You are on page 1of 11

Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales

RReeaaddiinnggss

16-1: PROFIT VARIANCE ANALYSIS:

A STRATEGIC FOCUS

By Vijay Govindarajan and John K. Shank

Profit variance analysis is the process of summarizing what happened to profits during the period to highlight the salient managerial issues. Variance analysis is the formal step leading to determining what corrective actions are called for by management. Thus it is a key link in the management control process. We believe this element is underutilized in many companies because of the lack of a meaningful analytical framework. It is handled by accountants in a way that is too technical. This paper proposes a different profit variance framework as a “new idea” in management control. Historically, variance analysis involved a simple methodology where actual results were compared with the budget on a line-by-line basis. We call this Phase I thinking. Phase II thinking was provided by Shank and Churchill [1977] who proposed a management-oriented approach to variance analysis. Their approach was based on the dual ideas of profit impact as a unifying theme and a multilevel analysis in which complexity was added gradually, one level at a time. We believe that the Shank and Churchill approach needs to be modified in important ways to take explicit account of strategic issues. Our framework, which we call Phase III thinking, argues

that variance analysis becomes most meaningful when it is tied explicitly to strategic analysis.

TABLE 1 UNITED INSTRUMENTS, INC.

 

Budget (1,000s)

Sales Cost of goods sold Gross margin Less: Other operating expenses Marketing R&D Administration Profit before taxes

 

$16,872

9,668

$ 7,204

$1,856

$1,440

1,480

932

1,340

4,676

1,674

$ 2,528

16-4

Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales

This paper presents a short disguised case,

United Instruments, Inc., to illustrate the three phases or generations of thinking about profit variance analysis. We believe it also demonstrates the superiority of integrating strategic planning and overall financial performance evaluation, which is the essence of Phase III thinking. The purpose of this paper is to emphasize how variance analysis can be, and should be, redirected to consider the strategic issues that have, during the past 15 years, become so

a conceptual framework for

decision making.

widely

accepted

as

UNITED INSTRUMENTS, INC.:

AN INS TRUCTIONAL CAS E 1

Steve Park, president and principal stockholder of United Instruments, Inc., sat at his desk reflecting on the 1987 results (Table 1). For the second year in succession, the company had exceeded the profit budget. Steve Park was obviously very happy with the 1987 results. All the same, he wanted to get a better feel for the relative contributions of the R&D, manufacturing, and marketing departments in this overall success. With this in mind, he called his assistant, a recent graduate of a well-known business school, into his office. “Amy,” he began, “as you can see from our recent financial results, we have exceeded our profit

targets by

analysis showing how much R&D, manufacturing, and marketing contributed to this overall favorable profit variance?” Amy Shultz, with all the fervor of a recent convert to professional management, set to her task immediately. She collected the data in Table 2 and was wondering what her next step should be. United Instruments’ products can be grouped

into two main lines of business: electric meters (EM) and electronic instruments (EI). Both EM and EI are industrial me asuring instruments and perform similar functions. However, these products differ in their manufacturing technology and their end-use characteristics. EM is based on mechanical and electrical technology, whereas EI is based on microchip technology. EM and EI are substitute products in the same sense that a mechanical watch and a digital watch are substitutes.

costing

a system for internal reporting purposes.

$622,000. Can you prepare an

United

Instruments

uses

variable

16-5

PHAS E I THINKING: THE “ANNUAL REPORT APPROACH” TO VARIANCE ANALYS IS

A straightforward, simple -minded explanation of the difference between actual profit ($3,150) and the budgeted profit ($2,528) might proceed according to T-3. Incidently, this type of variance analysis is what one usually sees in published annual reports (where the comparison is typically between last year and this year). If we limit ourselves to this type of analysis, we will draw the following conclusions about United’s performance:

1. Good sales performance (slightly above plan).

2. Good manufacturing cost control (margins as per plan).

3. Good control over marketing and R&D costs (costs down as percentage of sales).

4. Administration overspent a bit (slightly up as percentage of sales).

5. Overall Evaluation: Nothing of major significance; profit performance above plan.

How accurately does this summary reflect the actual performance of United? One objective of this paper is to demonstrate that the analysis is misleading. The plan for 1987 has embedded in it certain expectations about the state of the total industry and about United’s market share, its selling prices, and its cost structure. Results from variance computations are more “actionable” if changes in actual results for 1987 are analyzed against each of these expectations. The Phase I analysis simply does not break down the overall favorable variance of $622,000 according to the key underlying causal factors.

