Strategic Management Accounting & Performance at Wombat Company

This report provides a strategic management accounting analysis of Wombat Company, focusing on its acquisition of Wallabi division and the subsequent performance challenges. It identifies issues within the company's performance management system, such as the absence of timely feedback, unclear strategy in changing circumstances, lack of a clear path to improvement, ignoring employee problems, and overlooking the lack of autonomy in the Wallabi division. The report recommends implementing an effective strategy, setting clear and consistent goals, ensuring consistent feedback, and establishing credibility in the performance assessment process. These recommendations aim to address the existing issues and enhance the overall business condition by improving the effectiveness of the company's strategic management accounting practices. The document is available on Desklib, a platform offering a wide array of study tools and solved assignments.

Running Head: STRATEGIC MANAGEMENT ACCOUNTING
Strategic Management Accounting
(MEMO)
Name of the Student:
Student ID:
Author Note:

STRATEGIC MANAGEMENT ACCOUNTING 1
Table of Contents
MEMO.............................................................................................................................................2
Relevant facts...............................................................................................................................2
Analysis.......................................................................................................................................3
Recommendation.........................................................................................................................4
References........................................................................................................................................6
1

STRATEGIC MANAGEMENT ACCOUNTING 2
MEMO
Address: Telephone: Fax: Email:____
To:
From:
Date:
Subject:
Respected Sir/Madam,
The given case indicates the facts and relevant expenditure figures which may be utilised for
determining the evaluation of the performance management system.
Relevant facts: The three most important facts that are relevant in this regard are mentioned
below,
 The net plant investment made by Wombat in Wallabi division is $1,600,000. Before the
acquisition of Wallaby by Wombat, the former was a fully operational company that had
the functional capacity of both manufacturing and selling the manufactured toys at
worldwide market. With further investment of $1,600,000 by Wombat, the division failed
to be profitable. In spite of the investment made by the holding company, the desired
outcome could not be reached by Wallabi division.
 The total costs and expenses are more than sales achieved by Wallabi division. Sale
amounted to $8,000,000 while total costs and expenses amount to $8,280,000. In order to
be profitable, the amount of costs and expenses has to be necessarily less than sales
figure. In this case, expenses exceeded the sales amount by a considerable degree. It is
noted that the company has incurred a loss of $280,000.
 The divisional operating loss is $280,000. Each division in Wombat is expected to
generate a return on investment to the tune of 30 per cent. Wallabi division has failed to
meet the set target of 30 per cent.
2

STRATEGIC MANAGEMENT ACCOUNTING 3
Analysis: As stated by Buckingham & Goodall (2015), an effective performance management
system needs to incorporate in itself a well-structured strategy and proper communication of the
strategy to the stakeholders. It has to take into account the factors in the change of circumstances
and providing the team with the necessary tools or authority to meet the goals. Hence, it is
crucial to focus on the strategic planning process to avoid these challenges. As indicated by
Mone & London (2018), performance management essentially should be an on-going process
that requires a continuous communication strategy with the stakeholders, measurement of
progress and adapting to changing conditions. In the absence of these broad elements, there are
possibilities of problem arising in performance evaluation system of a company. The problems
identified in the current management performance evaluation system are mentioned below.
 Absence of timely feedback to employees: The management of Wombat has decided to
transfer the manager on account of unsatisfactory performance of the Wallabi division.
There was no systematic provision mentioned which could have provided relevant inputs
over a period of time. As mentioned by Van Dooren et al. (2015), in the absence of
consistent inputs, performance evaluation is reduced to a formal setting of several
activities, which failed to meet the organisation's strategic objectives.
 Not setting clear strategy in case of changed circumstances: As indicated by Gerrish
(2016), appropriate goals have to be set that are measurable and objectives needs to be
updated with the changes in the business environment. In one of the identified facts, the
divisional operational loss has been indicated. The Wallabi division was an entity that
was manufacturing and selling the products. However, after the acquisition, it has only
been manufacturing components for the products that are being manufactured by the
Elmu division. There has been change in circumstances for Wallabi division, which
proved to be uncertain and hence led to a loss for the firm.
 Absence of clear path to improvement: As stated by Arnaboldi et al. (2015), in the
absence of a clear path to improvement the desired changes cannot be achieved by
performance management system of an organisation. It has been identified that Wombat
had invested $1,600,000. Despite of having the capability to invest, the manager did not
have a clear path for development, which ultimately had a negative impact on the
company. Although the company is contemplating transferring the division manager, the
system requires a strategy for improvement as well.
3

