Section A BOTH questions are compulsory and MUST be attempted
1 Metis is a restaurant business in the city of Urbanton. Metis was started three years ago by three friends who met at
university while doing courses in business and catering management. Initially, their aim was simply to ‘make money’
although they had talked about building a chain of restaurants if the first site was successful.
The three friends pooled their own capital and took out a loan from the Grand Bank in order to fit out a rented site in
the city. They designed the restaurant to be light and open with a menu that reflected the most popular dishes in
Urbanton regardless of any particular culinary style. The dishes were designed to be priced in the middle of the range
that was common for restaurants in the city. The choice of food and drinks to offer to customers is still a group decision
amongst the owners.
Other elements of the business were allocated according to each owner’s qualifications and preferences. Bert Fish
takes charge of all aspects of the kitchen operations while another, Sheila Plate, manages the activities in the public
area such as taking reservations, serving tables and maintaining the appearance of the restaurant. The third founder,
John Sum, deals with the overall business issues such as procurement, accounting and legal matters.
Competition in the restaurant business is fierce as it is easy to open a restaurant in Urbanton and there are many
competitors in the city both small, single-site operations and large national chains. The current national economic
environment is one of steady but unspectacular growth.
The restaurant has been running for three years and the founders have reached the point where the business seems
to be profitable and self-sustaining. The restaurant is now in need of refurbishment in order to maintain its atmosphere
and this has prompted the founders to consider the future of their business. John Sum has come to you as their
accountant looking for advice on aspects of performance management in the business. He has supplied you with
figures outlining the recent performance of the business and the forecasts for the next year (see the performance report
below). This table represents the quantitative data that is available to the founders when they meet each quarter to
plan any short-term projects or initiatives and also, to consider the longer-term future. Bert and Sheila have often
indicated to John that they find the information daunting and difficult to understand fully.
John Sum has come to you to advise him on the performance reporting at Metis and how it could be improved. He
feels that the current report is, in some ways, too complex and, in other ways, too simple. He wants to look at different
methods of measuring and presenting performance to the ownership group. As a starting point, he has suggested to
you that you consider measures such as NPV, EVA™, MIRR as well as the more common profit measures. John is
naïve and wants the NPV and MIRR to be appraised as if the business was a three-year project up to 2012 so he
knows the performance of the business to date. He has requested that other calculations in your performance review
should be annual based on the 2012 figures although he is aware that this may be omitting in his words ‘some
important detail’.
At recent meetings, Sheila has been complaining that her waiters and waitresses are not responding well to her
attempts to encourage them to smile at customers although her recent drive to save electricity by getting staff to turn
off unnecessary lights seems to be working. Bert stated that he was not convinced by either of Sheila’s initiatives and
he wants her to make sure that food is collected from the kitchen swiftly and so delivered at the right temperature to
the customer’s table. Also, Bert has said that he feels that too much food is becoming rotten and having to be thrown
out. However, he is not sure what to do about it except make the kitchen staff go through lengthy inventory checks
where they review the food held in store. John is worried about these complaints as there is now an air of tension in
the owners’ meetings. He has been reading various books about performance management and has come across the
quote, ‘What gets measured, gets done.’ He believes this is true but wants to know how it might apply in the case of
his business.
2 Amal Airline (Amal) is the national airline of Jayland. It was originally owned by the government but was listed on the
local stock exchange when sold to private investors more than 20 years ago. The airline’s objective is to be the best
premium global airline.
Amal provides long- and short-haul services all over the world and is based at its hub at Jaycity airport. Amal has
been hit by a worldwide reduction in air travel due to poor economic conditions. The most recent financial results
show a loss and this has caused the board to reconsider its position and take action to address the changed
environment.
Amal has cut its dividend in order to conserve cash and it is trying to rebuild profitability by reducing costs by 14%.
The airline is capital intensive as it requires to maintain a large fleet of modern aircraft. The two major costs for the
airline are staff and fuel. In trying to renegotiate working conditions and pay, the management have angered the
unionised workforce. There has already been some strike action by the unions representing the aircraft crew and
ground staff and more is threatened. They are upset about changes to pension provisions which will require them to
make larger contributions and also, a reduction in the number of crew on each aircraft which they believe will require
them to work harder and so they want a compensating pay-rise.
