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The Interest of the Various UNUM Stakeholders - Case Study Example

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The paper 'The Interest of the Various UNUM Stakeholders' is a perfect example of a finance and accounting case study. After UNUM’s listing on the New York stock exchange in 1986, the company set its first corporate goal (61592) of earning six dollars/share with 15 percent ROE which was achieved in 1991…
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Running header: UNUM Case study Student’s name: Instructor’s name: Subject code: Date of submission: UNUM CASE STUDY 1. How the chairman developed new goals for UNUM After UNUM’s listing on New York stock exchange in 1986,the company set its first corporate goal (61592) of earning six dollars/share with 15 percent ROE which were achieved in 1991. After the achievement, James realized the power of goals as a strategy for breakthrough performance improvement and hence he mobilized the management to develop new goals for UNUM (exinfm.com, 2010). These goals were not only financial but a balanced set of measures which would reflect the interest of the various UNUM stakeholders (employees, customers and shareholders). James therefore created an organizing team of 13 senior managers who developed the new set of balanced goals and measures. This they achieved through scorecard sub-committees set up for each focus area. The goals took eight months to set and were rolled out in 1993 to be achieved by 1998. 2. Relationship between development of UNUM corporate vision, corporate values and balanced score card. UNUM developed a balanced score card as a vehicle towards the achievement of its corporate vision of achieving leadership in areas deemed meaningful to its business and the market i.e. profitability, quality and reputation. The balanced score card had four perspectives which included UNUM people, operating effectiveness, customer satisfaction and shareholder value. Since balanced score card is a tool for achieving the corporate vision, the company also developed a separate vision for each of the above objectives (Paul, 32). The company also realized the value of employees in the achievement of its corporate vision and balanced score card and hence developed corporate values aimed at creating a culture of motivating employees towards achieving breakthrough business performance. In other words, UNUM Corporation realized that for it to achieve success, its corporate vision, corporate values and the balanced score card had to be interlinked and had to take care of all the UNUM stakeholders. 3. Communication UNUM views the balanced score card as an important tool for communicating its corporate goals to employees throughout the organization. The company invests significant energy and time into employee communications as a prerequisite for achieving corporate goals and making the scorecard meaningful to the employees (Robert, 123). In so doing, UNUM has defined what each of the score card perspective visions mean. For example, UNUM has communicated throughout the organization what the vision for UNUM people perspective ‘we will have the mind of a customer and the pride of an owner’ requires the employee to do (e.g. think like a customer, discover better ways etc.).UNUM realizes this through the benchmark survey that measures employees’ perception of whether the expected behaviors are being lived. The company also holds workshops whose results are communicated throughout the organization. There is also an appraisal system through which managers are appraised to ensure they are aligned to corporate vision. The chairman also holds annual chairman’s review where he meets with group of employees drawn from different organizational levels to discuss how employees perceive progress towards the goals. He has also articulated a set of questions used throughout the organization to ensure the strategic goals remain the key focus for employees. The ‘money machine is another tool that UNUM’s finance department uses to communicate to employees about what the investors are interested in and the importance of the shareholder’s goal. 4. Compensation mechanisms UNUM’s balanced score card contains a powerful and innovative compensation mechanism aimed at encouraging employees to ‘have the mind of a customer and the pride of an owner’ and hence focus their minds squarely onto the achievement of UNUM’s corporate goals. An example is the UNUM’s ‘1998 goals stock option plan’ launched in 1995. In this case, each employee was granted a stock option grant of 18 dollars /share to purchase 300 UNUM shares once the grant was vested. However, the date of vesting the stock option plan depends on the level of progress that UNUM makes on its 1998 goals and incase the goals are not met, the plan was to automatically occur nine years after the grant date. The 1998 stock option is important as it has helped employees think like owners of the company and hence they work harder and become better employees (Mohan, 125). Another example of compensation mechanism geared towards focusing ‘employees’ attention towards corporate goals was the annual bonus partly based on achievement against annual goals and partly on progress against the 1998 goals. In all this compensation cases, employees are made to think like the owners of UNUM and hence work harder for the achievement of better results. The bonuses also encourage the employees to work harder so they can get better bonuses and in so doing, the company progresses faster towards the achievement of its goals. By using the compensation mechanisms, UNUM is able to get commitment of every UNUM member in providing leadership and creativity in improving their operating efficiency. 