ABM: Company background ABM IT Services (ABM) is an enterprise that is owned as well as operated by the ABM family. The enterprise proides IT personnel for other businesses. The enterprise has witnessed growth along with the market for outsourcing of IT personnel roles and ABM is a big player amongst such service providers in Lakeland The ABM family has operated the enterprise with the aim of increasing profits sans taking on too much tisk. Most of the family are financially reliant on the enterprise through their pay and dividends. The patriarch of the enterprise was an accountant and this led to a family tradition that the chief executive officer (CEO) would always have an accounting qualification. Therefore, the reporting on performance has customarily focused on financial results Recent events The new generation of the family is currently in-charge and aims to propel growth of the enterprise. To achieve this, they plan to expand by ABM's operations into different geographies, by leveraging its existing reputation for reliability and professionalism. The recently elected CEO has acknowledged the fact that the selection of key performance indicators may not be appropriate given the current business environment, wherein the enterprise is dealing with an array of issues Given the unstable nature of government regulation with most customer-facing ABM work-force now needed to hold a certificate conveying that they are cognizant of the relevant regulations and health and safety procedures regarding their duties, Indeed, this facter is a reason for the growth of outsourcing to ABM: Hardships faced in recruitment and retention since the remuneration for customer-tacing staff is low by Lakeland's standards (although ABM provides full coaching for them). - Legal Problems emanating from claims of ABM staff being too aggressive in the pursult of their assignments The CEO has asked you to draw up a report to the board on the following performance management matters for ABM and has furnished you with data in Appendix 1 and Appendix 2 that could aid you with the first two tasks Existing performance indicators and introduction of the balanced Scorecard The CEO is considering the introduction of a balanced Scorecard approach and wants an assessment of whether or not the existing key performance indicators cover the financial perspective for the board. He has provided you with a draft copy of the latest board report to illustrate the reporting status quo (Attachment 1). This draft has been hastily prepared by a junior accountant. The CEO feels that there is an error in the Return on Capital Employed calculation which you should correct. He then needs reasoned suggestions for two indicators within each of the remaining three perspectives (customer. internal business process and innovation and learning). These indicators need to focus on the issues facing the business. Use of customer surveys In former times, the board has turned down the idea of introducing customer surveys as it was not confident that this method would be able to gauge performance. The CEO is mindful that a lot of the new indicators from the introduction of the balanced Scorecard would probably be non-financial. Therefore, he has asked that you conduct an assessment for the board regarding the problems associated with measuring and managing performance using non-financial performance indicators at ABM, using customer surveys as an illustration Management style Bearing in mind these changes, there may have to be alterations to the management style at ABM. Hence, the CEO also wants your evaluation of the existing management style at ABM and a justified recommendation for a suited approach. He has been taught about Hopwood's styles of using budget information (budget-constrained, profit-conscious, non- accounting) and therefore wants a brief definition of these prior to your evaluation and recommendation Human resources management targets and appraisals Finally, given the issues facing ABM noted above, the board will require advice regarding ways to align human resource management with the organization's strategy. The existing appraisal system comprises of an annual appraisal meeting between the individual and their line manager followed by a discussion of the targets for that individual (which are all financial in nature, based on the projections for the roext financial year), followed by an explanation of their bonus payment based on the previously agreed targets. For this section of the report, the CEO is of the opinion that you should consider the management setting of targets taking into consideration the move to using a balanced Scorecard. This must be followed by a deliberation of how these targets might be used within the appraisal system. At this stage, no alterations to the reward system (basic pay plus an annual bonus) at ABM are desired. It is now 1 September 2018 Required Write a report to the board of ABM to: (Discuss the importance and usage of performance measurement systems. (5 marks) (a) Discuss the types of business units and the appropriate performance measurement system for each type (6 maris) (H) Respond to the chief executive officer's (CEO) request for work on the existing key performance indicato and the introduction of the balanced Scorecard. Use the information that has been provided to you in the case and the appendix to conduct your analysis. (8 marts) (iv) Calculate, for the two years, Operating Margin, Return on Sales and Return on Assets using Dupont analysis and comment on it (8 mi) Assess the issues associated with measuring and managing performance using non-financial performance indicators at ABM, using customer surveys as an illustration (6 marks) (vi) Using Hopwood's styles, assess the existing management style at ABM and recommend a suitable approach. (7 marks) (vii) Advise ABM on the management setting of targets and how they must be used in the appraisal system. (7 marks) Marks will be awarded for the format, style and structure of the discussion of your answer. (3 marks) (50 marks) Attachment 1 Key Performance Indicators 2018 $m 686 36 Sales Revenue Operating profit Cash flow from operating activities Dividends paid Return on capital employed 2017 $m 659 34 64 13 20-4% 64 14 21.1% ABM: