Carnegie Mellon University

Strategy, Performance Measurement and Corporate Governance

Course Number: 45803

The course studies the role of managerial accounting systems in developing, communicating, and implementing an organization's strategy. Much of the course is focused on incentive issues throughout the organization, including the board of directors (corporate governance), top management team (executive compensation), division heads (investment, profit, revenue, and cost centers), and lower-level managers.

Managerial accounting systems establish administrative procedures (e.g., strategic planning and budgeting), performance measures (e.g., revenues, costs, profits, ROI, EVA, variances from budget, the Balanced Scorecard, etc.), and contracts (both explicit and implicit contracts).

"Controllability" is an important selection criterion for performance measures, although other considerations such as a desire to foster team incentives can also be important. Non-financial performance measures such as those advocated by "The Balanced Scorecard" can be useful both in compensating managers and in focusing the attention of managers throughout the organization on the firm's strategic objectives. When well-designed, these non-financial performance measures are leading indicators of future profitability.

If incentive contracts are designed properly, they help mitigate moral hazard, adverse selection, and other conflicts of interest that stand in the way of successfully implementing a firm's strategy. When poorly designed, incentive contracts can be extremely dysfunctional.

Part of the course revisits the idea of relevant costs in decision making--the right cost for a decision depends on the particular decision horizon. Activity-Based Costing is a useful tool in evaluating one's own relevant costs. Managers also need to have a good understanding of their competitors' relevant costs, so as to anticipate their competitors' likely strategic responses.

This is a case-based class. The cases will usually follow a theoretically-oriented lecture that develops some of the underlying economic concepts and traditional accounting wisdom that can be applied to the case. However, the cases are more than an opportunity to repeat the ideas presented in lecture-they present an opportunity to refine and challenge the ideas presented in the lectures. We will also discuss related empirical research.

The course is intended for anyone involved in developing, communicating, implementing, and evaluating an organization's strategy. Students who intend to have a career in corporate finance, operations management, general management, or consulting should find the course particularly valuable.

Course objectives are:

1. To develop an understanding of the important economics tradeoffs involved in designing managerial accounting systems.

2. To analyze the role of managerial accounting information in a variety of contexts such as pricing, product mix, improving productivity, product design, performance measurement, and incentives.

This course was previously titled Strategic Cost Analysis. (4/13-JG)

Degree: MBA
Concentrations: Accounting, Operations Management
Academic Year: 2022-2023
Semester(s): Mini 3
Required/Elective: Elective
Units: 6


Lecture: 100min/wk and Recitation: 50min/wk