Strategic Performance Management and Measurement for Planning and Control

ACCA Director Author

Strategic Performance Management and Measurement for Planning and Control

1.1 Difference between strategy and performance management:

Strategy like map, performance management like compass.
Performance measurement reveals progress and narrative.
Numbers tell a story about organizational advancement.
Every organization deals with balancing long-term goals and short-term needs. Finding the right balance is like creating art, shaping the company's future.

1.2 Planning and Control: Strategic vs. Operational Levels:

1.2.1 Strategic Level:

Visionary Thinking: Begin with a broad vision or mission.
Long-Term Goal Setting: Define 3-5 year objectives.
Resource Allocation: Allocate capital to R&D, acquisitions, etc.
Stakeholder Engagement: Align with investors and major stakeholders.

1.2.2 Tactical Level:

Initiative Execution: Strategy breaks into initiatives.
Resource Allocation: Assign resources to initiatives.
Department Coordination: Coordinate inter-departmentally.
Progress Monitoring: Regular checks to adjust and report.

1.2.3 Operational Level:

Task Efficiency: Manage daily operations, track progress.
Budget Control: Ensure departmental budget adherence.
Performance Tracking: Monitor KPIs like sales, response times.
Adaptive Response: Quick feedback leads to adjustments.

1.3 What gets measured, gets done.

1.3.1 Similar Phrases:

"You can't manage what you can't measure."
"If you're not keeping score, you're just practicing."
"What's inspected is respected."
"If it matters, measure it."

1.3.2 What it means: (taking the past exam question Freuchie as an example)

Attention on Priority (1 mark):

Central Idea: Metrics guide the allocation of company resources, making measured areas a focal point.
Freuchie Context: If Freuchie continuously measures inventory losses, it indicates that inventory management is a priority, which could lead to decisions like limiting the clothing range.

Behavioral Influence (1 mark):

Central Idea: The measurement criteria can dictate the behavior of employees, especially if their evaluations or rewards are based on these metrics.
Freuchie Context: If Freuchie focuses on revenue and dividends in its performance evaluations, this may inadvertently result in staff neglecting other crucial aspects like profit margins.

Accountability (1 mark):

Central Idea: What gets measured holds someone accountable because the performance against those metrics is visible.
Freuchie Context: Without metrics on individual store profitability, there's a lack of accountability for store managers regarding the performance of their individual stores.

Continuous Improvement (1 mark):

Central Idea: By measuring regularly, companies can spot trends and adjust strategies accordingly.
Freuchie Context: If Freuchie were to track trends in store appearance and clothing range attractiveness, they might make continuous improvements in these areas.

Impact of Wrong Metrics (1 mark):

Central Idea: Incorrect metrics can misdirect resources and focus.
Freuchie Context: Over-monitoring inventory losses might detract from the main goal of having diverse and attractive clothing collections.

Limitations of Over-Focusing (1 mark):

Central Idea: Relying heavily on a few metrics can lead to neglecting others.
Freuchie Context: Concentrating solely on revenue might lead to overlooking other important metrics like customer satisfaction or store aesthetics.

Tunnel Vision (1 mark):

Central Idea: Overemphasis on specific metrics can lead to tunnel vision, where broader goals are overlooked.
Freuchie Context: Focusing only on measurable aspects might misalign with Freuchie's broader objectives like overall profitability or customer satisfaction.

Relevance of Balanced Approach (1 mark):

Central Idea: While measurement is essential, a holistic view is equally important.
Freuchie Context: Freuchie's management should ensure a balance between measured outcomes and broader business goals for overall growth.

1.3.3 A useful framework to put into practice:

Define: Clearly define what needs to be achieved. This gives clarity about what exactly needs to be measured.

Example: Instead of a vague goal like "increase sales," be specific: "Increase online sales by 10% in Q3."

Determine Metrics: Decide on the metrics or KPIs (Key Performance Indicators) that will provide insights into the progress or success of the defined objective.

Example: For the above goal, the metric could be "Percentage increase in online sales."

Data Collection: Ensure that there are systems, tools, and processes in place to collect relevant data.

Example: Use web analytics tools to track online sales data.

Analyze: Evaluate the collected data to ascertain progress, trends, and areas of improvement.

Example: Comparing monthly online sales figures to determine if there's an upward trend.

Adjust: Based on the analysis, make necessary adjustments or changes to strategies or processes to better achieve the objectives.

Example: If online sales are not increasing, consider revising marketing strategies or improving the user experience on the website.

Review: Periodically review the metrics and KPIs to ensure they're still relevant to the objectives. As business goals evolve, what you measure might also need to change.

Example: As the business grows, focus might shift from just increasing sales to improving profit margins.

Past exam question reference: Sept/Dec 2021 Freuchie (iii)

1.4 Problems of Performance Measurement:

Misrepresentation:

Tweaking reports to show good results. Example: Saying 98% of customers are happy, but only asking a few customers.

Gaming:

Changing actions to meet rewarded targets, even if not beneficial long-term. Example: Cutting costs to show better short-term profits, but it harms long-term growth.

Misinterpretation:

Overlooking the bigger picture and only seeing one aspect. Example: Seeing good financial results but ignoring poor customer feedback.

Short-termism (myopia):

Focusing only on immediate results and ignoring the future. Example: Prioritizing quick profits (ROCE) over long-term company growth.

Measure Fixation:

Obsessing over one target, ignoring other important aspects. Example: Only focusing on cutting costs, sacrificing product quality.

Tunnel Vision:

Only paying attention to measured targets and ignoring unmeasured areas. Example: Focusing solely on financial returns and neglecting employee well-being.

Sub-optimisation:

Only pushing what's measured, missing out on overall best results. Example: Overemphasizing new customer acquisition and neglecting current customer satisfaction.

Ossification:

Sticking to an outdated measurement system, especially if it shows good results. Example: Only surveying certain customers who usually give positive feedback.

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Categories: : Advanced Performance Management (APM)