A spate of articles and books about return on investment has appeared during the past two or three years. Improving company earnings in relation to the capital used to generate those earnings has become a matter of great concern to many top financial and general managers. Their concern is not surprising. About three years ago, […]
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In large companies, top management’s concern about any aspect of a business’s performance is usually transmitted to the line managers to whom various operating responsibilites have been delegated. In companies with divisionalized structures (companies organized with units responsible to top management for their own profitability), top managers convey their concern about inadequate corporate ROI by delegating some of the company’s responsibility for ROI performance to particular divisions. In delegating this responsibility, top management sets up the divisions that it chooses for this emphasis as either profit centers or investment centers.
A version of this article appeared in the May 1978 issue of Harvard Business Review.
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JR Mr. Reece is professor of policy and control at the Graduate School of Business Administration at the University of Michigan. He is coauthor of Management Accounting Principles, 3rd ed. (Richard D. Irwin, 1975) and of three other books.
WC At the time the study described in this article was conducted, Mr. Cool was an MBA candidate at the University of Michigan’s Graduate School of Business Administration. He is now a financial analyst for Texas Instruments Incorporated.
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