STRATEGIC MANAGEMENT ACCOUNTING 4
 Ignoring employee problems: In the given case study, there is no indication that
problems of the employee on the changing circumstances of Wallabi only becoming a
producer for toy component has taken care of. Employees may have needed re-
orientation with the change in circumstances.
 Ignoring lack of autonomy: The performance management system takes into account
the sales figure and corresponding loss suffered by the company but it does not take into
consideration the lack of autonomy of the Wallabi division. It had no participation in
capital investments, price setting of products and the quantity of production by it.
Recommendation: The following recommendations can be made in order to solve the existing
issues and thereby enhance condition of the business:
 Effective strategy: As indicated by Pulakos et al. (2015), lack of an effective strategy
may adversely impact performance management assessment. Hence, for accurate
performance management, the company or the leaders have to determine the strategy that
provides plans and guidance for the employees to follow. It also gives the company
definite milestones to measure the progress in achieving those goals and also adopt
alternate course of action if the strategy proves to be ineffective.
 Clear goals: According to Landy et al. (2017), for the performance management system
to be useful there has to be establishment of clear goals communicated to the employees.
Progress or performance can be assessed against those goals. Specific nature of goals
allows employees to decide whether tasks have been accomplished or not. For instance, a
specific percentage in the increase of sales over a specified time period is effective as
compared to setting a target of merely ‘more sales’.
 Consistency: Employees should receive consistent feedback from supervisors as opposed
to only a formal performance evaluation. Unsatisfactory performance management
outcome may also result from management giving inconsistent feedback. Mixed
messages or lack of any input may cause resent and mistrust on performance assessment
reports. Such lack of confidence of employees on formal performance assessment cannot
lead them to achieve the goals of the company or arrive at the desired outcome from the
performance assessment exercise.
4

STRATEGIC MANAGEMENT ACCOUNTING 5
 Credibility: The credibility of performance assessment vests on the trust on the
observations of the management and output or income figures. The credibility of the
performance management system will be hit if there are doubts regarding the fairness of
the performance management in the metrics that are adopted for assessment. If the
efficacy of the system is doubted then the performance report will fail to generate the
desired outcome. Hence, the performance management system should not only bank on
income or sales figures but take other factors into consideration which directly impacts
output.
5

STRATEGIC MANAGEMENT ACCOUNTING 6
References
Arnaboldi, M., Lapsley, I., & Steccolini, I. (2015). Performance management in the public
sector: The ultimate challenge. Financial Accountability & Management, 31(1), 1-22.
Buckingham, M., & Goodall, A. (2015). Reinventing performance management. Harvard
Business Review, 93(4), 40-50.
Gerrish, E. (2016). The impact of performance management on performance in public
organizations: A meta‐analysis. Public Administration Review, 76(1), 48-66.
Landy, F., Zedeck, S., & Cleveland, J. (2017). Performance measurement and theory. Routledge.
Mone, E. M., & London, M. (2018). Employee engagement through effective performance
management: A practical guide for managers. Routledge.
Pulakos, E. D., Hanson, R. M., Arad, S., & Moye, N. (2015). Performance management can be
fixed: An on-the-job experiential learning approach for complex behavior
change. Industrial and Organizational Psychology, 8(1), 51-76.
Van Dooren, W., Bouckaert, G., & Halligan, J. (2015). Performance management in the public
sector. Routledge.
6