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HRM5002D
US
Davenport University
It is due to an introduction of self-regulation and market regulation; the strategy is now becoming significant field of management for the health care organizations in various European countries. It is the reason why the health managers are now introducing more and more strategic tools and principles (Cervone 2014). Hence, this memo purposes to critically discuss advantages and disadvantages of the two strategic planning models that is suitable to the health care sector in England. Based on the discussion, recommendations will also be provided regarding the model proposed for the growth of business.
During the past few decade, the reform of health care sector has taken place in various European countries. The governments’ influence is reducing in the favor of market competition and self-regulation, for instance, within the UK NHS system, the introduction of incentives is to stimulate the competition. As an outcome of which, the health care organizations are facing various challenges (Mosadeghrad 2015). The future of these organizations is no more certain as it used to be. It is because of facing various strategic challenges, the managers in the health care are now introducing the strategic methods and tools that were developed for the private sector in order to assist them to face the challenges. For years, strategy and the strategy management has been significant field of management in private sector (Rosenberg Hansen and Ferlie 2016).
Strategy is considered differently depending on the fact that whether it belongs to the service sector of the manufacturing sector. It is referred to as the blueprint to link the goals, actions and governance of an organization. In contrast to the manufacturing operations, the service organizations are required to tackle all challenges, and it is not easy to measure service as outputs from the manufacturing organizations. It mainly due to the fact that the perceived output of services varies depending upon the customers receiving them or person delivering them. As an outcome of which, intangible features of the service make it quite complicated to measure (Nair, Jayaram and Das 2015).
Organizational strategy and the strategic management are significant issues in public sector and industrial contexts. The main difference is that the public organizations are having large number of the direct and the indirect external stakeholders for satisfying including the electorate and government. There are two unique characteristics of the health care sector of UK, which are near monopoly on the provision of service and sources of funding completely from the taxation. It has been argued that an ultimate purpose of any entity is creating value for all its stakeholders. Therefore, any improvement in the results is not expected to be retained without the robust strategy of providing an entity with the inspirational direction and vision. The successful development as well as deployment of the effective strategy is hence of at most significance to all the organizations (Ghorbani et al. 2015).
A strategic planning model is the way an entity makes its strategy, and creates the plan for implementing it to make improvement in the operations and better meet their overall goals. There are various advantages of the strategic planning. It helps in providing clear path that an entity uses and it shares with everyone. It is quite powerful to have all the departments to work together for the common purpose. However, its opposite is disastrous. For instance, one cannot hit the target whether it’s a year or 10 years in the future, if no one know what needs to be done in actual and how to plan to achieve it. Hence, two models of strategic planning that are applicable to the healthcare sector in England are as follows:
The development of BSC was in 1992 to measure the performance of an organization from four different perspectives. This evolved as an outcome of the multi-organizational action learning community research. BSC is thought to be relevant to the healthcare sector; however, changes in this model should be adopted to show the specificities of the healthcare sector. This system can be used in enhancing clarity, transparency, and accountability for the patients, but any poor implementation of it can result in the potential let down (Hamdy 2018). Although BSC can be a beneficial strategic tool, which links different indicators of performance to the performance management processes of the entities, the success of which is determined by relevance of performance indicators used. In the context of healthcare, an implementation of BSC has received significant attention. Over the years, the BSC framework has been developed into the CLMS (Closed-loop management system), for ensuring successful execution of the strategy of an organization. If successfully adapted, it is suggested that BSC can cascade the strategy all through an entity and the CLMS can help in ensuring a clear performance management loop of feedback (Behrouzi, Shaharoun and Ma’aram 2014). Some of the advantages and disadvantages of BSC includes following:
SWOT analysis is the tool that is developed for the strategic analysis, this includes encounter between the internal capabilities and the external developments. Further, the internal capabilities are referred to as weak or strong points of an entity; where as the external developments are identifies as either threats or opportunity for an entity. Hence, based upon the confrontation between these two, the strategic choices or the new strategic path can be recognized for an entity (Masrom and Rahimli 2015). This model involves below steps:
Therefore, it can be concluded that the process of strategic planning is all about development of the direction, taking the decisions, as well as allocating the resources required to achieve the ultimate goal. Both the strategic planning models, which are balance scorecard and SWOT analysis have their own set of advantages and disadvantages. There are major areas for the improvement in the process of strategy deployment, which must become focus for the future improvement within an entity through implementing as well as using the recommended tools and techniques. Hence, it can be recommended that the strategic planning model that can be used is the balance scorecard framework. This model is more frequently used in the healthcare sector because of its various potential advantages. However, it is important to consider framing the balance scorecard as per the organization. Further, SWOT analysis is not suitable for the healthcare sector because the health care organization mostly operate in the networks, which is not applicable in case of the SWOT analysis. Most of the design premises, out of which the SWOT analysis emerges, do not hold for the health care sector.
