Accounting, Behavior and Organizations - Blue Moon Company - Assignment Example

Student Name: Tutor: Title: Accounting, Behavior and Organizations-Case Study Course: Executive summary Performance appraisal can be achieved through performance measurement and reward system. Blue Moon Company has come up with a performance measurement and reward system that seem to clash with departmental goals within the company. Time, cost and Return on investment have been used as yardstick of measurement across all departments. However, these elements are causing conflicts and confusion among different departments as various directors strive to meet the set targets. This report discusses important aspects of the system highlighting the limitations of the system that cause dysfunctional behavior. It provides recommendations for a new system. Table of Contents Executive summary 2 Table of Contents 3 Introduction 4 Specific limitations that exist in Blue Moon’s current PMRS 7 Specific dysfunctional behavior Blue Moon’s three Directors engaged in 8 Recommendations 9 References 10 Introduction Blue Moon management has an objective of delivering the organizational goals to its owner. Performance measurement and reward system has been designed to check of the delivery on tasks of every department. This system has limitations and causes dysfunctional behavior among the directors of the company. This report reviews the limitations of the systems and provides recommendations for a new system. 1. Three elements of performance measurement and reward systems (PMRS) PMRS at Blue Moon focused on three important areas that include Return On Investment (ROI), time, and costs. Cost-based performance measures were obtained from cost budgets prepared by each department. The total cost budget in the distribution department included costs incurred in serving clients such as labor costs related to attendance of meetings with yacht dealers, fare for taking part in sailing competitions, and entertainment costs. The performance measure and target entailed dividing the total client cost budget by expected number of clients. Creative department total prototype cost budget included costs incurred in developing/or revising boat designs and the final conception of a new boat prototype, and other costs like graphic software, labor-hours and materials. The resulting performance measure and target was the average total cost per prototype obtained by dividing total prototype cost budget by expected number of prototypes. Finally the production department total boat department included costs related with production of a revised/new sailing boat, following approval of the prototype. Associated costs include materials, labor, and sub-contracting among others. Performance measurement and target for distribution was the average total cost per boat obtained by dividing the total boats cost budget by expected number of boats produced. That is how cost element of performance measurement and reward system was determined. The second key area of measurement was time. Two standards of time were developed to represent expected time required for: a) boat production and b) creation of prototype. The standards were further used to develop two further performance measures and targets that include average time to produce a boat and average time to create a prototype. The directors of department were required to participate in budget setting for their respective departments so that they could be appraised on the basis of meeting costs targets. The third area where PMRS was applied was Return on Investment (ROI). The input of the directors of departments were important so that it could be determined what profit margin has been achieved again the investment made in each department. 2. The Role of PMRS: a) A directional influence on behavior Performance measurement and reward system has the role of providing guidance to the director of department in regard to which direction they should take. The cost element of PMRS is meant to make the director of department have control on costs within his department. He has to ask for materials that are important or ask for funding that is relevant to the functions in the department. The directors of departments have also to avoid misuse of the Blue Moon resources within their departments. Having costs’ performance measurement and targets is meant to give the directors of department of what is expected of them in their respective departments. The time element for performance measurement and reward system has direction influence on behavior because there are set targets when to deliver on a certain task. Therefore, the director of departments work knowing that there is a timeline to every task. The directors of department avoid laxity in their operations and strive to beat the set targets. Without PMRS on time, a department can take as long it wishes in developing a prototype or producing a boat. Urgency and speed is instilled in people as they work towards achieving time targets (Neely, 2002). The return on investment element of performance measurement is provides direction on what returns or profit margins or sales that directors department should work towards. The performance measure of ROI ensures that the director of department is careful about misuse of resources within returns to the company. In every decision that the director of department makes, he will think about the welfare of the company. b) A motivational influence on behavior The cost element of Performance Measurement and reward system is meant to motivate the director of department to deeply get involved in determining cost element in their departments. Cost is also important in motivating the director of departments to control costs within their departments and strive to give their best out of minimum costs. The department directors are motivated to minimize wastage and give their best as they strive to hit the set targets (Kerr, 2009). Performance measurement and reward system on time are also motivational. The directors of departments would want to work and deliver within the set time frame in order to hit the set targets and get the bonuses. The director of department is motivated to stay on track and monitor every development in his department so as not to fall behind the targets. In regard to return on investment, the directors of department strive to achieve the targets of returns on investment hence end up bring good return on investment on the input assigned to their departments. 