Case 14-1

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Case 14-1: Solution to Global Oil

a. Strengths and weaknesses of BSC

Strengths of the BSC include: • 1. Helped articulate the new strategy M&R adopted to become a destination stop. • 2. Helped train managers to become more general managers, not narrow functional managers. • 3. Focuses managers more externally. • 4. Blends own-unit and divisional performance to reduce free-rider problems of divisional performance measures only. • 5. Links business strategy to performance measurement and compensation plans.

Weaknesses of the BSC include: • 6. The balanced scorecard, per se, does not explicitly address the third leg of the stool – decision rights assignment. M&R had already done this. • 7. Too many measures. System is overly complicated which increases the data collection costs and increases the opportunity for gaming and influence costs. Multiple measures can conflict causing managers to emphasize one measure to the exclusion of others. Managers will work on those measures that are easiest to influence and de-emphasize others. • 8. Not clear that tying compensation to all 32 BSC metrics maximizes firm value. Pilots need to know the plane’s altitude, but why base part of their pay on altitude or oil pressure? In other words, are all measures equally important? Should they be weighted equally in determining compensation? • 9. Basing compensation on Global’s performance and on M&R’s performance creates free-rider problems for lower-level employees whose individual efforts have little affect on Global’s and M&R’s performance.

b. M&R changed its strategy and all three legs of its organizational architecture. You can’t attribute its success to any one



Links: business strategy to performance measurement and compensation plans. Weaknesses of the BSC include: • 6. The balanced scorecard, per se, does not explicitly address the third leg of the stool – decision rights assignment. M&R had already done this. • 7. Too many measures. System is overly complicated which increases the data collection costs and increases the opportunity for gaming and influence costs. Multiple measures can conflict causing managers to emphasize one measure to the exclusion of others. Managers will work on those measures that are easiest to influence and de-emphasize others. • 8. Not clear that tying compensation to all 32 BSC metrics maximizes firm value. Pilots need to know the plane’s altitude, but why base part of their pay on altitude or oil pressure? In other words, are all measures equally important? Should they be weighted equally in determining compensation? • 9. Basing compensation on Global’s performance and on M&R’s performance creates free-rider problems for lower-level employees whose individual efforts have little affect on Global’s and M&R’s performance. b. M&R changed its strategy and all three legs of its organizational architecture. You can’t attribute its success to any one change.

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