My OperaMeasuring Value Added (Value Added)
Thursday, November 19, 2009 3:41:40 AM
Measuring Value Added (Value Added)
Because each measure there have the some limitations, CW Hofer recommending the use of measuring added value in measuring the performance of the company. Value added (value added) is the difference between sales and costs incurred for the purchase of raw materials and supporting materials.
Return on value added (ROVA) is one measure that divides the net profit before tax with added value and change the results obtained in the form of percentages. Hofer argues that ROVA can be a better measure of assessing the performance of companies in various industries rather than a tool - another measure that is currently used (16). Value added is a pretty useful way to apply the concept of value chain (Value Chain) filed by Porter (Chapter-5-Red). Unfortunately, the main weakness of the use of value added is an image - the image is not available easily. In the United States, value added can not be calculated based on the traditional financial report for the allocation of labor costs, indirect costs and overhead costs included in the total cost of the cost of manufactured goods. Nevertheless, experts believe the problem is that by combining the measurement values added to the traditional performance measurement company, obtained a more complete picture and realistic about the performance of a company (17).
Assessing Shareholder
Because of the belief that the numbers - numbers based accounting calculations like ROI, ROE, EPS is not a reliable indicator of a company's economic value, many companies using shareholder value as a better measure of corporate performance and effectiveness of strategic management. Shareholder value can be defined as the present value of anticipated cash flow stream in the future from a business plus the value if liquidated companies (18). Based on the argument that the company's goals is to improve the welfare of its shareholders, the shareholder value analysis based on cash flow as the primary measure of performance. The value of a company because it is the value of the discount cash flow sekarangnya value, using the cost of capital as the rate of return diskontonya.Sehingga generated if a business exceeds its cost of capital, these businesses will create value and are considered more valuable than the capital invested in it. ( 19)
Economic added value (economic value added / EVA) to shareholder value method is so popular in measuring corporate performance and the division and ultimately replace the standard measurement of ROI as a measure kinerja.EVA difference between the value of a business before and after a strategy difference diimplementasi.Jika obtained, the discount on the cost of capital is positive, the strategy taken by companies generate value for shareholders (20). Among the companies - companies that use this new measurement method is the Coca-Cola, AT & T, Quaker Oats, Briggs & Stratton and CSX. A. Rappaport, an expert on shareholder value states that the value produced by a specific business plan can be projected by calculating the difference between the capitalized value of operating margin and return oerating minimum acceptable over the last sale (21). In summary EVA is after-tax operating profit minus the total annual capital costs. As explained by Roberto Goizueta, CEO of Coca Cola, "We raise capital and concentrate in making a profit selling it as operasi.Kemudian We pay the cost of capital tersebut.Para shareholders pocketed the difference . '(22). Unlike ROI, EVA one of the benefits is a strong relation to the stock price. Managers can increase the EVA Company or business unit by:
1. Get more profit without using more capital
2. Use less capital and
3. Invest capital in projects - projects that generate high returns.
Evaluation Against Top Management
Through the strategy committee, audit and compensation, the board can assess the performance of the CEO and top management team. of course the board is very concerned that the overall profitabilitis measured quantitatively with the ROI, ROE, EPS and shareholder value. The lack of profitability in the short term is certainly one factor that led to the dismissal of a CEO, however, the board will also consider factors - other factors.
Members of the compensation committee of the board of commissioners in charge now generally agreed that the ability of a CEO megukur in setting the strategic direction, build a management team and provide leadership is far more important in the long run than some quantitative measures. (23). Board of commissioners should evaluate top management not only on quantitative measures of output-oriented, but also on the size - the size of behavioral factors - factors related to the practice - the practice of strategic management. Unfortunately, the number of companies that systematically evaluate the performance of the CEO is less than 30 percent. (24).
Measurement - the specific measurement used by the board of commissioners to evaluate top management, should be based on the previous target goals agreed upon by both pihak.Jika better relations with local communities and increasing the level of work safety is used as a target in that year (or within five years), then the progress made in meeting these targets must be evaluated. In addition, factors - other factors that tend membaw akepada profitability may also be included, such as market share, product quality and intensity invenstasi.
Examination Management
Used by various consulting firms as a way to measure performance, the examination (audit) of the company's activities are often recommended for use by the board of commissioners and managers. Management checks have been developed to evaluate various activities, such as corporate social responsibility, areas of functional areas such as marketing department and the division as in the international division - and to examine their own companies as the examination of a strategy adopted (see chapter 2). For more effective, strategic examination should be parallel with the company's strategic management process.
Divisional Performance Measure and Functional
These companies use various techniques to evaluate and monitor performance in the division, SBU and fungsionalnya.Jika territories organized by the SBU companies or divisions, the company will use tersbeut much the same performance measures (eg ROI or EVA) to be used by companies to assess overall company performance. If the company can isolate the specific functional units, such as R & D, companies can develop the center - the center jawaban.Perusahaan accountability can also use the gauge functional in general such as market share and sales per employee (sales), cost per unit and percentage of defective product (process operation ), the percentage of sales of new products and the number of patterns obtained (R & D) and in and out and the work of the employees kepauasan (HRM).
