The Issue of Performance Measurement - Essay Example

?Introduction Performance measurement is today increasingly quite an important aspect in business management and strategic planning. Johnson believes that any company or organization which operates devoid of performance measurement is akin to “an airplane flying without a compass, a Formula One race car driver guiding his car blindfolded or a CEO operating without a strategic plan”. For him, performance measurement is significant in two broad ways: it enables the business to track its levels of performance thereby enabling it to facilitate better performance in future. The overall aim of carrying out performance measurement in business is to enhance its responsiveness to its stakeholders i.e. employees, business owners as well as customers. This paper seeks to address the issue of measurement within the context of SWOT, PESTEL and Porter’s Five Forces Analysis in response to Jengo Limited. The paper further illuminates on how budgeting would benefit Jengo Ltd’s in planning and controlling its inventory, recruitment and cash management activities. Finally, it zeroes on how a balanced scorecard approach to measuring performance would benefit this company. SWOT analysis Broadly speaking, SWOT analysis is used to evaluate and aid in project formulation and strategic plans (Bohm 2008, p. 3). Just like Bohm notes, SWOT analysis should be used in mapping out an organization’s Strengths and Weaknesses of the products and services and assess the extent to which they are in tandem and how they could possibly be improved. Beyond this, SWOT analysis is used to reflect on the Opportunities and Threats exposed by information accrued usually through evaluation of the external environment and through comparative studies (Bohm 2008, p. 3, Habour 1997, p. 38). POSITIVE NEGATIVE INTERNAL Strengths 1. Financially sound with good profit margins 2. Established name among customers 3. Offers quick modern services 4. Initiates Brand strategies 5. Many distribution channels 6. offers long-lasting, fashionable clothes by a variety of established designers 7. Sound management Weaknesses 1. Few branches across the United Kingdom 2. Poor planning in terms of staffing and training 3. Integration of operations worldwide 4. High prices 5. No product differentiation 6. Poor planning in budgeting and documentation EXTERNAL Opportunities 1. Emerging Markets in other parts of the United Kingdom and elsewhere 2. A number of interested companies to be shareholders including palisade Plc 3. Can use e-marketing strategy to further enhance market base 4. Support from Palisade Plc Threats 1. Stiff Competition from other clothing business providers in the United Kingdom 2. Competition from similar Business offering same services at cheaper prices 3. Government Regulation –business overregulated Porters Five Forces Analysis of Jengo This framework was developed by Michael Porter. The tool essentially enables businesses to deal with dynamic markets, gauge competitive ground and make decisions regarding entering target markets successfully (Friedman 1999, p. 5, Hoffman 2001). Further, it enables in identifying partner as well as implications that joint ventures may pose (Bradford & Duncan 1999). This is done by evaluating the following five key areas as espoused by Porter: New Entrants: At the moment for Jengo, there seems to be many potential businesses that may want to venture into clothing, fashion and design business. Buyer’s Power: The buyers that Jengo has seem to be solid. However, they seem to complain about prices. Alternatives should be provided since they may shift their loyalty. Substitute Products and Services: Certainly, there are alternatives to what Jengo does and this may invite donors to look elsewhere. Power of Suppliers: The suppliers for Jengo are few and this means that they determine a great deal especially in strategy formulation within the company. Current Competition: Competition does exist as there are many companies who offer the same products even at lower prices. Factors to investigate: Preparing forecasts PESTEL analysis evaluates the macro-environment of a business entity (Bradford & Duncan 1999). In so doing Political, Economic, Social-Demographic, Technological, Environmental and Legal-Regulatory aspects are examined (Bradford & Duncan 1999). Jengo Limited operates in the United Kingdom which is at the moment experiencing sound political stability. The most influential actors are the Local Authorities which regulate businesses in the UK. In the Economic front Jengo is financially sound regardless of the fact UK economy will still be suffering from the world recession well into 2011. However, it seems it will be facing stiffer competition since a number of companies will be getting into the business while its strength will remain predominantly pegged on its quality clothes which are regarded by consumers as durable, fashionable and responds to current market trends. Besides, the clothes are made in low-cost countries and