Financial analysis involves making use of the financial data for assessing the performance of a company and making recommendations regarding the steps that can be taken to improve the performance (Otekunrin et al. 2018). Hence, this paper aims to conduct financial analysis of BME Luxury Car Home. For which, discussion will be done on the usefulness of Du Pont analysis to the shareholders, and calculation and interpretation of different ratios will be done.
Dupont analysis is the multi-step financial equation, which helps in providing the insights into the fundamental performance of a business. The Dupont model helps in providing thorough analysis of the significant metrics, which impacts the ROE of an entity. The investors, analysts, and the financial managers of an entity most often use the DuPont analysis model for gathering the valuable insights regarding the capital structure of a company and the factors that contribute towards the breakdown of return on equity. The decomposition of ROE assists the investors to concentrate separately on the significant indicators of the financial success for defining weaknesses and strengths. The investors may use all these analyses for comparing operating performance of two identical entities (Burja and Mărginean 2014).
There are three main financial metrics driving return on equity, which are financial leverage, asset usage performance, and operating performance. The calculation of leverage is by the equity multiplier, which is equal to average assets divided by the average equities. An efficiency of the usage of asset can be determined by the asset turnover ratio. Operating output is the net profit margin or the net income that is separated by the overall profits or revenue.
The net profit margin of BME Luxury Car Home was 2 percent in 2017. This implies that the ability of company to generate profit from its overall sales is quite less. The industry average of total margin is 3.5%, which means that the competitors are having more ability of generate profit in comparison to BME Luxury Car Home.
The asset turnover ratio of the BME Luxury Car Home was 1.31 in 2017. This depicts that the company’s efficiency to generate sales from utilizing its overall assets has been quite less. The industry average of total asset turnover is 1.5. It shows that the efficiency of competitors in industry is more in generating sales from the assets, compared to BME Luxury Car Home.
The equity multiplier of BME Luxury Car Home was 6.99 in the year 2017. This suggests that the uses of debt to finance the assets has been increased by the company, which may require the company to pay high interest. The industry average of equity multiplier is 2.5, which implies that the industry is less debt to finance its assets compared to the company (Doorasamy 2016).
The return on equity of BME Luxury Car Home was 16 percent in the year 2017. It implies that the ability of company to generate profit from the shareholders’ fund is high. The industry average of ROE is 13.1%. This shows that the company is generating more profits for its shareholders, compared to competitors in the industry (Chang, Chichernea and HassabElnaby 2014).
This ROA measures the company’s profitability relative to its assets. The return on assets of BME Luxury Car Home was 2 percent in 2017. It implies that the ability of company to generate sales from utilizing its assets has been quite less. The industry average of ROA is 5.2%, which means the competitors in industry are generating more sales from their assets compared to the company (Setiawan and Amboningtyas 2018).
It measures the ability of an entity to meeting its short-term dues within a year. The current ratio of BME Luxury Car Home was 1.37 in 2017. This suggests that the entity is able meet its short-term obligations from its short-term assets. Further, the industry average of current ratio is 2.2, which shows that the competitors are having high ability to meet their short-term obligations.