During the formulation and implementation of strategy, top management agreed to a series of programs and operations supporting the budget submitted by the unit - business units (25). During the period of evaluation and control, otherwise management compare actual costs incurred by the planned expenditure and assessing how much deviation , especially that happens every month. Furthermore, top management may require a periodek statistical reports that summarize all the data about the factors - the key factors, such as the number of new customers acquired, the number of orders received and the productivity factor other than - other factors.
Control and Strategy Business Unit
The strategy chosen by the SBU must affect the selected type of control also. (26). Research conducted by Govindarajan and Fisher showed that the high performance of SBU took the leadership strategies of competitive costs tend to use the output - otuput of control, such as direct commissions or commissions based on how much this terjual.Pendekatan very logical because it usually costs can easily ditenukan.Sebaliknya , high performance SBU took a competitive differentiation strategy tend to use controlling behaviors, such as salary compensation. Factors - factors such as the creative talent, research and development of a strong and innovative product development, are crucial to the strategy but difficult dikuatifikasi. (27)
Let us consider the two companies as contoh.Digital Equipment Corporation (DEC) to take the strategy to take diferensiasi.Data General low cost strategy and their control systems differ from each other according to the chosen strategy. DEC salesperson power based on salaries paid directly, while the energy salesmen Data General receives 50 percent of their salary as commission. The product managers at DEC are evaluated based on the quality of relationships with customers, while Data General product manager evaluated strictly on the basis of the results obtained, namely profits. The study concluded that "to improve the effectiveness, both good leadership strategy and differentiation costs, as the same should be adjusted to control the output and behavior. "(28).
Center - Center for Accountability
Control systems can be built to monitor functions, projects or divisions - divisions tertentu.Sebagai example, the budget is usually used to mengobtrol indicators - financial performance indicators along with the center - the center is pertanggungjawaban.Pusat pertangung response units that can be evaluated separately lainnya.Setiap company unit responsible center headed by a manager responsible for the performance of these units, have their own budgets and evaluated based on the use of resources in its budget. Accountability centers use resources (measured in the form of fees or expenses) to produce services or products (or diukurdalam forms of income earned). Type central - the central responsibility that is used is determined by how the control system measures the company's resources - the resources and services or products produced. There are five main types of responsibility centers. (29)
1. Standard cost centers, primarily used in the facility - the manufacturing facility, the standard costs (or estimates) for each operation is calculated based on historical data. To evaluate the performance of the answers pertangung center, the total cost multiplied by the standards of accountability central production units produced; the result is the production cost estimates, which are then compared with actual production costs.
2. Revenue Center, Production, usually in the form of units of production or sales in dollars, is usually measured without regard to resources (eg: salaries). Center assessed in terms of accountability for effectiveness rather than efficiency. The effectiveness of sales area, for example, is determined by the ratio of actual sales with projected sales or sales last year. Profit is not observed because the sales department has an effect limited to the costs incurred for the products they sell.
3. Expenditure center, the source - resources is measured in dollars without regard to cost of products or services such dihasilkan.Dengan, prepared the budget for expenditure - expenditure engineering (cost - costs that can be counted) and discretionary expenses (expenses - costs that can only be dietimasi) . This expenditure baisanya Center comes from the department - the department of administrative, service and research. Center of this type of responsibility was to burden the organization revenue, but contributed to the income received indirectly.
4. Profit center, the center of this accountability measured performance based on the difference between income (as measured in production) and expenditure (measured in resource use). Profit center is usually defined as an organizational unit trying to control its resources and products or services they produce. By having such a responsibility center, the company can be organized into divisions - divisions that separate product lines. The managers of each division were given the amount of autonomy based on the ability to maintain profits at a satisfactory level (or better).
Several organizational units that are usually considered not have the potential ability of autonomy can be made into the center - a profit center for the purpose of evaluating the center - the center laba.Departemen pemanufakturan, for example, can be changed from the default cost center (or central expenditure) into profit centers, which allows to determine transfer price for each product sold at the sales department. The difference between the cost per unit pemanufakturan transfer price agreed upon before a "profit" tersbeut units. Transfer pricing is generally used in the company - vertically integrated company and can work well when prices are easily defined in a number of products that have been established . Only about 30 - 40 percent of companies use market prices to determine the transfer price, although many experts argue that market-based transfer price is the best choice. (And the rest, 50 percent use, and cost 10 to 20 percent using the negotiations between units) (30). If the price is not easy to set, bargaining power of each central accountability, with a few strategic considerations ignored, tend to affect the price that has been previously disetuhui. (31). Top management has an obligation to ensure that the amount of political considerations will not exceed the amount of strategic considerations. If not, then the profits obtained by each center will be biased accountability and will provide poor information for strategic decision making at the corporate level.
