The Analysis Of Performance Measurement Systems Accounting Essay


The analysis of performance measurement systems is considerably more extensive than the analysis of performance management systems (PMS). Euske et al. (1993) classified performance measurement systems into four types:

â-ª financial orientation

â-ª financially constrained but improvement focused

â-ª balanced or blended

â-ª 'swing' or rotational

2. Otley & Ferreira design framework

Otley & Ferreira developed a framework to undertake corporate performance analysis, through some improvements, the framework is eventually named performance management systems and including 10 'what' and 2 'how'questions. In the following part I will incorporate this system into my case study. The following picture is the PMS system.

Figure 2.1 Otley & Ferreira(2009)

3. The balanced scorecard

Kaplan and Norton (1992) argue that managers should not have to choose between financial and operational performance measures, but should be provided with a comprehensive overview of the business. Their balanced scorecard includes financial measures that highlight the results of actions already taken. The operational measures put forward by Kaplan and Norton has the following focus: (figure 2.1)

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â-ª Financial perspective

â-ª Customer perspective

â-ª Internal business perspective

â-ª Innovation and learning perspective

Figure 3.1 the balanced scorecard

4. Case study: Morrisons

The field researched is the UK's fourth largest food retailer, Morrisons. Its business is mainly food and grocery. First, I will identify the firm's contextual factors by using Otley & Ferreira (2009) systems.

Vision & mission

The main aim of Morrisons's daily sale is to offer goods with high quality, attract more customers, establish own brand and obtain high market shares. It was quoted 'Different and Better than Ever'. The financial aim is probably indicated from the statement of financial activities (i.e. the income statement). More information will be showed in the next part.

Strategies & plans

The strategies can be seen from the Chief Executive's statement, defined as set of initiatives. These are grouped under three objectives; they are 'driving topline' 'increasing efficiency' and 'capturing growth' respectively. Especially, the 'driving topline' is highlighted by increasing efficiency.

Key success factors

Strategies are dependent on investment into IT system, product line and quality monitoring. They treated skilful staff as their biggest asset, the success of this aspect is dependent on good training program and the re-structuring on good HR management.

Markets & extent of competitive rivalry

This part is not included in the Otley & Ferreira system, but I think it is necessary to analyse competitors, especially in Grocery Stores. Tesco is the largest daily retailer in UK, and then come to Asda, Sainsbury and Morrisons. Because of its first player advantage, the market is dominated by Tesco for long times and it owns the largest market share. At the same time, Sainsbury's and Asda are undertaking multi-dimensional developing programme. In this circumstance, It becomes more difficult to innovate and develop.

5. Balance scorecard on Morrisons

5.1 financial perspectives

Financial perspective objectives for Morrisons are determined using the key financial indicators. This perspective is the start point and end point of the other three perspectives. The following indicators were identified in terms of both operational and financial performance in the context of the key elements of their strategy.

Turnover and profit

It is selected to measure whether the daily transaction of Morrisons benefits investors. During the period of 2012/2013, total turnover increased by 3%, while the operating profit before tax decreased dramatically for 7% which is contributed to the increase of net finance costs. Another cause is the planned increase in net debt arising from an additional investment in capital expenditure and an acceleration of the equity retirement programme. The data was illustrated in dashboard.

Earnings per share (EPS)

It can be used to measure the 'prosper' of the company. Underlying basic earnings per share increased by 7% to 27.3p due to a reduction of corporation tax and the positive huge impact of the Group's equity retirement programme which offsetting a reduction in underlying earnings. The figure below demonstrates the effects on the changes of EPS, we can see the negative impacts of earnings before tax and the positive effect of what was mentioned in dashboard.

5.2 customer perspectives

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Companies compete on the basis of customer service and relationship, their objective is to acquire the right customers, keep them forever. As a daily retailer, Morrisons must constantly improve their customer offers.

In order to obtain high market value and attract more customers, Morrisons is on its way through a three year programme to deliver greater quality, whilst maintaining its strong value perception. Comparative figures can be seen in dashboard.

In terms of achieving higher customer satisfaction, they gain feedback from customers visa many approaches in order to support customers buying habits but without additional cost. 'Making Great food affordable for everyone', such kind of slogan can be seen from the chief executive's statement. This promise is valued by customers, because the quality of their purchasing is all customers' most concerns.

5.3 Internal business perspectives

In this part I will focus on two crucial parts, management on suppliers and production processes.

Product quality and safety are of critical importance to Morrisons. The Group is monitored both through internal auditing and external bodies such as environmental health developments. They have considered every aspect of the product which contributes to the customer's experience of quality and the way the product is presented in store through to issues such as formulation and nutritional guidelines.

Morrisons' business model is unlike their competitors', they source fresh British products locally and process or manufacture food in their own facilities. They use their own transport fleet to distribute products into stores which enables them to minimise waste, shorten production cycle and improve Systems easily (some facts are shown in dashboard), but they have to pay more attention on the food safety comparing to those who make use of outside producers in which case they could pass the buck to manufacturers.

5.4 learning and growth perspectives

A training program is designed to educate and ultimately empower employees to achieve the objectives of the other three perspectives. Employees receive training in customer service, product offerings, and sales techniques. The 'Morrisons Academy' is a successful skill-enhanced programme. They will further develop M Futures. In my view, an additional objective of the training programme is that Managers hope to increase employee loyalty, satisfaction, retention, and productivity so that to establish the unique corporate culture which is the core competences.

Another highlight is that Morrisons pay large proportion of money to improve employee satisfaction and retention. The following citation from a staff of Morrisons shows the positive effects on the overall high level of OID:

''It has been very concerned about the pensions of shop workers and so the announcement by Morrisons that it is to offer our members the opportunity to guarantee their pension fund when they choose to retire is something we wholeheartedly support."

-John Hannett

5.5 environment & communication

Inspired by the ideas of Schneider & Vieira (2010), I integrate social and environmental performance into the balanced scorecard. This part I will discuss from two aspects: recycling and reducing on the carbon emissions.

Morrisons encourages its customers to reduce and recycle their waste. There are at least two actions-charging for recyclable carrier bags or standard plastic bags made of eco-friendly materials are available in the shop.

The issue of climate change is one of the greatest challenges to the global community and Morrisons is also on its way. They work with dairy farmers and try their best to look into renewable energy options. From their annual report, the carbon intensity is declined from 48.9 to 38.9(2005 to 2011). The underlying data is illustrated in the dashboard.

6. Performance highlight-risk management

Abraham et al (2012) conducted a research about 'Importance ratings in relation to risk for the annual report sections', the outcome indicated that cash flow statement is the most important source of information in risk analysis. Taking a look at Morrisons cash flow statement, some figures in the dashboard show some main information:

Due to the manipulation of net profits, it would be better to take cash flow as the indicator. The huge negative difference between cash flow and debts indicate underlying financial risks, Morrisons doesn't have the enough cash to serve the debts. Large proportion of its cash is paid for capital expenditure and equity retirement according to their balance sheet. Some illustrating figure can be seen in the dashboard.

7. Conclusion

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The purpose of this study was to design a single-page template for routine performance measurement. This report measures the performance of Morrison implementing a BSC. It was obvious that the BSC measurement is much better than a traditional performance measurement system using only financial measures. This approach helps move the performance debate away from the short term issues of financial reporting to the longer term strategic and competitive issues. However, when applying BSC, it seems that this kind of measures can be easily used as an annual contracts-similar to budgets with additional bells and whistles.

Morrison has an outstanding performance in this year, but compared to Tesco and Sainsbury, it still has a long way to go, especially in the field of e-commerce, products diversification and International business development.