Professional Documents
Culture Documents
12-2 Goal congruence results when the managers of subunits throughout an organization strive to
achieve objectives that are consistent with the goals set by top management. In order for the
organization to be successful, the managers and employees throughout the organization must
be striving toward consistent goals.
(a) The managers of an organization's subunits have specialized information and skills that
enable them to manage their departments most effectively.
(b) Allowing managers autonomy in decision making provides managerial training for future
higher-level managers.
(c) Managers with some decision-making authority usually exhibit greater motivation than
those who merely execute the decisions of others.
(d) Delegating some decisions to lower-level managers provides time relief to upper-level
managers.
(e) Delegating decision making to the lowest level possible enables an organization to give a
timely response to opportunities and problems.
(a) Managers in a decentralized organization may have a narrow focus on their own units'
performance.
(b) Managers may tend to ignore the consequences of their actions on the organization's other
subunits.
(b) Revenue center: A responsibility center, the manager of which is accountable for the
subunit's revenue. (An example is a sales district in a wholesaling firm.)
(c) Profit center: A responsibility center, the manager of which is accountable for the subunit's
profit. (An example is a particular restaurant in a fast-food chain.)
(d) Investment center: A responsibility center, the manager of which is accountable for the
subunit's profit and the capital invested to generate that profit. (An example is a commuter
airline division of an airline company.)
12-5 It would be appropriate to change a particular hotel from a profit center to an investment center
if the manager of the hotel is given the authority to make significant investment decisions
affecting the hotel's resources.
12-6 Flexible budgeting allows a performance report to be constructed in a meaningful way. The
performance report should compare actual expenses incurred with the expenses that should
have been incurred, given the actual level of activity. The expenses that should have been
incurred given the actual level of activity can be obtained from the flexible budget.
12-8 Attention to the following two factors may yield positive behavioral effects from a
responsibility-accounting system.
(a) When properly used, a responsibility-accounting system does not emphasize blame. The
emphasis should be on providing the individual who is in the best position to explain a
particular event or financial result with information to help in understanding reasons behind
the event or financial result.
12-9 Rarely does a single individual completely control a result in an organization. Most results are
caused by the joint efforts of several people and the joint impact of several events.
Nevertheless, there is usually a person who is in the best position to explain a result or who is
in the best position to influence the result. In this sense, performance reports based on
controllability really are based on a manager's ability to influence results.
12-10 (a) Cost pool: A collection of costs to be assigned to a set of cost objects. (An example of a
cost pool is all costs related to material handling in a manufacturing firm.)
(b) Cost object: A responsibility center, product, or service to which a cost is assigned. (The
various production departments in a manufacturing firm provide examples of cost objects.
For example, the material-handling cost pool may be allocated across the various
production departments that use material-handling services.)
12-11 Cost allocation (or distribution): The process of assigning costs in a cost pool to the
appropriate cost objects. (An example of cost allocation would be the assignment of the costs
in the material-handling cost pool to the production departments that use material-handling
services. For example, the material-handling costs might be allocated to production
departments on the basis of the weight of the materials handled for each department.)
12-13 A computer system has a limited capacity at any one time. Allocating the cost of using the
service to the user makes the user aware that his or her use of the system may preclude
someone else from using it. Thus, the user is made aware of the potential opportunity cost
associated with his or her use.
12-15 Marketing costs are distributed to the hotel's departments on the basis of budgeted sales
dollars so that the behavior of one department does not affect the costs allocated to the other
departments. If, on the other hand, the marketing costs had been budgeted on the basis of
actual sales dollars, then the costs allocated to each department would have been affected
when only one department's actual sales revenue changed.
12-16 A segmented income statement shows the segment margin for each major segment of the
enterprise.
12-17 Many managerial accountants believe that it is misleading to allocate common costs to an
organization's segments. Since these costs are not traceable to the activities of segments, they
can be allocated to segments only on the basis of a highly arbitrary allocation base.
12-19 Three key features of a segmented income statement are as follows: contribution format,
identification of controllable versus uncontrollable expenses, and segmented reporting, which
shows income statements for the company as a whole and for each of its major segments.
12-20 A common cost for one segment can be a traceable cost for another segment. For example, the
salary of the general manager of a hotel is traceable to that segment of the entire hotel
company. However, the salary of the hotel's general manager is a common cost for each of the
departments in that hotel, such as the food and beverage department and the hospitality
department.