5. Investment Center: because many divisions within the company - a company of using its assets pemanufakturan quite significant in producing the products - their products, the assessment of assets should be included as a factor or an essential element in assessing the performance of the division. When only focusing on profits, as the profit center, then the performance appraisal will not suffice. Investment center performance is measured based on the difference between the use of resources and products or services produced. For example, if the two divisions within a company to produce the same profit, but one division requires a capital investment of $ 3 million to create a factory, while the other division only requires a capital investment of $ 1 million to create the same factory, which is clearly more efficient , capital investment is smaller, in other words, the division gave its shareholders a better return on their investment.
Investment center performance measures most widely used is the ROI. Another measurement commonly referred to as the rest of the income (income residential), or after capital charge, which is obtained by reducing the interest costs from net income received. Interest costs can be based on the interest rate that the company will be paid by lenders to use company assets. The level of interest costs can also be based on the amount of revenue that would be obtained if the assets are invested in the company lainnya.Walaupun residual income method is better than ROI because of its ability to calculate the cost of capital used, this method was never able to match the popularity of ROI (32).
Investment center performance can be measured by its contribution to shareholder value through the use of economic added value (economic value-added). For example, Briggs & Stratton uses EVA to measure performance of the five division that makes engines for lawn mowers, water pumps and products -- other products. Each division knows how his EVA and it makes them using resources from outside (outsourcing) to reduce biaya.Perusahaan phase out production of the machine - a big machine needs water pump and generators, releasing capital that has been used by not making a profit in the process pemanufakturan their products. Company later bought out the engine - engine excel elsewhere cheaper cost. When the company is able to increase 7.7 percent rate of return on capital issued return on capital (at the cost of capital at that time by 12 per cent), then the stock price increased from $ 20 per share to $ 80 (33).
Single business firms in general, such as Apple Computer, tend to use a combination of central accountability of cost centers, centers and central expenditure pendapatan.Dalam company - the company, most managers are experts in their fields and manage budgets and profitability based on the total integrated koorporasi level. companies - companies that produce products - the dominant products, such as Anheuser-Busch, which diversified into five small business units while still dependent on a single product line for most of the profits and revenue, generally using a combination of central accountability of cost centers, central expenditure, revenue center and profit center. Companies - companies like General Electric multidivisional tend to give greater attention to the center - although investment centers in the various units are used, too type of company - the center of another responsibility (34). One problem that emerged in the use of the center - the center of this responsibility is sometimes - sometimes difficult responsibility center calculations required to analyze the value chain to look for synergistic relationships between existing units units (35).
Benchmarking
According to Xerox Company, which pioneered this concept in the United States, benchmarking or shares is expected continual process of measuring products, services and practices - business practices against the toughest competitors or in companies - companies that acknowledged as a leader in its industry (36) . For programs that are increasing in popularity, expect shares / benchmarking based on the concept that rediscovering something that is being used by another person is unreasonable. Shares this thought openly involve learning how other people do and imitate or maybe even improve engineering techniques used by others. The process consists of shares expected following steps:
1. Identification of areas or processes that will be tested. Region or the process should be an activity that potentially decisive competitive advantage a business unit.
2. Discover the measuring instrument and the behavior of output produced by the process and find ways of measurement.
3. Select the group of competitors and the best companies in its class that can be accessed for set - guess. Company - the company may differ completely in the industry who entered. But have the common activity. For example, when Xerox wants to improve their performance in the work and fill orders received, Xerox went to LL Bean, the mail order companies succeed, to learn how the company is able to achieve excellence in the field of tersbeut.
4. Calculate the difference between corporate performance measurement with the company - a company that can achieve the best in its class. Determine also why there are differences.
5. Develop programs - tactical programs to close the performance gap.
6. Implementation of the program, measuring the results obtained and compare the results with the company - a company best dalm class.
From the survey of 580 organizations in the computer industry, automotive, hospitals, banks, etc., found that 31 percent of companies - U.S. companies regularly do expect shares / benchmarking of products and services they produce and only 7 percent who never do. Company - a company that made the stake is expected by the company include Xerox, AT & T, Du Pont, Ford, IBM, Eastman Kodak, Motorola, Mellon Bank and many other companies are smaller and are moving in a less well-known industry (37). For example, Manco, Inc.. Small producers who produce the ribbon tape in Cleveland, expect a regular set himself against Wal-Mart, PepsiCo Rubbermadi and to enable him to better compete with giant 3M (38). The American Productivity & Quality Center, Uatu new study group recently published "practice database - the best business practices" of leading the 600 techniques have been used by 250 companies. (39).
10.3 Strategic Information System
Before the performance measure that could affect strategic management is used, tools - measuring instrument must be communicated in advance with the person - the person responsible for implementation perunusan plan - a strategic plan.'s Strategic information systems or computer-based manuals, formal or informal can perform functions tersbeut by providing information services needed by top management (40). One of the main reasons was the collapse of the International Harvester company's top management's inability to accurately determine the revenues received from the product - a similar product in the main group of products. Because of these inadequacies, the management still doing business berusahan vain - vain to fix a dying business and unable to respond to flexible changes - big changes are happening and events - other unexpected events (41). On the other hand one key to success in Toys 'R' Us is the Traffic to use sophisticated management information system to control the company's decision - the decision to purchase, as described dibagian "strategy in action" on page 405.
