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Pre-Paid Legal Services, Inc.
by Paul M. Healy Jacob CohenPre-Paid Legal Services' business model reveals two key issues--managing the sales force and sales growth and managing claims. Students analyze the economics of the business and consider how to measure firm performance, how to evaluate and reward the sales force, and what services to offer. The case also discusses a Fortune article criticizing Pre-Paid Legal's method of reporting sales force commissions. Students are asked to evaluate Fortune's analysis and to recommend potential responses by Pre-Paid Legal's management.
Recognizing Revenues and Expenses: Realized and Earned
by Robert S. KaplanDescribes a key concept in financial accounting: choosing an appropriate revenue recognition point. The accrual process requires revenue recognition and expense matching for reporting on the value creation process of companies. Describes the two key criteria for revenue recognition--realized and earned--and the conditions that must be met to satisfy these criteria. The use of the typical recognition point, when the product or service is delivered to the customer, is discussed as well as situations (e.g., the percentage of competition method) when revenue can be recognized before actual delivery. A rewritten version of an earlier note.
New Profit, Inc.: Governing the Nonprofit Enterprise
by Robert S. KaplanNew Profit, Inc. (NPI) is an innovative venture philanthropy fund. Founded by social entrepreneur Venessa Kirsch, NPI intends to raise large donations from individuals who wish to invest in nonprofit enterprises that could have a significant social impact and the capability to grow to scale. NPI searches and identifies such organizations, provides initial funding, monitors their performance, and then provides additional funding to enable them to become high-impact, nationwide organizations. NPI uses the Balanced Scorecard approach for measuring both its own performance and that of its portfolio companies. The Balanced Scorecard provides the language for the performance contract between NPI and its funders and board, and between NPI and its portfolio organizations.
Cambridge Hospital Community Health Network: The Primary Care Unit
by V. G. Narayanan Lisa Brem Ryan MooreThe Cambridge Hospital Community Health Network needed to gain a better understanding of its unit-of-service costs, which had been rising at a rate of 10% per year. The network's step-down costing system gave only aggregate costing information, and there was some concern that it might be inaccurately representing the true cost of the intern and resident program, the interpretive services department, and the use of nurse practitioners. So the Primary Care Unit (PCU) initiated a pilot activity-based costing program. The case provides detailed exhibits on the methods of allocating costs using activity-based drivers.
Owens & Minor, Inc. (A)
by V. G. Narayanan Lisa BremA forward-thinking manager at Owens & Minor (O&M), a large national medical and surgical distribution company, enlisted the help of both logistics and cost managers to develop an innovative pricing schedule based on the customer's activities instead of the price of the product since the existing cost-plus pricing structure made it impossible for O&M to price services appropriately. The case also explores the customer resistance to his new proposal.
Standard International, Inc. (A)
by David F. HawkinsThe company top management must make a series of accounting decisions that will determine the company's quarterly income. A rewritten version of an earlier case.
Hollydazzle.com
by Ratna SarkarThis case describes the unique underlying economics of a start-up Internet retailing company. It highlights the fact that costs in that setting have a component that varies with volume and thus seriously impacts profitability.
Owens & Minor, Inc. (B)
by V. G. Narayanan Lisa BremAfter a manager at Owens & Minor, a national medical and surgical distribution company, proposes and develops a formalized activity-based pricing and activity-based management approach to sales and service provision, this case explore the outcome.
To Trim or Not to Trim: That Is the Question
by Srikant M. DatarShould Novartis drop 20% of its global pharmaceutical product brands that account for only 3% of its pharmaceutical revenues?
Bausch & Lomb, Inc. (A)
by Christopher F. Noe Gregory S. MillerBausch & Lomb (B&L) instituted an aggressive sales program in the final weeks of its 1993 fiscal year that pushed a large amount of inventories onto distributors. The company recognized revenues on these products when they were shipped. A rewritten version of an earlier case.
