CORPORATE PERFORMANCE MANAGEMENT

TERM-V
PROF. V.K. GUPTA
INDIVIDUAL ASSIGNMENT
SUBMITTED BY:
SREEMOYEE SAHA
2016EPGP036

18th Oct, 2016

The ultimate goal of business is not only profit, but also speedy cash conversion.
Value based management is important, ROI is important. Translate strategy into
action, perform balance sheet management, income statement management and
cash flow management.
There is a difference between the analysis of the above financial accounting
statements and the management of the same. The focus here is not into accounting
or analysis. The pertinent endeavor is to maximize stakeholders wealth and not
only the shareholders wealth.
The scenario has now changed from performance based compensation to value
based compensation.
How will you achieve value based targets? Value drivers are important. Finally, you
should be able to create value for the company. Various areas can be designated by
the organization, as the KPIs.
However, the Balanced Scorecard streamlines the metrics-incorporates value to the
customers, employees and all the other stakeholders. Here we value costumer
delight and not simply customer satisfaction. How should we translate strategies
into sustainable performance objectives?
CPM is a framework that integrates strategy with business opportunities.
It gives the management a prospective & real time picture of what is actually going
on across the value chain.
CPM aims to
Align the KPIs & reduce the volume & complexity of the management reports
Reduce the overall budget, cycle time & deploy rolling forecasts to increase
the value of the financial planning process
To effectively align & reduce the cost structure
To improve the operational actions through the use of real-time dashboards &
scorecards
To improve data integrity
Improvement Initiatives:

Total Quality Management (TQM)

JIT Production & Distribution System
Business Process Reengineering
Employee Empowerment

19th Oct, 2016

Chemistry of the profitability
ROI
Increase is a continuous process improvement system
Emerging markets or emerging businesses- improve ROI, increased turnover,
growth & revenue
We need to figure out the non-value added activities ie. Cost-cutting,
innovation, adoption of new technology, through TPM, TQM, Six Sigma, Zero
Base Loss. However, we can never sell at a price that is lesser than
the cost.
Any variability in action should ensure greater profits.
If you manage the bottom-line, top line & mid-line growth will automatically
be managed
Five modules from the balance sheet and four Modules from Profit and Loss
statement need to be managed. Total 9 modules impact ROI.

Fixed Asset Management

Investment Management
Working Capital Management
Equity Management
Debt Management- Financial Leverage

Encourage Profit Sharing with the Customers. Recover Fixed Cost from the Monopoly
Sector and keep free fixed cost(FC) for the sector with perfect competition.
Kingfisher: Monopoly from the beverages & free FC for the aviation industry
This is a business excellence model
In a P&L statement, the following needs to be managed:

Revenue/Sales Management
Cost Management
Profit Management
Tax Management

THESE 9 MODULES DRIVE THE PERFORMANCE AND EVA. But there are more
EVA drivers too.
Fixed Asset Management is optimal capital restructuring. Keeping Fixed Assets less,
is considered effective & efficient. Have maximum utilization of the asset. Increase
the capacity of the asset to 100%. Need to aim at increasing the holistic ROI of the

company. Make use of the assets. Transfer idle capital to Business Units that would
use it.
If you have funds lying idle, it indicates lack of proper financial planning, which in
turn reduces the ROI. If one makes Balance Sheet, Cash flow, P&L statement
analysis for 5 years, you know when money would be required annually. U know at
which time cash would be needed, hence can make a well informed decision.
It is necessary to make a visionary document. Have the strategic & long term
planning in place. If you invest wisely at once, you can earn more without putting in
any extra efforts. Realize your money ASAP & retain others money as long as you
can.
In receivable management, ageing=0, inventory=0, make receivable=0.The Current
Assets =0 (approx), Current Liabilities are High. So, Working Capital is less than
Zero. This is a good thing. Estimated Working Capital gives us the adequate Working
Capital for the business. So, you get the financing requirements of the business. U
can easily come up with the Sales Budget or the Master Budget or the Operation
Plan.
BIS IS COMING UP WITH ISO55001. PROF. VK GUPTA IS THE INDIAN
CONVENER.
In a 1 year cycle, estimate the sales (y=a + bx; where a= average, b=growth, x=
deviation)
Sales, COGS, Estimated Sales Value, Receivable Value, Estimated Minimum Level of
Inventory, estimated on the basis of the product of lead time to order and demand
per day.
WC management makes long term requirement of the money managed by short
term. Debt is not always a cheaper source of financing than equity. If your ROI is
2%, no one will provide you with debt. Cost of equity can be cheaper than debt
when return is 4% only. So, dividend will be given out of 4% return but the cost of
debt maybe a constant at 8%. Consider the intangible values along with the
tangible ones.
Key points to remember always:
I.
II.