Company background ABM IT Services (ABM) is an enterprise that is owned as well as operated by the ABM family. The enterprise proides IT personnel for other businesses. The enterprise has witnessed growth along with the market for outsourcing of IT personnel roles and ABM is a big player amongst such service providers in Lakeland The ABM family has operated the enterprise with the aim of increasing profits sans taking on too much tisk. Most of the family are financially reliant on the enterprise through their pay and dividends. The patriarch of the enterprise was an accountant and this led to a family tradition that the chief executive officer (CEO) would always have an accounting qualification. Therefore, the reporting on performance has customarily focused on financial results Recent events The new generation of the family is currently in-charge and aims to propel growth of the enterprise. To achieve this, they plan to expand by ABM's operations into different geographies, by leveraging its existing reputation for reliability and professionalism. The recently elected CEO has acknowledged the fact that the selection of key performance indicators may not be appropriate given the current business environment, wherein the enterprise is dealing with an array of issues Given the unstable nature of government regulation with most customer-facing ABM work-force now needed to hold a certificate conveying that they are cognizant of the relevant regulations and health and safety procedures regarding their duties, Indeed, this facter is a reason for the growth of outsourcing to ABM: Hardships faced in recruitment and retention since the remuneration for customer-tacing staff is low by Lakeland's standards (although ABM provides full coaching for them). - Legal Problems emanating from claims of ABM staff being too aggressive in the pursult of their assignments The CEO has asked you to draw up a report to the board on the following performance management matters for ABM and has furnished you with data in Appendix 1 and Appendix 2 that could aid you with the first two tasks Existing performance indicators and introduction of the balanced Scorecard The CEO is considering the introduction of a balanced Scorecard approach and wants an assessment of whether or not the existing key performance indicators cover the financial perspective for the board. He has provided you with a draft copy of the latest board report to illustrate the reporting status quo (Attachment 1). This draft has been hastily prepared by a junior accountant. The CEO feels that there is an error in the Return on Capital Employed calculation which you should correct. He then needs reasoned suggestions for two indicators within each of the remaining three perspectives (customer. internal business process and innovation and learning). These indicators need to focus on the issues facing the business. Use of customer surveys In former times, the board has turned down the idea of introducing customer surveys as it was not confident that this method would be able to gauge performance. The CEO is mindful that a lot of the new indicators from the introduction of the balanced Scorecard would probably be non-financial. Therefore, he has asked that you conduct an assessment for the board regarding the problems associated with measuring and managing performance using non-financial performance indicators at ABM, using customer surveys as an illustration Management style Bearing in mind these changes, there may have to be alterations to the management style at ABM. Hence, the CEO also wants your evaluation of the existing management style at ABM and a justified recommendation for a suited approach. He has been taught about Hopwood's styles of using budget information (budget-constrained, profit-conscious, non- accounting) and therefore wants a brief definition of these prior to your evaluation and recommendation Human resources management targets and appraisals Finally, given the issues facing ABM noted above, the board will require advice regarding ways to align human resource management with the organization's strategy. The existing appraisal system comprises of an annual appraisal meeting between the individual and their line manager followed by a discussion of the targets for that individual (which are all financial in nature, based on the projections for the roext financial year), followed by an explanation of their bonus payment based on the previously agreed targets. For this section of the report, the CEO is of the opinion that you should consider the management setting of targets taking into consideration the move to using a balanced Scorecard. This must be followed by a deliberation of how these targets might be used within the appraisal system. At this stage, no alterations to the reward system (basic pay plus an annual bonus) at ABM are desired. It is now 1 September 2018 Required Write a report to the board of ABM to: (Discuss the importance and usage of performance measurement systems. (5 marks) (a) Discuss the types of business units and the appropriate performance measurement system for each type (6 maris) (H) Respond to the chief executive officer's (CEO) request for work on the existing key performance indicato and the introduction of the balanced Scorecard. Use the information that has been provided to you in the case and the appendix to conduct your analysis. (8 marts) (iv) Calculate, for the two years, Operating Margin, Return on Sales and Return on Assets using Dupont analysis and comment on it (8 mi) Assess the issues associated with measuring and managing performance using non-financial performance indicators at ABM, using customer surveys as an illustration (6 marks) (vi) Using Hopwood's styles, assess the existing management style at ABM and recommend a suitable approach. (7 marks) (vii) Advise ABM on the management setting of targets and how they must be used in the appraisal system. (7 marks) Marks will be awarded for the format, style and structure of the discussion of your answer. (3 marks) (50 marks) Attachment 1 Key Performance Indicators 2018 $m 686 36 Sales Revenue Operating profit Cash flow from operating activities Dividends paid Return on capital employed 2017 $m 659 34 64 13 20-4% 64 14 21.1%
