• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Performance measurement and rewards within organisations.

Extracts from this document...

Introduction

1 Introduction Performance measurement has become more important as a tool for evaluation and reward purposes within organizations which emphasize on empowerment and decentralized decision makings, where managers are allowed to run their divisions as separate business enterprises. As a result, it is more often to reward managers based on divisional profits rather than the organization's overall performance. Traditional management accounting only uses financial performance to reward managers. However, this method is insufficient to provide a comprehensive picture of the internal activities within the organization and would encourage managers to adopt dysfunctional behaviour, such as refusing to invest in positive NPV projects to avoid lowering the overall "post investment ROI (Return on Investment)" in the division. These kinds of traditional accounting measure deficiencies have motivated a variety of performance measurement innovations ranging from "improved" financial metrics such as "Economic Value" measures to "Balanced Scorecards" of integrated financial and non-financial measures. In the following sections, I will first discuss some perceived inadequacies in traditional accounting-based performance measures, followed by the introduction and comparisons of the two new performance measurement approaches developed recently - Economic Value Added (EVA) by Stern Stewart Corporation and The Balanced Scorecard by Kaplan & Norton (1992). Finally, I will see what further researches can be used to test the effectiveness of these two approaches. ...read more.

Middle

I think the main advantage of the tailored GAAP is the inclusion of intangible investments such as R&D and marketing, to discourage mangers' myopic behaviour by treating investment in intangible in the same way as tangible assets. 4 Balanced Scorecard The Balanced Scorecard provides a number of mechanisms for aligning long-term strategic objectives with short-term actions. This suggests that as well as financial measures of performance, we should also pay attention to the requirements of customers, business processes and longer-term sustainability. This approach forces managers to develop a consensus around the firm's vision and strategy, and allows managers to communicate the firm's strategy throughout the organization. The four areas of performance are defined as follows: Financial perspectives - it is important to increase shareholder's value through revenue growth or productivity strategy. Customer perspective - the core of any business strategy is the customer value proposition. It defines how a company differentiates itself from competitors to retain, and deepen customer relationships. Internal Process perspective - captures the critical organizational activities a company undertakes to achieve the differentiated value proposition for customers and the productivity improvements for the financial objectives. Learning and Growth - this is the foundation of any strategy, this enables a company to align its human resources and information technology with the strategic requirements from it critical internal business processes, differentiated value proposition and customer relationships. ...read more.

Conclusion

Some research has to be done in order to validate the underlying assumption about the causal relationship in the BSC approach. Moreover, it is very important to test whether you can understand the strategy by looking at the scorecard and its strategy map. If so, one can say that the scorecards enable all organizational units and employees to understand the strategy and identify how they can contribute by becoming aligned to the strategy. Finally, BSC involves multiple objectives and measures, but we have not been told if all the measures are evenly important or how do we differentiate between them. This may result in diluting managers' attentions over too many measures and objectives simultaneously. 7 Conclusion Although there is little evidence to support the claim that EVA or BSC can actually improve a firm's overall performance, some companies may still choose to adopt new approach to measure performance. In my personal opinion, there is no single perfect system which works best on its own, as any approach has its costs and benefits. The most important point to remember when implementing new performance measurement is to get a right balance between its associated costs and future benefits to make the change worthwhile. And remember it is inadequate to look at only traditional accounting based measures to reward your managers, it is better to include both financial and non-financial measures as both tangible and intangible assets can generate value for your companies. AC 410 Essay Topic Question 4 ID: 200212043 1 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Accounting & Finance section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Accounting & Finance essays

  1. This report has been produced as evidence for Unit 9 - 'Financial Services' - ...

    Paul and Anna work full time. I will now look at the family financial needs, the second customer I will look at Paul and Anna the financial need are the following: * Mortgage * Insurance * Bank account * Credit card * Shares * Saving * Pension * Life insurance * Car insurance * Building insurance

  2. Complete Report on Askari Commercial Bank

    For this purpose, it remains in constant touch with the market and assimilates information, both informal and formal. v. Human Resource Division The human recourse division (HRD) is responsible for managing and facilitating the most important strategic resource of any organization.

  1. Compare the final accounts of two organisations explaining the similarities and differences.

    their business income is counted alongside any other personal income they have for tax purposes, so accounting is relatively straightforward. Their tax is calculates via the annual self assessment process. So which means the sole trader will have to pay tax on their profits.

  2. Harmonisation of accounting standards in Europe

    member states were required to produce a profit and loss account and balance sheet with attention to a clearly defined and highly structured common format and content. The fourth Directive's first draft was published in 1971, before the UK, Ireland and Denmark had entered the EU in 1973.

  1. The Purpose of Keeping Accurate Accounts

    to prepare and publish accounts annually. The form and content of the accounts are regulated primarily by CA 1985, but must also comply with accounting standards. Financial statements are prepared on the basis of a number of fundamental concepts, or accounting principles as they are called in the Companies Act 1985.

  2. Identifying and describing the main financial service needs for a student starting at university

    Minimum amount for withdrawal is �10. Halifax ISA Saver meets the Governments 'CAT' Standards (charges, access and terms). However, this does not necessarily mean that the ISA is appropriate for you. Halifax ISA saver also offers fixed interest rates for terms of up to 5 years.

  1. Unit 5 Introduction to Accounting

    business is performing compared to other investments you could make with it, like putting it in the bank. Other key accounting ratios There are a number of other commonly used accounting ratios that provide useful measures of business performance. These include: * liquidity ratios, which tell you about your ability

  2. What does Finance involve.

    I am going to buy stock on an every two weekly scale because thing can go out of date. Opening cost stocks are the main products needed for me to start my business. My opening stock will be my ingredients which I will use to make my treatments and so on.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work