Management Accounting Part A : 2-36: Strategic positioning: Describe Tartan’s competitive strategy. On the basis of this competitive strategy, what recommendation would you make to task force? As an industrial leader in home lighting system manufacturing, Tartan Corporation has been existing for more than 90 years, with its brands and products firmly holding the proprietary in the market, while competition and potential threats, on the contrary, are impelling Tartan Corp to strengthen itself strategically.
Based on the charts given in the case material, products are well developed during different historical stages and distributed among various markets, yet sales volume of some products are declining while others increasing. Thus the overall competitive strategy of Tartan is maintaining the capacity to develop up-to-date home lighting facilities using advanced technological competence while sychronously focusing more on the products and services which gain more marginal benefits under the same circumstances of labour or mechanism facilities.
Generally speaking, the two mainstays as back up for the competitive strategy go into cost leadership and uniqueness. Being an everlasting issue for multinational manufacturers, cost saving could be executed in tight control, systematization of producing lines, intensive supervision of labour, process engineering skills, etc (Blocher, 2004). Thus cost leadership is more applicable in companies with full of trivial functional departments and procedures, however in Tartan, the main problem is to focus on uniqueness, i. e. , products differentiation.
Products differentiation is widely adopted as a strategic method in multinational corporations to occupy different market segments. To comprehensively develop the properties and functions of new products that lead the research, specific teams, strong marketing with consumer insights investigation and internal managerial expertise are part of the constitutes (Day, 2004). Inferred from the sales report of the five product lines, Western soars its sales volume during the past years, indicating more input for this products.
However, marginal benefits of the five products should be calculated accurately because the increasing sales doesn’t necessarily mean profitability. Further more, as on-site service, compared with physical products, is more distinctive and inimitable in human connection and flexibility, Tartan could emphasize more on after sales service which provides more marginal profits in a designated cost allocation in labour. 2-37 Develop a SWOT analysis for Tartan Corp. Based on Problem 2-36. The analysis should include two to three items in each category: strengths, weakness, opportunities, and threats.
Based on the competitive strategy summed in Problem 2-36, external and internal analysis of Tartan Corporation will be employed. Reputation is obviously the first strength of Tartan for its existence for more than 90 years and various products during each period, which as a result could save the budget in advertising for new products. Along with the evolution of consumer taste in home lighting facilities, marketing capability of Tartan to grasp the right consumer needs and consequential research and development followed by a fast reaction in promotion and sales is also a strength point of years of accumulation.
Besides, the various product lines, as technological platforms for new products, also add competence for Tartan. Opportunities for Tartan are firstly, changing sales mix leads to diversified products demand, which exploits potential market for its products, and secondly, the sharper demand for Western style products. Various demand in products provides the opportunity and motivation of Tartan to expand. Ironically, the previously most valuable product became a burden because of the high cost of craftsmanship. Classic style products may need adjustment in resource allocation.
One of the ostensible weaknesses is from Classic product line, though sales volume decreasing progressively, direct abandonment is not a good idea because it would bring about $233,000 loss. Apart from the high manpower cost of Classic, the imbalanced support in different regions is also a weak point for the sake of overall development, according to Tom Richter, the firm’s sales manager. Besides, considering the sustainable expansion of Tartan, the fact that few labour want to learn new skills critically generates a demerit of the growth and learning for Tartan.
Threats of Tartan Corporation mainly includes the substitutes of home lighting systems, for instance, lava lamp, which is more used as a decoration rather than illumination, may be substituted by other decorating products. In addition, minor manufacturers which in together hold a majority of the market may try to expand their territories through merger and acquisitions. 2-38 Value Chain Analysis Develop a value chain of six to eight items for Tartan Corp described in Problem 2-36, why would the value chain be useful to a firm like Tartan?
The basic principle in defining the value chain, according to Michael Porter (Porter, 1985), is that the activities include a variety of disaggregations from the below three perspectives. First, they have different economics, implying that these activities are functioning in different segments of the market. Second, even though the economics differentiation is not that evident, isolated activities should have a potential impact for it. Third, value-adding activities have significant input scale.
