Performance Evaluation Assignment Example | Topics and Well Written Essays - 2000 words

Performance Evaluation - Assignment Example (McIness et al cited by Demirag, 1988, p. 258). The use of a single accounting standard - for both performance measurement and tax reporting removes the risk of a more favourable internal valuation becoming damaging evidence in the event of disputes with tax authorities (Baldenius et al, 2003, p. 592). Also, there is no additional administrative overhead and associated costs that may have resulted if the performance reporting was decoupled from tax reporting. Using only profits as the measurement gauge may work if all other factors are equal. However, the business enterprise is a dynamic environment and all factors rarely, if ever, remain equal and a simple reliance on profitability numbers may not prove an adequate measure of performance, even though it would (and should) provide guidance on the financial health of the organization. Watty and Terzioglue (1999, p. 5) cite Kaplan as saying non-financial measures are just as essential and too much emphasis on just financial measures may decrease an organization's long-term viability. Also, Kren (1994, p. 68) assumes that excessive or inappropriate reliance on accounting performance measures would prompt managers to manipulate accounting data. That this pressure exists within the Niessen culture can be inferred from the US marketing manager's manipulation of the transfer pricing. A profit centre model implies that managerial control is decentralized with ultimate responsibility for centre performance residing the business unit manager. However, Niessen Peru is a captive subsidiary company with only one customer: Niessen Apparels, USA, its parent. The present policy excludes any scope for attracting or soliciting orders from other apparel companies who may or may not be competing in the same market space. This would mean that Valencia's responsibilities are limited to operations: production efficiency and cost control. Being a captive subsidiary, Niessen Peru is totally dependant on the parent company to keep its production capacity fully utilized. Any slackening in the order flow will impact the bottom line. Sales are outside Valencia's control and responsibility. Any performance measure that does not compensate for this factor will present a skewed result that can be easily misinterpreted. The subsequent events bear this out as seen by the increase in idling due to the slow down in US sales and the misinterpretation of the Peru operations statement by management members not aware of the behind the scenes price fixing. Another factor that hasn't been taken into account, as it may effect Niessen's satisfaction with subsidiary performance, is cultural distance. In the context of multi-national companies, cultural distance is the difference in the way business is conducted between companies of different cultural backgrounds. Dikova and Witteloostuijn's (2005, p. 24-25) research suggests that there is a significant positive correlation between cultural similarity and the performance of the subsidiary. Also, they cite Anderson, et al (p. 24) arguing against foreign investments for the sole purpose of increasing short-run financial performance although they do qualify the target market as "young" and