ROI is computed by multiplying a margin times turnover as follows:

The ROI measure is intended to motivate managers to make their divisions lean, efficient, and profitable. However, the exclusive use of ROI may motivate short-sighted decision making.

a. Provide two examples of how the margin component of ROI may be managed for short-term benefit with long-run consequences.

b. Provide two examples of how the turnover component of ROI may be managed for short-term benefit with long-run consequences.

c. How does the balanced scorecard approach reduce the incentive for managers to focus on activities that result in short-term benefits and long-term consequences?

Operating income Sales Sales Operating assets