A survey of performance measurement in divisionalized companies in Kenya.

Abstract

In managing a large divisionalised company, information from the divisions to head office is essential. Such information includes performance reports conveying the performance of a division's manager or of a division as an economic entity. This study set out to survey certain aspects related to performance measurement in divisionalised companies with headquarters an Nairobi. The emphasis was on divisional autonomy, performance measurement objectives ,measures used and problems faced. Data was collected using a structured questionnaire which was addressed to the head of accounting department at company's headquarters. The study found the level of autonomy granted to divisional heads to be generally low even ln operating policy area. The consequence was affecting the aspects of performance measurement covered in the study. 'Divisional performance is measured mainly for control purpose and provision of information for planning and strategy formulation but not often for determining remuneration to division ::f1eads.Though comp~nies do not stick to just principal m~~~u;e of performarle, meeting targets set in one the budgets is the .m.•ost used measure, with residual income and return on investment being rarely used. While difficulty in defining and measuring division's costs and difficulties .in separating a division for the rest of the firm are the main problems an measuring divisi-:onal pe rf ormance . difficulty in defining and measuring divisions revenues and transfer pricing are not considered as major problems. (iii) Despite the consistency between autonomy and the aspects of performance measurement, the low level of autonomy hinders effective use of divisionalised structure. It is important that the divisional heads are granted more autonomy particularly ln operating policy area. When autonomy is increased, it has to be borne in mind that the currently used measures need to change since they may fail to reflect the performance of the division .