Measuring Performance Essay

In order to ensure Palisade plc board of directors in reliability of planning and control processes in Jengo Ltd, we need to supply them with the budget forecasting for the next year ended 30 June 2012. As Abraham Lincoln once said, “We must plan for the future because people who stay in the present will remain in the past.”(Garner, 2005)
The methods that need to be used in order to improve the quality of decisions making and forecasting in the company include SWOT analysis, PESTEL analysis and Porter’s Five Forces analysis.
Researchers define four basic questions that need to be asked in the beginning of any strategic planning process: 1) Where is the organization now? 2) Where does it want to be? 3) How will it get there? 4) How does it measure its progress? (Garner, 2005)

SWOT analysis
SWOT Analysis can be considered as a key to the company’s future success.
SWOT is actually an abbreviation of Strengths, Weaknesses, Opportunities and Threats. Business planning can’t be effective without usage of SWOT Analysis, because it helps business to evaluate “the existing weaknesses and threats, to reinforce strengths and to take advantage of opportunities as they appear.” (“Make Sure You SWOT Up to Survive & Thrive”, 2009).
Successful entrepreneur knows that it’s important to understand what’s happening in your industry; therefore SWOT Analysis helps to examine the organizational environment in details and to create a strategic plan determining where the company wants to be in the future.
Of course the vital condition of SWOT tactic isn’t only to determine the impact and trends of the environment but to implement the plan. Strong organizational leadership and initiative at this stage ensures strategic plan’s successful implementing.

PESTEL analysis
Some researches and companies especially in the United Kingdom use PESTEL analysis as a strategic tool in an addition or as an alternative to the SWOT method. PESTEL analysis means “Political, Economic, Social, Technological and Legal analysis” and includes analysis of macro-environmental factors as a part of strategic management analysis.
Actually, in the recent years PESTEL analysis model was updated and nowadays some analysts “extended it to STEEPLE and STEEPLED, adding Ethics and Demographic factors. (“PESTEL analysis of the macro-environment”, 2007)
PESTEL analysis helps to overview the variety of macro-environmental factors that needs to be considered by the organization; it also helps to understand the market trends (growth or decline), business position, potential and direction for operations. (“PESTEL analysis of the macro-environment”, 2007).
An important environmental factor is an ecological factor and factor of a green business growth. In my opinion, this factor definitely needs to be taken into consideration by fashion retailing companies, as customers have started to pay their attention to the ecological issues recently.
So, PESTEL framework ensures that all the influential factors of macro environment are analyzed.
Fashion retailing companies while making PESTEL analysis will have to overview the following factors:
Local factors such as local economic growth rates;
National factors such as UK laws on retailer opening hours and trade descriptions legislation and UK interest rates;
Global factors such as the opening up of new markets making trade easier. For example, the labour force issues and recruitment opportunities may have a positive tendency for the retailers due to the new labour force arrival from the new members of EU. (“PESTEL analysis of the macro-environment”, 2007).)
Porter’s Five Forces analysis
Another alternative method to the SWOT analysis was created by Michael E. Porter . It is called Five Forces analysis and it involves five factors that influence industry performance. Among them are:
The threat of the entry of new competitors
The threat of substitute products or services
The bargaining power of customers (buyers)
The bargaining power of suppliers
The intensity of competitive rivalry
The threat of the entry of new competitors is an important factor for the fashion retailing industry, as fashion market is profitable and it attracts new competitors. In order to get a stable growth sales trend, the company in this industry has to own a strong brand, to have great distribution conditions, to have a high level of customer loyalty and good cost effectiveness. I consider the threat of the entry the crucial factor for our industry.
The threat of substitute products or services is also a decisive factor, because customers often switch to alternatives in the fashion industry. The price and the quality of the products may be a serious factor for customers’ switching to another company’s products.
The bargaining power of customers has a vital influence in the fashion retailing industry, and buyers make a strong impact. The reason is that the substitutes can be found easily by buyers on the retailing market and to switch to another product is not a problem for a customer.
Next thing I need to mention in this context is the bargaining power of suppliers. The materials that are usually used in the fashion retailing industry are not raw and the switching cost for the Jengo Ltd to move from one supplier to another is not that high. Therefore this factor has a slighter less importance than the other four factors of Five Forces model. The only one element of risk that comes from the bargaining power of suppliers is a possible growth of the materials and labour force in the countries where the Jengo Ltd has a manufacturing base.
The intensity of competitive rivalry is huge determinant for the fashion retailing industry. The elements that needs to be considered by Jengo Ltd include innovation issues, online business opportunities, increasing of marketing and advertising budgets, and in general the improvements of competitive strategy.