thus importing them is not necessarily expensive. Socio-demographically, Jengo Limited sits in a well-off population where people move with fashionable trends and yearn for quality clothes (both of which comprise its strengths). Birmingham, where one of its branches is located is densely populated with clothes consumption patterns characterized by responsive high income personalities. There seems to be no major socio-demographical shifts in the consumer attitudes that may affect Jengo as a business entity. However, with population growth in the UK and the world over changing coupled with migration especially of students from the developing world seeking higher education, there is a likelihood of increased consumption of its products. Further, there is a growing dress-sense among the youth today and Jengo is cognizant of this. Technologically, Jengo Limited seems to be lagging behind because it is yet to start an online shop regardless of the fact that online marketing and e-trading are increasingly becoming the norm rather than exception for many clothing lines according to Jackson (2003). The only technological advantage it enjoys is that the manufacturers are technologically savvy. Environmentally, Jengo should consider the rate at which it extracts raw materials for the production of clothes and the effect it has on the environment. Legally, the operating environment for clothing business is overregulated by the government and the organization ought to watch out for any likely legal policy interventions. For example, are the House of Commons and the Local Government likely to take clothing business seriously in the United Kingdom and put away some regulations? Will there be bottlenecks or incentives offered? Budgeting: Planning, control of its inventory, recruitment and cash management Budget has been defined by Dana (2004, p. 89) as “a financial or quantitative statement prepared and approved, prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining given objectives…”. Overall, budgets are employed as tools for achieving planning and control objectives in businesses. Budgeting and budgetary control are important components in a business in a number of ways and would certainly be beneficial to Jengo Ltd first being in planning. Budgetary control begins with the top management of an organization and for Jengo it would determine the nature and scale of activities which should be carried out. It will certainly enable the management to plan its activities within the current capacities and capabilities and being cognizant of both its strengths and weaknesses (Lalitha & Rajasekaran 2011, p. 57). It will also facilitate decision making regarding the nature of its products and the work force. Moreover, it will be helpful in designing the framework for the entire corporate planning and budgets that will follow thereafter. Besides it will also be instrumental in forecasting while being aware of external factors. Budgeting certainly for Jengo Ltd will factor in issues such as taxation, current inflation rates and other economic hurdles and technological factors such as use of internet and social network sites as market and awareness creation tools in its planning (Habour 1997, p. 108). Overall, budgeting helps in determining policy directions and interventions. In the end budgeting helps a company to prepare business plans. Budget will establish and provide avenues for making a detailed business plan for the organization both in terms of business ventures it wants to engage in and long-term projects. Using the confines of its budget, Jengo will be able to determine the target groups for its plans and establish the requirements of the plan, map out the contents of the plan and the major details to be dealt with, including the financial ones (Habour 1997, p. 109). According to Lalitha and Rajasekaran (2011), in recruitment, budgeting plays a pivotal role and is instrumental in Jengo’s recruitment endeavors. Budget, especially a direct labor budget will be prepared out of the general budget in line with activities that the company will endeavor to achieve. In Jengo, this will follow a more accurate determination and forecasting of the expenditure that should be used on labor related activities. It should obviously be aware of the available skilled, semi-skilled and skilled labor force to steer its operations and objectives (Lalitha & Rajasekaran 2011, p. 51). In terms of inventory control, budgeting is significant as well and will also apply to Jengo Ltd. Usually budgeting facilitates financial manager’s control over company’s cash flow, investments (long term and short term) as well as overseeing the accounting and budgetary systems (Lalitha & Rajasekaran 2011, p. 51). This way budgeting will be crucial to Jengo since it generally enables the company to have sufficient cash flow to support daily operational activities. Friedman (1999, p. 106) states that budgeting again helps in making short term arrangements and allocating funds needed for corporate responsibilities. Often