Factor - an important factor of success (critical success factors / CSF) is a variety of things to go well to ensure a company keseksesan (42). Especially tersbeut factors are 20 percent of the factors - factors that determine the performance of 80 percent of a company or business unit (43). Critical Success Factors should be:
1. Important factor for achieving overall company goals and objectives;
2. Factors that can be measured and controlled by the organization when applied;
3. Relatively few in number - because not all factors can be an important factor.
4. Express the things that must be implemented.
5. Can be applied to all firms in the industry who have the common goals and strategies;
6. Hierarchical - some CSF will affect the whole company while other factors influence the narrower, ie, in one functional area. (44).
CSF provides a starting point for developing a system of specific information will informasi.Sistem pinpoint areas - important areas that demand the attention of a manager.
At the divisional level, or SBU, the information system should be able to support, strengthen or expand the business unit level strategy with a decision support component. (45). SBU is using strategies that emphasize cost leadership in all aspects, may use the information system to help reduce the cost of both through increased produktifivitas or through the use of sources - other resources, such as inventory or machine - other machines. Merrill Lynch uses this approach when he developed the PRISM software that will give the 500 branch offices in the United States, faster access to financial information in order to boost the efficiency of the brokers. (46). Another SBU, by contrast, may need to use different strategies differensiasi.SBU, otherwise may need to use diferensiasi.SBU strategy to use information systems to help add uniqueness to the products or services they provide and contribute to the quality, services or image desired by the area - functional areas. When Federal Express to use a superior service to gain competitive advantage, the company invested a large - scale in different types of information systems to track and measure service performance drive it. (47).
The selection strategy of the business unit level will determine the type of system information needed by an SBU both in implementing and controlling the activities - strategic activities. Various existing information systems will be set up differently - different for different monitoring activities - different anyway, because the two types of the business unit level strategy tersbeut have the factor - an important factor of success is also different.
Case Example: Strategy In Action
Example: Toy 'R' Us Using Information Systems to Control Purchase
Since 1978, sales of Toy "R" Us grew 28 per cent doubled each year, one key to success is the company's use of sophisticated information systems. Cash available in 300 stores in the United States sends information to a computer every day at the company headquarters in Rochelle Park, New Jersey. Thus, each morning the managers know exactly how many items have been sold on the previous day, how many have sold so far in a year, and how the sales this year than last year.
Existing information systems enable automatic reorders through the computer without managerial input. Systems Integration also allows to experiment with a new toy without first booking a big - scale. With this system customers can also decide, through their purchase, what to order again. President Director Charles Lazarus would appreciate information system, so that when there is conflict between his assessment with computer dberikan decision, he chose the decision given computer. For example, several years ago, he personally thought that Cabbage Patch dolls terfikir bad and not to him that the child - the child will want to hold it. However, the system provides information of different data, namely the purchasing patterns of consumers and major reordering, the system is also able to inform falling demand, eg, when fashion started to fade Trivial Pursuit.
(Source: SN Chakrvarty, "Will Toys" B "Great!" Forbes (February 22, 1998), pp. 37-39).
10.4 Various Problems In Measuring Performance
Performance measurement is crucial in the process of evaluation and control. The lack of goals that can be measured or absence of performance standards and did not have information systems to provide timely results, and not valid information provided is evident in two control problem (49). If there is no objective and precise measurement of time , then the decision - a decision that associated with the operation becomes very difficult to do, or in other words create a strategy to walk alone. However, the timely digunakannyainformasi performance standards that can be quantified does not guarantee an adequate performance. Excessive behavior in the monitoring and performance measurement can cause side effects that interfere with the overall performance of the company. Among the negative side effects The most common is the short-term orientation and goals change.
Short-Term Orientation
Hodgerts and Wortman stated that in many situations, the top executives did not analyze whether long-term implications of current operations as part of their strategy or the impact of the adoption of a strategy to operational perusahaan.Mereka mission also reported that the executives did not do long-term evaluation because they:
1. May not be aware of the interests - interests that must be considered
2. Believe that consideration - the short-term considerations compared to more important considerations - the long-term considerations
3. Maybe not personally evaluate them based on long-term considerations
4. May not have the time to do long-term evaluation (50).
There is no real evidence against the first reason and the terakhir.Jika executives realize the importance of long-term evaluation, then they will take the time to do it. Although many top executives shows the pressure of public investors to do tersebutdan provide short-term incentive and promotional programs to support the second and third reasons, the evidence - evidence does not always support what they often reveal.
