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# GE Multiple Goals and Profitability: Which division is the b

See attachment.

Problems
Multiple Goals and Profitability

The following multiple goals were identified by General Electric:

Profitability
Market position
Productivity
Personnel development
Employee attitudes
Public responsibility
Balance between short-range and long-range goals

General Electric is a huge, highly decentralized corporation. At the time it developed these goals, GE had approximately 170 responsibility centers called departments, but that is a deceptive term. In most other companies, these departments would be called divisions. For example, some GE departments had sales of more than \$500 million.

Each department manager's performance was evaluated annually in relation to the specified multiple goals. A special measurements group was set up to devise ways of quantifying accomplishments in each of the areas. In this way, the evaluation of performance would become more objective as the various measures were developed and improved.

1. How would you measure performance in each of these areas? Be specific.

2. Can the other goals be encompassed as ingredients of a formal measure of profitability? In other
words, can profitability per se be defined to include the other goals?

Finding Unknowns
Consider the following data:
Division J K L
Income \$280,000 \$ \$
Revenue \$ \$ \$
Invested capital \$ \$3,000,000 \$16,000,000
Return on sales 7% 4% %
Capital turnover 4 ___ 3
Rate of return on invested capital % 20% 15%
Cost of capital 16% 12% %
Economic profit \$ \$ \$ 320,000

1. Prepare a similar tabular presentation, filling in all blanks.

2. Which division is the best performer? Explain.

#### Solution Preview

Computation for unknowns is in Excel (attached). See comment box about economic profit.

1. How would you measure performance in each of these areas? Be specific.

Profitability

LT: Annual return on operating assets, trend over time
ST: Quarterly operating income

Market position

LT: Market share
ST: Sales trend by product line

Productivity

LT: Cost per unit, sales per unit, sales per employee
ST: ...

#### Solution Summary

For each area, a report is described for short term and long term goals at GE. The response discusses ways to include other goals when measuring profitability. Finally, the response analyzes the companies given and tells you why one is better than the other. The discussion is in everyday language suitable for novice to intermediate.

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