Question:
Discuss About The Recognized To Be The Most Sustainable Bank Of Australia?
This research study aims to identify the utility of multi-perspective Strategic Performance Measurement System (SPMS) along with the effect of motivational theories on reward system. This study describes real examples of the companies that integrated multi-perspective SPMS and reward system in their management as an important tool of motivation. It has been analysed that Australian companies are gradually increasing the implementation of SPMS related to the social, sustainability and environmental measures that are focused on the climate change legislations (Striteska and Jelinkova, 2015). The disclosure of companies’ performance on various aspects such as social, environmental and economic through the adoption of a SPMS system helps them to achieve transparency in their business operations. This in turn is essential for maintaining trust and integrity in their business operations in mind of its various stakeholders. Thus, the report undertakes a literature review that determines the salient features of SPMS as well as creates profound knowledge for the implementation of reward system and theory of motivation in companies. This has been done to illustrate the importance of linking of SPMS measures to the compensation plan of the executives and non-executives of a business entity in order to achieve a competitive advantage in the marketplace.
The literature review has presented the importance of two of the major SPMS systems adopted by business corporations around the world that are balanced scorecard and triple bottom line. In addition to this, the report has carried out evaluation of two publicly listed top 100 corporations in Australia regarding the effectiveness of their SPMS disclosures. For this, one company selected belongs to an environment sensitive industry whereas the other belongs to a non-sensitive environment industry. This has been done to compare and contrast the SPMS disclosure adopted by the companies belonging to different industry sectors. The companies selected for the purpose are. AGL Energy Limited and Westpac Banking Corporation as these are renowned Australian companies and have provided good sustainable performances over the years. The report analyse the annual report, sustainability reports and the information extracted from the companies websites for evaluating the effectiveness of their SPMS system. The financial measures of both the companies are also evaluated for assessing the linking of their SPMS financial measures with that of the executive’s compensation plan.
Almeida, and Azevedo, (2016) reports that in the contemporary world, where immense and cut-throat competition is there, incorporation of strategic tools to measure the performance of the organisations are very imperative part of management. For the long-term success of operations and consistency in the performance, it is mandatory for the organisation that it implements corporate strategies focused on the social and environmental prospective (Almeida, and Azevedo, 2016). The business corporations are operating in a continuously dynamic environment where it has become extremely important for them to achieve the trust and satisfaction of all its stakeholders. The sustainable growth and development of business entities depends on meeting the needs of all its stakeholders. This can be done through promoting transparency in business procedures through disclosing its performances on various aspects, such as, social, environmental and economic. The strategic performance measurement systems adopted by a business entity helps to provide all the non-financial information to its stakeholders. The strategic performance measures of a business entity helps in providing information regarding the business strategies adopted by it for meeting the various needs and demands of its stakeholders. These are the key performance indicators of a business entity provides a measurable value that helps in analysing the effectiveness of a business entity for meeting its pre-determined goals and objectives. Multi dimensional strategic performance measurement system (SPMS) comprised of balance score cards and other techniques are used to determine comprehensive and profound information about the performance of the company. It has also been analysed that it controls internal and external context of the company along with the constant assessment of priorities and objectives of the company (Almeida, and Azevedo, 2016). Furthermore, SPMS are designed for the organisations to measure the changes and to reach prompt feedbacks in the strategic operations.
Besides that, Chenhall and Smith, (2007) explores that key characteristic of SPMS is to measure the performance of the company in multi perspective. It evaluates the ‘balanced’ picture of an organisation that can be improved simultaneously. SPMS is mainly integrated in an organisation to analysed the performance of the organisation and provide a concise overview of business activities. Comprehensive mapping has also been created with the help of performance measurement matrix. Moreover, the strategic performance measurement can be used to critically examine the past performance of the company (Chenhall and Smith, 2007). The future planning for the performance of the organisation to set parameters can also be incorporated through SPMS. Some of the models of SPMS are SMART performance pyramid, the performance pyramid, performance prism and the performance measurement matrix. Furthermore, the performance measurement system is comprised of balance scorecard and EFQM business excellence model (Chenhall and Smith, 2007).
