Question

Complete the following exercise and provide a recommendation foreach of the four scenarios presented. There is often more than oneway to improve a performance measure. Unfortunately, some of theactions taken by managers to make their performance look better mayactually harm the organization. For example, suppose the marketingdepartment is held responsible only for increasing the performancemeasure "total revenues," Increases in total revenues may beachieved by working harder and smarter, but they can also usuallybe achieved by simply cutting prices. The increase in volume fromcutting prices almost always results in greater total revenues;however, it does not always lead to greater total profits. Thosewho design performance measurement systems need to keep in mindthat managers who are under pressure to perform may take actions toimprove performance measures that have negative consequenceselsewhere. For each of the following situations, describe actionsthat managers might take to show improvement in the performancemeasure but which do not actually lead to improvement in theorganization's overall performance.

Concerned with the slow rate at which new products are brought tomarket, top management of a consumer electronics company introducesa new performance measure--speed-to-market. The research anddevelopment department is given responsibility for this performancemeasure, which measures the average amount of time a product is indevelopment before it is released to the market for sale.
The CEO of a telephone company has been under public pressure fromcity officials to fix the large number of public pay phones that donot work. The company's repair people complain that the problem isvandalism and damage caused by theft of coins from coinboxes--particularly in high-crime areas in the city. The CEO saysshe wants the problem solved and has pledged to city officials thatthere will be substantial improvement by the end of the year. Toensure that this is done, she makes the managers in charge ofinstalling and maintaining pay phones responsible for increasingthe percentage of public pay phones that are fullyfunctional.
A manufacturing company has been plagued by the chronic failure toship orders to customers by the promised date. To solve thisproblem, the production manager has been given the responsibilityof increasing the percentage of orders shipped on time. When acustomer calls in an order, the production manager and the customeragree to a delivery date. If the order is not completed by thatdate, it is counted as a late shipment.
Concerned with the productivity of employees, the board ofdirectors of a large multinational corporation has dictated thatthe manager of each subsidiary will be held responsible forincreasing the revenue per employee of his or her subsidiary.