Chesterville Manufacturing makes a variety of glass products having both commercial and household applications. One of its

Question:

Chesterville Manufacturing makes a variety of glass products having both commercial and household applications. One of its newest divisions, ColOptics, manufactures fiber optic cable and other high-tech products. Recent annual operating results (in millions) for ColOptics and two older divisions follow.

Chesterville Manufacturing uses economic value added (EVA) as its only segment performance measure. Clare Cole, CEO of Chesterville, posed some serious questions in a memo to the controller, Doug Larsen, after studying the operating results. After pondering the memo and studying the operating results, Larsen passed the memo and operating results to you, his newest employee in the controller€™s office, and asked you to respond to the following questions:

Doug:
I€™m concerned about ColOptics. Its key competitor€™s sales and market share are growing at about twice the pace of ColOptics. I€™m not comforted by the fact that ColOptics is generating substantially more profits than the competitor. The mission we have established for ColOptics is high growth. Do you think we should use EVA to measure the division€™s performance and as a basis to compensate ColOptics€™ divisional management? Do we need to change our performance criteria?
Clare

a. Why would the use of EVA discourage a high-growth strategy?
b. Could the concept of the balanced scorecard be used to encourage a higher rate of growth in ColOptics?Explain.