Management Accounting : Solved Assignment

MANAGEMENT ACCOUNTING 1
STRATEGIC PERFORMANCE MEASUREMENT SYSTEMS (SPMS)
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Management Accounting 2
STRATEGIC PERFORMANCE MEASUREMENT SYSTEMS (SPMS)
Brief Description of SPMS
Strategic performance measurement systems (SPMS) are aspects that enable
managers of an organization to evaluate both financial and non-financial measures so as to
develop ways that the said strategies would be implemented (Koufteros et.al. 2014). The
systems, therefore, work to ensure that the said mission and visions of an organization are put
in practice by evaluating performance. The commonly used performance system is the
balanced scorecard model. The SPMS have different characteristics that define their nature.
One is that the make use of the monetary measures in the organization. The role is discussed
under the BSC, where the senior managers answer the question on how the shareholder's
value will be added by the said monetary measure. Notably, the feature is short term as it
enables the organization to determine the effects of the previous actions taken in the finance
department. The other feature of these systems is that they evaluate the non-financial
elements in the company. Measures assessed here, are those that affect the monetary position
in the organization. Examples include the internal processes, innovation, and customer
satisfaction. SPMS also designs purposes after the former two aspects are combined. In this
case, the measures not only deal with strategies implementation but also communication to
stalk holders about the strategy, training the employees among others. Therefore, the SPMSs
have been used by most of the organizations, as they are effective in assessing all the
activities in the organization. The systems play several roles in both large and small
organizations. One is that it facilitates the development reviews based on the strategies put by
organizations. Also, the model assists businesses in aligning its activities with the strategies
developed in the planning phase (Lisi 2015). Finally, the systems enable organizations to
monitor its performance and compare to the strategic objectives. However, several issues are

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experienced, while implementing the strategic performance measurement systems based on
strategic alignment, management performance evaluation and compensation in multi-national
organizations.
Strategy Alignment
One of the issues experienced by organizations in using the strategic performance
measurement measures is on strategic alignment. This refers to where planned strategies are
matched with the operations of the company, so as to meet the goals set (Akter et al.2016).
The role of the SPMS is to develop measures that are used in evaluating the performance of
the business. However, studies have shown that the systems have not met this due to several
reasons. One is that the systems develop too many assessment measures that the organization
cannot coordinate in aligning the strategy. For example, the balanced scorecard divides
business perspectives into four, which are financial, innovation, internal processes and
customer satisfaction. In each perspective, several measures are developed that assess the
implementation of strategies. With the many divisions, it becomes hard to ensure that they
are all met and thus becomes hard in aligning the strategy. For example, the monetary
statements become too many that the senior managers do not know what to handle first, as
they are all relevant to the business.
In most cases, the management prefers handling the financial aspects as they seem to
affect the organization directly. However based on the nature of the systems, where both
monetary and non-monetary measures have to be considered; considering one and
abandoning the other means that the systems are not useful. The other challenge experienced
in strategy alignment using SPMS is that it does not consider other concepts that must be
present if strategies are to be aligned with activities (Slack 2015). One is in training, where
the management has to equip the employees for them to develop a sense of direction. The
systems are keen on assessing the performance but do not consider measures to meet the right

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performance. Employees are needed most, when intending to align strategies and
performance as they have to not only work as a team but also operate towards the same
direction (Zhao et al. 2016). The operational systems, on the other hand, assume that
informing the management of what is needed to be done, automatically results in its
implementation. However, the case is different from implementation needs too many actions
for it to be successful.
Strategy alignment using SPMS also faces the challenge of money and time wastage.
For example, while using the balanced scorecard, regular meetings must be conducted, for
updates to be done if the model is to be effective (Benkhayat et al. 2015). This leads to too
much money usage and time where most organizations do not afford. In strategy alignment,
evaluations have to be several, considering that organizations are dynamic and changes are
common. With the idea that the systems divide business perspectives into sections, it,
therefore, means that meetings are too much which could lead to less productivity. Based on
this, it is evident that the system is not applicable to most of the small businesses, which
cannot afford the excess money required in strategy alignment. Therefore, based on the
factors that the system lead to many divisions and decisions to be followed, does not consider
other aspects like training that are needed in strategy alignment as well as demands frequent
meetings for updates, it has become hard for most of the organizations aligning their
strategies using SPMSs.
Management Performance Evaluation Issues
Using the SPMS in managing performance evaluations result to several challenges to
the organizations. To start with the model evaluates the internal processes of the organization
and does not consider external factors that could affect the operations of the company (Zhu
2014). For example, the balanced scorecard does only identify aspects in the internal
processes of the organization. Where the said strategies are met, the evaluators would judge