A survey of 400 top executives in the United States showed that 98 percent of them agreed that their industry can be criticized for focusing on income earned in the next quarter or the price of the shares on the AMSA will dating.Lebih than half believe that the institution investors have increased the pressure
Because each measure there have the some limitations, CW Hofer recommending the use of measuring added value in measuring the performance of the company. Value added (value added) is the difference between sales and costs incurred for the purchase of raw materials and supporting materials.
Return on value added (ROVA) is one measure that divides the net profit before tax with added value and change the results obtained in the form of percentages. Hofer argues that ROVA can be a better measure of assessing the performance of companies in various industries rather than a tool - another measure that is currently used (16). Value added is a pretty useful way to apply the concept of value chain (Value Chain) filed by Porter (Chapter-5-Red). Unfortunately, the main weakness of the use of value added is an image - the image is not available easily. In the United States, value added can not be calculated based on the traditional financial report for the allocation of labor costs, indirect costs and overhead costs included in the total cost of the cost of manufactured goods. Nevertheless, experts believe the problem is that by combining the measurement values added to the traditional performance measurement company, obtained a more complete picture and realistic about the performance of a company (17).
Assessing Shareholder
Because of the belief that the numbers - numbers based accounting calculations like ROI, ROE, EPS is not a reliable indicator of a company's economic value, many companies using shareholder value as a better measure of corporate performance and effectiveness of strategic management. Shareholder value can be defined as the present value of anticipated cash flow stream in the future from a business plus the value if liquidated companies (18). Based on the argument that the company's goals is to improve the welfare of its shareholders, the shareholder value analysis based on cash flow as the primary measure of performance. The value of a company because it is the value of the discount cash flow sekarangnya value, using the cost of capital as the rate of return diskontonya.Sehingga generated if a business exceeds its cost of capital, these businesses will create value and are considered more valuable than the capital invested in it. ( 19)
Economic added value (economic value added / EVA) to shareholder value method is so popular in measuring corporate performance and the division and ultimately replace the standard measurement of ROI as a measure kinerja.EVA difference between the value of a business before and after a strategy difference diimplementasi.Jika obtained, the discount on the cost of capital is positive, the strategy taken by companies generate value for shareholders (20). Among the companies - companies that use this new measurement method is the Coca-Cola, AT & T, Quaker Oats, Briggs & Stratton and CSX. A. Rappaport, an expert on shareholder value states that the value produced by a specific business plan can be projected by calculating the difference between the capitalized value of operating margin and return oerating minimum acceptable over the last sale (21). In summary EVA is after-tax operating profit minus the total annual capital costs. As explained by Roberto Goizueta, CEO of Coca Cola, "We raise capital and concentrate in making a profit selling it as operasi.Kemudian We pay the cost of capital tersebut.Para shareholders pocketed the difference . '(22). Unlike ROI, EVA one of the benefits is a strong relation to the stock price. Managers can increase the EVA Company or business unit by:
1. Get more profit without using more capital
2. Use less capital and
3. Invest capital in projects - projects that generate high returns.
Evaluation Against Top Management
Through the strategy committee, audit and compensation, the board can assess the performance of the CEO and top management team. of course the board is very concerned that the overall profitabilitis measured quantitatively with the ROI, ROE, EPS and shareholder value. The lack of profitability in the short term is certainly one factor that led to the dismissal of a CEO, however, the board will also consider factors - other factors.
Members of the compensation committee of the board of commissioners in charge now generally agreed that the ability of a CEO megukur in setting the strategic direction, build a management team and provide leadership is far more important in the long run than some quantitative measures. (23). Board of commissioners should evaluate top management not only on quantitative measures of output-oriented, but also on the size - the size of behavioral factors - factors related to the practice - the practice of strategic management. Unfortunately, the number of companies that systematically evaluate the performance of the CEO is less than 30 percent. (24).
Measurement - the specific measurement used by the board of commissioners to evaluate top management, should be based on the previous target goals agreed upon by both pihak.Jika better relations with local communities and increasing the level of work safety is used as a target in that year (or within five years), then the progress made in meeting these targets must be evaluated. In addition, factors - other factors that tend membaw akepada profitability may also be included, such as market share, product quality and intensity invenstasi.
Examination Management
Used by various consulting firms as a way to measure performance, the examination (audit) of the company's activities are often recommended for use by the board of commissioners and managers. Management checks have been developed to evaluate various activities, such as corporate social responsibility, areas of functional areas such as marketing department and the division as in the international division - and to examine their own companies as the examination of a strategy adopted (see chapter 2). For more effective, strategic examination should be parallel with the company's strategic management process.
Divisional Performance Measure and Functional
These companies use various techniques to evaluate and monitor performance in the division, SBU and fungsionalnya.Jika territories organized by the SBU companies or divisions, the company will use tersbeut much the same performance measures (eg ROI or EVA) to be used by companies to assess overall company performance. If the company can isolate the specific functional units, such as R & D, companies can develop the center - the center jawaban.Perusahaan accountability can also use the gauge functional in general such as market share and sales per employee (sales), cost per unit and percentage of defective product (process operation ), the percentage of sales of new products and the number of patterns obtained (R & D) and in and out and the work of the employees kepauasan (HRM).
