Question Tag: Benchmarking

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  • 20 Marks

MA – Aug 2022 – L2 – Q1 – Other aspects of performance measurement

This question asks about the Balanced Scorecard concept, its differences from traditional measures, and benchmarking to improve company performance.

Ancient Ltd is a company engaged in the assembling and selling of computers, mobile phones, and their accessories. This company has been the market leader for the last 5 years in this field but is now incurring losses due to decreasing demand and escalating production costs. Currently, the company evaluates its performance using financial measures. The managing director of Ancient Ltd has learned at a recently attended workshop that the concepts of Balanced Scorecard and Benchmarking could be used to improve the performance of organizations. It was also noted that the Balanced Scorecard should be considered at the strategic planning stage in order to set smart objectives.

Required:
a) Explain the concept of the Balanced Scorecard approach to performance measurement.
(2 marks)

b) State TWO (2) differences between the Balanced Scorecard and Traditional Performance measures.
(3 marks)

c) Explain the role of each perspective of the Balanced Scorecard approach at the strategic planning stage. (You are required to give an example of performance measures for each perspective.)
(8 marks)

d) How can the concept of benchmarking be used to improve the performance of Ancient Ltd.?
(3 marks)

e) Explain with an example, how benchmarking could be used to improve performance measures in relation to the customer perspective of Ancient Ltd’s Balanced Scorecard.
(4 marks)

a) Balanced Scorecard (BSC)
Traditional methods of performance measurement focus only on financial measures such as profit, ROI, etc., which are derived from historical data without any future incorporation. The Balanced Scorecard breaks away from these traditional concepts and proposes, in addition to financial measures, three non-financial performance measurement areas for organizations, namely:

  • Customer perspective
  • Internal business perspective
  • Innovation and learning perspective.
    (2 marks)

b) Differences between Balanced Scorecard and Traditional Approach

  • The Scope: BSC covers financial and non-financial performance measures, whereas the traditional approach focuses solely on financial measures.
  • Decision-making: BSC leads to optimal decision-making by considering all performance measurements, unlike the traditional approach, which concentrates only on profit.
    (2 points @ 1.5 marks = 3 marks)

c) BSC at Strategic Planning Stage
BSC helps set strategic objectives in all four perspectives:

  • Customer Perspective:
    The organization should ask, “To achieve our vision, how should we appear to our customers?” Objectives could include:

    • New customer acquisitions (e.g., 40% increase)
    • Customer retention (e.g., 95% retention ratio)
    • On-time delivery (e.g., 98% delivery rate)
    • Customer complaints reduction to 1%.
  • Internal Perspective:
    The organization must ask, “What must we excel at to achieve our financial and customer objectives?” Objectives could include:

    • New product introduction (e.g., introduce 4 new products next year)
    • Percentage of sales from new products (e.g., 20% of sales)
    • Reduction in production losses (e.g., 2% reduction)
  • Learning and Growth Perspective:
    Organizations must continue to improve and create value by investing in infrastructure, people, systems, and organizational procedures. Objectives could include:

    • Employee skill level
    • Training availability
    • Employee satisfaction (e.g., reduce turnover to 0.5%)
  • Financial Perspective:
    Organizations must address how to create value for shareholders. Objectives could include:

    • Sales growth (e.g., 40%)
    • Gross profit ratio (e.g., 30%)
    • Return on Investment (e.g., 25%)
    • Unit cost reduction by 20%.
      (2 marks for 4 perspectives = 8 marks)

d) Benchmarking
Benchmarking is the continuous search for and adaptation of significantly better practices that lead to superior performance. This is done by investigating the performance and practices of other organizations, such as industry leaders or similar industries. By adopting these best practices, Ancient Ltd. can elevate its performance to industry-standard levels.
(3 marks)

e) Benchmarking and Customer Perspective
Benchmarking can improve customer perspective performance by adopting best customer-oriented practices from other organizations. For example:

  • Adopting the market leader’s customer complaints handling procedures.
  • Improving after-sales procedures by using best practices.
  • Enhancing invoicing and product delivery systems according to industry best practices.
    By adopting such practices, Ancient Ltd. can improve performance related to customer satisfaction.
    (4 marks)
  • 10 Marks

MA – May 2020 – L2 – Q2a – Other Aspects of Performance Measurement

Discuss four management concepts that can be used by a management accountant to achieve customer satisfaction.

a) Given the dynamic environment within which organisations operate, the Management Accountant’s role has evolved to include providing information that would assist the firm to design strategies geared towards achieving competitive advantage through sustained customer satisfaction. These strategies target key success factors which include cost efficiency, quality, time, and innovation because of the value placed on them by customers.

