Measuring, monitoring and rewarding

Accounting Ahead | Original study resource | accountingahead.com.au

Measuring, monitoring and rewarding

MODULE 6 | 6.5 | STUDENT COMPANION

Implementation must be watched and adapted continuously, so managers respond to emerging

circumstances, keep learning and avoid clinging to plans that have gone out of date. Some organisations

build a digital model of themselves (a 'virtual twin') to test choices: how well resources are coordinated,

how far the culture supports the strategy, how well people are developed, and whether costs match

priorities.

Performance measurement essentials

Requirement Detail

Cause and effect A clear link between each indicator and the strategic outcome it tracks

Careful choice Indicators shape behaviour, so choose them deliberately

Managers must... know the goals and chosen options; express goals in measurable terms; know where

they stand today; understand the resources needed; communicate goals and plans, with

key people accountable

Foundations Planning and control, plus committed people, well-organised resources and quick

reactions to competitors (Grant, 2010)

The balanced scorecard in implementation (imagined measures)

The scorecard (Module 3) helps people understand the strategy, maps it to actions and owners, breaks down

information silos and reduces disputes over resources. Some add environmental and social measures.

Perspective Corella Partners measure

Financial Growth in advisory revenue

Customer Client satisfaction after each engagement

Internal processes Days to deliver each monthly client dashboard

Learning and growth Staff qualified as advisers

GLOBAL STRATEGY AND LEADERSHIP | M6 | 6.5 | STUDENT COMPANION

1

Accounting Ahead | Original study resource | accountingahead.com.au

Three kinds of dashboard

Program dashboard

Every project in a program: budgets,

schedules, contingencies. Used by the

program manager

Project dashboard

Milestones, budget, schedule, risks and

issues for one project. Used by the

project manager

Strategic dashboard

The whole strategy: internal and

external data against benchmarks.

Used by top management

Traffic lights make problems stand out, and one data source gives everyone the same picture

Corella's strategic dashboard (imagined) shows advisory revenue as a share of fees, client satisfaction, the

share of compliance work automated, staff turnover and each program's status. When advisory revenue lags in

two offices, the managing partner drills down: too few proposals, or too few acceptances? Dashboards take

effort to build and are only as good as their data; CPAs help make sure measures are reliable and measure what

they claim.

Watching the environment. Digital disruption, global supply chains, internet-based rivals and economic turmoil

make the environment hard to predict, and some issues are 'wicked problems' with no neat definition or solution.

Usually the strategy stays and only its implementation adapts, unless there is a major shift such as legislation

that blocks it. A new rule on real-time payroll reporting would change how Corella implements (bring forward

payroll advice); free, reliable advisory software would challenge the strategy itself. Dynamic capabilities help

managers adapt, combine and redeploy resources.

Linking rewards to the strategy

1. Agree the goals

Strategic performance

goals for each unit and

person

2. Assign

responsibility

Who is accountable, and

by when

3. Recognise

achievement

Pay, incentives,

recognition and

development

4. Check the how

Measure outcomes and the

way they're achieved

A strong, visible link between reward and performance builds support for the strategy

Rewards once focused on control (rewarding good behaviour, punishing bad), which often smothered useful

behaviour. They are increasingly designed to encourage creativity, innovation and productive teamwork, and

need not all be financial: recognition, development and the chance to lead an initiative can motivate strongly.

Measures linked to rewards drive behaviour, and badly chosen ones push people towards questionable

methods; good measures cover both outcomes and how they are achieved.

GLOBAL STRATEGY AND LEADERSHIP | M6 | 6.5 | STUDENT COMPANION

2

Accounting Ahead | Original study resource | accountingahead.com.au

Redesigning the partners' scorecard (imagined)

Partner bonus measure Before After

Billable hours 70% 0%

New compliance clients 30% 0%

Growth in advisory revenue 0% 30%

Client outcomes and satisfaction 0% 25%

Quality and risk 0% 20%

Developing people 0% 15%

Teamwork across offices 0% 10%

Total 100% 100%

The quality and risk measure guards against chasing revenue the wrong way

Case note: Toshiba

In July 2015 an independent investigation found that the Japanese conglomerate Toshiba had overstated its

profits by JPY151.8 billion (about US$1.2 billion) between April 2008 and December 2014. Senior executives

had set aggressive profit targets, known internally as 'challenges', and pressed business units to meet them, and

units responded with accounting that flattered the results. The chief executive and two former chief executives

resigned; the restatement later reached JPY224.8 billion, and on 25 December 2015 regulators ordered a record

fine of JPY7.37 billion. When targets matter more than how they are met, the numbers stop telling the truth.

Sources: Reuters via CFO.com, 20 July 2015; The Register, 21 July 2015; Japan Securities and Exchange Surveillance Commission

recommendation, 7 December 2015.

GLOBAL STRATEGY AND LEADERSHIP | M6 | 6.5 | STUDENT COMPANION

3

Accounting Ahead | Original study resource | accountingahead.com.au

Practice questions

MODULE 6 | 6.5 | TRY THESE BEFORE THE WORKED ANSWERS

Question 1 - Choose dashboard measures

Seabreeze Hospital (imagined) is running a 'digital wards' program: a new electronic patient record, nurse

training and redesigned ward workflows, in support of a strategy of safer, faster care.

Dashboard Three measures

Program (all projects)

Project (electronic record)

Strategic (the hospital)

Question 2 - Strategy or implementation?

Change facing Ochre & Oak (an imagined furniture

retailer)

Change the strategy, or only its implementation? Why?

(a) A port strike delays imports for three months

(b) Customers are steadily switching to renting

furniture by subscription

(c) A competitor opens two stores near its largest

showroom

GLOBAL STRATEGY AND LEADERSHIP | M6 | 6.5 | STUDENT COMPANION

4

Accounting Ahead | Original study resource | accountingahead.com.au

Question 3 - Fix the bonus

Summit Telecom (imagined) pays its store sales staff a bonus based entirely on the number of new phone plans

sold. Complaints from customers sold plans they cannot afford have tripled. Redesign the bonus measures, with

weights, and explain how each supports the strategy of long-term customer loyalty.

GLOBAL STRATEGY AND LEADERSHIP | M6 | 6.5 | STUDENT COMPANION

5

Accounting Ahead | Original study resource | accountingahead.com.au

Worked answers

MODULE 6 | 6.5 | WORKED ANSWERS - ATTEMPT THE QUESTIONS FIRST

Question 1 - Seabreeze Hospital (sample)

Dashboard Measures

Program Budget used against plan for each project; milestones met; open risks and issues by project

Project Wards live on the new record; data-migration errors; training completion before go-live

Strategic Medication errors; time from admission to treatment; patient satisfaction compared with peer

hospitals

Question 2 - Ochre & Oak

Change Answer

(a) Port strike Implementation only: temporary; adjust stock, delivery promises and marketing

(b) Subscription renting Potentially the strategy: a lasting shift in how customers buy; revisit in the next

planning cycle, sooner if it accelerates

(c) New competitor Mainly implementation: sharpen pricing, service and marketing; reconsider the

strategy only if it permanently changes the market

Question 3 - Summit Telecom (sample bonus)

Measure Weight Why it supports loyalty

Customers still active after 12 months 30% Rewards sales that last

New plans sold 25% Growth still matters

Customer satisfaction after the sale 25% Rewards how the sale is made

Complaints and cancellations (fewer is better) 20% Discourages pushy or unsuitable sales

GLOBAL STRATEGY AND LEADERSHIP | M6 | 6.5 | WORKED ANSWERS

6