The value chain, which the author concluded after analysing the internal and external merits and demerits, includes seven items with each critical to the overall function. The seven items are product development, manufacturing, marketing, distribution, retail sales, after-sales service, financial functions and their value-adding activities are summarized in the following chart. Procurement is the procedure of a series steps, including purchase request, budget reserved, vendor selection, purchase order, contract signing and good/service received, which should be systemized and tightly controlled in cost.
Product development mainly contains the design, layout and product tests. Workers compose raw materials with labour forces and machinery processing to produce finished goods with higher marginal values than the sum cost. After developing a new product line, manufacturing could add value through a large scale of production and extensive manufacturing to lower cost per product and engender scale benefits. The value adding activities in marketing is the insight investigation for consumer demand and potential markets which could significantly add value inside the corporate because of an assurance of its products buyers.
Distribution is defined as the bridge link for manufacturers and sales stores. Through efficient and effective distribution and network in a national purview, Tartan Corporation could spread itself immediately and reap the market national wide. Retail sales is a pivotal linkage of the manufacturer and end customers. Tartan should improve the sales force at the end customer stores and deliver products directly to consumers. After sales service, widely generated in large manufacturing companies, provide on-site service for installation, maintenance, and decoration which could add a considerable value for the final products.
Financial function, indicating the investment in financial market, trading financial instruments to add value in the balanced sheet and shareholder equity. The reason why the author recommends the above seven value chain items is mainly an outcome of the industrial characteristics analysis and modern companies practice. Among the seven items, activities which engender more customer in-depth survey are more important because in an international free market, the most treasurable links on the chain are people acknowledged about customers (Hitt, 2009). 2-39 Balanced Scorecard
Develop a balanced scorecard with three or more groups of CSFs for Tartan Corp. described in 2-36. Explain your choice of groups and identify four to five CSFs in each group. Make sure that your CSFs are quantitative and can be measured. The groups in this balanced scorecard the author develops are categorized as following: financial perspective, customer perspective and learning and growth. The critical success factors in financial perspective include Return on Asset (ROA), Return on Equity (ROE), Asset turnover, gearing ratio and Internal Return Rate (IRR).
Although it seems feasible and justified that each business unit inside one corporation applies the same value-adding metric to assess the performance individually, it ignores that various financial strategies should be utilized within different business functions. As a result, only one financial metric would be unlikely adequate to be appropriately adopted among the different units in a wide scope (Kaplan, 1996).
Thus the above factors, which could be easily calculated from financial statements, are identified as the most critical from a financial perspective to evaluate the asset and liability balance, profitability and asset utility. CSFs included in customer perspective are customer satisfaction index (CSI), customer loyalty index (CLI), consumer insight survey and products alternatives. These factors could be generated through co-work with specific consulting companies who have first hand customer data and marketing experience.
CSI can be implemented through surveys and get the result whether Tartan’s consumers are satisfied with their products. CLI, similar with CSI though, is more focused on the sustainable consumption of Tartan’s products and the possibilities to transfer to its competitors. Consumer insight survey is engendered to explore the potential market demand for distinctive products and customers’ s sensitivity to changes. Products alternatives factor is to investigate in the possible substitute of Tartan’s products and thus remind Tartan to get ready for product line changes.
In group learning and growth, main CFSs are training, career path incentive, usage of technology, communication strategy. Companies attach great importance on training is because it cultivates the competitive and loyal employees for internal development. Its frequency, quality and results can be measured through interviews with employees, reflecting training outcome. Career path incentive is the career ladder building, which enables employees see their future in this company. Technology usage is considerably critical in this information age.
Communication strategy is classified in this group, however it emphasizes on the management and reporting system internally and thus influences the efficiency of the company. 2-40 Strategy Map Based on your analysis of Tartan Manufacturing Company, create a strategy map for the company. Based on the analysis in the above questions, the author develops the strategy map as below. The co-relationship of each CFS can be identified in the chart. Generally, the factors in financial perspective is ultimately the goal as it directly influences the ownership equity in financial reports.
CSFs in Customer perspective and Learning and Growth are interdependent and mutually supported both internally and externally. [pic] Part B Although there has not been a precise definition of Performance Management historically since managerial theories were ever extracted, Performance measurement was critically emphasized by multinational expanding companies, and has been put forward since the early 20th century when the New York Bureau of Municipal Research implemented a government research specifically (Williams, 2004).
