Operational Analysis and Effectiveness - Classic Cabinets Company - Case Study Example

MANAGEMENT Student’s Name Course Professor Date Cont…………….. The need for sound decision making criteria According to Weihrich and Koontz (1993, p 23-45), the process of decision-making in a business organization is the foundation for the success of a business organization, and in the business field; it is greatly affected by the overriding objective of profitability. If the objective of a business venture is to maximize on the product or service sales as is the case for Classic Cabinets Company, then the approach to making good business calls for a comprehensive research and development. Managers therefore have the onerous task of effectively and efficiently transforming inputs into outputs. Definitely, the process of transformation may be viewed from a number of perspectives. A focus can be shifted to the diversity of business functions such as production, marketing, finance, and personnel. Scholars on general and operation management look on the process of transformation in terms of their specific approaches to business organization management. Although in most aspects, the organizational and management interests do coincide, the essentiality of making management may result in a conflict of interests. A business manager who is in the process of establishing sound management policies should make decisions that are in tandem with maximization of profitability. In order for the management of Classic Cabinets to adequately overcome the company’s shortcomings they need to take into consideration good management accounting that entails variance, budgeting, and incremental analysis that are in tandem with the long term objectives and decisions. However, it is vital for the general manager, operations manager and the company’s accountant to have full awareness of the turbulence that might emerge in the process of implementation. The need for management accounting decision model Basically all business managers such as Anh and Chu have a good understanding of a general accounting or some of the significant reports that are generated by it such as the balance sheet and income statement. Many of the business managers can properly give a description of a cost management system for just like the two managers of Classic Cabinets; most managers are the owners of businesses hence have no prior training in principles of organizational management. An effective system of cost management which is the principal aspect of management that Classic Cabinets managers are lacking is basically customized to fit the internal environment of the organization as well as defined cost structures. While an experienced manager with professional financial training can quickly grasp the underlying financial statements and decide on the aspects of a business that requires improvement, others who have no such training such as the two brother managers generally needs ample time to possibly understand the basics of different systems of cost management to a company. A sound managerial accounting is imperative for good business operations as the managers have full information of performance from time to time as it involves injection of professional reporting and standards. As mentioned by Levitt, Barbara and March1988, p 319-340), more significantly, the cost management system sets the right course for consumption priorities of the available resources as well as making course amendments by putting more emphasis on business management operations and accounting practices. A good cost management system will enable the company’s management to comprehensively get a solution to the demands of the profit importance by aligning the company’s operations with the organizational strategy (Kaplan and Cooper 1998 p viii-x). As shown by the decision-making deadlock of Classic Cabinets, decision-making is basically a complex network that involves many decision variables. The management of the company is already faced with an overwhelming task in its attempt to identify all the possible variables and decision relationship. One of the best ways of dealing with such complex decisions is through the development of business models in order to simplify the complex relationships. Management accounting therefore comes handy in the daily operations of Classic Cabinets in dealing with models and key variables that are purely based on assumptions. The process of business organization decision-making has more often than not led to a conclusion from the perspective of management accounting that there is connectivity between the following aspects of management: Strategic and tactical decisions Financial statement items Techniques of management accounting Decision making information Implications of the basic management assumptions The everyday management assumption that there are primarily three types of decisions notably production, marketing, and financial calls for the identification of specific decisions by the management. Such identification is critical because it is just on it that appropriate technique of managerial accounting can be properly applied. A comprehensive understanding of financial statements is imperative to the good decision making ability of a business organization management. Although financial statements are prepared by company accountants, they are actually a creation of the management through organizational implementation of decisions. The data from which company accountants prepare statements of finance emanates from actual decisions of management. The consumer of financial statements is primarily the management as opposed to the accountant and from the management accounting perspective; it is the management that should have greater appreciation of financial statements. According