Additionally, the board are pushing forward a large project to improve the design of the company website in order to
increase the number of passengers who check-in on-line and so would not require as much assistance at the airport.
The new design is also aiming to increase the number of passengers who book their tickets through the company’s
website rather than other resellers’ websites or at booking agents. The project is currently two months behind schedule
due to one of the main software suppliers becoming insolvent.
Finally, the board has been considering taking advantage of new technology in aircraft engines by making a large
investment ($450m) in new low-noise, fuel-efficient aircraft in an effort to reduce the environmental complaints
surrounding air travel and also cut costs.
Given all of the issues and projects affecting Amal, the CEO has tried to find a unifying view that will explain the
airline’s performance. She has heard that the performance prism may provide such a framework.
As further background, the CEO has supplied the data below on Amal and two of its main competitors. Kayland Air
is a government owned and run airline in the neighbouring country of Kayland. It has a similar mix of business to
Amal and targets a similar market. Cheapo Air is currently one of the most successful of the new privately-owned
airlines that have gained significant market share over the last 15 years by offering a cheap but basic short-haul
service to customers in and around Jayland. Cheapo Air subcontracts many of their activities in order to remain
flexible. The CEO wants you to calculate some suitable performance measures and explain the results.
Section B TWO questions ONLY to be attempted
3 Thebe Telecom is a large national telephone business in Fayland. Thebe provides telephone service to more than
11 million customers through its fixed line and mobile services. Thebe has three strategic business units: mobile; fixed
line telephone (incorporating broadband); and corporate services (serving other businesses’ telephone needs). It has
become the largest mobile operator in Fayland through a series of acquisitions of competitors and operating licences.
Thebe’s CEO has won many awards for being an innovative businessman who recognises the rapid changes in
technology, regulation and competitor action that occur in the sector. Thebe’s major competitor in Fayland is the
original nationalised telephone company, FayTel, which was privatised 20 years ago but which retains many of the
features of a monopoly supplier including a massive infrastructure. As a result, Thebe’s CEO realised long ago that
competition on the basis of price and volume would not work against such a large competitor and so he has focused
on customer service as the key to growing the business.
In order to improve the company’s competitive position, the CEO decided that the company should consider a Six
Sigma initiative to give an immediate step change improvement to the service quality at Thebe. The initiative involved
a number of projects including one to improve the quality of customers’ bills. FayTel was publicly criticised by the
government’s consumer advocate who pointed to occasional misallocations of call minutes to the wrong numbers and
also, more frequently, the application of incorrect tariffs in calculating the costs of calls. Thebe’s CEO is aware that all
telephone businesses (including Thebe) have these problems but this is an area in which Thebe can gain a
competitive advantage and has taken a special interest in this project by championing it himself.
The project is focused on improving the accuracy of customers’ bills and the handling of complaints. Within the billing
department, the company divided activities into normal money collection, credit control on overdue payments and
managing complaints. Process diagrams were created for each of these areas and then data was sourced from
customer feedback at the various points of interaction with Thebe employees (such as complaint handling) and
internal measurables created. The project team was formed from line managers from all three strategic business units
and the billing department.
Required:
(a) Explain how the general way in which Six Sigma is implemented helps improve the quality of performance
illustrating your answer with reference to Thebe. (8 marks)
(b) Explain and illustrate how the DMAIC method for the implementation of Six Sigma could be applied at Thebe.
(9 marks)
(17 marks)
84 Ganymede University (GU) is one of the three largest universities in Teeland, which has eight universities in total. All
of the universities are in the public sector. GU obtains the vast majority of its revenue through government contracts
for academic research and payments per head for teaching students. The economy of Teeland has been in recession
in the last year and this has caused the government to cut funding for all the universities in the country.
In order to try to improve efficiency, the chancellor of the university, who leads its executive board, has asked the head
administrator to undertake an exercise to benchmark GU’s administration departments against the other two large
universities in the country, AU and BU. The government education ministry has supported this initiative and has
required all three universities to cooperate by supplying information.
The following information has been collected regarding administrative costs for the most recent academic year:
5 Callisto Retail (Callisto) is an on-line reseller of local craft products related to the historic culture of the country of
Callistan. The business started ten years ago as a hobby of two brothers, Jeff and George. The brothers produced
humorous, short video clips about Callistan which were posted on their website and became highly popular. They
decided to use the website to try to sell Callistan merchandise and good initial sales made them believe that they had
a viable business idea.
