ROI: the building blocks for successful global organizations in the 21st century

As organizations move into the 21st century, past measures of organizational performance based largely on accounting and financial statements will be insufficient to meaningfully assess value. Short- and long-term performance will be increasingly determined by three resources: ideas, information, and investment capital, of which only investment capital is measured in traditional accounting and financial statements. Consequently, the 20th century orientation of return on investment needs to be expanded to include and account for both return on ideas and return on information. By focusing on these three measures of ROI the organization will be able to unleash creativity and obtain a sustainable competitive advantage. In this paper it is suggested that organizations should balance their focus on return on ideas, return on information, and return on investment, a ROI³ orientation for assessing organizational performance.     

Transport Mode Selection for Toxic Gases: Rail or Road?

A significant majority of hazardous materials (hazmat) shipments are moved via the highway and railroad networks, wherein the latter mode is generally preferred for long distances. Although the characteristics of highway transportation make trucks the most dominant surface transportation mode, should it be preferred for hazmat whose accidental release can cause catastrophic consequences? We answer this question by first developing a novel and comprehensive assessment methodology—which incorporates the sequence of events leading to hazmat release from the derailed railcars and the resulting consequence—to measure rail transport risk, and second making use of the proposed assessment methodology to analyze hazmat transport risk resulting from meeting the demand for chlorine and ammonia in six distinct corridors in North America. We demonstrate that rail transport will reduce risk, irrespective of the risk measure and the transport corridor, and that every attempt must be made to use railroads to transport these shipments.     

Multiobjective Decision-Tree Analysis1

Single-objective-based decision-tree analysis has been extensively and successfully used in numerous decision-making problems since its formal introduction by Howard Raiffa more than two decades ago. This paper extends the traditional methodology to incorporate multiple noncommensurate objective functions and use of the conditional expected value of the risk of extreme and catastrophic events. The proposed methodology considers the cases where (a) a finite number of actions are available at each decision node and (b) discrete or continuous states of nature can be presented at each chance node. The proposed extension of decision-tree analysis is introduced through an example problem that leads the reader step-by-step into the methodological procedure. The example problem builds on flood warning systems. Two noncommensurate objectives—the loss of lives and the loss of property (including monetary costs of the flood warning system)–are incorporated into the decision tree. In addition, two risk measures—the common expected value and the conditional expected value of extreme and catastrophic events—are quantified and are also incorporated into the decision-making process. Theoretical difficulties associated with the stage-wise calculation of conditional expected values are identified and certain simplifying assumptions are made for computational tractibility. In particular, it is revealed that decisions concerning experimentation have a very interesting impact on the noninferior solution set of options—a phenomenon that has no equivalence in the single-objective case.     

Environmental forecasting and non-profit professional organizations

To undertake any kind of realistic planning activity, it is useful to have a long-term environmental forecast which provides the planner with an overall perspective. The planner will be functioning over the next decade in a very dynamic, complex and challenging political, economic, technological and social environment, and will require very effective planning efforts to cope with such changing environment. This article presents an approach and methodology that a planner could use in his/her organization's planning process. To the best of our knowledge, very few organizations—profit and non-profit oriented—undertake a formal long-term environmental forecast. This article might encourage several planners to examine this area of long range planning in their respective organizations. The long- term environmental forecasting approach presented in this article could be applied by planners in all types of organizations—small or large, profit oriented or non-profit oriented, old or new. This article, however, is based on a study which the authors did for a non-profit organization.     

The future of U.S. government—corporate relations

The future of government—corporate relations in the United States was studied using the Delphi research methodology. An expert panel estimated the dates of occurrence for 55 events, forming a futures scenario. The events were grouped into the five topic areas of the natural environment, employment, corporate governance, the economy and regulation/planning. The findings from the research indicated that the federal government will play an increasingly active and important role in the regulation of business over the next 20 years. However, there will not be drastic changes in structure or major discontinuities in the institutional relationships.     