to McNair (2000 p 32), the balance sheet and the income statement can be understood as descriptive model for managerial decision-making. Financial statements provide a reflection of the level of success or failure in decision making. Management of a company can be evaluated as successful when there is achievement of the desired income and financial position is perceived to be satisfactory. Since this is not the case for the management of Classics Cabinet manufacturers, a lot has to be done to drive back the company back to sound management and profitability. In order to gain mileage in successful management, the two company managers as well as the owners must ensure that they have uncompromising policies in regard to management of assets, capital, liabilities, revenue, and expenses. Financial statements in this respect therefore serve as a convenient and ready check list as far as decision-making is concerned. In respect to the basic equation of balance sheet; A = L + C where A stands for assets, L for liabilities and C for capital, the interpretation of management accounting has it that the resources (assets) comes from the owners and creditors. It is therefore the responsibility of the management and for the case of Classic Cabinets Company, Anh and Chu to professionally manage both sides of the financial equation. That demonstrates that the company’s management should make implementable decisions about both sources of the assets and the resources. Critically observed, each of the items on the financial balance sheet is fundamentally a section of general and operations management. This stated in a different point of view, every item on financial statements is an indication of a critical section sensitive to business mismanagement (Pollitt 2001, p 7-37). The essence of management accounting to the company In every company, cash, fixed assets, accounts receivable and payable, inventory and others may be too small or too small. Owing to this, it is the responsibility of the company’s management to make the right decision regarding each of the items on that forms the basis of financial statement. Any mismanagement of one of the items could either translate to the downfall of the management or failure of the business.In most companies, the argument that the companies accountant will be compelled by the company to provide information not only based on the historical nature shows that such a person must deal with estimated, planned and future financial data. The management accountant may therefore be called upon to do a thorough analysis that calls for data of an economic perspective. For example, when considering pricing analysis, he or she may require comprehensive data in relation to the demand curve of the company. Labor cost analysis may require estimating the productivity of labor relative to various wage rates (Maskell1996, p 17). In management accounting, decision-making involves choosing the right path from numerous alternatives. In case there are no possible alternatives, then it means that no decision is should be made. For a company such as Classic Cabinets that wants to increase the level of performance and productivity the right decision is arguably the one that involves the least amount of cost or most revenue. In relation to this, the task of the company managers with the professional assistance of the company accountant is to look for the best alternative. In order to execute the right decision, they should consider the following steps guidelines: Identify the possible alternatives for any decision to be made. Obtain the vital data necessary for the evaluation of the diverse alternatives. Analyze and subsequently determine the impact of every alternative. Select the alternative that appears satisfactory in the achievement of the desired objectives and goals. Embark on the implementation of the chosen alternative. Evaluate the results of the decisions against the set standards. How the Classic Cabinets’ company can grow profitability In order for the company to grow its profitability base, it is imperative for the management team to appropriately identify how profitable specific product sales are. Traditional system of accounting is basically too broad to specify the products and accounts that are profitable and the ones that are not. It is vital to develop what is termed as profit map that can estimate the margin of profitability for every order line with respect to customers. This should be done by using transactions over a given period of time such as quarterly. The main thing is not to get submerged trying to achieve accuracy as financial scholars recommend that 70% is a good level which is satisfactorily enough to accurately discern trends without the need for extra ordinary money and investments. When managers work at a level of 70% accuracy, they can construct a profit map (Arthur 1996, p 100-109). Up on identification of the appropriate profitability road map, it is the task of the management now to protect and subsequently grow the profitability within the company’s operations. The management may then start by attempting to address the challenge of how to make unprofitable items gain prominence amongst customers. But in doing this, the first priority should instead focus to securing and growing the sales base by maintaining highly profitable clients that are very critical to the success of the organization. Typically, loyal customers should not be overpriced and instead be rewarded as a way of motivation. The main thing is to focus on the resources on a manager’s jurisdiction of profitability by finding ways of making the clients more resourceful. Barabba (1998, p 23-28), the company’s management should embark on the process of developing innovative services that may help the company