Callisto has gone from strength to strength and now boasts sales of $120m per annum, selling anything related to
Callistan. Callisto is still very much the brothers’ family business. They have gathered around themselves a number
of strategic partners into what Jeff describes as a virtual company. Callisto has the core functions of video clip
production, finance and supplier relationship management. The rest of the functions of the organisation (warehousing,
delivery and website development) are outsourced to strategic partners.
The brothers work from their family home in the rural North of Callistan while other Callisto employees work from
their homes in the surrounding villages and towns. These employees are involved in video editing, system
maintenance, handling customer complaints and communication with suppliers and outsourcers regarding inventory.
The employees log in to Callisto’s systems via the national internet infrastructure. The outsourced functions are
handled by multinational companies of good reputation who are based around the world. The brothers have always
been fascinated by information technology and so they depend on email and electronic data interchange to
communicate with their product suppliers and outsourcing partners.
Recently, there have been emails from regular customers of the Callisto website complaining about slow or
non-delivery of orders that they have placed. George has commented that this represents a major threat to Callisto as
the company operates on small profit margins, relying on volume to drive the business. He believes that sales growth
will drive the profitability of the business due to its cost structure.
Jeff handles the management of outsourcing and has been reviewing the contracts that exist between Callisto and its
strategic partner for warehousing and delivery, RLR Logistics. The current contract for warehousing and delivery is
due for renewal in two months and currently, has the following service level agreements (SLAs):
1. RLR agree to receive and hold inventory from Callisto’s product suppliers.
2. RLR agree to hold 14 days inventory of Callisto’s products.
3. RLR agree to despatch from their warehouse any order passed from Callisto within three working days, inventory
allowing.
4. RLR agree to deliver to customers anywhere in Callistan within two days of despatch.
Breaches in these SLAs incur financial penalties on a sliding scale depending on the number and severity of the
problems. Each party to the contract collects their own data on performance and this has led to disagreements in the
past over whether service levels have been achieved although no penalties have been triggered to date. The most
common disagreement arises over inventory levels held by RLR with RLR claiming that it cannot be expected to deliver
products that are late in arriving to inventory due to the product suppliers’ production and delivery issues.
Required:
Assess the difficulties of performance measurement and performance management in complex business
structures such as Callisto, especially in respect of the performance of their employees and strategic partners.
(17 marks)
(i) Current performance report
The existing performance report has some good elements and many weaknesses. The current report shows clearly the
calculation of profit and the profit margin from the business and shows how this has changed over the past three years along
with a forecast of the next year. There is also a breakdown of the performance in the last two quarters which gives a snapshot
of more immediate performance. The report breaks revenue and costs into product categories and so might allow a review of
selling and procurement activities.
However, there are a number of weaknesses with the existing report. Firstly, the report only clearly answers the question ‘what
was the profit?’ The owners have indicated that their aim is to ‘make money’ and it is possible that making money and profit
may not be entirely compatible in the short term. For example, there are no cash measures of performance on the report.
These are likely to assume greater importance given the planned improvements and any long-term expansion of the business.
The owners might wish to consider refining their long-term goal in order to make it a more precise statement.
The current report does not present its information clearly. There is too much unnecessary information (e.g. the detail on
operating costs). The style of presentation could easily be confusing to a non-accountant as it shows a large table of numbers
with few clear highlights. The use of more percentage figures rather than absolute numbers may help (e.g. gross margins,
change on comparative period percentages). Also, the numbers are given to the last $ where it would probably be sufficient
to work in thousands of dollars
The current report does not break down conveniently according to the functional areas over which each owner-manager has
control. It summarises the overall build up of profit but, for example, it cannot be easily used to identify performance of the
service staff except indirectly through growth in total revenue. In order to improve this aspect of the report, the critical success
factors associated with each functional area will need to be identified and then suitable performance measures chosen. For
example, Sheila’s area is customer-facing and so a measure of customer satisfaction based on number of complaints received
or changes over time in average scores in customer surveys would be helpful. Bert’s area is kitchen management and so staff
efficiency (measured by number of meals produced per staff hour) and wastage control (measured by gross margin) may be
critical factors. In your own financial and legal areas, costs are mostly fixed and so absolute measures such as the cost of
capital may be helpful. In the area of procurement, purchasing the appropriate quality of food and drink for the lowest price
is critical and so a gross margin for each product category would aid management.
