Impact of Strategic Performance Management Systems - Essay Example

? Strategic Performance Management Systems Introduction Strategic management is defined as the process through which managers make a decision about the strategies to use in order to improve the performance of a business, it is a process that is continuous and appraises both internal and external business environment and puts in place measures to enable the business become a market leader (Aver & C?Adez?, 2009, p314). Performance management plays a major role in the success of a business as it is involved in the human resource framework, which brings huge benefits to a business if handled properly. Incentives in form of pay, bonuses, stock option among others can greatly boost the morale of employees and consequently increase their productivity, however, the results are not guaranteed and sometimes the relationship between performance and incentives is complex and not straightforward. A properly formulated performance management process empowers a manager to come up with effective and efficient strategic plans, set ambitious goals and follows closely the activities that work towards achieving his set goals, this leads to value creation that can be sustained for a long time. This paper will therefore aim at critically analysing the process of strategic performance management and how it impacts positively on the performance of the organisation. The Strategic Management Process The process of strategic management involves several steps, they include, first is understanding the strategic context that a business operates in, this involves both external and internal environment. In the internal environment, the first activity that a business does is the identification of the core purpose of the business, values and goal which it intends to achieve (Bisbe & Melaquero, 2012 p304). These then helps the management to come up with an overall vision of the organisations and the direction it will take. In defining the purpose of an organisation, a company will explain the reasons why it was formed or what its operations gives out as end products. The core values in a business involves the values that the business regards as critical to its success and are held irrespective of the norms in the organisation or the management style being used, these values are usually the differentiating factor between an organisation and its rivals. The visionary goals of the organisation is the outlook of the company in future, that is how the company will be in the future and includes the achievements it hopes to have achieved by that time, these goals are set on a period of 3 to 10 years (Slack, 2006, p99). In the external environment, the company surveys the market for its products and the rivals in the market, here the business seeks to understand who the main stakeholders in the industry are and why it is necessary for the business to centre its operations on them, this activity is known as the stakeholder value proposition (Smith,2007, P 86). In order to carry out this activity, a business can use several tools that have been created that include Porter’s five forces framework. In the internal environment analysis, a business analyses its strengths and weaknesses where it evaluates its internal performance and the resources that it uses in the discharge of its responsibilities. This process enables an organisation to understand the effectiveness of its production process, how productive and skilled the employees are and how these can impact on the performance of the business (Penger & Tekavc?Ic?, 2009, p12). Model of the business is the next stage that a company undertakes, in this step the business organisation puts together all the key elements of the business strategy and visualises it. Using the Kaplan and Norton’s method, the result of this step will be strategy map while using the Marr’s methodology then the result will be value creation map and value creation narrative (Macmillan & Tampoe,2000, p105). Both of these methods used in this stage produce almost the same results with them communicating the business strategy excellently and giving the tools to measure the progress of the organisation against its business strategy, in addition, these methods enable a business organisation to relate it’s strategies to the various activities that help in their achievements. Modelling a business involves setting several measurable goals that include both the operational goals and the strategic ones, the goals set are then measured and monitored through the use of several indicators that are known as key performance indicators (Slack, 2011, p96). For the process of data collection and measurement to be efficient and free of errors, it is required that the business organisation should try as much as possible to use automation methods. The raw data that is collected should never be used to make decisions in a business since it is most likely that the management will use only the data they think is relevant to their case which in essence may not give the real picture of the situation, therefore leading to wrong conclusions. Data should be analysed first before it is used for any decision-making process so as to avoid ambiguities, special attention should also be given to the data analysis and collection process to ensure that the quality of the information that is produced can be guaranteed to the management and usable in decision making. The information that is presented to the management is in two levels, operational information is used by the management to measure the performance of the organisation against the set goals that were to be achieved within the current timeframe. Operational information allows the management to detect the discrepancies that may be derailing achievement of the set objectives and therefore according to streamline those discrepancies towards achievement of the goals. This information that is used in making the necessary adjustments to the various processes of the organisation will also be used to measure the current performance with respect to what the company targets too achieve in the future. As the potential of the organisation better understood, necessary