Management control systems performance measurement evaluation and incentives 3rd by merchant

Management control systems performance measurement evaluation and incentives 3rd by merchant Management control systems performance measurement evaluation and incentives 3rd by merchant Management control systems performance measurement evaluation and incentives 3rd by merchant Management control systems performance measurement evaluation and incentives 3rd by merchant Management control systems performance measurement evaluation and incentives 3rd by merchant

Third Edition MANAGEMENT CONTROL SYSTEMS Performance Measurement, Evaluation and Incentives Kenneth A Merchant Wim A Van der Stede MANAGEMENT CONTROL SYSTEMS We work with leading authors to develop the strongest educational materials in management, bringing cutting-edge thinking and best learning practice to a global market Under a range of well-known imprints, including Financial Times Prentice Hall we craft high quality print and electronic publications which help readers to understand and apply their content, whether studying or at work To find out more about the complete range of our publishing, please visit us on the World Wide Web at: www.pearson.com/uk MANAGEMENT CONTROL SYSTEMS Performance Measurement, Evaluation and Incentives Third Edition Kenneth A Merchant University of Southern California Wim A Van der Stede London School of Economics Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearson.com/uk First published 2003 Second edition published 2007 Third edition published 2012 © Pearson Education Limited 2003, 2007, 2012 The rights of Kenneth A Merchant and Wim A Van der Stede to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, –10 Kirby Street, London EC1N 8TS Permission requests to use Harvard citations: permissions requests to use individual Harvard copyrighted cases should be directed to the Permissions Editor, Harvard Business School Publishing, Boston, MA 02163, USA Case material of the Harvard Graduate School of Business Administration is made possible by the cooperation of business firms and other organizations which may wish to remain anonymous by having names, quantities, and other identifying details disguised while maintaining basic relationships Cases are prepared as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation The copyright on each case, unless otherwise stated, is held by the President and Fellows of Harvard College and by other institutions and individuals and they are published herein by express permission ISBN: 978-0-273-73761-2 ( Print) ISBN: 978-1-292-14942-4 ( PDF) British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for this book is available from the Library of Congress 10 15 14 13 12 Typeset in 10.5/12pt Times by 35 Printed and bound in Great Britain by Ashford Colour Press Ltd, Gosport, Hampshire TO OUR FAMILIES Gail, Abbidee, Madelyn (KM) Ashley, Emma, Erin (WVDS) This page is intentionally left blank BRIEF CONTENTS Preface Acknowledgements xii xv Section I THE CONTROL FUNCTION OF MANAGEMENT Management and Control Section II MANAGEMENT CONTROL ALTERNATIVES AND THEIR EFFECTS 29 Results Controls Action, Personnel, and Cultural Controls 81 Control System Tightness 123 Control System Costs 186 Designing and Evaluating Management 209 Control Systems Section III FINANCIAL RESULTS CONTROL SYSTEMS Financial Responsibility Centers Planning and Budgeting Incentive Systems 261 306 367 Section IV PERFORMANCE MEASUREMENT ISSUES AND THEIR EFFECTS 10 Financial Performance Measures and their Effects 413 11 Remedies to the Myopia Problem 12 Using Financial Results Controls in the Presence of Uncontrollable Factors 445 503 Section V CORPORATE GOVERNANCE, IMPORTANT CONTROL-RELATED ROLES, AND ETHICS 13 Corporate Governance and Boards of Directors 14 Controllers and Auditors 15 Management Control-Related Ethical Issues 553 617 656 Section VI SITUATIONAL INFLUENCES ON MANAGEMENT CONTROL SYSTEMS 16 The Effects of Environmental Uncertainty, Organizational Strategy, and Multinationality on Management Control Systems 17 Management Control in Not-for-profit Organizations Index 685 740 801 Supporting resources Visit www.pearsoned.co.uk/merchant to find valuable online resources: For instructors ● A complete, downloadable Instructor’s Manual ● PowerPoint slides that can be downloaded and used for presentations For more information please contact your local Pearson Education sales representative or visit www.pearsoned.co.uk/merchant CONTENTS Preface Acknowledgements xii xv Section I THE CONTROL FUNCTION OF MANAGEMENT Management and Control Management and control Causes of management control problems Characteristics of good management control Control problem avoidance Control alternatives Outline of this book Notes Leo’s Four-Plex Theater Wong’s Pharmacy Private Fitness, Inc Atlanta Home Loan 10 12 13 16 17 18 19 20 20 22 Section II MANAGEMENT CONTROL ALTERNATIVES AND THEIR EFFECTS Results Controls 29 Prevalence of results controls Results controls and the control problems Elements of results controls Conditions determining the effectiveness of results controls Conclusion Notes Armco, Inc.: Midwestern Steel Division Loctite Company de México, S.A de C.V Puente Hills Toyota Houston Fearless 76, Inc 30 32 33 Action, Personnel, and Cultural Controls 81 Action controls Action controls and the control problems 81 84 36 40 40 41 55 61 74 Prevention versus detection Conditions determining the effectiveness of action controls Personnel controls Cultural controls Personnel/cultural controls and the control problems Effectiveness of personnel/cultural controls Conclusion Notes The Platinum Pointe Land Deal Axeon N.V Alcon Laboratories, Inc 85 94 95 95 96 98 105 112 Control System Tightness 123 Tight results control Tight action controls Tight personnel/cultural controls Conclusion Notes Controls at the Bellagio Casino Resort The Lincoln Electric Company PCL: A Breakdown in the Enforcement of Management Control 123 126 130 131 133 134 160 Control System Costs 186 Direct costs Indirect costs Conclusion Notes Philip Anderson Sunshine Fashion: Fraud, Theft, and Misbehavior Among Employees Fit Food, Inc 