Strategic Management Techniques - Essay Example

?Introduction: Organisations, all over the world, are in the search of different strategic management tools and techniques for coming with effective and efficient strategies. Different analysts and researchers have presented several tools, theories, and techniques which can be followed by the organisations in order to enhance the overall performance and profits (David, 2007). Cadez and Guilding (2008), in this regard, have presented sixteen strategic management techniques, which are divided into five categories. The five broad strategic management accounting categories and the associated sixteen strategic management accounting techniques are as follow (Cadez and Guilding, 2008): 1. Costing a. Attribute Costing b. Life cycle Costing c. Quality Costing d. Target Costing e. Value Chain Costing 2. Planning, control, and performance measurement a. Benchmarking b. Integrated Performance Measurement 3. Strategic Decision Making a. Strategic Costing b. Strategic Pricing c. Brand Valuation 4. Competitor Accounting a. Competitor cost assessment b. Competitive position monitoring c. Competitor performance appraisal 5. Customer Accounting a. Customer Profitability Analysis b. Lifetime Customer Profitability Analysis c. Valuation of Customers as Assets In this paper the strategic management technique of Benchmarking has been presented and defined, along with its benefits for the organisation. Benchmarking and its Benefits for the Organisation: This is the process of comparing ones internal processes with the processes of a company in the same industry, to identify discrepancies. The aim of this activity is to identify the best ways of carrying out a process. When undertaking this process a company can also analyse the business practices of firms in different industries, and find out what are the key processes in these industries, by doing this a firm can know which processes can be tailored to fit their business model and what are the most effective ways of performing these processes. There are numerous measures which can be assessed in this way, for instance financial parameters, management parameters etch. However the most focused business variables that are subjected to this tool are time, quality and cost (Zairi, 1998). Through the process of benchmarking a company can find out the potential a process carried out by it can achieve. For instance if a competitor is carrying out the same business processes and is achieving a larger output as compared to the company, than there exist some problem with the company’s internal processes. Since the productivity level that can be accomplished is not being accomplished, the company needs to take corrective measures to raise its productivity (Cooper and Kleinschmidt, 1995). From a competitive point of view, if a company is competing for a order that needs order fulfilment in a lesser amount of time, than the order placing firm will check the production capacity of each of the competing firms. In case a company has remained oblivion to the production capacity of its competitor, who presumably is having a higher production capacity, it can fairly be inferred that the order placing entity will opt for the firm which has greater production capacity. Thus, ever company is obligated to explore the processes of its competitors and other firms in different industry so that it can continually upgrade its own internal processes (Vorhies and Morgan, 2005). After a company decides, which business process it wants to benchmark and how it is going to benchmark it, than it needs to analyse the leader firm in this process and specifically find out how they accomplished such proficiency (David, 1995). The practice of benchmarking is not an end in itself. It is a part of a bigger initiative, to undertaking business process re-engineering. This process redefines and reconfigures the standard operating procedures of the company’s department or process that is being benchmarked. By doing this the company is trying to neutralise the competitive or process advantage of its competitor firm (David, 1997). The process of benchmarking requires analytical skills in the person in charge of this project. Since he has to determine through this tool whether the firms value-chain is competitive compared to rivals and thus conducive to creating a winning competitive advantage for a firm. In this process he would be required to measure the costs of value chain activities across an industry and determine the best practices amongst the competing firms so that the firm can replicate it or improve upon it (Zairi, 1998). The process of benchmarking is a systematic process, it starts with a decision regard the process that needs improvement. After deciding the process, the company’s manager responsible for this project analyses peer companies and companies in other industries carrying out a similar process. He will than analyse the relevant companies and find out what special thing these companies are doing to carry out the process under consideration so effectively. He will compare the sample companies’ practices with his own company’s practices to indentify the short comings or inefficiencies. The hardest part of this process is to gain access to the value chain activities of other firms and find out their associated costs. However such information can be accessed through trade journals, published reports, distributor’s insight, lobbyists intelligence gathering etch. Since this tool has become very popular in many industries many premier consulting firms and organisations are gathering benchmarking data, conducting benchmarking studies, and distributing benchmarking information (Herzog, Tonchia, and Polajnar, 2009). The practice of benchmarking helps an organisation to continually adapt new practices and procedures, thus nurturing an organisational culture which is comfortable with change. Change as it is, is a business reality. If a business is uncomfortable with change than it is bound to stagnate and will ultimately go out of functioning. Thus in order to avoid such an end a business should keep upgrading its systems and procedures through benchmarking or any other tool (Zairi, 1998). The company can use this tool to develop additional capabilities and use these newly acquired capabilities to develop a competitive advantage. Since competitive advantages generated through these methods are generally short-lived, it makes it even more important for company to frequently use this tool to create a new competitive advantage (Eggert, Ulaga, and Hollman, 2009). Mostly this tool of benchmarking is employed in a manufacturing business, having performance measures like cycle-time, productivity per unit, and cost per unit, day sales outstanding, day’s sales inventory, day’s payable outstanding, day’s receivable outstanding, variable cost, fixed cost and many more. This method of benchmarking can find utility in many domain areas like financial benchmarking, product benchmarking, energy mix benchmarking, capital base benchmarking, performance benchmarking and many more (Zairi, 1998). However there are some types of benchmarking which are normally conducted, these include: financial benchmarking, processes benchmarking, performance