Jennifer Baskiter is president and CEO of Plants&More.com, an Internet company that sells plants and flowers. The success of her startup Internet company has motivated her to expand and create two divisions. One division focuses on sales to the general public and the other focuses on business-to-business sales to hotels, restaurants, and other firms that want plants and flowers for their businesses. She is considering using return on investment as a means of evaluating her divisions and their managers. She has hired you as a compensation consultant.

What issues or concerns would you raise regarding the use of ROI for evaluating the divisions and their managers?

• Because the business seems to be growing quickly, the division managers are not likely to be shifting jobs over long time horizons. Thus, the long horizon problem will be a problem with the use of ROI.unchecked
• Managers may be motivated to undertake investments that would improve the overall ROI of Plants&More.com but would not improve their particular division's ROI.checked
• Another concern for Ms. Baskiter with ROI as the only performance measure is that it does not focus entirely on the financial performance.checked
• Managers may not be motivated to undertake investments that would improve the overall ROI of Plants&More.com but would not improve their particular division's ROI.unanswered
• Because the business seems to be growing quickly, the division managers are likely to be shifting jobs over short time horizons. Thus, the short horizon problem will be a problem with the use of ROI.checked
• Another concern for Ms. Baskiter with ROI as the only performance measure is that it focuses entirely on the financial performance and neglects other important parts of the value chain.