management test 4 - ch 16

Balanced scorecard: innovation and learning perspective

"can we continue to improve and create value?" The idea here is that capable and motivate employees who possess the resources and culture needed to get the job done will provide higher quality products and services in a more efficient manner Making this happen requires a commitment to invest in progressive human resource practices and technology orgs commitment to innovation and learning is often assessed via employee surveys

Balanced scorecard: customer perspective

"how do customers see us?" Translates the mission of customer service into specific measures of concern that really mattered to customers: -Time between placing an order and taking delivery -Quality in terms of defect level -satisfaction with product and service and cost

Compare performance to standards

"how do the desired and actual outcomes differ?" How much deviation is acceptable? Depends on the range of variation built into standards and step one

Balanced scorecard: Financial perspective

"how do we look to shareholders?" Typical financial goals have to do with profitability, growth, and shareholder value Critics say that traditional financial measures don't improve customer satisfaction, Quality, or employee motivation However making improvements in just the other three operational perspectives won't necessarily translate into financial success

Taking corrective action if necessary

"what changes should we make to obtain desirable outcomes?" The step concerns feedback: modifying if necessary the control process according to the results of effect Might be a dynamic process that will produce different effects every time you put the system to use Three possibilities: 1. make no changes 2. recognize and retain positive performance 3. take action to correct negative

Measure performance

"what is the actual outcome we got?" Usually obtained from three sources: 1. written reports 2. oral reports 3. personal observations Measurement techniques can vary for different industries

Establish standards

"what is the outcome we want?" A control standard or performance standard or simply standard is the desired performance level for a given goal Ciminero abroad They can be set for almost anything although their best measured when they can be made quantifiable One technique for establishing standards to see use the bound scorecard

Balanced scorecard: internal business perspective

"what must we excel at?" Translates what the company must do internally to meet its customers expectations These are business processes such as quality, employee skills, and productivity Top management's judgment about key internal processes must be linked to measures of employee actions at the lower levels

Tools and techniques for improving quality (TQM)

-Outsourcing: let outsiders handle it -reduce cycle time: increasing the speed of work processes -ISO 9000 and ISO 14000: meeting standards of independent auditors -statistical process control: taking periodic random sample -six Sigma and mean six Sigma: Data driven ways to a eliminate defects

Two strategies for ensuring quality are

-Quality control: minimizing errors by managing each stage of production -Quality assurance: focusing on the performance of workers and urging them to strive for zero defects

they're timely, accurate, and objective

-be timely: meaning when needed, not necessarily be delivered quickly but it should be delivered at an appropriate or specific time -be accurate: meaning correct -be objective: meaning in partial, information that is not objective is inaccurate for a special reason: it is bias prejudice. Control systems need to be considered unbiased for everyone involved so that they will be respected for their fundamental purpose - enhancing performance

Important tools that make evidence-based management possible

-dashboards -balanced scorecard -strategy maps -measurement management

four barriers to efface measurements

-objectives are fuzzy (in areas of customer satisfaction, "soft" objectives) -managers put too much trust in informal feedback systems -employees resist new measurement systems -companies focused too much on measuring activities instead of results

Controlling for effective performance

-planning: setting goals and deciding how to achieve them -organizing: arranging tasks, people, and other resources to accomplish the work -leading: motivating people to work hard to achieve the organizations goals -controlling: concerned with seen that the right things happen at the right time in the right way All these functions affect one another and in turn affect an organizations performance and productivity

Why measurement-managed firm succeed

-top executives agree on strategy -Communication is clear -there's better focus and alignments -the organizational culture emphasizes teamwork and allows risk-taking

Six areas of organizational control

1. Physical: buildings, equipment and tha GI Le products (equipment controls, quality controls, inventory management controls) 2. Human: employees (personality tests, drug testing, performance testing, performance evaluation, employee surveys) 3. Informational: production schedules, Slade forecasts, environmental impact statements, analyses of competition, public relations briefing 4. Financial: are bills being paid on time? How much money is owed? What is the advertising budget? 5. Structural: bureaucratic or decentralized? 6. Cultural: informal method of control, it influences the work process and levels of performance through the set of norms that develop as a result of the values and beliefs that constitute an organization culture

