Questions
Answers will vary. Responses may focus on the short-term view versus long-term views and include examples such as: managers focusing on only profitability might avoid spending the money for long-term assets to fuel the future; managers may miss other opportunities like funding the expense for creation of a customer database, if profitability is the focus in the short term; managers may avoid research and development costs that would be used to create the next generation of their product to achieve profitability in the short term.
Revenue center—the manager has control over the revenues that are generated for the corporation but not over the costs of the organization. Cost center—the manager has control over costs but not over revenues. Profit center—the manager has control over both revenues and costs. Investment center— the manager has control over revenues, costs, and capital assets.
Short-term goals include goals such as reducing costs of production by a certain percentage for the current year or increasing year-over-year sales by a certain percentage. Long-term goals may include goals such as expanding into new territories or adding new products over the next five years. A good performance measurement system will include both short- and long-term measures in order to motivate managers to make decisions that will fulfill both the corporations and their own short- and long-term goals.
Answers will vary and should lead to discussions. Goal congruence means aligning the goals of the business with the personal goals of the manager. For example, when a company has a goal to significantly improve sales of a certain product, the regional sales manager will have an increased sales goal as a result.
EVA is residual income adjusted for accounting distortions. Like residual income, it encourages managers to make appropriate levels of investment. In addition, it treats items such as research and development costs as having a long-term benefit to the company.
Answers may vary but should include some of these ideas. The idea for using both quantitative and qualitative measures in the form of a balanced scorecard was first suggested by Art Schneiderman of Analog Devices in 1987 and was later added to by Kaplan and Norton. The resulting design incorporated various performance measures grouped under four categories: financial perspective, internal operations perspective, customer perspective, and learning and growth. These areas were chosen because the success of a company is dependent on how it performs financially, which is directly related to the company’s internal operations, how the customer perceives and interacts with the company, and the direction in which the company is headed.