During the formulation and implementation of strategy, top management agreed to a series of programs and operations supporting the budget submitted by the unit - business units (25). During the period of evaluation and control, otherwise management compare actual costs incurred by the planned expenditure and assessing how much deviation , especially that happens every month. Furthermore, top management may require a periodek statistical reports that summarize all the data about the factors - the key factors, such as the number of new customers acquired, the number of orders received and the productivity factor other than - other factors.
Control and Strategy Business Unit
The strategy chosen by the SBU must affect the selected type of control also. (26). Research conducted by Govindarajan and Fisher showed that the high performance of SBU took the leadership strategies of competitive costs tend to use the output - otuput of control, such as direct commissions or commissions based on how much this terjual.Pendekatan very logical because it usually costs can easily ditenukan.Sebaliknya , high performance SBU took a competitive differentiation strategy tend to use controlling behaviors, such as salary compensation. Factors - factors such as the creative talent, research and development of a strong and innovative product development, are crucial to the strategy but difficult dikuatifikasi. (27)
Let us consider the two companies as contoh.Digital Equipment Corporation (DEC) to take the strategy to take diferensiasi.Data General low cost strategy and their control systems differ from each other according to the chosen strategy. DEC salesperson power based on salaries paid directly, while the energy salesmen Data General receives 50 percent of their salary as commission. The product managers at DEC are evaluated based on the quality of relationships with customers, while Data General product manager evaluated strictly on the basis of the results obtained, namely profits. The study concluded that "to improve the effectiveness, both good leadership strategy and differentiation costs, as the same should be adjusted to control the output and behavior. "(28).
Center - Center for Accountability
Control systems can be built to monitor functions, projects or divisions - divisions tertentu.Sebagai example, the budget is usually used to mengobtrol indicators - financial performance indicators along with the center - the center is pertanggungjawaban.Pusat pertangung response units that can be evaluated separately lainnya.Setiap company unit responsible center headed by a manager responsible for the performance of these units, have their own budgets and evaluated based on the use of resources in its budget. Accountability centers use resources (measured in the form of fees or expenses) to produce services or products (or diukurdalam forms of income earned). Type central - the central responsibility that is used is determined by how the control system measures the company's resources - the resources and services or products produced. There are five main types of responsibility centers. (29)
1. Standard cost centers, primarily used in the facility - the manufacturing facility, the standard costs (or estimates) for each operation is calculated based on historical data. To evaluate the performance of the answers pertangung center, the total cost multiplied by the standards of accountability central production units produced; the result is the production cost estimates, which are then compared with actual production costs.
2. Revenue Center, Production, usually in the form of units of production or sales in dollars, is usually measured without regard to resources (eg: salaries). Center assessed in terms of accountability for effectiveness rather than efficiency. The effectiveness of sales area, for example, is determined by the ratio of actual sales with projected sales or sales last year. Profit is not observed because the sales department has an effect limited to the costs incurred for the products they sell.
3. Expenditure center, the source - resources is measured in dollars without regard to cost of products or services such dihasilkan.Dengan, prepared the budget for expenditure - expenditure engineering (cost - costs that can be counted) and discretionary expenses (expenses - costs that can only be dietimasi) . This expenditure baisanya Center comes from the department - the department of administrative, service and research. Center of this type of responsibility was to burden the organization revenue, but contributed to the income received indirectly.
4. Profit center, the center of this accountability measured performance based on the difference between income (as measured in production) and expenditure (measured in resource use). Profit center is usually defined as an organizational unit trying to control its resources and products or services they produce. By having such a responsibility center, the company can be organized into divisions - divisions that separate product lines. The managers of each division were given the amount of autonomy based on the ability to maintain profits at a satisfactory level (or better).
Several organizational units that are usually considered not have the potential ability of autonomy can be made into the center - a profit center for the purpose of evaluating the center - the center laba.Departemen pemanufakturan, for example, can be changed from the default cost center (or central expenditure) into profit centers, which allows to determine transfer price for each product sold at the sales department. The difference between the cost per unit pemanufakturan transfer price agreed upon before a "profit" tersbeut units. Transfer pricing is generally used in the company - vertically integrated company and can work well when prices are easily defined in a number of products that have been established . Only about 30 - 40 percent of companies use market prices to determine the transfer price, although many experts argue that market-based transfer price is the best choice. (And the rest, 50 percent use, and cost 10 to 20 percent using the negotiations between units) (30). If the price is not easy to set, bargaining power of each central accountability, with a few strategic considerations ignored, tend to affect the price that has been previously disetuhui. (31). Top management has an obligation to ensure that the amount of political considerations will not exceed the amount of strategic considerations. If not, then the profits obtained by each center will be biased accountability and will provide poor information for strategic decision making at the corporate level.