Required:

i) Discuss FOUR (4) management concepts that the Management Accountant can use to achieve customer satisfaction. (8 marks)

ii) State FOUR (4) questions that a good decision maker might pose in order to make an assessment of the value of information. (2 marks)

i) Total Quality Management (TQM):
Total Quality Management is a term used to describe a situation where all business functions are involved in a process of continuous quality improvement that focuses on delivering products or services of consistently high quality in a timely fashion. Through TQM, organizations seek to increase customer satisfaction not only by emphasizing quality products and services but also by providing speedier responses to customer requests.

Benchmarking:
Benchmarking is a technique that is increasingly being adopted as a mechanism for achieving continuous improvement. It is a continuous process of measuring a firm’s products, services, or activities against other best-performing organizations, either internal or external to the firm. It enables organizations to achieve high competitive standards desired by customers.

Employee Empowerment:
Employee empowerment relates to providing employees with relevant information to enable them to make continuous improvements to the output of processes. This empowerment allows employees to respond faster to customers, increase price flexibility, reduce cycle time, and improve morale.

Value Chain Analysis:
Value chain analysis is the linked set of value-creating activities from basic raw material sources or component suppliers through to the ultimate end-use product or service delivered to the customer. Value is created through research and development, design, production, marketing, distribution, and customer service. Coordinating the individual parts of the value chain together to work as a team creates the conditions to improve customer satisfaction.

(Any 4 well-explained points @ 2 marks each = 8 marks)

ii) Questions for assessing the value of information: These include:

  • What information is provided?
  • What is it used for?
  • Who uses it?
  • How often is it used?
  • Does the frequency with which it is used coincide with the frequency with which it is provided?
  • What is achieved by using it?
  • What other relevant information is available which could be used instead?

(Any 4 points for ½ a mark = 2 marks)

  • 6 Marks

MA – April 2022 – L2 – Q1c – Performance analysis

Explain the different types of benchmarking relevant to the CEO of Gyakie Ltd.

Gyakie currently faces tough competition with the major players in its market. To secure or increase its market position, the CEO has suggested a benchmarking exercise, although he has little knowledge in benchmarking exercises.

Required:

Explain the meaning of the following types of benchmarking to the CEO:

i) Internal benchmarking (2 marks)

ii) Competitive benchmarking (2 marks)

iii) Functional benchmarking (2 marks)

i) Internal Benchmarking:

This involves the comparison of one business unit with another unit within the same organization, especially as part of “rolling out” process improvements or of a highly structured business model. It is less about benchmarking in the true sense (which by definition involves “trying to improve”) than about trying to replicate an existing process that is already perceived as optimal.

ii) Competitive Benchmarking:

Competitive benchmarking is the process of comparing your company metrics against competitors and the overall market. Essentially, it is a method that helps businesses evaluate their performance, pinpoint best industry practices, and initiate their adoption to keep an edge over the competition.

iii) Functional Benchmarking:

This type of benchmarking is carried out with another business partner where there are common business processes but no competition between the firms involved because of the markets they serve.

  • 16 Marks

CSEG – May 2017 – L2 – Q6a – Strategy evaluation and control

Discuss strategic issues for Adama Group and explain how the Balanced Scorecard can be used to monitor performance.

The chairman of Adama Group, which is large and diversified, has expressed concern about the inadequacies of the present voluminous monthly reports submitted to the Board. He acknowledges that it compares budget and actual results for all operations, and that it contains extensive reporting of non-financial indicators such as customer satisfaction and factory performance towards Total Quality Management (TQM). However, he regards much of this as operational detail, and considers that the report should place more emphasis on strategic issues.

