Commercial Director Prado wonders how to leverage the loyalty card information to prepare the Fall 2008 budget. The case discusses the value of subjective and objective information for profit planning purposes. Spanish children's apparel retailer Neck & Neck uses loyalty card information for tactical purposes, such as promotional campaigns. Its management team is thinking about how to incorporate that information to the budgeting (profit planning) process. From an analytical standpoint the case looks at the surprising results of a mailing campaign that reveals the consequences of inadequate updating of the customer database. Also, the budgeting data in the case may be used to teach regression model selection and R-squared.
Increasingly, companies are measuring customer loyalty, employee satisfaction, and other nonfinancial areas of performance that they believe affect profitability. But they've failed to relate these measures to their strategic goals or establish a connection between activities undertaken and financial outcomes achieved. Failure to make such connections has led many companies to misdirect their investments and reward ineffective managers. Extensive field research now shows that businesses make some common mistakes when choosing, analyzing, and acting on their nonfinancial measures. Among these mistakes: They set the wrong performance targets because they focus too much on short-term financial results, and they use metrics that lack strong statistical validity and reliability. As a result, the companies can't demonstrate that improvements in nonfinancial measures actually affect their financial results. The authors lay out a series of steps that allow companies to realize the genuine promise of nonfinancial performance measures. First, develop a model that proposes a causal relationship between the chosen nonfinancial drivers of strategic success and specific outcomes. Next, take careful inventory of all the data within your company. Then use established statistical methods for validating the assumed relationships and continue to test the model as market conditions evolve. Finally, base action plans on analysis of your findings, and determine whether those plans and their investments actually produce the desired results.
The company has excess capacity. The case explores the various issues surrounding accounting for the cost of capacity. Several definitions of capacity can be discussed and accounted for.
A division questions whether to retain, modify, or abandon its cost of quality system now that more direct measures of quality have been adopted. Discusses the role of quality cost measurement in a mature quality management system.
Explores the obsolescence of a cost system when technology changes. In particular, it asks students to increase the number of cost center and allocation bases. The firm moves from a one-center, direct labor-hour system to a three-center, direct labor-hour and machine-hour systems.
Texas Instruments implements a Cost of Quality (COQ) system as part of a company-wide "Total Quality Thrust." After several years of operation, group management questions whether or not the COQ system should be updated to make it more useful in identifying areas for quality improvement. The case documents the current system and asks students to analyze the role it played in the quality control process and areas in which it could be improved.