The Jackson Corporation is a large manufacturing company where each division is viewed as an investment center and has virtually complete autonomy for product development, marketing, and production. Performance of division managers is evaluated periodically by senior corporate management. Divisional return on investment is the sole criterion used in performance evaluation under current corporate policy. Corporate management believes return on investment is an adequate measure because it incorporates quantitative information form the divisional income statement and balance sheet in the analysis.

Some division managers complained that a single criterion for performance evaluation is insufficient and ineffective. These managers have compiled a list of criteria that they believe should be used in evaluating division managers performance. The criteria include profitability, market position, productivity, product leadership, employee development, employee attitudes, public responsibility, and balance between short-range and long-range goals.

Questions

1. Jackson management believes that return on investment is an adequate criterion to evaluate division management performance. Discuss the shortcomings or possible inconsistencies of using return on investment as the sole criterion to evaluate divisional management performance.

2. Discuss the advantages of using multiple criteria versus a single criterion to evaluate divisional management performance.

3. Describe the problems or disadvantages which can be associated with the implementation of the multiple performance criteria measurement system suggested to Jackson Corporation by its division managers.