Chpt_12_outline

Chpt_12_outline - CHAPTER 12 PERFORMANCE EVALUATION...

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CHAPTER 12 – PERFORMANCE EVALUATION Decentralized organizations Decentralized organizations split operations into different divisions or operating units. May be split by: Geography Customer base Brands or product lines Function There are several advantages to decentralization: 1. Frees top management time – 2. Develops and exploits expertise – 3. Improves customer relations – 4. Improves motivation and retention – But there are costs, too: 1. Inefficiencies – 2. Goal incongruence – Goal congruence Agency theory – Employees will not necessarily behave as their employers desire o Free-rider problem – Agency costs –
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There are three main types of agency costs: 1. 2. 3. information asymmetry Responsibility centers Decentralized organizations divide themselves into responsibility centers. There are four main types of responsibility centers: Type Manager is responsible for Examples Cost centers Controlling costs (DM, DL, OH) Production lines, legal departments Revenue centers Generating revenue Sales regions, reservation offices Profit centers Producing profits (rev. – costs) Product lines, individual franchise locations Investment centers Producing profit and managing invested capital Company divisions Each responsibility center must track its performance. However, traditional financial indicators may not be the best tools to use. Why not? Lag indicators – Lead indicators –
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THE BALANCED SCORECARD One of the broadest views of a company is provided by the Balanced Scorecard. It argues that executives should view the company from four integrated perspectives: 1. Financial perspective 2. Customer perspective 3. Internal perspective 4. Learning and Growth perspective The Balanced Scorecard Strategy Map illustrates the various strategies, attributes, processes, and resources (i.e., types of capital) that are necessary to achieve a company’s strategic goals. The Balanced Scorecard utilizes a combination of lag and lead indicators in each of the four perspectives to assess performance for a responsibility center Critical Success Factors (CSF) o Key performance indicators (KPI’s)
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Productivity strategies Long-term shareholder value Growth strategies Customer value proposition Product attributes Service attributes Financial Perspective Customer Perspective Relationship Image Internal Perspective Operations management Customer management Innovation process Regulatory process Learning and Growth Perspective Human capital Information capital Organizational capital Balanced Scorecard Strategy Map Financial perspective – Customer perspective – Internal business perspective –
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Learning and Growth Perspective – An example of a Balanced Scorecard: Disadvantages of the Balanced Scorecard: 1. Common measures bias – 2. Subjective measures –
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Cost center performance evaluations : financial perspective Cost centers rely on a individual examinations of the different expenses that are incurred by a department. Generally, they only examine the cost variance, not the volume variance.
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Chpt_12_outline - CHAPTER 12 PERFORMANCE EVALUATION...

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