - Crosses departmental lines for efficient product/service delivery - Requires a cultural shift towards process teams over functional departments - Requires employee retraining and leadership from senior management - Results in more automation and increased use of IT/IS Benefits of BPR: - Encourages long-term strategic view aligned with corporate goals - Focuses on customer needs for sustained competitive advantage - Provides workers with autonomy and flexibility to improve decision-making - Reduces organizational complexity and costs through process simplification - Allows for overhead savings through staff reorganization into multi-disciplinary teams Weaknesses of BPR: - Additional costs for new systems and staff retraining - Decline in morale due to staff cuts and perception of cost-cutting focus - Staff may feel devalued with changes in roles and goals - Loss of coordination and communication with middle management reduction - Potential adverse consequences of outsourcing on quality and flexibility - Limited future-oriented approach, focusing on improving the past Influence on Systems Development: - Need for specialized systems to monitor and control performance - Shared database accessible by multidisciplinary teams - Real-time updates and integration with stakeholders' systems - Provision of financial and non-financial performance data - Budgetary information and performance data for teams Reward System Alignment: - Align payment of bonuses to new performance measures - Increase in basic remuneration to reflect increased skills, autonomy, and responsibility