5. Investment Center: because many divisions within the company - a company of using its assets pemanufakturan quite significant in producing the products - their products, the assessment of assets should be included as a factor or an essential element in assessing the performance of the division. When only focusing on profits, as the profit center, then the performance appraisal will not suffice. Investment center performance is measured based on the difference between the use of resources and products or services produced. For example, if the two divisions within a company to produce the same profit, but one division requires a capital investment of $ 3 million to create a factory, while the other division only requires a capital investment of $ 1 million to create the same factory, which is clearly more efficient , capital investment is smaller, in other words, the division gave its shareholders a better return on their investment.
Investment center performance measures most widely used is the ROI. Another measurement commonly referred to as the rest of the income (income residential), or after capital charge, which is obtained by reducing the interest costs from net income received. Interest costs can be based on the interest rate that the company will be paid by lenders to use company assets. The level of interest costs can also be based on the amount of revenue that would be obtained if the assets are invested in the company lainnya.Walaupun residual income method is better than ROI because of its ability to calculate the cost of capital used, this method was never able to match the popularity of ROI (32).
Investment center performance can be measured by its contribution to shareholder value through the use of economic added value (economic value-added). For example, Briggs & Stratton uses EVA to measure performance of the five division that makes engines for lawn mowers, water pumps and products -- other products. Each division knows how his EVA and it makes them using resources from outside (outsourcing) to reduce biaya.Perusahaan phase out production of the machine - a big machine needs water pump and generators, releasing capital that has been used by not making a profit in the process pemanufakturan their products. Company later bought out the engine - engine excel elsewhere cheaper cost. When the company is able to increase 7.7 percent rate of return on capital issued return on capital (at the cost of capital at that time by 12 per cent), then the stock price increased from $ 20 per share to $ 80 (33).
Single business firms in general, such as Apple Computer, tend to use a combination of central accountability of cost centers, centers and central expenditure pendapatan.Dalam company - the company, most managers are experts in their fields and manage budgets and profitability based on the total integrated koorporasi level. companies - companies that produce products - the dominant products, such as Anheuser-Busch, which diversified into five small business units while still dependent on a single product line for most of the profits and revenue, generally using a combination of central accountability of cost centers, central expenditure, revenue center and profit center. Companies - companies like General Electric multidivisional tend to give greater attention to the center - although investment centers in the various units are used, too type of company - the center of another responsibility (34). One problem that emerged in the use of the center - the center of this responsibility is sometimes - sometimes difficult responsibility center calculations required to analyze the value chain to look for synergistic relationships between existing units units (35).
Benchmarking
According to Xerox Company, which pioneered this concept in the United States, benchmarking or shares is expected continual process of measuring products, services and practices - business practices against the toughest competitors or in companies - companies that acknowledged as a leader in its industry (36) . For programs that are increasing in popularity, expect shares / benchmarking based on the concept that rediscovering something that is being used by another person is unreasonable. Shares this thought openly involve learning how other people do and imitate or maybe even improve engineering techniques used by others. The process consists of shares expected following steps:
1. Identification of areas or processes that will be tested. Region or the process should be an activity that potentially decisive competitive advantage a business unit.
2. Discover the measuring instrument and the behavior of output produced by the process and find ways of measurement.
3. Select the group of competitors and the best companies in its class that can be accessed for set - guess. Company - the company may differ completely in the industry who entered. But have the common activity. For example, when Xerox wants to improve their performance in the work and fill orders received, Xerox went to LL Bean, the mail order companies succeed, to learn how the company is able to achieve excellence in the field of tersbeut.
4. Calculate the difference between corporate performance measurement with the company - a company that can achieve the best in its class. Determine also why there are differences.
5. Develop programs - tactical programs to close the performance gap.
6. Implementation of the program, measuring the results obtained and compare the results with the company - a company best dalm class.
From the survey of 580 organizations in the computer industry, automotive, hospitals, banks, etc., found that 31 percent of companies - U.S. companies regularly do expect shares / benchmarking of products and services they produce and only 7 percent who never do. Company - a company that made the stake is expected by the company include Xerox, AT & T, Du Pont, Ford, IBM, Eastman Kodak, Motorola, Mellon Bank and many other companies are smaller and are moving in a less well-known industry (37). For example, Manco, Inc.. Small producers who produce the ribbon tape in Cleveland, expect a regular set himself against Wal-Mart, PepsiCo Rubbermadi and to enable him to better compete with giant 3M (38). The American Productivity & Quality Center, Uatu new study group recently published "practice database - the best business practices" of leading the 600 techniques have been used by 250 companies. (39).
10.3 Strategic Information System
Before the performance measure that could affect strategic management is used, tools - measuring instrument must be communicated in advance with the person - the person responsible for implementation perunusan plan - a strategic plan.'s Strategic information systems or computer-based manuals, formal or informal can perform functions tersbeut by providing information services needed by top management (40). One of the main reasons was the collapse of the International Harvester company's top management's inability to accurately determine the revenues received from the product - a similar product in the main group of products. Because of these inadequacies, the management still doing business berusahan vain - vain to fix a dying business and unable to respond to flexible changes - big changes are happening and events - other unexpected events (41). On the other hand one key to success in Toys 'R' Us is the Traffic to use sophisticated management information system to control the company's decision - the decision to purchase, as described dibagian "strategy in action" on page 405.
