Measuring Performance - Essay Example

?(a) New businesses need to survive in the competitive market, whereas existing businesses need to frequently monitor their position in the market. Pitfalls such as economic recessions, entry of new competitors, and change in demand or financial crisis can turn the tables completely. Strategic planning is the process of defining a strategy and making decisions to allocate resources to achieve the strategy. Some techniques used are SWOT analysis, PESTEL analysis, and Porters 5 points. Stimpson, P. (2002) states that SWOT analysis evaluates the main internal and external factors that command the success of the business. It comprises of Strengths, weaknesses, Opportunities and threats. Strengths are internal factors that can be concluded as advantages to the business (current advantages). Factors such as a focused management, hardworking employees, low costs are positive points for the firm. For Jengo Ltd, a high regard for their clothes by the customers is an impressive point for the future of the business. Weaknesses are internal factors as well that maybe termed as disadvantages for the firm (current disadvantages). Negative factors like a poorly trained workforce, ageing equipment etc need to be evaluated for a solution to arise. For Jengo Ltd, the failure to produce budgets or forecasts for the financial year hints weak planning on the part of the management. However, Opportunities are potential areas for expansion of the business (advantages that can arise in the future). These areas are obtained after an external audit in the market the firm operates in. Identifying new markets, expansion of the product portfolio and favorable government policies amalgamates in outdoing competitors. Moreover, threats are not to be forgotten while forecasting future business plans (problems that may arise in the future). These usually comprise of the macro environment factors that alter the economic environment, strength of the competition, globalization etc. Jengo Ltd should be careful about changing customer demands as it operates in a highly uncertain business. SWOT analysis draws the primary sketch for foreseeing the future for any business. It is an effective way of gathering information and generating interest in the business activities quickly, mostly used to plan the marketing strategy (Hall, D et al. 2004) Factors in the macro environment effect decisions by the top management. Demographic change, government laws, trade barriers etc are some examples of macro change (Varoufakis, Y. 2007). These factors can be categorized by the PESTEL (political, economic, social, technological, environmental, and legal factors). Political developments regionally, nationally and internationally might effect a business’s strategy. Political decisions can change vital areas of the company such as education for the employees, health benefits, infrastructure, and subsidies for instance. Economic factors may involve the effect of consumer demand patterns, willingness to spend, inflation, fiscal and monetary policies, exchange rates, fixed and variable costs, and changes in the labour market on the business. Businesses may also need to plan out the effects of government policies to haul out the country from a recession (Hall, D et al. 2004). Changes in social trends can create competitive advantages for businesses. Falling birth rate, ageing population, increase in life expectancy can all effect a business. An ageing population would mean a shift in the sort of products demanded and more pensions paid to employees. Pressure groups can also force a business decision leading to serious consequences. Technology uplifts products and processes. Online shopping, bar coding, CAD and CAM are all technological advancements that aid in the advent of superior products. Furthermore, environmental factors might include a legislation to control pollution or views of certain groups about the ingredients of the product. Major climatic changes due to global warming have significantly impacted many industries and external factors related to a business. Last but not least, laws related to labour unions, discrimination, recycling policies etc can change the costs of the business as well the demand of consumers. In essence, PESTEL analysis provides an efficient visual representation of the external pressures and constraints on strategy. Porters five forces look at five main areas namely, threat of new entrants, competitive rivalry, threat of substitutes and power of buyers and suppliers. ‘Five Forces Analysis helps the marketer to contrast a competitive environment’ (Five Forces Analysis 2000). It has similarities with other tools like PEST and SWOT but this tends to focus on the SBU’s (Strategic Business Units) of the firm rather than a single product. Jengo Ltd can appraise its strategy of expanding the shop portfolio through these forces as well. Competitive rivalry is the main force that effects a firm’s ability to influence markets. The number of competitors, ability to differentiate products, rate of growth in the market and existence to barriers to entry are some antecedents effecting decisions. The ease of businesses to enter a market may be effected by the barriers to entry and threat of new entrants. These may include heavy investment, high level of promotions and other reasons deterring the ability of the business to enter the market. Power of suppliers is strong where the switching costs are high (moving from one supplier to the other). Power is also high when the brand is impressionable and when customers are fragmented and not in clusters (Five Forces Analysis 2000-2011). Threat of substitutes depend on the differentiating force between products. A business that struggles to covey the uniqueness of its product is likely to face intense competition. Bargaining power of consumers depends on the number