44 terms

Accy 304 post-midterm

STUDY
PLAY

Terms in this set (...)

organizational architecture
assignment of decision rights
methods of reward/punishment
Performance evaluation system
Strategy
F (Technology, Markets, Regulation)
Markets
Porters 5 factor theory
1. Intensity of competition
2. Bargaining power of customers
3. Bargaining power of suppliers
4. New entry barriers
5. Threats from substitute products.
Technology
Computers, Telecommunications, Production Methods
Regulation
Taxes, antitrust, international laws
locus of decision right
should it be at the central higher-ranked hands vs. at the local lower-ranked hands?
movement towards (de) centralization
competitive pressure, new technology, information asymmetry + incentive perspectives
Budget
a financial plan for using limited resources
types of budgets
capital budgets; financial budgets; operational budgets
4 roles of budgeting
attention directing; decision facilitating; decision influencing; coordination facilitating
attention directing
forces managers to spell out their strategic and financial plans and the impact of those plans on the firm's performance
decision facilitating
Helps a firm plan its resource expenditures and uses; define expectations; and focus its responses to deviations from the plan
Decision influencing
Provides a reference point or a benchmark for providing feedback and evaluating performance
Coordination facilitating
helps the firm devise operational plans and resource allocations to balance the output of each organizational unit with the demands of its internal controls.
critiques of budget process
not value-adding activites
time-consuming process
abuse of budgets by managers
Michael Jensen's arguments over budgeting
managers lie in budgeting process
managers distort operational decisions for their benefits
sand-bagging behavior
conflict between decision-influencing and coordination-facilitating roles
Decision right
cost center
revenue center
profit center
investment center
Circumstances that operating does not reflect profit center
1. Transfer pricing
2. Extranalities between profit centers
3. Costing methods
Common problems with ROI, RI, EVA
1. Disincentive for investments
2. Distortion of managerial decisions for ST performance evaluation
3. Time-value of money
4. Comparison across units with different ages
5. Application to firms with trivial investments in tangible assets.
Top managers needs
dynamic, competitive environments, managerial reports to be as brief as possible, key information to be integrated in a meaningful way
4 perspectives in BSC
financial
customer
internal business process
learning and growth
financial
operating income for price recovers; operating income from growth
customer
customer satisfaction/retention; increase in new customers
internal business process
greater efficiency in their work and customer service quality
learning and growth
employee satisfaction and retention
primary goal of BSC
sustain long-term financial performance-non financial measures serve as leading indicators for the hard-to-measure LT financial performance
Benefits of BSC
1. promotes casual thinking and explains strategies
2. motivates managers to consider all four areas in achieving the goals
3. helps managers to be focused on important targets for sustainable long-term success
Cautions of BSC
1. Do not assume precise casual links
2. do not expect managers to improve on all measures at the same time
3. use both objective and subjective measures
4. limit the # of measures in each category
5. Hard to get it perfect at first- can evolve over time and change with strategies
proxy
construct + error = construct + Noise + Bias
Noise
random and unpredictable difference between the construct and the proxy
Bias
systematic and predictable difference between the construct and the proxy.
Mediating variable
by standing between the two variables, intermediates the relationship from the cause to the effect.
moderating variable
affects the sign/magnitude of an existing cause-effect relationship between the two variables.
Incentive compensation
u = I-e^2
Principal's feasibility best options
1. observe output
2. link output to reward
reward principle #1:
motivate agents to work hard and take right actions to maximize desired output
Reward principle #2
appropriately share the risk of output shocks unrelated to effort
reward and performance evaluation
1. informativeness principle
2. pay based on group performance
3. multitasking
informativeness principle
inefficiencies can be reduced by improvements in information
Pay based on group performance
firms favor group incentive plans despite potential free-rider problems
Multitasking
differences in measurability can distort incentives/allocation of effort, tend to make more efforts on more measurable tasks, implications to firms in regard to pay and motivation for outputs with differential measurability
Bloomfield's law of measure management
1. measurement error
2. motivation
3. discretion
responses to measure management
1. reduce measurement error
2. conceal measurement
3. increase monitoring and limit discretion