Page 195 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes Self Assessment

Fill in the blanks:
3. ………………………. is usually defined as those members of management in charge of
major subdivisions of the business such as: sales, production and finance.

4. …………………………………… is principally concerned with co-ordination and control
of day-to-day operations.

9.3 Multiple Performance Measures

ROI and EVA have been employed with some success by many large sized undertaking which
has resorted to divisionalisation. However, exclusive reliance on a single profitability measure
may lead to manipulation of the system and consequent distortion in decision-making. Managers
of business unit may delay a potentially profitable investment in a bid to enhance short-term
return on income at the cost of long-run consequences.
In order to overcome the limitation of “sole dependence in a single measure”, many firms have
developed multiple goal structures.

As for example, following are the multiple goal structures of General Electric Company:
(i) Profitability, (ii) Market position, (iii) Productivity, (iv) Product leadership, (v) Personnel
development, (vi) Employee attitudes, (vii) Public responsibility, (viii) Balance between long-
range and short-range goals.
The above multiple goal structures reveal the following:

1. Some of the goals are amenable to reasonably objective quantitative measurement while
others are not.

Example: Profitability and productivity can be reasonably measured whereas employee
attitude and public responsibility are not easily quantifiable.

2. There is some internal inconsistency among the goals e.g. efforts to raise productivity
may dampen employee morale. Efforts to fulfil somewhat internally inconsistent and
inadequately articulated goals can be frustrating and confusing. The optimum balance
may be hard to establish.

9.3.1 Balanced Score Card

It is a device of linking financial and non-financial measures and identifies key performance
measures that give top management, a first but comprehensive view of the performance of the
organization unit (i.e., a division/strategic business unit).

Did u know? The aim of the score card is to provide a comprehensive framework for
translating a company’s strategic objectives into a coherent act of performance measures.
The balance score card was devised by Kaplan and Norton (1992) and refined in later publications.

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