Question:
The Chicago Trading and Production Company is a large, divisionalized manufacturing company. Each division is viewed as an investment center and has virtually complete autonomy for product development, marketing, and production. Performance of division managers is evaluated periodically by senior management. Divisional economic value added (EVA) is the sole criterion used in performance evaluation under current corporate policy. Corporate management believes EVA is an adequate measure because it incorporates quantitative information from the divisional income statement and balance sheet in the analysis. Some division managers complained that a single criterion for performance evaluation is insufficient and ineffective. These managers have compiled a list of criteria that they believe should be used in evaluating a division manager's performance. The criteria include profitability, market position, productivity, product leadership, personnel development, employee attitudes, public responsibility, and balance between short-range and long-range goals.
a. Discuss the shortcomings or possible inconsistencies of using economic value added as the sole criterion to evaluate divisional management performance.
b. Discuss the advantages of using multiple criteria such as a balanced scorecard versus a single criterion to evaluate divisional management performance.
c. Discuss some ways in which each of the multiple criteria listed by the managers could be evaluated.
d. Describe the problems or disadvantages that can be associated with the implementation of the multiple performance criteria measurement system suggested to the Chicago Trading and Production Company by its division managers. (CMA adapted)