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MANAGEMENT ACCOUNTING ESSAY 1998/99 The development of a strategic plan is
essential to the achievement of organisational goals. Discuss. The development
of a strategic plan is an essential part of strategic management accounting. If
carried out to its full credibility the organisation will achieve its goals. It
is important to note that the strategic plan is set for long term planning, as
much as 3-5 years. It has been established that a strategic plan requires the
specification of objectives distinguished between three key elements, forming a
hierarchy: the mission of an organisation, corporate objectives and unit
objectives. These objectives are the first stage of the strategic plan, before
the organisation has to ask, and answer, three simple but vital questions; 1)
Where are we now? 2) Where do we want to be? (long term) 3) How are we going to
get there? This is where we bring analysis such as SWOT analysis, the Boston
matrix, the value chain and the Ansoff matrix into the plan. Corporate
objectives relate to the organisation as a whole. They are expressed in
financial terms, such as desired profit or sales levels, return on capital
employed (ROCE), rates of growth or market share, and are normally measurable in
some way. Formulated by members of the board, or directors to be handed down to
senior management.
United Biscuits corporate objectives in their annual report
of 1985 were; 'The most important objective remains the achievement of a minimum
return of 20% on average capital employees, with a target return of 25%'.2 Unit
objectives relate to the specific objectives of individual units within the organisation, such as a division or one company within a holding company. The
unit objectives for costain group plc in their annual report of 1986 were; 'In
the UK costain Homes is budgeted to sell 2'500 homes in 1987, - a figure that
will put it among the top ten house builders'.3 Before the corporate and unit
objectives are incorporated one must start with the mission, and the basic
concepts which involve vision statement, mission statement, goals and
objectives.
The first thing is to establish the long-term strategic aims of the organisation, otherwise known as corporate planning. A vision statement would be
drawn up first and is simply a vague sentence expressing the positive effect it
will have on society and is often used to say how the 'world will become a
better place due to the existence of the proposal(s). This is often linked with
the mission statement, and some companies may even omit the vision and focus
only on the mission. This emphasis more on the specific role that the
organisation plans. It describes in very general terms the broad purpose and
reason for its existence, the nature of the business(es) it is in, and the
customers it seeks to serve and satisfy over the long run.
The mission statement
for international company 'Virgin' is very simple, very brief but informative as
to what they wanted to put across, and is simply; 'The directors aim to develop
virgin into the leading British international media and entertainment group'.4
Equally important are the goals and objectives. Firstly the organisational
goals, the aims that the company strives to incorporate and achieve. These are a
more detailed breakdown of what the mission states. They will be defined for
different groups of shareholders. As one would expect, organisational goals are
established for shorter time frames and are of unquantified sources. Goals can
be a little ambiguous, they can be expressed in simple terms, for example, to
make a profit, or in a wider area, to increase productivity. Therefore such
goals can be taken for granted and so tell us little about the emphasis placed
on the various activities of the organisation in meeting those goals. On the
other hand one can say how vitally important they are. They provide a basis for
planning and management control, guidelines for decision making and
justification for the actions taken. The goals that the company set out in their
report will be different to that received by the individuals, groups or
departments of that same company.
The goals will help to develop commitment of
these people and so focuses attention on purposeful behaviour providing a basis
for motivation and rewards. Fig 1: FORMAL GOALS Personal goals of managers
INFORMAL Perceived goals of officially stated GOALS the organisation
organisation goals Personal goals of other members of the organisation the
reason and purpose of the organisation Figure 1 shows the different types of
informal goals that lead to the overall formal goals of the organisation.
Inter-linked with the organisational goals are the objectives. These can be
interpreted as being the same as goals, but they do differ. The goals are the
basis for the objectives and are quantified roles of the organisation. They set
out more specifically the goals, the aims to be achieved and the desired
end-results. As with the goals, the objectives too will be broken down into
different sections within the company.
The corporate objectives also need to be
broken down into compatible and functional objectives, so as all departments can
contribute their part in maintaining the overall specifications. Large companies
would have to subdivide the organisation as a whole to make there corporate
mission more appropriate. This can be achieved by splitting into functional
areas or geographical areas, where the managers are made responsible for all of
the functions carried out within their region. The most logical and relevant
divisions for strategic planning purposes are called 'strategic planning units'
- (Sub's). Sub's are normally defined as being divisions of an organisation
where the managers have control over their own resources and discretion over the
deployment of these resources within specified boundaries, - their own mission
statement and set of goals.
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