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Strategic Management Accounting/Strategic Cost Management techniques are not useful for modern day organizations

Introduction: Performance Management During the last few decades, institutions and organizations have had a major contribution towards every developed countrys growth and development. Private organizations have been playing a major role in all sectors which were predominately managed by the government sector. Major social tasks whether education, healthcare, environment, energy and even sectors like defense is being entrusted to multinational companies, designed for perpetuity and managed by world class management teams. In the present era where large corporations are playing a significant role in economic development, the survival of the society-if not the survival of every individual depends on the performances of these corporations. (Drucker, P.F, 1996) Performance management is a key element of total quality management. Historically an organizations performance was only measured by profit or loss stated in the financial reports of organizations. However performance to be completely measured needs a mix of both financial and non financial measures. Performance should therefore be measured by the improvements seen by the shareholders as well as the customers. Performance management is considered to be significant part of the strategic management technique which will be one the main topics we will be discussing in the following essay and will be particularly emphasizing on the balance score card and reward strategies which can help companies in the modern day world to make a difference. All the different challenges a company faces are addressed in the discussion section. There is not one single reason not to agree that strategic management accounting/strategic cost management techniques are not useful for modern day organizations .

Discussion: As per the management advisory committee to the Australian public service, effective performance management requires a combination of individual and business performances. This combination helps employees to understand the organizational goals and creates awareness on the level of performance required by each individual to achieve the goals set for short term and long term. Integrating individual objectives with the organizational strategies helps improve overall performance. The main reason to measure and review performance on a regular basis is to ensure customer satisfaction, to be able to set standards, to formulate strategic plans for future and to establish comparison with peers.

Performance Measurement Model: In the last few decades quality management has emerged as one of the key factors for the success of organizations. (Arumugam et al., 2009) This key factor has attracted researchers to support quality managements impact on the firms competitive strategies by the large number of academic journals and articles which have been published in the last two decades. (Rahman, 2002) A few decades ago most of the organizations reviewed their performance only based on their financial reports mainly the cash flow statements to know the net available cash and the balance sheet to review the overall performance of the company. However due to the development of the balanced scorecard in the early 1990s professor Robert Kaplan and David Norton introduced how the integration of non financial measures along with financial measures can contribute in measuring the company performance comparing the performance with the organizations mission and strategies. The main strategy for introducing the non financial measures was because through financial measures an organization only knows what has happened in the past year, however with the inclusion of non financial measures organizations were able to find out why it has happened. (Phadnis, 2002). One can also argue that if the reason behind the failure is not recognized we cannot turn around our failures into success.

The Balanced Scorecard (BSC): It mainly focuses on four key perspectives which are stated below: Financial Perspective: How we look to our stakeholders? The balance scorecard includes one of the key measures of performance management which is the financial measures which includes information about profits, return on equity, net assets, and cash flow statements. With the help of the financial reports the actual performance of the organization can be compared with the goals and visions of the organization. The financial reports also indicate whether the planned strategies have been implemented. (Phadnis, 2002) Innovation and learning: What internal processes must we excel at? The innovative management, internal process control, employee skills, quality management, leadership management, core competencies and internal business strategies are all customer based measures. These measures have a great impact on customer satisfaction. Satisfying shareholders by good return on the investments and customer retention can only be satisfied if an organization has a strong internal control within the overall organization. (Kaplan& Norton, 1996) The customer perspective: How must we look to our customers?
Many large organizations have continued to focus on developing strategies that have a major focus on customers. Customers concerns fall into four main categories time, quality, performance and service, and cost. Lead time measures the time required by the company to meet its customers needs. Balanced scorecard measures for the customer s perspective include Customer satisfaction and customer retention. In general all companies try to enter new markets and want to increase their customer base, so if a particular company has a better image than of its competitors it will definitely have a better future.

