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Pedagogy
This case illustrates the tensions that emerge when the performance
measurement system is expanded to include measures beyond financial results.
Strategy and structure
Before discussing James’ performance, it is a good idea to describe the strategy
Citibank’s strategy can be described as: “build a profitable franchise by
* Careful personal attention and
* A broad selection of financial products.
Exhibit TN-1 presents the relevant organizational structure.
Performance evaluation
After this brief introduction, the discussion can shift to evaluation of James’
The discussion can start with the following question: “How would you have
rated James’ performance before the Performance Scorecard was used?”
Undoubtedly, his financials are impressive and it is very likely that he would
Next, the instructor can ask, “How do you rate James’ performance in each of
the five perspectives of Citibank’s performance scorecard?”
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In answering this question, the instructor should leave customer satisfaction
until the other five perspectives have been discussed. Most students will agree
that he deserves an above par rating in all of the perspectives (except for
In the financial perspective he was impressive: 16% over budget [for revenue]
In strategy implementation he was above par in all quarters but one (the first
one). This is the only other perspective where some students may argue that the
In control he has been rated above par in all rated quarters.
In people, where Lisa has discretion to judge performance, James received an
above par in every single quarter.
Same for standards, were Lisa again showed her appreciation for James’ work.
While students discuss the various measures and dimensions of the
performance scorecard, it is helpful to build Exhibit TN-2 on one of the
Certainly, leaving aside customer satisfaction, James would have gotten an
above par rating and full bonus as he did in previous years. But:
“How did James perform in terms of customer satisfaction?” (see Exhibit TN-
3).
His quarterly scores (66, 63, 54, and 72) are below the targets defined for this
performance dimension and, therefore, he should receive a “below par” rating.
Chapter 9: Behavioral and Organizational Issues in Management Accounting and Control Systems
In favor of a “Below Par” rating
In favor of a “Par” rating
* Emphasizes Citibank’
strategy.
* He became branch manager in
1992 and he is still producing
good results => the measure may
not be a leading indicator.
* Customer satisfaction is a
leading indicator of
performance and represents the
business model. A bad rating
will be reflected in financials
sooner or later.
* The measure is not good
because only 25 customers per
quarter does not represent the
population. In addition, there is a
selection bias because only
customers that visited the branch
were eligible for the interview.
* It focuses his attention and
that of the rest of the division
on the importance of customer
satisfaction to fulfill the
intended strategy.
* James’ segment is more
demanding and therefore he
should get a lower rating.
* Customers answering the
survey are also judging services
not controlled by James.
* Too much emphasis on
customer satisfaction may force a
wrong asset allocation by James.
He may overinvest in customer
satisfaction.
The main arguments against customer satisfaction are:
It does not necessarily reflect strategy (i.e., it is not a leading indicator).
The measure is unreliable because using 25 customers per quarter does not
have enough precision or because people answering the survey are a biased
sample. It is very unlikely (in terms of probabilities) that he got four bad
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Related to the previous argument, some students may argue that the
questionnaire is badly designed. Usually, if questioned, the student means
The measure includes things that are not controllable by James like ATM
and phone banking. Students feel very strongly about this issue as they see
it unfair. However, every branch gets the same ATM and phone banking
service and it is likely that some offices are above par in customer
satisfaction. Blaming ATM and telephone banking is also a handy “excuse”
for James. An additional reason to dismiss this argument is that any measure
Finally, the standard for James should be different because his customers
are more demanding.
The conclusion of the above discussion is that customer satisfaction may not be
a perfect measure but this argument is valid for any measure that we can think
says.
Target setting
The last criticism on customer satisfaction (point 5 above) rises the interesting
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“How are targets decided?”
The process begins when Frits Seegers and area managers negotiate targets for
the division as a whole and for each area in particular. Control and customer
Some students may argue: “the customer satisfaction target is common to
everybody and it should not be so.” Others will counter: “Why should James
Therefore, it seems that changing targets is not a good idea.
The Design of the Performance Scorecard
The primary purpose of a performance scorecard is to communicate a particular
Therefore, defining a specific performance scorecard and linking rewards to the
accomplishment of the specified measures (diagnostic system) is appropriate
Building on the previous point, the instructor can go back to Exhibit TN-2 and
Linked to this process, there is a shift of decision rights from branch officers to
top managers. When the only performance indicators were financial measures,
The instructor could reinforce this discussion with the following questions:
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“What would happen if financials were good but non-financial measures (for
James’ performance evaluation
At this point in the class, the instructor may choose to take a vote. Usually, the
What are the pros and cons of giving him either of these two ratings?:
“Par”
“Below Par”
* Rewards James’ effort.
Allows him to receive maximum
bonus.
* Gives credibility to new
system, otherwise it is
undermined.
* It is what James would have
received in previous years.
* Communicates the importance
of customer satisfaction to the
rest of the organization.
* It is easier to communicate.
* Systems should be flexible to
adapt to exceptions.
* We keep James’s motivation
up. In the worst case, he may
resign if he feels that the new
system has penalized his best
efforts.
The problem facing Lisa and Frits is typical of a subjective performance
evaluation system. These systems have the advantage of being flexible to adapt
to special cases like James’ case and take into account information that
objective performance evaluation may not include. But, these systems have
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Conclusion
The above class outline is more than enough for a 75 minutes discussion and it
points out the most interesting learning points in the case. But the case is still
richer than what has been described up to now and the instructor can explore
two additional questions: