ORGANIZATIONAL STRUCTURES
Functional Structure
- Grouped by tasks
- Centralized decision-making
Information Needs
- Data passed from
functional to senior
management
- Aggregated and analyzed
by senior management for
planning and control
Implications for
Performance Management
- Advantages:
- Economies of scale
- Standardization of outputs
and systems
- Comfort for specialists
- Career opportunities
quality
- Disadvantages:
management
- Empire building and
conflicts between
functions
- Slow adaptation to
market changes
- Inability to cope with
functions
rapid growth or
diversification
Divisional Structure
- Divided into divisions
- Decentralized decision-making
Information Needs
- Lower hierarchy needs
information due to autonomy
and decision-making
- Senior management measures
and controls divisional
performance
Implications for
Performance Management
- Advantages:
- Enables growth and
diversification
- Clear responsibility
- Training of general managers
- Decision-making speed and
- Strategic focus for top
- Goal congruence
- Controllability
- Interdependence of divisions
- Head office costs
- Transfer prices
- Duplication of business
 RESPONSIBILITY ACCOUNTING

- System of accounting based on identifying parts of a business

(responsibility centres) under the control of a single manager

Areas of Responsibility:
- Cost Centre
- Profit Centre
- Investment Centre

- Divisional structures align with responsibility accounting

- Each division acts as a responsibility centre

Importance of Accountability:
- Divisional managers should be held accountable only for areas
they can control

Information Requirements:
- Correct information
- Correct form
- Correct intervals

Management Accounting Systems:

- Designed to reflect responsibility structure
- Trace costs and revenues to responsible managers

Senior Management:
- Measures and controls division performance
- Uses similar performance measures as overall organization
NETWORK (VIRTUAL) STRUCTURES

Characteristics:
- Few or no physical premises
- Remote work and virtual teams
- IT connectivity for collaboration and coordination
- Integration of suppliers and customers

Information Needs:
- Co-ordination, communication, and decision-making
- Sharing of knowledge, skills, and resources
- Control through shared goals and targets

Implications for Performance Management:

Advantages:
- Flexibility for project-specific needs
- Assembly of components for market opportunities
- Competitiveness with larger organizations
- Lower costs due to low asset investment

Disadvantages:
- Difficulty establishing cohesive teams and common goals
- Loss of control and potential problems (e.g., quality, risk)
- Challenges in knowledge sharing, leadership, and monitoring
- Difficulties in planning and control using traditional methods
- Risk of information confidentiality
- Integration and compatibility issues
- Potential reduction in competitive advantage
SERVICE LEVEL AGREEMENTS (SLAs)

Key Components:

1. Common Goals and Measures:

- Agreement on shared objectives and performance metrics.

2. Areas of Responsibility:
- Identification of each partner's responsibilities.
- Actions to be taken if Key Performance Indicators (KPIs) are not
met.

3. Activities and Minimum Standards:

- Clear definition of expected activities and minimum quality
standards.

4. Confidentiality Agreement:
- Agreement to maintain confidentiality of information.

5. Workforce Standards and Procedures:

- Agreement on standards and procedures for the workforce.
- Consideration of additional management actions (e.g., payment by
results, cultural controls).

6. Information and Reporting Procedures:

- Defined information and reporting processes.
- Possible use of a common interface system for data gathering.

Benefits of SLAs:
- Addressing problems and challenges in virtual structures.
- Establishing clear expectations and accountability.
- Enhancing communication and collaboration.
- Facilitating effective performance management.
Joint Venture
Definition
(JV Entity)

Reasons to Form a JV
- New product development
- Market expansion
- Resource sharing
- Cost sharing
- Risk sharing
- Skills and expertise

Examples of Successful JVs

- Ford and Toyota (Hybrid trucks)
- Samsung and Spotify (App integration)

Challenges in JVs
Planning Performance Control
Difficulties Measurement Difficulties
- Differing - Lack of - Comparing
objectives common IS actual vs.
- Time scales - Reluctance target performance
- Risk appetites to share info - Accountability
- Resource - Disagreements attribution
allocation on measures

Planning Difficulties
- Lack of common goals, measures, and targets
- Challenges in resource and cost sharing
- Geographic, cultural, and management differences
- Need for effective JV board

Performance Measurement Difficulties

- Lack of integrated or common IS
- Reluctance to share necessary information
- Disagreements on calculation of measures

Control Difficulties
- Comparing actual performance to targets
- Attribution of accountability in diverse skills
Strategic Alliances
Definition

Similarities with JVs

- Formation reasons
- Performance challenges
- Performance measurement

Unique Aspects of Alliances

- No separate entity formed
- Greater flexibility
- Challenges:
- Establishing common goals
- Collecting and sharing information
(more difficult due to independence)
- Security of information (lack of separate entity)
- Lack of other benefits associated with
a separate legal entity

