The Organization - QUESTIONS 2-1 The target set of customers (or b...

Chapter 2

The Organization as a System of Activities

QUESTIONS

2-1 The target set of customers (or beneficiaries) is the central strategic planning element because it provides the organization’s primary focus in meeting financial objectives (or other principal objectives for nonprofit organizations). The organization’s decision makers choose the operating systems or sequence of activities that the organization will use to meet the customers’ requirements. The organization’s decision makers also choose performance measurement systems to monitor and assess how well the organization meets customers’ requirements and the organization’s broader objectives that led to choosing the target set of customers.

2-2 Stakeholders are the individuals, groups of individuals, and institutions that define an organization’s success or affect the organization’s ability to achieve its objectives. For most organizations the stakeholders include customers, employees, organization partners, owners or principals, and the community.

2-3 Stakeholder requirements matter because stakeholders help the organization achieve its objectives. If the organization fails to meet its stakeholders’ requirements they will withdraw their contributions from the organization.

2-4 Objectives are the broad purposes of an organization.

2-5 Organization level strategy refers to choosing what business the organization is in. The organization usually must focus so it can learn to do the things it needs to do well to be successful. Business level strategy refers to choosing the organization’s target customers and the broad approach to meet those customers’ needs. The organization must identify the customers whose requirements it is best able to meet. The organization’s value Management Accounting 3rd Edition Thomas Solutions Manual Visit TestBankDeal.com to get complete for all chapters

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proposition states in a clear and short statement how the organization will compete for, or satisfy, its target customers. An organization’s operational level (or tactical level) strategy reflects the way the organization will pursue its business level strategy. The operational level strategy must deliver the organization’s value proposition and must reflect the organization’s strengths.

2-6 A value chain is a sequence of activities whose objective is to provide a product to a customer or provide an intermediate good or service in a larger value chain. An example of a value chain is the process of ordering, receiving, cataloging and placing a text in library stacks.

2-7 An activity is a unit of work or task with a specific goal. Examples of

activities are: processing a customer’s check in a bank, waiting on a

customer in a restaurant, and sanding a table in a furniture factory.

2-8 Service includes the product’s tangible and intangible features promised to the customer. Quality is the difference between the actual and the promised levels of service.

2-9 Price, defined as the lifetime cost of a product to the customer, includes purchase price, operating costs, maintenance costs, and disposition costs.

2-10 Organization control is the activity of ensuring the organization is on track toward achieving its objectives. Organization control includes (1) specifying objectives, (2) communicating objectives to organization members, (3) monitoring performance relating to objectives, and (4) acting on discrepancies between actual and target performance.

2-11 Process control, or operations control, is the activity of assessing the ability of each unit in the value chain to meet the requirements of the organization’s target customers. Process control is short-term control and focuses on directing, evaluating and improving the processes which the organization uses to deliver goods and services to its customers.

2-12 Effective means meeting one’s objectives.

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2-13 Efficient means using the fewest possible resources to meet one’s objectives.

2-14 Customer-validated performance measures reflect customer requirements and help employees manage the value chain’s processes and activities by concentrating their attention on improving what matters to the customer. For example, if all employees at a fast-food restaurant know that customers require fast service, consistent quality of food and beverage products at low prices, and a clean environment, the employees can perform their activities according to customer requirements.

2-15 Output is a physical measure of production or activity. Outcome is the value attributed to output by the customer. Organizations often measure outputs because they are physical and therefore measured easily and objectively. Because outcomes are an assessment of customer value, they provide a better measure than outputs (or inputs) of what the relevant process is contributing to the organization.

2-16 Task control is an approach to control that specifies exactly how people are to do their jobs.

2-17 Results control is an approach to control that tells people to do whatever they think is best to achieve target results.

2-18 Benchmarking involves studying how an activity is done by the organization that does it best and then adapting that organization’s approach to one’s own organization.

2-19 When managing by the numbers, planners first decide the amount of cost reduction required and then reduce each facility’s or department’s budget accordingly. The following problems are associated with managing by the

numbers: (1) It is ineffective because it focuses cost cutting activities on

getting employees to work faster, longer, or harder (which may lead to poor quality, poor service, and disgruntled employees) rather than looking for better ways to do the job. (2) It assumes that cost is the only relevant measure of an activity’s performance. (3) It does not recognize the reasons for costs in an organization.

2-20 Life-cycle costs include the producer’s costs over the product’s lifetime.These costs include development costs, introduction costs, production costs,

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distribution costs, after-sales costs, product take back costs (the cost of recovering post consumer waste), and product abandonment costs.

2-27 Continuous improvement involves continuously making incremental changes to improve processes. Process reengineering, or simply reengineering involves larger-scale changes, such as eliminating activities to permanently reduce costs without affecting the value the customer assigns to the product.

2-22 An efficient activity consumes no excess resources. An inefficient activity requires more resources than necessary to produce the desired outcome.Organizations may continuously study their processes to discover better ways of doing them, or may benchmark with competitors and improve processes by adapting others’ approaches.

2-23 Activity analysis, also known as value analysis or activity based

management, includes the following: (1) identifying process objectives with

a target-customer focus, (2) recording or specifying the activities to complete a process, (3) classifying activities by comparing their cost with the value they add to the product from the customer’s perspective, (4) continuously improving the efficiency of all activities, and (5) eliminating or redesigning activities whose costs exceed their value. The analysis can bring about both improved processes and lower costs.

EXERCISES

2-24 This question is designed to generate discussion of who a company’s stakeholders are, and ethical considerations when a company is not required by another country’s laws to disclose potential health hazards. The discussion can include issues raised in Chapter 1 on an organization’s basic values and purpose (recall the Johnson & Johnson example), and on using beliefs systems to communicate the organization’s basic values. The question is motivated by a situation reported in an article by Andrew W.Singer, “Can a Company Be Too Ethical?”, Across the Board (April 1993), 17-22, © The Conference Board. Singer describes a company that disputed carcinogenic effects of fiberglass, but nevertheless placed warning labels on its domestic fiberglass products after the International Agency for Research