HOW ARE YOU DOING ASSET MANAGEMENT IN THE ENTIRE CYCLE

FROM THE START OF THOUGHT PROCESS OF A COMPANY?
MAXIMUN UTILIZATION OF ASSET.

Management theory says think differently

How to increase revenue?

Revenue depends on the Price of the commodity and the quantity of Sales. If
you cant reach the price level of your competitor, differentiate & charge a
premium.
Investment Management
I.
II.

Portfolio Management
Bank has Rs. 100 Cr. Prof. Gupta did consultancy for the bank. Earlier it took
much time to en cash the check. The bank was losing on interest. Professor
Gupta suggested that the money be transferred online as soon as the check
is received. The documentation procedures can be done afterwards.
Working Capital Management

Realize your money as early as possible and hold others money as long as
possible.
Estimated Working Capital- No excess No short. We have to come out with the
sales budget( Master Budget). Budget is part of business plan. Budget is short
term plan, It is called operational Plan.
Y=A+BX is used to calculate the sales estimate. This is statistical plan.
You have to consider socio, eco, and legal changes to add to the sales
estimate.
Expense budget gives you operating cost.
Equity and Debt Management
Debt is not always cheaper than equity. When you start the company the equity
might be cheaper. Lowest cost should be considered out of equity or debt cost.
Revenue Management
Sales Volume increase or Sales price Increase.
Option 1: Adjust price according to the competitor: Target pricing.
Option 2: Differentiate the product. Develop Sustainable Competitive advantage:
Charge Premium.
20th Oct, 2016
Delight means Impact and effect. People talk about customer retention. Delight is
one of the ways.
Income Statement Management:

1) Cost Leadership: Makes you successful in the market

2) Differentiate the product. Delight gives you repeat order. Retain your existing
customers.
Perform activity based costing & value based activities. Capture consumers &
recover fixed costs when you offer specific facilities with your Pizza. Negotiation
does not happen at premium outlets. For a one time customer, you focus on making
the maximum profit at that instant. No worries about customer retention.
In order to retain the customers, profit sharing should be encouraged. Manage
taxes by considering the useful life of an asset. If the useful life is more, the profit is
greater. Hence, the taxes are more. So, EPS is more. So, you manage the public
offering- ROI, EVA & Performance Drivers.
Balance Sheet and Income Statement Management comprise of the chemistry of
profitability.
Pizza Example: Why people make repeat purchase in Pizaa Hut and expend high
amount even when they can get the same pizza elsewhere??
Ans: Pizza Base is cooked on the spot. Freshness of the pizza makes the pizza hut
special. The pizza reaches the customer as it is. That 2 min timing between the
pizza making and delivering is what is making the product Special. Thus, a
differentiated product is created & a premium can be charged.
The people usually stayed just outside the Cambridge Hospital because it was
cheaper option. They did Pilot study. They did activity based costing.
Non AC-Rs 1000
A/c-Rs 1500
With TV-Rs 2000
So Occupancy increased to 100% as the rooms were customized to requirement.
How can you increase the quantity of product sold.
1) Retention of existing customer.-To retain you have to provide customer
delight.
2) Acquiring the new customer-You can apply different strategies.
TAX Planning
21st Oct, 2016
CITIBANK CASE

Once you have made the strategy and communicated the strategy you
cannot change it at the end of the day.
Performance should be aligned to the strategy.
If there was an issue with the target then James should have communicated it
to the top management.
This is a new performance system which has been implemented in the year.
So there might be problems.
Timing of the survey should be thought of well. Telephonic survey is not the
right way. It should be made in person.
Right Person should be surveyed. Satisfaction or dissatisfaction of the ATM
users is beyond the control of the branch.
The benchmark of 80% customer satisfaction is static for all branches,
irrespective of the size of the branch.
You have to quantify as far as possible

CONCLUSION

Citibank decided to give 25% increment. Something middle of the rating

between par and above par.
Citibank should decide weight age for different areas. It should be linked
with reward or punishment.