The timescales reported in the current format are possibly not helpful for quarterly meetings. The existing report shows
evidence of seasonality in the large change between Q3 and Q4 performance (42% fall in revenue). The figures for two years
ago may not be particularly relevant to current market conditions and will not reflect recent management initiatives. It may
be useful to consider reporting the last quarter’s monthly performance giving comparative figures from the previous year and
drop the use of the detailed 2010 and 2011 figures in favour of just supplying net profit figures for those years in order to
give an overview of long-term performance.
The current report does not give much benchmark data to allow comparisons in order to better understand the results. It
would be helpful to have budget figures for internal comparison and competitor figures for an external comparison of
performance. Such external data is often difficult to obtain although membership of the local trade association may give
access to a suitably anonymised database provided Metis is willing to share its data on the same basis.
Finally, the current document only reports financial performance. I have already indicted that this may not be sufficient to
capture the critical factors that drive the business. A restaurant will be judged on the service and quality of its products as
well as its pricing. It would be an improvement to include this style of reporting although gathering reliable data on these
non-financial areas is more demanding.
(Tutor note: It would be possible to also base a criticism on a framework such as Fitzgerald et al’s ‘Results and determinants’
or the Balanced Scorecard.)
The business is currently performing well generating healthy after tax profit for the owners and a positive EVA™, which implies
the business is adding value for the shareholders.
The NPV and MIRR measures do not look healthy as normally a business would seek only investments that returned positive
NPV values or a MIRR above the cost of capital (125% for Metis). However, these are measures that take account of the
first three years trading and so include the understandably weak opening year’s performance when the business was building
up. They may provide a long-term view of historic performance but are less helpful in judging the current state of the business.
You may want to view the goal of reaching nil NPV as a long-term target for the business so at least meeting its cost of capital
(in fact it looks like the business will achieve this in the next year).
(iii) ‘What gets measured, gets done’
The idea behind the quote, ‘What gets measured, gets done’ is that the staff and management will only react to the
performance measures chosen by the owners. In other words, poor performance reporting can lead to inefficient
management. If an area is not measured then there is a danger that it is not efficiently managed and equally, if an area is
measured then there is the danger that it is over-managed. For example, the current report has annual revenue and the
previous two quarters’ revenues reported, therefore, it might promote the idea that quarterly growth is critical. However, it is
likely that the business is seasonal and so it would be more helpful to have a comparison of each quarter with the equivalent
quarter in the previous year. Otherwise, the owners may react to a fall in revenue shown when this is not controllable.
Further examples of the quote are given in the areas that the owners are complaining about in their meetings. Sheila has
complained that the staff are not smiling enough but there is no measure of customer satisfaction available in the current
report and so no way to quantify or substantiate this concern. This has resulted in Bert’s dismissive comment.
However, the control of electricity costs can be seen in the slowing growth of the utilities cost on the current report (the annual
increase has fallen from 3% to 05% pa in the last two years) and so the effectiveness of Sheila’s actions can be demonstrated
although the use of monetary totals and lack of these trend figures would mean that this is not immediately obvious. Bert’s
criticism of her work can at least be partially answered and so she can be encouraged to continue with these ideas.
Bert has complained that there is too much wastage of food and that he is devoting considerable staff time on instinct without
solid information. The problem is additionally complicated as it may be caused by purchasing lower cost but poor quality
produce or it could be caused by how the produce is handled and stored in the kitchen. The first cause is an issue for
procurement, which is not Bert’s area of responsibility, and so any actions of his are unlikely to address the problem. The
report needs to identify changes in gross margin which might indicate changes in procurement policy and it should also have
a measure of wastage such as the average actual cost of food per dish served compared to a budgeted cost of food per dish.
The quote may not be entirely applicable as management may still take action out of other motivations such as the results
from training or personal motivation to demonstrate their own skills. However, the quote is intended to bring into focus the
fact that many people will tend to focus effort on the explicit measures of their performance.
In conclusion, as Metis grows it will need to refine its performance reporting so that management become more efficient in focusing
their work on areas which will achieve the business’ objectives.
2 (a) The operating margin shows that overall Amal is being run efficiently. Also, the margin is relatively high which is to be
expected as Amal has a strategy of differentiation.
