Deck 19: Managing Quality and Performance

Question 1

Part Six: Controlling
Range Resources Leads Great
Shale Gas Rush Amidst Global
Recession
When Range Resources began drilling a vertical test well between the towns of Westland and Hickory, Pennsylvania, in 2004, the Texas exploration-and-production (E&P) company had no idea what it would discover. The sedimentary layers of gray shale rock lying more than a mile beneath the Appalachian Basin had been thought to hold a modest 1.9 trillion cubic feet of natural gas. But when Range's Renz well No.1 instantly tapped a large methane reserve, the company's technical team realized that they were onto something big. As geological experts descended on the rocky area known as the Marcellus Formation, the public soon learned that the shale might contain as much as 516 trillion cubic feet of natural gas, making it one of the largest natural gas reserves in the world. The Great Shale Gas Rush had begun.
Since the drilling of the Renz well in 2004, leaders in industry and government have called the Marcellus discovery "a game changer" and a potential savior of the U.S. economy. Range Resources, with its 1.4 million acres of drilling territory in the region, is one of only a handful of exploration companies positioned to turn that hope into reality. In 2008, Range's technical teams extracted 30 million cubic feet of natural gas per day from the Marcellus Formation. By 2012, production had jumped to 400 million cubic feet of gas per day. Looking ahead, Range executives predict that crews could capture as much as 1 billion cubic feet of natural gas daily.
"Our technical team is one of the best in the industry," says Jeffrey Ventura, Range's president and CEO. "They not only discovered the Marcellus and ramped production up, but we were the first company to drill a horizontal Devonian shale well in Pennsylvania, which is the shale right on top of the Marcellus, and we were the first to drill a horizontal well in the Utica, which is below the Marcellus. So we have a great technical team and a great acreage position."
According to Range's top executives, the discovery of the Marcellus has led the company to adopt a tenyear growth outlook based on high production and a low-cost operating structure. "Our low-cost structure gives us a huge competitive advantage," says Roger Manny, Range's chief financial officer (CFO). "In the commodity business, all of us are selling our products for about the same price. So being able to do it at a lower cost really gives you a big edge." Manny adds that controlling costs improves Range's cash flow and gives the company discretionary cash to explore and drill more wells.
Range's financial managers have various tools to monitor performance and control costs. "Our balance sheet is the first element of that strategy," says Manny. "It's a simple balance sheet that consists of senior bank debt, ten-year subordinated notes, and common equity. So having a simple strong balance sheet is the core to our financial strategy." While financial statements help measure the company's financial health over time, a strong cash position helps the company battle turbulence in the economy. Because of the topsy-turvy nature of the global recession, Range manages its massive land acreage portfolio in a way that provides added liquidity-the ability to sell assets in a pinch to pay off debts. "Another feature of our financial strategy is having liquidity to absorb shocks in the market," Manny states.
At Range, keeping a lid on expenses is not just the job of company accountants-it's everyone's job. "Maintaining a low-cost structure is not so much what we do but who we are," Manny says. "It's part of our culture." Range encourages employees to make costcutting a part of their regular duties, and it rewards them with equity in the company. "Equity ownership creates a unique bond among employees and also between the employees and shareholders," says Manny, "because, after all, they themselves are shareholders." Range's CFO believes that companies perform best when everyone has skin in the game. "I think the fact that everybody owns equity in the company makes them more willing to be vigilant about costs. And that's a big contributor to the long-term cost performance of the company," Manny states.
Range's money management philosophy has paid off. Over the past ten years, Range Resources has been one of the top three performing E&P companies on the New York Stock Exchange (NYSE). In addition, the company has delivered nearly a decade of sequential annual growth with some of the lowest finding and development costs in the industry-all this during a global recession that has torpedoed top corporations. "Clearly, 2009 was one of the most difficult periods in time in terms of running a business in America," says Range executive chairman John Pinkerton, reflecting on the economic downturn. "A number of companies simply didn't make it, a lot of companies had to totally restructure their business, and other companies issued a lot of equity and diluted their shareholders. The good news is that none of that happened at Range; we ended that year with less debt than we started, and we didn't have to issue any equity to prop up our balance sheet."
"Most importantly," Pinkerton adds, "we've had terrific operating results. We drove up double-digit growth in production reserves. So the company came through a very challenging financial market in stronger shape than we began, and I think that really is going to set the tone for the next decade."
Ultimately, effective financial control frees Range to do what it does best: develop America's clean energy future. Says Pinkerton: "I think the most exciting thing when you look at Range going forward is some of the assets we have, in particular the Marcellus. It could be one of the largest gas fields in the United States and maybe the world. To be involved with that is fabulous, and it's going to help drive our growth."
Managers at Range Resources say that maintaining a low-cost structure is the job of every employee, and they make cost control part of the company culture.
Is this indicative of a hierarchical or a decentralized philosophy of control? Explain.