create more value to the customers. Working with loyal customers in the development of innovative services can help in raising the profitability of the business as it helps in the identification of new opportunities for one’s products. The operations manager should let himself in the customers’ scenario by spending sometime within the client’s organization. He should then work closely with the customers to come up with a channel map that demonstrates how work should flow between and within the two organizations as well as where there is build up of costs. From the channel map, the general manager and operations manager of the company will have a good way of developing the organization of the customers that will definitely develop long term ideas for innovative services. It is also important for the managers of the company to provide differing customer service levels. Companies that generally to provide all customers the same level of service more often than not gives the most loyal customers very little service, instead, the managers should adopt the strategy of differing services to different categories of clients. Similarly, the company’s management should ensure that it makes different chains of supply for different types of customers and products. The company executives should also consider putting a good sales team in place. The sales department should get good incentives so as to reach profitability as opposed to sales goals (Bair 1997, p 26-28). The functions of management All business organization managers primarily perform the functions of organizing, planning, leading, staffing, and controlling. Although the amount of time spent in every function differs tremendously at different levels of the organization, all managers are still actively engaged in ensuring that things are well done by the employees. The managerial activities, although grouped into the managerial duties of planning, leading, organizing, controlling, and staffing, the fundamental methods and practices should be adapted to the specific tasks, situation, and enterprises. This concept, which is often referred to as universality of management involves managers carrying out similar functions without minding their positions in the organizational structure and enterprise that they are managing. This shows that management should perform the same functions (Boardman and Vining 1989, p 1-34). Many managers as well as entrepreneurs have found that management analysis is mostly facilitated by a clear and useful organization of knowledge. As the first line of knowledge classification for the prosperity of management decisions, the concepts, theory, principles, and techniques are generally organized based on the same functions and therefore are instrumental in the determination of the direction that a business organization should take. Although there numerous ways managers can organize managerial knowledge, most managerial scholars have adopted the strategy of experimenting mostly with the alternative ways of knowledge restructuring in order to ease the pressure of designing an internal organizational environment by the managers. Organizational managers cannot perform their functions well unless they are responsive and have good understanding to the external environment elements such as political, social, economic, and technological and others that affect management operations (Reddick 2003, p 315-340). Significance of managerial skills for a company’s success There are three key skills for administrators and this include technical skill which is the knowledge as well as proficiency in managerial activities that involves processes, procedures and methods. It therefore involves management working with specific techniques and necessary tools. For example, Classic Cabinets Company has artisans who work with tools while their supervisors ensure that they use the tools efficiently in making quality products within the allowed time frame. Similarly, managers have to ensure that there is high level of efficiency and quality in production. The second item is known as the human skill which is the ability to work with the workforce and is characterized by teamwork, cooperative effort and creation of an enabling environment where employees have the freedom of expression as far as their opinions are concerned. The third skill is referred to as conceptual skill, which in effect is the ability of the management to visualize the true picture of events so as to recognize vital elements in a situation so as to understand their relationships. Although not classified with the other three elements, an additional skill referred to as design skill involves problem solving ability in a manner that is beneficial to the business organization. In order to be effective, specifically at upper levels of the organization, managers should be able to perform more than just recognizing a problem. If managers such as the Classic company executives merely recognize a problem and end up doing nothing, in effect massive failure is the long term result. They should have, in addition, Design skills so as to work out practical and desirable solutions to the problem at hand. As mentioned by Landau (1973, p 533-542), the relative significance of the skills may actually differ at various stages in the hierarchy of an organization, but technical skills come first at the supervisory level. Human resource skills are also important in the day to day interactions with the employees. At the lower levels, conceptual skills are not critical but at the higher levels of management it cannot be avoided at al costs. At the managerial level, design and conceptual abilities as well as human skills are definitely valuable. It is therefore prone to assumption in most companies that managers can utilize