It aims to find the number of days taken by the company to continue paying its operating expenses from cash on hand. The days cash on hand of BME Luxury Car Home was 12.47 days in 2017. It implies that the number of days an entity can continue to make payment of its operating expenses from cash is quite less. The industry average of days cash on hand is 22 days, which indicates that the competitors are in better position to meet their operating expenses from cash (Lakshmi Martin and Venkatesan 2015).
It is the average number of days needed to collect the invoiced amounts from the customers. Hence, the average collection period of BME Luxury Car Home was 24.07 days in 2017. This suggests that number of days taken by company in collecting in receivables from its customers is high. The industry average of average collection period is 19 days, which implies that the competitors are taking less days in collecting their receivables.
It is the ratio that helps in measuring an extent of the entity’s leverage. The debt ratio of BME Luxury Car Home was 86 percent in 2017. This implies that the uses of debt to finance the assets is quite high by the company. The industry average of debt ratio is 69%, which indicates that the competitors are using less debt (Jnr, Christian and Matthew 2014).
It shows that the relative proportion of the debt and the shareholders’ equity used by the entity. The debt-to-equity ratio of BME Luxury Car Home was 5.99 in 2017. It means that the uses of debt over the equity is quite high by the company. Further, the industry average of debt-to-equity ratio is 2.5, which shows that the competitors are using less debt in comparison to equity.
It is the efficiency ratio indicating efficiency of business in using its fixed assets to generate the sales. Hence, the fixed asset turnover ratio of BME Luxury Car Home was 1.73. It suggests that the efficiency of company in utilizing its fixed assets for generating sales is high. The industry average of fixed asset turnover ratio is 1.4, which shows that the competitors are less efficient in utilizing its fixed assets (Stefano 2015).
Therefore, it can be concluded that the financial performance and position of BME Luxury Car Home seems not be to be good. The Dupont analysis shows that the ability of company to make returns out of its shareholders’ fund is high. However, the profitability ratio shows less company’s ability to generate return from its assets; the liquidity ratio shows more ability of the entity to meet its short-term debts; efficiency ratios indicate less efficiency in meeting operating expenses, collecting receivables, and generating sales from its receivables; and solvency ratios indicates high uses of debt in financing its assets, which is quite risky for the company. Hence, investing in a privately owned and managed nursing home may increases more debt for the company.
In the public healthcare system, performance measurement has become one of the significant issues throughout the world. Performance measurement system is referred as the published regional or national plan, which clarifies the participation and values of different stakeholders. The non-financial factors play most valuable role in the assessment of hospital’s performance. Some of the non-financial factors improve an entire assessment of the performance of hospital by adding the information, which goes beyond the factors that are subject to quantification in the formal system. An assessment of non-financial performance can put focus on different measures that ranges from foods’ quality in the hospitals to the volume of complaints received in a year. It helps in identifying the best practices for achieving aims relating to promoting good level of performance at the national level (Chakrawal and Goyal 2018). Hence, this paper aims to assess the use of the non-financial and the multidimensional models of the performance measurement. For which, balance scorecard is chosen as a basis for the discussion.
Over the past few years, a rapid increase in the global competition that is brought about by the change in technology and proliferation of products variety has emphasized the role of continuous improvement in performance as a competitive and strategic requirement in various entities all over the world. An improvement in performance is one of the main agendas of various entities all around the world. Currently, for entities to improve and maintain their competitive advantages, the measures of performance are used widely to control, evaluate, and enhance the business processes (Gawankar, Kamble and Raut 2015).
In healthcare, the potential areas where performance can be measured includes, health care financial strengths such as optimization of revenue, improvement of productivity, waste and the cost control, streamlining process, activity-based costing and others; operations of health care such as supply chain measurement and management, opportunities of collaboration, improvement of agility, asset management and working capital; development of health care people such as learning & growth measures, knowledge, innovation, provider experience measurement, intangible value analytics and culture; patient service and the satisfaction such as engagement, experience of patient, measurement of relationship; and marketing of health care such as trust an reputation management, customer or patient segmentation, and developing and measuring the growing significance of the healthcare branding. One of such performance measurement models is balance scorecard, which is most often used by the organizations (Fooladvand, Yarmohammadian and Shahtalebi, 2015).
