Magnum Manufacturing rewards its key executives exclusively on return on investment (ROI). The vice president of administration suggests to the CEO that Magnum can increase its ROI by outsourcing most of its manufacturing and logistics activities to business partners and suppliers, thereby greatly reducing its asset base. The CFO/treasurer cautions that although this would reduce the company’s asset base, such extensive outsourcing would reduce the company’s earnings, cash flow, and flexibility. The vice president of manufacturing also warns that the company might outsource its competitive advantage as well.

Required :
In a small group, prepare a brief report or visual presentation to Magnum Manufacturing’s CEO that evaluates the impact of the company’s incentive plan on the recommendation to outsource most activities.
What trade-offs should the company’s executives consider?