In this part, the author would like to firstly review the literatures on performance measurement models, including accounting perspective, marketing perspective and operations perspective, and generalize ideas from various work about performance measurements, followed by a comprehensive discussion of the different opinions to compare the three main performance measurement models derived in the evolution of management theories.
Finally, a conclusion will be summarized to provide an overall cognition in the adoption and usage of performance measurements. Andy Neely developed the three perspectives for performance measurement, including accounting perspective, marketing perspective and operations perspective (Neely, 1980), which established the theoretical foundations for the study and practicalities of performance measurement. Neely argues that rom accounting perspective, there are three major functional features including financial management, which aims to apply effective financial expertise with financial resources to function as strong support departments for organizational purposes, business objection, implying the ultimate goal for company is to increase equity for its owners, and finally, as incentive and controlling engines within the organizations. In marketing perspective, based on the motions of previous professors, four derivative perspectives are emphasized, including marketing oriented, customer satisfaction, customer loyalty and brand asset.
Internal management and performance measurement could substantially influence the outcome of customer satisfaction, which is supposed to increase customer loyalty and finally the market occupation. Because of the low cost in advertising and promotion, customer loyalty is regarded as an intangible and valuable treasure for a company. A loyal customer is easier to retain and to satisfy. A strong and powerful brand is one of the most critical marketing assets a company can manage based on in-depth marketing activities.
Finally it comes the third perspective, operations perspective, within which there are five objectives in management, including quality, dependability, speed, flexibility and cost. Although seemed independent and isolated with each other among the five objectives, they trade off with each other and have invisible interdependent links. Robert S. Kaplan and David P. Norton then created the concept of Balanced Scorecard approach in the 1990s to translate companies vision and strategy to action.
Before the development of BSC, most companies evaluate performance in a financial perspective, which was then proved to have limitations that firstly, financial quotas typically represent a historical data, with little knowledge and advices for future development, and secondly, the whole value of an organization could be generously more than the reflection in the financial statements, as it omits the goodwill and potential future progress the company would make. Thus Kaplan and Norton started to explore new performance measurement models via an in-depth study to take both financial and non-financial factors into consideration.
Afterwards, based on the BSC, they developed strategy maps (Kaplan and Norton, 2004), which shows cause-and-effect relationships among the factors in balanced scorecard. Together with BSC, they help executives in the management team allocation different resources based on the various weight each factor dominates. Initially, the strategy map was developed to leverage companies’ intangible assets and tangible assets with different proportions, package them into a pool, and then centralize the assets into visible and physical outcomes which help grow the shareholders’ dividends.
The systematic implementation of strategy map analysis and generations enables companies to balance the realization of short-term objectives and long-term objectives. Tableau de Bord was initially developed by engineers who aim to improve the efficiency of the procedure systems and manage morale in 1932. Aligned with strategic decision making, Tableau de Bord was then developed into two axises, one symbolizes strategic action variables and the other represents the strategic objectives which are closely interrelated with the variables to assist managers deal with financial and non-financial information through distinctive tactical levels.
The SMART model, representing specific, measurable, attainable, relevant and time-based principles for management in performance, was developed in 1988, became a crucial turning point in performance measurement literature, as it initiated the concept and strategic thinking to combine the strategic level and tactical level across different functional departments as well as through the hierarchy ladder.
What is most widely adopted in large companies to precisely measure performance is the well-known balanced scorecard (BSC), originally created by a consultant named Art Schneiderman, to attach several targets to a variety of identified financial and non-financial measurers which are quantitative and measurable and review whether the performance could realize the goals periodically. BSC soon became popular after some improvements through practice. There are four perspectives in Balanced scorecard, financial, customer, internal business process and learning and growth, each containing quantitative crucial factors.
However, although BSC is widely applied in large companies, it can’t get thorough rid of critics. For instance, Norreklit questions balanced scorecard in three main areas: the BSC system neglects the official demand from all the stakeholders of the company especially stockholders (Norreklit, 2000), the theoretical vacancy behind the system resulting in a not so convincing impression and the presence of the correlation and causality of the four perspectives mentioned above (Norreklit, 2003).
