Assignment No 01

Advance
Performance
Management
Submitted To: Sir Jalal Ahmed Khan

Muhammad Hanif
Q.1 what is strategic control and how does poor communication effect the strategic control?

Answer:

Strategic control

Strategic control is the process used by organizations to control the formation and execution of strategic
plans; it is a specialized form of management control, and differs from other forms of management
control in respects of its need to handle uncertainty and ambiguity at various points in the control process.
Strategy is about defining the long term direction to which the organization is going, creating ways to
achieve objectives and achieving competitive advantage the endpoint goal being stakeholder satisfaction.
Lack of strategic control may lead to poor operational performance that can be caused by unrealistic or
conflicting objectives.

In workplaces poor communication is a serious problem and can be costly to an organization. The impact
can be devastating to the parties involved. Some of the results include: Loss of business, customers,
products, goods, services, employee turnover, loss of productivity, absenteeism, sabotage, injury and
accidents, sick leave and so on. The main purpose of this study is to identify the effects of poor
communication on organizational performance and to find out the strategies for improving on
communication at the workplace so that employee motivation can be enhanced. The specific objectives of
the study included finding out the factors, levels, types and effects of poor communication at the
workplace.

The understanding of organizations is a vital ingredient at every forward step of the career process, and
that communication is a primary element for understanding how organizations function and how members
of the organization should, even must, behave in organizations if they are to advance their careers.

Data was analyzed and presented using descriptive statistics methods. Excel was used to come up with
this analysis. To analyze and determine the magnitude of poor communication and good channels of
proper communication, the findings of the study will help KSC Ltd and other organizations to improve on
communication. This in turn will improve the employee motivation and general organizational
performance.
Q.2 Develop a strategic control system for National Foods?

Answer:

The preparation of a national food control strategy enables the country to develop an integrated, coherent,
effective and dynamic food control system, and to determine priorities which ensure consumer protection
and promote the country's economic development. Such a strategy should provide better coherence in
situations where there is several food control agencies involved with no existing national policy or overall
coordinating mechanism. In such cases, it prevents confusion, duplication of effort, inefficiencies in
performance, and wastage of resources.

Devising strategies for food control with clearly defined objectives is not simple, and the identification of
priorities for public investment in food control can be a challenging task. For National food strategy
should be based on multi-sectoral inputs and focus on the need for food security, and consumer protection
from unsafe adulterated or misbranded food. At the same time it should take into consideration the
economic interests of the country in regard to export/import trade, the development of the food industry,
and the interests of farmers and food producers. Strategies should use a risk based approach to determine
priorities for action. Areas for voluntary compliance and mandatory action should be clearly identified,
and timeframes determined. The need for human resource development and strengthening of
infrastructure such as laboratories should be also considered.

Certain types of food control interventions require large fixed capital investments in equipment and
human resources. While it is easier to justify these costs for larger enterprises, imposing such costs on
smaller firms who may coexist with larger enterprises may not be appropriate. Therefore the gradual
phasing in of such interventions is desirable. For example, countries may allow small enterprises longer
periods of time to introduce HACCP.
 Multiple Agency System

While food safety is the foremost objective, food control systems also have an important economic
objective of creating and maintaining sustainable food production and processing systems. In this context,
food control systems play a significant role in the following:

 Ensuring fair practices in trade;

 Developing the food sector on a professional and scientific basis;

 Preventing avoidable losses and conserving natural resources; and

 Promoting the country's export trade.

The systems that deal specifically with these objectives can be sectoral i.e. based upon the need for
development of the particular sector such as fisheries, meat and meat products, fruit and vegetables, milk
and milk products. These systems can be mandatory or voluntary, and put into effect either through a
general food law or a sectoral regulation. Examples include:

 An export inspection law that identifies foods to be covered for mandatory export inspection prior
to export; or offers facilities for voluntary inspection and certification for exporters.

 Specific commodity inspection regulations, such as for fish and fish products, meat and meat
products, or fruit and vegetable products which are implemented by different agencies or
ministries given this mandate under relevant law(s).

 Regulated systems for grading and marking of fresh agricultural produce which go directly for
sale to the consumer or as raw material for industry. They are mostly confined to quality
characteristics so that the producer gets a fair return for his produce and the buyer is not cheated.
The strategy will be influenced by the country's stage of development, the size of its economy, and the
level of sophistication of its food industry. The final strategy should include:

 A national strategy for food control with defined objectives, a plan of action for its
implementation, and milestones.
 Development of appropriate food legislation, or revision of the existing legislation to achieve the
objectives defined by the national strategy.
 Development or revision of food regulations, standards and codes of practice as well as
harmonizing these with international requirements.
 A program for strengthening food surveillance and control systems.
 Promotion of systems for improving food safety and quality along the food chain i.e. introduction
of HACCP-based food control program.
 Development and organization of training program for food handlers and processors, food
inspectors, and analysts.
 Enhanced inputs into research, foodborne disease surveillance, and data collection, as well as
creating increased scientific capacity within the system.
 Promotion of consumer education and other community outreach initiatives.