186 186 195 196 197 86 88 90 181 199 203 Designing and Evaluating Management Control Systems 209 What is desired? and What is likely? Choice of controls Choice of control tightness 209 209 215 ix www.downloadslide.com INDEX Abbey National 94 accountability of employees (controllability principle) 37, 503, 504 –5, 508 – of governmental organizations 742, 743 of not-for-profit organizations 742, 743, 744 –5 action accountability 83 – 4, 85, 87, 128 –30, 213 accounting depreciation 430 –1, 451, 744 fund 744 –5 market value 451 mark-to-market 451 accounting measures 413, 414, 417–19 financial reporting 581–2, 632 – 4, 744 –5, 746 improving 451 return-on-investment 421– 6, 428 – see also financial performance measures; profits accounting procedures at AirTex Aviation 248 – 9, 251–2 accounting rules/standards 417, 420, 451 and earnings management 665 for not-for-profit organizations 744 –5 Ace Hardware 12 achievability of targets 312 –17 action accountability 83 – 4, 85, 87, 128 –30, 213 action controls 81–8 advantages/disadvantages of 212 –14 behavioral constraints 81–3, 84, 85, 86 –7, 126 –7 and behavioral displacement 188 – 9, 212 completeness of 128 and congruence 128, 188 and the control problem 84 –5 cost of 214 and creativity/innovation 212 –13 definitions of actions 128 – effectiveness of 86 – and environmental uncertainty 686 loose controls 129 and negative attitudes 194 –5, 213 –14 and planning and budgeting 306 and sloppiness 213 specificity 128 tight controls 126 – 30 understandability of 88, 128 action reinforcement 129 –30 action tracking 83, 84, 87, 88, 128, 129 activity elimination 13 –14 acts of nature 506 –7 adapting to change 217 administrative constraints 82, 126 –7 administrative costs, managerial assignment of 509 administrative productivity at Lincoln Electric 170 –1 Advanced Technologies Corporation (ATC) 670 airline industry 129 –30, 430 –1, 453 AirTex Aviation 246 –58 Alcoa 30, 31 Alcon Laboratories, Inc 112 – 22 Altman Industries, Inc 670 –1 Ambition-to-Action (Statoil) 487– 94 Anglo-American corporate governance 553, 554 annual incentive plans 371– anomalies in market valuation 416 Apple Computer, Inc 93, 218, 558 – 60 Archibald, Nolan 367 Armco, Inc 41–54 arm’s length transfer pricing 270, 273 artificial intelligence 14 Association of Certified Fraud Examiners 11 asymmetry of information 190, 311, 686, 688 – 9, 696 Atlanta Home Loan 22– at-risk pay/compensation 198, 242, 359, 378 – attitudes see behavior; negative attitudes attribution theory 514 audit committees 563 –5 audits 621– of Apple Computer, Inc 560 at Bellagio Casino Resort 142 –3 country-specific regulations for 692 at Desktop Solutions, Inc 634 – 43 external 622 at Fit Food, Inc 203, 205, 206, 207 internal 622 –3, 635 – judgment in 622 process/procedure 143 – 4, 621– and Sarbanes-Oxley Act 555 types of 623 – value of 624 – Austin, Douglas 562 801 www.downloadslide.com Index automation 14 –15 automobile manufacturers 188 – autonomy 36, 40, 89, 193, 214, 215, 218 Axeon N.V 105 –12 balanced scorecards 452 – at Boston Lyric Opera 772 –7 at First Commonwealth Financial 467–71 at Kooistra Autogroep 734 at Southern California Edison 519 Ballmer, Steve (Microsoft) 416 Bank of America (BofA) 194, 381 Bank of Scotland – Corporate 8, Bank of the Desert 543 –50 bargaining power and transfer pricing 272 Barings Bank base salaries 369, 379, 384 Bausch & Lomb 125, 191– Bear Stearns 83 behavior –12 constraints on 81–3, 84, 85, 86 –7, 126 –7 detecting/preventing undesirable 85 reasons for unethical 661–2 rigid/nonadaptive 188 – self-interested 10 behavioral displacement (cost) 187– and action controls 188 – 9, 212 behavioral focus 217 Beifang Chuang Ye Vehicle Group 527– Bellagio Casino Resort 134 –59 benchmarking 312 Berkshire Industries PLC 439 – 44 “beyond budgeting” management 319 – 20 best-guess performance targets 190, 215, 312 bias in measurement 38 Billings Scorecard (Game Shop, Inc.) 229, 232 –3 Black, Virginia (South Bend Tribune) 213 –14 Black & Decker 376 blackjack dealers at Bellagio Casino Resort 137– boards of directors 561–3 legal composition of 555 of not-for-profit organizations 743, 745, 747, 777– Boeing 30, 506, 667 Bogsnes, Bjarte (Statoil) 487–94 Boman, Par (Svenska Handelsbanken) 382 Bonnaroo Festival 264 bonuses 371–3 at Bellagio Casino Resort 144 claw-back of 381 at Harwood Medical Instruments PLC 386 –7 at Houston Fearless 76, Inc 78, 79 Boreham, Peter (Hay Group) 381 802 Boston Lyric Opera 770 – 85 bottom-up planning and budgeting 317 BP 14, 369, 503 Bratton, William J 35 bribes 4, 32, 87 Browning-Ferris Industries 34 Brownstein Group 210 –11 budgeting see planning and budgeting Buffett, Warren 657 bug count as measure 187 bureaucratic organizations 188, 189, 193 business judgment rule 561 business models and balanced scorecards 455 – and financial responsibility centers 268 business risk 505, 693 business strategy 689 – 90 at ConAgra Grocery Products Company 700 Buttner, Jean Bernhard (Value Line) 195 Cadbury Committee 553 capital budgeting 308 – capitalization of investments 451 caps on incentive payments 378 Carrefour 32 case studies xiii, xiv–xv Advanced Technologies Corporation (ATC) 670 airline depreciation accounting 430 –1 AirTex Aviation 246 –58 Alcon Laboratories, Inc 112 –22 Altman Industries, Inc 670 –1 Armco, Inc 41– 54 Atlanta Home Loan 22 – Axeon N.V 105 –12 Bank of the Desert 543 –50 Beifang Chuang Ye Vehicle Group 527– Bellagio Casino Resort 134 –59 Berkshire Industries PLC 439 – 44 Boston Lyric Opera 770 – 85 budget targets 670 Catalytic Solutions, Inc 458 – 65 Central Maine State University (CMSU) 671– Citibank Indonesia 323 – ConAgra Grocery Products 698 – 708 conservative accounting 670 –1 Consolidated Furniture Corporation (CFC) 673 Desktop Solutions, Inc 634 – 45 Diagnostic Products Corporation 220 – Eastern Technologies, Inc (ETT) 627–34 Entropic Communications, Inc 590 – 604 expiring software licenses 674 Family Care Specialists Medical Group, Inc 239 – 45 www.downloadslide.com Index case studies (continued ) First Commonwealth Financial Corporation 466 – 86 Fit Food, Inc 203 – Formosa Plastics Group 536 – 43 Game Shop, Inc 229 –38 Global