3. Specific limitations that exist in Blue Moon’s current PMRS The current Bluer moon PMRS is not perfect and has specific limitations to it. With regard to set targets, there should be a minimum target above which a person gets a bonus. The minimum threshold has not been specified. In the case of costs, there should be a maximum amount to be spent in a department and bonus given with regard to how far and near someone is from the maximum. A large difference attracts a high bonus as compared to a small difference. Otherwise someone can set costs targets that are not attainable or easily attainable. Cost estimation is also a challenge to the directors of departments; they are not able to estimate how much they require in their departments. As a result, the targets can be set at a low level or at a very high level that is unattainable (Griffin & Moorehead, 2011). The current PMRS does not have an element about the quality of product produced and in hurry to meet the set targets directors of department can end up producing low quality products. There should be a yardstick in regard to quality and directors of departments should know how low they can go. Quality should not be compromised for quantity in the name of meeting targets. In order to meet costs targets, directors of department can sacrifice quality for quantity as they strive to attain costs targets in order to get the bonuses. The directors all expressed concerns during budget setting that they were not sure about the standards and budgets that they had to set. The Performance measurement and reward system of Blue moon has to take into account the fears of the directors and introduce a yardstick for quality to ensure that it is not compromised. Specific dysfunctional behavior Blue Moon’s three Directors engaged in There are specific dysfunctional behaviors blue moon’s three directors have gotten involved in with the regard to limitations contained in the Performance Measurement and Reward System of the company. Cue Robertson, Creative Director, is frustrated at being harassed by the production director, Marcus. Cue feels that he is being pushed to deliver more than she can handle. Her department had to hurry up with the prototypes being developed because production department was in a hurry to produce the boats before the end of the quarter. This dysfunctional behavior is a result of performance measurement and reward system element of time. The directors are worried about their bonuses and that is why they have to hurry their work. Distribution department has reported clients who have complained about poor quality of boats produced. The procurement measurement and reward system is to blame for pushing the directors to achieve certain standards with regard delivery of a certain task. Marcus Georgesz, the production director, is also frustrated at not being allowed to make new investment by the executive and accounts director, Laura. Marcus has to produce high quality boats which will entail of purchase of expensive material. However, the dysfunctional created by the performance measurement and reward system cannot allow this. There is the cost element of the PMRS, and managers are concerned about inflating costs. Laura is concerned about her bonuses in budget management and that is why he wants details of every proposed investment because she wants to maintain the costs as low as possible. On the other hand, the production director has to make some purchases in order to attain high quality of products. Love for bonuses through attainment of targets hinders coordination between departments of the company (Spitzer, 2007). Quality of products is compromised with the aim of cutting down the costs. The distribution director, Keshav Dayalani, is frustrated at being forced to cut down his budget. Clients require to be taken out on expensive lunches and dinners while costs targets have to be met for every department. Recommendations The Performance measurement and reward system of Blue Moon has to change in order to accommodate the specific goals and objectives of every department. All departments do not have to confine to the same yardsticks of time, cost and ROI. Production director can be gauged using the number of positive and negative feedback from the customer. The time of production of development of prototype by the creative department has to be varied in order to produce the best work. Hurrying the creative team to deliver prototypes in order to beat time targets result into poor quality of boats. Creative Director can be appraised on the basis of cost of production forwarded to the production department. They have to come up with creative prototypes that meet the requirements of the customers but are of high quality. Executive and accounts director can be appraised using quarter sales Distribution director can be appraised on the basis of repeat purchases and new customers that are brought to the company. the performance measurement and reward system has to be tailor made towards a specific department and not generally applied to all departments. References Spitzer, D.R., 2007, Transforming Performance Measurement: Rethinking the Way We Measure and Drive Organizational Success, AMACOM Div American Mgmt Assn, New York. Kerr, S., 2009, Reward Systems: Does Yours Measure Up? Harvard Business Press, Harvard. Neely, A.D., 2002, Business performance measurement: theory and practice, Cambridge University Press, Cambridge. Griffin, R.W., Moorehead, R.W, 2011, Organizational Behavior, Cengage Learning, Heneman, R.L., 2002, Strategic Reward Management: Design, Implementation, and Evaluation (HC), IAP, Sydney. Read More