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In this Jun 2003 issue of On
Target :
Corporate Governance: The Role of the Strategic Audit
A Strategic Audit provides an objective view of the growth
and exit options available to shareholders and management when
difficult and important decisions need to be made in order to
maximise shareholder value. The result of a Strategic Audit is
to ensure that there is a well defined and agreed path of
development including a series of practical steps which when
implemented will substantially enhance the value of a company.
Management Accountants may be called upon to conduct a large
selection of alternative Strategic Audits, either as internal
information providers or as external managerial auditors.
Although not as yet mandatory, it is in this latter role that
the management accounting profession can ensure the adequacy of
the corporate governance procedures in organisations.
A Strategic Audit is far different from the common perception
of financial audits. It is a continuous evaluation of all the
strategic functions of any success-seeking firm. Numerous
components as outlined below make up the totality of the
Strategic Audit, although the scope of each component audit will
vary depending on the organisation.
Stakeholder Audit: This audit is to assess the organisation
through the eyes of the stakeholders. Stakeholders usually fall
into four groups: shareholders, customers, employees and
suppliers. In fact, anyone interested in the success of the
organisation is a potential stakeholder who have various
incentives to help it, thus it pays to know them well. Each
group has a different reason why they want the organisation to
be successful. Shareholders want a return on their investment,
customers benefit from the organisation’s products or
services, employees earn income and suppliers want to sell the
organisation more. When the organisation prospers, they prosper.
The organisation’s stability and growth is their stability and
growth, thus this is a key audit area for corporate governance.
Marketing Audit: This is a comprehensive examination of the
company’s marketing environment, objectives, strategies, and
activities with a view to determining problem areas and
opportunities and recommending a plan of action to improve the
company’s marketing performance.
Productivity Audit: This audit explains the complexity of the
productivity concept, and discusses the evaluation of
productivity in a strategic context. This increases the chances
of increasing productivity in real terms, rather than improving
efficiency at the expense of strategic goals.
Logistics Audit: This audit includes the best practices of
companies with world-class logistics systems, and suggests tools
for measuring a company’s performance in comparison to
logistics leaders.
Service Management Audit: This audit provides information
about using service resources effectively, measuring the quality
of service management, and assessing a company’s ability to
recover in the face of service failure.
Customer Satisfaction Audit: This audit outlines the critical
aspects of system-wide customer satisfaction, and provides tools
for measuring performance along those lines.
Cost of Quality Audit: The term “cost of quality”
actually refers to the cost of not ensuring high quality. This
audit provides a way of understanding the amount of income that
is lost as a result of poor quality, along with suggestions for
reducing that cost and improving quality.
Environmental Audit: This audit describes how managers can
determine which environmental standards should be targeted for a
given organization, and provides a model for auditing
performance in terms of those standards.
Leadership Audit: This is a method of determining which
competencies are required for leadership success in a given
organization, and presents tools for measuring the performance
of the company’s employees in terms of those competencies. It
stresses the need to develop leadership at all organizational
levels, and suggests an outline for developing personal
improvement plans.
Culture Audit: This audit provides a tool to uncover a
company’s culture, and provides tips on using that
understanding to implement change more effectively.
Corporate Identity Audit: This audit provides insight into
determining the effectiveness of a current identity, and
outlines a way of assessing whether an identity should be
changed, and what is the direction of those changes.
Corporate Longevity Audit: This audit is undertaken to ensure
that an organisation not only maximizes the value of the
existing products and services, but also simultaneously develops
their replacements that will earn future income. Many companies
rest on their current successes, today’s breadwinners, without
realizing it is only a matter of time until their current
products and services are obsolete.
Corporate Flexibility Audit: This audit considers the
processes in place to hire the right people the first time and
get them up-to-speed as fast as possible. The checks on the
systems created to bring people together (e.g. work
presentations to non-related staff, office layout) and encourage
good working relationships.
Information Security Audit: This audit provides a framework
for systematically evaluating an information system’s
security.
Strategic Alliance Audit: This audit suggests ways of
determining whether or not a particular alliance option is
suitable for a given company, and provides ideas for
rejuvenating alliances that may be functioning at sub-optimal
levels for both manufacturing and service firms.
Technology Audit: This audit provides insight into
determining which technologies should be priorities for a
company given its strategy. It also provides tools for
determining what aspects of the company can be called
technologies, and a system for breaking technologies down into
component parts.
In the next issue of ON TARGET, the issues relating to
Strategic Audits will be discussed.
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