E3 - 8. Strategic Control

Question 1

What are critical success factors?

Answer 1

The components of strategy where the organisation must excel to outperform competition

Question 2

What are the 4 elements of the balanced scorecard?

Answer 2

Financial, customer, internal, innovation and learning

Question 3

What are 3 examples of financial KPIs from the balanced scorecard?

Answer 3

1. Cashflows
2. Profits
3. Sales growth

Question 4

What are 3 examples of customer KPIs from the balanced scorecard?

Answer 4

1. Delivery time
2. Churn rate
3. Complaints

Question 5

What are 3 examples of internal KPIs from the balanced scorecard?

Answer 5

1. % Reduction in cycle time
2. Capacity utilisation
3. Order response time

Question 6

What are 3 examples of innovation and learning KPIs from the balanced scorecard?

Answer 6

1. Speed to market
2. % of revenue from new products
3. Training days per employee

Question 7

What are 4 disadvantages of the balanced scorecard?

Answer 7

1. Number of KPIs make it hard to see a clear picture
2. Difficult to understand some KPIs
3. Some measures may conflict
4. Can take attention away from maximisation of profit

Question 8

What is strategy mapping?

Answer 8

An extension of the balanced scorecard that identifies BSC objectives based on a long term key objective of the organisation

Question 9

What are the 2 aspects and 4 levels of the Performance Pyramid?

Answer 9

External vs internal effectiveness

1. Day to day operations
2. Operating and internal systems
3. Business units
4. Commercial organisation/corporate vision

Question 10

What is benchmarking?

Answer 10

Making comparisons to measure relative levels of performance and hence identify best practises to improve performance

Question 11

What are the 4 main benefits of benchmarking?

Answer 11

1. Challenging assumptions
2. Helping cut costs
3. Helping simplify processes
4. Improving services

Question 12

What is gap analysis?

Answer 12

Comparing actual performance with potential future performance

Question 13

What are the 3 possible types of gap?

Answer 13

1. Efficiency gap
2. Expansion gap
3. Diversification

Question 14

For what 2 reasons is RI better than ROI?

Answer 14

1. Linked to cost of capital
2. Results in fewer dysfunctional decisions

Question 15

For what 3 reasons is ROI used over RI?

Answer 15

1. Gives an easy to understand % answer
2. Allows comparison between size of division
3. Does not require a cost of capital to be estimated

Question 16

What figures for profit and investment are used in ROI?

Answer 16

Controllable profit (attributable/non attributable) and replacement asset value (average)

Question 17

What are the 3 benefits of EVA?

Answer 17

1. Linked to cost of capital - shareholder wealth
2. NOPAT closer to cash flow
3. Reflects economic reality

Question 18

What are the 3 limitations of EVA?

Answer 18

1. Single period leads to short term view
2. Involves potentially many adjustments
3. Difficult to compare divisions of differing sizes

Question 19

What are the 6 main drivers of shareholder value added?

Answer 19

1. Sales growth
2. Life of projects
3. OP margin
4. Asset investment
5. Taxation
6. Cost of capital

Question 20

What are the 2 most important aspects of effective performance targets?

Answer 20

1. Achievable but challenging
2. Clearly communicated

Question 21

What are the 3 main problems that can occur in target setting?

Answer 21

1. Tunnel vision
2. Myopia (short term)
3. Manipulation of results