Paul Shantapriyan

Setting Performance Targets

Targets are an important part of our work life, whether we are setting them or meeting them. Target setting forms part of the budgeting process and the performance management of business units and individuals. Unfortunately the behavioral impacts of target setting on performance are not well understood, and this can lead to serious consequences such as game playing. Target setting is an under-researched area. Our aim in writing this book is to help fill the gap in target setting for performance. The pivotal issue in target setting is that it is an art as well as a science. Managers must strike a balance between understanding and working with the psychologies of the people undertaking the organizational initiatives and the science of estimating probabilities, preparing budget forecasts, conducting sensitivity analysis, and so forth. We do not tie down the reader with the narrow view of target setting but take a more holistic and richer perspective. A feature of this book is that we draw on ideas and research across disciplines, which is rarely done in this fi eld. Target setting is an underresearched area, as most of the research is on measurement and incentive compensation. This book fills the gap by drawing insights on target setting from a wide range of sources and across disciplines. Our book introduces the reader to some of the important methods, such as forecasting, sensitivity analysis, and probability analysis. We use practical examples to show how these techniques can be applied in target setting. Our focus is on highlighting how interrelated the various parts of organizational activities are and how they impact on each other. Therefore, target setting must include an understanding of the organizational context (e.g., people, competitive environment, structure, strategy), as well as the impact of incentive compensation and information flows. From this broad background, this book examines key issues such as which targets to choose, how many targets, and the level of difficulty. This book is ideally suited for managers and executives. It showcases the critical choices involved in the target-setting process and offers advice on how best to manage and execute it. Budgets are the most well-known organizational target- setting process, so we use lessons learned from budgeting to provide insights for developing other performance targets for financial and nonfinancial measures.

The Anatomy of a Complex Performance-Dependent Incentive System

This paper reports the findings of an archival and field study that explores the details of the design and functioning of a complex performance evaluation and incentive system, one that bases incentive payouts on both organizational and individual performance ratings. The archival data include the annual performance ratings of over 700 high- and mid-level managers and professionals over a two-year period. We find a small correlation between the organizational and individual performance ratings, which suggests no performance evaluation halo effect. There is a tendency toward leniency in both rating elements, but the leniency is greater in the organizational portion of the plan because the individual rating is constrained by a prescribed SBU-level maximum. Because the key financial performance measure is EVA, there is no reluctance to setting performance targets below zero. There is some evidence of biases related to employee roles and ranks. And the field study portion of our study revealed great within-company variation in practice and some of the reasons for it.

Getting it right: directors’ assessment of information

Purpose: The purpose of this research is to examine a role for Information and Process scepticism in non-delegable director duties. We draw upon auditing literature to guide an understanding of scepticism. Design: This is a conceptual paper, drawing upon archival material, including statute law, case law, regulatory guidance material and media releases in Australasia. Research Implications: We present arguments that challenge us to understand the process of information, judgment and actions of directors as a neuroeconomic phenomenon. Practical Implications: Directors do have a different role to that of auditors, but in our view the desirability of embracing scepticism does not defeat their responsibility on behalf of shareholders. By applying information and process scepticism, directors of companies might reduce the likelihood and magnitude of litigation costs and out of court settlements. Novelty: To date, whether or not a director has exercised an appropriate level of reasonable care and skill and/or due diligence has been a matter for courts to decide. Such retrospective analysis leaves directors vulnerable to the uncertainty of whether their individual interpretation of diligence matches up to that of the presiding judge. We provide directors with a scepticism framework to apply to information and processes provided by people on whom the directors may rely.

To Spend or Not to Spend: Information Technology Infrastructure Challenges

Numerous studies have explored IT expenditure benefits and the options such expenditure creates. These options are seen as intangible assets created by investing in IT (Kholi et al, 2012). Benefits of IT Expenditure (BITE) are assessed by the perception of senior executives. Perceptions of BITE are subjective and are important as there is little objective measurement at the process level (Tallon and Kramer, 2007). If a consensus between executives can be established it improves the prospects for an accurate understanding of processes (Tallon, 2000). This research therefore develops a conceptual framework to facilitate consensus for executive perceptions that shape an understanding of benefits as well as expenditure under sense making (Weick et al, 2005, Tallon, 2014) and sense giving (Rouleau, 2005, Weick et al, 2005). The shaping of understanding of benefits (BITE) and expenditure (ITE) are needed for the ex ante contracting of a business case as well as the ex poste governance of IT infrastructure.