The balanced scorecard establishes

1. goals 2. performance measures According to four perspectives or areas 1. Financial 2. Customer 3. Internal business 4. Innovation learning

Two core principles of TQM

1. people orientation - everyone involved with organization should focus on delivering value to customers 2. improvement orientation - ever should work on continuously improving the work processes

Keys to successful control systems

1. they're strategic and results oriented 2. they're timely, accurate, and objective 3. they're realistic, positive, and understandable and they encourage self-control 4. they're flexible

Six reasons why control is needed

1. to adapt to change and uncertainty 2. to discover irregularities and air 3. to reduce costs, increase productivity or add value 4. to detect opportunities 5. to deal with complexity 6. to decentralize dishes and making and facilitate teamwork

Barriers to control success

1. too much control: maybe to employee frustration and then lead to them ignoring or trying to sabotage the control process 2. too little employee participation 3. overemphasis on means instead of ends 4. overemphasis on paperwork 5. over emphasis on one instead of multiple purchase

Budget

A formal financial projection It states an organizations planned activities for a given period of time in quantitative terms (dollars, hours) Prepare not only for the organization as a whole but also for the divisions and departments within it Point of a budget is to provide a yardstick against which managers can measure performance and make comparisons

External audit

A formal verification of an organization financial accounting statements by outside experts (CPAs) Independent of the organization being audited Their task is to verify that the organization, in preparing its financial statements and determining its assets and liabilities, follow generally accepted accounting principles

PDCA cycle

A plan-do-check-act cycle using observed data for continuous improvement of operations 1. plan: desired and important changes, based on observed data. Make pilot test if necessary. 2. do: implement the change or make a small-scale test 3. check: or observe what happened after the changer during the test 4. act: on lessons learned after study of results. Determine if predictions can be made as basis for new methods

Six Sigma

A rigorous statistical analysis process that reduces defects in manufacturing and service related processes Bye testing thousands of variables and eliminating guesswork, a company using the technique attempts to improve quality and reduce waste to the point where airs nearly vanish The attainment of six Sigma means there are no more than 3.4 point four defects per million products or procedures May also be thought of as a philosophy - to reduce variation in your company's business and make customer focused Data driven decisions. The method preaches the use of define, Measure, analyze, improve and control

Statistical process control

A statistical technique that uses periodic random samples from production runs to see if quality is being maintained within a standard range of acceptability

Financial statement

A summary of some aspect of an organization's financial status Essential in helping managers maintain financial control over the organization Two basic types: 1. balance sheet 2. income statement

Strategy map

A visual representation of the four perspectives of the bound scorecard that enables managers to communicate their goals so that everyone in the company can understand how their jobs are linked to the overall objectives of the organization Show the cause and effect and links by which specific improvements create desired outcomes such as objectives for revenue growth, targeted customer markets, the role of excellence and innovation products and so on Measures and standards can be developed in each of the four operational areas

fixed budgets

Allocate resources on the basis of the single estimate of costs There is only one set of expenses; the budget does not allow for adjustment overtime

Variable budgets

Allows the allocation of resources to vary in proportion with various levels of activity Budget can be adjusted over time to accommodate pertinent changes in the environment

Decentralized control

An approach to organizational control that is characterized by informal and organic structural arrangements Aims to get increased employee commitment, using the corporate culture, group norms, and workers taking responsibility for their performance Found in co's with a relatively flat organization

Bureaucratic control

An approach to organizational control that is characterized by the use of rules, regulations, and formal authority to guide performance Attempts to elicit employees compliance, using strict rules, a rigid hierarchy, well defined job descriptions, and administrative mechanisms such as budget, performance appraisals, and compensation schemes (external rewards to get results) Works well in orgs in which the tasks are explicit and certain, can ensure performance measures are met, but may not be effective if people are looking for a way to stay out of trouble by simply following the rules

Capital expenditures budget

Anticipate investments in major assets such as land, building, and major equipment