Financial reporting and changing prices—A review of the issues

The problem of accounting for changing prices, which has been discussed in the academic literature for over 50 years, has affected a wider population in the last decade as regulatory bodies in both the UK and US have developed standards requiring companies to report the effects of changing prices in their accounts. The issues raised illustrate the difficulty of defining and measuring income. Some affected by these developments argue that any price level adjustments are too subjective and wish to adhere to traditional historical cost accounting. Others who accept the case for reform cannot agree on whether allowance should be made for general price changes, specific price changes or both. Agreement cannot be reached either on the benchmark for measuring profit—whether it should be a financial or a physical one—or on the appropriate basis of valuation for the assets of a company. These issues are examined in the light of assumed user needs, showing the effects of some alternatives on profit. The requirements of the UK and US standards, and of a new proposed UK standard, are outlined to illustrate the opinions of the standard setters on these issues; these standards, though similar in parts, differ in a number of respects, particularly over what types of price change should be reflected in accounting information—and how—and what definition of income should be used.     

Does European Union policy making explain accounting choices? An empirical analysis of the effects of investigations by the Directorate General for Competition on accounting choices

The hypothesis that political costs caused by the regulatory process impact upon accounting has been tested extensively and has found considerable empirical support. However, most studies use data from the United States. Whether the conclusions carry over to different institutional settings is an open question. This study exploits the fact that, in the European Union, there exists a policy area—competition policy—in which the European Commission can act in a manner significantly less constrained than in most other policy areas, imposing substantial fines on companies found to be in infringement of European competition regulations. Companies investigated by the Commission’s Directorate General for Competition have strong incentives to deflect attention and keep a low profile. It is conjectured that such companies will use income-decreasing accruals in order not to appear to be making unjustified profits. The results confirm this conjecture.     

USING SENSITIVITY ANALYSIS TO EVALUATE MATERIALITY*

A large body of the published research in financial accounting provides strong and persuasive evidence on the association between accounting numbers and stock prices but falls short of drawing any implications about accounting policies on measurements or on reporting. Attempting to go beyond association the author of this paper provides an application of a possible methodology for evaluating materiality of accounting measurements in a given decision situation. The methodology employs discriminant analysis in which the sensitivity of the discriminating model to the changes in mean earnings per share provides a decisions reaction scale and shows that a change in mean earnings per share equal to or less than 10% does not significantly affect the prediction. The validity of the results would depend on the correspondence between this model and the behavior of decision-makers. However, in situations such as the one chosen here, in which an investor's decision-making process cannot be normatively structured, appropriate statistical methods effectively can be utilized to describe the process.     

An Integrated Accounting for Firms,Job Positions and Employment

ABSTRACT: Using flow analyses for the various population areas and the social accounting that may be developed using the data from these analyses, enables us to better comprehend labour market dynamics. This comprehension is taken a step further if we interrelate this accounting system to that of the productive system. This paper deals with the more limited task of formulating an integrated accounting system for firms, job positions and employment, in order to clarify the concepts of an individual‘s stay in the employment area — both on a stay-by-stay basis and throughout the course of his or her entire working life — and that of mobility. The paper similarly touches on problems found in measuring flows, discusses the concept of definitive exit and its analytical relevance, and finally examines some recent Italian contributions on the topics of birth and death rates amongst firms and employment flows.     

Perspective for operational research

The paper discusses the present state of Operational Research in industry and commerce. It reviews historical development of the subject stemming initially from the studies of the production process and leading to its deployment of problems in finance, purchasing and marketing. The paper discusses the relevance of mathematical modelling in these areas and suggests that the time is coming when further research in mathematical programming will no longer be productive. Areas for further development of the subject are suggested, including accounting measures, finance and investment, human problems, effectiveness of organizational structure, organizational objectives and measures of objective achievement.     