To sum up the methods of organizational environment analysis, I would recommend Jengo Ltd to consider the following six major factors when preparing forecasts for the next financial year:
The threat of the entry of new competitors,
The threat of substitute products or services
The bargaining power of customers (buyers)
The intensity of competitive rivalry
Local and national factors (from PESTEL analysis)
Opportunities and chances to become more successful company in the the fashion retailing industry (from SWOT analysis)

The benefits of budgeting for Jengo Ltd’s planning and control of its inventory, recruitment and cash management activities
Generally speaking, no company, no matter of the industry or it size, should operate without a budget.
The importance of budgeting for Jengo Ltd needs to be especially emphasized, because this tool is considered to be “one of the most important control tools used by managers. Without some form of formal budgeting, managers spend too much of their time solving daily problems instead of focusing on the future. In addition to a short-term budget, firms should have a long-term budget (3 to 10 years), with the most current year being this period’s operating budget.” (Fleming, 1995).
There are plenty of advantages of the budgeting for all of the company’s activities. First of all, budgeting helps to coordinate managers’ actions in accordance to the company’s goals and objectives. “As a result, an atmosphere of cost-consciousness and profit-mindedness is developed in the company. A comparison of actual costs with budget provides valuable information and helps determine where efficiencies as well as inefficiencies occur.“ (Fleming, 1995).
The inventory budgeting will ensure that Jengo Ltd will design a range of new products during the next financial period that is basic condition of increasing of company’s competitive level.
The recruitment budgeting will create a reliable personnel policy by planning the expenditures for the recruitment process, by improving and retaining employees, nd of course by planning personal costs that consist of salary and benefits. This element of budgeting will ensure the company’s better position to hire best people in the industry.
Cash management activities will become much easier to manage when using the budgeting. Management will have all the financial information about the company’s present position and its plans for the future. Therefore, it will be easier to manage the financial flows and it will be done more effectively than before. There is a also a practical recommendation that will help to increase cash forecast effectiveness in Jengo Ltd: the case forecast should be prepared on a monthly basis as a part of the routine budgeting process.

The benefits of a balanced scorecard approach for Jengo Ltd
What is a balanced scorecard approach? It’s a customer-based planning and process-improvement system that aimed at focusing and driving the change process.
“Balanced scorecard translates strategy into an integrated set of financial and nonfinancial measures that communicates the organizational strategy to employees and provides them with feedback on which they can take action to achieve their objectives.” (Clair and Reich, 2002)
Among the benefits of balanced scorecard approach are the following:
Successful implementation of organizational strategies,
More updated organizational strategies,
Improved communication process within organization
Better coordination of individual goals and the organization’s goals and strategies.
Better coordination of operating plans and the company’s strategy.
Performance evaluation measurement

Measuring performance is aimed to improve performance and researches give a few reasons to adapt performance measurements.
First of all, it will help to evaluate how well the company and managers are performing. In order to make an evaluation, clear objectives should be set. Measuring performance helps to control managers as well.
Then, we should mention the budget issue, because the budget can be a tool of performance improvement. The measuring is made by determination of performance (output and outcome achieved are need to be studied)
Also, measuring performance can motivate, for example by setting great goals and giving a sense of accomplishment. It also helps managers to learn and to improve general performance.
The four areas of balanced scorecards include: Financial Perspective, Customer Perspective, Internal Business Process, and Learning Process and Growth Perspective.
In regards to Jengo Ltd, we can suggest two indicators from quadrant called Internal Business Process: targets and measures. Jengo Ltd will get clear formulated business goals (for example to plan a certain sales figure for the next financial period) and will be able to measure the sales results accordingly.
From quadrant called Financial Perspective: Jengo Ltd will set a plan for certain annual revenue (for example, the certain sales figure for the next financial period) and will be able to measure the results by accomplishing this goal.
Jengo Ltd may create a plan to arrange the training for certain amount of its employees as a part of Learning Process quadrant and will measure the results of this initiative.
And finally, in a Customer Perspective quadrant, company will plan to build the brand equity and knowledge among the customers by the end of the next financial period and will be ble to measure it with a help of special customer researches.
Conclusion
In this report, the definitions of the major methods of company’s environment were given.
The usage of these methods are required for successful budgeting process, which we need to manage in order to ensure Palisade plc board of directors in reliability of planning and control processes in Jengo Ltd.
Therefore, we’ve studied such methods SWOT analysis, PESTEL analysis and Porter’s Five Forces analysis. As a result, the four elements of Porter’s Five Forces analysis and one element from both SWOT analysis and PESTEL analysis were suggested to use for the company that operates in the fashion retailing business.
The most crucial among them are the intensity of competitive rivalry, the bargaining power of customers (buyers) and, of course, opportunities for the company.
The benefits of budgeting for Jengo Ltd were also reviewed in this report and the conclusion was made that the budgeting is highly advisable for any company and it ensures that all the processes in the company become clearer and are able to be planned in advance. It is especially recommended for the company that has to ensure the potential investor in the good business perspective of this company.
And finally, we’ve researched the benefits of a balanced scorecard approach for Jengo Ltd that helps to measure the performance of the company, by setting the goals and sharing it with personnel.