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Mangal Mangal
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Posts: 19
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A week ago
ABM: Company background
ABM IT Services (ABM) is an enterprise that is owned as well as operated by the ABM family. The enterprise provides IT
personnel for other businesses. The enterprise has witnessed growth along with the market for outsourcing of IT personnel
roles and ABM is a big player amongst such service providers in Lakeland.
The ABM family has operated the enterprise with the aim of increasing profits sans taking on too much risk. Most of the
family are financially reliant on the enterprise through their pay and dividends. The patriarch of the enterprise was an
accountant and this led to a family tradition that the chief executive officer (CEO) would always have an accounting
qualification. Therefore, the reporting on performance has customarily focused on financial results.
Recent events
The new generation of the family is currently in-charge and aims to propel growth of the enterprise. To achieve this, they
plan to expand by ABM’s operations into different geographies, by leveraging its existing reputation for reliability and
professionalism. The recently elected CEO has acknowledged the factthat the selection of key performance indicators may
not be appropriate given the current business environment, wherein the enterprise is dealing with an array of issues:
– Given the unstable nature of government regulation with most customer-facing ABM work-force now needed to hold
a certificate conveying that they are cognizant of the relevant regulations and health and safety procedures regarding
their duties. Indeed, this factor is a reason for the growth of outsourcing to ABM;
– Hardships faced in recruitment and retention since the remuneration for customer-facing staff is low by Lakeland’s
standards (although ABM provides full coaching for them);
– Legal Problems emanating from claims of ABM staff being too aggressive in the pursuit of their assignments.
The CEO has asked you to draw up a report to the board on the following performance management matters for ABM and
has furnished you with data in Appendix 1 and Appendix 2 that could aid you with the first two tasks:
Existing performance indicators and introduction of the balanced scorecard
The CEO is considering the introduction of a balanced scorecard approach and wants an assessment of whether or not the
existing key performance indicators cover the financial perspective for the board. He has provided you with a draft copy
of the latest board report to illustrate the reporting status quo (Attachment 1). This draft has been hastily prepared by a
junior accountant. The CEO feels that there is an error in the Return on Capital Employed calculation which you should
correct. He then needs reasoned suggestions for two indicators within each of the remaining three perspectives (customer,
internal business process and innovation and learning). These indicators need to focus on the issues facing the business.
Use of customer surveys
In former times, the board has turned down the idea of introducing customer surveys as it was not confident that this
method would be able to gauge performance. The CEO is mindful that a lot of the new indicators from the introduction of
the balanced scorecard would probably be non-financial. Therefore, he has asked that you conduct an assessment for the
board regarding the problems associated with measuring and managing performance using non-financial performance
indicators at ABM, using customer surveys as an illustration.
Management style
Bearing in mind these changes, there may have to be alterations to the management style at ABM. Hence, the CEO also
wants your evaluation of the existing management style at ABM and a justified recommendation for a suited approach. He
has been taught about Hopwood’s styles of using budget information (budget-constrained, profit-conscious, nonaccounting) and therefore wants a brief definition of these prior to your evaluation and recommendation.
Human resources management: targets and appraisals
Finally, given the issues facing ABM noted above, the board will require advice regarding ways to align human resource
management with the organization’s strategy. The existing appraisal system comprises of an annual appraisal meeting
between the individual and their line manager followed by, a discussion of the targets for that individual (which are all
financial in nature, based on the projections for the next financial year), followed by an explanation of their bonus payment
based on the previously agreed targets. For this section of the report, the CEO is of the opinion that you should consider
the management setting of targets taking into consideration the move to using a balanced scorecard. This must be followed
by a deliberation of how these targets might be used within the appraisal system. At this stage, no alterations to the
reward system (basic pay plus an annual bonus) at ABM are desired. It is now 1 September 2018.

Required:
Write a report to the board of ABM to:
(i) Discuss the importance and usage of performance measurement systems. (5 marks)
(ii) Discuss the types of business units and the appropriate performance measurement system for each type.
(6 marks)
(iii) Respond to the chief executive officer’s (CEO) request for work on the existing key performance indicators
and the introduction of the balanced scorecard. Use the information that has been provided to you in the
 case and the appendix to conduct your analysis. (8 marks)
(iv) Calculate, for the two years, Operating Margin, Return on Sales and Return on Assets using Dupont analysis
and comment on it.
(8 marks)
(v) Assess the issues associated with measuring and managing performance using non-financial
performance indicators at ABM, using customer surveys as an illustration. (6 marks)
(vi) Using Hopwood’s styles, assess the existing management style at ABM and recommend a suitable approach.
(7 marks)
(vii) Advise ABM on the management setting of targets and how they must be used in the appraisal system.
(7 marks)
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Replies
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Staff Member
A week ago
(i) Discuss the importance and usage of performance measurement systems. (5 marks)

Performance management systems evaluate the performance of employees, units and departments in line with goals and objectives of company. These systems are designed to link the strategic objectives of the company with these individual performance matrices which helps in evaluation of overall strategic performance.

There are two types of performance management system that can be used by the organizations.

1. Financial measurement system
2. Non-financial measurement system

Under financial performance management system, the company tries to give out financial benefits to the people when it comes to evaluating their performance. This can be appraisals, bonus, incentives, etc. However, in non-financial performance management system, the organizations try to motivate the employees by giving non-monetary benefits like trips, badges, a promotion, etc. to show that the company value their performance.

The examples of these will be:

1. Monetary performance management system: With a great sales target achieved by the sales manager, the company gives him a bonus of 10% on the extra sales that he has made.

2. Non-monetary performance management system: With the sales target achieved by the area sales manager for consecutive 6 months, the company raises his position and makes him the zone sales manager to appreciate the hard work done by the person.

It is essential to understand what type of a performance management system will work at a particular place and with the audience that the organization is catering to. The performance management system helps in motivating the employees to work hard and achieve the key performance indicators of the business as it would improve the overall working of the business.
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