A Duration‐sensitive Measure of the Unemployment Rate: Theory and Application

The measurement of unemployment, like that of poverty, involves two distinct steps: identification and aggregation. In this two‐step process, the issue of identifying the unemployed has received considerable attention but, once the unemployed have been identified, the aggregation issue has been addressed by simply ‘counting heads’: the unemployment rate is conventionally defined as the proportion of the labour force that, on a given date, is unemployed. This, in particular, leads to differences between individuals, in their unemployment experiences being ignored when the unemployment rate is being computed. This paper — predicated on the proposition that what matters to a person is not just the fact of unemployment but also its duration — proposes a methodology, derived from the measurement of income inequality, for adjusting unemployment rates so as to make them ‘duration‐sensitive’. In consequence, different values of the ‘duration‐sensitive’ rate will, depending upon the degree of inequality in the distribution of unemployment duration, and upon the extent to which society is averse to such inequality, be associated with the same value of the conventionally defined unemployment rate. A numerical example, based on published data for seven major OECD counties, illustrates the methodology.     

The Aggregation of Expert Judgment: Do Good Things Come to Those Who Weight?

Good policy making should be based on available scientific knowledge. Sometimes this knowledge is well established through research, but often scientists must simply express their judgment, and this is particularly so in risk scenarios that are characterized by high levels of uncertainty. Usually in such cases, the opinions of several experts will be sought in order to pool knowledge and reduce error, raising the question of whether individual expert judgments should be given different weights. We argue—against the commonly advocated “classical method”—that no significant benefits are likely to accrue from unequal weighting in mathematical aggregation. Our argument hinges on the difficulty of constructing reliable and valid measures of substantive expertise upon which to base weights. Practical problems associated with attempts to evaluate experts are also addressed. While our discussion focuses on one specific weighting scheme that is currently gaining in popularity for expert knowledge elicitation, our general thesis applies to externally imposed unequal weighting schemes more generally.     

‘Management Standards’ work-related stress in the UK: practical development

Research commissioned for the UK's Health & Safety Executive (HSE) supports the view that a preventative, risk-assessment based approach would be more effective than case-based methods in achieving a nationwide reduction in work-related stress. The background to this approach is described and discussed in a companion paper in this issue (Mackay, Cousins, Kelly, Lee, & McCaig, ). The present paper describes the development of HSE's new stress Management Standards—which offer organizations continuous improvement through a three-phase stress preventative process—and the development of a supporting ‘Indicator Tool’ (a two-phase questionnaire to assess employee perceptions of working conditions). The Management Standards comprise a series of ‘states to be achieved’, which are statements of good practice in six key stressor areas: demands, control, support, relationships, role and organizational change. For each stressor area there is also a ‘platform statement’ that outlines the main aims to be achieved by the organization. This statement may include a target percentage of employees finding that the organization meets the standard: this matter will be settled after the standards have been assessed in a public consultation campaign. To use the new process, an organization's state can first be assessed using the Indicator Tool; liaising with workers in focus groups enables a further exploration of issues raised; finally, there may be formulation of interventions and subsequent review. It is not intended that the standards will be legally enforceable. HSE's aim is that they and the associated methodology will enable organizations to effectively tackle work-related stress, and subsequently reduce both its incidence and prevalence.     

A success story on improving white collar productivity: Implications for engineering management

This paper discusses the experience of the American Productivity Center and seventeen corporations that particpated in a two-year action research project that tested the Center's six-phase methodology for improving productivity in the white collar workplace.The six-phase methodology was implemented in 98 pilot groups representing the full range of “knowledge worker” environments: accounting and finance, customer service, engineering, facilities management, marketing and sales, operations, MIS personnel/HRM, research and development, and purchasing. The project demonstrated that white collar work can be measured; worthwhile improvements are possible in all functional areas; and the managerial, professional and support staff can lead the improvement process on a continuous basis.     