Answer 1

The statement "Maintaining low-cost structure is the job of every employee, and they make cost control part of the company culture" depicts a decentralized structure. The following attributes justifies the decentralized control in the organization.
• Employee behaviour depicts a fully committed and motivated workforce. They are working with a self-commitment approach towards the organization.
• Their basis for control is value based rather than rules or coercion.
• Every employee is self-motivated and self-monitored. There is no need for outside supervision. They are self-driven, accountable and responsible for their own actions.
• Emphasis of the employees is on achieving long term organizational goals instead of short term selfish gains.
• The employees are motivated to do meaningful work.
• Organizational environment provide opportunities for growth and development to the employees.
• Employees themselves take initiatives to achieve the desired goals. There is no sign of force or use of authoritative power to make them work.
• Employees are sufficiently empowered to practice their own decisions.
• The concept of shared goals is well instilled in the employee mind set.
• More focus is given to the outcomes rather than the problems and its dissection.

Question 2

Create a Group Control System
Step 1. Form into groups of three to five students. Each group will assume that another student group has been given an assignment of writing a major paper that will involve research by individual group members that will be integrated into the final paper. Each group member has to do his or her part.
Step 2. Your assignment is to develop a list of rules and identify some statistics by which to control the behavior of members in that group. Brainstorm and discuss potential rules to govern member behavior and consequences for breaking those rules.
Step 3. First, select the five rules that you think are most important for governing group member behavior. Consider the following situations that rules might cover: arriving late for a meeting; missing a meeting; failing to complete a work assignment; disagreements about desired quality of work; how to resolve conflicts about paper content; differences in participation, such as one person doing all the talking and someone else talking hardly at all; how to handle meetings that start late; the use of an agenda and handling deviations from the agenda; and any other situation that your group thinks a rule should cover.
Step 4. Now consider what statistics could be developed to measure the behavior and outcome of the group pertaining to those five rules. What kinds of things could be counted to understand how the group is performing and whether members are following the rules?
Step 5. Discuss the following questions: Why are rules important as a means of control? What are the advantages and disadvantages of having many rules (hierarchical control) versus few rules (decentralized control) for a student group? How can statistics help a group ensure appropriate behavior and a high-quality product?
Step 6. Be prepared to present your conclusions to the class.

Answer 2

Not Answer

Question 3

On the Job: barcelona Restaurant
Group: Managing Quality and Performance
Questions
1. How do managers at Barcelona control the company's financial performance?
2. What is the "balanced scorecard" approach to measuring corporate performance, and in what ways does Barcelona use this approach?
3. List the four steps of the feedback control model and describe an instance where Barcelona followed this process to improve its performance.

