Jennifer Baskiter is president and CEO of Plants& More.com , an Internet company

Question

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?

Explanation / Answer

ROI ( Return in investment ) is calculated as under:

ROI = Net income / Amount of Investment

Hence ROI can be used as a measure of performance only if separate incomes and separate investment amount can be identified. In the given case the business is Internet marketing and there are two divisions categorized on the basis of customer type. It is not possible to determine the separate investment for each division so ROI cannot be used as a good measure of investment.

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.