Chapter 18 – Management Control and Strategic Performance Measurement
Suggested Answer:
The balanced scorecard was originally designed as a performance diagnostic system that
supplements financial numbers with nonfinancial indicators expected to be drivers of
Advantages of the BSC include:
The BSC clarifies, updates, and communicates strategy.
Disadvantages of the BSC include:
Self-maximizing individuals sacrifice long-term firm benefits.
Implementation failures are common.
IFS likely switched to the BSC in order to take advantage of the benefits listed above.
The company’s previous focus on branch earnings ignored many of the important measures of a
branch’s success, namely customer satisfaction. In theory, the switch to the BSC is a smart
II. Learning Objective: Identification of guidelines
Students should be able to identify the relevant accounting standards or guidelines that can be
used to guide their decisions and how actions they take in their jobs might contradict these
standards.
Suggested Question:
Review and summarize the IMA’s Statement of Ethical Professional Practice. Using the
Statement, identify the potential conflicts Mary faces in this situation.
Suggested Answers:
Confidentiality: Will Mary violate the confidentiality standard if she made the
competence standard if she doesn’t object to Michael’s reporting, which she believes
Chapter 18 – Management Control and Strategic Performance Measurement
is inaccurate?
Credibility: The credibility standard binds IMA members to “communicate
III. Learning Objective: Recognition and evaluation of ethical situations.
Students should recognize that ethical dilemmas have no right or wrong answer and that they
must be able to identify the possible courses of action, outcomes, and consequences before
selecting their “best” solution.
Suggested Questions:
1. What are the possible courses of action Mary can follow? What are the potential
consequences of each course of action, and who are the affected parties?
2. What course of action should Mary follow? Defend your answer.
Possible Solutions:
• Mary can go along with her current boss, Michael. All of the current branch
employees who fall under the bonus plan, including Mary and Karl, will receive
smaller bonuses for this year, if any. Assuming that the branch does well in the
upcoming year, the current employees will receive bonuses next year because the
bonus he will receive. If the knowledge of this action gets out, Mary is likely to suffer
detrimental consequences. She may be viewed as untrustworthy or a “tattletale.”
Note: Students may select any of the above or another solution, with the appropriate
defense, as their suggested course of action.
Potential Additions to the Assignment Questions:
1. Does it make a difference that IFS is a multinational public company? Would you
change your selected solution if the company was private?
2. Are the dollar values of the bonuses relevant? Would you make a different
determination if there were no employee bonuses involved?
3. Would you recommend that IFS modify its performance measurement system? Why
and how?
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Chapter 18 – Management Control and Strategic Performance Measurement
Teaching Strategies for Readings
18-1 Implementing Sustainability: The Role of Leadership and Organizational Culture
The project upon which the article is based is a research project funded by the Institute of Management
Accountants (IMA). Suggested solutions for each of the discussion questions follow:
1. What is the difference between local and corporate decision making, and what is the significance
of the difference for sustainability?
In the article, Epstein et. al. refer to local versus corporate decision making. Local decision making is
done at the level of business units, geographical units (such as the State of Ohio), or facilities. The
corporate level is at the company headquarters. The difference is important because, as the article
Corporate decisions have a significant impact in these large scale decisions, while local decisions have an
important cumulative impact of supporting sustainability goals day by day.
2. Study the Corporate Sustainability Model in Figure 1. Based on this study, do you think
sustainability should be managed by means of a cost center, profit center, the balanced scorecard,
or some other method, and why?
Each of these options could be supported in some ways. The cost center would be appropriate for an
organization that is managing its sustainability program as a management function, much like other
management functions such as legal, accounting, or human resources. In this case, the cost center is
likely to be a discretionary cost center in which the processes of the center are well identified and
profits; these financial measures could simply be part of the scorecard along with the environmental and
other sustainability measures.
3. Identify two of the leading companies in the area of sustainability and explain why you think
each of these companies has chosen to take a leadership role in sustainability.
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Chapter 18 – Management Control and Strategic Performance Measurement
The article identifies four companies: Nike, Procter & Gamble (P&G), The Home Depot and Nissan. The
articles notes that these companies have a reputation for leadership in sustainability and therefore the
At The Home Depot and Nissan, sustainability was top-down, driven by strategic planning, coordinated
with the business units, with the goal of both corporate responsibility and cost reduction.
4. Review Exhibit 18.4 in the text. Do you think sustainability is best managed as part of an
informal or a formal type of management control system? Briefly explain your answer.
The article notes that, for the companies studied, individual leadership and corporate culture played a key
5. Explain briefly the role of leadership in sustainability management.
Leadership is critical, as noted in the article. Setting a clear tone and policy at the corporate level can
6. Explain briefly the role of organization culture in sustainability management.
The company’s culture, throughout the organization also plays a critical role in achieving the company’s
sustainability objectives. At Home Depot for example, the culture of willingness to take a risk and the
culture in which sustainability is achieved and rewarded.
Additional Source: See also an excellent coverage of sustainability at P&G in the article by Cristiano
Busco, Mark. L. Frigo, Emilia L. Leone, and Angelo Riccaboni, “Cleaning Up,” Strategic Finance, July
2010, pp. 29-37.
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Chapter 18 – Management Control and Strategic Performance Measurement
18-2 Strategy Maps
This article expands Kaplan’s and Norton’s earlier work on the balanced scorecard and strategy maps (see
Article 18-1 above) to the concepts of customer value propositions and the use of the strategy map to
identify how the balanced scorecard can be used to facilitate achieving the desired value proposition.
Discussion Questions:
1. To achieve desired financial goals the organization focuses on which two levers of success?
revenue growth and productivity
2. What are the three strategic approaches through which a company can attempt to create sustainable
value for the shareholder?
3. What are the four customer value propositions that a company can use to succeed?
low total cost
some would view for example Microsoft as a company that competes on the basis of system
lock-in
4. What are the characteristics of firms that compete on the basis of the four customer value propositions
identified above?
These characteristics are identified in Figure 1 (see below):
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5. What are the four clusters of internal processes through which a company can succeed on the internal
business value proposition:
operations management
these clusters are illustrated in Figure 2 in the article.
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Chapter 18 – Management Control and Strategic Performance Measurement
6. What are the three components of the firm’s use of learning and innovation as a value proposition?
human capital
these components are illustrated in Figure 3 in the article
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Chapter 18 – Management Control and Strategic Performance Measurement
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Chapter 18 – Management Control and Strategic Performance Measurement
18-3 Evaluating General Managers’ Performances
The article provides a very useful summary of the different measure of performance for general
managers and of the advantages and disadvantages of each measure, relative to a list of key
performance evaluation criteria
Discussion Questions
1. What are the key alternative measures of performance for general managers?
Market measures
Financial measures
Nonfinancial measures, usually in the form of a balanced scorecard
2. What are the key criteria for evaluating each of the performance measures? Explain each briefly.
Congruence with the organization’s objectives.
Controllable by the unit manager
Cost effective, the cost of producing the measure compares well the value of its use.
3. How do the alternative measures rank based on the criteria listed in part 2?
See Table 1 below from the article: