Harvard Case - Harris Corporation: Financial Benchmarking
"Harris Corporation: Financial Benchmarking" Harvard business case study is written by Mark E. Haskins. It deals with the challenges in the field of Accounting. The case study is 12 page(s) long and it was first published on : Oct 14, 2008
At Fern Fort University, we recommend that Harris Corporation implement a comprehensive financial benchmarking program to improve its financial performance and competitiveness. This program should focus on identifying best practices within the industry, comparing Harris's performance to these benchmarks, and developing actionable strategies to close any performance gaps.
2. Background
Harris Corporation, a leading provider of high-tech communication and information systems, is facing increasing competition and pressure to improve profitability. The company has a history of strong financial performance, but it has recently experienced declining margins and a slowdown in growth. The case study highlights the company's desire to understand its financial performance relative to its competitors and identify areas for improvement.
The main protagonists of the case are the company's management team, led by the CEO, who are tasked with developing a strategy to improve profitability and ensure the company's long-term success.
3. Analysis of the Case Study
The case study presents a clear need for Harris Corporation to implement a robust financial benchmarking program. This program should be based on a comprehensive framework that includes:
a) Financial Analysis:
- Financial Statement Analysis: Analyze the company's balance sheet, income statement, and cash flow statement to identify trends and areas of concern. This includes using ratio analysis to compare key financial metrics like profitability, liquidity, and solvency to industry benchmarks.
- Cost Accounting: Conduct a thorough cost analysis to identify areas of cost inefficiency and potential cost reduction opportunities. This may involve using activity-based costing to allocate costs more accurately and identify areas where cost optimization can be implemented.
- Variance Analysis: Analyze variances between actual and budgeted performance to identify areas where performance is falling short and to understand the root causes of these variances.
b) Benchmarking:
- Industry Benchmarking: Identify key competitors and gather data on their financial performance. This data can be obtained through publicly available sources, industry reports, and competitor analysis.
- Best Practices: Identify best practices in the industry for key financial metrics, such as profitability, efficiency, and asset management. This can be achieved through industry research, competitor analysis, and collaboration with industry experts.
- Gap Analysis: Compare Harris Corporation's financial performance to industry benchmarks and identify areas where the company is falling short. This gap analysis will provide a clear roadmap for improvement.
c) Strategic Implications:
- Corporate Strategy: Align the financial benchmarking program with the company's overall corporate strategy to ensure that improvement efforts are focused on achieving strategic goals.
- Growth Strategy: Identify opportunities for growth through acquisitions, new product development, or expansion into new markets. The benchmarking program can provide valuable insights into the financial performance of potential acquisition targets and the attractiveness of new markets.
- Profitability: Develop strategies to improve profitability by reducing costs, increasing revenue, or improving efficiency. The benchmarking program can provide insights into the cost structures and pricing strategies of competitors.
4. Recommendations
1. Implement a Comprehensive Financial Benchmarking Program: Harris Corporation should establish a formal benchmarking program that includes the following:
- Define Scope: Clearly define the scope of the benchmarking program, including the key financial metrics to be benchmarked, the time horizon, and the data sources.
- Select Benchmarking Partners: Identify a group of relevant competitors for benchmarking. This group should be representative of the industry and should include both direct and indirect competitors.
- Collect and Analyze Data: Gather data on the financial performance of the benchmarking partners. This data should be collected from publicly available sources, industry reports, and competitor analysis.
- Develop Actionable Insights: Analyze the collected data to identify areas where Harris Corporation is performing well and areas where it can improve. This analysis should focus on identifying the root causes of performance gaps and developing actionable strategies to close them.
2. Enhance Cost Accounting System:
- Implement Activity-Based Costing (ABC): Harris Corporation should consider implementing ABC to allocate costs more accurately to products and services. This will provide a more accurate picture of the cost structure of the business and will help identify areas where cost optimization can be implemented.
