Strategic Performance Measurement

Strategic Performance Measurement

Johnson Supply Company is a large retailer of office supplies. It is
organized into six regional divisions, five within the United States,
and one international division. The firm is growing steadily, with the
greatest growth in the international division. Johnson evaluates each
division as a profit SBU. Revenues and direct costs of the divisions are
traced to each division using a centralized accounting system. The
various support departments, including human resources, information
technology, accounting, and marketing, are treated as cost SBUs and the
costs are allocated to the divisions on the basis of sales revenues. The
international division has cash, receivables, payables, and other
investments in foreign currencies. As a result, this division
experiences occasional significant losses and gains due to fluctuations
in the value of foreign currencies. Based on the idea that these effects
are uncontrollable, the effects of currency changes on the international
division is retained in a single home-office account and is not traced
to the division. Similarly, taxes paid by this division to other
countries is pooled in a home office account and is not traced to it.

Because of rapidly increasing costs in the information technology (IT)
department, Johnson's top management is considering changing this
department to a profit SBU. It would set prices for its services, and
the user divisions could choose to purchase these services from IT or
from a vendor outside the firm. The manager of IT is upset at the idea,
and has told top management that this move would eventually create
chaotic and ineffective information services within the firm.