When seeking to establish, update, strengthen or otherwise revise food control systems, national
authorities must take into consideration a number of principles and values that underpin food control
activities, including the following:

 Maximizing risk reduction by applying the principle of prevention as fully as possible throughout
the food chain;

 Addressing the farm-to-table continuum;

 Establishing emergency procedures for dealing with particular hazards (e.g. recall of products);

 Developing science-based food control strategies;

 Establishing priorities based on risk analysis and efficacy in risk management;

 Establishing holistic, integrated initiatives which target risks and impact on economic well-being;
and
  Recognizing that food control is a widely shared responsibility that requires positive interaction
between all stakeholders.

Q.3 how would you trade-off between long and short term objectives in National Foods?

Answer:

There are strategic decisions (long term) and then there are operational ones (Short term). Strategic
decisions take time to reflect on financial results while operational ones impact results in the short term. If
a decision implemented to improve profits in the short run cannot be sustained / replicated in the long run
is more likely to weaken a company's strategic position.

A leader has to weigh-in the cost and benefits of every decision. If the long term effect of a short term
decision proves more costly than the short term benefits, then it would be wiser to avoid it.

Short term issues, problems and pressures are often due to mistakes in strategy developed and
implemented. The best way forward is to learn from those mistakes and strengthen the strategy
formulation and implementation. If a company has strategic leadership team with strong roots in strategy
formulation and implementation then chances that it will come under short term pressures is  very low.

If a business leadership is confident about the following list, then it can safely assume, the strategy that
rises from this base would be sound.

 Clear understanding of the business, industry, economy, social environment

 Complete knowledge of competitive forces in play and the market
 Clear knowledge of who the customer is, what they want, what they need, what they miss, what
they would appreciate, what they would be excited with etc.
 Complete knowledge of internal capabilities and resources
 Learning from mistakes (both own and of others)
 Knowing what the employees want, what will keep them happy and work like they own the
company
 Staying open minded and flexible when it comes to strategy review and reformulation
 ENT Entertainment
Case History:

ENT Entertainment Co (ENT) is a large, diversified entertainment business based in Teeland. They
directly deal with entertainment service also they have many restaurants, cafes, bars, and dance clubs.
They make divisions of these restaurants, cafes, bars, and dance clubs. The company's objective is the
maximization of shareholder wealth for its family owners.

Issues at Hand:
 Recently, ENT's board have identified that there are problems in managing such a diversified

company.
 They have employed consultants who have recommended that they should perform a Boston

Consulting Group (BCG) analysis to understand whether they have the right mix of businesses.
 The chief executive officer (CEO) has questioned whether using this analysis is helpful in

managing the group's performance.

Problem Statement:

 Assessing the requirements for responsibility accounting should affect the design of the new
performance reporting system.
 Assessing the expected behaviour of divisional managers should affect the design of the new
performance reporting system.
 Categories of control mechanism, which ENT Entertainments could us to cope with the problem
of organisational control.
Alternatives:

Restaurants division
This division has a low market share of a market sector with low growth, making it a dog in the BCG
classification. The restaurant division therefore looks a likely candidate for divestment, unless it has any
links with any of the other divisions in ENT's business.

Cafes division
The cafes division also has a relatively low market share, but it is operating in a market sector with high
growth.
The market sector is already showing good growth, but it currently seems quite fragmented. There could
be additional opportunities for ENT to grow by acquiring some rival businesses. Alternatively, if ENT
does not want to invest in this way, it might consider selling its café division to another business looking
to consolidate in the sector.

Bars division
The bars division is the market leader (high market share) in a market which has low (actually, negative)
growth. This should be classified as a cash cow.
The Bars division is currently ENT's largest division, and it contributed about 55% of the group's total
revenue in 2000. The current decline in the bars market should therefore be a concern for ENT, given the
Bars division's role as a 'cash cow' in the group. ENT is likely to want to use the Bars division to generate
cash for the other businesses in its portfolio, but if the Bars market starts declining in time this may limit
the division's ability to generate cash for the rest of the group.