12-21 Customer profitability analysis refers to using the concepts of activity-based costing to
determine how serving particular customers causes activities to be performed and costs to be
incurred. Examples of activities that can be differentially demanded by customers include order
frequency, order size, special packaging or handling, customized parts or engineering, and
special machine setups. Such activities can make some customers more profitable than others.
(c) Internal failure costs: the costs of repairing defects found prior to product sale.
(d) External failure costs: the costs incurred when defective products have been sold.
12-23 Observable quality costs can be measured and reported, often on the basis of information in
the accounting records. For example, the cost of inspectors' salaries is an observable quality
cost. Hidden quality costs cannot easily be measured, reported, or even estimated. For
example, the opportunity cost associated with lost sales after a defective product is sold is a
hidden quality cost to the company.
12-24 A product's quality of design is how well it is conceived or designed for its intended use. The
product's quality of conformance refers to the extent to which a product meets the
specifications of its design.
12-25 A product's grade is the extent of its capability in performing its intended purpose, viewed in
relation to other products with the same functional use. An example in the service industry is
airline travel. Airplane seats may be coach class or first class; the difference lies in seat size,
comfort, and service. Either class will take you from Los Angeles to Chicago, but not with the
same degree of comfort.
12-26 "An ounce of prevention is worth a pound of cure" can be interpreted in terms of resources
expended on various categories of quality costs. A dollar spent on prevention may save many
dollars of appraisal, internal failure, or external failure costs.
12-27 A cause and effect diagram shows by means of connected lines all the possible causes of a
particular type of defect in a product or service.
The type of responsibility center most appropriate for each of the following organizational
subunits is indicated below.
(1) Since the cost of idle time incurred in Department B was due to the breakdown of
improperly maintained machinery in Department A, the costs of the idle time
should be charged to Department A.
(2) If the machinery had been properly maintained, it would be more appropriate not to
charge the cost due to idle time in Department B back to Department A. This cost
should be considered a normal cost of operating in a sequential production
environment. The managers of Department B should anticipate such normal
machine breakdowns and plan their production scheduling to accommodate such
events.
The Maintenance Department should not be charged for the excess wages of the skilled
employees who are temporarily assigned to the Maintenance Department. Modifications
should be made in the responsibility-accounting system as follows: (1) the Maintenance
Department should be charged with only the normal wages for maintenance employees, $12
per hour. (2) The additional $10 per hour ($22 $12) should be charged to a top
management level account, since the decision to keep these employees on the payroll was
made by top management.
By designating this department as a profit center, the corporation has given the managers
of the department an opportunity to manage their operation just like a full-fledged business.
These managers have specialized knowledge and skills that make them experts in the area
of logistics and distribution. They are in the best position to read the needs of other units to
whom they provide logistics services, and are also in the best position to make cost-benefit
trade-offs that arise in the provision of logistical services. By treating this service
department as a profit center, the organization has given its managers an incentive to
control costs and also provide a quality service that meets the needs of its customers.
A profit center such as this might not be free to sell its services outside the company.
Moreover, the creation of this profit center suggests the need for an internal pricing
structure for services supplied to other subunits.
Kitchen
Kitchen staff wages................ $ (85) $ (253) $ (86) $ (255) $1 U $ 2U
Food........................................ (690) (2,110) (690) (2,111) 1U
Paper products....................... (125) (375) (122) (370) 3F 5F
Variable overhead................... (75) (225) (78) (232) 3U 7U
Fixed overhead....................... (90) (270) (93) (274) 3 U 4U
Total expense.......................... $(1,065) $ (3,233) $(1,069) $ (3,242) $4 U $ 9U
*Numbers without parentheses denote profit; numbers with parentheses denote expenses.
F denotes favorable variance; U denotes unfavorable variance.
**Year-to-date column equals year-to-date column for February in Exhibit 12-4 in the text plus March amount.
For example, $1,910 equals $1,260 plus $650.
1. Allocation of costs:
Division
The Admissions Department costs are allocated on the basis of enrollment. The more
students enrolled in a division, the more admissions there are to process.
The Registrar's costs are allocated on the basis of credit hours. The greater the
number of credit hours, the more course registrations there are to process.
The Computer Services Department's costs are allocated on the basis of the
number of courses requiring computer work. The greater the number of computer-
intensive courses, the greater will be the demands placed on the Computer Services
Department.
