Question: The mission and objectives of the organisation are the starting point, but a discussion of performance measurement, the reports required to control the organisation, and the stakeholders, are other aspects of this question.
Background Lindleys plc (the Bank) is a United Kingdom clearing bank. It has 2,000 retail branches. It categorises its business as retail and corporate. Each category currently accounts for half of the Bank's turnover. The Bank defines retail business as ‘banking for customers in their own right and small businesses where lending would not exceed £1m in any one year'. Corporate business is defined as ‘where lending would exceed £1m in any one year'. Corporate lending includes international lending. Traditionally, corporate lending has been the most profitable business, yielding 70 per cent of profit before taxation. Corporate lending has been carried out by six regional offices and a department at head office in London. The London office is also responsible for international lending. There are 200 staff employed in corporate lending. Retail banking has operated in the following way. The number of retail and small business customers at each branch has ranged from 1,000 to 10,000, although 5,000 is typical. The Bank has employed the following mission statement for its retail banking: ‘Our mission is to deliver a high-quality service to customers based on our managers' personal knowledge of customers' affairs.' The Bank recognised that retail banking was relatively unprofitable.
It was willing to operate a policy of cross-subsidisation between corporate and retail as it hoped that some retail customers would become corporate ones. It saw its branch managers as assisting in this process because of their financing expertise and deep knowledge of their customers. The Bank has operated each branch as a cost centre. Managers have been provided with a three-monthly expenditure report which compared committed expenditure to budgeted expenditure. The Bank had not operated an accrual accounting system as regards branch expenditures for these three-monthly reports. However, year-end adjustments reconciled committed, actual and budgeted expenditures. These accounting operations were carried out by management accounting staff based at head office. The managers' remit was to operate within their expenditure budgets. In addition to this, they were set targets, for example, number of new accounts opened, amount of holiday insurance sold, level of bad debts. The managers were not consulted about the size of their budgets or their targets. These were imposed by head office.