The Solution
Performance Evaluation for our purposes is the periodic
review of operations to ensure that the objectives of the enterprise
are accomplished. A corporation’s performance evaluation system
is part of its financial control system. What this means, is that
the Global Organization must have and use accounting information
to evaluate domestic and foreign operations. Assessing performance
of a Global Organization therefore must be accomplished through
the use of corporate information systems.
Because of the possible impact of errors in performance evaluation,
companies should be flexible in their approach when establishing
the rules, methods, etc. Using corporate information systems to
evaluate foreign and domestic operations is an imperfect process,
but, because of foreign exchange rate fluctuations, evaluating foreign
operations is even worse. One must understand the companies’
consolidation policies and how they translate the financial statements
of their foreign operations. If one is to use the parent company’s
currency for financial measures, then one must also understand the
environment nuances that each subsidiary operates within.
Common Corporate Information Systems
The primary tool then, for assessing performance
and management control must be the corporate information system
(s). These systems are not just used exclusively used by controllers,
but are used more and more by managers throughout the organization.
These systems provide the information necessary to plan, control,
evaluate and coordinate all business activities. The design of accounting
information systems is extremely critical to the success of any
company, especially a transnational or global firm. There are many
design points for information systems, but at a high level and primary
among them, they must be easily shared, transferred and updated
between the parent and its subsidiaries.
Because accounting information needs vary between countries, cultures,
senior management and individual country management, the only viable
approach to current consolidated information is through these information
systems. Foreign subsidiaries, therefore, should not be forced to
use the same system as the parent company (assuming of course that
parent and subsidiary are in different countries.) Since these systems
provide the capability to compare or model various financial statements
and reports using differing accounting approaches to account for
economic, political environments, legal constraints, and even sociological
differences in the country (s) of operation. They must therefore
be designed or modified to adapt to each other.The organizational
form needs to be understood in order to get a clearer picture of
the information flows. Although flow may change, the information
itself does not. In any case, information about foreign operations
is collected, processed, integrated and reported with in the parent
companies systems.
Financial Performance
Foreign subsidiaries must be evaluated on their performance as a supplier, as well as how much after tax profit in USD they earned. Foreign subsidiaries may not necessarily be or possibly shouldn’t be evaluated on after tax USD as their primary objective. This evaluation can be accomplished via information flow and reporting through the parent and subsidiary information systems. Foreign subsidiary financial reporting in their own currency may present a more meaningful picture of their activities. Global Corporations should require their managers and directors to become familiar with the foreign currency (s) operating results in addition to their own currency information. This would reduce the load on the information systems until such time as they can be integrated, modified or replaced. Integrating systems on this scale, although technologically feasible, is by no means quick and easy. Nonetheless, the education for senior management could be eye opening.
Enterprise/ Local Power
In addition to financial performance measurement in a Global Corporation, the attitude of senior management toward the various business subsidiaries is very important. Their approach should be to narrow in on worldwide objectives and consider their foreign subsidiaries as part of the whole. This means that senior management must establish standards for evaluation and control that are not only universal, but local as well. The structure needs to facilitate global decision coordination, while responding to host governments and consumers.
Conclusion
Evaluating the performance across the enterprise becomes more complex, but much more important in a global organization.
