Chapter 18 – Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard
18-64 Research Assignment; Sustainability (45 min)
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
suggests, many sustainability-related decisions are made at the local level
where managers in day-to-day operations make trade-off between
environmental issues, speed of operations, cost, and other aspects of their
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? (Figure 1is shown on the following page.)
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Chapter 18 – Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard
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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
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Chapter 18 – Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard
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A profit center approach would recognize that, as many companies have
discovered, the efforts to improve sustainability have a positive impact on
profitability. In this case, a variation of the cost center, the processes of
the center are carefully defined. The difference is that the sustainability
measurable operational improvements. The role of the BSC is to track
progress on these goals, so that managers can promptly and effectively
move their operational processes in the direction of greater sustainability.
The BSC approach can also incorporate costs and profits; these financial
measures could simply be part of the scorecard along with the
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.
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 authors chose
these companies for the research in this IMA research project. At Nike, the
strategic planning, coordinated with the business units, with the goal of
both corporate responsibility and cost reduction.
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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
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 reduce conflicts and miscommunication at
companies studied.
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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 passion for
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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