5. Whether or not UNUM Corporation uses it’s balanced score card as either a diagnostic control system or interactive control system Diagnostic control system is a feedback system which monitors corporate outcomes and correct deviations from preset standards of performance such as goals and objectives systems, project monitoring systems, profit plans and budgets and strategic planning systems in order to allow effective resource allocation and define goals. This is done by setting standards, measuring outputs and linking incentives to goal achievement (Simons, 85). On the other hand, interactive control systems are the systems which teams use to advance and develop with a view to focusing organizational attention on strategic uncertainties, promote innovation and ensure that the corporate way of doing business is consistent with changes in customer needs. This is done by ensuring that changes are incorporated into the corporate strategy process and that the chosen strategy remains relevant to the business reality and overall corporate objectives. It is worth noting that there is active management involvement in interactive control systems unlike in diagnostic control system where managerial involvement is limited. UNUM balanced score card is used in a bid to achieve the corporate vision of achieving leadership by setting standards and goals that the company should achieve by a specific time hence giving the employees a specific target to aim at. The score card also consists of quantifiable measures which are monitoring systems against which the overall corporate success is gauged. The management then supports the employees by providing the necessary information and resources necessary for the achievement of the goals (perspectives) of the balanced score card. UNUM is therefore able to determine whether it has achieved its strategic goals and act accordingly. For example, by the time the company released its 1997 results, the chairman is able to confirm that the company has made considerable progress towards achieving its score card goals. The corporation also makes use of a few incentives to motivate its employees to strive towards achievement of its corporate goals. This includes bonuses pegged on performance and the stock option also pegged on achievement of the 1998 goals. Although the management is involved in formulation of the balanced score card goals, the employees are responsible for their implementation in their respective departments. In fact, the different functional managers are left to set their relevant goals provided they are in line with the balanced score card and the corporate vision. The chairman also holds discussions with groups of workers in order to discuss progress. Based on this information, one can only conclude that UNUM uses it’s balanced score card as a diagnostic control system because; -the balanced score card is used to achieve preset standards/goals -UNUM has put in place quantifiable measures with which to gauge progress -UNUM uses incentives (compensation mechanisms) pegged on goals achievement as a way of motivating the employees. -the management involvement is generally supervisory and the employees are largely responsible for the implementation 6. A balanced score card b) The course and effect relationship All the four perspectives of UNUM Corporation are interconnected and the achievement of one viewpoint leads to the accomplishment of the next and eventually the victory of the entire corporation (Simons, 120). This is explained as follows; UNUM people UNUM’s vision is to have a workforce that has the mind of a customer and the pride of an owner. This they do by creating an environment that is conducive and giving their workers all kind of support required for excellent performance. They have also come up with compensation mechanisms aimed at motivating the workers. The stock option mechanism is aimed at making the workers consider themselves component of the corporation. In so doing, the workers are motivated. Motivated workers on the other hand offer quality service to the customers leading to improved customer satisfaction (Balancedscorecard.og, 2010). This in turns translates to increased revenue which in turns lead to higher profitability implying increased returns to the shareholders. Operating effectiveness The company’s vision is to increase its operating effectiveness which will in turn lead to reduced operating costs and also increase customer value. Improved operating effectiveness will increase customer loyalty which will be reflected on increased revenues and hence increased profitability. Reduced operating costs will also lead to improved profitability which will imply better returns to shareholders and a motivated workforce as it will imply improved bonuses as well as job security. Customer satisfaction By offering the best value in offerings matched to