On the other hand, Iselin, Sands and Mia, (2009) states that the balance scorecards has four perspectives that is financial, customers, internal business process and learning and growth which help the organisations in achieving strategic goals and objectives. These factors facilitate measurement of performance through variables like revenue, cost/productivity, asset utilisation and investment strategies for the financial performance evaluation. In addition to this, customer satisfaction, profitability of customers, customers acquisition, retention and market shares are other parameters and data that provides wide information about the customers. Post sale service, innovation and quality of the operations emphasises on the internal business processes (Iselin, Sands and Mia, 2009). However, motivation, configuration and empowerment with information system capability and employee capability dimensions are analysed as learning and growth features of the company. The performance factors measured by balanced scorecard can be illustrated as:
Striteska and Spickova (2012) describes that the use of triple bottom line as a performance measurement system can be highlighted in three stages which can help the organisation in achieving the strategic goals that includes environmental, social and financial prospects. SPMS provides tool that measures the relationship between the environment in which strategies have been operated and system implemented for the measurement of performance. It also specifies and focuses on set of performance measures with other variable relationship. Lastly, it identifies the individual performance measures of each element and variable in performance measurement system. Apart from this, SPMS has provided very innovative and latest information technology that gathers the information or data easily and promptly in a low cost (Striteska and Spickova, 2012). The strategic performance measurements have provides advancement to the organisation with various advantages. It has highly contributed in intellectual capital of the company and provided other intangible resources that help the company in improving their performance and quality of work. Along with this, it has ensured the involvement of management in social responsibility by providing data related to the performance of the company in market (Striteska and Spickova, 2012). The performance factors measured through the use of triple bottom line method can be depicted as:
In this context, according to Management Association and Information Resources, (2017) various companies have followed the SPM System that increased its organisational performance in financial, social and environmental level such as General Electric Company (Management Association and Information Resources, 2017). General electric company implemented non financial and financial measures to analyse and monitor the performance of the company. The company has integrated some of the traditional methods that facilitated information of its performance in the market like personnel development program for employees, employee attitude, product leadership and public responsibility (Gimbert, Bisbe and Mendoza, 2010). Similarly some financial measures such as accounting profits that indicates the performance related to the income of the General Electric Company.
As per Ndung’u and Kwasira, (2016), in an organisation reward and recognition system plays a very important role in improving the performance and enthusiasm of an employee that results in the profitability and development of the business. These reward system are internally also related with the motivational theories that has been employed by the top management in the organisations. The motivation through good leadership also emphasis on the reward irrespective of financial or non financial, if any employee achieves the desired target or puts extra efforts to accomplish the task that has been assigned to him. Furthermore, the motivation gives the power to the employees to do better, whereas reward system ensures their direction where to put their efforts. The combination of motivation and reward is very crucial for the employees as it balances the development of business as well as individual or employee of the company (Ndung’u and Kwasira, 2016). It can also be analysed that the performance of the employee can also be improved with the reward system by enhancing the motivation to achieve it.
Safiullah, (2014) explains that motivational theories such as Maslow’s hierarchy of needs, Herzberg’s two factor theory and self efficacy theories can be reached through the implementation of rewards like non-financial and financial rewards as well as performance based or membership based rewards. Maslow’s theory of motivation emphasising on self actualisation need of creativity by giving freedom and authority to the employees, esteem need of prestige by rewarding position in the office, affection need by arranging get-together and healthy communication, safety need by providing health insurance or fringe benefits and physiological needs by basic pay can be fulfilled. It directly impacts on the efficiency of the employees and punctuality of the work. Not only, it enhances the commitment of the employees, but also results in less absenteeism. Reward system in the organisation highly influences the job satisfaction and commitment of employees (Safiullah, 2014). It has also been noted that the practice of reward by the employer should be based on fairness, transparency and equitability. Therefore, motivation can also be related to the good working condition in the working environment, appreciation and career development which can be ensured as reward to the employees. The reward system with apt motivation results in increase in productivity and performance of employee. In real life scenario, there are various companies such as Apple, Woolworths, Toyota that provides motivation to the employees with the reward as an achievement and successful in raising their profitability in the market (Safiullah, 2014). In addition to this, these organisations are continuously improving their internal environment by strengthening their manpower resource.