Cause-Effect Relationships (Policy of Citibank)

Standards
Customer Satisfaction
People
Strategy & Implementation
Control
Financial

Action is separate for providing Satisfaction & Delight. Strategy is

different for satisfaction & delight. Accordingly, for delight- KPIs & KRAs
and their groupings will change.

Value based management

Balance Score Card about 3 things under financial perspective

Profit
Growth
Value

Free cash is used for growth of the company. The Free cash can also be used for
reinvestment. If a company has free cash, it is a value based company ie. It is free
from all obligations.
What gets measured gets done.
People should copy from you but you should not copy to people.
Founder of IIM Indore said- Be vertical not horizontal.
Power is nothing without control
Why are we in the business??
Create Profit and turn it fast into cash to be able to survive in the long run

Customers- Loyalty , co development

Employees- World class employees, commitment
Shareholders- shareholders and stakeholder value creation, Target
setting.

This is our responsibility.

If you are retaining your customers then you are creating value.
New HRM Theory.
Take care of each other- employee and employer
You focus on my business and I will focus on your issues.
Now many companies are appointing a medical officer.
That medical officer will be going to the houses of the employees and will
accompany the family members to different clinics or hospital and will take care
whenever required.
Profitability-capital employed-cost of capital-growth

Why do we create value

Limited resources
Alternative investment
Long term development
To generate resources to acquire others and not get acquired.

When do we create value??

ROI > Cost of finance.
Main Profit Drivers

Selling prices
Selling volumes
Selling mix
Outsourcing Policy
Buying Volumes nad price
Efficiency- means value engineering.
Logistic costs, marketing costs, other costs
Payment conditions for customers and suppliers
Interest rate
Tax rate.

Internal Value drivers

Finance External Value Drivers (gap growth, Inflation, interest

rates, Monetary and fiscal policy, Stock market trends, Competitors
and related business performance, Expectations , trends)
Risk
Capital Employed

1
2
3
Care should be taken to pass on our profits to our employees so that it
facilitates ownership & commitment. Profit sharing should happen with
the customers only after the opportunity cost has been met.

For value based management, the same should be carried at the top level
of management. They will surely get filtered down and be absorbed by the
employees

Profitability

Capital
Cashflow

Value Creation
1

Growth

WACC

Cost of Capital
(2)

1: Profitable growth
2: Equity & Debt Management- Optimal Capital Structure
25th Oct, 2016
Why do we need to create value (Some Reasons?)
Limited resources to invest
Have alternatives to invest (easy & cheap to access- can invest elsewhere)
To generate resources to acquire others and not get acquired
Objectives, Measures and Initiatives
As you do the budget approval you have to do for balance scorecard.
Propose, review, improve and again propose, review and improve and continue the
cycle.
Balance score card is a tool to balance between short term and long term goals
It is a maximizing conversion of qualitative to quantitative.
It is a balancing between internal and External.
It is a balancing between financial and non financial measures.
Balanced score card will always have 4 perspectives.
Otherwise if more than 4 it will be performance scorecard.
The 4 perspective should be weighted according to company missions and goals
1)
2)
3)
4)

Financial perspective( Shareholders money)

Customer
Process
People( Knowledge and growth)

Balance scorecard talks about doing right things.

Financial Perspective

Profit
Growth
Value

Take only those objectives which create value.