PHAS E II THINKING: A MANAGEMENT- ORIENTED APPROACH TO VARIANCE ANALYS IS

The analytical framework proposed by Shank and Churchill [1977] to conduct variance analysis incorporates the following key ideas:

1. Identify the key causal factors that affects profit.

2. Break down the overall profit variance by these key causal factors.

3. Focus always on the profit impact of variation in each causal factor.

Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales

TABLE 2 ADDITIONAL INFORMATION

 

Electric

Electronic

Meters

Instruments

(EM)

(EI)

Selling prices per unit Average standard price Average actual prices, 1987 Variable product costs per unit Average standard manufacturing cost Average actual manufacturing cost Volume information Units produced and sold–actual Units produced and sold–planned Total industry sales, 1987–actual Total industry variable product costs, 1987–actual United’s share of the market (percent of physical units) Planned Actual

$40.00

$180.00

30.00

206.00

$20.00

$50.00

21.00

54.00

141,770

62,172

124,800

66,000

$44 million

$76 million

$16 million

$32 million

10%

15%

16%

9%

 

Planned

Actual

Firm-wide fixed expenses (1,000s) Fixed manufacturing expenses Fixed marketing expenses Fixed administrative expenses Fixed R&D expenses (exclusively for electronic instruments)

$3,872

$3,530

1,856

1,440

1,340

1,674

1,480

932

4. Try to calculate the specific, separable impact of each causal factor by varying only that factor while holding all other factors constant (“spinning only one dial at a time”).

5. Add complexity sequentially, one layer at a time, beginning at a very basic “common sense” level (“peel the onion”).

6. Stop the process when the added complexity at a newly created level is not justified by added useful insights into the causal factors underlying the overall profit variance.

T-4 and 5 contain the explanation for the overall

favorable profit variance of $622,000 using the above approach. In the interest of brevity, most of the calculation details are suppressed (detailed calculations are available from the authors).

the performance of

United if we now consider the variance analysis summarized in T-5? The following insights can be offered organized by functional area:

What

can

we say

about

Marketing

Comments:

Market Share (SOM) increase benefited the firm But, unfortunately, sales mix was managed toward the lower margin product

$1,443 F

921 U

Control over marketing expenditure benefited the firm (especially in the face of an increase in SOM)

416 F

Net effect

$938 F

Uncontrollables: Unfortunately, the overall market declined and cost the firm $680 U

Overall evaluation: Very good performance Manufacturing Comments:

Manufacturing cost control cost the firm Overall evaluation: Satisfactory performance R&D Comments:

$

48 U

Savings in R& D budget

$

548 F

Overall evaluation: Good performance Administration Comments:

Administration budget overspent Overall evaluation: Poor performance

$

334 U

16-6

Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales

TABLE 3 THE “ANNUAL REPORT APPROACH” TO VARIANCE ANALYSIS

 
 

Budget (1,000s)

 

Actual (1,000s)

Sales Cost of goods sold

 

$16,872

(100%)

$17,061

(100%)

9,668

(58%)

9,865

(58%)

Gross margin Less: Other expenses Marketing R&D Administration

$ 7,204

(42%)

$ 7,196

(42%)

$1,856

(11%)

$1,440

(8%)

1,480

(9%)

932

(6%)

1,340

(8%)

4,676

(28%)

1,674

(10%)

4,046

(24%)

Profit before tax

$ 2,528

(14%)

$ 3,150

(18%)

