International Glass manufactures a variety of glass products having both commercial and household applications. One of its newest divisions, Fiber Optic, manufactures fiber optic cable and other high tech products. Recent annual operating results (in millions) for Fiber Optic and two older divisions follow:
|
Fiber Optic |
Industrial Glass |
Flatware |
|
|
Sales |
$250 |
$900 |
$750 |
|
Segment income |
25 |
92 |
85 |
International Glass uses economic value added (EVA) as its only segment performance measure. Jim Wilson, CEO of International Glass, posed some serious questions in a memo to his controller, Janie Ware, after studying the operating results. After pondering the memo and studying the operating results, Janie Ware passed the memo and operating results to you, her newest hire in the controller’s office and asked you to respond to the following questions.
a. Why would the use of EVA discourage a high growth strategy?
b. Could the concept of the balanced scorecard be used to encourage a higher rate of growth in Fiber Optics? Explain.