Stepwise Multiple Testing as Formalized Data Snooping

In econometric applications, often several hypothesis tests are carried out at once. The problem then becomes how to decide which hypotheses to reject, accounting for the multitude of tests. This paper suggests a stepwise multiple testing procedure that asymptotically controls the familywise error rate. Compared to related single‐step methods, the procedure is more powerful and often will reject more false hypotheses. In addition, we advocate the use of studentization when feasible. Unlike some stepwise methods, the method implicitly captures the joint dependence structure of the test statistics, which results in increased ability to detect false hypotheses. The methodology is presented in the context of comparing several strategies to a common benchmark. However, our ideas can easily be extended to other contexts where multiple tests occur. Some simulation studies show the improvements of our methods over previous proposals. We also provide an application to a set of real data.     

Expertise-based lobbying and accounting regulation

It has long been recognised that accounting regulation is not a mere technical exercise but one that takes place in a political context and lobbying has been examined in numerous empirical studies. Most of these studies address lobbying of the accounting standard setter. However, standard setting is embedded in a political and institutional context. In their decision-making, these institutions depend on the expertise of potentially self-interested lobbyists. This expertise-provision element tends to be ignored in most lobbying studies. The present paper proposes an analytical model of lobbying of an accounting regulator that explicitly focuses on the provision of relevant information by lobbyists. It suggests that lobbying will generally be non-controversial, i.e. either those opposed to a standard will lobby or those favouring it, but not both. Analysis of the model furthermore implies an important role for the regulator’s ex ante leanings, both perceived and real, even when the regulator treats all information received impartially. This implies an important role for the institutional context of accounting regulation.     

The Cost of Children When Children are a Choice

The standard methods of measuring the cost of children are flawed because of the endogeneity of fertility decisions and because — even if they were exogenous — children bring (or may bring) utility to the household. This paper presents a simple structural model of household allocation of time and income to ‘children’s (quantity and quality) production’. From the estimates one can compute the cost of children as the market value of resources devoted to children. Some policy simulations illustrate the relevance of accounting for the endogeneity of children.     

Innovation: The way out of the recession?

A nation may easily have more than enough of any one commodity though she can never have more than enough of commodities in general: Faced with the possibility of a prolonged recession the introduction of innovations into manufacturing industry is essential. With the likelihood of a declining role for the already industrialized countries—while that of the developing countries will continue to grow as current technologies are still expanding there—an equilibrium will eventually be reached. New technologies must be found to provide the basis for a new growth in the economic cycle.     

Korreferat zum Beitrag: Hanno Merkt,Die Rolle des Bilanzrechts in der aktuellen Corporate Governance-Diskussion

Objective of my discussion is to assess the findings of Hanno Merkt and to provide some suggestions regarding several of the discussed issues. The coactions of company law and capital market regulation as well as codices pertaining to accounting and corporate governance as mentioned by Hanno Merkt call for a differentiated approach. In particular, a distinction regarding capital market orientation of companies as well as regarding differing purposes of individual and consolidated financial statements has to be made. Also, I encourage the research community to discuss the company’s management and monitoring philosophy (“Unternehmensinteresse”) and its enforcement in more detail (again). In my opinion, financial reporting serves the purpose of accountability and therefore is—in this sense—only a part of corporate governance in the area of capital markets.     

A Measure of Throughput Orientation: Scale Development and Nomological Validation

Throughput orientation, although a well‐established concept in operations management and well recognized by practitioners, has received limited empirical attention potentially due to lack of a psychometrically validated scale. Based on the tenets of throughput orientation—mindset, methodology, and measurement—we propose and develop a psychometrically validated 26‐item scale of throughput orientation (TO). To lower the possibility of nonfalsifiability between TO and performance, we draw on an unexplored context—bank branches in India—where we expect this relationship to be weaker. Furthermore, as throughput in operations is mainly dependent on market demand, market orientation (MO) is proposed as a nomological moderator strengthening the TO‐performance relationship. Using a sample of 173 branch managers of a major private bank in India, we validate the throughput orientation scale, and find that MO strengthens the relationship between TO and performance.