Business Intelligence and Service Oriented Architecture—Improving IT Investments

Information Technology does not solve business problems. Rather, IT can be used as an enabler to meet goals, targets and position the organization in the minds of the customer. A Service Oriented Architecture (SOA) can enable higher level services from more primitive business processes. The result is a flexible, agile organization. However, in some cases, without a business model, an SOA can be implemented but the result is islands of incompatible services. In the era of data analytics, the evolution of business intelligence has assumed a more dominant role. Proponents argue that Business Intelligence subsumes SOA. Other practitioners argue that Business Intelligence (BI) and SOA are distinct from each other as each aims to deliver different perspectives to an organization. This chapter challenges this view by developing a framework where both SOA and BI are pivotal to delivering the business model. The analytics, business intelligence and data mining handshake with the SOA, allowing decision makers to plan, coordinate and control resources to meet the goals, targets and performance measures set for the organization. Business Intelligence and SOA need not operate on different levels for an organisation. In an era where companies are trying to go from barely surviving IT expenses towards developing an IT portfolio, the more options for technologies supporting asset data management, warehousing and mining to interact and co-exist are necessary. Putting aside arguments of Business Intelligence versus SOA, we propose that they can handshake and bring out the collaborative synergies to enable organizational decision making to address the competitive challenges in today’s global marketplace.

BELIEFS AND ACCOUNTABILITY IN AN ISLAMIC BANK

An Islamic bank in Malaysia (Malpha) positions itself on being Islamic. The products and services are more expensive while employees are paid less than normal commercial banks. What bonds customers and employees to the bank are symbols of Islam: aqad (oral agreement between the bank and a customer), doa’ (supplication, a prayer), the tazkirah (short religious talks at the morning meeting) and zakat (or almsgiving). Bank Malpha uses aqad (oral agreement between the bank and a customer) and Doa (supplication, a prayer) to form the basis of belief systems that influence the relationship with a customer. With regard to intermediaries, reciprocity (a form of trust) underpins the relationship between the bank and its intermediaries (housing developers and lawyers for example). This bonding is reinforced by a boundary system: the shariah committee. The shariah committee assesses the shariah (lawful according Islam) compliance and also engages with employees regarding shariah issues. This promotes learning through words and dialogue. However there is little documentation on customer recovery. If indeed non-performing loans are a key performance indicator for this Islamic bank, the challenge for this Islamic bank is to identify key processes to manage customer recovery.

Beliefs And Accountability In An Islamic Bank

An Islamic bank in Malaysia (Malpha) positions itself on being Islamic. The products and services are more expensive while employees are paid less than normal commercial banks. What bonds customers and employees to the bank are symbols of Islam: aqad (oral agreement between the bank and a customer), doa’ (supplication, a prayer), the tazkirah (short religious talks at the morning meeting) and zakat (or almsgiving). This bonding is reinforced by a boundary system: the shariah committee. The shariah committee assesses the shariah (lawful according Islam) compliance and also engages with employees regarding shariah issues. This promotes learning through words and dialogue. However there is little documentation on customer recovery. If indeed non-performing loans are a key performance indicator for this Islamic bank, the challenge for this Islamic bank is to identify key processes to manage customer recovery.

Understanding and Evaluating IT Budgets and Funding

The average firm spends over two-thirds of the IT budget on maintaining the present infrastructure and architecture. The IT budget in turn makes up between thirty to fifty percent of the capital expenditure of a firm annually. An appreciation of the models would enhance an understanding of funding for new IT initiatives and/or making improved decisions on IT investments and operations. In an era where IT infrastructure is essential, a sound IT portfolio is important. This paper explores the necessities of maintaining a firm’s current IT health, investing in future capacity and improving the competitive position of the firm. This paper tries to suggest how an organization can shift from barely maintaining the current IT infrastructure, much to the chagrin of everyone involved, to an industry leading, value generating and sound IT infrastructure. This paper first examines four models for Budgeting and Funding for Information Technology in a firm (Charge Based, Lord and Master, Revenue Percentage, Absolute Outsourcing). Then it proceeds to develop a speculative framework to assist IT budget and funding. There is evidence that the first four models (Charge-based, Lord and Master, Revenue Percentage and Absolute Outsourcing). Charge-based is a model where the IT unit is treated outright as a service provider and paid for services implemented. In Lord and Master, a firm’s IT unit has absolute control over implementation and execution of IT services. Revenue Percentage is where the IT unit compete for budgets in the form of a percentage of the organization overall revenue/profits. Absolute Outsourcing is also a service-charge based system; the only difference being that there is no defined IT unit within firm. IT needs are outsourced to an IT firm outside of the organization and services rendered, charged back to the organization.The impact an IT department has, whatever model it uses to exist, on organizational activities is un-questionable. The study of these models will help firms gather knowledge as to where they stand and also analyze if they need a change in their IT related financial environment. The proposed models are evaluated on: how each model works, how much is allocated as an IT budget, how the financial relationship of IT with other departments and stake holders functions, and implications on organizational learning. Using the funding and budgeting models as building blocks future research is welcomed on governance, change management as well as operational, day to day practical decision making which has relevance to both academic and practitioners.