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that the operations of the company are in the right direction. However, it could not be the
case as factors are not holistically assessed. For example, the investigators would evaluate
how the buyers are handled by the company and if they are rightly served, it would be said
that the company is working effectively. However, the external factors for example
competition from other businesses would show that buyers would likely prefer other
organizations as their services are better. Therefore, with the idea that SPMS systems assess
the internal factors solely, wrong performance evaluations would be done.
The other challenge experienced in performance evaluation using SPMS is on poorly
trained managers (Ballou and Springer 2015). It is the role of the managers to evaluate the
functions of the organizations and make the necessary changes. However, if the managers are
not well trained and experienced, it would be hard making the right conclusions. The mistake
that is most evident here is that the management selects leaders who are experienced in
conducting evaluations. However, businesses are different, and what could be termed right in
one organization, could be unsuitable to the other. In addition, SPMS model does not insist
much on training the people to evaluate performance in the business. Instead, the model puts
measures to be used in assessing the business. This is to say short-term goals could be met,
but the long objectives would fail because the evaluators only deal with the measures raised
by the SPMS (Morrow et al. 2015). If the model was keen on ensuring that the evaluators are
well trained for the job, the model could be much useful as it assesses most of the activities in
the organization.
In addition, the issue of performance improvement is experienced while using the
SPMS. The aim of this model is to find out whether an organization is performing well or
not, but does not identify the necessary actions for improvement. In its functions, workers
are told whether their work is helpful or not, but they are not informed on how to improve
areas that are challenging. This is to say that the model deals with the past of the organization

Management Accounting 6
while evaluating, but does not consider the future, which is most important. The model is
therefore not useful, mostly where an organization needs to improve; ways to ensure
improvement are not addressed (Wang et al. 2016). Apart from that, effective evaluation
requires data collection and analysis. As said before, the SPMS leads to many divisions in an
organization. The process of evaluation is thus tedious while using this model. The sections
needed to provide data for analysis are too many, that increase the possibility of wrong
conclusions. In some cases, the evaluators do not develop clear aims while evaluating,
because they do not know what to prioritize and what to postpone. In short, carrying out
evaluations using SPMS is problematic.
Compensation Issues
SPMS model insists on evaluating the success of an organization, based on
performance. This brings issues while compensating workers, mostly where payments are
influenced by performance. If this method is used, it is implied that employees are
compensated based on the work done. This has brought issues mostly to the large companies,
due to several reasons. One, it is not all workers are motivated by money (Cooper et al.
2016). This is to say that promising workers that they would only get paid if performance
levels are high, is not a motivating factor to all the workers. Some of them consider good
work where more chances are developed, recognition activities among others. This means
that claiming that compensation would be based on work done, could lead to some workers
developing a negative attitude towards the work, and thus leave (Schmitz et al. 2014).
For compensation to be based on performance, the goals set by the organization must
be specific, measurable, attainable, and realistic and timely (Stiglitz and Rosengard 2015).
These conditions are not met by the model, which makes employees claim that the
compensatory approaches used are not fair. For example, the model does not identify specific
goals, as it is divided into various sections. Some of the measures put by the model, on the

Management Accounting 7
other hand, are not realistic. For example, developing measures of performance and assuming
that they would be practiced, even where necessary factors like training are not considered, is
unrealistic. Therefore using this model as a basis for compensation is unfair to the
employees.in addition, compensating based on the profits attained in the organization is
unsuitable. SPMS model claims that meeting the set strategies, shows success in the
organization, which is obviously tied to higher profits. However, an organization would
attain less profit, but the performance is excellent. One of the reasons to such situations is that
changes would take place in the market, for example, entry of more businesses in the market
that could lower the number of buyers to the company (Gupta and Shaw 2014). In the end,
less profit would be gotten but not because the workers are less working but due to changes
in the market. Therefore, if compensation is based on performance, it would be unfair to the
employees.
Paying the workers based on performance as the model suggests is also unsuitable
where the evaluation strategy used is not appropriate (Bettis et al. 2016). As said before, the
model does not demand managers training, before they evaluate an organization. Therefore,
chances of wrong judgments regarding performance are high. For example, where a manager
dislikes an employee due to personal issues, they would claim that the employee's work in
bad, so that the worker could get less compensation. On the other hand, the manager would
judge the work of an employee to be wrong, where the situation is not caused by the person
but the organization (Nouri et al. 2018). For example, where an employee does not execute
their roles in the right way, due to the inadequacy of the needed resources, the evaluator
would recommend low compensation to the worker, yet the conditions of the place are the
cause of bad work.
Conclusion

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In conclusion, basing the paper on strategic performance measurement systems,
several aspects are evident. One is that the aim of the model has not been achieved in most of
the businesses, because of the surrounding issues. The aim of the systems, for example, the
balanced scorecard, is to transform objectives into operations and thus ensure that the
developed strategies are aligned with the activities. However, the issues of strategy
alignment, performance evaluation, and compensation are common with the large companies.
The model only identifies the needed activities but does not apply the needed aspects in their
alignment, bringing no success. The effective evaluation process is also not stable, due to
issues of untrained evaluators and too much data that becomes hard to analyze.
Compensation based on performance is also an issue as not all workers gets motivated by
money and the process could be unjust to the workers.

Management Accounting 9
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