Divisional Performance Measurement
DIVISIONAL PERFORMANCE MEASUREMENT
The objective of divisional performance measurement is to develop performance measurement systems for divisions that are significant investment centers in large organizations. Such systems should: (1) provide information for economic decisions, (2) facilitate the control of division operations, (3) motivate managers to achieve high levels of divisional performance so as to further the objectives of the entire organization, and (4) serve as a basis for evaluating the performance of divisional managers.
The nature of divisionalization
1. As a special case of decentralization, divisionalization represents the concept of delegated profit and, to some extent, investment responsibility.
2. Divisions usually perform many of the basic business functions themselves – planning, production, accounting, marketing, and some financing activities.
3. Definitions: A segment of a business is recognized as a division when it exercises responsibility for both producing (or purchasing) and marketing products or services. Normally a division has some control over both sources of supply and the customers served. A segment is recognized as an administered center when it is a captive customer of other units within the same economic entity. A division has more of an independent business unit than an administered center.
Reasons for divisionalization
1. Work sharing is one very simple reason for delegating decision-making authority. As firms become larger, and serve more diverse markets, the decision-making process can become bogged down and out-of-touch if it is center in a few individuals. Committees are utilized in order to coordinate information and to improve decisions in place of individual executives.
2. Divisionalized operations make use of specialized skills such as knowledge about a particular product, a particular type of customer, a market or a geographic area. The idea is to better utilize
The objective of divisional performance measurement is to develop performance measurement systems for divisions that are significant investment centers in large organizations. Such systems should: (1) provide information for economic decisions, (2) facilitate the control of division operations, (3) motivate managers to achieve high levels of divisional performance so as to further the objectives of the entire organization, and (4) serve as a basis for evaluating the performance of divisional managers.
The nature of divisionalization
1. As a special case of decentralization, divisionalization represents the concept of delegated profit and, to some extent, investment responsibility.
2. Divisions usually perform many of the basic business functions themselves – planning, production, accounting, marketing, and some financing activities.
3. Definitions: A segment of a business is recognized as a division when it exercises responsibility for both producing (or purchasing) and marketing products or services. Normally a division has some control over both sources of supply and the customers served. A segment is recognized as an administered center when it is a captive customer of other units within the same economic entity. A division has more of an independent business unit than an administered center.
Reasons for divisionalization
1. Work sharing is one very simple reason for delegating decision-making authority. As firms become larger, and serve more diverse markets, the decision-making process can become bogged down and out-of-touch if it is center in a few individuals. Committees are utilized in order to coordinate information and to improve decisions in place of individual executives.
2. Divisionalized operations make use of specialized skills such as knowledge about a particular product, a particular type of customer, a market or a geographic area. The idea is to better utilize