- Improve Cost Management: Develop a comprehensive cost management system that includes cost reduction initiatives, cost control measures, and a focus on efficiency. This system should be integrated with the benchmarking program to ensure that cost management efforts are aligned with industry best practices.
3. Improve Financial Performance Measurement:
- Develop Key Performance Indicators (KPIs): Establish a set of KPIs that are aligned with the company's strategic goals and that can be used to track progress toward achieving those goals. These KPIs should be based on industry benchmarks and should be regularly monitored and reported on.
- Implement a Balanced Scorecard: Consider implementing a balanced scorecard to provide a comprehensive view of the company's financial performance. This scorecard should include financial, customer, internal process, and learning and growth perspectives.
4. Enhance Corporate Governance:
- Strengthen Board Oversight: Ensure that the board of directors has a strong understanding of the financial performance of the company and its competitive landscape. The board should actively participate in the benchmarking program and should hold management accountable for achieving the goals of the program.
- Improve Financial Transparency: Enhance the company's financial reporting to provide investors and stakeholders with a clear and transparent picture of the company's financial performance. This includes providing detailed information about the company's financial metrics, its benchmarking program, and its plans for improvement.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations are aligned with Harris Corporation's core competencies in high-tech communication and information systems and its mission to provide innovative solutions to its customers.
- External Customers and Internal Clients: The recommendations are designed to improve the company's financial performance and competitiveness, which will benefit both external customers and internal clients.
- Competitors: The recommendations are based on a thorough understanding of the competitive landscape and the best practices of industry leaders.
- Attractiveness ' Quantitative Measures: The recommendations are expected to improve the company's financial performance, as measured by key metrics such as profitability, efficiency, and asset management.
- Assumptions: The recommendations are based on the assumption that Harris Corporation is committed to improving its financial performance and competitiveness.
6. Conclusion
By implementing a comprehensive financial benchmarking program, Harris Corporation can gain valuable insights into its financial performance relative to its competitors and identify areas for improvement. This will enable the company to develop a clear roadmap for achieving its financial goals and ensuring its long-term success.
7. Discussion
Other Alternatives:
- Internal Benchmarking: Harris Corporation could focus on internal benchmarking by comparing the performance of different divisions or business units within the company. This could provide valuable insights into areas of strength and weakness within the company.
- Focus on Cost Reduction: Harris Corporation could focus solely on cost reduction initiatives without implementing a comprehensive benchmarking program. This approach could be less effective in identifying opportunities for improvement and could lead to short-term gains at the expense of long-term competitiveness.
Risks and Key Assumptions:
- Data Availability: The success of the benchmarking program depends on the availability of accurate and reliable data from competitors.
- Competitor Cooperation: Competitors may be reluctant to share data, which could limit the effectiveness of the benchmarking program.
- Implementation Costs: Implementing a comprehensive benchmarking program can be costly, and the company must be prepared to invest the necessary resources.
8. Next Steps
Timeline:
- Month 1-3: Develop the benchmarking program framework, identify benchmarking partners, and collect data.
- Month 4-6: Analyze the data, identify performance gaps, and develop actionable strategies for improvement.
- Month 7-9: Implement the improvement strategies and monitor progress.
- Month 10-12: Evaluate the effectiveness of the benchmarking program and make adjustments as needed.
Key Milestones:
- Develop a comprehensive benchmarking program framework.
- Identify a group of relevant competitors for benchmarking.
- Collect data on the financial performance of the benchmarking partners.
- Develop actionable insights from the data analysis.
- Implement improvement strategies to close performance gaps.
- Monitor progress and make adjustments as needed.
By following these steps, Harris Corporation can successfully implement a financial benchmarking program that will help the company improve its financial performance and competitiveness.
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Case Description
This field-based case describes the approach and decisions used by Harris Corporation's vice president of supply chain management and operations to establish a set of financial benchmarks. It requires students to use those benchmarks to decide what areas need focus to potentially raise the company's financial results and elevate its financial performance through specific actions within its supply-chain group.
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