P5: Advanced Performance Management

Section E: Performance Evaluation and corporate failure Designed to give you knowledge and application of: E1. Alternative views of performance measurement E2. Non-financial performance indicators E3. Predicting and preventing corporate failure

E2: Strategic performance issues in a complex business structures  Evaluate the use and applications of strategic models in assessing the business performance of an entity, such ass Ansoff, Boston Consulting Group and Porter. [3]  Discuss the problems encountered in planning, controlling and measuring performance levels, e.g. productivity, profitability, quality and service levels, in complex business structures. [3]  Discuss the impact on performance management of the use of business models involving strategic alliances, joint ventures and complex supply chain structures. [3] Learning Outcomes

Evaluate the use and the application of strategic models in planning & assessing the business performance of an entity, such as Ansoff, Boston Consulting Group & Porter. Ansoff growth matrix  Helps businesses decide their product & market growth strategy Suggests:  business’s attempts to grow depend on whether it focuses on new or existing markets  four possible product / market combinations Market penetration / consolidation Product development Diversification Market development Existing products New products New markets Existing markets Ansoff product / market growth model Continued…

Growth strategy where business focuses on selling existing products in existing markets Market penetration / consolidation Product development Growth strategy where business aims to introduce new products into existing markets Market development Growth strategy where business seeks to sell its existing products in new markets Diversification Growth strategy where business markets new products in new markets Continued…

Stars High Market growth Boston Consulting Group matrix Cash cows Question marks Dogs Market share Low High Low Continued…

StarsCash cowsDogsQuestion marks  High growth  High market share  Low growth  High market share  Low growth  Low market share  High growth  Low market share Business is likely to generate enough cash to be self- sustaining. Recommended tactics:  promote aggressively  expand product or service  invest in R & D Business can be used to support other business units. Recommended tactics:  defend & maintain Business requires a lot of cash to maintain market share. Recommended tactics:  invest more cash or divest Business is a cash trap. It has a limited future. Recommended tactics:  focus on short term  avoid risky projects Comparison of different kinds of SBUs

New market entrants, e.g.  entry ease / barriers  geographical factors  incumbent resistance  new entrant strategy  routes to market Product & technology Development, e.g.  alternatives price / quality  market distribution changes  fashion & trends  legislative effects Competitive rivalry, e.g.  number & size of organisation  industry size & trends  fixed v variable costs bases  product / service ranges  differentiation, strategy Supplier power, e.g.  brand reputation  geographical coverage  product / service level quality  relationships with customers  bidding processes / capabilities Buyer power, e.g.  buyer choice  buyers size / number  change cost / frequency  product / service importance  volumes, JIT scheduling Porter’s five forces model

Discuss the problems encountered in planning, controlling and measuring performance levels, e.g. productivity, profitability, quality and service levels, in complex business structures Problems in planning & control due to organisational structure Product organisation Matrix organisation Functional organisation Difficulty in coordinating activities of business units Difficult to plan & control the entire activities for heterogeneous product lines & wide geographical variations Difficulty arises due to management behaviour, organisational culture & technical systems

Barriers to effective control Different business practices Effectiveness of communication Distance between the business units Production process Environmental differences Environmental stability Subsidiary performance Quality of manpower Are more, compared to financial & non-financial performance indicators Problems encountered in performance measurement Manipulation of methods of performance measurement

RECAP  Evaluate the use and applications of strategic models in assessing the business performance of an entity, such ass Ansoff, Boston Consulting Group and Porter. [3]  Discuss the problems encountered in planning, controlling and measuring performance levels, e.g. productivity, profitability, quality and service levels, in complex business structures. [3]  Discuss the impact on performance management of the use of business models involving strategic alliances, joint ventures and complex supply chain structures. [3]