Chapter 1 – Cost Management and Strategy
1.3 POGS at the Park, POGS at home: C-ing Business Expansion Opportunities
This article explains the competitive environment for a minor league baseball team. An innovative
manager of the team uses strategic cost management concepts for achieving greater profitability.
Discussion Questions
1. Explain whether Greg uses a cost leadership or a differentiation strategy, and why. How does his plan
for the POG oven initiative fit with this strategy?
The Pikesville Lightning team is best described as a differentiator. The special elements Greg uses to
promote the team, as illustrated in Table 1, are a good example of how the team differentiates itself not
only as a minor league baseball team, but also as a competitor for other types of family entertainment.
2. Use the C-Framework in Figure 1 to outline your advice to Greg for improving the strategic financial
management function. Be sure to discuss how your advice will assist the organization in achieving Greg’s
goals.
The CFO Framework in Figure 1 is a useful summary of the many ways in which the accounting function,
as represented here by the CFO (Chief Financial Officer), supports the success of the firm. The CFO
levers and Company levers can be compared to the 13 contemporary management techniques described in
the chapter. Each of these “levers” helps the team achieve success by helping the team to identify and
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1-4 Leading with Your Soul
This article focuses on ethical leadership. Today’s business environment is not often conducive to ethical
practices. The author points out that everyday ethics do not differ from business ethics, although the
hindrances to ethical practices in the business world are many. An in-depth examination of the
Comprehensive Ethical Leadership ModelTM explains the six ethical leadership traits. These traits are
given in the article and then a discussion of applying the traits follows.
Discussion Questions:
1. What are some of the main reasons, according to the article, that professionals struggle with ethics in
the professional world today?
2. In looking at the example of a CFO who overworks his or her employees due to financial and
performance pressures, what are the main deterrents for this CFO to act ethically?
The hindrances to ethical actions can be summarized as:
1. Professional and social pressures,
3. How do the four-dimensions of a person contribute to ethical behavior?
“The fundamental reality is human beings are not things needing to be motivated and controlled; they
are four-dimensional—body, mind, heart, and spirit.” Stephen Covey (renowned author of time
management books and the book on “Seven Habits”), writing in the Summer 2006 issue of Leader to
Leader, conveyed the message of respect for individuals as complete human beings, recognizing
4. What are the six ethical leadership traits?
1. Purpose driven
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1-5 Seven Habits
This article points out that the role of CFOs today is multi-faceted and not as specialized as it used to be.
CFOs play an especially important role in forming the strategies of companies. This excerpt walks the
reader through seven critical steps: setting clear expectations for each business line, using synergies
across portfolios, the tradeoff between cost-savings and customer loyalty, what to do in downturn
business cycle and honing in on key growth opportunities.
Discussion Questions:
1. Describe how CFOs today are different from CFOs in the past.
In this charged environment, many CFOs have had to evolve from specialists in accounting to
generalists in growth. Chief financial officers were once specialists in accounting and maybe taxes and
2. What does it mean to grow a business organically and how does that contribute to managing to the
portfolio?
In addition to managing diverse business lines, another dimension of managing to the portfolio involves
growing the company organically, from the inside out, by extending and adding capabilities to the core
3. What are the seven habits of strategic CEOs?
1. Take a seat at the strategy table
2. Define and manage return expectations
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1-6 Test Your Ethical Judgment
This reading provides you with the opportunity to use scenarios from the WorldCom accounting standards
in 2001 to test your own response to ethical issues. It also provides recommended solutions to each
instance presented.
Discussion Questions:
1 Recommended solutions for 14 cases:
All 14 scenarios are taken directly from WorldCom activities occurring during 2001.While the WorldCom scandal
has many more facets to it than can be presented in a few short scenarios, these scenarios are indicative of both the
work environment at WorldCom and the types of accounting fraud that occurred.
While 2001 is quickly becoming a distant memory, we must never forget the lessons learned. Fraud at WorldCom—
along with Enron and others—brought our stock market prices down, tarnished the reputations of all accountants,
felled a global accounting firm that was once known as the “gold standard” of accounting firms, revealed gaping
flaws in U.S. Generally Accepted Accounting Principles (GAAP), and eventually brought about the rise in
International Financial Reporting Standards (IFRS). In short, it changed our world.
The information in the scenarios and in some of the suggested solutions comes from published information listed in
the References sidebar. Each answer below is keyed to the corresponding reference number so you can look up
further information if you want. The references are to the reference list at the end of the article.
ANSWER to 1: C. A certain amount of stock market
pressure is to be expected, but the additional pressure
from a CEO whose financial security is precariously
dependent on keeping the stock price stable is very troubling. Clearly, ethical tension is both evident here and
improper. Intense pressure can distort people’s objectivity and erode their integrity. Ref. 1, 4
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ANSWER to 3: D. This scenario goes well beyond an issue of confidentiality. Employees need full access to the
information necessary to make competent decisions related to their positions. Denial of proper access appears to
indicate that something is being hidden. Ref. 1
ANSWER to 7: A. Estimates are involved with many adjusting entries.
communication lines that customers use to connect conversing parties; the lines aren’t owned by WorldCom).
Supporting documentation ensures objectivity; fairness requires
the financials to reflect actual operations and not just
budgeted targets. Ref. 1
Honesty is at issue here given the assumption that lack of competency isn’t the cause. Again, the WorldCom
counterpart to this scenario deals with line costs. Ref. 1
was indeed appropriate, but nothing else he did was proper. As a consequence of his actions and inactions at
WorldCom, Troy Normand pleaded guilty to conspiracy and securities fraud. He wasn’t alone.
The CFO, Scott Sullivan, pleaded guilty to three counts of securities fraud and is spending five years in jail. Ref. 3,
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pleading guilty to securities fraud, conspiracy to commit securities fraud, and false filings. His competence was
never questioned. He clearly knew right from wrong, yet he still chose the fraudulent path. Ref. 1
CEO of WorldCom, was convicted of fraud for knowingly misleading the public in its SEC filings and was
sentenced to 25 years in jail. Ref. 1
ANSWER to 13: E. It is clearly fraudulent to book a
gain contingency. Ref. 1
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When this situation continues, the accounting records become virtually unauditable, and the integrity of the
accounting system is in question.
2 When do accountants usually face ethical dilemmas and what is the best way to deal with these
issues?
As accountants, we typically don’t face ethical dilemmas on a daily basis. Instead, the dilemmas tend
3 What effect did the WorldCom incident in 2001 have on our world?
Fraud at WorldCom—along with Enron and others—brought our stock market prices down, tarnished
the reputations of all accountants, felled a global accounting firm that was once known as the “gold
1.7 Managing the Strategic Finance Gap
This article provides the results of a survey done by Loudhouse, a London based research organization that focuses
on the tech sector. The survey includes over 300 finance professional participants. The findings show how these
financial professionals think their responsibilities will change over the coming years and how they expect to respond
to these changes.
Discussion Questions:
1. How do the finance professionals see the role of finance changing? How do the survey
results suggest that the finance professional should adapt to these changes?
The survey found that 74% of the financial professionals expected increased responsibility for
strategic decision making. The survey results suggest that finance professinals can adapte to the
new role of financial professionals by:
2. What does the author see as the strategic challenge for finance, and what does the author
propose as a solution to the challenge?
The author sees the strategic challenge for the finance professional to be able to develop better
relationships with and to communicate more effectively with nonfinancial managers in the
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