Investors, Inc 295 –305 golden parachutes 574 –7 Haengbok Bancorp 437– Harwood Medical Instruments PLC (HMI) 386 –7 HCC Industries 329 – 40 Hoffman Discount Drugs, Inc 529 –35 Houston Fearless 76, Inc 74 – 80 Industrial Electronics, Inc 435 – Kooistra Autogroep 732 –9 Kranworth Chair Corporation 275 – 82 Landale PLC 646 –55 Las Ferreterías de México 432 –5 Leo’s Four-Plex Theater 19 – 20 Lernout & Hauspie Speech Products 675 – 81 Lincoln Electric 32, 132, 160 – 80, 709 – 25 Loctite Company de México 55 – 61 Molex, Inc 605 –16 Olympic Car Wash 517 Pacific Sunwear of California, Inc 578 – 89 Patagonia, Inc 341–54 PCL Consumer Electronics 181–5 Philip Anderson 197– Platinum Pointe land deal 98 –105 Private Fitness, Inc 20 –2 Puente Hills Toyota 61–73 Raven Capital, LLC 402 –10 Responsibility Center Management System 786 –800 Robinson Brothers Homes (RBH) 98 –105 Sales Acceleration Program 673 Statoil 487–502 Sunshine Fashion 199 –202 Superconductor Technologies, Inc 388 – 96 TECO Electric & Machinery Co Ltd 725 –31 Toyota Motor Sales USA, Inc 283 – 92 Tsinghua Tongfang Co Ltd 397– 402 University of Southern California (USC) 786 – 800 Vector Aeromotive Corporation 567–74 VisuSon, Inc 355 – 66 Waikerie Co-Operative Producers Ltd 761– Wong’s Pharmacy 20 Yorba Linda 750 – 60 Zumwald AG 293 – cash and credit management/controls at AirTex Aviation 250 –1 at Bellagio Casino Resort 138 – 40, 155 cash flow, discounted 308, 450 Catalytic Solutions, Inc 458 – 65 causal chain and performance measures 454 Cendant Corporation 129 Central Maine State University (CMSU) 671– centralization 15 certification of annual statements 559, 581– Chandler, Richard H 31 change, adapting to 217 channel stuffing 191, 420 charities 130, 740, 741, 745, 747 Chaudhri, Fazal (Exelco) 617 checklists for accountability 83 chief executive officers (CEOs) 561, 564 chief financial officers (CFOs) 564, 617 at Eastern Technologies, Inc (ETT) 627–34 China consumer electronics in 181– corruption in 32 incentives/controls in 367, 397 as market 181– 2, 199 – 201 Cho, Fujio (Toyota Motor Corporation) 193 churning accounts and commissions 187 Citibank Indonesia 323 – Citigroup 127– claw-back of bonuses 381 cloud computing 14, 660 Coca-Cola 30, 375 – codes of conduct 90 – 2, 657, 660 collusion between employees 82, 127 combinations of controls in service sector 687– combinations of measures 413 systems to remedy myopia 452 – commissions and churning accounts 187 at Houston Fearless 76, Inc 78 – commitment to targets 314 company growth patterns and risk 693 compensation committees 565 compensation systems at Catalytic Solutions, Inc 460 – at Diagnostic Products Corporation 222 – at Family Care Specialists Medical Group 241– at Lincoln Electric 163 – 4, 710 –11, 718 –19 at Loctite Company de México 57– and negative attitudes 194 at Patagonia, Inc 344 pay-for-performance 29 –30, 378 – 9, 735 – 6, 743 at Raven Capital, LLC 405 – at Southern California Edison 519 – 20 at Superconductor Technologies, Inc 389 – 91 at TECO Electric & Machinery Co Ltd 727– see also incentive systems competence, promotion above 12 803 www.downloadslide.com Index competitive factors and uncontrollability 505 – competitive strategy 688, 689 – 90 complete profit centers 266 completeness of controls 125, 128 compliance audits 624 compliance controls computer programmers and behavioral displacement 187 ConAgra Grocery Products 698 –708 congruence 33, 37 and accounting measures 417, 418 and action controls 128, 188 and combinations of measures 454 and market measures 415, 416 and not-for-profit sector 33 and results controls 123 – 4, 187 consequentialism ethical model 658 – conservative accounting 670 –1 Consolidated Furniture Corporation (CFC) 673 Continental Airlines 189 contingency logic 690 contingency planning/exercises 317, 512 control at AirTex Aviation 249 –50 good 12, 13, 218 control alternatives 16 –17 control deficiency (Sarbanes-Oxley Act) 558 control indicators, flawed/“too good” 665 –7 control loss 13 control problem and action controls 84 – avoidance of 13 –16 causes of 10 –12 and lack of direction 10, 85 and motivation 10 –12, 32, 85 and personal limitations 12, 32, 85 and personnel/cultural controls 94 –5 and results controls 32 controllability of market measures 415 –17 controllability principle 37, 503, 504 –5, 508 controllable profit 509 controllable results 37– controllers 617–21 at Eastern Technologies, Inc (ETT) 627– 34 controls choice of 209 –15 use of combinations in service sector 687– Cook & Spector, Inc (C&S) 628 –30 coordination, planning for 307 corporate governance 553 – 67 Anglo-American system 553, 554 and data manipulation 192 804 European/Japanese system 553, 554 –5 laws and regulations 554 –5 and management control systems 553 rating systems 562 see also Sarbanes-Oxley Act corporate strategy 688 – Corus 312 cost centers 265 cost leadership strategy 689 cost of capital 419, 426, 427, 450 cost-efficient reward systems 379, 381, 382, 384 cost-efficiency of measures 39 cost-focused entities 264 costs 186 – 97 of action controls 214 administrative, managerial assignment of 509 of automation 15 of combination of measures systems 456 developmental expenses 477 of financial results control systems 262 of long-term investments 447 of management intervention 315 –16 operating expenses 447 of tight controls 216 country-specific uncertainty 693 courage and ethics 660, 661– creativity and control 212 –13 critical success factors 215 Cronk, William F (Dreyer’s Ice Cream) 95 cultural controls 81, 90 – and behavioral displacement 189 and the control problem 94 –5 design and evaluation 210 –12 effectiveness of 95 tight 130 –1 culture at Hewlett-Packard 211 at Lincoln Electric 711 national 690 – responsibility culture Taiwanese 691 customer retention opportunity metrics at Bank of the Desert 548 customer satisfaction 39, 91, 95, 192, 453 – cutoffs in incentive systems 378 cybernetic systems 5, 32 Daley, Elizabeth (USC) 796 data manipulation/management of earnings 192, 420, 446, 628 – 9, 664 –5 as indirect cost 190 – Davis Service Group 307 www.downloadslide.com Index dealer incentive programs 285 – at Axeon N.V 106, 109 at Kooistra Autogroep 