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Essay / Research Paper Abstract
A 3 page paper that is based on the case study of GE in Anthony and Govindarajan's book, Management Control Systems, 10th ed. The paper discusses GE's concept of profitability as it was explained in the 1950s and 1960s. The second part discusses if factors not included in the profitability description could be measured and included in the overall plan. Bibliography lists 3 sources.
Page Count:
3 pages (~225 words per page)
File: MM12_PGgepr50.rtf
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Unformatted sample text from the term paper:
the information and data are not applicable to todays GE. At that time, profitability was directly related to whey they called residual income, which, in turn, refers to net profit
after taxes but also after a percentage increase called a capital charge. The team explained the measures for profitability as: an index that considered how much capital investments contributed to
the companys profits; an index that would recognize how much employee performance and effort contributed to profits; an index that was concerned with the "corporate facts of life" (p. 559);
and a final index that could be used by individual managers when making decisions regarding operations. The company did include the more traditional indexes that were used to determine profitability,
such as ROI (return on investment) because they determined the more traditional measures had weaknesses that would act against their objectives. If the company could develop such indexes, they could
measure profitability based on those factors. For example, the first one related to the contribution of capital investments is very similar to ROI. To measure this, productivity or profitability is
measured before and after a capital improvement to determine if that investment had any effect on corporate profits. At that time, the company could have made investments in state-of-the-art technology
available. Even using this index, the company used it differently in that the ratio was different for each department. The standard to determine return on investment might be 10 percent
for one department and 21 percent for another based on the function of the department. Other factors related to profitability included market share, productivity, product leadership, personnel development, employee attitudes,
public responsibility, and balancing short-term and long-term goals. Each of these could be measured quantitatively. GE was attempting to manage profitability with this proposal. Profitability management has only recently
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