Answer 3

Not Answer

Question 4

Five Stars Cousins
Jeri Lynn DeBose, Tish Hoover, and Josephine ( Joey) Parks looked forward to meeting up during the Christmas holidays to compare notes on the results of midyear teacher evaluations.
All were public school teachers in districts scattered over the state. In the pressured search for new levels of teacher accountability demanded by legislators, the state department of education joined 16 other states in implementing a new teacher evaluation system. The goal is to hold teachers accountable for student learning progress in the classroom. Under the guidance of the National Council for Teacher Quality, criteria varied by state, but in most cases, 40 percent of each teacher's accountability score would be based on the principal's evaluation and ranking based on personal observation, 30 percent would be based on personal observation by a master teacher from outside the district, and the other 30 percent would be based on student test score gains. The state department of education would set a performance goal for each school district, and the principal would set a performance goal for each teacher. In preparation, the state conducted intensive training sessions for principals and designated master teachers who would conduct the evaluations based on four class observations per teacher. Officials use standardized achievement tests to derive value-added scores that measure student learning over the year.
Teacher ratings were 1-5, with 1 being the lowest and 5 representing near perfection. The publication of the first year's evaluations stirred interest and controversy, particularly among teachers who worried about the possible longterm effects on job retention and tenure.
Now, with the first-year evaluations in hand, the three cousins pored over their experiences. The three represented different types of school systems within the state. Jeri Lynn worked for a metropolitan system in the state capital. The system included many low-income students whose first language was not English, and several schools within the system were teetering on the brink of state takeover if improvement in student scores didn't materialize this school year. Tish worked in a county system dominated by upperincome residents, and Joey taught in the rural community in which all three grew up. The rural community had high unemployment, and a low percentage of graduates went on to college. As a result, the cousins came to the table with differing teaching experiences.
"The numbers are all over the place," Jeri Lynn remarked as she studied the pages.
"The whole system is flawed and they need to make changes," Joey said. "It's too subjective. The principal and master teacher observations are subjective because there are personal factors that affect a true outcome."
"Yeah, look at the numbers from your upper-income district," Jeri Lynn said to Tish. "How can 60 percent of the teachers score 5s?"
Tish chuckled. "Yeah, lucky us. Our schools are overflowing with children from wealthy families. These are the kids who will apply to Ivy League schools. I can tell you that the principals are going to avoid confrontation on all fronts. No principal is going to give any indication that their students are receiving an education that's less than perfect, and that means cramming the rankings with 5s. They claim a higher level of motivation for students and thus the selection of an elite team of educators. So with those pressures, I don't think we get personal feedback that is accurate."
"At the other end of the spectrum, we have my rural district," Joey said. "The big problem is that the principals know everyone and have longstanding relationships with everyone in the county, so I think scores are based on personal history. We could almost predict who would get high or low scores before the observations. For principals, it can go back as far as 'his daddy and my daddy hated each other in high school, and now I get to evaluate his daughter.'"
"I think that in many cases, principals feel pressure to align scores with state expectations. The state expected my district to have high scores and expected rural schools such as yours to be lower," Tish said.
"But isn't that partially offset by lower goals for the rural school districts?" responded Joey.
"The key to the accountability system is the principal in each school," Jeri Lynn suggested. "With several of the schools in Metro teetering on the edge of state takeover by the end of the year, we had lots of strict principals who wanted to hold our feet to the fire with lower scores."
"I thought the whole idea was to provide the teachers with feedback so that we would know the areas where we need improvement," Tish said.
"The principals were supposed to conduct two observations in the fall and two more in the spring," Jeri Lynn said. "I think that's asking too much of them when they already have so much on their plates. I think a lot of them are skimping on their visits. I know I only had one observation last semester, and I'm sure Mr. Talley just faked the second set of numbers. The master teachers make only two observations a year, which may be more objective but counts for less."
"I'm wondering, too, how a principal measures performance in a course area outside his area of expertise, such as math," Joey said. "If the guy has a phobia about math, anything the teacher says or does is going to look brilliant- thus a 5."
Tish and Jeri Lynn looked at each other and laughed. "Maybe we picked the wrong subjects," Tish said.
"My question is one of perception," Jeri Lynn said. "A large percentage of my students are ELL. That affects their scores. How do you measure a 3 in my situation against a 5 for Tish? At the end of the school year, little Carlos is thrilled that his reading in English has improved, but there's no Big Bang here. It's a slow steady improvement that may not actually show up in big strides for a couple of years."
"So the question is how do they create a system that is fair?" Tish asked.
"And accurate," added Jeri Lynn.
Is a 1-5 grading system by principals and master teachers a valuable part of a feedback control system for teachers? Why?

Question 5

You're a manager who employs a participative control approach. You've concluded that corrective action is necessary to improve customer satisfaction, but first you need to convince your employees that the problem exists. What kind of evidence do you think employees will find more compelling: quantitative measurements or anecdotes from your interactions with customers? Explain your answer.

