Chapter 12
Performance Evaluation in Decentralized Organizations
Solutions
Review Questions
1. Firms decentralize because, as organizations grow, the number and types of decisions that need to be made increase substantially. A single individual will not have the relevant expertise and knowledge to make all of these decisions – thus, firms delegate decision-making responsibility.
2. The benefits include (1) timely decisions, (2) tailoring managerial skills and specializations to job requirements, (3) empowering employees, and (4) training future managers. The costs include (1) an emphasis on local versus global goals, (2) requires coordination of decisions, and (3) can lead to improper decisions because of a divergence between individual and organizational goals.
4. Minimize the cost of producing a specified level of output or service.
5. Both minimize costs and maximize revenues. That is, maximize profit.
6. Maximize the returns from invested capital, or to put the capital invested by owners and shareholders of the organizations to the most profitable uses.
7. Controllability and informativeness.
8. An ideal performance measure (1) aligns employee and organizational goals, (2) yields maximum information about the decision or actions of the individual or organizational unit, (3) is easy to measure, and (4) is easy to understand and communicate.
9. In the short-term, via budget variances. In the long-term, by techniques such as benchmarking and kaizen.
10. Kaizen is a philosophy of continuous improvement.
11. By budget variances and comparing actual profit with past profit and industry profit. Organizations also use revenue-oriented measures such as customer satisfaction and market share. Additional cost-oriented measures might