Thus, the overall evaluation of the general manager under Phase II thinking would probably be “good,” though specific areas (such as manufacturing cost control or administrative cost control) need attention. The above summary is quite different— and clearly superior —to the one presented under Phase I thinking. But, can we do better? We believe that Shank and Churchill’s framework needs to be modified in important ways to accommodate the following ideas. Sales volume, share of market, and sales mix variances are calculated on the presumption that United is essentially competing in one industry (i.e., it is a single product firm with two different varieties of the product). That is to say, the target customers for EM and EI are the same and that they view the two products as substitutable. Is United a single product firm with two product offerings, or does the firm compete in two different markets? In other word s, does United have a single strategy for EM and EI or does the firm have two different strategies for the two businesses? As we argue later, EM and EI have very different industry characteristics and compete in very different markets, thereby, requiring quite different strategies. It is, therefore, more useful to calculate market size and market share variances separately for EM and EI. Just introducing the concept of a sales mix variance implies that the average standard profit contribution across EM and EI together is meaningful. For an ice cream manufacturer, for example, it is probably reasonable to assume that the firm operates in a single industry with multiple product offerings, all targeted at the same customer group. It would, therefore, be meaningful to calculate a sales mix variance because vanilla ice cream and strawberry ice cream, for instance, are substitutable and more sales of one implies less sales of the other for the firm (for an elaboration on these ideas, refer to the Midwest Ice Cream Company case [Shank, 1982, pp. 157– 173]). On the other hand, for a firm such as General Electric, it is much less clear whether a sales mix

variance across jet engines, steam turbines, and light bulbs really makes any sense. This is more nearly the case fo r United because one unit of EM (which sells

for $30) is not really fully substitutable for one unit of EI (which sells for $206).

An

important

issue

in

the history of many

industries is to determine when product differentiation has progressed sufficiently that what was a single business with two varieties is now two businesses. Some examples include the growth of the electronic cash register for NCR, the growth of the digital watch for Bulova, or the growth of the industrial robot for General Electric. Following Phase II thinking, performance evaluation did not relate the variances to the differing strategic contexts facing EM and EI.

PHAS E III THINKING: VARIANCE ANALYS IS US ING A STRATEGIC FRAMEWORK We argue that performance evaluation, which is a critical component of the management control process, needs to be tailored to the strategy being followed by a firm or its business units. We offer the following set of arguments in support of our position:

(1) different strategies imply different tasks and require different behaviors for effective performance [Andrews, 1971; Gupta and Govindarajan, 1984a; and Govindarajan, 1986a]; (2) different control systems induce different behaviors [Govindarajan, 1986b; Gupta and Govindarajan, 1984b]; (3) thus, superior performance can best be achieved by tailoring control systems to the requirements of particular strategies [Govindarajan, 1988; Gupta and Govindarajan, 1986].

16-7

Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales

TABLE 4 VARIANCE CALCULATIONS US ING SHANK AND CHURCHILL’S MANAGEMENT-ORIENTED FRAMEWORK

 

Key Causal Factors:

Total Market

Expected

Actual

Actual

Actual

Actual

Actual

Market share

Expected

Expected

Actual

Actual

Actual

Actual

Sales mix

Expected

Expected

Expected

Actual

Actual

Actual

Selling price

Expected

Expected

Expected

Expected

Actual

Actual

Costs

Expected

Expected

Expected

Expected

Expected

Actual

Profit Calculation:

Sales

$16,872

$15,836

$18,034

$16,862

$17,060

$17,060

Variable costs

5,769

5,440

6,195

5,944

5,944

6,334

Contribution

$11,076

$10,396

$11,839

$10,918

$11,116

$10,726

Fixed costs

8,548

8,548

8,548

8,548

8,548

7,576

Profit

$ 2,528

$ 1,848

$ 3,291

$ 2,370

$ 2,568

$ 3,150

Variance Analysis:

Level 1

Level 2

Level 3

Level 4

Overall variance=$622 F Sales volume and mix=$158 U Sales prices and costs=$780 F Sales mix
Overall variance=$622 F
Sales volume and mix=$158 U
Sales prices and costs=$780 F
Sales mix
Sales prices
Costs
Sales volume=$763 F
=$921 U
=$198 F
=$582 F
Market
EM
EI
Fixed costs
Size
Market Share
$1,418 U
$1,616
Variable costs of
manufacturing
EM $142 U
EI $248 U
 Manufacturing $342 F
=$680 U
=$1,443F
 Marketing $416 F
 Administration $334 U

R&D $548 F

Note: F indicates a favorable variance and U indicates an unfavorable variance.