In the view of Ranjan and Mishra, (2017), as an example, Motonet-Espoo has integrated such a reward system for its employees that motivate them to increase their performance and productivity. The process of decision making regarding the reward system in the company was also been taken with the help of employees. The system has also improved the job satisfaction in employees and increases their motivation as well. The result has also attained enhancement in the employee’s engagement in the business activities of Motonet-Espoo. The reward system of the company is being decided by the top level management. It is a retail store and therefore, there are different levels of store mangers that help in employing the reward system in each department. The store managers are not static and consequences in problems that are resolved by learning and development practices (Ranjan and Mishra, 2017). The employee involvement in feedbacks session every year and discussion for further improvement also encourages employees in the company. Apart from this, the store manager that participates in the discussion also changes every year. The reward has been categorised into three types that is tangible recognition, personal bonus and profit sharing. Different rewards for full-time and part-employees have been arranged. This system has immensely changed the working environment of the company in a positive way (Ranjan and Mishra, 2017). Hence, it can be depicted that there is an affirmative relationship between the motivational theory and reward from the above text;
The present section of the report aims to analyze and examine the Strategic Performance Measurement System (SPMS) of two top 100 publicly listed companies in Australia. The companies selected for the purpose are, AGL Energy Limited and Westpac Banking Corporation. In addition to this, the financial performance of the selected companies has been analyzed for the year 2015 and 2016 through the adoption of financial measures.
AGL Energy, an ASX listed public company that is involved in providing energy products and services to the economy of the country. The company is actively involved in development and retail of energy related products for both housing and business usage. The company serves about 3.6 million customers across the country. The company carries out its business operations through generating thermal, hydro and wind power. The major segments of the company are energy markets, group operations and data provider business that are involved in various energy related business activities (About AGL, 2017).
On the other hand, Westpac Banking Corporation, an Australian bank and financial services provider is recognized as one of big four banks of Australia. It is recognized to be the first bank of Australia established in the year 1817 by the name of Bank of New South Wales and in the year 1982 has came to known by the name of Westpac. The banking corporation serves about 13 million customers across Australia with the main objective of meeting appropriately their financial goals. The banking corporation aspires to become the largest company around the world through providing financial assistance to the customers and communities for promoting their economic prosperity and growth (Westpac Banking Corporation, 2017).
The Strategic performance Measurement System (SPMS) has a large impact on the performance of a business entity as it plays a critical role in developing the strategic decisions. The Australian firms are placing large emphasis on transforming their performance measurement systems over the lat years through adopting a strategic performance measurement system. The strategic performance measurement system provides an analysis of financial and non-financial performance of a business entity through the adoption of tools such as Balanced Score Card (BSC). The implementation of multi-perspective approach of SPMS is essential for AGL Energy Limited as it is an environment sensitive company and thus need to analyze its performance through the help of adopting environment indicators. The adoption of a proper environment strategy is essential for AGL as it needs to continuously monitor the impact of its operational activities on the communities for ensuring its long-term growth and development. The SPMS will enable quantification of environmental performance measures and therefore proving beneficial for the company to measure its sustainable performances (About AGL, 2017).
The corporate policies of the company aim to minimize the environmental risk by assessing the outcomes on the environment by its operational activities. The major corporate policies as outlined by the company in respect of realizing high environmental management and performance are as follows:
The company has implemented and adopted a health, safety and environment management system as per the Australian Standard AS/NZS ISO 14001 for measuring and controlling the negative impacts on environment by its regular business activities. The system is specially designed for benchmarking environment performance and thereby implementing effective strategies for improving its sustainable performance (About AGL, 2017).
The development of such an environment management system helps in quantification of its environmental performance. Thus, it helps in strategic aligning of performance measures with the company’s corporate policies and goals and therefore developing a strategic performance measurement system of the company. The websites of the company has provided all the necessary data relating to air and water monitoring, irrigation program and gas projects undertaken by it for promoting the sustainable growth and development of the environment. The company has also disclosed its strategic performance on environmental perspective in its sustainability reports through disclosing the measures adopted for improving economic, customers, community and environment performance. The sustainability reports act as a tool for the company in disseminating the information about its daily work activities aligned with its corporate policies and monitoring the progress towards its strategic targets (AGL Sustainability Report 2015, 2015). Therefore, it can be said that company has published all detailed information regarding its key performance indicators in its sustainability reports and company websites. Also, the comparison of the public disclosures of the company regarding its SPMS over the last two years of 2015 and 2016 indicated that it has adopted same pattern of providing information in relation to its strategic performances (AGL Sustainability Report 2016, 2016).
