Contemporary Strategy Analysis Text and Cases Edition

Question: Discuss about the Contemporary Strategy Analysis for Text and CasesEdition. Answer: Introduction: Performance evaluation is an essential organizational activity for every type of organization. The profit-seeking and not-for profit firms, both use to incorporate it in the organizational structure for development of the operational activities. Higher managements of the firms include performance evaluation process to measure the performance level of the staffs and departments for indentifying the factors, responsible for the successes and failures of the staffs, as well as, the overall organization. It has been observed that many times the management fails to evaluate the performance of the departments or individual staffs separately. Such problems occur due to the inter connection between different departments. For example, the production team cannot provide adequate production volume if the logistic departments fail to supply raw materials on time. In such case, the performance evaluation procedure can help the organization to detect the proper reason of the poor production (Rolstadas 2012). The management can adopt various types of performance evaluation techniques for appraise the activities of the staffs and departments. Budgetary control is one of such effective evaluation techniques, which uses to evaluate the performance through comparing the actual performance with the budgeted figures. Variances between Budgeted Actual Output: The management of Teddy Bear Toy Comany has used to implement the budgetary control through standard costing system. In general, it has been observed that most of the actual figures differ with the budgeted amount. Teddy Bear Toy Company has also faced the same circumstances, where most of its actual costs have not matched with the budgeted amounts. Such differences have caused for two reasons, which are discussed below: Variance in Actual Budgeted Rate: It can be stated from the cost analysis that the budgeted cost per unit of many items has differed from the actual per unit costs. The differences, caused by the disparity in rates, are referred as price variance. The issues, which are responsible for such price variance, are stated below: Change of actual price due to increase or decrease in market demand of the cost items Implementation of new tax and other governmental rules Change in market economy Differences in the performances of the managers, in terms of negotiation with the suppliers and customers (Kaplan and Atkinson 2015) Variance in Budgeted Actual Quantity:- The variance has occurred due to the variance in budgeted and actual quantity also. Such variances can be caused from several circumstances. The probable circumstances are described below: Modification in manufacturing method Shortage of labor material supply Wrong forecasting of consumable units Implementation of advanced technology Variance in the efficiency level of staffs and departments (DRURY 2013) Advantages Disadvantages of Incentive Plan: The incentive plan, introduced by the higher management for the departmental heads, can affect the performance of the departments in both, positive and negative manner. The positive effects of the plan are as follows: Boosting up the competence level of the departments Implementing better control over the business activities Reducing the total cost of the individual departments Providing motivation to the staffs The negative impacts of the incentive plan are stated below: Creating unhealthy competitions amongst the departments Implementation of excessive cost control system within the departments Ignoring quality of the jobs for achieving the target Rise of employee grievance for strict control system (Hope and Fraser 2013) Role of Budget in Evaluating Performance: As discussed above, budgetary control is one of the popular and widely accepted techniques of performance evaluation. A properly estimated budget can be very beneficial for measuring the performance of the employees in various ways. In general, the higher managements use to prepare the master budget along with the subsidiary budgets according to the various operational activities of the organization at the beginning of the period. The budget sets the target for the staffs and the individual departments. At the end of period, the management compares the actual output of the staffs and the departments with the respective budgeted outputs. If the actual output is proved to be higher than the budgeted figure, then the performance is considered as favorable. For vice versa, the performance is treated as below average or poor. If the management follows standard costing system, then the performance evaluation through budgetary control can be more effective and accurate (Whitecotton et al.2013). Modification in Incentive Plan: According to the above discussion, though the incentive plan has proved to be effective for increasing the sales for Teddy Bear Company, it can create negative impacts also. Hence, it should be modified to increase its effectiveness properly. The following amendments can be made to modify the plan: The management should not depend only on the budget for providing incentives. There should be some incentive for the overall business performance, so that the different departments will work with more coordination between each other. Along with the departmental heads, the management should give incentives to the general employees also (Otley 2015). Balance Score Card Analysis: It is very necessary for any organization to correlate the organizational goals with the operational activities. Otherwise, the organization cannot achieve its target in the longer run. Balance score-card is one of the widely-accepted tools, which is used to maintain the necessary balance between the business activity and organizational prospect (Perkins et al. 2014). It also helps the management to implement proper strategies for fulfilling organizational objectives within the organization (Grant 2016). The balance score-card, effective for Teddy Bear Company, is stated below: Primary Objective Secondary Objectives Measures Targets Initiatives Financial Optimization of returns Return on Capital Employed Disposition of Unutilized Assets Growth in the profitability Revenue Growth Leverage base of the asset Utilization rate of Asset Cost Leader Growth in Net Cash Flow Management of the operational Cost Improvement in Sales Volume Rise in Premium Ratio Operational Cost Customer Increasing the customer loyalty Rating for customer satisfaction Customer loyalty program Internal Processes New Innovation in Products Revenue percentage from different products Development of infrastructure Increase in Team Effort Revenue % from news services Development in Inventory Management NPV of different pipeline products and services Development of innovative services % of promise delivery Alliance Programs Utilization of alliances % rate capacity utilization Leverage the research and development Productivity improvement of employee Preventive maintenance Persistent Public Support % of cost reduction Proactive management of associations Index of reliability Service Dispatch mechanization Ensuring reliable services Rating of customer satisfaction Communication with the customers RD for new product development Marketing program Customer Service Excellence Proper maintenance of Inventory Level Optimization of the asset utilization Standard Cost Vs. Actual Cost Budgetary Control Optimization of the return on allocation of the resources - Management of Cost - Enterprise wide management of risk (Lashley, 2015) Learning and Growth Market Driven Competency Strategic coverage ratio Profiling of competency Employee Satisfaction Hours in strategic training Training Program for improving Skills World Class Leadership Rating in satisfaction of employees (scale of 5 points) Compensation link of performance Effectiveness of leadership ratio (scale of 5 points) Training program for leadership Conclusion: Teddy bear Toy Company has adopted very effective process for the performance evaluation. However, as discussed above, the company should amend the incentive plan for better effectiveness and align its long-term objectives with the operational activities through the balance score-card analysis process. References: DRURY, C.M., 2013.Management and cost accounting. Springer Grant, R.M., 2016.Contemporary strategy analysis: Text and cases edition. John Wiley Sons Hope, J. and Fraser, R., 2013.Beyond budgeting: how managers can break free from the annual performance trap. Harvard Business Press Kaplan, R.S. and Atkinson, A.A., 2015.Advanced management accounting. PHI Learning. Otley, D., 2015. in Management Control.Critical Perspectives in Management Control, p.27 Perkins, M., Grey, A. and Remmers, H., 2014. What do we really mean by Balanced Scorecard?.International Journal of Productivity and Performance Management,63(2), pp.148-169 Rolstadas, A. ed., 2012.Performance management: A business process benchmarking approach. Springer Science Business Media Whitecotton, S., Libby, R. and Phillips, F., 2013.Managerial accounting. McGraw-Hill Higher Education.