The load factor shows the utilisation of the expensive asset base of the companies and here, Cheapo is performing well ahead
of its rivals. This may be due to its pricing policy but it may be possible for Amal to review its own pricing policy along the
lines of Cheapo in order to boost the load factor. The danger of such a change to pricing policy is that it undermines the overall
strategy of Amal as a differentiator. So, it may be that load factor is a secondary rather than primary measure of performance.
The recent staff problems motivate looking at a measure of staff performance and workload. Amal is performing well ahead
of Kayland Air in generating revenue per staff member although it is much lower than Cheapo. This may be due to the power
of the staff in the publicly-owned Kayland Air and Cheapo offering a basic service with their use of outsourced staff.
Finally, the fuel costs are causing concern in the industry and it is noticeable that Cheapo is managing its fuel bills more
efficiently than either of the others. Amal should investigate possible savings by examining where Cheapo is sourcing its fuel,
what quality of fuel it uses and whether its aircraft are more fuel-efficient. (Note that fuel cost per seat kilometre has been
used rather than fuel cost per passenger kilometre since this reflects the fuel efficiency of the aircraft and does not confuse
this with the ability to fill the aircraft with passengers.)
(b) The performance prism has five facets which attempt to unify various methods of performance management into a coherent
whole. The facets are stakeholder satisfaction which then depends upon the other four facets of stakeholder contribution,
strategies, processes and capabilities. By taking a wider view and focusing on stakeholders, the prism model may help to
avoid performance measurement that is driven by internally-derived strategies.
Stakeholder satisfaction involves the identification of the important stakeholder groups and an understanding of their wants
and needs. At Amal, the key stakeholders appear to be:
Finance providers (shareholders and lenders) who will want adequate returns for the risks that they take in allowing
management to use their funds;
Customers who want the delivery of the premium service promised but who may resist the price margins that
accompany that product;
Employees who want higher wages, job security and better working conditions; and
Suppliers who are also key to delivering the new aircraft and the new website.
The stakeholder contributions identify what the organisation wants from its stakeholders.
Amal will want shareholders (and lenders) to provide capital (possibly for the new aircraft) at a market price for the risk
taken and be committed to this investment for the time it takes to pay off;
Amal will want customers who are loyal and profitable;
Amal will want suppliers who are reliable (delivering on time is an issue for the website development) and support their
products with on-going technical improvements (for example, the new engine technology);
Amal will need the commitment and cooperation of the employees if it is to deliver a premium standard service while
also, cutting costs.
The strategies are the paths that the organisation will follow in order to deliver stakeholder satisfaction. Amal has set a target
of reduction of overall costs by 14%. Two major categories are fuel and staff costs and part (a) has indicated possible routes
to improvement in these areas indicated by competitor activity. A gap analysis might yield ideas for further improvement by
identifying how much can be expected to be achieved through the existing squeeze on fuel and staff costs. An identification
of the cost drivers and an activity-based cost exercise would give a clearer understanding of general overhead costs. It is clear
that there may be a limit to the pressure that the staff will take before resorting to further costly strike action. Although it will
be important to measure the short term costs of industrial disputes with the long term benefit to profitability of reducing the
fixed staff cost base.
The processes are required if the strategies are to be executed. At Amal, it appears that the website project aims to streamline
existing processes. Cost per seat booked should fall as a result of this project. The project itself should be monitored against
budget as cost overruns are more likely when the project fails to meet its timetable. A larger exercise of business process
reengineering may be beneficial as large IT projects often offer the opportunity to remove redundant processes and redesign
the remaining ones. This would be a revolutionary programme of change but one that might well suit Amal as the staff appear
to have realised that there will be major change.
The capabilities are what are required in order to operate and improve the processes. The capabilities can be identified by an
audit of the strengths and weaknesses of the business. This can be achieved by considering the value chain and
understanding how value is generated by the linking of processes and skills in the business. It can also be achieved by using
18the McKinsey 7s model which identifies the hard elements as the strategy, organisational structure and systems alongside the
soft elements of shared values, style, staff and skills. Examples of performance measures in these areas would reflect the new
aircraft investment (e.g. return on new capital employed).