of consumers, their importance, ability to switch products and the regularity of products (Hall, D et al. 2004). Therefore, to consummate, the five forces analyze the industry attractiveness and guide managers in their future decisions. In the apparel industry trends emerge and evolve over time (Newber, M. 2011). The willingness to spend, birth rates, ageing population etc all should be accounted before making forecasts. Also, celebrity clothing trends change and ladies often switch their wardrobes accordingly. Product developments trends and fibre innovations (Newber, M. 2011) should be looked upon. Manufacturers should be updated with the latest trends and should be happy in supplying to Jengo Ltd. Before wanting to expand, finances need to check. Profit and loss accounts and Balance sheets should be made to see the feasibility of expansion. The ‘reach’ could be enhanced by online shops. However, the investment requires planning and employment of technical staff. Also, the ability and willingness of women to go online and shop should be considered. Changes in labour laws in low cost countries could change the cost structure of the company. Jengo Ltd should make sure it doesn’t exploit employees there. Also, changes in cotton prices (or other raw materials) will indirectly affect the price of the clothes. Branding should be focused on. Jengo Ltd should lay emphasis on its USP which will alter decisions for the future and help in forecasting. (b) Budgeting is the process of planning the expenditures in a detailed level (Entrepreneur 2011). For Jengo Ltd, planning is essential in levering its reputation in front on Palisade plc. In order to be bought by Palisade plc, the management should be focused and have control on its resources. The expansion strategy will be determined after actuating the expenses required to proceed. The strategic goal of creating an online store and opening shops at a much faster rate will ascertain after the budgeting process. Budgeting will also help Jengo Ltd impel the workforce requirements, ability to employ new employees, kind of training that can be afforded and the resultant profits. Capital budgeting also effects the capital structure (Camillus, J. 1986). Capital structure comprises of the debt and equity ratios and budgeting will detect the costs of the company. The financial leverage determines the risk of the company and this will aid in making further decisions. Since clothing is a risky business, annual sales and promotions play a vital role in capturing the market. Competition is robust and in order to attract the most number of ladies, planning needs to be done in advance. Online shopping will no doubt expand the business but finances and other technological advancements are essential to a have a working online store. Budgeting will figure out if the company is strong enough to withhold an expansion strategy in terms of diversifying the product and market portfolio. Jengo Ltd can think about catering to niche markets and strengthening the brand image of the business. Inventory control or commonly known as stock control is minimizing the cost of inventory (Arsham, H. 1994-2011). The cost of placing an order is one of the most important steps in inventory management. Budgeting is decipher the lowest cost that needs to be used in order to breakeven or make a profit. Jengo Ltd places orders in developing countries where costs are low. However, their ability to produce faster and high quality products is the most important factor. The cost of storage in Jengo Ltd’s case is the cost of maintenance at the retail outlet. Workers should be skilled to sort out clothes and assign them to their respective places and use the right blend of product placement. Since manufacturers directly send the clothes to the shops, a high cooperation level and effective supply chain management is required to ensure safe delivery of clothes. The percentage of demand that will be met from stock without delay will also be determined as part of inventory control. This is a technical process and will be based on forecasts and not exact figures. Items should be grouped according to the heaviest demand and this is also one of the most important to control for effective inventory management. Furthermore, some important concepts related to inventory management include re order points, safety stock and TQM. It is essential to know when to re order a product and for this professional staff is required. Extra stock also known as buffer stock should be kept in case of excess demand due to seasonal variations or maybe celebrity endorsements for instance. Total quality management includes the steps required to ensure a smooth production line. Since Jengo Ltd is a retail outlet, they have a certain standard which needs to be met. To ensure this, qualified staff, high quality raw materials and updated machinery is required. Budgeting will allow Jengo Ltd to figure out if it can help its manufacturers in achieving those standards. Most importantly, budgeting will assist in management decisions of sales and promotions. Clothes get out dated and need to be promoted using discounts so the feasibility of such activities can be drawn. Planning and budgeting simplifies the process of indentifying job vacancies and associating them to the recruitment process (Absolute solutions 2010). Vacancies can be posted online and the system can track the job opportunity and the budget available for it. The HR manager would then approve of the budget so that the process could further move on or be reviewed. Budgeting will determine the number of employees that can be employed and the salaries which can be accommodated. Cash management is the basic feature of budgeting. Recruitment, control of inventory, and planning all comprise of cash management. The cash inflows and outflows need to be managed or else a negative cash flow