Importance of controlling costs

The fact that the bars sector seems to be in the mature stage of its lifecycle also highlights the importance
of controlling costs. The degree of profit growth ENT will be able to generate through increasing
revenues seems limited, so instead it could look at reducing costs as a means of increasing profitability.
261
Dance clubs
The dance clubs division has a moderately high market share (although still less than 1) in a market with
reasonably high growth. This should currently be classified as a question mark as ENT is not yet the
market leader in the sector, but it has the potential to become a star if it can achieve market leadership.
Its market share is already relatively close to the market leader's share, so with continued investment the
division could grow to become the leader. The performance of this division is likely to be crucial to
ENT's longer term success, particularly if the performance of some ENT's more mature businesses
continues to decline.
Division Market growth (%)
2001 2002 2003 Average of annual growth rates

Restaurants 1.0 1.0 – 0.67

Cafes 9.0 11.0 9.0 9.66
Bars (2.0) (3.0) (3.0) (2.67)
Dance Clubs 6.0 5.9 9.0 7.01

Market share (%)

ENT market share Market leader Relative market share
Restaurants 0.50 3.00 0.17
Cafes 1.01 3.00 0.34
Bars 3.50 3.00 1.17
Dance Clubs 10.99 15.00 0.73

Context for performance

The BCG provides a useful context in which to assess the performance of the different divisions. For
example, it illustrates to management that they shouldn't expect the bars division to grow at the same rate
as the clubs division, due to the underlying differences in the growth rates of the two sectors.

Management approach
Equally, identifying the differences in the growth potential of the different divisions identifies that
different styles of management will be appropriate for the different divisions. For example, the clubs
division may require capital investments to enable it to sustain its rate of growth, but the focus in the bars
division (in a more mature business sector) should be on cost control.
Recommendations:

 The bonus element (50%) of the remuneration package is based on divisional performance
against cost budget. As a result, divisional managers are likely to focus on controlling costs. Such
an approach may be appropriate in the bars and restaurants divisions, but is unlikely to be suitable
for the faster-growing divisions (cafes and clubs).

 By helping to set expectations and approach in this way, managers can then also tailor their
performance management systems and metrics to reflect the different contexts of each of the
divisions. So, the metrics for the high growth divisions (cafes, and clubs) should be based on
profit or return on investment, while the metrics for the low growth divisions (bars, and
restaurants) should be focused on maintaining margins, cash control and cash generation.

 The fact that some of ENT's divisions should be focusing on growth (cafes, clubs) while others
(bars, restaurants) need to focus on cost control suggests that different management styles may be
appropriate for the different divisions.

 Under a budget-constrained style, a manager's performance is primarily assessed by his ability to

meet the budget on a short-term basis, particularly in relation to ensuring that actual costs do not
exceed budgeted costs. 50% of the bonus elements at ENT are based on achieving the cost budget
numbers set by the board, which suggests that ENT may be using a budget-constrained style.

 A budget-constrained style can be appropriate in a business where it is important to keep costs

under control, which suggests that it may be appropriate to use this style in the bars or restaurants
divisions. However, it is less likely to be appropriate for the cafes or clubs divisions.

 Moreover, the budget-constrained style often leads to poor relationships between managers and
subordinates, and also encourages the manipulation and misreporting of information, so ENT
needs to be aware of these potential problems.
 Dibble
Case History:

Dibble is formed of two autonomous divisions, Timber and Steel, and manufactures components for use
in the construction industry. Dibble has always absorbed production overheads to the cost of each product
based on machine hours.

Timber Division
Timber Division manufactures timber frames used to support the roofs of new houses. A factory worker
who fastens the components assembles the timber, which is purchased pre-cut to the correct length, into
the finished frame together. Timber Division manufactures six standard sizes of frame, which is sufficient
for use in most newly built houses.

Steel Division
Steel Division manufactures steel frames and roof supports for use in small commercial buildings such as
shops and restaurants. There is a large range of products, and many customers specify bespoke designs
for short production runs or one-off building projects.

Steel is cut and drilled using the division’s own programmable computer aided manufacturing machinery
(CAM), and is bolted together or welded by hand.

Steel Division’s strategy is to produce novel bespoke products at a price comparable to the simpler and
more conventional products offered by its competitors. For example, many of Steel Division’s customers
choose to have steel covered in one of a wide variety of coloured paints and other protective coatings at
the end of the production process.

A subcontractor performs this off-site, after which the product is returned to Steel Division for despatch
to the customer. Customers are charged the subcontractor’s cost plus a 10% mark up for choosing this
option. The board of Steel Division has admitted that this pricing structure may be too simplistic, and that
it is unsure of the overall profitability of sales of some groups of products or sectors of the market.
Issues at hand:

 Several customers have complained that incorrectly applied paint has flaked off the steel after
only a few months’ use. More seriously, a fast food restaurant has commenced litigation with
Dibble after it had to close for a week while steel roof frames supplied by Steel Division were
repainted. Following this, the production manager has proposed increasing the number of staff
inspecting the quality of coating on the frames, and purchasing expensive imaging machinery to
make inspection more efficient.