3 (a) There are a number of broad ways in which the implementation of Six Sigma improves quality in an organisation. These
include:
an increased focus on customers illustrated at Thebe by the strategic need to improve customer service and the project
objective of improving customers’ bills;
management decision-making being driven by data and facts not intuitions such as the use of customer satisfaction
scores or numbers of complaints as key performance measures;
the identification of business processes’ improvement as key to success which is exemplified by the mapping of the
processes and then their redesign;
the proactive involvement of management such as the CEO championing the billing improvement project. Six Sigma
depends on leadership which is provided by various experts who interact with the various Six Sigma projects which will
be improving processes in the organisation;
the increased profile of quality issues and the increased knowledge of quality management that comes from the use of
different layers of trained experts in the project. There are green belts who will often be line managers, who in additional
to their normal work will lead Six Sigma projects. There are black belts who will exclusively specialise on Six Sigma and
lead specific projects and there are master black belts who are Six Sigma experts in statistical methods who consult
across several Six Sigma projects; and
Six Sigma implementation requires collaboration across functional and divisional boundaries so bringing the focus of the
whole organisation to quality issues as illustrated at Thebe by the involvement of all the business units in the billing
project.
(b) The DMAIC process is as follows:
1. Define customer requirements/problem
Here the problem is the complaints on bills that result in customer dissatisfaction and delayed revenue receipt or
potential loss of business. Customer requirements can be divided into those that are the minimum that is acceptable
(e.g. billing errors are corrected), those that improve the customer’s service experience (e.g. billing corrections completed
swiftly) and those that go beyond the customer’s expectations (e.g. offering additional services as compensation). The
customers could be surveyed in order to identify if different customers have different needs (e.g. based on the three
business units).
2. Measure existing performance
The number of customer complaints or scores below a threshold level on customer surveys will have to be measured
and targets set (e.g. number of complaints per million bills issued or average time to resolve complaints). Measurement
should focus on areas where the customer will value improvement. A key issue at this point is ensuring that the
measurement system is reliable and this may require redesign of the existing customer survey forms/procedures.
3. Analyse the existing process
This step involves data collection in order to identify the root causes of problems and then techniques such as Pareto
analysis will improve the focus of action on the issues that give raise to the majority of complaints based on the idea
that 20% of the categories of causes will give rise to 80% of the complaints. For example, the analysis at Thebe could
look at causes of delays in complaint resolution such as staff motivation or processing time for rebilling.
4. Improve the process
This is the implementation stage for any changes that are suggested and it is important at this stage to check on the
cost and resource consequences of any suggested improvement.
5. Control the process
The improvement project will be monitored after implementation to ensure that the benefits of reduced complaints are
maintained. This can be done through exception reporting if complaint numbers begin to exceed the tolerance set or
continued monitoring of the time taken to resolve complaints. The general performance measure of the success of the
project will be the retention of customers which is commonly measured through the churn rate of customers (percentage
of existing customers lost per year).
4 (a) Benchmarking process
The benchmarking process is often described using seven steps. The following are the steps with the current state of the
exercise:
1. Set objectives and decide the areas to benchmark
GU has set the objective of improving efficiency and is benchmarking all of its administration operations relating to
teaching and research.
2. Identify key performance drivers and indicators
The performance drivers have been provided and the indicators are based on the activity per driver. The drivers might
be improved by distinguishing between teaching staff and administrative staff.
193. Select organisations for benchmarking comparison
The government selected the three largest universities for benchmarking which excludes five other smaller universities.
This can be justified if the large universities cover similar teaching and research areas while the smaller ones are
narrower in focus (for example science and engineering subjects only). However, it may be that there are examples of
good practice in university administration that will be missed as a result of restricting the exercise. It might be sensible
to include foreign universities in the exercise. Differences in the mix of subjects researched and taught might also affect
the results (e.g. managing teaching facilities in engineering and law will be different).
4. Measure performance of all organisations involved in benchmarking
The basic data has been gathered as required by government. This step would normally be more complex in a private
sector situation as commercial secrecy would hinder the sharing of information.
5. Compare performances
This is the stage that has been reached. See answer to part (b) for results.
6. Specify improvement projects
The results of the comparison should lead to identification of areas for improvement. If GU is not demonstrating leading
performance then it should send staff to the top performer to identify their best practice processes and devise projects
to implement these at GU.
7. Implement and monitor improvements
Management should perform a post-project review in order to identify if the improvement has achieved or exceeded its
goals and consider lessons that have been learned from the project.
