Professional Documents
Culture Documents
Decentralized Organizations
Chapter 11
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
11-2
Decentralization in Organizations
Benefits of Top
Top management
management
Decentralization freed
freed toto concentrate
concentrate
on
on strategy.
strategy.
Lower-level decisions
Lower-level decisions
often
often based
based on
on
better
better information.
information. Lower
Lower level
level managers
managers
can
can respond
respond quickly
quickly
to
to customers.
customers.
Lower-level
Lower-level managers
managers
gain
gain experience
experience inin
decision-making.
decision-making. Decision-making
Decision-making
authority
authority leads
leads to
to
job
job satisfaction.
satisfaction.
11-3
Decentralization in Organizations
Lower-level
Lower-level managers
managers
may
may make
make decisions
decisions
without
without seeing
seeing the
the
May
May be
be aa lack
lack of
of “big
“big picture.”
picture.”
coordination
coordination among
among
autonomous
autonomous
managers.
managers. Disadvantages of
Decentralization
Lower-level
Lower-level manager’s
manager’s
objectives
objectives may
may not
not
be
be those
those of
of the
the May
May bebe difficult
difficult to
to
organization.
organization. spread
spread innovative
innovative ideas
ideas
in
in the
the organization.
organization.
11-4
Cost
Cost Profit
Profit Investment
Investment
Center
Center Center
Center Center
Center
Cost, profit,
and investment
centers are all Responsibility
Responsibility
known as Center
Center
responsibility
centers.
11-5
Cost Center
A segment whose manager has control over
costs, but not over revenues or investment
funds.
11-6
Profit Center
Revenues
A segment whose
Sales
manager has control
Interest
over both costs and
Other
revenues,
Costs
but no control over
investment funds. Mfg. costs
Commissions
Salaries
Other
11-7
Investment Center
Corporate Headquarters
A segment whose
manager has control
over costs,
revenues, and
investments in
operating assets.
11-8
Learning Objective 1
Compute return on
investment (ROI) and
show how changes in
sales, expenses, and
assets affect ROI.
11-9
Cash,
Cash,accounts
accountsreceivable,
receivable,inventory,
inventory,
plant
plantand
andequipment,
equipment,and
andother
other
productive
productiveassets.
assets.
11-10
Acquisition cost
Less: Accumulated depreciation
Net book value
11-11
Understanding ROI
Net operating income
ROI =
Average operating assets
Net operating income
Margin =
Sales
Sales
Turnover =
Average operating
assets
ROI =Margin Turnover
11-12
Margin Turnover
ROI =
Sales
ROI = Net operating income × Average operating assets
Sales
Margin Turnover
ROI =
ROI = Net operating income × Sales
Sales Average operating assets
ROI
ROI increased
increased from
from 15%
15% to
to 21.8%.
21.8%.
11-16
Criticisms of ROI
In the absence of the balanced
scorecard, management may
not know how to increase ROI.
Learning Objective 2
( )
Net Average Minimum
Residual
= operating - operating required rate of
income
income assets return
••The
The Retail
Retail Division
Division of
of Zephyr,
Zephyr, Inc.
Inc. has
has
average
average operating
operating assets
assets of
of $100,000
$100,000 and
and is
is
required
required to to earn
earn aa return
return of
of 20%
20% on
on these
these
assets.
assets.
••InIn the
the current
current period,
period, the
the division
division earns
earns
$30,000.
$30,000.
Actual
Actual income
income $$ 30,000
30,000
Minimum
Minimum required
requiredreturn
return (20,000)
(20,000)
Residual
Residual income
income $$ 10,000
10,000
11-22
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Retail
Retail Wholesale
Wholesale
Operating
Operating assets
assets $$ 100,000
100,000 $$ 1,000,000
1,000,000
Required
Required rate
rate of
ofreturn
return ×× 20%
20% 20%
20%
Minimum
Minimum required
required return
return $$ 20,000
20,000 $$ 200,000
200,000
Retail
Retail Wholesale
Wholesale
Actual
Actual income
income $$ 30,000
30,000 $$ 220,000
220,000
Minimum
Minimum required
required return
return (20,000)
(20,000) (200,000)
(200,000)
Residual
Residual income
income $$ 10,000
10,000 $$ 20,000
20,000
11-35
Retail
Retail Wholesale
Wholesale
Actual
Actual income
income $$ 30,000
30,000 $$ 220,000
220,000
Minimum
Minimum required
required return
return (20,000)
(20,000) (200,000)
(200,000)
Residual
Residual income
income $$ 10,000
10,000 $$ 20,000
20,000
11-36
Learning Objective 3
Throughput Time
Throughput Time
Quick Check
AA TQM
TQM team
team at
at Narton
Narton Corp
Corp hashas recorded
recorded the
the
following
following average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days Move
Move 0.5
0.5 days
days
Inspection
Inspection 0.4
0.4 days
days Queue
Queue 9.3
9.3 days
days
Process
Process 0.2
0.2 days
days
What
What is
is the
the throughput
throughput time?
time?
a.
a. 10.4
10.4 days.
days.
b.
b. 0.2
0.2 days.
days.
c.
c. 4.1
4.1 days.
days.
d.
d. 13.4
13.4 days.
days.