Sears, Roebuck and Co. vs. Wal-Mart Stores, Inc.
by Christopher F. Noe Gregory S. MillerThis case is designed to familiarize students with the use of financial ratios. Two retailers, Sears, Roebuck and Co. and Wal-Mart Stores, Inc., have a very similar value for return on equity (ROE) in the 1997 fiscal year. Students use the information in the case and the accompanying exhibits, which include financial statements as well as disclosures regarding corporate strategies and accounting policies for each company, to analyze the value creation process for each firm. This case provides a good introduction regarding the combination of such information to create a powerful tool for financial statement analysis. A rewritten version of an earlier case.
Asset Reporting
by Paul M. Healy Preeti ChoudharyUsing historical cost and conservatism to identify and value assets, this case explains the criteria for asset reporting in straightforward situations and then examines scenarios where implementing the criteria for recognition and valuation of assets is conceptually challenging. These more complex situations occur when: 1) Ownership or control of a resource is uncertain; 2) The economic benefits from outlays are uncertain or difficult to quantify; or 3) Resource values have changed.
Expense Recognition
by Paul M. Healy Preeti ChoudharyRecording expenses is not often clear-cut and can require considerable management judgment. This case discusses expense recognition in straightforward situations and then considers expense transactions that may be more complex to record. It uses examples that include situations in which: 1) The value of resources consumed is difficult to define; 2) Resources provide benefits for multiple years; 3) Resources are consumed, but the timing and amount of future payments is uncertain; and 4) Unused resources have declined in value.
Revenue Recognition
by Paul M. HealyThis case discusses revenue recognition in straightforward situations and then considers revenue transactions that may be more complex to record. Revenue recognition criteria can be implemented for the following situations: 1) Customers pay prior to delivery; 2) Products/services are provided over multiple years; 3) Credit-worthiness of the customer is questionable; and 4) Money-back guarantees are offered.
Financial Statement and Ratio Analysis
by Paul M. Healy Jacob CohenPrepares students for financial ratio analysis.
Novartis Pharma: The Business Unit Model
by Carin-Isabel Knoop Srikant M. Datar Cate ReavisIn June 2000, Novartis reorganized its pharmaceutical business to form global business units in oncology, transplantation, ophthalmology, and mature products. The remaining primary care products continued to be managed within global functions (e.g., R&D and marketing). The new organization created a matrix structure and new roles and responsibilities for heads of business functions, CEOs of new business units, and country managers operating in over 100 countries.
Software Associates
by Robert S. KaplanThe president of a small consulting firm has just seen his second-quarter profit and loss statement, showing an increase in revenues but a substantial decline in profits. He asks his chief financial officer to explain the results. The CFO works hard to accumulate information to explain the impact of the quantity of billed hours, billing rates, consultant expenses, operating expenses, and the shifting mix of business between the two principal product lines.
Variance Analysis and Flexible Budgeting
by Robert S. KaplanFacilitates the teaching of cases on variance analysis and flexible budgeting. Uses algebra, diagrams, and numerical examples to illustrate the calculation of price, quantity, and mix variances for revenues and costs, and a flexible budget for analyzing indirect and support costs.
Amazon.com in the Year 2000
by Krishna G. Palepu Jeremy CottAn analyst's critique of Amazon's prospectus from the perspective of its bond holders.
Revenue Recognition and Reporting
by David F. HawkinsDiscusses revenue recognition and reporting rules, guidelines, and issues. A rewritten version of an earlier note.
Montefiore Medical Center
by Robert S. Kaplan Noorein InamdarA large urban medical center implements the Balanced Scorecard management tool. Elaine Brennan, senior VP of operations, has reorganized a highly functional health care organization into decentralized patient care centers and support units. Having recently endured the pain of a major downsizing, she wants the various constituents--senior managers, physicians, nurses, technicians, and the work force--to explore implementing a new strategy focused on growth and patient care. But the existing measurement and management system reports only on costs and financial results. She introduces the Balanced Scorecard as a mechanism to increase attention to and accountability for quality, service, work environment, and employee outcomes, as well as revenues and costs.
Accounting for the Intel Pentium Chip Flaw
by Gregory S. Miller V. G. Narayanan Lisa BremInvestigates the 1994 Intel Pentium plan.