customer’s needs, UNUM will not only retain the current customers but will also attract others to purchase its products. This will translate into improved profitability and hence better returns to shareholders as well as bonuses for employees. This will also mean a motivated team of employees who will work to ensure operating effectiveness. Shareholder value It is the shareholders who give UNUM the chance to exist by providing the necessary capital. Hence by ensuring maximum return to shareholders, the company will ensure its continued survival and the shareholders will support programs aimed at ensuring operating effectiveness, customer satisfaction as well as a motivated team of employees. This implies that all the four perspectives are interlinked and the success of one leads to the success of the other and eventually to the overall organizational success. C) How the corporate vision of UNUM Corporation is reflected in its goals and performance measures with reference to each perspective of its balanced scorecard UNUM’s strategic goals and measures are aimed at supporting its clearly defined and meaningful corporate vision which is ‘we will achieve leadership in our business.’ The vision implies that UNUM will achieve leadership in areas meaningful and important to its business and market which include profitability, quality and reputation (exinfm.com, 2010). This will be achieved through focusing on special risk relieving products whose development is to be driven by customer needs. In order to achieve this corporate vision, the corporation has established a specific vision statement for each of the four perspectives of its score cards which include; -UNUM people; UNUM’s people vision is to have the mind of a customer and the pride of an owner (exinfm.com, 2010). In this respect, it has a goal of continuously improving its employees and has put in place measures aimed at gauging progress. This is in line with its overall corporate vision of achieving leadership in areas that are meaningful to its business (Balancedscorecard.og, 2010). This is because employees determine the image of business and by motivating them; the company will ensure their commitment to the company and hence ensure the achievement of the corporate vision. Operating effectiveness UNUM’s vision in this respect is increasing customer value by rethinking, improving and streamlining its business processes (exinfm.com, 2010). This is aimed at reducing the company’s operational costs hence leading to improved performance in line with the corporate vision of achieving leadership in profitability by being a well managed company with an efficient cost structure. Customer satisfaction Unum’s vision is providing the best value in offering matched to customers needs in the market it chooses to serve. By so doing, the company hopes to improve its customer’s perception about the value of its products. The customer perspective is therefore in line with the corporate vision of achieving leadership by being a ‘products offered company’ through offering products which meet the customers needs which are of high quality. Shareholder value UNUM’s corporate vision in this case is delivering consistently superior long-term value to its shareholders measurable in terms of total returns (dividend and share price appreciation). Improving the shareholders return will be in line with the company’s vision of achieving leadership by being a well managed company that makes decision s in the best interest of stakeholders as well as giving good returns to its shareholders. As can be seen from the discussion above, each of the above perspective has been designed to help the company achieve its corporate vision of achieving leadership on the achievement of the respective goals. References: Paul, R. Balanced score card: measures that drive performance. Oxford: Oxford university press, 2006. Robert, S. The strategy- focused organization: how balanced score card organizations thrive in the new business environment. London: longhorn publishers, 2001. Mohan, N. Essentials of balanced score card. London: Routledge, 2004. Simons, R. “Control in age of empowerment.” Harvard Business Review 2 (1195): 80-88. Simons, R. Performance measurement and control systems for implementing strategy: text and cases. USA, Prentice Hall, 2000. Scribd.com, Balanced score card project, 2010. 6 Nov. 2010. http://www.scribd.com/doc/11844946/Balanced-ScorecardProject exinfm.com, Building and implementing a balanced score card, 2010. 6 Nov. 2010. http://docs.google.com/viewer?a=v&q=cache:Ff6YCE9MjicJ:www.exinfm.com/training/ pdfiles/ Balanced%2520Scorecard%2520Cs.pdf+1.+How+did+the+Chairman+and+Chief+Execu tive+of+U NUM+Corporation,+James+Orr,+seek+to+develop+new+goals+for+UNUM+Corporatio n%3F&hl= en&pid=bl&srcid=ADGEESiH1YwgGZB6aixQmdLI84SDbnhOU8q8doGUfF2qFaTn7F sBHIWguF49w vVPyURk-XSWcC8PJDekYJaznYf- 8tlbonv_cUFbAXIozPRF7tlcwU2YLUJCNRoRKrT7KMGETrlnYLOM&sig=AHIEtbR3zHEfty8qXqD50su YlKuDh0W4sg Balancedscorecard.og, What is the balanced scorecard? 2010.6Nov.2010. http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/ Default.aspx Balancedscorecard.org, Perfomance measurement, 2010.6 Nov.2010. http://www.balancedscorecard.org/BSCResources/PerformanceMeasurement/tabid/59/De fault.aspx Read More
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