2. The number of courses would probably be a better allocation base for the Registrar's
costs. Costs in this department are driven by processing course registrations, not
credit hours. A four-credit course does not require any more registration effort than a
three-credit course.
1. appraisal cost
4. prevention cost
Cost of providing lodging for passengers stranded when a flight is cancelled due to
equipment malfunction.
Cost of lost flight bookings when potential passengers are unable to get through to
the airline's reservations service.
Cost of lost flight bookings when passengers react to cancelled or late flights.
Answers will vary widely, depending on the company chosen. Some examples are as
follows:
A wide range of possible responses is possible for this problem. The organization chart and
companion chart showing responsibility accounting designations should be similar to the
charts given for Aloha Hotels and Resorts in Exhibits 12-1 and 12-2, respectively. The letter
to stockholders should specify the responsibilities of the managers shown in the charts.
Refer to the discussion of Exhibits 12-1 and 12-2 in the text. The charts in Exhibits 12-1 and
12-2 are repeated here for convenience.
RESPONSIBILITY
MANAGER CENTER
Director of Food
and Beverage Department Profit
Center
Cost
Head Chef
Center
Once again, a wide range of responses is possible, depending on the organization designed
in the preceding problem. The format for the performance reports is given in Exhibit 12-4 for
Aloha Hotels and Resorts. This exhibit is repeated here for convenience.
* Numbers without parentheses denote profit; numbers with parentheses denote expenses.
Memorandum
Date: Today
The Waikiki Sands Hotel is a profit center as specified by the corporation's top
management. The hotel's general manager does not have the authority to make significant
investment decisions, so an investment-center designation would be inappropriate for the
hotel. The Grounds and Maintenance Department and the Housekeeping and Custodial
Department should be cost centers, since these departments do not generate revenue. The
Food and Beverage Department should be a profit center, since the department's manager
can influence both the costs incurred in the department and the revenue generated. The
Food and Beverage Director can determine the menu, set meal prices, and make
entertainment decisions, all of which significantly influence the department's revenue.
The Hospitality Department also should be a profit center. The Director of Hospitality
has significant influence in setting room rates and making decorating decisions, which
affect the department's revenue. The Director also makes hiring and salary decisions for the
department's staff, which significantly affect departmental expenses. The Hospitality
Department's three subunits (Front Desk, Bell Staff, and Guest Services) should be cost
centers, since they do not generate revenue. The managers of these subunits can
significantly influence the costs incurred in their units through hiring and salary
recommendations, staff scheduling, and use of materials and equipment.
1. Performance Report for August: Selected Subunits of Rocky Mountain General Hospital
2. Arrows are included on the performance report to show the cost relationships.
3. A variety of responses are reasonable for this question. Since the data given in the
problem do not include the individual variances over several months, it is not possible
to condition the investigation on trends. The largest variances in the performance
report are the most likely to warrant an investigation. The following variances for
August would likely catch the attention of the hospital administrator:
The $1,000 variance for food servers' wages is smaller than some of the variances
not listed above. However, it is a relatively large variance for only one cost item in the
subunit. In contrast, the $1,600 variance for the kitchen is for an entire subunit of the
hospital.
1.
Cost Allocation Percentage Costs
Pool Division Base of Total Distributed
Facilities General Medicine.......... 15,000 sq. ft. 37.5% $ 71,250
Surgical.......................... 8,000 sq. ft. 20.0% 38,000
Medical Support............ 9,000 sq. ft. 22.5% 42,750
Administrative............... 8,000 sq. ft. 20.0% 38,000
Total............................... 40,000 sq. ft. 100.0% $190,000
2. An alternative allocation base for community outreach costs is the number of hours
spent by each division's personnel in community outreach activities. This base would
be more reflective of the actual contribution of each division to the program.
3. The reason for allocating utility costs to the divisions is so that each division's cost
reflects the total cost of running the division. Since none of the divisions can operate
without electricity, heat, water, and so forth, these costs should be reflected in
divisional cost reports. By allocating such costs, division managers are made aware
of these costs and are able to reflect the costs when pricing services and seeking
third-party reimbursements, such as those from insurance companies.