On the other hand, Westpac banking corporation places strategic performance measurement at the core of its business strategy. The banking corporation provides disclosure of its strategic performance measurement system in its sustainability reports. The bank prepares and publishes its performance metrics in its sustainability report that provide a measurement of its performances on all perspectives that are, customers, employees, environment, suppliers and social and economical impact. The sustainability report of the bank has provided a complete disclosure regarding the sustainability of its workforce through measuring and reporting their progress via a number of indicators. The customer satisfaction is also measured against a number of indicators such as examining the customer numbers, customer relationships, no. of complaints received and customer service quality (2015 Westpac Group, 2015).
Also, it assesses its environmental performance through a number of indicators such as GHG Emissions, energy consumption, carbon footprint; waste recycling, water consumption and air travel. The sustainable performance of suppliers is measured against suppler validations, expenditure in total supply chain and continuous improvement in SSCM code of conduct. The social and economic performance is assessed through measuring value generation and community investment. The analysis of public disclosures of the banking corporation regarding its SPMS indicates that it has adopted same pattern of developing its performance metrics over the last two years (2016 Westpac Group, 2016). The comparison of SPMS disclosures of AGL and Westpac reveals that Westpac has adopted a better and improved strategic performance measurement system. It sustainability report revels that it has measured performance against each of its strategic perspectives through quantitative measurement of performance indicators. On the other hand, AGL Energy Ltd has not adopted quantitative measurement of all its performance indicators.
There are three accounting based performance measure that help in comparing the financial performance of the two selected companies. These accounting based measures are:
Return on Investment (ROI): Formula to calculate the Return on Investment is as under
Operating Income/Average Operating Assets
In order to calculate the numerator some analyst uses operating income and some uses net profit. For denominator either total asset is used or total assets less current liabilities.
Formula Used here: Net Income/Total Assets
Return on investment of both the selected companies
Westpac
|
Financial Data for Westpac |
||
|
Particulars |
2016 |
2015 |
|
in million AUD |
||
|
Net Income |
$ 6,941.00 |
$ 8,069.00 |
|
Total Assets |
$ 839,202.00 |
$ 812,156.00 |
|
Return on Investment |
0.83% |
0.99% |
(Annual Report 2016: Westpac)
AGL Energy Limited
|
Financial Data for AGL Energy Limited |
||
|
Particulars |
2016 |
2015 |
|
in million AUD |
||
|
Net Income |
$ (407.00) |
$ 218.00 |
|
Total Assets |
$ 14,604.00 |
$ 15,833.00 |
|
Return on Investment |
-2.79% |
1.38% |
(Annual Report 2016: AGL Energy Limited)
Residual Income
This method of performance evaluation uses operating profit or net profit and required dollar return on investment (Total Assets). Net Income can also be taken in place of operating profit.
Formula is given as:
Residual Income (RI): Income – (Required rate of return*investment)
It is assumed that required rate of return = 12%
Westpac
|
Financial Data for Westpac |
||
|
Particulars |
2016 |
2015 |
|
in million AUD |
||
|
Net Income |
$ 6,941.00 |
$ 8,069.00 |
|
Total Assets |
$ 839,202.00 |
$ 812,156.00 |
|
Rate of Return |
12% |
12% |
|
Residual income |
-93763.24 |
-89389.72 |
(Annual Report 2016: Westpac)
AGL Limited
|
Financial Data for AGL Energy Limited |
||
|
Particulars |
2016 |
2015 |
|
in million AUD |
||
|
Net Income |
$ (407.00) |
$ 218.00 |
|
Total Assets |
$ 14,604.00 |
$ 15,833.00 |
|
Rate of Return |
12% |
12% |
|
Residual income |
-2159.48 |
-1681.96 |
(Annual Report 2016: AGL Energy Limited)
Economic Value Added
EVA = after tax profit-after tax WACC*Assets used
As it is not easy to calculate the EVA, performance measurement of both the companies are based on Return on Investment and Residual income.
