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Comment on the firm's (XYZ Corporation's) performance measur


XYZ Corporation is a law firm in Spain. Started in 2007 with just 2 lawyers, the firm has now grown to 30 lawyers and 4 branches in Spain.

The firm services mainly Small Medium Companies and walk-in retail clients. Their business has been doing well as they are known for their quality legal services at affordable prices.

However, their profit has dropped by more than 50% in the last 6 months (while their comparable peers reported better financial results). In the last 6 months, 10 of their lawyers also left the firm.

The company's managing partner has asked you to review the company's organisational architecture. You observed that:

1. Currently, the various client departments are evaluated mainly by revenues, costs and time charged to clients while the admin/ supporting departments are evaluated mainly by costs.

2. The managing director will compare the actual performance to the budgeted performance at the end of every quarter.

3. The various department heads will have to explain for any significant unfavourable variances.

4. The managing partner and the department heads are rewarded for favourable variances (actual results better than budgeted results).

Question: Comment on the firm's (XYZ Corporation's) performance measures.
It should be stressed that the existing systems focuses mainly on accounting measures. What is the role of accounting in the organizational structure/ performance measurement system in XYZ Corporation?

Solution Preview

The role of accounting in an organization's performance measurement system is assist in design and implement a performance measurement system that aligns the goals of individuals with the goals of the firm. In other words, to make sure that rewards for performance help the firm rather than give workers an incentive to exaggerate the measures for their own reward at the expense of the overall firm. With this in mind, let's see how the measures used at the law firm may have caused problems for them.

First, when you have lawyers as profit centers, responsible for both revenues (time billed) ...

Solution Summary

Your response is 308 words discussing how performance measures should work and the two potential flaws with XYZ Corporation's performance measures.