From the results, it can be seen that GU is best at controlling costs associated with research contracts and it has the highest
research funding ($185m). This may indicate that the government monitors such cost control and that GU should ensure its
continued good practice in this area. AU spends most per student on its teaching facilities and student support although it
has the smallest number of students. It might be expected that this would lead to higher student enrolment which may imply
that student enrolment is not significantly dependent on these factors. However, lower drop out rates and higher student pass
rates and future success in gaining employment may reflect the more expensive teaching environment at AU. These quality
measures are not being reflected in the benchmarking exercise.
In accounting services, all the universities perform broadly in line. BU has achieved a small 35% advantage over the others.
In human resources management, BU is 22% more costly which is surprising given the larger staff numbers at BU over which
to spread such a central cost.
In IT management, there is some variation of performance with BU costs being 10% lower than GU’s. These variations may
well be due to the subjects being taught (for example, universities that are more orientated to science and technology will
probably demand larger computing resources).
In general services, all the universities perform broadly in line. AU has achieved a small 3% advantage over GU.
It is necessary to give a warning about the difficulty of comparing the performance of the universities due to differences in
location and the mix of subjects taught and researched.
(Tutor note: the comments on accounting and general services are not significant and so not necessary in a good answer.
They are included for completeness.)
205 Performance measurement problems at Callisto
In a virtual organisation such as Callisto, performance measurement can cause difficulties due to the fact that key players in the
business processes and in the supply chain are not ‘on site’. Callisto has the problem of collecting and monitoring data about its
employees working from home and the outsourcing partners.
At Callisto, there is a reliance placed on information technology for handling these remote contacts. Collecting and monitoring
performance should therefore be done automatically as far as possible. A large database would be required that can be
automatically updated from the activities of the remote staff and suppliers. This will require the staff and supplier systems to be
compatible.
The employees can be required to use software supplied by Callisto and in fact, at Callisto, they use the internet to log in remotely
to Callisto’s common systems. Although this solution requires expenditure on hardware and software, it is within the control of
Callisto’s management. Even with reviews of system logs to identify the hours that staff spend logged in to the systems, there are
still the difficulty of measuring staff outputs in order to ensure their productivity. These outputs must be clearly defined by Callisto’s
managers, otherwise there will be disputes between staff and management. One further outstanding issue is the need to ensure
that such communication is over properly secured communication channels, especially if it contains customer or financial data.
The strategic partners, such as RLR, will have their own systems. A problem for Callisto is that there is disagreement over the
measurement of the key SLAs. In order to resolve such disputes, lengthy reconciliations between Callisto’s and RLR’s systems will
have to be undertaken otherwise there are no grounds for enforcement of the SLAs and the SLAs represent Callisto’s key control
over the relationship. The solution would be for the partners to agree a standard reporting format for all data that relates to the
SLAs which would remove the need for such reconciliations.
Finally, there is the problem that Callisto and the partner organisation may have differing objectives the obvious conflict over price
between supplier and customer being one. However, at Callisto, this is being addressed by the use of detailed SLAs which both
organisations can use to develop performance measures such as inventory levels and delivery times.
Performance management problems at Callisto
The performance management of employees is complicated due to the inability of management to ‘look over their shoulder’ since
they are not present in the same building. However, employees will enjoy the advantages of home-working, such as lower
commuting times, more contact with family and greater flexibility in working hours. The disadvantages are the difficulties in
measuring outputs mentioned above and ensuring motivation and commitment. The motivation and commitment can be addressed
through suitable reward schemes which would have to be tied to agreed outputs and targets for each employee. Work could be
divided into projects where the outputs are more easily identified and pay and bonuses related to these.
The performance management issues of handling the strategic partners include:
confidentiality where the partners will have access to commercially sensitive information about customers’ locations and
suppliers’ names and lead times;
reliability where the partner is supplying a business critical role (as for RLR with Callisto) such that it would take considerable
time to replace such a relationship and affect customer service while this happened;
relationship management where the interface between the organisations can create wasteful activity if there is not an
atmosphere of trust. At Callisto, this is illustrated by the problem of reconciliation of performance data;
profit sharing where given the collaborative nature of the relationship and the difficulty of breaking it combine to imply that it
will be in the interest of both parties to negotiate a contract that is motivating and profitable for both sides. For Callisto, the
business aim is to increase volume and this will require customer loyalty so the quality of service is important.
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