Types of organizationsa. Functionalb. Product, business unitc. Matrix, network, virtual proximityd. Program/project/

Nature of Responsibility Center

• Mission• Support

ExpenseCost Profit

(1) contribution margin, (2) direct business unit profit, (3) controllable business unit profit, (4) income before taxes, (5) net income

InvestmentERA (residual income) vs. ROI

Strategy DRIVES Structure1. Key questions (depends on organizational

level)2. Product-market strategy (single mission,

related missions, unrelated missions)3. Mission portfolio evaluation (build, hold,

harvest, divest?)4. Competitive strategy (low price/cost; high-

value, rapid product development)

effective execution of different product-market strategies require different task

priorities

a. intensity of competitive rivalryb. bargaining power of buyersc. bargaining power of suppliersd. threat from substitutese. threat from new entry

Transfer Pricesa. balanced prices

(1) market or opportunity cost, (2) fully-distributed average cost, (3) average variable cost or direct cost, (4) marginal/incremental cost, (5) negotiated or bargained, 6) multipart tariffs

b. unbalanced pricesc. arbitration, public-utility type regulation,

reassignment of assets

Incentives• 1. Financial rewards• 2. Psychological and social rewards• 3. Design considerations

– a. size of bonus relative to salary– b. bonus based on?– c. performance criteria– d. time period– e. weights given nonfinancial criteria– f. benchmarks– g. degree of subjectivity– h. form of bonus payment

• 4. High-powered vs. low-powered incentives

Think Again.