Below is the table of comparison:
|
Comparing Performance in year 2015 |
||||
|
Company |
ROI |
Rank |
RI |
Rank |
|
Westpac |
0.99% |
2 |
-89389.72 |
2 |
|
AGL Energy Limited |
1.38% |
1 |
-1681.96 |
1 |
|
Comparing Performance in year 2016 |
||||
|
Company |
ROI |
Rank |
RI |
Rank |
|
Westpac |
0.83% |
1 |
-93763.24 |
2 |
|
AGL Energy Limited |
-2.79% |
2 |
-2159.48 |
1 |
It has been analyzed from the annual report of Westpac banking corporation over the last two financial years of 2015 and 2016 that it has effectively aligned its strategic performance measures with the executives and non-executives compensation plan. The balanced scorecards are developed by the ban that assesses a number of factors that helps in determining the remuneration provides to its top executives and non-executives. The factors include key performance drivers such as meeting customer needs, effective implementation of strategic initiatives, risk management and its financial performance (Annual Report Westpac. 2016). The remuneration framework of the banking corporation is well-aligned with its strategic performance measure targets that have helped it to achieve sustainable growth and development. On the other hand, AGL Energy Limited through has developed a remuneration framework but its annual report has shown that its performance drivers are not aligned with the remuneration received by the executives and non-executives (Annual Report AGL Energy Limited, 2016).
Conclusion
From the above discussion it can be interpreted that the multi-dimensional strategic performance measurement system is very necessary in an organisation to increase the productivity as well as to achieve strategic goals. It has also been found that the social, economic and financial features are involved in the SPMS of an organisation. It helps evaluating the internal and external variable of the company that influences the profitability and growth. Additionally, this research has also determined a positive link between the reward theory and motivation theory. accounting theory helps in attain motivation that also facilitates increase in the commitment and job satisfaction of employees in each level of management.
Also, it can be inferred from the overall discussion held in the report that strategic performance measurement system enables a business entity to align its strategic activities with the strategic plan. The introduction of various climate legislations in Australia is placing large need on the business entities to incorporate social, economic, environment and sustainability measures in their performance management system. The adequate disclosure of all these performance measures is essential for business entities in their public disclosures such as sustainability report, annual report or their company website. This is essential for providing complete information regarding the financial and non-financial performance of a firm to its overall stakeholders. However, in this context it is essential that SPMS measures should be aligned with the reward system of a business entity for ensuring the protection of interests of all the stakeholders.
In this context, it can be stated from the analysis of SPMS approach adopted by the selected companies of AGL Energy and Westpac banking Corporation that both the companies are emphasizing on the public disclosure of their SPMS. The Westpac banking corporation however has adopted a sound system of its strategic performance disclosure through developing a performance metrics that provides a quantitative measurement of each of its key performance indicators (KPI’s). Although, AGL also has adopted and implemented strategic performance measurement system but yet it has not quantified its performance indicators as indicated by its sustainability report. The AGL Energy Limited need to improvise over its strategic performance measurement system through developing and disclosing its performance metrics that provides an quantitative assessment of its KPI’s. The analysis of the financial measures of both the companies also revealed that Westpac has adequately aligned its financial measures with the strategic performance measurement system as compared to AGL Energy Limited.
References
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Ndung’u, A.W., and Kwasira, J. 2016. Role of Reward Systems in Enhancing Employee Motivation in Commercial Banks in Nakuru Town, Kenya. International Journal of Economics, Commerce and Management 4 (10), pp. 797-820.
Ranjan, R., and Mishra,U. 2017. Impact of Rewards on Employee Performance: A Case of Indian Oil Corporation, Patna Region. Journal of Business and Management 19 (6), pp 22-30.
Safiullah, A. B. 2014. Impact of Rewards on Employee Motivation of the Telecommunication Industry of Bangladesh: An Empirical Study. Journal of Business and Management 16 (12), pp. 22-30.
Striteska, M., and Jelinkova, L. 2015. The Characteristics of Effective Performance Measurement System: Case Study Analysis. Recent Advances in Environmental and Earth Sciences and Economics, pp. 290-295.
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Westpac Banking Corporation. 2017. [Online]. Available at: https://www.westpac.com.au/ [Accessed on: 13th September 2017].
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