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Organizational design is one of the basic building blocks of control, because it reflects the division of resources and the assignment of responsibility throughout the firm. In particular, each organizational unit headed by a manager can be considered a responsibility center.

A budget is a tool that allows an organization to put its strategy into financial terms. It can be described as the financial plan for the organization. The organization as a whole will prepare a profit plan, and it will also be concerned with investment in assets needed to achieve that plan and with cash flow being sufficient to support that plan. So it will typically have a profit plan, a capital budget, and a cash budget, which together will eventually result in a set of forecasted financial statements-an income statement, a balance sheet, and a statement of cash flow. This note focuses on the organization's profit plan.

Molino Cañuelas was a vertically integrated food company with a management system that allowed it to innovate and grow systematically. With sales of $2 billion in 2016, the firm not only produced flour, vegetable oil and packaged food products; it also owned a port terminal, a packaging plant and an Agribusiness Services Division to support over 8,000 agricultural producers. CEO and Chairman Aldo Navilli, who had run the company since 1986 and had developed its management system, wanted to ensure that as the company grew and expanded, it would maintain its culture and working style. The company was exporting to 32 countries and had manufacturing plants in Brazil and Uruguay. As it continued its international expansion, should it follow the same vertical integration strategy in other countries or should it develop its retail business through partnerships or alliances?

Performance measurement is at the heart of management. How a manager's performance is measured strongly influences that manager's decisions and how that manager spends his or her time. If you tell the manager you are going to evaluate him or her based on some performance measure and you choose the right performance measure, you'll likely get what you want. But if you choose the wrong one, you can send things in the wrong direction. What gets measured gets attention.

From 2008 to 2015, Valeant Pharmaceuticals International Inc. (Valeant) was a Wall Street darling under the leadership of CEO Michael Pearson. The company's stock price soared as Pearson went on an acquisition spree. Critics questioned Valeant's capacity for organic growth and its lack of commitment to research and development (R&D). In October 2015, investors began losing confidence when Valeant was subpoenaed to testify before the U.S. Senate Committee about its price-gouging practice. On-going investigations by the U.S. House Committee and Attorney's Offices regarding Valeant's patient assistance program and business relationships with Philidor Rx Services also contributed to the company's downfall. In May 2016, Valeant hired Joseph Papa to replace Pearson as CEO. One of Papa's top priorities was to pay down the $30 billion debt amassed to finance the company's acquisitions. In Case (A), students learn about the company's executive incentive compensation philosophy, acquisitions, and governance practices and are asked to assess the financial impact of Valeant's acquisitions. In Case (B), students are asked to identify the factors driving Valeant's stock price down and to assess the company's ability to pay down its $30 billion debt.

Supplement to case HEC199. From 2008 to 2015, Valeant Pharmaceuticals International Inc. (Valeant) was a Wall Street darling under the leadership of CEO Michael Pearson. The company's stock price soared as Pearson went on an acquisition spree. Critics questioned Valeant's capacity for organic growth and its lack of commitment to research and development (R&D). In October 2015, investors began losing confidence when Valeant was subpoenaed to testify before the U.S. Senate Committee about its price-gouging practice. On-going investigations by the U.S. House Committee and Attorney's Offices regarding Valeant's patient assistance program and business relationships with Philidor Rx Services also contributed to the company's downfall. In May 2016, Valeant hired Joseph Papa to replace Pearson as CEO. One of Papa's top priorities was to pay down the $30 billion debt amassed to finance the company's acquisitions. In Case (A), students learn about the company's executive incentive compensation philosophy, acquisitions, and governance practices and are asked to assess the financial impact of Valeant's acquisitions. In Case (B), students are asked to identify the factors driving Valeant's stock price down and to assess the company's ability to pay down its $30 billion debt.

James Jones and William West started a company to make what they considered the ideal gym bag, one that would incorporate the features they both desired and that would be of a sufficient quality to withstand a regular workout schedule for several years. They each made a modest investment to start their new company-JW Sports Supplies-and began operating on the side while they continued their respective professional careers. In this case, the owners attempt to better understand the impact that alternative decisions they could make about managing costs, changing prices, and different sales volumes would have on the company, so that they could better determine whether pursuing their venture full time was even a possibility. They both agreed that if they could see annual profit climb to around $300,000, they would consider making this a full-time endeavor. The case focuses on concepts related to cost behavior and cost-volume-profit analysis.

Supplement to case UV7380. In this case, James Jones and William West's company, JW Sports Supplies, has begun to offer a second product line-a customized gym bag. The owners consider the topic of overhead allocation in determining the cost of its basic gym bag and the new customized gym bag. The company currently uses a traditional overhead allocation system, with one cost pool being allocated based on units. Noticing that the custom gym bags tend to be ordered in small batch sizes and require more time from the sales staff to sell, the owners consider the implications of an activity-based cost system. After allocating overhead costs based on an activity-based cost system, students must consider potential alternative courses of action that they could explore.

Supplement to case UV7380. In this case, James Jones and William West's company, JW Sports Supplies, has begun to offer a second product line-a customized gym bag. The owners consider the topic of overhead allocation in determining the cost of its basic gym bag and the new customized gym bag. The company currently uses a traditional overhead allocation system, with one cost pool being allocated based on units. Noticing that the custom gym bags tend to be ordered in small batch sizes and require more time from the sales staff to sell, the owners consider the implications of an activity-based cost system. After allocating overhead costs based on an activity-based cost system, students must consider potential alternative courses of action that they could explore.