Six Sigma and lean six Sigma both

Cannot compensate for human air control event outside the company Still they let managers approach problems with the assumption that there's a data oriented tangible way to approach problem-solving

ISO 9000

Consist of quality control procedures companies must install - from purchasing to manufacturing to inventory to shipping - that can be audited by an independent quality control experts or "registrars" The goal is to reduce flaws in Manufacturing and improve productivity Companies must document the procedures and trainer employees to use them

They're realistic, positive, and understandable and encourage self-control

Control systems have to focus on working for the people who will have to live with them. Thus, they operate best when they're made acceptable to the organizations members who are guided by them they should: -be realistic -be positive -be understandable -encourage self-control

Steps in the control process

Control systems maybe altered to fit specific situations but generally they follow the same steps 1. establish standards 2. Measure performance 3. compare performance to Sanders 4. take corrective action if necessary

they're strategic and results oriented

Control systems support strategic plans and our concentrate on significant activities that will make a real difference to the organization thus, when managers are developing strategic plans for achieving strategic goals, that is the point at which they should pay attention to developing control standards that will measure how well the plans are being achieved

Nonmonetary budgets

Deals with units other than dollars such as hours of labor office square footage

Total quality management (TQM)

Defined as a comprehensive approach - lead by top management and support throughout the organization - dedicated to continuous quality improvement, training, and customer satisfaction Value people as their most important resource - both those who create a product or service and those who receive it (employees and customers and suppliers are given more decision-making power)

Controlling

Defined as monitoring performance, comparing it with goals, and taking corrective action Its purpose is to plan: to make sure that performance meets objective

Dashboard

Displaying easy-to-read graphics all the information on sales orders in the light assembled from data pulled in real time from corporate software

How are you going to apply the steps of control to your own management area?

First consider level of management at which you operate (top middle first) Second consider the areas that you draw on for resources (physical, human, informational) Third you need to consider the style or control philosophy (bureaucratic, market, clan)

People orientation

Focused everyone on delivering customer value Operates under the following assumptions: -delivering customer value is most important -people focus on quality if given empowerment -TQM requires training, teamwork, and cross functional efforts

Lean six Sigma

Focuses on problem-solving and performance improvement - speed with excellence - of a well-defined project Has also been used to improve communications from senior managers

Improvement orientation

Focusing everyone on continuously improving work processes Ongoing small incremental improvements in all parts of an organization (all products, services, functional areas, and work processes) Has the following assumptions: -is is less expensive to do It right the first time -it's better to do small improvements all the time -accurate standards must be followed to eliminate small variations -there must be strong commitment from top management

Zero based budgeting

Forces each department to start from zero in projecting funding needs No longer favored

Cash or cash flow budget

Forecast all sources of cash income and cash expenditures for daily, weekly, or monthly period

Audits

Formal verification of an organization's financial and operational systems Two types: External and internal

balanced scorecard

Give top managers at fast but comprehensive view of the organization via for indicators: 1. customer satisfaction 2. Internal processes 3. Innovation and improvement activities 4. Financial measures

Liquidity ratios

Indicate how easily and organizations assets can be converted into cash

Asset management ratios

Indicate how effectively and organization is managing its assets (whether it has obsolete or excess inventory on hand)

Debt management ratios

Indicate the degree to which an organization can meet its long-term financial obligations

Productivity

Is defined by the formula of outputs divided by inputs for specified period of time Outputs are all the goods and services produced Inputs are not only labor but also capital, Materials and energy This means that you can increase overall productivity by making substitutes or increasing efficiency of any one element

Two budget planning approaches

Managers can take to budget planning approaches: 1. zero based budgeting 2. incremental budgeting

Applying TQM to services

Judging the quality of service is different from judging quality of manufactured goods because it comes down to meeting customer satisfaction which may be a matter of perception

They are flexible

Leave room for individual judgment so that they can be modified when necessary to meet new requirements

control

Making something happen the way it was planned

Operational contorl

Monitoring performance to ensure that operational plans - day to day goals - are being implemented and taking corrective action as needed Mainly by first line managers Reporting is done on a daily basis Considerable action occurred amongst the three levels