would arise. Budgeting would determine the amount to be spent during the trading year and the company should make sure inflows are more than outflows. The liquidity of the business or the ability to convert assets into cash will be determined as well. The difference between cash inflows and outflows will signify the amount of cash the business has to be used for its daily expenditures. (c) The business scorecard approach is a measurement of performance. It is a strategic planning system which is extensively used in organizations worldwide to align vision with strategies. Performance is also monitored against strategic goals. Non financial performance measures are used to provide managers with a more ‘balanced’ view of the organization (Balanced Scorecard institute 1998-2011). This approach not only measures performance, but assists managers in identifying what should be done and how it should be measured. The balanced scorecard theory was developed to counter previous management theory issues and direct managers what to measure in order to balance the financial perspective. Financial measures provide information on the past which is not enough and to create value for the future, investments in customers, technology, and innovation is required. Since Jengo Ltd is planning to expand its shop portfolio and create an online store, customer, shareholders, and internal business processes should be considered besides financial perspectives. Financial perspective of the balanced scorecard approach: This approach lays emphasis on timely and accurate funding of data will always remain a priority. Corporate databases make automation easier; however, the current emphasis on finances leads to an unbalanced approach to other perspectives. Things such as return on capital, profitability, risk assessment, reliability etc need to be analyzed as well. This is particularly important for Jengo in order to create a feasibility report on its expansions and to create trust in Palisade plc. Therefore, managers must look forward and not backwards with their financial reports. The customer perspective of the balanced scorecard approach: A blend of time, quality, and service should be provided to customers at the retail outlets. Since Jengo Ltd operates in an uncertain business with fashion trends changing constantly and is faced by heavy competition, adding value to the products is very important. Jengo’s value chain model should be flawless and it should benchmark its processes and products with superior brands for industry comparison. Poor performance from this perspective is thus an indication for future failure. Therefore, the kinds of customers and the kinds of processes used for providing the clothes should be analyzed by Jengo to justify customer satisfaction. The business process perspective of the balanced scorecard approach: The metrics based on this perspective allows managers to manage the internal business processes. These should be developed and monitored by those who know the processes very well and should not be done by outside consultants. Jengo Ltd should guide the manufacturers what processes to use and the kind of raw materials to use in order to produce high quality products. Also, trained staff is required at the retail outlets to help customers and build customer management relationship. Jengo Ltd also needs to look upon cycle time, risk management, unit cost and any loss control measures to maintain the efficient flow of clothing supplies. The learning perspective of the balanced scorecard approach: Employee training and cultural values are the basics of the learning approach. The knowledge of a worker stays in his/her repository and rapid technological change urges all employees to stay connected and up to date. Jengo Ltd needs to use this approach to consider the training required to new and as well existing employees. They should be well nurtured with the culture of the business and everyone needs to have a unified approach. Jengo Ltd should also look at the company’s ability to innovate and learn and adapt to the changing trends in the ladies fashion industry. The balanced scorecard approach is usually altered according to each company however the standard perspectives are there to begin with. This perspective provides a clear cut strategy and how it should be implemented. The strategic vision of Jengo Ltd could be formulated by this approach even though the learning and innovation perspective is not clear cut and needs critical analysis to be done. References Absolute Solutions (2010) Available: http://www.ab-sol.net/Planning%20&%20Budgeting.html Last accessed: 28th June, 2011 Arsham, H (1994-2011) Economic Order Quantity and Economic Production Quantity Models for Inventory Management Available: http://home.ubalt.edu/ntsbarsh/Business-stat/otherapplets/Inventory.htm Last accessed 29th June, 2011 Balanced Score card Institute (1998-2011) Available: http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx last accessed: 28th June, 2011 Camillus, J (1986). Strategic Planning and Management Control. New York: D. C. Health and Company Entrepreneur (2011) Available: http://www.entrepreneur.com/encyclopedia/term/82266.html Last accessed: 28th June, 2011 Five Forces Analysis (2000-2011) Available: http://www.marketingteacher.com/lesson-store/lesson-five-forces.html Last accessed: 28th June, 2011 Hall, D Jones, R & Raffo, C (2004) Business Studies. 3rd ed. Britain: Ingrid Hamer. Newber, M (2011) Global Market Review of the Denim and Jeanswear industries – Forecasts to 2017 Available: http://www.juststyle.com/store/samples/2011_denim_brochure.pdf Last accessed 28th June, 2011 Stimpson, P (2002). Business Studies. U.K.: Cambridge University Press.. Varoufakis, Y (2007) Foundation of Economics Available: http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/index.htm Last accessed 28th June, 2011 Read More