Problem

Emphasis on Short-Term Performance“A lot of what is preached at business schools today is...

Emphasis on Short-Term Performance

“A lot of what is preached at business schools today is absolute rot," claimed a New York financial consultant. "Business schools teach that business is nothing but the numbers—and the numbers only for the next quarter.”

The overemphasis on short-term performance measures was echoed by other critics. “There has been too much emphasis on short-term profit, not enough on long-range planning; too much on financial maneuvering, not enough on the technology of producing goods; too much on readily available markets, not enough on international development.”

One U.S. expert on productivity added, “Our managers still earn generally high marks for their skill in improving short-term efficiency, but their counterparts in Europe and Japan have started to question America’s entrepreneurial imagination and willingness to make risky, long-term investments.”

Finally, even foreign executives criticized the U.S. system. “The misguided emphasis on short-term profit seems to blind U.S. managers to the need for more research and development; moreover, they appear unable to develop strategies for dealing with long-range problems of chronic inflation and soaring energy costs. Also the quality of U.S. manufactured goods is declining because managers have cared less about what they produce than about selling it.”

Required:

(1)   Are business schools, in general, and cost accounting and management control courses, in particular, to blame for the alleged preoccupation of recent business school graduates with measurable short-term performance? What conditions provide the environment for short-term rather than long-term optimizing behavior?

(2)   What forces provide explanations for the accusations that U.S. managers are more con­cerned with short-term "safe" strategies rather than longer-term risky, entrepreneurial strategies?

(3)   What are the implications of these charges for the design of management control sys­tems in decentralized organizations?

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Solutions For Problems in Chapter 7