times through budgeting, the management team usually administers the budgetary control and costing system (Friedman 1999, p. 104). In so doing, it will enable the company to plan in advance its profits or likely losses and thus establish a specific financial standpoint. Further, this facilitates the business to take control as well as make reports of money spent on operations. Out of this a master budget is made and this kind of budget is a summery of all the cost centers and company’s departments. Additionally, inventory control would enable the company to carry out other accounting activities such as paying wages, salaries, “… depreciation of fixed assets, maintaining shareholder records, and paying shareholders dividends” (Friedman 1999, p. 104). Balanced scorecard approach at Jengo Ltd Originally, founded by Kaplan and Norton in the year 1992 at the Harvard Business School, the Balanced Scorecard (BSC) is increasingly used in measuring business performance. The advantage of using the balanced score card is that it measures performance from a wide range of perspectives when compared to the other types of measurements (Johnson 2010 Pg 7). This is certainly good for Jengo. The perspectives include financial, customer relations, internal business processes as well as innovation and learning perspectives. The other advantage of BSC that Jengo should factor in is that the system takes care of lagging and leading performance measures in business. This way it balances off the perspective and conceptualization of the entire business performance. In this, the system uses leading indicators such as “on-time delivery, employee performance and competency, customer satisfaction among others” (Johnson 2010, pp. 7-8). For the lagging indicators, the ones examined include revenue growth for the company and its level of profitability. Additionally, BSC system has been praised since it enables businesses to be acutely aware of the various levels of staff within one tooling or system which can be implemented more successfully. For Jengo Ltd, which is a commercial entity, the model will be beneficial in a number of ways including translating its strategies such as business plans to a more and easily comprehensible operational parameters and objectives, streamlining the organization within one comprehensive strategy as well as establishing strategies that are comprehended easily within the entire workforce and other organizational stakeholders (Habour 1997). In addition, as noted by Lalitha, & Rajasekaran (2011), it will enable Jengo to formulate strategic measures to improve its operations and profits besides facilitating effective changes needed in the organization’s management. To demonstrate how important Business Scorecard would be for Jengo, the use of two of BSC quadrate would be useful namely Financial Prospect and Internal Business Prospects (Lalitha, & Rajasekaran 2011, p. 78). For the financial prospect, the issues that Jengo would capture here include cash flow, business projects profitability and issues to do with the amount of capital employed for the business in a specific period of time. For Internal Business Perspective the factors captured would include working environment, internal safety standards and the project cycle. Conclusion Performance Measurement is vital for businesses and certainly for Jengo. If a business entity like Jengo does all that is right, the information that it would identify and generate will determine and show the current position of the business, how it is conducting its projects and operations and where the business is headed. Whereas Jengo seems to get a number of things right, it does not necessarily mean it is on a smooth ride in various perspectives especially in its forward planning. It must take advantage of the perceived emerging market by going into e-marketing and e-trading and develop adequate policy interventions that would enable it to penetrate the market sufficiently and attract customers. References Bohm, A 2008, The SWOT analysis, Nordestedt, Books on Demand. Bradford, R and Duncan, P 1999, Simplified strategic planning: The no nonsense guide for busy people who wants results fast, Chandler House Press. Dana, P 2004, Handbook of research in international entrepreneurship, Northamptom, Edward Edgar Publishing Inc. Habour, J 1997, The basics of performance measurement, New York, Productivity Press. Hoffman, DL et al. 2001, Commercial Scenarios for the web: Opportunities and Challenges, Journal of Computer Mediated Communication. Friedman, T 1999, The lexus and the olive tree, New York, Optimistic Analysis. Jackson, T 2003, Understanding organizational productivity, Communications of t he ACM. Johnson, C 2010, Introduction to the balanced scorecard and performance measurement Systems. Jones, G 2000, Merchants to multinationals: British trading companies to in the nineteenth and twentieth century. New York. Oxford University Press. Lalitha, R & Rajasekaran 2011, Cost accounting, NewDelhi, Pearson Eduaction India. Read More