The learning and growth perspective: How can the organization learn and improve? This particular perspective helps organizations identify on the process or departments the organization needs to concentrate in particular to improve the organizations capabilities. Also due to increased competition in every sector an organizations needs to continuously improve the internal processes to satisfy the customer. This includes training and development, latest

information technology and up to date details about change in customer preferences and tastes. (Phadnis, 2002)

Integration of environmental and social aspects in the four balanced scorecard perspectives: The latest addition to the balance scorecard has been the environmental and social aspects which has now become a part of the existing framework. Including this aspect when formulating different business strategies companies can enter new markets and also attract customers, stakeholders and investors because if companies are environmental friendly then they have a better image than their competitors. Though this key aspect is still emerging and is already a part of the developed world, companies in the emerging and developing countries are not far behind by starting to focus on this aspect. The rule is simple for all the companies if take care of them, they will take care of us. There are a few challenges for the public to believe in companies because most of the companies only share highlights of corporate social responsibility in their annual reports and do not present a detailed report on how they have become environmental friendly. (Figge, Hahn, Schaltegger & Wagner, 2002)

Advantages: As the name suggests the stakeholders of the organization can get a balanced view of the organizations performance based on the four key perspectives of the BSC. (Bergen & Benco, No Date)

Also, the BSC provides short term and long term suggestions for an organization. Unlike the financial reports the balance card does not give us just the figures about the performance of the company the BSC provides information about what factors led to a particular years performance it may be positive or negative, and provides suggestion for improvement. For example: customer satisfaction, inadequate employee training and market share. The BSC also helps implanting the strategies planned for growth and development of the organization, the implementation of performance measures for each perspective clearly relate to each other and to the mission of the organization. (Vinuesa & Hoque, No date)


One of the disadvantages of the BSC is that with the BSC only helps organizations measure the strategy rather than means of deciding strategy. Researchers suggest that the inclusion of the SWOT analysis to the BSC would be a major contribution in improvising the KPIs of the BSC. (Lee & Ko, 2000). The BSC mainly concentrates on linking the strategies of the company with customer satisfaction and customer based improvements. However BSC does not mention how an organization can actually improve the market share and develop new customers. (Bergen & Benco, No Date)

Reward strategies: Show me the money, show me respect and show me attentionor show me the door.

Monetary/ Non-monetary

Jack Zigon defines rewards as "something than increases the frequency of an employee action" (1998). This definition points to an obvious desired outcome of rewards and recognition: to improve performance. Organizational strategies should be arranged in a line to reward systems so as to accomplish desired goals. (Allen and Helms, 2002). For example, a company focused on a product differentiation strategy could design their reward practices to foster innovation to provide unique products or services. The motivational factors can be broadly divided into monetary factors and non monetary factors. Monetary There is a wide variety of ways in which a business can offer financial rewards as part of the pay package, including:

Salaries, Bonuses Benefits in kind (fringe benefits) , Shares & options Time-rate pay Piece-rate pay, Pensions

Studies have consistently shown that a materialistic focus in life is associated with a lower psychological well-being. (Houran & Kefgen, 2008). Employees want to earn fair wages and salaries, and employers want their workers to feel that is what they are getting. Money is viewed as a fundamental incentive for satisfactory job performance. But the research team acknowledges that money is not the only thing that concerns employees. Beyond a certain point, higher salaries will make employees happier, but it will not buy better performance. (Houran & Kefgen, 2008)

Non monetary Another type of reward is non-monetary recognition. It acts as a motivator as it helps build confidence and satisfaction for employees. (Keller, 1999) So what are the most effective types of non-monetary rewards? Recognition Research found that being recognized by people they work directly for is the type of recognition employees appreciates the most. (Nelson, 2004) These types of recognition can be inexpensive to give, but priceless to receive like monthly awards, quarterly awards and annual awards. If an employee is recognised for the hard work they have done it not only motivates the employee who has performed well but also motivates the other employees. Another example would be related to international exposure where an employee gets selected for international assignments for his/her contribution towards the performance of the company. These kinds of rewards helps employees enhance their knowledge, acquire new skills and motivate them for future development. New departments, new positions within the organization are also sources of motivation. Furthermore different kinds of nonmonetary rewards can be for example in-house chiropractor, spa gift certificates, days off, fancy parties and the use of personal trainers. In the 21st century one company which apart from monetary and non monetary rewards have really made a difference by making the workplace an exclusive environment is Google. Companies like Google have started adoption assistance, day care, domestic partnerships programs, counselling services and transgender and transitioning workplace support. All these

