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KEY SUCCESS

VARIABLES AS CONTROL
Introduction

Ø A key variable is a significant


indicator of business activity, whose
sudden and unpredictable change
warrants immediate action by
management.
Ø A small change in a key variable will
have significant impact on the
performance of the organization.
Ø E.g.: profitability, market position,
productivity and employee attitude. 2
Sources of key variables

ØIndustry characteristics.
ØEnvironmental factors.
ØCompetitive strategy.
ØStake holders.
ØSignificant functions.

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Industry characteristics

In a given industry, there are


certain general requirements for
success, which apply to all the firms.
E.g.: in insurance industry, the
basic requirement for the success of a
firm is a positive investment
performance.

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Environmental factors

The economic and political


climate consist of environmental
factors which determine key
variables.
E.g.: publishers who depend on
the postal services are affected by
postal rates.

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Competitive strategy

The strategy that a company


adapts usually determines the
variables that must be monitored and
emphasized. An organization that
follows a low- cost strategy will
require an analysis of the product
cost structure.

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Stake holders

Aspects of the business that


are important to key stakeholders,
namely customers, executives,
suppliers may be considered as key
variables.

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Significant functions

In an organization with a function


based structure, every manager can
identify one or a few key variables
related to the function of the unit.

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Identification of key variables
Input variables.
Ø Raw material availability.
Ø Raw material quality.
Ø Raw material costs.

Production variables:
Ø Capacity utilization.
Ø Losses.
Ø Quality control.
Ø Maintenance.
Ø Costs.
Ø Delivery.
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Marketing variables

ØOrder book position.


ØMarket share.
ØInstitutional sales.
ØAsset management variables.
ØAsset turnover.
ØWorking capital turnover.

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Types of variables

Broadly classified as:


ØStrategy.
ØStructural.
ØProcess.
ØEnvironmental.

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Key variables and their interaction
Integration Effects
Among Variables

Environmental
Process Variables
Variables

Strategy Variables Structural Variables

Performance
Accomplishment Of
Goals

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Steps involved in the identification of
key variables

ØIdentification of decision variables.


ØInteractions with the environment.
ØImplications for the control
structure.
ØKey success variables and the
control paradigm.

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Identification of decision variables

Ø Decision variables refers to those


key success factors which are subject
to manipulation through a conscious
decision making process.
Ø To summarize, decision variables are
those key success factors which help
the management to choose a
particular course of action and
execute it promptly.
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Interaction with the environment
Ø To identify key success factors,
environmental variables has to be
identified.
Rogers hall has identified 4
critical relationships in a magazine
publishing company, which interact
with the environment.
Ø Specified demand for advertising
pages.
Ø Demand for regular subscriptions.
Ø Sales and subscriptions. 15
Implications for the control structure
Important Parameters:
ØEfficiency and effectiveness.
ØEconomies of scale.
ØProblems of co-ordination.
ØAssignment of profit responsibility.
ØConflict of profit responsibility.
The control systems prefer a divisional
structure in an organization, because
within a division, the departments are
organized on a functional basis.
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Key success variables and the control
paradigm

The hierarchical structure of an


organization gives an equal chance to
process all the information pertaining
to key success factors, and to make
business decisions. Through
decentralization, the management
gives a degree of autonomy in
decision making to subordinates.

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Multivariate analysis and key variables

Ø Multivariate analysis helps in


identifying the critical control
variables and latent factors.
ØMultivariate analysis help in
identifying the wide range of key
variables which are latent, yet
contribute to the success of the
organization.
ØThe motive behind using
multivariate analysis is that it helps
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Key variables in selected industries
The key variables for various industries
are mentioned below:
2. Insurance industry.
3. Hotel industry.
4. Sugar industry.
5. Management training institute.
6. Power industry.

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Insurance industry

In an insurance industry, the key


variables are number of claims
settled in a given period of time,
number of claims outstanding against
major insurance policy, the number of
policies processed in a given period
of time, and growth rate in insurance
business with respect to each policy.

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Hotel industry

ØRoom occupancy rate.


ØNumber of complaints by
customers.
ØAmount of food wasted in the
restaurant.
ØPercentage of revenue contributed
by the restaurant.
ØPercentage of absenteeism among
employees.
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Sugar industry

ØPrice of sugar sold in the open


market.
ØTransport cost per ton of cane.
ØFuel cost per kg of sugar.
ØNumber of production days lost.
ØSupport prices by government.

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Management training institute

Ø Number of students appearing for an


entrance examination.
Ø Percentage of absenteeism among
students.
Ø Number of research projects
undertaken and those completed.
Ø Time spent by faculty on teaching and
research.
Ø Time spent on management
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Power industry
Ø The inputs for a power industry are
cost and water. The output variables
includes transmission losses. The key
variables include the following.
Ø Quantity and quality of coal.
Ø Availability of wagons for
transportation of coal.
Ø Availability of water.
Ø Capacity utilization.
Ø Preventive and breakdown
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