Problem Statement:

 Whether to be ABC should be implemented or not?

 Assess whether it may be more appropriate to use activity based costing in Timber and Steel
Divisions than the costing basis currently used.
 Advise the CEO how activity based management could be used to improve business performance
in Dibble.
Facts and Alternatives of the case:

Financial highlight provided:

Division ($000) Timber Steel

Revenue 25,815 20,605

Materials 12,000 10,100

Direct labor 4,500 850
Subcontract cost 75 650

Analysis of production overheads ($000)

Set up time for CAM machinery - 575

Machining time - 2,777

Storage of goods awaiting or returned from subcontractors 120 395

Transfer of goods to and from subcontractors 50 300
Inspection and testing 35 425
Total production overheads 205 4,472

Gross profit 9,035 4,533

Appropriateness of ABC
ABC is especially useful where there is a wide range of complex products and where production
overheads form a larger proportion of total production costs. In Steel Division, there is a large range of
products, many of them bespoke or one-off designs.

Production overheads:
Total production overheads ÷ (Revenue – Gross Profit)
4,472 ÷ (20,605 – 4,533) = 28%
ABC enables managers to determine what activities drive the costs, and so focus on reducing those
activities to control costs. Not all production overheads, for example, inspection costs of the coatings in
Steel Division, are related to production volumes. It is equally possible to apply ABC techniques to
overheads other than production overheads.

 ABC is less useful in businesses such as Timber Division where there is a small range of
relatively simple products and where production overheads only comprise around 1% of total
production costs. Of the production overheads in Timber Division, storage is by far the biggest
and is likely to be driven by production volumes. It may be difficult to determine what the drivers
of production costs are. Storage costs could also be related to the insolvency of a customer. It
may be impossible to allocate all overheads to the specific activities, which drive them, and so
management will have to apply judgement.

 Calculation of ABC may be time consuming, complex and poorly understood by managers. As
such, the time and expense of doing so may not be justified. This appears to be the case in Timber
Division where there are only a few, relatively simple products and few production overheads.
Whereas in Steel Division, where there is a wide range of more complex products and a high
proportion of production overheads, ABC is more appropriate than the traditional absorption
costing method currently used at Dibble.

 By accurately determining the cost of each product using ABC, Dibble would be able to ensure
that prices are set to achieve an acceptable margin and remain competitive with the prices
currently charged in the rest of the market.

 Steel Division charges customers a standard mark up of 10% on top of the $650k subcontractor’s
costs for the coating and painting of the steel. This means that customers are only being charged
$65k whereas the costs of storage of goods awaiting subcontract work and of transporting the
goods to the subcontractor total $695k.

 $650,000 × 10% = $65,000

 Costs of storage of goods awaiting subcontract work and of transporting the goods to the
subcontractor = $395,000 + $300,000= $695,000
  Therefore, Steel Division can determine that it is making a loss on the subcontract work as a
whole. It could therefore adjust the price of painted and coated products to ensure that an
acceptable contribution margin is achieved. This is an example of operational ABM. At the
strategic level, this type of information could help Dibble decide which product types to develop
or discontinue.

 By identifying lines of business with poor profitability, Dibble could discontinue selling to
particular customers, or selling particular products, if appropriate action could not be taken to
improve profitability.

Recommendations:

 By analysing the activities, which drive the costs, Steel Division could determine which activities
may not be required or could be done in a more efficient way. It may be possible to introduce
improvements in the short term, for example, changes in the production process, which may
improve efficiency. In the longer term, strategic changes could be made to the way in which
activities are undertaken, such as by outsourcing other activities in addition to the painting and
coating which is currently outsourced.

 Of the five categories of production overheads, only machining time is a value adding activity,
sometimes categorised as a primary activity. Setting up the CAM machinery is a secondary
activity, which does not itself add value, but is required in order to perform a value adding
activity (machining).

 For ABM to be successful, it will require the commitment of senior management and effective
communication and training of employees at all levels in the organisation as to the benefits and
methods of ABM. This will incur management time and cost, and divert attention from existing
management activities.

 New performance measurement systems will need to be developed. Employee rewards will need
to be aligned to key performance measures, such as the reduction of non-value adding processes
like inspection. This will ensure that employees work towards the objectives of the organisation.
Additional information gathering systems or adaptations to existing information systems, will
also be required, which will again incur additional cost and may disrupt existing activities.