A strategy consultant is currently assisting the Group to implement a Balanced Scorecard to effectively monitor the performance of managers.

Required:

i) Explain THREE strategic issues that should engage the attention of the Board of Directors of Adama Group. (6 marks)

ii) Explain how Balanced Scorecard can be used to monitor and measure performance in Adama Group. (10 marks)

i) Strategic Issues for the Board of Adama Group:

  1. Long-term Growth and Expansion: The Board should focus on the strategic issue of long-term growth and expansion. This involves setting objectives related to market expansion, diversification, and new product development. The Board must ensure that the company’s growth strategies are sustainable and aligned with its overall vision.
  2. Risk Management: Effective risk management is another strategic issue that should engage the Board’s attention. The Board must assess the potential risks associated with the company’s operations, such as financial risks, market risks, and operational risks. They should ensure that appropriate risk mitigation strategies are in place to protect the company from unforeseen challenges.
  3. Sustainability and Corporate Social Responsibility (CSR): The Board should also consider the strategic importance of sustainability and CSR initiatives. This includes integrating environmental, social, and governance (ESG) factors into the company’s business strategy to enhance long-term value creation and fulfill the company’s responsibilities to stakeholders.

(Total: 6 marks)

ii) Balanced Scorecard for Performance Monitoring and Measurement:

The Balanced Scorecard (BSC) is a strategic management tool that provides a framework for monitoring and measuring organizational performance from multiple perspectives. For Adama Group, the BSC can be used as follows:

  1. Financial Perspective: The BSC will allow Adama Group to monitor financial performance beyond traditional measures such as profit and revenue. Key performance indicators (KPIs) may include return on investment (ROI), economic value added (EVA), and cash flow. This perspective helps the Board assess whether the company is achieving its financial objectives and delivering value to shareholders.
  2. Customer Perspective: The BSC can measure customer satisfaction, retention rates, and market share. This perspective ensures that the company remains competitive and responsive to customer needs, which is critical for sustaining revenue and profitability.
  3. Internal Business Processes Perspective: This perspective focuses on the efficiency and effectiveness of internal operations. KPIs might include cycle time, quality control measures, and process improvement initiatives. By monitoring these metrics, the Board can ensure that the company’s internal processes are aligned with its strategic goals and contribute to overall performance.
  4. Learning and Growth Perspective: The BSC can also be used to track employee development, innovation, and organizational culture. KPIs may include employee satisfaction, training hours, and the number of new products or services launched. This perspective helps the Board assess the company’s ability to innovate, improve, and sustain its competitive advantage over time.

(Total: 10 marks)

  • 10 Marks

CSEG – Nov 2017 – L2 – Q6a – Strategy evaluation and control

Explain the concept of benchmarking and identify the advantages that companies gain from benchmarking.

In the business world, companies use benchmarking as a point of reference. Benchmarking occurs across all types of companies and industries. Many companies have positions or offices that are in charge of benchmarking.

Required:

i) Explain the term benchmarking. (2 marks)

ii) Explain FOUR advantages companies gain from benchmarking. (8 marks)

i) Explanation of Benchmarking:

Benchmarking is the process of gathering data about targets and comparators that permit current levels of performance to be identified and evaluated against best practices. It involves comparing an organization’s processes, practices, and performance metrics to those of industry leaders or competitors to identify areas for improvement. The goal of benchmarking is to adopt the best practices identified through the comparison to enhance the organization’s overall performance.
(2 marks)

ii) Advantages of Benchmarking:

  1. Position Audit: Benchmarking allows companies to assess their existing position by comparing it to industry standards or best practices. This helps identify gaps in performance and areas where improvements are needed.
  2. Focus on Improvement: Benchmarking provides a clear focus on the improvement of key areas. By identifying best practices, companies can set challenging but achievable targets, driving continuous performance enhancement.
  3. Encourages Innovation: The process of benchmarking often involves sharing information and learning from other organizations, which can be a spur to innovation. Companies can adopt new ideas and strategies that have been successful elsewhere.
  4. Improved Performance: By adopting best practices identified through benchmarking, companies can improve their performance, particularly in cost control, quality, customer satisfaction, and operational efficiency. This can lead to a competitive advantage in the marketplace.

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