In 2015, Reynir Indahl left top Nordic private equity firm Altor Equity Partners to found Summa Equity (Summa). After long contemplation following the financial crisis, Indahl was convinced the financial system was producing negative externalities and that the current private equity model adopted by most firms would no longer be successful. Summa was developed under a new private equity model that sought to "future-proof" businesses by focusing on long-term value creation and growth, in addition to traditional private equity practices of implementing best practices and productivity improvements. To find businesses best suited for long-term growth with disruptive potential, Summa invested in four thematic areas that were mapped to megatrends outlined in the United Nations Sustainable Development Goals (SDGs)-trends Summa believed presented long-term growth opportunities for businesses that presented commercial solutions for these challenges. In addition, Summa integrated Environmental, Social and Governance (ESG) issues to create value during the ownership phase and expand multiples. While ESG investing was practiced by many firms with a focus on compliance and reporting, Indahl wanted ESG to be a tool for value creation and growth. After a period of successful recruiting, fund raising, and deal completion, Summa needed to develop a set of practices and expectations across portfolio companies and partners. The case concludes with Indahl contemplating exiting Summa's first company. What should Summa look for in a buyer? Is sale price all that matters, or should a potential buyer share Summa's focus on building purpose-driven organizations with a positive social impact on the world? How can Summa maximize its impact, both through investment and voice? With impact investing taking off a critical question also was how to measure and report impact to its Limited Partners (LPs).

While the first decade of the 21st century saw a massive financial crisis that led to significant economic downturn, the second decade saw the rise of political leaders, who built their support upon a political message that championed the common person against the collective enemy - the political and economic elite. Historically, waves of populism were infrequent and occurred almost exclusively in developing nations. However, not seen since the pre-World War II years had populist leaders gained such a following throughout the developed world - in countries with the strongest democracies. Driven heavily by growing inequality and degrading trust in institutions, populist leaders took global elections by storm. Populist movements raised the fundamental question of the role of business in the development of the conditions for the genesis of these movements, especially in relation to inequality, and how business would respond to subsequent government interventions that reduced the freedom of markets.

In July 2016, the founder and president of Lockbox Social Inc., an American social media management company for real estate agents, was contemplating whether to offer search engine optimization (SEO) as a new product. He needed to decide whether to pivot his business to pursue SEO exclusively, include SEO with the current product mix, or stay with the status quo and reconsider SEO at a later date. How would the two products—social media management and SEO—meet his customers' needs? Would they provide a good fit with his business and personal goals? He also needed to determine how much to charge for SEO and whether the company's current pricing model was appropriate for social media management.

Noble Group, founded in 1986, was a large commodities trader based in Hong Kong and listed on the Singapore Stock Exchange. In 2012, Noble shifted its business strategy towards an asset-light model. Under this model, Noble did not own mines or farms to produce commodities but built commodity sourcing capacity by working with and investing in producers in exchange for purchase and marketing contracts. Noble also worked with customers to secure supply contracts. Noble had a portfolio of 12,000 commodity contracts by end of 2014. The contracts were measured at fair value. Iceberg Research, an anonymous blog, released a series of reports starting in February 2015 alleging that Noble was too aggressive in its fair value accounting for contracts and investments in producers. Iceberg did not accuse Noble of fraud, but suggested that Noble's profits and balance sheet were highly inflated and Noble was headed for disaster. Noble defended its accounting policies and hired PricewaterhouseCoopers (PwC) to provide an independent review of fair value measurement. PwC released a positive review of Noble's accounting. However, questions remained whether Noble's contracts and investments were overvalued. The case explores Noble's business and investigates whether questions about its accounting practices were in the past following the attestation by PwC.

On October 25, 2016, Timothy J. Sloan, the new CEO of Wells Fargo bank, apologized to 1,200 of his employees in Charlotte, North Carolina. Sloan had been named to the company's top position two weeks earlier, when then-CEO John Stumpf resigned amid fallout from the banking scandal for which Sloan apologized. In September, Wells Fargo had agreed to a $185 million settlement with the Consumer Financial Protection Bureau (CFPB) and two other regulatory bodies, admitting it had opened unauthorized accounts for millions of its consumers. At the heart of the scandal were the company's community banking sales practices, which focused relentlessly on cross-selling multiple products to existing customers.

Supplement to case 116012.

In 2017, JetBlue, the airline founded on the mission to "bring humanity back to air travel", was considering becoming one of the first companies to report its sustainability performance according to the Sustainability Accounting Standards Board (SASB) standards. SASB standards identified climate change, labor issues, and corporate governance issues as important considerations for companies in the airline industry. Despite operating as a smaller player in an industry dominated by few legacy competitors, JetBlue leadership saw the company as a driver of industry progress. However, would the adoption of SASB standards help JetBlue achieve the goal of "relevant sustainability leadership?" How developing metrics and improved performance on material sustainability issues could be used as an instrument for change management? Should Sophia Mendehlson, the Chief Sustainability Officer, integrated Environmental, Social and Governance (ESG) metrics in the regulated fillings as in the 10-K, in separate sustainability reporting mediums, or as a separate report? JetBlue believed sustainability was more than simply a risk mitigation tool. Was it?

This is a flexible case that provides for discussion about the form and content of 10-K reports, managerial discussion and analysis, non-GAAP reporting, and accounting for contingent liabilities. What is unique is that Target included lengthy disclosures about the data breach, but many questions remain because the breach occurred shortly before year end. Further, the instructor can compare the contingent liability of $17 million reported in the 2013 10-K to the $201 million costs incurred by Target related to the breach as of the 2015 year end.