additional benefits certainly make a difference in the employees performance which eventually contributes to the performance of the company. Performance measurement model and reward system in reality: We will have a look at two Australian companies and describe what kind of performance measurement model and reward system they use. National Australia Bank: National Australia Bank is one of the four big major banks of Australia. Currently employs 40000 people, operates more than 1800 branches and has 460,000 shareholders. NAB operates in countries like New Zealand, United Kingdom, USA and in certain parts of Asia. (nab.com.au) The companys philosophy has been consistent all these years for remuneration packages and reward strategies. However there are some changes made on short term and long term incentives based on economic conditions and the performance of the company. The Groups philosophy is to manage a Total Reward framework designed to: Integration of employee rewards with organizations strategies which will maximize shareholder value. Attract, recognize and foster top talent. Motivating employees who are passionate and energetic. Reward those who deliver superior performance. provide fair and consistent rewards, benefits and conditions within an integrated global strategy. Providing rewards which are similar to international standards and are competitive with other major banks. Build a partnership between employees and other shareholders through employee ownership of Company shares and securities.

The remuneration policies and reward strategies are based on these philosophies mention above. The total reward mix and fixed remuneration is determined as per the individual performance,

skills and expertise of each employee.

Based on individual performance scorecards and

performance of the organization the short term incentives are rewarded. However, long term incentives are also based on outcomes of performance. Long term incentives are planned as per NABs performance. (NAB Annual Report, 2008, 2009, 2010 & 2011)

Some of the Performance and talent measures at National Australia Bank: The performance management framework includes: setting quality gates, which are threshold measures for compliance and behavior expected from each employee; setting corporate key performance indicators for the Group, which roll down into an individual balanced scorecard of measures for each KMP; and a peer review process where the Group CEO compares and calibrates the performance of his collective Group reports.

Rio Tinto Rio Tinto Ltd is one of the leading mining giants in the world. It is a part of the Rio Tinto group which is based in the UK along with Rio Tinto Plc. The companys head quarter is based in London. And the head office for Australia is based in Melbourne. Rio Tinto comprises five principal product groups - Aluminum, Copper, Diamonds & Minerals, Energy and Iron Ore plus two support groups: Technology & Innovation and Exploration. (Riotinto.com)

To provide a competitive salary package. To align bonuses for both short term ad long term as per the individual performances as well the companys overall performance with particular emphasis on both short term business performance and long term shareholder value creation and performance relating to health, safety and the environment;

To provide internal equity between executives within Rio Tinto and to facilitate the movement of executives within.

Remuneration components Remuneration starts with a base salary. Any increases are determined with reference to

underlying Group performance and global economic conditions. In 2009 and 2010 due to the global economic crises salaries of top executives were frozen. In the year 2010 top executives base salary was the same as in 2008. The salaries of most senior executives are reviewed and compared to the global standards. (Rio Tinto Annual Report, 2008, 2009, 2010 & 2011)

Performance Options Short term incentive plan (STIP)

This is a yearly bonus plan to award employees who have had a major contribution towards the companys performance. Significant bonus is provided on performance against challenging personal, business, and other targets, including safety.

Long term incentives There are three main plans under this category and they are the Share Option Plan, the Management Share plan and the Mining Companies Comparative Plan.

Under Share Option Plan, shares can be purchased at an exercise price which is usually lower than the market price. Options to purchase shares are usually granted if the organization is consistently performing well. This share option plan grants remained consistent in the last few years. Management Share plan was introduced in the year 2007, this plan was introduced to attract and retain key employees. This plan is not applicable for directors. From the year since it has been introduced this plan has been a strong retention tool. Shares for the rewards are purchased in the market and no new shares are issued. (Rio Tinto Annual report, 2008, 2009, 2009 &2011) It is worth to point out that both these two companies follow qualitative management processes. Nothing has been mentioned explicitly but it seems like a mix of balance scorecard and other strategic management techniques.

Conclusion: Every organization faces several challenges in order to succeed to sustain and to survive. As we have seen, performance management is a key element of total quality management and strategic management. A combination of individual and business performances is important. To be completely measured performance needs a mix of both financial and non financial measures. The key highlights of this essay have been how companies have taken financial and non financial measures to measure their own performance as elaborated by the balance score card. Furthermore we discussed employees rewards strategies as they need to be motivated and rewarded appropriately to harvest the best out of them. Finally we have seen that big companies have put in place well designed remuneration policies well aligned with motivational theories and performance measurement models.

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