the technical resource of their juniors, which in effect is one of the indicators of management failures. What managers should aim at for business success Most of the non-business managers usually say that the main aim of business executives is to make profit. In the real sense, the publicly and logical desirable aim of managers should be to establish a conducive business environment where people can comfortably accomplish company goals with the least amount of money, time, and personal dissatisfaction, or where they can achieve as much as possible of a desired goal with available resources. Even in non business enterprise such as government departments that are not in any way tied to profitability, managers of such organizations still have organizational and budgetary goals to complete with minimum resources. Managers should be very productive. A case in example is given about the period after the end of the Second World War that saw the emergence of America as the world leading center of productivity. In the modern day of capitalism, government, private sector and other sectors of the economy such as institutions of higher learning have come to recognize the need for improving productivity. As mentioned by Nadler, Shaw and Walton (1995, p 34-47), when companies are faced with productivity problems, most of them look for the successful ones to get an answer, which underestimates the critical role that should be played by the management in managerial and non-managerial functionalities. It is therefore the noble duty of the Classics Cabinet Company managers to ensure creation of surplus via productive managerial operations. Although the true meaning of productivity is subject to debate, it confers to the ratio of output and input within a stipulated period of time with due attention to quality. In the past, programs of productivity improvement were generally directed to the level of workforce. As observed by management scholars, the best opportunity for increasing productivity is arguably found in the work itself, management and knowledge (Womack et al 1991, p 26-43). Productivity hence calls for efficiency and effectiveness in both organizational and individual performance. Effectiveness refers to the realization of objectives while on the other hand efficiency is achieving the business objectives with minimal use of resources. For company mangers to know the measure of their productivity, they have to the organizational and personal goals. The need for good system’s approach for business success Landau and Stout (1979, p 148-156), an organized business organization does not exist in isolation but depends on its external environment for survival. A business organization is a portion of larger systems that encompasses the economic formation of the society. Thus, a business organization receives diverse inputs and correctly transforms and consequently exports the outputs to the environment. Any business organization should be defined by a model of open-system includes several interactions such as between the external environment and the enterprise. In good policies of management, the main objective is not just to make the most suitable decision, but to be rational in the decision making as there are complexity resulting from interacting relationships. Due to this best decision remains a mirage. The decision making of a business organization should be highly subjective and whether the decision made is acceptable or not depends on the stipulated objectives and goals of the management. Consequently, for a business venture such as Classic Cabinets to implement the new findings of steering the company to a good path of recovery, the managers should in line with goals and objectives of the company must make a decision in regard to strategic objectives that includes pricing, product line, strategy, product quality, profit objective and willingness to take risk. In their bid to set goals and objectives in line with the new problem diagnosis, it is important to have a clear distinction distinguish between strategic and tactical decisions. Strategic decisions are widely-based; decisions that are qualitative do give a reflection of objectives and goals. However, in nature, they are non quantitative. These decisions relay on subjective thinking of its management concerning its goals and objectives (Davenport1997, p 12-27). Decisions that are tactical are quantitatively executable. They have a direct result compared to strategic decisions. One distinct factor between the two is how important is their management accounting, since the techniques of their management account relays primarily on tactical decisions. It is important to note that management accounting does not provide techniques which can be used to assist in strategic decisions making. For instance, managing science or art is an example of both strategic and tactical decisions from management accounting. If many disciplines are managed such as music composition, medicine, accountancy or baseball as well is in a measure that is large as well as an art which is founded on science wealth. Decisions are made based on business realities. While managers can work well by applying knowledge that is organized on management that has accrued over years. This knowledge may be crude or advance, exact or inexact and may be well organized, pertinent, and crystal clear and has science. Therefore, management being practiced as an art is a science if the organized knowledge has an underlying practice. In this case both science and art are not exclusively mutual but complementary (Manz, Mossholder and Luthans 1987, p 3-24). Science improvement and its application should be directly proportional, this is happening to both biological and physical sciences, and as well to the presence of