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Mangal Mangal
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1 months 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.

1.Assess the issues associated with measuring and managing performance using non-financial
performance indicators at ABM, using customer surveys as an illustration. (6 marks)

2. Using Hopwood’s styles, assess the existing management style at ABM and recommend a suitable approach.
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1 months ago
1. Assess the issues associated with measuring and managing performance using non-financial performance indicators at ABM, using customer surveys as an illustration. (6 marks

Non-financial measures offer four clear advantages over measurement systems based on financial data. First of these is a closer link to long-term organizational strategies. Financial evaluation systems generally focus on annual or short-term performance against accounting yardsticks. They do not deal with progress relative to customer requirements or competitors, nor other non-financial objectives that may be important in achieving profitability, competitive strength and longer-term strategic goals. For example, new product development or expanding organizational capabilities may be important strategic goals, but may hinder short-term accounting performance.

By supplementing accounting measures with non-financial data about strategic performance and implementation of strategic plans, companies can communicate objectives and provide incentives for managers to address long-term strategy.

Second, critics of traditional measures argue that drivers of success in many industries are “intangible assets” such as intellectual capital and customer loyalty, rather than the “hard assets” allowed on to balance sheets. Although it is difficult to quantify intangible assets in financial terms, non-financial data can provide indirect, quantitative indicators of a firm’s intangible assets.

One study examined the ability of non-financial indicators of “intangible assets” to explain differences in US companies’ stock market values. It found that measures related to innovation, management capability, employee relations, quality and brand value explained a significant proportion of a company’s value, even allowing for accounting assets and liabilities. By excluding these intangible assets, financially oriented measurement can encourage managers to make poor, even harmful, decisions.

Third, non-financial measures can be better indicators of future financial performance. Even when the ultimate goal is maximizing financial performance, current financial measures may not capture long-term benefits from decisions made now. Consider, for example, investments in research and development or customer satisfaction programs (i.e. surverys). Under U.S. accounting rules, research and development expenditures and marketing costs must be charged for in the period they are incurred, so reducing profits. But successful research improves future profits if it can be brought to market.

Similarly, investments in customer satisfaction can improve subsequent economic performance by increasing revenues and loyalty of existing customers, attracting new customers and reducing transaction costs. Non-financial data can provide the missing link between these beneficial activities and financial results by providing forward-looking information on accounting or stock performance. For example, interim research results or customer indices may offer an indication of future cash flows that would not be captured otherwise.

2. Using Hopwood’s styles, assess the existing management style at ABM and recommend a suitable approach.

I'm unfamiliar with Hopwood's styles of using budgetary information to evaluate management performance, but I did find a table that may be able to help you here:

Please let me know if this helps Slight Smile
Source https://kfknowledgebank.kaplan.co.uk/management-accounting/budgeting/management-styles-(hopwood)
1 months ago
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