Welcome to Your APM Journey!

Hello there! We are diving into a really exciting part of the Advanced Performance Management (APM) syllabus: Changes in business structure and management accounting.

Think of this chapter as the "extreme makeover" section of the business world. Just like how a growing family might need to knock down walls or move to a bigger house to stay organized, businesses have to change their internal "architecture" to survive and thrive. As a performance manager, your job is to figure out how to measure success when the "walls" keep moving! Don't worry if this seems a bit abstract at first—we will break it down step-by-step.

1. Business Process Re-engineering (BPR)

Imagine you have a messy kitchen. You could spend all day organizing the spices (incremental improvement), or you could knock the whole thing down and design a professional-grade kitchen from scratch to make cooking faster. That "start from scratch" approach is Business Process Re-engineering (BPR).

What is BPR?

BPR involves the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical measures of performance, such as cost, quality, service, and speed.

In the past, businesses were organized by departments (Accounting, Marketing, Sales). BPR says: "Forget departments! Let’s focus on the process that delivers value to the customer."

Impact on Performance Management

When you redesign a process, the old ways of measuring performance won't work anymore.

  • From departmental to process-based: Instead of measuring "How many invoices did the accounts team process?", we measure "How long does it take from the customer placing an order to us receiving the cash?"
  • Eliminating non-value-added activities: If a step in a process doesn't help the customer, BPR removes it. Your performance system needs to identify these "wasteful" steps.
  • Empowerment: BPR often gives more power to lower-level employees. This means performance measures need to be simple and real-time so employees can manage themselves.

Quick Review: The BPR Mantra

Fundamental: Why do we do what we do?
Radical: Start from a clean sheet of paper.
Dramatic: We aren't looking for 5% improvement; we want 80%!

2. Changing Organizational Structures

Businesses used to be very "tall" (lots of bosses). Now, they are becoming "flat" or even "borderless." Here is how that affects your job as an accountant.

Functional to Divisional Structures

A Functional structure groups people by skill (e.g., all accountants together). A Divisional structure groups them by product or geography (e.g., the "Europe Division").

Performance Management Issue: In a divisional structure, we need to decide how to measure each division. We often use:
\( ROI = \frac{Controllable \text{ } Profit}{Capital \text{ } Employed} \times 100 \)
But be careful! If you only use ROI, managers might refuse to buy new equipment because it increases the "Capital Employed" and lowers their percentage.

Network and Virtual Structures

In a Network structure, a small core organization outsources many of its functions (like manufacturing, HR, or IT) to other companies. It's like a spider web where the center coordinates everything.

Performance Management Issue: You can't just walk over to someone's desk to see how they are doing—they work for a different company! You must rely on Service Level Agreements (SLAs) and Open-Book Accounting (where you get to see their costs).

Memory Aid: The "Three C's" of Network Performance

1. Communication: Systems must talk to each other.
2. Control: How do we ensure quality from a distance?
3. Collaboration: We win together or lose together.

3. Outsourcing: Pros, Cons, and Controls

Outsourcing is when a company pays an external supplier to perform a task that was previously done in-house. A common example is a bank outsourcing its IT support to a specialist tech firm.

Why do it?

"Do what you do best, and outsource the rest!" Companies outsource to save costs, access better technology, or focus on their "core competencies" (what makes them unique).

The Performance Management Challenge

When you outsource, you lose direct control. You can't tell the supplier's staff what to do; you can only hold the supplier to the contract.

Step-by-Step Performance Monitoring for Outsourcing:
1. Define the SLA: Set clear targets (e.g., "99% of IT issues resolved in 2 hours").
2. Monitor Metrics: Use dashboards to track the supplier's performance daily.
3. Review Meetings: Meet regularly to discuss "bottlenecks."
4. Exit Strategy: Always have a plan for what to do if the supplier fails.

Common Mistake: Students often think outsourcing is always cheaper. Warning! The "hidden costs" of managing the contract and the risk of poor quality can sometimes make it more expensive in the long run.

4. Shared Service Centres (SSCs)

Imagine a large company with 10 different offices. Each office has its own small HR team and its own small Accounting team. That’s repetitive and expensive! An SSC takes all those "back-office" functions and puts them into one single, central hub that serves the whole company.

Why is this different from Centralization?

In a traditional central department, the head office tells you what to do. In an SSC, the SSC acts like an internal business. The other departments are its "customers" and can often demand specific levels of service.

Key Takeaway

SSCs provide a balance: you get the cost savings of being big (economies of scale) but the customer focus of a dedicated team.

5. The Role of the Management Accountant is Changing

In the "old days," management accountants were "Bean Counters"—they sat in a dark room, crunched numbers, and told people when they spent too much. In modern, flat, re-engineered businesses, the accountant becomes a "Business Partner."

What does a Business Partner do?

  • Works alongside department managers to help make decisions.
  • Explains the "Why" behind the numbers, not just the "What."
  • Uses Enterprise Resource Planning (ERP) systems to get data instantly.
  • Focuses on forward-looking strategic data rather than just last month's history.

"Don't worry if this seems like a lot to take in! Just remember: As businesses become more flexible and connected, the accountant's job moves from 'policing' to 'partnering'."

Summary Checklist

- BPR: Radical, process-focused redesign.
- Structure: Moving from rigid silos to flexible networks.
- Outsourcing: Moving from direct control to contract management (SLAs).
- Shared Services: Consolidating back-office tasks to save money and improve service.
- New Role: Moving from "Bean Counter" to "Business Partner."

Did you know? Companies like Ford famously used BPR in their accounts payable department to reduce their head count by 75%! They didn't just work faster; they changed the process so they didn't need to match invoices at all.