Strategic control

Monitoring performance to ensure that strategic plans are being implemented and taking corrective action as needed Mainly performed by top managers

Tactical control

Monitoring performance to ensure that tactical plans - those at the divisional or departmental levels - are being implemented and taking corrective action as needed Reporting is done on a weekly or monthly basis

special purpose team

Solve specific or one-time problems disband after the problem is solved Often cross functional, trying on members from different departments

Expense budget

Projects expenses (costs) for given activity for given period

Financial budget

Projects organization source of cash and have plans to spend in the forthcoming period

Operating budget

Projects what an organizational trade in goods or service, what financial resources are needed, and what income is expected

Deming management

Proposed ideas for making organizations more responsive, more democratic, and less wasteful These included the following principles: 1. Quality should be aimed at the needs of the consumer 2. companies should aim at improving the system, not blaming workers 3. improves quality leads to increased market share, increased company prospects, and increased employment 4. Quality can be improved on the basis of hard data, using the PDCA cycle

Return ratios

ROI - return on investments ROA - return on assets, indicates how effectively management is in generating return, or profits, on its assets

Reduce cycle time

Reduction of steps in work process, such as fear authorization steps required to grant a contract to his supplier Point is to improve the organization's performance by laminating wasteful motions, barriers between departments, an unnecessary procedural steps, and the like

Enterprise resource planning (ERP)

Software systems, information systems for integrating virtually all aspects of business Help managers stay on top of the latest developments

Level of control

Strategic planning by top managers Tatical planning by middle managers Operational planning by first line managers

Income statement

Summarizes an organization's financial results - revenues and expenses - over a specified period of time (year)

Bounce sheets

Summarizes an organization's overall financial worth - assets and liabilities - at a specific point in time Picture of an organization's financial worth for a specific point in time

Bottom line

The difference between revenues and expenses Represents the profits or losses incurred over the specified period of time Maybe the most important indicator of an organization's financial health but isn't the only one

Ratio analysis

The practice of evaluating financial ratios Use as an indicator of an orgs financial health -liquidity ratios -debt management ratios -asset management ratios -return ratios (ROI) (ROA)

Management by exception

The range of variation is often incorporated in computer systems into a principle called management by exception A control principle that states the manager should be informed of a situation only establishes a significant deviation from standards

Incremental budgeting

The traditional form of budget which is mainly used now Allocate increased or decreased funds to a department by using the last budget as a reference point; only incremental changes in the budget request are reviewed One difficulty is that incremental budgets tend to lock departments into stable spending arrangements; they are not flexible in meeting environmental demands Another difficulty is that a department may engage in many activities - some more important than others - but it's not easy to sort out how well managers performed at the various activities

as a manager in the 21st-century

You are operate in a complex environment in which you will need to deal with seven challenge Managing for: 1. Competitive advantages 2. diverse city 3. Globalization 4. Information technology 5. Ethical standards 6. Sustainability 7. Your own happiness and life goals The purpose is to get the people reporting to you to achieve productivity and realize results

Evidence-based management

The use of real world data rather than fads and hunches in making management decisions

Internal audits

The verification of an organization's financial accounts and statements by the organizations unprofessional staff Help uncover inefficiencies and this help managers evaluate the performance of their control systems

RATER scale

The way we can measure the quality of delivered service Enables customers to rate the quality of service on five dimensions each on a scale from 1 to 10: 1. reliability: ability to perform the desired service dependably, dependably, accurately, and consistently 2. assurance: employees knowledge, courtesy, and ability to convey a trusting confidence 3. tangibles: physical facilities, equipment, appearance of personnel 4. empathy: provision of caring, individualized attention to customers 5. responsiveness: willingness to provide prompt service and help customers

ISO 14000

extends the concept, identifying standards for environmental performance Dictate standards for documenting a company's management pollution, efficient use of raw materials, and reduction of the firm's impact on the environment

sales or revenue budget

projects future sales, often by month, sales area, or product