Question

Do you have any business experiences that were positive or negative relating to segment performance reporting? if so, what?

Answer 1

Yes I had an opportunity to be a part of an organisation related to a clothing brand.

The segment reporting system enables the organisation to document the performance of the varied areas in the business which enables the organisation to determine which segments are performing to expectation and which requires urgent attention as per the set targets and goals setup by the organisation. Among the many pros & cons relating to segment performance reporting following are briefly explained:

• Transparency- Among many advantages it helps to segregate profitable segments of business operating in different geographic areas. It reveals which areas are profitable and which are creating a leakage in the companies overall growth in profits. If a segment shows that its domestic operation is more profitable than its other operations it could alarm the managers on time to change its strategic planning and if done correctly it keeps manager under check from hiding unprofitable segments to the company.
• True & fair view of the companies state of affairs to its stakeholders: It helps the stakeholders to better understand the state of affairs of the organisation profit goals and its potential cash inflows and outflows and also prepare them to sense the fluctuations that may occur and affect the mathematics of profits. It
• Too much focus on present or short term data: In segment performance reporting managers put so much focus on short term performances of the segment thus ignores the risk that might occur with the changes in political, legal or environmental scenarios of the company.
• Manipulation in Data: This is possible in cases where a manager wants to portray a picture of a segment which is in loss in real but try to adjust it in some other profitable segment thus misleading the stakeholders as well as the management of the organisation which results in poor decision making at times ultimately which may lead to long term losses to organisation.
• Segment reporting only focuses on data and numbers it does not specify the actual conditions the equipments are being working which is itself a bluff for investors to decide about its investment plan in the organisation,
• Among its negative sometime organisation came across a situations where manufacturing a particular component of a unit seems costly but buying it from the open market is cheaper which relatively effects the cost of the product in general.