Key Success Variables as Control Indicators Chapter 2
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Transcript of Key Success Variables as Control Indicators Chapter 2
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KEY SUCCESS VARIABLES
AS CONTROL
INDICATORS
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2
Introduction
A key variable is a significant indicator of business activity, whose sudden and unpredictable change warrants immediate action by management.
A small change in a key variable will have significant impact on the performance of the organization.
E.g.: profitability, market position, productivity and employee attitude.
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Sources of key variables
Industry characteristics. Environmental factors. Competitive strategy. Stake holders. Significant functions.
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Industry characteristics
In a given industry, there are certain general requirements for success, which apply to all the firms.
E.g.: in insurance industry, the basic requirement for the success of a firm is a positive investment performance.
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Environmental factors
The economic and political climate consist of environmental factors which determine key variables.
E.g.: publishers who depend on the postal services are affected by postal rates.
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Competitive strategy
The strategy that a company adapts usually determines the variables that must be monitored and emphasized. An organization that follows a low- cost strategy will require an analysis of the product cost structure.
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Stake holders
Aspects of the business that are important to key stakeholders, namely customers, executives, suppliers may be considered as key variables.
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Significant functions
In an organization with a function based structure, every manager can identify one or a few key variables related to the function of the unit.
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Identification of key variables
Input variables. Raw material availability. Raw material quality. Raw material costs.
Production variables: Capacity utilization. Losses. Quality control. Maintenance. Costs. Delivery.
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Marketing variables
Order book position. Market share. Institutional sales. Asset management variables. Asset turnover. Working capital turnover.
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Types of variables
Broadly classified as: Strategy. Structural. Process. Environmental.
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Integration Effects Among Variables
Process VariablesEnvironmental
Variables
Strategy Variables Structural Variables
Performance Accomplishment Of
Goals
Key variables and their interaction
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Steps involved in the identification of key variables
Identification of decision variables. Interactions with the environment. Implications for the control
structure. Key success variables and the
control paradigm.
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Identification of decision variables
Decision variables refers to those key success factors which are subject to manipulation through a conscious decision making process.
To summarize, decision variables are those key success factors which help the management to choose a particular course of action and execute it promptly.
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Interaction with the environment
To identify key success factors, environmental variables has to be identified.
Rogers hall has identified 4 critical relationships in a magazine publishing company, which interact with the environment. Specified demand for advertising
pages. Demand for regular subscriptions. Sales and subscriptions. Total cost of producing the
magazine.
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Implications for the control structure
Important Parameters: Efficiency and effectiveness. Economies of scale. Problems of co-ordination. Assignment of profit responsibility. Conflict of profit responsibility.
The control systems prefer a divisional structure in an organization, because within a division, the departments are organized on a functional basis.
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Key success variables and the control paradigm
The hierarchical structure of an organization gives an equal chance to process all the information pertaining to key success factors, and to make business decisions. Through decentralization, the management gives a degree of autonomy in decision making to subordinates.
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Multivariate analysis and key variables
Multivariate analysis helps in identifying the critical control variables and latent factors.
Multivariate analysis help in identifying the wide range of key variables which are latent, yet contribute to the success of the organization.
The motive behind using multivariate analysis is that it helps a firm to relocate the latent factors that play an important role in the identification of key variables.
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Key variables in selected industries
The key variables for various industries are mentioned below:
1. Insurance industry.2. Hotel industry.3. Sugar industry.4. Management training institute.5. Power industry.
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Insurance industry
In an insurance industry, the key variables are number of claims settled in a given period of time, number of claims outstanding against major insurance policy, the number of policies processed in a given period of time, and growth rate in insurance business with respect to each policy.
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Hotel industry
Room occupancy rate. Number of complaints by
customers.Amount of food wasted in the
restaurant. Percentage of revenue contributed
by the restaurant. Percentage of absenteeism among
employees.
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Sugar industry
Price of sugar sold in the open market.
Transport cost per ton of cane. Fuel cost per kg of sugar. Number of production days lost. Support prices by government.
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Management training institute
Number of students appearing for an entrance examination.
Percentage of absenteeism among students.
Number of research projects undertaken and those completed.
Time spent by faculty on teaching and research.
Time spent on management development programs.
Percentage drop out.
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Power industry
The inputs for a power industry are cost and water. The output variables includes transmission losses. The key variables include the following.
Quantity and quality of coal. Availability of wagons for
transportation of coal. Availability of water. Capacity utilization. Preventive and breakdown
maintenance.