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CMA Final · Strategic Performance Management and Business Valuation · Introduction to Performance Management

Kaveri Textiles Ltd rewards its plant managers only on the basis of the plant's quarterly profit. Managers have started deferring maintenance and cutting training spend to meet quarterly targets, while long-term machine health is deteriorating. Which weakness of the performance management system does this best illustrate?

The behaviour shows short-termism caused by a narrow, profit-only measure tied to rewards. Managers boost quarterly profit by deferring maintenance and training, which harms long-term value. A balanced set of measures covering long-term drivers would reduce this dysfunctional behaviour.

  1. AExcessive use of non-financial measures
  2. BShort-termism arising from a narrow, profit-only measure linked to rewardsCorrect
  3. CLack of any control or feedback system
  4. DOver-emphasis on benchmarking against competitors

Explanation

Rewarding only short-term profit pushes managers to cut discretionary spending that builds future capability. This is a classic short-termism and measure-fixation problem. The firm does have measures and feedback, and no non-financial or benchmarking emphasis is described, so the other options do not fit.

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