Apart from the Tableau de Bord, SMART and BSC models, Action-profit Linkage Models (APL) is another useful model which helps companies identify, measure and understand the casual links between actions and profits, according to Epstein and Westbrook (Epstein and Westbrook, 2001). Starting with corporate and business strategy, APL model slips to other four main components including company actions, delivered products/service, customer actions and corporate profitability.
Thus managers are encouraged to set up staggered linkages through the chain, gathering information and trailing the most critical bpivots for the final goal, corporate profitability, via systematic analysis. Except for the above widely used models, other models, such as service-profit chain (SPC), Return on Quality (ROQ) and customer-profitability analysis (CPA) are also recognized as main performance measurement models in large corporations.
Implied from the names of each model, three of them are all emphasize the relationship between crucial factor with profitability such as service, quality and customers. Managers would retroactively identify from profitability back the upstream factors and contrarily adjust input and investigation of each factor. In the following part, the author would like to compare and analyse the above models subjectively.
The original invention of Tableau de Bord was for drivers to control directions in an automobile, thus derived to business management area for managers to analog drving the automobile with driving companies to gain sustainable and everlasting value growth for shareholders. Although after all the Tableau de Bord was too simple in modern economic environment with multi-dimensional factors and elements, it started the human thinking for performance measurement.
SMART Model, in more circumstances, functions as a standard criteria for managers to evaluate their subordinates’ job. However more recently, SMART model is used not only for the corporate management but as well for personal development within an organization. Thus it displays its tremendous practicality in a more microcosmic perspective. Balanced scorecard, without any doubt and hesitation, enormously promotes the development for performance measurement as it provides a stereoscopic and solid mindset for managers to control performance and outcome.
Especially, after the development of strategy map theories, BSC could depict an overall, comprehensive, and profound understanding and recognition of the organizational structure and content, leading managers to make strategic decisions and essentially carry out implementations. APL model is targeted to adopt in decision making, when decision makers trace the way each company action affects the overall outcome from a managerial level and thus comply the methodology with profitability.
Linking action and profitability are organically combined in the form of strategic planning. Despite the differences in usage and popularity of the above performance measurement models, the generic orientation of the models are alike, that all these models advocate the notion to think strategically in not only linear aspects but from multi-dimensions perspectives for example financial and non-financial factors with causality as linkages reciprocally to achieve the ultimate objectives in performance improvement and management control.
It is a consensus that balanced scorecard system has the most popularity and thus bears more responsibilities and attention from business realms, leading to more opportunities to research and improvement (Neely, 2007). However, as the different models have their unique characteristics and advantages as well as disadvantages, corporations could assemble the various models and make a portfolio to achieve integrated objectives. References Blocher, E. (2004), Cost Management: A Strategic Emphasis, 5th edition, World Bank Publications, pp39-40 Day, G. S. , (2004), Wharton on Dynamic Competitive Strategy, John Wiley and Sons, pp. 344-345 Epetein, M. J, and Westbrook, Robert A, (2001), Linking Actions to Profits in Strategic Decision Making, MIT Sloan Management Review, pp39-43 Hitt, M. A. , (2009), Strategic management: competitiveness and globalization : concepts ; cases, 8th edition, Cengage Learning, pp. 84 Kaplan, R. S. (1996), The balanced scorecard: translating strategy into action, 2nd Harvard Business Press, pp47-48 Kaplan, R. S, and Norton, D. P, (2004), Strategy maps: converting intangible assets into tangible outcomes, Harvard Business Press, pp29-43 Neely, A. D. , (1980), Business performance measurement: theory and practice, Cambridge University Press, pp63-150 Neely, A. D, (2007), Business Performance Measurement: Unifying Theories and Integrating Practice, Cambridge University Press, pp11-69 Norreklit, H. (2000), The Balance on the Balanced Scorecard- a Critical Analysis of Some of Its Assumptions, Management Accounting Research, pp66-88 Norreklit, H. , (2003), The Balanced Scorecard: What is the score? A Rhetorical Analysis of the Balanced Scorecard, Accounting, Organizations and Society pp591-619 Porter, M. E. , (1985), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, pp53-60 Williams, D. W. , (2004), History of Performance Measurement, Conference of the European Group of Public Administration