Calculations:
Sales revenue: Las Vegas, 37,000 units x $12.00; Reno, 41,000 units x
$11.00; Sacramento, 46,000 units x $9.50
Cost of goods sold: Las Vegas, 37,000 units x $5.50; Reno, 41,000
units x $5.50; Sacramento, 46,000 units x $6.00
Sales commissions: Las Vegas, $444,000 x 6%; Reno, $451,000 x 6%;
Sacramento, $437,000 x 6%
Las Vegas and Reno have much higher markups on cost [118%( $6.50/$5.50) and
100% ($5.50/$5.50), respectively]. However, Sacramentos markup is only 58%
($3.50/ $6.00).
Despite being the only store that has a sales manager, and spending
considerably more on advertising than Las Vegas and Reno, Sacramento has the
lowest gross dollar sales of the three stores. Sacramentos return on these
outlays appears inadequate.
Sacramentos other noncontrollable costs are much higher than those of Las
Vegas and Reno.
3. Show-Off uses a responsibility accounting system, meaning that managers and centers
are evaluated on the basis of items under their control. Since this is a personnel-type
decision, the decision should be made by reviewing the profit margin controllable by the
store (i.e., segment) manager. The segment contribution margin excludes fixed costs
under a store managers control; in contrast, a stores segment profit margin would
reflect all traceable costs whether controllable or not.
$ % of Sales $ % of Sales
Sales revenue:
$60,000 x 80; $55,000 x 100... $4,800,000 $5,500,000
Prevention:
Reliability engineering
1,600 hours x $150 $ 240,000
2,000 hours x $150 $ 300,000
Quality training. 35,000 50,000
Total $ 275,000 5.73% $ 350,000 6.36%
Appraisal (inspection):
300 hours x $50. $ 15,000 .31%
500 hours x $50. $ 25,000 .45%
Internal failure (rework at AT):
80 units x 35% x $1,900.. $ 53,200 1.11%
100 units x 25% x $1,600 $ 40,000 .73%
External failure:
Warranty costs:
80 units x 70% x $1,200 $ 67,200
100 units x 10% x $400. $ 4,000
Transportation to customers 29,500 15,000
Total $ 96,700 2.01% $ 19,000 .35%
Total quality costs.. $ 439,900 9.16% $ 434,000 7.89%
4. Yes, the company is investing its quality expenditures differently for the two
machines. Advanced is spending more up-front on no. 172 with respect to prevention
and appraisalover 86% of the total quality expenditures. (This figure is approximately
66% for no. 165.) The net result is lower internal and external failure costs and, perhaps
more important, lower total quality costs as a percentage of sales (7.89% for no. 172 and
9.16% for no. 165).
This problem illustrates the essence of total quality management systems when
compared with conventional quality control procedures. Overall costs are lower with
TQM when compared against systems that focus on after-the-fact detection and
rework.
5. Prevention, appraisal, internal failure, and external failure costs are observable in the
sense that such amounts can be measured and reported. When inferior products make
it to the marketplace, customer dissatisfaction will often increase, resulting in lost sales
of the defective product and perhaps other goods as well. The cost of these lost sales
is an opportunity costa hidden cost that is very difficult to measure.
*$210 = $160 listed in table + $50 not allocated. $1,000 = $900 listed in table + $100 not allocated.
Responsibility-accounting system:
1. At least two potential behavioral advantages if Building Services Co.'s (BSC's) managers
accept and participate in the development of budgets are as follows:
2. At least two potential problems that could arise if the managers do not accept the
change in philosophy are as follows:
They could resent being measured on an individual basis, since they may be
responsible for costs over which they have no control.
The could focus too much on their own department's goals at the possible detriment
to the organization as a whole (suboptimization).
3. If the managers support the new system, and most of the disadvantages pointed out
above are avoided, the responsibility-center system will enhance the alignment of
organizational and personal goals. Since Commercial Maintenance, Inc. (CMI) took the
time to fully explain and communicate the system to BSC's managers, by pointing out
the advantages and encouraging their participation, organizational and personal goals
will likely become aligned.
BSC's managers are likely to accept the system and be motivated to attain the
budget targets, since they were actively involved in setting the goals and know what
is expected of them.
The managers could be motivated to "pad" their budgets, putting slack in the plan to
ensure meeting the goals.
Memorandum
Date: Today
From: I. M. Student
1. Cost-efficient production: The firm must meet the market price, which implies
producing in a cost-efficient manner.
2. High product quality: Stated by the company president as necessary for success.
3. On-time delivery: Also noted by the company president as critical to the firm's success.
Note that the product price is not a critical success factor, since it is largely beyond the
company's control. The price is determined by the market.