complex and intangible variables that managers deal with. However, such knowledge can improve practices of managers. For management to be effective practitioners should learn via trials and errors since they have no place to turn to a part from knowledge that has been accrued with underlying practices. Therefore, the improvement of productivity can either be done by increasing both outputs and inputs at the same rate, decreasing inputs and having constant outputs, or increasing output. Communication is beneficial to all levels of the organizational processes of management as it integrates the managerial links and functions of the enterprise with the internal and external environment. Asmentioned by Weisman and Nathanson (1985, p 1179-1192), a system of organizational communication system encompasses information provision and receipt as well as the means of information transfer from one level to another with the notion that messages being transmitted can be well understood at the levels. For instance, in case of Classic Cabinets Company, the objectives that are set by management in relation to planning should be adequately communicated so that the workforce should be well informed about the organization structure. Communication is therefore beneficial in the selection, training and appraisal of management to execute the roles in this structure. Similarly, effective management and the creation of an enabling environment necessary for motivation greatly depend on good communication. More to that, it is through good communication that a manager can determine whether performance and events conform to the laid down plans hence it is communication that makes management possible (Anupindi et al 2005, p 89-97). Conclusion This discussion paper looked into the potential main organizational drivers that may remarkably contribute to the improvement of the Classic Cabinets Company. There is in fact a lot of evidence that organizational variables help in the improvement of functional efficiency such increase in the scale of operations. From the organizational management perspective the main aim of management should be to make decisions that go down well with production, marketing, and financial. The tactical management decisions that should be first in strategic decision making should be the basis of the company’s management starting point in their road to sound management and profitability. For every decision made, there should be a comprehensive management tool for the execution of such decision. However, such tools are only useful when management is perfectly providing the necessary information needed by the tool. Owing to the need of good managerial systems, the process of organizational segmentation makes various departments to be efficiently managed. Bibliography Anupindi, Ravi; Chopra, Sunil; Deshmukh, Sudhakar; Van Mieghem, Jan & Zemel, Eitan. 2005, Managing Business Process Flows: Principles of Operations Management (2nd Edition). Prentice Hall, New Jersey. Arthur, W. B. 1996. "Increasing Returns and the New World of Business." Harvard Business Review, July-August 1996, 74(4), pp. 100-109. Bair, J. 1997, “Knowledge Management: The Era of Shared Ideas,” Forbes, 1(1) (The Future of IT Supplement), Sep 22, 1997, pp.28. Barabba, V.P. 1998, “Revisiting Plato’s Cave: Business Design in an Age of Uncertainty,” in D. Tapscott, A. Lowy & D. Ticoll (Eds.), Blueprint to the Digital Economy: Creating Wealth in the Era of E-Business, McGraw-Hill. Boardman, A.E. & A.R. Vining 1989, “Ownership and Performance in Competitive Environments”, Journal of Law and Economics, 32 (April), pp. 1-34. Davenport, T.H. & Prusak, L. 1997, Working Knowledge : How Organizations Manage What They Know, Harvard Business School Press, Boston, MA. Weihrich, H. & H. Koontz, 1993. Management: A Global Perspective, 10th ed., McGraw-Hill, New York, NY. Kaplan, S.R& Cooper, R, 1998. Cost & Effect: Using Integrated Cost Systems to Drive Profitability and Performance (Boston: Harvard Business School Press, 1998), viii–ix. McNair, C.J, 2000. “Defining and Shaping the Future of Cost Management,” Journal of Cost Management 14, no. 5 (2000):32. Maskell, Brian, 1996. Making the Numbers Count:The Accountant as Change Agent on the World- Class Team (Portland: Productivity Press, 1996): 17. Landau, M.1973, "On the Concept of Self-Correcting Organizations," Public Administration Review, November/December 1973, pp. 533-542. Landau, M. & Stout, Jr., R. 1979, "To Manage is Not to Control: Or the Folly of Type II Errors," Public Administration Review, March/April 1979, pp. 148-156. Manz, C.C., Mossholder, K. W. & Luthans, F. 1987, "An Integrated Perspective of Self-Control in Organizations," 19(1), Administration & Society, May 1987, pp. 3-24. Nadler, D.A., Shaw, R.B. & Walton, A.E. (Eds.). 1995, Discontinuous Change: Leading Organizational Transformation (D.A. Nadler, R.B. Shaw & A.E. Walton), Jossey-Bass, San Francisco, CA. Levitt, Barbara & James G. March 1988, ‘Organizational Learning’ Annual Review of Sociology 14: 319–40. Womack, James P.; Jones, Daniel T. & Roos, Daniel. 1991, The Machine that changed the world: The Story of Lean Production. Harper Perennial. Treacy, Michael & Wiersema, Fred. 1997, The Discipline of Market Leaders: Choose your Customer, Narrow your Focus, Dominate your Market. Basic Books. Reddick, Christopher, 2003. “Testing Rival Theories of Budgetary Decision-Making in the US States”, Financial Accountability and Management, 19(4), pp. 315-340. Pollitt, Christopher, 2001. “Integrating Financial Management and Performance Management”, OECD Journal on Budgeting, 1(2), pp. 7-37. Weisman, C.S. & C.A. Nathanson, 1985. “Professional Satisfaction and Client Outcomes. A Comparative Organizational Analysis”, Medical Care, 23(10), pp. 1179-1192. Read More