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Analysis For Competitive Advantage Add in library

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Question:

Analyse the companies’ 2012 and 2013 financial performance using appropriate financial measures. Investigate whether the two chosen companies link their SPMS measures (or targets) with executive rewards or compensation plans. Your analysis and discussion should explain how the companies have either succeeded or failed to strengthen their competitive advantage over the 2-year period you have examined. This is part 2 of an assignment. Attached All files necessary.
 
 

Answer:

Introduction

            Businesses aim at achieving competitive advantage in respect to their operations so that they can easily sustain high performance and easily outperform their competitors. They strive to achieve higher performance levels with a view to achieve growth and success. However, an important factor that must be considered in achieving highly efficient performance conditions is mainly the strategic measurement of their performance. This report is aimed at analysing two companies such as BHP Billiton and Common Wealth Bank of Australia (CBA) with a view to assess their financial performance over two years period from 2012 to 2013. Apart from this, the analysis also focuses towards the linkage as established by these two companies with respect to their strategic performance measurement system and their executive rewards or compensation plan.

 

Analysis of Financial Performance of these Companies

            This section is aimed at analysing the financial performance of BHP Billiton and CBA through the application of ratio analytical tool. The important ratios as calculated are including in the appendix section and their interpretation indicates that the major ratios as considered are profitability ratios for both these companies for the two years period such as 2012 and 2013. The analysis of these ratios indicate that gross profit margin have showed a declining performance in respect to BHP Billiton in 2013 as compared to previous year, as it declined from 34.5% to 30.4%. However, in respect to CBA, it showed an improving performance, as it increased from 34.29% in 2012 to 40.11% in 2013. Similar is the situation being noted with respect to net profitability performance, as it declined in case of BHP Billiton in 2013 as compared to previous year, whereas in respect to CBA, it showed an improving trend. In order to evaluate the return as achieved by the companies in their performance, the calculation of return on assets has also been performed and on the basis of performance of analysis, it is assessed that management at CBA has been highly effective from the point of view of utilising its assets in generating positive returns. This is mainly because there has been a rise in the return on total assets percentage from .98% in 2012 to 1.02% in 2013 in respect to CBA, but with respect to BHP Billiton, it declined from 12.01% in 2012 to 8.01% in 2013. This shows that the overall profitability performance of CBA has been effective as compared to that of BHP Billiton’s performance over the two years period.

Analysis of Linkage of SPMS Measures by the Two Companies with Rewards or Compensation Plans

            This section of analysis is now focused towards assessing the existence of linkages between SPMS measures of the two companies with that of its rewards or compensations plans. In achieving better level of performance, it is essential that there should be the establishment of linkage of strategic performance with that of the rewards and compensation strategies. An analysis of CBA indicates that there has been higher level of emphasis being placed with respect to aligning the strategic performance measures with that of the rewards and compensations plan of the company. As for instance, there has been specific remuneration policy that has been pursued by CBA which is aimed at aligning the rewards with that of the business strategy of the organisation. There has been clear establishment of linkage between the individual performance and group performance, and individual reward. The superior performance is being rewarded with a view to accomplish the organisational goals in a positive manner. This specific existence of rewards management policy that is closely aligned with the strategic goals of the company has been a source of competitive advantage to the firm. This is mainly because the linkage of reward with individual and group’s goal within organisation provides an efficient measure in achieving improved overall organisational performance.

            Apart from the case of CBA, an analysis of BHP Billiton also indicates that the company the strategic performance measurement system for the purpose of enhancing the performance of all the employees within organisation. An analysis indicates that there are a range of performance measures that are utilised by BHP Billiton in aligning and monitoring the performance of its employees such as health, safety, environment and community measures, capital spend and schedule, financial outcomes and also the measures in terms of rewards and compensation strategy designed specifically to monitor individual and group performance. There are specific performance measures in relation to financial and non financial performance related areas. The strategic goals are aligned with that of the rewards and compensation strategy and this allows for positive overall encouragement and contribution on the part of each and every employee of the organisation towards accomplishing organisational goals. The need and importance of linking the performance measures with that of the compensation strategy is clear to the management at BHP and this particular factor is the major driving factor behind the consideration of a performance linked pay. This has therefore been a major contributing factor towards accomplishing the attainment of competitive advantage by the company.

 

Conclusion

            A critical assessment has been carried out in respect to the financial performance of BHP Billiton and CBA and the performance of analysis indicated that the performance of CBA has been highly effective in terms of its profitability. The analysis also indicated that there have been direct overall linkages being noted with respect to the strategic performance management systems and the rewards and compensation strategy in both these organisations. This is evident from the fact that they have specific compensation strategy that is closely linked to their strategic goals. As a result, the efforts of individual and groups are directed towards accomplishing the organisational goals in a positive way.

 

References

BHP Billiton Annual Report, (2013) [Online]. Available at: file:///C:/Users/shankey/Downloads/205166_755194131_BHPBillitonAnnualReport2013.pdf [Accessed: 09 January 2015].

CBA Annual Report, (2013) [Online]. Available at: file:///C:/Users/shankey/Downloads/205170_873985727_2013CBAAnnualReport19August201.pdf [Accessed: 09 January 2015].

Chandra, P. and Prasanna, (2011), ‘Financial Management’, 8th ed., Tata McGraw-Hill Education.

Droms, W.G. and Wright, J.O. (2010), ‘Finance and Accounting for Nonfinancial Managers: All the Basics You Need to Know’, 6th ed., Basic Books.

Gomez, (2009), ‘Financial Markets Institutions and Financial Services’, PHI Learning Pvt. Ltd.

Graham, J.R. and Smart, S.B. (2011), ‘Introduction to Corporate Finance: What Companies Do, Abridged Edition, 3rd ed., Cengage Learning.

Khan, M.Y. (2004), ‘Financial Management: Text, Problems And Cases’, 2nd ed., Tata McGraw-Hill Education.
 

Appendix

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