The sales districts should be revenue centers, in which the sales district managers are
accountable for meeting sales projections.
Suppose the plants are cost centers and the sales districts are revenue centers. When
a rush order comes in, the plant manager's incentive is to reject it because rush orders tend
to increase production costs (due to increased setups, interrupted production, etc.). The
sales district manager's incentive is to push rush orders, because accepting a rush order
results in a satisfied customer and increased future business. Thus, there is a built-in
conflict between the plant managers and the sales district managers.
If the plants are profit centers, then each plant manager is encouraged to consider both
the costs and the benefits of a rush order. The cost is increased production cost, and the
benefit is a satisfied customer. Since the plant manager is rewarded for achieving a profit,
he or she has an incentive to weigh the cost-benefit trade-off inherent to the rush-order
problem.
In conclusion, I recommend that the plants be designated as profit centers and the
sales districts be designated as revenue centers.
2. From an analysis of the cost-of-quality report, the program appears to have been
successful, because of the following:
Total quality cost has declined from 23.4 to 13.1 percent of total production costs.
Internal failure costs have been reduced from 4.6 to 2.3 percent of production
costs, and the overall cost of scrap and rework has gone down by 45.7 percent
($188,000 $102,000)/$188,000.
Quality costs have shifted to the area of prevention, where problems are solved
before the customer becomes involved. Maintenance, training, and design reviews
have increased from 5.8 percent of total production cost to 6 percent and from 24.9
percent of total quality cost to 45.7 percent. The $30,000 increase is more than
offset by decreases in other quality costs.
3. Tony Reese's current reaction to the quality improvement program is more favorable
because he is seeing the benefits of having the quality problems investigated and
solved before they reach the production floor. Because of improved designs, quality
training, and additional preproduction inspections, scrap and rework costs have
declined. Production personnel do not have to spend an inordinate amount of time on
customer service, because they are now making the product right the first time.
Throughput has increased and throughput time has decreased. Work is now moving
much faster through the department.
Assume that sales and market share will continue to decline and then calculate the
revenue and income lost.
Assume that the company will have to compete on price rather than on quality and
calculate the impact of having to lower product prices.
Operating expenses:
Variable selling........................................ $ 90,000 $ 36,000 $ 31,500
Variable administrative........................... 37,500 15,000 13,125
Other direct expenses:.......................................
Store maintenance.................................. 12,600 7,500 600
Advertising.............................................. 75,000 50,000 5,000
Rent and other costs.............................. 150,000 60,000 45,000
District general administrative
expenses (allocated)............................... 180,000 72,000 63,000
Regional general and administrative
expenses (allocated)............................... 165,000 55,000 55,000
Total expenses.................................................... $ 710,100 $295,500 $213,225
Net Income.......................................................... $ 156,150 $ 52,500 $ 91,275
Supporting calculations:
2. The Portland store's net income for May is $12,375 ($156,150 - $52,500 - $91,275).
Because the bonus is based on sales over $570,000, the manager has concentrated on
maximizing sales and has paid little attention to controllable costs. As a result, the
store's net income is less than 9 percent of sales and only 34 percent (rounded) of total
net income.
In an effort to maximize sales, the New Haven store spent 10 times as much as the
Boston store on advertising but generated only $75,000 more in sales. Thus the
advertising must not have been very effective and should be better controlled.
Because the manager of the Boston store is motivated to maximize net income, there
appears to be a tendency to cut back on discretionary expenses, such as store
maintenance and advertising. While management is seeking cost control by
implementing a bonus based on net income, the lack of spending on these discretionary
items may have an adverse long-term effect.
The manager of the Boston store will be unhappy with the inclusion of allocated district
and regional expenses in the calculation of net income. These expenses are not likely to
be controlled by the store manager and will reduce the bonus received by the manager
of the Boston store.
4. The assistant controller's actions violate several standards of ethical conduct for
management accountants, including the following:
Competence
Prepare complete and clear reports and recommendations after appropriate analysis of
relevant and reliable information.
Integrity:
Refrain from engaging in any activity that would discredit the profession.
Objectivity:
Disclose fully all relevant information that could reasonably be expected to influence
and intended user's understanding of the reports, comments, and recommendations
presented.
