(Selecting performance criteria) The Chicago Trading and Production Company is a large, divisionalized manufacturing company. Each division is viewed as an investment center and has virtually complete autonomy for product develop¬ ment, marketing, and production.

Performance of division managers is evaluated periodically by senior man¬ agement. Divisional return on investment (ROI) is the sole criterion used in performance evaluation under current corporate policy. Corporate management believes ROI is an adequate measure because it incorporates quantitative infor¬ mation from 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 a division manager’s per¬ formance. The criteria include profitability, market position, productivity, prod¬ uct leadership, personnel development, employee attitudes, public responsibility, and balance between short-range and long-range goals.

a. Discuss the shortcomings or possible inconsistencies of using return on invest¬ ment as the sole criterion to evaluate divisional management performance.

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

c. Discuss some ways in which each of the multiple criteria listed by the man¬ agers could be evaluated.

d. Describe the problems or disadvantages that can be associated with the im¬ plementation of the multiple performance criteria measurement system sug¬ gested to the Chicago Trading and Production Company by its division managers.

(CAM)