Our objective is to delight the customers. So the measurement should be likewise.
When there will be big thinking you will ignore the trivial issues.
0 stress policy: Whenever I get the opportunity I will do things to reduce stress in
the organization.
The 0 stress will ensure higher productivity and will reduce defects. This will help in
brand building and product differentiation.
Learning: Input , Process and output to be forgotten when talking about financial
perspective. IPO gives satisfaction. But we need to go ahead to more than
satisfaction. So the Input , process , output changes to input , process and
outcomes. Outcomes give you impact and effect . Impact gives you effectiveness.
Effectiveness wil give you repeat order. Effectiveness will give you delight. Delight
means vow feeling.
Outcomes Budget: The amount spent in the budget should create the same value as
the amount. Rs1 spent should create value of Rs 1.Every penny spend should create
value. It is not like that you can spent every money that is available. Generally 75%
of the budget is spent in last 3 months just like that because it is available and you
have to spend to get budget next year. Outcome budgets are the new norm.
Customers

Delight feeling for customers spread through word of mouth. It gives publicity.
Advertisement does not create such kind of effect.
Employees

Employee and employer take care of each other. I will take care of your
worries you take care of my work.

The balance scorecard and the big picture

Activity based costing

EVA
Forecasting
Benchmarking
Market research
Best practices
Six sigma
SPC
Reengineering
ISO 9000

TQM
Empowerment
Learning organization
Self directed work teams
Change Management

Mission and Vision->Strategic Planning->

Mission and Vision->Balanced Scorecard->->
Building a Balance Scorecard
Perspecti
ves

Strategi
c
objectiv
e
Profit
Growth

Measurem
ent

Initiatives

Role

Weigh
ts

Targ
et

Actual

Remar
ks

ROI

10%

12%

36

Custom
er
Delight

Customer
Delight
Index

20%

100

90

18

Process

Product
ion

A(60
)L
B(20
)S
C(20
)S
B(20
)L
C(10
)S
D(45
)S
E(35
)S
A(60
)L
B(40
)S

30%

Customer

Revenue,
Sales
increase,
Cost
improvem
ent
Prompt
reply ,
Best
services

40%

10%

11%

44

Knowledg
e and
growth

Employ
ee
Delight

A(40
)L
B(30
)S
C(30
)S

10%

100

110

11

Financial

Employee
Delight
Index

Take care
of each
other

Total
109

Cut off will be decided by the management considering the subjective as well
objective of Balanced score card. If the scores are less than the cut off then the
difference will be carry forward to next year. In the next year the difference will be
added to the cut off score and accordingly incentives are decided.
There should not be 2 measures for a single objective.
When the ideas are generated by people only then it becomes the baby of the
people and they then ensure that the baby grows fruitfully.
Initiative: The people should be rewarded for taking the initiatives. Once the
initiatives are linked with the compensation or rewards it will keep the motivation
going for the people. The people will become more productive. People will work with
synergy.
The Action Plan/Roadmap of a Balanced Scorecard is determined at the micro level.
After individuals are assigned roles & responsibilities, reviews happen & tasks are
assigned. To determine the targets met, the implementation plan with the deadline
is set. KRAs should be very specific and not generic at all.
4th Nov, 2016
Customer
Customer
Customer
Customer

profitable and target segment-Nurture and cherish

unprofitable and target segment-Transform
profitable and not targeted segment-Retain but watch
unprofitable and not targeted segment-Fire

Basic Elements to assess Value creation of business:

Profitability, Invested Capital, Cost of Capital.
Consider only one measure for each perspective of the Balanced
Scorecard. Otherwise people will get confused. Having one measure gives
clarity to the employees on the correct benchmark. Multiple measures can
be shortlisted. But, eventually a single measure has to be agreed upon.
Highlight the areas of concern in a balanced scorecard. This will help draw
instant attention to the areas of concern. Initiative always need to be
determined. You cannot set targets and expect your employees to
perform. Clear & streamlined set of initiatives provide the employees with

a much needed sense of direction. Balance Scorecard is always forward

looking.
HR Appraisal Cycle is in sync with the Balance Scorecard Review cycle. Balanced
Scorecard is a live instrument for performing management with objectives.
In a balanced scorecard, the strategies fall between short & long term objectives.
For eg. ROI is between long & short term. We need to identify the key perspectives
from the Annual Report, & map the same into the 4 perspectives of a Balanced
Scorecard.