and relevant adjustments are made in order to capitalise on the strengths of the business and minimise on the negative impacts that may be caused by the business’s weaknesses. In strategy evaluation, the following steps can be identified, the first step is the fixing the benchmark of performance, in this step the management need to put into considerations the special requirements that are necessary for performance of a specific task, the key performance indicator will be helpful in identifying the theses requirements. In accessing the performance of the organisation, it is of paramount importance that the evaluators use both the quantitative and qualitative aspects of the organisation, the qualitative aspects include the skills and productivity of employees, flexibility and the limits of risk taking among others, the quantitative aspects include the return on investments, net profit, share earnings, employees’ turnover among others. The second step is the measurement of performance, which is carried out after the benchmark performance levels have been established. The benchmark performance that has been identified is used to compare the performance of all other periods, however in the measurement some factors are hard to measure such as the managerial contribution to the process or divisional performance, therefore relevant variables have to be identified for objective measurement of the above factors. These measurement must be done at the right time otherwise their importance will reduce, such performance information as the financial position of the business which include balance sheets should be prepared annually at the end of each financial year for them to be useful in performance measurement. The third step is analysing the variance where the evaluators look at how much the actual performance has deviated from the benchmark performance. A positive variance shows that the business has exceeded the set targets although it is usually hard for businesses to exceed their targets always, a negative variance on the other side shoes that the business has fallen below its set targets and therefore the management should look into the causes of the discrepancy and act accordingly to improve the performance. The finals step is taking of the corrective steps to reduce the discrepancy. After the evaluators have identified the extent of the discrepancy, they go ahead and analyse the factors that may have caused the deviation. If they find out that the performance of the organisation does not match with the potential of the organisation, they management may consider revising down the standards or as a measure of last result, reformulate the whole strategy to match the potential of the organisation. Beneficial Impacts on Performance Strategic process management has brought insurmountable benefits to the businesses that practise it, these benefits range from financial benefits to non-financial ones, financial benefits include increased profits. It has been estimated that over 100,000 businesses fall in the united states of America due to lack of proper strategic management, the firms that practise strategic process management have been proven to perform better than those that do not practise strategic management. This is because the firms that practise strategic process management have focussed short terms and long-term goals that they intend to achieve, in addition they have also put in place the process of how those goals will be achieved. This can be contrasted with the firms that do not involve strategic process management in their process which are usually brought down by in-house problems leading to their closure. A key benefit that accrues to the firms that involve in their operations the process of strategic management process is that they are able to adjust their operations to fit into the future and therefore anticipate it Hauc & Kovac?, 2000, p63). When firms are analysing the business environment both internally and externally, the get insightful information on how the trends have been in comparison with previous periods, this information helps these business to predict the future trends in the business in both their internal affair and the external environment including future expectations of their stakeholders and behaviour of their rival firms. When businesses are aware of the probable future trends, the firms are able to gear their operations to mitigate any possible negative effect that the future may have on their firm. For instance, they may have noticed that the employees’ productivity has been declining; they therefore will put in place measures to ensure that the trend is reversed and productivity is improved. If the productivity of the organisation has been improving and the market is promising, the business may wish to increase their production capacity in order to maximise their benefits. In addition, if a firm is aware of its external environment such as the behaviour of the rival firms, it will put in place the relevant strategies to ensure it gains a competitive edge over them based on the areas that it has established the rival firms are weak. When a firm knows the needs of the various stakeholders will enable the firm channel its operations to meet those needs perfectly in future. Strategies are made in a logical and rational manner where the elements of critical thinking are involved, this ensures that all dimensions regarding the business are put in to consideration in the process of strategic management therefore the efficiency of an organisation is assured Pagano, Mcneil, & Ogard, 2005, p186). The process of strategic management involves analysing all the aspects of the internal environment such as employee productivity, information flow within the organisation, efficiency of the tools of production among others, this analysis streamlines the various processes in the organisation and ensure that they work in harmony therefore increasing the efficiency of the firm. Strategic management process reduces the frustrations that are usually occasioned by difficulties in the running of businesses, this is because it follows a laid down procedure. Most of business organisations encounter problems in their