16-8

Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales

TABLE 5 VARIANCE SUMMARY FOR THE PHASE II APPROACH

Overall market decline Share of market increase Sales mix change Sales prices improved EM EI Manufacturing cost control Variable costs Fixed costs Other R&D Administration Marketing Total

 

$

680 U

 

1,443 F

921 U

198 F

$1,418 U

$1,616 F

 

48 U

$390 U

$342 F

 

548 F

334 U

416 F

 

$

622 F

We will first define and briefly elaborate the concept of strategy before illustrating how to link strategic considerations with variances for management control and evaluation. Strategy has been conceptualized by Andrews [1971], Ansoff [1965], Chandler [1962], Govindarajan [1989], Hofer and Schendel [1978], Miles and Snow [1978], and others as the process by which managers, using a three- to five-year time horizon, evaluate external environmental opportunities as well as internal strengths and resources in order to decide on goals as well as a set of action plans to accomplish these goals. Thus, a business unit’s (or a firm’s) strategy depends upon two interrelated aspects: (1) its strategic mission or goals, and (2) the way the business unit chooses to compete in its industry to accomplish its goals—the business unit’s competitive strategy. Turning first to strategic mission, consulting firms such as Boston Consulting Group [Henderson, 1979], Arthur D. Little[Wright, 1975], and A. T. Kearney [Hofer and Davoust, 1977], as well as academic researchers such as Hofer and Schendel [1978], Buzzell and Wiersema [1981], and Govindarajan and Shank [1986], have proposed the following three strategic missions that a business unit can adopt:

BUILD:

This mission implies a goal of increased market share, even at the expense of short-term earnings and cash flow. A business unit following this mission is expected to be a net user of cash in that the cash throw-off from its current operations would usually be insufficient to meet

its capital investment needs. Business units with

“low market share” in “high growth industries” typically pursue a “build” mission (e.g., Apple

Computer’s

Monsanto’s

Biotechnology business).

MacIntosh

business,

HOLD:

This strategic mission is geared to the protection of the business unit’s market share and competitive position. The cash outflows for a business unit following this mission would usually be more or less equal to cash inflows. Businesses with “high market share” in “high growth industries” typically pursue a “hold” mission (e.g., IBM in mainframe computers).

HARVEST:

This mission implies a goal of maximizing short- term earnings and cash flow, even at the expense

of market share. A business unit following such

a mission would be a net supplier of cash.

Businesses with “high market share” in “low growth industries” typically pursue a “harvest” mission (e.g., American Brands in tobacco products).

In terms of competitive strategy, Porter [1980]

has proposed the following two generic ways in

which businesses can develop sustainable competitive advantage:

Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales

TABLE 6 STRATEGIC CONTEXTS OF THE TWO BUSINESSES

LOW COST:

Electric Meters (EM)

Electronic Instruments (EI)

Overall market (units):

Plan

1,248,000

440,000

Actual

886,080

690,800

Declining Market

Growth Market

(29% Decrease)

(57% Increase)

United’s share:

Plan

10%

15%

Actual

16%

9%

United’s prices:

Plan

$40

$180

Actual

30

206

We apparntly cut price to build

We apparently raised price to ration

United’s margin:

Plan

$20

$130

Actual

9

152

Industry prices:

Actual

$50

$110

We are well below “market.”

We are well above “market.”

Industry costs:

 

$18

$46

Actual Procuct/market characteristics:

United’s apparent strategic mission United’s apparent competitive strategy

Mature Lower technology Declining market Lower margins Low unit price Industry prices holding up “Build” The low price implies we are trying for low cost position “Harvest” Hold sales prices vis-à-vis competition. Do not focus on maintaining and improving SOM. Aggressive cost control

 

Evolving Higher technology Growth market Higher margins High unit price Industry prices falling rapidly “Skim” or “Harvest” The high price implies we are trying for a differentiation position. “Build” Competitively price to gain SOM.

