Concerned with the slow rate at which new products are brought to market, top ma

Question

Concerned with the slow rate at which new products are brought to market, top management of a consumer electronics company introduces a new measure--speed-to-market. The research and development department is given responsibility for this performance measure, which measures the average amount of time a product is in development before it is released to the market for sale. Describe actions that managers might take to show improvement in the performance measure but which do not actually lead to improvement in the organization's overall performance.

Explanation / Answer

No, the Darwin Division is simply larger than the Perth Division and for this reason alone one would expect that it would have a greater amount of residual income. In fact, based on the data above, the Darwin Division does not appear to be as well managed as the Perth Division. The Darwin Division has an 18% return on investment as compared to 21% for the Perth Division. Residual income can not be used to compare the performance of divisions of different sizes. Larger divisions will almost always look better.

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