11-40
Quick Check
AA TQM
TQM team
team at
at Narton
Narton Corp
Corp hashas recorded
recorded the
the
following
following average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days Move
Move 0.5
0.5 days
days
Inspection
Inspection 0.4
0.4 days
days Queue
Queue 9.3
9.3 days
days
Process
Process 0.2
0.2 days
days
What
What is
is the
the throughput
throughput time?
time?
a.
a. 10.4
10.4 days.
days.
b. 0.2 days.
Throughput days.
b. 0.2 time = Process + Inspection + Move + Queue
c.
c. 4.1
4.1 days.
days.= 0.2 days + 0.4 days + 0.5 days + 9.3 days
d.
d. 13.4
13.4 days.
days.= 10.4 days
11-41
Quick Check
AA TQM
TQM team
team at
at Narton
Narton Corp
Corp hashas recorded
recorded the
the
following
following average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days Move
Move 0.5
0.5 days
days
Inspection
Inspection 0.4
0.4 days
days Queue
Queue 9.3
9.3 days
days
Process
Process 0.2
0.2 days
days
What
What is
is the
the Manufacturing
Manufacturing Cycle
Cycle Efficiency
Efficiency
(MCE)?
(MCE)?
a.
a. 50.0%.
50.0%.
b.
b. 1.9%.
1.9%.
c.
c. 52.0%.
52.0%.
d.
d. 5.1%.
5.1%.
11-42
Quick Check
AA TQM
TQM team
team at
at Narton
Narton Corp
Corp hashas recorded
recorded the
the
following
following average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days Move
Move 0.5
0.5 days
days
Inspection
Inspection 0.4
0.4 days
days Queue
Queue 9.3
9.3 days
days
Process
Process 0.2
0.2 days
days
What
What is
is the
the Manufacturing
Manufacturing Cycle
Cycle Efficiency
Efficiency
(MCE)?
(MCE)? MCE = Value-added time ÷ Throughput time
a.
a. 50.0%.
50.0%. = Process time ÷ Throughput time
b.
b. 1.9%.
1.9%. = 0.2 days ÷ 10.4 days
c.
c. 52.0%.
52.0%. = 1.9%
d.
d. 5.1%.
5.1%.
11-43
Quick Check
AA TQM
TQM team
team at
at Narton
Narton Corp
Corp hashas recorded
recorded the
the
following
following average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days Move
Move 0.5
0.5 days
days
Inspection
Inspection 0.4
0.4 days
days Queue
Queue 9.3
9.3 days
days
Process
Process 0.2
0.2 days
days
What
What is
is the
the delivery
delivery cycle
cycle time
time (DCT)?
(DCT)?
a.
a. 0.5
0.5 days.
days.
b.
b. 0.7
0.7 days.
days.
c.
c. 13.4
13.4 days.
days.
d.
d. 10.4
10.4 days.
days.
11-44
Quick Check
AA TQM
TQM team
team at
at Narton
Narton Corp
Corp hashas recorded
recorded the
the
following
following average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days Move
Move 0.5
0.5 days
days
Inspection
Inspection 0.4
0.4 days
days Queue
Queue 9.3
9.3 days
days
Process
Process 0.2
0.2 days
days
What
What is
is the
the delivery
delivery cycle
cycle time
time (DCT)?
(DCT)?
a.
a. 0.5
0.5 days.
days.
b.
b. 0.7
0.7 days.
days. DCT = Wait time + Throughput time
c.
c. 13.4
13.4 days.
days. = 3.0 days + 10.4 days
d.
d. 10.4
10.4 days.
days. = 13.4 days
11-45
Learning Objective 4
Understand how to
construct and use a
balanced scorecard.
11-46
Financial Customer
Performance
measures
Internal Learning
business and growth
processes
11-47
Financial
Financial measures
measures are are lag
lag indicators
indicators that
that summarize
summarize
the
the results
results of
of past
past actions.
actions. Non-financial
Non-financial measures
measures are
are
leading
leading indicators
indicators of
of future
future financial
financial performance.
performance.
Top
Top managers
managers are
are ordinarily
ordinarily responsible
responsible forfor financial
financial
performance
performance measures
measures –– not
not lower
lower level
level managers.
managers.
Non-financial
Non-financial measures
measures are
are more
more likely
likely to
to be
be
understood
understood and
and controlled
controlled by
by lower
lower level
level managers.
managers.
11-49
AA personal
personal scorecard
scorecard should
should contain
contain measures
measures that
that can
can be
be
influenced
influenced by
by the
the individual
individual being
being evaluated
evaluated and
and that
that
support
support the
the measures
measures in in the
the overall
overall balanced
balanced scorecard.
scorecard.
11-50
Internal
Business Number of Time to
options available install option
Processes
Customer satisfaction
with options Satisfaction
Increases
Number of Time to
options available install option
Employee skills in
installing options
11-55
Customer satisfaction
with options Satisfaction
Increases
Number of Time to
options available install option Time
Decreases
Employee skills in
installing options
11-56
Number of Time to
options available install option
Employee skills in
installing options