A more plausible strategy Key success factors (arising from the plausible strategy)

Product R&D top create differentiation

Lower cost through

 

Process R&D to reduce unit costs. experience curve effects

The primary focus of this strategy is to achieve low cost relative to competitors. Cost leadership can be achieved through approaches such as economies of scale in production, learning curve effects, tight cost control, and cost minimization in areas such as R&D, service, sales force, or advertising. Examples of firms following this strategy include: Texas Instruments in consumer electronics, Emerson Electric in electric motors, Chevrolet in automobiles, Briggs and Stratton in gasoline engines, Black and Decker in machine tools, and Commodore in business machines.

DIFFER ENTIATION:

The primary focus of this strategy is to differentiate the product offering of the business unit, creating something th at is perceived by customers as being unique. Approaches to a product differentiation include brand loyalty (Coca-Cola in soft drinks), superior customer service (IBM in computers), dealer network (Caterpillar Tractors in construction equipment), product design and product features (Hewlett- Packard in electronics), and/or product technology (Coleman in camping equipment).

Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales

TABLE 7 VARIANCE CALCULATIONS USING A STRATEGIC FRAMEWORK

Key Casual Factors:

Total market Market share Selling price Variable costs Electric Meters (EM) Sales Variable costs Contribution

Expected

Actual

Actual

Actual

Actual

Expected

Expected

Actual

Actual

Actual

Expected

Expected

Expected

Actual

Actual

Expected

Expected

Expected

Expected

Actual

$ 4,992

$ 3,544

$ 5,671

$ 4,253

$ 4,253

2,496

h are als

2,835

2,835

2,835

2,977

$ 2,496

$ 1,772

$ 2,836

$ 1,418

$ 1,276

Manufacturing Market sizee Market share Sales price Cost =$724 U =$1,064 F =$1,418 U =$142
Manufacturing
Market sizee
Market share
Sales price
Cost
=$724 U
=$1,064 F
=$1,418 U
=$142 U

Electronic Instruments (EI) Sales Variable costs Contribution

$11,880

$18,652

$11,191

$12,807

$12,807

3,300

5,181

3,109

3,109

3,357

$ 8,580

$13,471

$ 8,082

$ 9,698

$ 9,450

Market size Market share Sales price Manufacturing Cost =$4,891 F =$5,389 U =$1,616 F =$248
Market size
Market share
Sales price
Manufacturing
Cost
=$4,891 F
=$5,389 U
=$1,616 F
=$248 U

Firmwide Fixed Costs (by responsibility centers) Budget

Actual

Variance

Manufacturing

$3,872

$3,530

$342 F

Marketing

1,856

1,440

416 F

Administration

1,340

1,674

334 U

R&D

1,480

932

548 F

The above framework allows us to consider

explicitly the strategic positioning of the two product groups: electric meters and electron ic

industrial

measuring instruments, they face very different competitive conditions that very probably call for different strategies. T-6 summarizes the differing environments and the resulting strategic issues.

How well did electric meters and electronics instruments perform, given their strategic contexts? The relevant variance calculations are given in Tables 7 and 8. These calculations differ from Phase II analysis (given in T-4) in one important respect. T-4 treated EM and EI as two varieties of one product, competing as substitutes, with a single strategy. Thus, a sales mix variance was computed. Tables 7 and 8 treat EM and EI as different products with dissimilar

instruments.

Though

they

both

are

strategies. Therefore, no attempt is made to calculate

a sales mix variance. The basic idea is that even

though a sales mix variance can always be calculated, the concept is meaningful only when a single business framework is applicable. For the same reason, Tables 7 and 8 report the market size and market share variances for EM and EI separately, and T-4 reported these two variances for the instruments business as a whole. Obviously, a high degree of subjectivity is involved in deciding whether United is

in one business or two. The fact that the judgment is

to a large extent subjective does not negate its importance. T-9 summarizes the managerial performance evaluation that would result if we were to evaluate EM and EI against their plausible strategies, using the variances reported in T-7 and 8.

Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales

TABLE 8 VARIANCE SUMMARY FOR THE PHASE III APPROACH

Electric Meters

Market size

$

724 U

Market share Sales price Variable manufacturing cost Electronic Instruments Market size

1,064 F

1,418 U

142 U

4,891 F

Market share Sales price Variable manufacturing cost R&D Firm wide Fixed Costs

5,389 U

1,616 F

248 U

548 F

Manufacturing

342 F

Marketing

416 F

Administration

334 U

TOTA L

$

622 F

The overall performance of United would probably be judged as “unsatisfactory.” The firm has not taken appropriate decisions in its functional areas (marketing, manufacturing, R&D, and administration) either for its harvest business (EM) or for its build business (EI). The summary in T-9 indicates a dramatically different picture of United’s performance than the one presented under Phase II thinking. This is to be expected because Phase II thinking did not tie variance analysis to strategic objectives. Neither Phase I nor Phase II analysis explicitly focused on ways to improve performance en route to accomplishing strategic goals. This would then imply that management compensation and rewards ought not to be tied to performance assessment undertaken using Phase I or Phase II frameworks.

CONCLUS IONS Variance analysis represents a key link in the management control process. It involves two steps. First, one needs to break down the overall profit variance by key causal factors. Second, one needs to put the pieces back together most meaningfully with a view to evaluating managerial performance. Putting the bits and pieces together most meaningfully is just as crucial as computing the pieces. This is a managerial function, not a computational one.

Phase I, Phase II, and Phase III thinking yield

different implications for this first step. That is, the detailed variance calculations do differ across the three approaches. Their implications differ even more for the second step. The computational aspects identify the variance as either favorable or unfavorable. However, a favorable variance does not necessarily imply favorable performance; similarly, an unfavorable variance does not necessarily imply unfavorable performance. We argue that the link between a favorable or unfavorable variance, on the one hand, and favorable or unfavorable performance, on the other, depends upon the strategic context of the business under evaluation. No doubt, judgments about managerial performance can be dramatically different under

Phase I, Phase II, and Phase III thinking (as

the

United

Instruments

case illustrates). In

our view,

moving

toward

Phase III thinking

(i.e., analyzing

profit variances in terms of the strategic issues involved) represents progress in adapting cost analysis to the rise of strategic analysis as a major

element in business

Govindarajan, 1988a, 1988b, and 1988c].

and

thinking

[Shank

Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales

TABLE 9 PERFORMANCE EVALUATION SUMMARY FOR PHASE III APPROACH

 
 

Electric Meters “Harvest” vs. “Build”

   

Electronic Instruments “Build” vs. “Skim”

Marketing

Comments

If we held prices and share, decline in this mature business would have cost

We raised prices to maintain margins and to ration our scarce capacity (our price was $206 vs. The industry price of $110). In the process, we lost significant SOM which cost us (netted against $1,616 F from sales prices). $3,773 U

us

$ 724 U

But, we were further hurt by price cuts made in order to build our SOM (our prices was $30 vs. the industry price

of $50).

 

$1,418 U

 

Net effect

 

1,064 F

$1,078 U

This is a booming market that grew 57 percent during this period. Then

 

why

did

we

decide to improve

 

This

is

a market that declined 29

margins at the expense of SOM in

percent. Why are we sacrificing margins to build market position in

this

fast

growing,

higher margin

business?

 

this

mature,

declining lower margin

 

business?

Fortunately, growth in the total market improved our profit picture.

$4,891 F

 
 

We underspent the marketing budget. $ 416 F

But why are we cutting back here in the face of our major marketing problems?

We underspent the marketing budget. $416 F

But why are we cutting back here in the face of our major marketing problems?

Overall evaluation

Poor performance

 

Poor performance

 

Manufacturing

Comments

Manufacturing cost control was lousy

Variable Manufacturing costs showed an unfavorable variance of $248 U (industry costs of $46 vs. our costs of

$54).

and cost the firm

If we

$142 U

are trying to be a cost leader,

where

are

the

benefits

of

our

cumulative experience or our scale economies? (industry unit costs of $18 vs. our costs of $21)

Does the higher manufacturing cost result in a product perceived as better? Apparently not based on market share data.

Overall evaluation

Poor performance

 

Poor performance

 

R&D

Not applicable

 

Why are we not spending sufficient dollars in product R&D? Could this explain our decline in SOM?

Comments

Overall evaluation

Poor performance

 

Administration

Inadequate control over overhead costs, given the need to become the low cost producer ($334 U).

Administration budget overspent. $334 U How does this relate to cost control?

Comments

Overall evaluation

Poor performance

 

Not satisfactory

 

Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales

REFERENCES

Andrews, K.R., The Concept of Corporate Strategy (Homewood, IL: Dow-Jones Irwin, 1971).

Ansoff,

H.I.,

Corporate

Strategy

(New

York:

McGraw-Hill, 1965).

Sultan,

“Market

Harvard Business Review (January-February

F.D.

Buzzell,

R.D.,

B.T.

Gale,

and

R.G.M.

to

Share—A

pp.

97–106.

Key

Profitability,”

,

and

1975),

Wiersema, “Modelling Changes in Market Share: A Cross-Sectional Analysis,” Strategic Management Journal (January-March 1981), pp. 27– 42.

Chandler, A.D., Strategy and Structure (Cambridge, MA: The MIT Press, 1962).

Govindarajan,

V.,

“Implementing

Competitive

Strategies

at

the

Business

Unit

Level:

to

Strategies,” Strategic Management Journal (May-June 1989), pp. 251–269.

Implications

of

Matching

Managers

Implications,” Academy of Management Journal (December 1986), pp. 695– 714. Henderson, B.D., Henderson on Corporate Strategy (Cambridge, MA : Abt Books, 1979). Hofer, C.W., and M.J. Davoust, Successful Strategic Management (Chicago, IL: A.T. Kearney, 1977).

, and D.E. Schendel, Strategy Formulation:

Analytical Concepts (St. Paul, MN: West

Publishing, 1978). “Midwest Ice Cream Company,” in J.K. Shank, Ed., Contemporary Management Accounting: A Casebook (Englewood Cliffs, NJ: Prentice-Hall, 1982), pp. 157–173.

Miles, R.E., and C.C. Snow, Organizational Strategy,

Structure and

Process

(New

York: McGraw

Hill, 1978).

Porter, M.E., Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: The Free Press, 1980). Shank, J.K., Contemporary Management Accounting:

,

“Decentralization, Strategy, and

A Casebook

(Englewood

Cliffs, NJ: Prentice-

Effectiveness of Strategic Business Units in

Hall, 1982).

Multi-Business Organizations,” Academy of

Management Review (October 1986a), pp. 844–

856.

“Impact of Participation in the Budgetary

Process on Managerial Attitudes and Performance: Universalistic and Contingency Perspectives,” Decision Sciences (1986b), pp.

496–516.

, “A Contingency Approach to Strategy

Implementation at the Business Unit Level:

Integrating Management Systems with Strategy,”

Academy of Management

,

Journal

(September

1988).

, and A.K. Gupta, “Linking Control Systems

to

Business

Unit

Strategy:

Impact

on

Performance,”

Accounting,

Organizations

and

Society (1985), pp. 51– 66.

, and J.K. Shank, “Cash Sufficiency: The

Missing Link in Strategic Planning,” The Journal of Business Strategy (Summer 1986), pp. 88– 95.

Gupta, A.K., and V. Govindarajan, “Business Unit Strategy, Managerial Characteristics, and

Business Unit Effectiveness at Strategy Implementation,” Academy of Management

Journal (March 1984a), pp. 25– 41.

, Converting Strategic Intentions into Reality,” Journal of Business Strategy (Winter 1984b), pp. 34– 47.

“Build, Hold, Harvest:

and

,

, SBUs: Strategic Antecedents and Administrative

“Resource Sharing Among

and

,

, and N.C. Churchill, “Variance Analysis: A

Management-Oriented Approach,” The Accounting Review (October 1977), pp. 950–

957.

and V. Govindarajan, “Making Strategy

Explicit in Cost Analysis: A Case Study, “ Sloan Management Review (Spring 1988a), pp. 19– 29.

, for the Complex Product Line: A Field Study,” Journal of Cost Management (Summer 1988b), pp. 31– 38.

“Transaction-Based Costing

,

,

and

“Strategic Cost Analysis—

Differentiating Cost Analysis and Control According to the Strategy Being Followed,” Journal of Cost Management (Fall 1988c). Wright, R.V.L., A System for Managing Diversity (Cambridge, MA : Arthur D. Little, Inc., 1975).

,

and

,