Posted: July 6th, 2016

What can a firm do to reduce goal incongruence caused by using “return on investment” for performance evaluation?

a) What is goal incongruence?
b) How can using the metric “return on investment” for performance evaluation lead to goal
incongruence?
c) What can a firm do to reduce goal incongruence caused by using “return on investment” for
performance evaluation?

Problem: A garden store prepares various grades of pine bark for mulch: nuggets, mini nuggets, and chips.The following table gives information regarding the different requirements.
Nuggets Mini-Nuggets Chips
Bark 5 6 3
Machine time (minutes) 2 4 5
Labor time (hours) 2 4 3
Storage (bags) 1 1 1

In addition, there are only 600 pounds of pine bark, 600 minutes of machine time, 480 hours of labor time, and 150 bags in storage. The profits are $9, $9, and $6, respectively for every bag of nuggets, mini-nuggets, or chips.