Revenueb
Furniture.................... $ 512,000 $ 128,000 $ 640,000 $1,280,000
Sports........................ 1,440,000 1,440,000 720,000 3,600,000
Appliances................. 480,000 480,000 1,440,000 2,400,000
Total revenue.......... $2,432,000 $2,048,000 $2,800,000 $7,280,000
Variable costsc
Furniture.................... $ 384,000 $ 96,000 $ 480,000 $ 960,000
Sports........................ 864,000 864,000 432,000 2,160,000
Appliances................. 336,000 336,000 1,008,000 1,680,000
Total variable costs $1,584,000 $1,296,000 $1,920,000 $4,800,000
Contribution margin.... $ 848,000 $ 752,000 $ 880,000 $2,480,000
Fixed costs
Manufacturing
overheadd............... $165,000 $ 135,000 $ 200,000 $ 500,000
Depreciatione............. 134,400 96,000 169,600 400,000
Administrative and
selling expenses.... 60,000 100,000 250,000 $ 750,000 1,160,000
Total fixed costs..... $ 359,400 $ 331,000 $ 619,600 $ 750,000 $2,060,000
Operating income
(loss)............................. $ 488,600 $ 421,000 $ 260,400 $ (750,000) $ 420,000
SUPPORTING CALCULATIONS
a
Sales in units
Canada
Furniture............................................. 160,000 .10 16,000
Sports.................................................. 180,000 .40 72,000
Appliances.......................................... 160,000 .20 32,000
Asia
Furniture............................................. 160,000 .50 80,000
Sports.................................................. 180,000 .20 36,000
Appliances.......................................... 160,000 .60 96,000
b
Revenue
Canada
Furniture................................................... 16,000 8.00 128,000
Sports........................................................ 72,000 20.00 1,440,000
Appliances................................................ 32,000 15.00 480,000
Asia
Furniture................................................... 80,000 8.00 640,000
Sports........................................................ 36,000 20.00 720,000
Appliances................................................ 96,000 15.00 1,440,000
Canada
Furniture........................... 16,000 4.00 2.00 96,000
Sports................................ 72,000 9.50 2.50 864,000
Appliances........................ 32,000 8.25 2.25 336,000
Asia
Furniture........................... 80,000 4.00 2.00 480,000
Sports................................ 36,000 9.50 2.50 432,000
Appliances........................ 96,000 8.25 2.25 1,008,000
d
Manufacturing overhead
Area Proportion
Total Units of Allocated
Depreciation Sold Total Depreciation
United States $400,000 168,000 33.6% $134,400
Canada... 400,000 120,000 24.0% 96,000
Asia. 400,000 212,000 42.4% 169,600
Total 500,000 $400,000
2. Areas where the companys management should focus its attention in order to
improve corporate profitability include the following:
The income statement by product line shows that the furniture product line may
not be profitable. The furniture product line does have a positive contribution.
However, the fixed costs assigned to the product line result in a loss. Management
should investigate:
How much of the fixed costs allocated to furniture are separable (avoidable) if
the product line is discontinued.
The income statement by geographic area shows that the Asian market is the least
profitable sales area. In order to improve the profit margin in the Asian market,
management should:
Investigate the selling and administrative expenses in this area as they are
considerably higher than those in other areas.
1. Firestone should have been more aggressive in keeping an eye out for defects since
it previously had a major problem with tread peeling off its tires. Ford should have
kept its own records of tire performance instead of depending on Firestone's
reassurances.
2. The value chain is a set of business functions that add value to the products or
services of an organization. The value chain includes functions such as the
following: research and development: design of products, services, or processes;
production; marketing; distribution; and customer service. In this scenario, Ford
and Firestone are each part of the others value chain.
ISSUE 12-53
MANAGER'S JOURNAL: ANOTHER JACK WELCH ISN'T GOOD ENOUGH," THE WALL
STREET JOURNAL, NOVEMBER 22, 1999, MICHAEL ALLEN.
The next leader of GE will need to have even bigger ideas and imagination than today's
CEO. He or she must have the vision and foresight to anticipate what the enterprise will
need to become over the next 20 years. He or she will need to lead leaders and have the
political skills to deal with challenges from outside the company.
HERB KELLEHER HAS ONE MAIN STRATEGY: TREAT EMPLOYEES WELL," THE WALL
STREET JOURNAL, AUGUST 31, 1999, HAL LANCASTER.
3. Give people the license to be themselves and motivate others in that way. Give each
person the opportunity to be a maverick.
6. Recognize that people are still the most important part of an organization. How
management treats its employees determines how they treat people outside the
company.