732, 733, 734 at Toyota Motor Sales, USA, Inc 287 and transfer pricing 270 at University of Southern California (USC) 788, 791, 794 decision-making authority 30, 126, 267 delays as indirect cost 193 delegation of authority 15, 31, 194, 561, 740 Dell Computer, data manipulation by 191 Department of Water and Power (DWP, Los Angeles) 742 depreciation accounting 430 –1, 451, 744 design and evaluation 209 –19 desired actions 86 desired results 36 – 7, 123 –5, 209 and behavioral displacement 187– Desktop Solutions, Inc 634 – 45 developmental expenses 447 Diagnostic Products Corporation 220 – differentiation strategy 689 direct costs 186 directors 561–3 finance director 617 need for independence 562 of not-for-profit organizations 743, 745, 747, 777– discounted cash flow 308, 450 discretionary cost centers 265 Disney 93 – 4, 127 distorted incentives 78, 188 diversification strategy 688 diversified firms, related/unrelated 688 – divisionalization 421– and financial responsibility centers 267– at Kranworth Chair Corporation 276 – document assembly software 15 documents, mishandling/shredding of Domino’s Pizza 513 donations 744 Dougherty, Dennis (USC) 795 – Dreyer’s Grand Ice Cream 95 Drucker, Peter 445 dual-rate transfer prices 273 Dudley, Bob (BP) 369 DuPont 30 –1, 421 durability of rewards 382 earnings management of 192, 420, 446, 628 – 9, 664 –5 patterns of growth 445 see also profits Eastern Technologies, Inc (ETT) 627–34 economic factors and uncontrollability 505 – economic income 414, 419, 450, 451 Economic Value Added (EVA) 427– 8, 452 economies of scope 688 Education Food Services 671– efficient markets 414 –15, 416 effort aversion 10 effort-inducing incentives 369 Eisner, Michael (Disney) 127 electronic control regimes 214 electronic sweatshops 666 Elliot, Vicki (Mercer) 381 Ellis, Jim (USC) 796 Elson, Charles (Center for Corporate Governance) 561 Emerson Electric 453 employees accountability of (controllability principle) 37, 503, 504 –5, 508 – action tracking 83, 84, 87, 88, 128, 129 and autonomy 36, 40, 89, 193, 214, 215, 218 availability in developing countries 694 collusion between 82, 127 lack of direction 10, 85 licensing of 140 –1 at Lincoln Electric 164 –5 loyalty of 88, 95 misbehavior at Sunshine Fashions 200 – and motivation 10 –12, 35, 85, 307, 313, 369 in not-for-profit organizations 747– participation in target setting 317–18 and performance measures 34 personal limitations 11, 85 punishments 35, 84, 367 risk aversion 214 –15, 504 –5 rotation of 93, 646 –55 selection/placement of 88 – suicides of 666 subjectivity in contracts 377– turnover 95, 380, 454, 455 see also personnel empowerment 30 energy crisis in California 520 –1 Engelhardt, Henry (Admiral Group) 382 engineered cost centers 265 engineered targets 310, 311 Enron 92, 606, 667 enterprise risk management at Entropic 591–5 entrepreneurial model 31 Entropic Communications, Inc 590 – 604 environmental uncertainty 686 – 8, 693 805 www.downloadslide.com Index equity capital 419, 451 escalating commitment 308 ethical analyses, importance of 657– 61 ethical issues xiv, 656 – 69 analyzing 661 codes of conduct 90 – 2, 657, 660 versus legal issues 658 ethical models 658 – 60 ethics and budgetary slack 662 –5, 671– and earnings management 628 –9, 664 –5 and flawed control indicators 665 – spreading good 667– of “too good” control indicators 666 – European Union (EU) antifraud office European/Japanese corporate governance 553, 554 –5 Eurostat evaluation see design and evaluation exchange rates 510 –11, 694 –5 excuse culture 514 executive compensation at SCE 519 – 20 Exelco 617 expectancy theory 35 expiring software licenses 674 external audits 622 external targets 311–12 extrinsic rewards 35 facilitating payments 87 falsification of data 11, 190, 192 Family Care Specialists Medical Group, Inc 239 – 45 Fannie Mae 562 feasibility of automation 15 of controls 212, 214 of market measures 416 FedEx 507 feedback loop feedforward control 307, 453 fee-for-service system 29 femininity and national culture 691 fidelity bonds 15 –16 fiduciary duties/obligations 554 of boards of directors 561 of compensation committees 565 of controllers 619 – 20 finance director 617 Financial Accounting Standards Board (FASB) 417, 731 financial audits 623 – 806 financial performance measures 413 – 29 accounting measures 413, 414, 417– 9, 451 and congruence 414, 416, 417, 418, 453 Economic Value Added (EVA) 427– 8, 451 leading indicators 452 market measures 413, 414 –7, 692 summary measures 413, 414, 417, 453 see also performance evaluation and measurement; performance targets financial reporting certification of annual statements 559, 581– at Eastern Technologies, Inc 632 – in not-for-profit organizations 744 – 5, 746 and Sarbanes-Oxley Act 555 financial responsibility centers 261–75 choice of 266 – and controllability principle 508 and divisionalized organizations 421 profit centers 263 –5, 266 and transfer prices 265, 269 –74, 297– types of 262 – and uncontrollable factors 508 – at University of Southern California (USC) 788 financial results control systems 261– Financial Services Authority (FSA) – Fiorina, Carly (Hewlett-Packard) 211, 218 firm value 413 –15, 418 First Commonwealth Financial Corporation 466 – 86 Fit Food, Inc 203 – fixed performance targets 311 flexible budgets 511–12 flexible performance targets 311, 511–13 foolproof systems 12, 82 force majeure 506 Ford, Henry 450, 687 Ford Motor Company 659 forecasting at Houston Fearless 76, Inc 77, 79 rolling forecasts/budgets 319, 468, 513 at Statoil 490 – at Toyota Motor Sales, USA, Inc 284 –5 forecasting errors 512 Foreign Corrupt Practices Act 87 foreign currency translation risk 694 –5 foreign exchange rates 510 –11 Formosa Plastics Group 536 – 43 formulaic rewards 378 FoxConn 666 franchises 83, 89, 200 www.downloadslide.com Index fraud – 4, 10 –11, 130, 131, 200 – and collusion between employees 82, 127 and data manipulation 190 – and internal controls 87 at Lernout & Hauspie Speech Products 678 – and overrides of controls 127 and Sarbanes-Oxley Act 559 – 60 at Sunshine Fashions 200 – fraudulent trading free rider effects 383 full cost plus a markup transfer pricing 270, 271– full cost transfer pricing 270, 271– functions of management fund accounting 744 –5 future-oriented control 13 GAAP (generally accepted accounting principles) 374, 623 Game Shop, Inc 229 –38 games controls at Bellagio Casino Resort 141– gamesmanship/gameplaying 11 and budget targets 316 –17 as indirect cost 190 – slack creation as 190 and stock market valuation 446 gaming laws and regulations 136 –7, 151– garbage collectors and behavioral displacement 187– Gateway Computers 195 Geither, Tim 29 Gemological Institute of America (GIA) General Electric (GE) 216, 446, 448, 452, 512, 558 General Motors (GM) 31, 287 gifts 4, 91 Gill, Daniel (Bausch & Lomb) 191 Gill, Gary (KPMG) 10 Giraldo, Maria (Long Island Medical Center) 34 –5 Glasseal (HCC Industries) 334 Global Investors, Inc 295–305 Global Mercantilism (Shell scenario) 512 goals see targets and goals golden parachutes 574 –7 good control 12, 13, 218 Google code of conduct/philosophy 660, 667 government intervention and business risk 693 governmental organizations 740 accountability of 742, 743, 744 conflicts in 742 Grace, Aidan (Bank of Scotland) 8, greed 29, 201, 522 Green, Stephen (HSBC) 381 Griffith, Ray (Ace Hardware) 12 gross book values (GBV) 426 gross margins 264, 266 group rewards 92–3, 383 Grove, Andrew (Intel) 83 Gulf of Mexico oil leak 14, 369, 503 guaranteed employment 710 –11 Haengbok Bancorp 437– Haier 310, 367 Hamel, Gary 313 Hammer, Michael 30 handwriting analysis 89 Harch Capital Management 446 Harwood Medical Instruments PLC (HMI) 386 – Haussmann, Thomas (Hay Group) 372 Havens, John (Citigroup) 127– Hay Group 29, 372, 381 HCC Industries 329 – 40 healthcare in Los Angeles 240 Hermetic Seal (HCC Industries) 333 – Hermetite (HCC Industries) 335 – Hewlett-Packard (HP) 92, 211–12, 218 hierarchies, control through 14 hindsight biases/effect 378, 514 hinge in management hierarchy 34 historical targets 310 Hoffman Discount Drugs, Inc 529 –35 Hofstede, Geert 691– Hollandsworth Ltd 105 – 7, 109, 110 Home Depot 84, 89 Houston Fearless 76, Inc 74 – 80 “HP Way” 211–12 Hurd, Mark (Hewlett-Packard) 92, 211–12 hyperinflation 693 – IBM, data manipulation by 191 idiot-proof systems 82 Immelt, Jeffrey (General Electric) 449, 512 Immigration and Naturalization Service (INS) incentive formula 377– incentive function, shape of 378 incentive pay, size of 378 – Incentive Performance System (Lincoln Electric) 32 incentive systems xv, 31, 36, 367– 86 as action reinforcement 129 –30 at Alcon Laboratories, Inc 116 –17 and base salaries 369, 379, 384 at Berkshire Industries PLC 439 – 42 bonuses 78, 79, 144, 371–3, 381, 386 – commissions 78 – and compliance 370 criticism of 381 cutoffs/caps in 378 807 www.downloadslide.com Index incentive systems (continued ) dealer incentive programs 285 – design of 377– direct links to accomplishments 125 effort-inducing 369 evaluation of 379 – 83 informational aspect of 368 – at Kranworth Chair Corporation 278 – at Las Ferreterías de México 433 – at Lincoln Electric 163 – 4, 710 –11, 718 –19 at Loctite Company de México 57– long-term 373 –7, 448 –50 monetary 368, 370 –7, 380 –3 motivational aspect of 369 nonmonetary 368 personnel-related purpose 369 productivity incentives 187– purposes of 368 –70 short-term 371–3, 378, 381 tailored systems 36 and taxation 369 at TECO Electric & Machinery Co Ltd 727– at Tsinghua Tongfang Co Ltd 399 – 400 see also compensation systems; rewards incomplete profit centers 266 indexed options 376 indirect costs 186 – 95 individualism and national culture 691 Industrial Electronics, Inc 435 – industry volume variance 510 inflation, variation across countries 693 – information asymmetry 190, 311, 686, 688 – 9, 696 information sharing in target setting 317 innovation and control 212 –13 Institute of Management Accountants 660 insurance 15 –16, 508 intangible assets 419 intangible results, quantification of 188 integrity ethical virtue 660 Intel 83, 191 interdependence and uncontrollability 507, 688 interlocking directorates 561 internal audits 622 –3, 635 – internal capital markets 688 internal controls 82, 87, 130, 557– 9, 747 internal targets 311–12 intraorganizational transfers and culture 93 intrinsic rewards 35 inventory control 215 –16 investment centers 263 investment myopia 420 –1 ITV 808 Jaburg Wilk, training at 89 – 90 Jensen, Michael 414 job design 12, 90 job rotation 93, 646 –55 Jobs, Steve (Apple Computer, Inc.) 93, 558 – Johnson & Johnson 446 joint venture agreements 16 judgment in audits 622 business judgment rule 561 professional 83 justice/fairness ethical model 659 Kaplan, R S 452, 454, 455 – Kerr, Steven 367 Kerviel, Jérôme 3, 130 key actions/results 209, 216 key controls (Sarbanes-Oxley Act) 186, 558 key performance indicators (KPI) at Statoil 488 – 94 Kitson, Alison (Royal College of Nursing) 215 Knight Ridder 420 –1 knowledge of desired actions 86 of desired results 36 –7 lack as personal limitation 12 in objective setting Kooistra Autogroep 732 – KPMG Forensic 127, 131 KPMG International 678 – 80 Kranworth Chair Corporation 275 – 82 Kurzweil Applied Intelligence 676 L A Gear 127 lack of direction 10, 32, 84 –5, 94, 210, 309 Laguna Niguel service center Landale PLC 646 –55 Las Ferreterías de México 432 –5 Lawler, Edward 514 leading indicators 452 leased assets 426 Leeson, Nicholas legal issues in not-for-profit organizations 744 versus ethical issues 658 Leo’s Four-Plex Theater 19 – 20 Lernout & Hauspie Speech Products 675 – 81 Levi Strauss 189 Levitt, Arthur (SEC) 665 Lewis, Peter (Progressive) 446 Lewitt Michael (Harch Capital Management) 446 Li, Kitty (Sunshine Fashions) 199 – 202 Liang, Charles (Super Micro Computer) 126 – www.downloadslide.com Index licensing of employees 140 –1 likely results 209 Lincoln Electric 32, 132, 160 – 80, 709 –25 Lincoln, James F 175 lines of code as measure 187 local institutions of nations 692 Loctite Company de México 55 – 61 long-term incentive plans 373 –7, 448 –50 long-term investments and managers 447 loose controls 130, 132 tight-loose controls 216 –17 Long Island Jewish Medical Center 34 –5 Los Angeles Unified School District 89 Los Angeles Department of Water and Power (DWP) 742 loyalty 88, 95, 