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Management

A concise introduction

by Richard Pettinger

Chapter 14

You need to know how accounts are constructed and what they show you – and what they do not show you. You need especially to be aware of the fact that accounts are constructed for the purpose of meeting statutory requirements and demonstrating a summary of the company and organisation financial performance – accounts are not a management information system, though you do need to read them in conjunction with other performance measures. You need to look at accounts also from the point of view of examining trends – for example:
  • if costs are rising then the reasons for this need to be examined and agreed
  • if profits are rising then you need to know what is driving this – is it all aspects of the organisation’s performance, or is it one or two activities only
And so on. Accounts are therefore a very useful and valuable starting point for addressing and assessing performance; you then need to relate what the accounts show to everything else that is going on.

You need statistical and mathematical knowledge in order to be able to make sense of all of the data that comes your way, and again in order to be able to support and justify the decisions that you take and the assertions that you make about all aspects of business and management.

You need to be able to use data to support and justify and sometimes defend decisions and proposals that you make. You need to be able to use data and statistics to support project and operations management reports, sales efforts, production and productivity issues. Data is also needed for things like: accidents; disputes and grievances and other HR matters.

You need to be able to have available data that shows how long it takes for new products and services to get to market; the percentages of new products and services inventions and developments that do make it to market and profitability. You need data that shows where blockages and hold ups occur, and the consequences of these in terms of lost production and output.

You need market knowledge and data that shows and supports your knowledge of customer behaviour and attitudes to your products and services, why they are loyal to you (or not), and what it is that makes it come to you (or not). 

A note on business analytics
Business analytics has become a key part of management inquiry and development over the past few years. At the point of impact, business analytics provides data and information sources which support and underpin particular decisions and lines of reasoning. Consultancies and professional services firms provide the analytical services that enable your data to be presented in ways that are of value to particular organisations and particular activities within organisations. For example: If you go to each of these websites, you will gain a sound insight into how analytics services are delivered, and how each of these companies pitches the value that is added by having a sound information base for every decision that is taken, and every business venture that is contemplated. These companies (and indeed analytics also) additionally gain and deliver data based information on the costs, benefits and consequences of going ahead with particular initiatives; and so they therefore identify what is to happen once you have gone ahead with something, as well as informing decisions in advance of going ahead.

Most top universities and business schools now teach analytics as a key part of their undergraduate, postgraduate and executive programmes.

Additional readings

Key readings here are:
  • R Kaplan and D Norton (1998) The Balanced Scorecard – Harvard
  • R Pettinger (2002) Measuring Business and Managerial Performance – Pearson
  • T Leahy (2011) Management in 10 Words – Random House
All of these sources emphasise the crucial need to take a multiple approach to managing and evaluating performance. They all come from very different perspectives: Terry Leahy is an expert and highly successful practitioner, Richard Pettinger is an adviser and performance analysts, and Kaplan and Norton have produced a substantial evaluation based on evaluating a great range of companies and their managers.

Case studies and examples

Comment on the performance of the following. From what points of view are each successful; failing/failures; by what measures should you be assessing the performance of each; and what improvements are you wanting to see and by when?

Polar Kitchens Ltd, a manufacturer and distributor of kitchen units and appliances,  had a string of customer complaints from people who had purchased the kitchen units that they supplied. The doors of the units kept falling off. The company attitude immediately was:
  • how many complaints;
  • would they get sued if they did nothing about them;
  • what about bad press?
Virgin Virgin produced a top quality cola drink with which it hoped to rival Coca Cola and Pepsi. Virgin Cola came out best in blind product testing. Without knowing who had made it, and tested against Pepsi, Coca Cola and supermarket brands, Virgin Cola was rated the highest for taste by those involved in the blind tasting process. Accordingly, the Virgin group announced a major move into cola products. The venture failed however.

HSBC In line with many other banks and finance companies, HSBC outsourced many of its technology and customer service functions to specialist companies, based in Ireland, India and Poland. The move led to a universal downturn in the company’s customer service ratings. When asked to justify why they had done it, HSBC stated that it reduced costs. Subsequent research and analysis showed that in fact costs had risen sharply. HSBC nevertheless persisted (and persist) with this approach.

Ford motors introduced the Zetec range of cars in 1999. It was a brand new design and a pioneer in mid-range car production and delivery. Very quickly it became clear however that there were problems with the tyres. The wheels were a brand new and unique dimension also, and so Ford had had to commission new tyres. They went to an unknown high volume supplier of cheap tyres. It then became clear that the tyres could not support extensive usage by the vehicle, and that in particular they blew out when used for extended periods of long distance travel and motoring. The question arose: how to manage the performance of a popular new model without destroying confidence and reputation?

The Shard is the tallest building in London. It has office facilities and is located at a convenient and increasingly prestigious address near London Bridge near the riverside in central London. It also has a viewers’ gallery at its pinnacle, for which it charges £20 per visit.

Discussion questions

Why do managers and many others simply use finances as their main means of measuring performance? What are the consequences of this and why?

How would you measure the performance of:
  • Manchester United FC
  • Walsall FC
  • NASA
  • Virgin Atlantic
  • Apple

on a daily, weekly, monthly and annual basis? What measures are you going to use and why? Who is going to apply them and why? Which of these measures is the most influential and why?

Why do so many people who are bullies get moved on within large organisations rather than dismissed? What does this say about corporate attitudes to performance?

The singer Mariah Carey lost her contract with Sony/Columbia records because one of her albums only sold 33 million copies. What does this say about the approach to performance assessment of both Mariah Carey and Sony/Columbia?

Web links to other examples, materials and sources

There is an excellent range of material available on the balanced scorecard website, which was established by Kaplan and Norton after the publication of their work as above. This is at
www.balancedscorecard.com

Additionally, you should also look at how companies and organisations measure their own efforts in terms of how they write things up in their annual reports.

You can also look at websites like Opta
www.opta.com
Opta is a sports statistics website which gives data and statistics on players, teams, clubs and national sides in a variety of games, including football, cricket, rugby and tennis. The purpose of getting you to look at this (whether or not you are interested in sport), is to show you the vast amount of data that can quite easily be gathered and analysed in order to support judgements and opinions about how someone or something is performing.