BSC was developed by Robert Kaplan during the early 1990s. It is known to be the best performance assessment framework developed from the organizational strategies, and includes the indicators that are related to four different perspectives, which are customers, finance, learning & growth, and internal processes (Demartini 2014). It is the semi-standard structured report that is supported by the design methods and the tools of automation, which can be used by the managers to keep the track of activities, execution by the staff within their control and consequences of monitoring resulting from all these actions. BSC mainly refers to the report of performance management that is used by the team of management and usually this particular team is more focused on managing the strategy implementation or the operational activities (Nørreklit and Mitchell 2014). The perspectives of the BSC are stated below:
The financial perspective of balance scorecard is the type of metrics that is set by the entities to evaluate the performance. Depending upon the kind of organization involved, this metric used in the scorecard may vary. The financial measures can be quite general or broad, for instance, growth of sales, or specific seat revenue. In the government organization, the financial perspective gives emphasis on the efficiency of cost that is ability of delivering maximum value to the customer. The best value is used frequently in the NHS; however, value in this particular context can be referred as the clinical outcomes plus the experience of patients and safety divided by the costs (Kalender and Vayvay 2016).
All the businesses are having clients or customers, as business cannot operate without them. Hence, it becomes important for an organization to measure how well it is performing with respect to the customers. The customer perspective basically captures the ability of organization to provide the quality services & goods, their delivery effectiveness, as well as overall customer’s service and satisfaction. The instances of common variables that are measured comprises of the customer satisfaction, number of the new customers, number of repeated customers, number of the new customers from the customer referrals, and the market share (Tan, Zhang and Khodaverdi 2017).
A successful entity must operate like the well-tuned machine. It needs the entity to monitors its internal operations and then evaluate them to ensure that they are meeting the corporations’ strategic goals. The internal business perspective helps to focus on the results of internal business, which leads towards satisfied customers and financial success. It is the mechanism through which the expectations of performance are achieved (Hamdy 2018).
The perspective of learning & growth looks at the employees’ ability, quality of the information systems, and the effects of the organizational alignment in supporting the organizational goals’ accomplishment. The processes success only if motivated and skilled employees are supplied with timely and accurate information, which are driving them (Yun, Weihua and Yang 2014).
The main strength of the BSC is its way to integrate various indicators to make the links between different performance dimensions in a single system. This emphasizes on linking the performance measures with the strategy of business unit. BSC presents the goals of organization in the single page chart that is broken down into the related areas. This allows the entities to bridge up the gap between their overarching goals or mission statement and the way day-to-day activities support the objectives or mission of an organization. Further, it highlights innovation and the methods of process improvement to the corporate objective. It also helps in ensuring that the voice of customers is equally important (Siadat, Abdollahi and Garshasbi 2017). It does not exclude the other business reporting methods or process improvement. The financial standards can be used for meeting the objectives of financial scorecard or implemented to meet the goals of financial scorecard. It assists in providing the visual means to demonstrate the way various goals and objectives are related. BSC is straightforward enough to be used by most of the managers after gaining the familiarity with its concept. No advance training is required to implement the simple version of BSC (Behery, Jabeen and Parakandi 2014).
However, use of the BSC approach would be quite difficult in the healthcare entity without any kind of modifications. The healthcare entities are socially-oriented non-profit entities; hence, financial dimension of the framework must be changed as well as considered as a constraint rather than as an objective. Further, the remaining dimensions must also have a different emphasis (Elmaci 2014).
Therefore, it can be concluded that the performance management models help in providing clear and comprehensive interpretation that assist in understanding the outcomes and suggest the areas for improvement. They reflect non-financial goals of the hospitals and the major organizations operating in the system of healthcare. The non-financial model like BSC is the practical tool used for monitoring purposes and for the internal quality improvements all through the system of healthcare. BSC is the tool of performance measurement that tracks the performance of company and then translates strategy into the operational terms. However, it must be kept in mind that adjustments need to be made in order to support the needs of business, because every business is different and hence, different is their requirements.
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