561, 660 Luckhurst, Jason (Practius) 7– McDonald, David (Game Shop, Inc.) 229 –33 McDonald’s 83 McElroy, Bill managed cost centers 265 management at AirTex Aviation 249 –50 definition of –7 Management Advisory Board (Lincoln Electric) 177 management control systems characteristics of good 12 –13 and corporate governance 553 problem avoidance 13 –16 situational factors 217, 514, 665, 685 – 96 versus strategic control – views of – see also control problem management intervention, uncontrollability of 507 management style/culture at AirTex Aviation 254 at General Electric 216 at Lincoln Electric 165 –7, 711 at Tsinghua Tongfang Co Ltd 398 management-by-exception 32, 306, 307, 315, 319 management-by-objectives (MBO) 78, 436 managerial myopia 125 manufacturing processes 687 marginal cost plus lump sum transfer pricing 272 – marginal cost transfer pricing 270, 271 market share variance 510 market value accounting 451 market-based transfer pricing 270 –1 marketing at Lincoln Electric 168 – at Houston Fearless 76, Inc 76 – markets China as 181– 2, 199 – 201 control through 14 efficient 414 –15, 416 opportunity metrics 547– segmentation 700 –1 see also stock market mark-to-market accounting 451 Marriott International 506 – masculinity and national culture 691– mass production systems 687 master games worksheet (Bellagio) 142 –3, 153, 156 material weakness (Sarbanes-Oxley Act) 557– Mayfield, Charlie (John Lewis) 383 means-end inversion 188 measurement see performance evaluation and measurement meritocracies 30 Merrill Lynch 30, 194 MGM MIRAGE see Bellagio Casino Resort micro profit centers 264 Microsoft 416 minimum performance standards (MPS) 333 mission at Patagonia, Inc 342 –3 mistakes, need to prevent model-based targets 310 models of ethics 658 – 60 Modern Firm book 32 Molex, Inc 605 –16 monetary incentives 368, 370 –7, 380 –3 moral courage 661– moral disengagement 661 moral exemplars 657 mortgage firms, US actions against motivation 10 –11, 32, 35, 85, 307, 313, 369 and expectancy theory 35 Moynihan, Brian (Bank of America) 194, 381 multinational organizations (MNOs) 690 –5 multitasking nature of jobs 188, 413 mutual benefit organizations 740 mutual monitoring 93 myopia problem 414, 420 –1, 428 and accounting income measures 451 and combinations of measures 452 – and ethics 665 and the measurement horizon 448 –50 and preaction reviews 447– and shareholder value 450 and stock market valuations 445 – mystery shoppers 84, 142 809 www.downloadslide.com Index naming and shaming 367 national culture 690 – National Health and Hospitals Reform Commission 29 National Health Service (NHS) 743 negative attitudes and action controls 213 –14 costs of 193 –5 negative incentives 84 negotiated targets 311 at HCC Industries 333 – negotiated transfer pricing 270, 272 net book values (NBV) 425 net revenue centers 265 New York City Police 35 no-excuses management 125, 204 nonadaptive behavior 188 – nonfinancial measures 413 – 4, 452 nonmonetary incentives 368 Norman, Archie (ITV) Norton, D P 452, 454, 455 – not-for-profit organizations 740 – boards of directors of 743, 745, 747, 777– and congruence problem 33 external scrutiny of 745 –7 planning processes in 309 versus for-profit organizations 740 –1 object-of-control framework xiii–xiv objective setting objectives 209 of for-profit organizations 413, 414 see also congruence; targets and goals objectives-driven control 13 objectivity of action reports 87– of audits 621 of results control measurements 34, 38 – obsolete performance standards 512 Olympic Car Wash 517 O’Neill, Paul H (Alcoa) 31 open book management (OBM) 93 operating delays as indirect cost 193 operating expenses 447 operating income 447 operating myopia 420 –1 operational budgeting 309 optimal control 13 optimistic projections and targets 314 –15 option plans 373 – organizational culture see management style/culture 810 organizational design/architecture 31 organizational strategy see strategy organizational structure bureaucratic 188, 189, 193 centralization 15 decentralization 30, 31, 32, 106, 109, 270, 287, 421, 688, 732, 733, 734, 788, 791, 794 divisionalization 267– 8, 276 – 8, 421– and financial responsibility centers 266 – and uncertainty 687 Ott, Linda (VisuSon, Inc.) 355 – 6, 359 – 60 out of control 12 outcome effect 514 out-of-pocket costs 186 overrides of controls 127 oversight 619, 747 Pacific Sunwear of California, Inc 578 – 89 Panhandle Eastern Corporation 92 Patagonia, Inc 341–54 patents filed/granted 33, 124, 187, 462 pay for performance 29 –30, 371, 378 – at Kooistra Autogroep 735 – at United States Postal Service (USPS) 743 payoff relationships between measures 455 PCL Consumer Electronics 181–5 perfect control 12 –13 performance audits 624 value-added measures 726 – performance dimensions 33, 124 performance evaluation and measurement 33 – at Armco, Inc 43 – at Bank of the Desert 544 –5 at Bellagio Casino Resort 135 at HCC Industries 331–2 at Kranworth Chair Corporation 278 – and negative attitudes 194 nonfinancial measures 413 – 4, 452 in not-for-profit organizations 742 – objectivity of 34, 38 – precision of 38 reporting 508 – 9, 733 – 4, 788 – 90 relative performance evaluation (RPE) 513 of research scientists 188 and results controls 214 at Statoil 492 –3 subjective judgments/evaluations 34, 513 –5 and tight results controls 125 – timeliness 39 at Tsinghua Tongfang Co Ltd 398 – weighting 34, 37 see also financial performance measures www.downloadslide.com Index performance monitoring at HCC Industries 332 performance opportunity metrics at Bank of the Desert 547 performance options 376 Performance Prisms method 452 performance reviews 309 –10, 381 performance stock plans 375 – performance standards cost of updating 513 minimum at HCC Industries 333 obsolete 512 performance targets 309 –12 achievability of 312 –17 and commitment 314 and costs of management intervention 315 –16 employee participation in setting 317–18 financial targets issues 312 –18 flexible targets 311, 511–13 at HCC Industries 332 and motivation 313 negotiated targets 311, 333 – obsolete standards 512 and optimistic projections 314 –15 and relative performance 311, 312, 415 setting 34 –5, 309 – 20 at Statoil 490 – and tight results controls 311 see also gamesmanship/gameplaying; objectives; targets and goals performance-vested options 376 personal limitations 12, 32, 85 personnel policies at Lincoln Electric 167– see also employees personnel controls 81, 88 – and behavioral displacement 189 and the control problem 94 –5 design and evaluation 210 –12 effectiveness of 95 tight controls 130 –1 Peters, Tom 95, 216 pharmaceuticals companies 31, 113, 446, 659 Philip Anderson 197– Philippines Bureau of Internal Revenue 125 – physical constraints 81– 2, 126 physical sweatshops 666 piecework systems 163, 189, 710 pilots 129 –30 Pita Pit, training at 89 planning and budgeting 306 – 22 as action controls 306 at Alcon Laboratories, Inc 115 –16 bottom-up 317 budget targets 670 budgetary slack 190, 662 –5, 671– at Citibank Indonesia 324 –5 at ConAgra Grocery Products Company 701– criticisms of 319 – 20 flexible budgets 511–12 horizon for planning 314, 319 at Kooistra Autogroep 734 –5 and motivation 307 negotiations at HCC Industries 333 – at Patagonia, Inc 344 –5 practices 318 – 20 purposes of 306 – rolling forecasts/budgets 319, 468, 513 stretch budgeting 332 –3 time required for 319 top-down 317–18 at VisuSon, Inc 357– 60 at Yorba Linda 751– 60 see also performance targets planning cycles 307– planning horizons 314, 319 Plastic Lumber Company 211 Platinum Pointe land deal 98 –105 poka-yokes 82 pooled interdependencies 507 power distance and national culture 691 Practicus preaction reviews as action control 83, 84, 85, 86 – to control investments 447– for management oversight 307 and tight controls 127– precision 38, 87 premium options 376 preoperative checklists 83 private benefit organizations 740 Private Fitness, Inc 20 – proactive controls – 6, 307 problem avoidance 13 –16 see also control problem processes of management product development cycles 113 –14 productivity incentives 188 – professional employees 30 professional judgment 83 profit centers 263 –5, 266 811 www.downloadslide.com Index profits as accounting measure 418 –19 and accounting rules 420 controllable 509 repatriation of 269 and short-termism 446 –7 and uncontrollable factors 505 see also accounting measures; earnings Progressive 446 promotion above level of competence 12 pseudo profit centers 264 public benefit organizations 740 Puente Hills Toyota 61–73 punishments 35, 84, 194, 367 ratcheting 310, 441 Raven Capital, LLC 402 –10 reactive controls 5, 307 realized performance and markets 415 reciprocal interdependencies 507 redundancy as action control 84, 85 reengineering 30, 130 reference checks 88 Reilly, Nick (Opel) 31 related-diversified firms 688 relative performance and targets 311, 312, 415, 513 Renaissance Re Holdings 376 repatriation of profits 269 reporting at Alcon Laboratories, Inc 116 at Kooistra Autogroep 733 – objectivity of 87– segregated performance reports 508 – solid-line reporting 620 at University of Southern California (USC) 788 – 90 see also financial reporting research & development at Alcon Laboratories, Inc 113 measuring success of scientists 188 rewards for patents filed 187 residual income measures 426 – resource allocation 308 – resources of management Responsibility Center Management System (USC) 786 – 800 responsibility centers see financial responsibility centers responsibility culture restricted stock plans 375 812 results controls xiii, 29 – 41 advantages/disadvantages of 214 –15 and behavioral displacement 187– completeness of 125 and congruence 123 – 4, 187 and the control problem 32 desired results 36 –7, 123 –5, 187– 8, 209 effectiveness of 36 – elements of 33 – and empowerment 30 and environmental uncertainty 686 – financial systems 261–2 incompleteness of 187, 188 likely results 209 and meritocracies 30 and negative attitudes 193 – objectives 38 – prevalence of 30 – quantification of intangible results 188 tight 123 – return-on-investment (ROI) measures 30, 421– 6, 428 types of 423 revenue centers 265 reversibility of rewards 379, 382 rewards cost efficient systems 379, 381, 382, 384 durability of 382 extrinsic/intrinsic 35 formulaic 378 group 92 –3, 383 for patents filed 187 reversibility of 379, 382 timeliness of 381 understandability of 379 see also incentive systems Ridder, Tony (Knight Ridder) 420 –1 Riggs, Peter (Pita Pit) 89 rights and duties ethical model 659 rigid behavior 188 – Riordan, Richard 748 risk aversion of employees 214 –15, 504 –5 business risk 505, 693 foreign currency translation 694 –5 limiting 14 management at Entropic Communications 591– and profit calculations 419 risk sharing 15 –16 sovereign risk 324 see also uncertainty; uncontrollable factors www.downloadslide.com Index Robbins, Allen (Plastic Lumber Company) 211 Robinson Brothers Homes (RBH) 98 –105 ROI trees 422 role models 94, 657, 667 rolling forecasts/budgets 319, 468, 513 Royal College of Nursing 215 Royal Dutch/Shell Group 512 rubber stamping 128 Russell, Don (Eastern Technologies, Inc.) 627–34 salaries base 369, 379, 384 increases 370–1, 382 variable pay 371, 378–9 see also incentive systems Sales Acceleration Program (Consolidated Furniture) 673 sales forecasting at Houston Fearless 76, Inc 77, 79 at Toyota Motor Sales, USA, Inc 284 –5 sales quotas as measure 187 sales variances 510 –11 sales-focused entities 264 Samaniego, Dr Luis (Family Care Specialists) 239 – 44 sandbagging 662 Sanofi-Aventis 31 SAP America 129, 132 Sarbanes-Oxley Act (SOX) 130, 554, 555 – 60, 564 and auditors 621, 623 compliance and Entropic Communications 594 compliance at Fit Food, Inc 203 compliance at Game Shop, Inc 230 compliance at Pacific Sunwear 579 – 83 and controllers 617 and First Commonwealth Financial 468, 471, 472 and whistleblowers 656 SAS Institute 95 scenario planning 317, 512 scientific management 10 scorecards balanced 452 – at Boston Lyric Opera 772 –7 at First Commonwealth Financial 467–71 at Game Shop, Inc 229, 232–3 at Kooistra Autogroep 734 at Southern California Edison 519 at Statoil 488 – 90, 493 Sealtron (HCC Industries) 334 –5 Sears 95, 455 Section 404 (Sarbanes-Oxley Act) 130, 557– compliance at Pacific Sunwear 579 – 82 segmentation at ConAgra Grocery Products 700 –1 segregated performance reports 508 – self-interested behaviors 10 self-monitoring/reporting 87, 88 Semler, Richard (Semler-Brossy Consulting) 373 separation of duties 82, 127 September 11 terrorist attacks 506 –7, 512 sequential interdependencies 507 7-Eleven 194 –5 Seymour Pierce – shareholder value 450 Shell 512 short-termism and accounting measures 414, 419 of employees (bonuses) 29, 372, 381 and market measures 416 –17 and profits 446 –7 and results controls 186 see also myopia problem significant deficiency (Sarbanes-Oxley Act) 558 situational factors 217, 514, 665, 685 – 96 slack creation 190, 662 –5, 671– Sloan, Alfred P 30, 418 sloppiness 39, 213 Société Général 3, 130 software licenses 674 software testers and behavioral displacement 187 solid-line reporting 620 South Bend Tribune newspaper 213 –14 Southern California Edison (SCE) 518 –26 sovereign risk 324 specificity of action controls 128 Springfield Remanufacturing Company 93 stakeholders 7, 33, 453 – 4, 553, 554 –5, 692 Stanard, James N (Renaissance Re Holdings) 376 standard cost centers 265 standard-variable-cost centers 271 Statoil 487–502 Stern Stewart & Company 427 stock appreciation rights (SARs) 376 –7 stock market valuations 413, 414 –7, 445 – 6, 692 stock option plans 373 –7 strategic business units (SBUs) 30 –1 strategic control versus management control – strategic planning 308 813 www.downloadslide.com Index strategy 209 business 689 – 90 competitive 688, 689 – 90 at ConAgra Grocery Products Company 700 corporate 688 – cost leadership 689 differentiation 689 diversification 688 and financial responsibility centers 267– formulation of 7– at Lincoln Electric 161– at Statoil 488 – 90 at University of Southern California 787 stretch budgeting at HCC Industries 332 –3 stretch performance targets 312 –13 Stumpf, John (Wells Fargo) 370 subjective performance evaluations 513 –15 subjectivity in employment contracts 377– suboptimization and ROI measures 414, 423 – 4, 427, 428 – subsidiary companies of Axeon N V 108 –10 of Lincoln Electric 712 –14 suicides of employees 666 summary accounting measures 413, 414, 417, 453 Sunrise Medical 31, 192 Sunshine Fashion 199 – 202 Super Micro Computer 126 –7 Superconductor Technologies, Inc 388 – 96 supervision/surveillance at Bellagio Casino Resort 142 surveillance programs, ethics of 666 Sustainable World (Shell scenario) 541 Svenska Handelsbanken 319 – 20, 382 Swiss Re 507 tailored incentive systems 36 Taiwanese culture 691 talent myth 382 targets and goals ambiguity/conflict in not-for-profit organizations 741– communication/internalization 124 –5 at Fit Food, Inc 204 – at Houston Fearless 76, Inc 79 and results controls 215 setting 34 –5 see also objectives; performance targets taxation 269, 270, 274, 369 Taylor, Frederick 10 teamwork at Levi Strauss 189 TECO Electric & Machinery Co Ltd 725 – 31 814 theft – at Sunshine Fashions 200 – Thompson, Wade 29 Thor Industries 29 Thou Shall Not book 189 three compellings 455 3M Corporation 453 tight controls 123 –31, 215 –17, 311 tight-loose controls 216 –17 timeliness in results control 39 of rewards 381 in tracking actions 88 today businesses/tomorrow businesses 448 tone at the top 90, 93, 94, 96, 557, 668 top-down planning and budgeting 317–18 Toyota Motor Corporation 9, 193, 283 Toyota Motor Sales USA, Inc 283 –92 tradeoffs in performance measurement 39 trafficking rings and performance targets 33 training 12, 39, 89 – 90 transaction cost economics 14 transfer pricing 265, 269 –74 at Global Investors, Inc 297– and interdependencies 507 Treadway Commission 94, 553 treasury function 618 Troubled Assets Relief Program (TARP) 370 truth-inducing systems 318 Tsinghua Tongfang Co Ltd 397– 402 Turner Broadcasting 127 turnover of employees/staff 95, 380, 454, 455 UBS 370 uncertainty country-specific 693 environmental 686 – and organizational structure 687 uncertainty-avoiding individuals 691 uncontrollable factors adjustments for 515 and controllability principle 37, 503 –5 controlling distorting effects of 508 –15 and profits 505 types of 505 – understandability of accounting measures 417–18 of action controls 88, 128 of combination of measures systems 454 of desired outcomes 209 of results controls 39 of rewards 379 www.downloadslide.com Index unethical behavior, reasons for 661– United Parcel Service (UPS) 126, 194 United States Postal Service (USPS) 743 University of Southern California (USC) 745, 746, 786 – 800 unordered shipments (Fit Food, Inc.) 206 unrelated-diversified firms 688 – utilitarianism ethical model 658 – valences 35 valuation anomalies in markets 416 value creation 414 value drivers 10, 452 – Value Line 195 value-added measures at TECO Electric 726 – values at Patagonia, Inc 342 –3 variable pay 371, 378 – variance analysis 510 –11 Vector Aeromotive Corporation 567– 74 vice president finance 617 virtues ethical model 660 VisuSon, Inc 355 – 66 volcanic ash cloud, effects of 503, 506 Wabash National Corporation 131 Waikerie Co-Operative Producers Ltd 761–9 walk and talk interviews 131 Wal-Mart 32 War Gaming contingency planning 512 Waterman, R H 95, 216 Watkins, Sherron 94 weighted average cost of capital 426, 427 weighting of performance measurements 34, 37, 455 Welch, Jack (General Electric) 216, 313 Wells Fargo 370 Westpac what-if planning 317, 512 whistle-blowers 91, 94, 656 Wong’s Pharmacy 20 Workbook Process (Patagonia, Inc.) 345 –7 working capital 419 workplace organization at Patagonia, Inc 343 – Wright, Sean (Fit Food, Inc.) 203 – 4, 206 Wright, Vicky 29 Yahoo 416 Yorba Linda 750 – 60 Zumwald AG 293 – 815 ... THE CONTROL FUNCTION OF MANAGEMENT Management and Control Management and control Causes of management control problems Characteristics of good management control Control problem avoidance Control. .. I THE CONTROL FUNCTION OF MANAGEMENT Management and Control Section II MANAGEMENT CONTROL ALTERNATIVES AND THEIR EFFECTS 29 Results Controls Action, Personnel, and Cultural Controls 81 Control. .. formulation Management control Source: K A Merchant, Modern Management Control Systems: Text and Cases (Upper Saddle River, NJ: Prentice Hall, 1998), p Management and control as the terms execution and