Factor - an important factor of success (critical success factors / CSF) is a variety of things to go well to ensure a company keseksesan (42). Especially tersbeut factors are 20 percent of the factors - factors that determine the performance of 80 percent of a company or business unit (43). Critical Success Factors should be:
1. Important factor for achieving overall company goals and objectives;
2. Factors that can be measured and controlled by the organization when applied;
3. Relatively few in number - because not all factors can be an important factor.
4. Express the things that must be implemented.
5. Can be applied to all firms in the industry who have the common goals and strategies;
6. Hierarchical - some CSF will affect the whole company while other factors influence the narrower, ie, in one functional area. (44).
CSF provides a starting point for developing a system of specific information will informasi.Sistem pinpoint areas - important areas that demand the attention of a manager.
At the divisional level, or SBU, the information system should be able to support, strengthen or expand the business unit level strategy with a decision support component. (45). SBU is using strategies that emphasize cost leadership in all aspects, may use the information system to help reduce the cost of both through increased produktifivitas or through the use of sources - other resources, such as inventory or machine - other machines. Merrill Lynch uses this approach when he developed the PRISM software that will give the 500 branch offices in the United States, faster access to financial information in order to boost the efficiency of the brokers. (46). Another SBU, by contrast, may need to use different strategies differensiasi.SBU, otherwise may need to use diferensiasi.SBU strategy to use information systems to help add uniqueness to the products or services they provide and contribute to the quality, services or image desired by the area - functional areas. When Federal Express to use a superior service to gain competitive advantage, the company invested a large - scale in different types of information systems to track and measure service performance drive it. (47).
The selection strategy of the business unit level will determine the type of system information needed by an SBU both in implementing and controlling the activities - strategic activities. Various existing information systems will be set up differently - different for different monitoring activities - different anyway, because the two types of the business unit level strategy tersbeut have the factor - an important factor of success is also different.
Case Example: Strategy In Action
Example: Toy 'R' Us Using Information Systems to Control Purchase
Since 1978, sales of Toy "R" Us grew 28 per cent doubled each year, one key to success is the company's use of sophisticated information systems. Cash available in 300 stores in the United States sends information to a computer every day at the company headquarters in Rochelle Park, New Jersey. Thus, each morning the managers know exactly how many items have been sold on the previous day, how many have sold so far in a year, and how the sales this year than last year.
Existing information systems enable automatic reorders through the computer without managerial input. Systems Integration also allows to experiment with a new toy without first booking a big - scale. With this system customers can also decide, through their purchase, what to order again. President Director Charles Lazarus would appreciate information system, so that when there is conflict between his assessment with computer dberikan decision, he chose the decision given computer. For example, several years ago, he personally thought that Cabbage Patch dolls terfikir bad and not to him that the child - the child will want to hold it. However, the system provides information of different data, namely the purchasing patterns of consumers and major reordering, the system is also able to inform falling demand, eg, when fashion started to fade Trivial Pursuit.
(Source: SN Chakrvarty, "Will Toys" B "Great!" Forbes (February 22, 1998), pp. 37-39).
10.4 Various Problems In Measuring Performance
Performance measurement is crucial in the process of evaluation and control. The lack of goals that can be measured or absence of performance standards and did not have information systems to provide timely results, and not valid information provided is evident in two control problem (49). If there is no objective and precise measurement of time , then the decision - a decision that associated with the operation becomes very difficult to do, or in other words create a strategy to walk alone. However, the timely digunakannyainformasi performance standards that can be quantified does not guarantee an adequate performance. Excessive behavior in the monitoring and performance measurement can cause side effects that interfere with the overall performance of the company. Among the negative side effects The most common is the short-term orientation and goals change.
Short-Term Orientation
Hodgerts and Wortman stated that in many situations, the top executives did not analyze whether long-term implications of current operations as part of their strategy or the impact of the adoption of a strategy to operational perusahaan.Mereka mission also reported that the executives did not do long-term evaluation because they:
1. May not be aware of the interests - interests that must be considered
2. Believe that consideration - the short-term considerations compared to more important considerations - the long-term considerations
3. Maybe not personally evaluate them based on long-term considerations
4. May not have the time to do long-term evaluation (50).
There is no real evidence against the first reason and the terakhir.Jika executives realize the importance of long-term evaluation, then they will take the time to do it. Although many top executives shows the pressure of public investors to do tersebutdan provide short-term incentive and promotional programs to support the second and third reasons, the evidence - evidence does not always support what they often reveal.
A survey of 400 top executives in the United States showed that 98 percent of them agreed that their industry can be criticized for focusing on income earned in the next quarter or the price of the shares on the AMSA will dating.Lebih than half believe that the institution investors have increased the pressure
