Accounting, Finance and Control (Maccarrone) by Cremaschi

INTERNAL BUSINESS PROCESS

What are the core business processes? Identify a set of performance indicators for these core business processes. For example, if we work on innovation, R&D will be a good indicator.

LEARNING AND GROWTH

More dynamic, looks at the capability of the company to improve. Organizational, technological, information systems… looks at long term too, it prepares the company for radical changes in the future. We keep under control our resources, the competence and skills to prepare the company for the future. Car maker started hiring people in the IT and electronic world in order to train them and have them ready for the electric vehicle starting 20 years ago.

The BSC is not just a classification of measures. It is a smart way to operationalize and execute the business strategy. The starting point are not the KPIs but the strategic goals underneath. It is fundamental to guarantee the alignment between the strategic PMS adopted and the strategy underneath to avoid the

“lost in translation effect”. According to Porter (as well as to many other strategy scholars), business strategy fails for two main reasons:

1. strategy is not well designed and described (strategy is too complex and becomes unmanageable)
2. strategy is not well executed (operationalized and communicated all across the organization)

Before developing the BSC, the business strategy of a company should be described. The smart tool to refer to is the strategy map, the fundamental antecedent of the BSC.

The strategy map frames the description of the business strategy by identifying key success factors within the four perspectives of finance, customer, internal processes and learning and growth. To frame the strategy and develop the strategy map we can refer to the “focus and choice” cascade technique (top down approach). 71

Once identified the limited set of critical success factors (3-4 for each perspective), we define the causal linkages among them, by applying a bottom-up logic.

and increase revenues. We can act also on the denominator by decreasing the number of assets.

Become industry cost leader-->Costs

Better utilization of assets-->Assets 74

The Customer Perspective: some basic elements of strategic marketing…

• Different strategies need different value propositions to attract and maintain target customers
• Treacy & Wiersema (1) identify three strategies focused on customers
• Basic idea is to excel in one dimension, maintaining competitive standards on the others

What we have to do now is to persuade our customers to buy more premium brands and to persuade our customers to go into our stores. In order to do this we have to understand 2 things.

1. How do we make our offer more attractive?
2. Understand in depth our customer base. Companies are classified in these 3 categories. Mobil was in the third category. 75

First three are the interesting segments. The offers should be tailored to the segments.

Delight the customer:

Basics

• clean speedy purchase
• safe friendly and helpful employees
• quality products loyalty recognition
• trusted brands

• Basic: Differentiators:
• we need to increase dealers more consumer products and services
• profitability help develop business skills

• Shareholders' and customers' satisfaction are the business strategy results. The organization implements the strategy through business processes that constitute their internal value chain. The relevance of the different processes depends on the category in which the company falls.

• Strategies should determine business processes characteristics and importance

• The ability to implement strategy is finally

linked with the ability to implement the organization's ability to learn, adapt and growth 7811.0 Budgeting and risk management

Companies operate in a turbulent and complex environment. It is important to set performance targets, but it is also equally important to forecast possible deviations from targets and the underlying reasons for these deviations (risk). In the last years there has been an increasing attention to the improvement of risk management systems by companies.

• In a business environment, risks are events that can prevent a company to achieve its goals
• RISK versus UNCERTAINTY:

We use the term "uncertainty" to denote the wider range of events that can affect a business organization outcome (its performances) both in a positive and negative way, while:

We use the term "risk" to denote those events that can be classified as "threats" (i.e. they can affect organizational performances only in a negative way).

1. Risk Management is an old discipline, but in the last two decades there has been a shift:
• From "Silos" approach, with a focus on specific areas (e.g. political risks, physical safety and security, information security, etc), with no causal links between the different areas
• To Enterprise Risk Management (ERM): holistic and "cross-area" approach
2. ERM is most frequently defined with reference to the 2004 Guidance document published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO):

"Enterprise Risk Management is a process, effected by an entity's board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risks to be within its risk appetite, to provide reasonable assurance" (COSO, 2004) regarding the achievement of the entity's objectives.

Note: Risk appetite can be defined as

The amount of risk that an organization is willing to take on in pursuit of value. In other words, the total impact of risk an organization is prepared to accept in the pursuit of its strategic goals (KPMG, 2010) 791.

Internal environment:

• Establishes an attitude towards risk management. It recognizes that unexpected as well as expected events may occur
• Develops the entity's risk culture
• Takes into account all the other organizational factors which may affect its risk culture

Objective setting:

• Is applied when management considers risks strategy in setting the objectives
• Forms the risk appetite of the entity - a high-level view of how much risk management and the board are willing to accept
• As a consequence, risk tolerance (the acceptable level of variation around objectives) is aligned with risk appetite

Event Identification:

• Differentiates risks and opportunities (events that may have a negative impact represent risks, while others taken

Into account in the definition of courses of actions – strategy – and targets)

• Involves identifying those incidents, occurring internally or externally, that could affect strategy (and, then, the achievement of objective)
• Addresses how internal and external factors interact to influence the risk profile

Risk identification is usually guided by the definition of areas of risk or more specifically by a risk catalogue:

1. Risk Assessment
• Allows an entity to understand the extent to which potential events might impact on the achievement of the target objectives.
• Assesses risks from two perspectives:
• Likelihood
• Impact
• Employs a combination of both:
• Qualitative
• Quantitative risk assessment methodologies.
• Two fundamental risk measures:
• Inherent risk: the risk to a company in the absence of any security control or actions that might be taken to alter, mitigate, or reduce either the likelihood or impact of a data loss (the "as is"
ormation in a timely manner to enable the achievement of objectives.• Information is communicated internally and externally, as appropriate, to support thefunctioning of the risk management process.• Communication channels are established to facilitate the flow of information bothvertically and horizontally within the organization.8. Monitoring• Ongoing monitoring activities are performed to assess the quality of the risk managementprocess and the effectiveness of controls.• Findings are communicated to management and appropriate actions are taken to addressidentified deficiencies.• The risk management process is evaluated and updated as necessary to ensure itscontinuing effectiveness in achieving the organization's objectives.