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Emerald Group Publishing Limited
Copyright © 2004, Emerald Group Publishing Limited
From Cost to Performance Management
From Cost to Performance Management
Catherine Stenzel and Joe Stenzel, John Wiley,ISBN: 0-471-42329-7,2003, hardback,331 pages,£32.50DOI 10.1108/13683040410524766
Organizations need to manage their overall performance and not just the cost of operations in the knowledge economy of the new millennium. In this book the authors show how to create a cost and performance management system to develop profit and process systems that work with each other.
The authors are editors in chief of the Journal of Cost Management, a bimonthly Research Institute of America (part of Thomson Corporation) periodical. They are also co-directors of a Genesis Organizational Diagnostics, a firm that provides cost and is a management consulting service specializing in government, healthcare and education.
The book comprises nine chapters, a list of recommended reading, glossary of terms, and end notes. In chapter one, the authors examine the importance of human resources in gaining competitive advantage and the need for more mature ways to manage an organization's costs and performance in an attempt to create value through better performance. Also examined are the shortcomings of present methods. Conceptual frameworks for indexing the maturity of cost and performance management methods and systems into five stages ("budgetary control", "financial control", "operational control", "strategic control", and "holistic control") are also introduced in this chapter.
In chapters two, three, and four the conventional components of a cost management system (CMS) and their interrelationships are examined under five categories:
types of costs (indirect, direct, variable, standard, sunk, etc.); and
budgeting and standard costing.
Also examined are the shortcomings of the conventional cost accounting systems (standards, budgets, and forecasts) to support strategic planning, decision making, and evaluate performance. The authors emphasize that to reflect the actual dynamics of an organization's activities, inform decision making, and support continuous improvement in cost and process structures more mature frameworks are required, especially for organizations that have invested in high levels of automation and technology, who also need leading indicators.
In chapter five, title "Operational resource accounting: learning new rules and roles", the transitional stage two/three developmental dynamics are dealt with. The authors show nine practical ways to use cost information not just for measuring efficiency but for the "wise management of valuable assets through optimizing limited resources" (p.151).
In chapter six, attention is turned to the need for participation in the pursuit of enhancing the ability to learn and adapt to answer the key questions of "What does the organization wants to be?" and "What it has to become to what it wants to be?" The impact of total quality management (TQM), theory of constraints (TOC), activity-based costing, budgeting, and management (ABC), and resource consumption accounting (RCA), their advantages and shortcomings are briefly covered.
In chapter seven, the authors explain how organizations in the third stage of their maturity begin to define their external identity and focus on process interrelationships in exploring patterns between cost and operational processes. The essential role of reengineering, value engineering, target costing, life cycle performance and costing, lean and agile management, and supply-chain costing and inter-organizational cost management are briefly dealt with.
In chapter eight, issues involved in stage four of the management maturity are dealt with. In particular, it is shown how to integrate stand-alone cost and performance management systems (for example, the four quadrants of a balanced scorecard) into a comprehensive unified management system to develop deep employee partnership as well as partnerships with customers and suppliers. These partnerships cannot be easily duplicated by competitors and thus help everyone speaking the same strategic language. The need for multi-way feedback for the learning process is emphasized.
Chapter nine (the shortest chapter, 17 pages) is devoted to a discussion of the most mature stage (stage five) of the human enterprise, which few organizations have achieved. The need for a conscious and deliberate attention to the integration of moral, needs, and self-identity subsystems of human development is emphasized.
The book is easy to read. However, examples applying the concepts showing where on the maturity stage different companies would be placed, and why, would have been more useful.
K. NarasimhanLearning and Teaching Fellow, Bolton Institute, UK