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ACCA Strategic Professional · Advanced Performance Management · Management reports

Marlowe Plc's divisional manager is rewarded on quarterly operating profit. The management report shows profit rising for four quarters, but the quality-inspection pass rate has fallen from 97% to 88% and staff turnover has doubled. What is the most likely explanation, and what should the report designer do?

The pattern suggests short-termism: the manager is lifting profit by cutting quality and people-related spending. The report should therefore show balanced non-financial indicators such as quality and staff turnover next to profit, so that long-term value drivers are visible and the reward system does not encourage harmful behaviour.

  1. AThe profit target is too low; raise it so that managers work harder
  2. BShort-termism is occurring, with quality and staff costs being sacrificed for profit; the report should include balanced non-financial indicators of quality and peopleCorrect
  3. CThe quality data is unreliable because it is non-financial; remove it and report only profit
  4. DStaff turnover is an uncontrollable factor; exclude it from the report to avoid distorting performance appraisal

Explanation

Rising profit alongside falling quality and rising turnover suggests the manager is boosting short-term profit at the expense of long-term drivers. The report should present these drivers alongside profit, as in a balanced scorecard approach. Raising the target or removing the data would worsen the dysfunction.

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