Strategic Alliances
Definition

Similarities with JVs

- Formation reasons
- Performance challenges
- Performance measurement

Unique Aspects of Alliances

- No separate entity formed
- Greater flexibility
- Challenges:
- Establishing common goals
- Collecting and sharing information
(more difficult due to independence)
- Security of information (lack of separate entity)
- Lack of other benefits associated with
a separate legal entity
Needs of Modern Service Industries

Characteristics
(Challenges for Performance
Management)

- Unique set of characteristics

- Overheads as a significant cost
- Services consumed at the time of purchase
- Costing system and cost tracing

Measuring Service Quality

(Competitive Advantage based on)

- Soundness of advice given

- Attitude of staff
- Ambience of premises
- Speed of service
- Flexibility/responsiveness
- Consistent quality

Role of Management Accountant

(In identifying KPIs and providing insights)

- Identifying appropriate KPIs

- Assembling KPI information
- Analyzing information for insights
- Guiding the organization based on insights
- Supporting strategic objectives

Technology as an Enabler

- Management accounting system capabilities

- Assembling and analyzing relevant information
- Presenting information effectively
- Facilitating timely and effective decisions
Business Integration and Value Chain

Business Integration
(Alignment of all aspects)

- Efficient use of resources

- Effective achievement of objectives
- Consideration of the entire process

Hammer and Davenport's Solution:

(Linking operations, people, strategy, and technology)

1. Processes as complete entities

2. Use of IT for integration

Frameworks for Integration

Porter's Value Chain Model

- Activities that create value and drive costs

- Focus on improving value-creating activities
- Primary activities (customer interaction and value)
- Secondary/support activities
Value System and Value Chain

Value System in Organizations

- Links the value chains of suppliers, customers, and the

organization
- Organization's performance depends on managing the value system

Uses of Value Chain in Performance Management

- Strategic Analysis:
- Identify strengths and weaknesses
- Focus on adding to competitive advantage

- Ongoing Performance Management:

- Emphasize Critical Success Factors (CSFs) in each activity
- Set and monitor targets accordingly

- Consideration of Support Activities:

- Highlight the importance of support activities (e.g., HRM)
- Avoid dismissing support activities as overheads

- Highlighting Linkages Between Activities:

- Value creation through linking activities
- Free flow of information across activities and departments
- Job descriptions and reporting reflecting activities

- Extension to Value Chains of Key Stakeholders:

- Consider value chains of customers and suppliers
- Address stakeholder needs
- Ensure consistency across the value chain
McKinsey's 7S Model

Organisation as Seven Interrelated Elements

Hard Elements Soft Elements

Strategy Skills
(Overall strategy) (Employee skills aligned
with goals)
Structure Staff
(Organizational (Types of employees,
structure) remuneration packages)
Style
Systems (Corporate culture)
(Processes, procedures, - Management style
information systems) - Interactions with staff
- Interaction with stakeholders

Shared Values
(Organizational mission)
- Alignment of attitudes,
beliefs, and behaviors
- Achievement of mission
and objectives

Use of McKinsey 7S Model

- Identify realignment needs for performance improvement

- Maintain alignment and performance during periods of change
(e.g., restructuring, new systems, change in leadership)
- Enhance performance through alignment of elementsMcKinsey's 7S
Model
Business Process Re-engineering (BPR)

Definition:
- Fundamental rethinking and radical redesign of business
processes
- Aims for dramatic improvements in performance measures

Influence on the Organization:

- Crosses departmental lines for efficient product/service
delivery
- Requires a cultural shift towards process teams over
functional departments
- Requires employee retraining and leadership from senior
management
- Results in more automation and increased use of IT/IS

Benefits of BPR:
- Encourages long-term strategic view aligned with corporate
goals
- Focuses on customer needs for sustained competitive
advantage
- Provides workers with autonomy and flexibility to improve
decision-making
- Reduces organizational complexity and costs through
process simplification
- Allows for overhead savings through staff reorganization
into multi-disciplinary teams

Weaknesses of BPR:
- Additional costs for new systems and staff retraining
- Decline in morale due to staff cuts and perception of
cost-cutting focus
- Staff may feel devalued with changes in roles and goals
- Loss of coordination and communication with middle
management reduction
- Potential adverse consequences of outsourcing on quality
and flexibility
- Limited future-oriented approach, focusing on improving
the past

Influence on Systems Development:

- Need for specialized systems to monitor and control
performance
- Shared database accessible by multidisciplinary teams
- Real-time updates and integration with stakeholders'
systems
- Provision of financial and non-financial performance data
- Budgetary information and performance data for teams

Reward System Alignment:

- Align payment of bonuses to new performance measures
- Increase in basic remuneration to reflect increased
skills, autonomy, and responsibility