daily activities, when these difficulties in running these organisations overpower the management of the business, frustration sets which may lead to poor decision making by the management (Dolens?Ek, 2006, p336). To avoid frustrations, strategic process management involves a laid down procedure where in case management encounters difficulties in running the business, it tries to analyse the factors that may have led to the failure or difficulties in running the business. The process of strategic management focuses on improving the internal processes to respond to the market needs, this ensures that the business is in touch with what is happening around it, which in turn leads to growth of the business (Slack, 2006, p86). When organisations focus their attention on internal processes to improve their market standings, they do that with the sole aim of increasing their revenues, which means their sales are growing. Expansion of a firm is therefore inevitable when the sales grow since it has to increase its production capacity in order to meet the rising demand of its products. Firms that embrace strategic process management in their operations are relatively consistent amidst disturbances in the market; this earns them respect in the market. The strategic process management involves identifying disturbances in the market before they happen; therefore, a business is able to prepare for it. When disturbances happen, the firm has already put in place the necessary measures to mitigate any impact that they may have on its operation therefore while other businesses are adversely affected by the changes; this organisation is relatively stable leading to it being respected as a business leader. The process of strategic management involves carefully analysing the internal and external business environment. In the analysis of business environment, businesses identify opportunities for growth before other firms that do not practice strategic management can identify. For instance in analysing the internal environment, a business may realise that a certain product is makes higher sales than the others, therefore they would want to know why the product is being demanded more from the external environment where by they would adjust their activities in order to capitalise on the opportunity. Firms that embrace strategic performance management are more flexible and less resistant to change because they understand the relationship between performance and the benefits. In the process of strategic management, the business analyses critically its business processes and the results that those processes produce, businesses were more likely to link a positive relationship between better performance and certain responses to the environment; this would make the business more flexible and easily embrace changes in the environment in order to improve their performance. Strategic process management however cannot be used in situations where a business requires urgent action in the way it handles it s operations both externally and internally. This is because the whole of the process of strategic management usually involves a lot of data collection and analysis which takes a lot of time to complete. For instance, an organisation that wants to carry out a strategic process management will require to gather data from all the departments some of which may not have readily available data with them hence slowing the whole process therefore inhibiting the use of strategic management in urgent situations. Conclusion Business organisations that use strategic process management involve the use of a series of steps in the process. These steps include the environmental scanning, which involves the collecting, and providing information to be used in the process of strategic management, the second step is the strategy formulation which involves the process of deciding the best action to take based on the information that has been collected. The third step in the strategic management process is implementing the decisions that have been reached at in order to achieve the desired results and the final step is evaluating the strategy to ascertain whether it has achieved the purpose for which it has been formulated. This process of strategic management brings both financial benefits and non-financial benefits that range from increased revenues and sales to the growth of organisation and increased productivity of employees. References Aver, B., & C?Adez?, S. (2009). Management accountants' participation in strategic management processes: a cross-industry comparison. Journal for East European Management Studies. Vol 14(3), p310-322. Bisbe, Josep and Melaquero, Ricardo (2012). “using strategic performance measurement systems for strategy formulation: does it work in dynamic environment?” Management Accounting Research. Vol 23(4). p 296-311 Dolens?Ek, J. (2006). The nature of strategy process: a psychological interpretation. Zbornik 9. Mednarodne Multikonference Informacijska Druz?ba. vol 9(14), p336-339.. Hauc, A., & Kovac?, J. (2000). Project management in strategy implementation-experiences in Slovenia. International Journal of Project Management. Vol 18(1), p61-67. Macmillan, H., & Tampoe, M. (2000). Strategic management: process, content and implementation. Oxford, Oxford University Press Pagano, A. M., Mcneil, S., & Ogard, E. (2005). Linking asset management to strategic planning processes: best practices from state departments of transportation. Transportation Research Record. Vol 1924(1), p184-191 Penger, S., & Tekavc?Ic?, M. (2009). Towards the implementation of Lisbon strategy goals and strategic change management process: the case study of Slovenian public sector. Bha?arata?iya Na?ariyala?a Patrika?a. Vol 32(4), p1-29 Slack, N. (2006). Operations and process management: principles and practice for strategic impact. Harlow, England, Prentice Hall/Financial Times. Slack, N. (2011). Operations and Process Management with EText: Principles and Practice for Strategic Impact. Harlow, Pearson Education Ltd. Smith, R. F. (2007). Business process management and the balanced scorecard: using processes as strategic drivers. Hoboken, N.J., John Wiley & Sons. Read More