benchmarking, internal and external benchmarking, functional benchmarking, competitive benchmarking, and international benchmarking (Zairi, 1998). Relation of Benchmarking with Integrated Performance Measurement: Having considered what benchmarking is, how it is conducted, what are its benefits and what forms it takes, let’s see its application in another strategic management accounting technique: Integrated performance measurement. Since the advent of balanced scorecard an integrated form of performance measurement has taken precedence. This perspective of assessing measurement requires a process oriented approach and a leap across functional boundaries to measure performance. This perspective of performance measurement analyses performance by looking at both financial and non-financial parameter. While setting these parameters the company manager uses the benchmarking technique to identify the most effective key performance measures (McAdam, Hazlett, and Gillespie, 2008). The process of performance measure first analyses the organisation’s performance on its core competencies, thereby assess the firm’s performance in sustaining, utilising and developing its competitive advantage. In order to perform this job a manager indentifies key performance indicators (KPI) like market share, productivity, profit margins and many other similar parameters. He uses data of other firms to set effective parameters, thereby using benchmarking tool (Cocca and Alberti, 2010). Thus in order to develop an integrated performance measurement system an organisation should first of all discern its core competencies from supplementary activities. For these core competencies a manager should identify the performance measures and compare these performance measures with their forecasted or ideal figures (figures which are accomplished by competitors) (Folan and Browne, 2005). Through the quantitative data of vital performance measure it can be found out how well an organisation is doing in terms of its products, services and processes. Thus by using this tool an organisation understands the extent of success it has achieved in delivering what it wanted to deliver in the marketplace as compared to its competitors. The process includes analysing the following questions: how well is the organisation doing, is it meeting its long-term and short-term objectives, what level of customer satisfaction has it been able to achieve, is it carrying out its processes in a competitive way, and last but not the least is there any scope for improvement. Answers to all these questions allow a manger to make an informed decision. An organisation would like to assess itself on the following performance criteria: effectiveness, efficiency, quality, timeliness, productivity and safety. After assessing itself on these dimensions a company will undergo benchmarking to indentify discrepancies and take rectifying measures (Neely, Gregory, and Platts, 2005). The process of performance measurement is used to set goals and objectives, document accomplishment, identify problems, communicate problems and bring improvements in the organisation’s processes. However, there are some shortcomings of this approach like for instance: information overload, data manipulation, decision uncertainty, focus on short-term objectives, using wrong KPI’s, creating rivalry amongst employees, creating immeasurable and ambiguous goals, failing to link measure with performance criteria, ignoring customers aspirations and creating a complicated performance measurement system. An ideal performance measurement system after using benchmarking will help to achieve the following benefits (Gregory, 1993): Employees Security: this entails job security and safety from workplace hazards and unjust employer treatment. Selective hiring: Hiring individuals who fit with the work description, personality traits and organisational mission. Extensive training: this entails administering job specific training along with skill enhancing drills. Self managed teams and decentralised decision making: delegation of work and authority. Reduced status difference between managers and workers: Information sharing: Passing on the information that will help the person performing the task. Contingent rewards (pay for performance): Link reward with a performance goal. Inspirational motivation through transformational leaders: mentoring and supervision Measurement of management practices: Develop a departmental level Scorecard to assess performance. Emphasis on high-quality work Goal and objectives vividness amongst employees: employees will understand more clearly the vision and mission of the organisation and thus will align their individual goals with company goals. In this way they would feel satisfied when the company accomplishes its objectives. A climate of innovation will be born in the organisation because of its focus on creating or nurturing new competitive advantage. The organisation would feel comfortable with changing circumstances, rather than being frustrated and unclear regarding the next step. Conclusion: Organisations can use the technique of benchmarking in order to come up with well planned and well structured strategies. The management of organisation should be careful while creating appropriate benchmark and standards for the performance of the organisation. If the tool of benchmarking is used and implemented in effective manner, it will provide the organisation with considerable competitive advantage over other organisations in the industry (David, 2007). List of References  Cadez, S., and Guilding, C. (2008). ‘An exploratory investigation of an integrated contingency model of strategic management accounting’, Accounting, Organizations, and Society, vol. 33, pp. 836-863. Cocca, P., and Alberti, M. (2010). ‘A framework to assess performance measurement systems in SMEs’, International Journal of Productivity and Performance Management, vol. 59, no. 2, pp.186 - 200 Cooper, R., and Kleinschmidt, E. (1995). ‘Benchmarking the Firm's Critical Success Factors in New Product Development’, Journal of Product Innovation Management, vol. 12, no. 5, pp. 374–391. David, F. (1995). Strategic Management. Upper Saddle River, NJ: Prentice Hall. David, F. (1997). Concepts of Strategic Management. Upper Saddle River, NJ: Prentice Hall. David, F. (2007). Strategic Management: Concepts and cases. Upper Saddle River, NJ: Prentice Hall. Eggert, A., Ulaga, W., and Hollman, S. (2009). ‘Benchmarking the impact of customer share in key-supplier relationships’, Journal of Business & Industrial Marketing, vol. 24, no. 3/4, pp.154 – 160. Folan, P., and Browne, J. (2005). ‘A review of performance measurement: towards performance management’, Computers in Industry, vol. 56, no. 7, pp. 663-680 Gregory, M. (1993). ‘Integrated performance management: a review of current practice and emerging trends’, International Journal of Production Economics, vol. 30-31, pp. 281-296. Herzog, N., Tonchia, S., and Polajnar, A. (2009). ‘Linkages between manufacturing strategy, benchmarking, performance measurement and business process reengineering’, Computers and Industrial Engineering, vol. 57, no. 3, pp. 963-975. McAdam, C., Hazlett, S., and Gillespie, K. 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