Question 6

Part Six: Controlling
Range Resources Leads Great
Shale Gas Rush Amidst Global
Recession
When Range Resources began drilling a vertical test well between the towns of Westland and Hickory, Pennsylvania, in 2004, the Texas exploration-and-production (E P) company had no idea what it would discover. The sedimentary layers of gray shale rock lying more than a mile beneath the Appalachian Basin had been thought to hold a modest 1.9 trillion cubic feet of natural gas. But when Range's Renz well No.1 instantly tapped a large methane reserve, the company's technical team realized that they were onto something big. As geological experts descended on the rocky area known as the Marcellus Formation, the public soon learned that the shale might contain as much as 516 trillion cubic feet of natural gas, making it one of the largest natural gas reserves in the world. The Great Shale Gas Rush had begun.
Since the drilling of the Renz well in 2004, leaders in industry and government have called the Marcellus discovery "a game changer" and a potential savior of the U.S. economy. Range Resources, with its 1.4 million acres of drilling territory in the region, is one of only a handful of exploration companies positioned to turn that hope into reality. In 2008, Range's technical teams extracted 30 million cubic feet of natural gas per day from the Marcellus Formation. By 2012, production had jumped to 400 million cubic feet of gas per day. Looking ahead, Range executives predict that crews could capture as much as 1 billion cubic feet of natural gas daily.
"Our technical team is one of the best in the industry," says Jeffrey Ventura, Range's president and CEO. "They not only discovered the Marcellus and ramped production up, but we were the first company to drill a horizontal Devonian shale well in Pennsylvania, which is the shale right on top of the Marcellus, and we were the first to drill a horizontal well in the Utica, which is below the Marcellus. So we have a great technical team and a great acreage position."
According to Range's top executives, the discovery of the Marcellus has led the company to adopt a tenyear growth outlook based on high production and a low-cost operating structure. "Our low-cost structure gives us a huge competitive advantage," says Roger Manny, Range's chief financial officer (CFO). "In the commodity business, all of us are selling our products for about the same price. So being able to do it at a lower cost really gives you a big edge." Manny adds that controlling costs improves Range's cash flow and gives the company discretionary cash to explore and drill more wells.
Range's financial managers have various tools to monitor performance and control costs. "Our balance sheet is the first element of that strategy," says Manny. "It's a simple balance sheet that consists of senior bank debt, ten-year subordinated notes, and common equity. So having a simple strong balance sheet is the core to our financial strategy." While financial statements help measure the company's financial health over time, a strong cash position helps the company battle turbulence in the economy. Because of the topsy-turvy nature of the global recession, Range manages its massive land acreage portfolio in a way that provides added liquidity-the ability to sell assets in a pinch to pay off debts. "Another feature of our financial strategy is having liquidity to absorb shocks in the market," Manny states.
At Range, keeping a lid on expenses is not just the job of company accountants-it's everyone's job. "Maintaining a low-cost structure is not so much what we do but who we are," Manny says. "It's part of our culture." Range encourages employees to make costcutting a part of their regular duties, and it rewards them with equity in the company. "Equity ownership creates a unique bond among employees and also between the employees and shareholders," says Manny, "because, after all, they themselves are shareholders." Range's CFO believes that companies perform best when everyone has skin in the game. "I think the fact that everybody owns equity in the company makes them more willing to be vigilant about costs. And that's a big contributor to the long-term cost performance of the company," Manny states.
Range's money management philosophy has paid off. Over the past ten years, Range Resources has been one of the top three performing E P companies on the New York Stock Exchange (NYSE). In addition, the company has delivered nearly a decade of sequential annual growth with some of the lowest finding and development costs in the industry-all this during a global recession that has torpedoed top corporations. "Clearly, 2009 was one of the most difficult periods in time in terms of running a business in America," says Range executive chairman John Pinkerton, reflecting on the economic downturn. "A number of companies simply didn't make it, a lot of companies had to totally restructure their business, and other companies issued a lot of equity and diluted their shareholders. The good news is that none of that happened at Range; we ended that year with less debt than we started, and we didn't have to issue any equity to prop up our balance sheet."
"Most importantly," Pinkerton adds, "we've had terrific operating results. We drove up double-digit growth in production reserves. So the company came through a very challenging financial market in stronger shape than we began, and I think that really is going to set the tone for the next decade."
Ultimately, effective financial control frees Range to do what it does best: develop America's clean energy future. Says Pinkerton: "I think the most exciting thing when you look at Range going forward is some of the assets we have, in particular the Marcellus. It could be one of the largest gas fields in the United States and maybe the world. To be involved with that is fabulous, and it's going to help drive our growth."
What is liquidity, and how can Range's managers know if they have enough of it to keep the company's finances on track?

Question 7

Five Stars Cousins
Jeri Lynn DeBose, Tish Hoover, and Josephine ( Joey) Parks looked forward to meeting up during the Christmas holidays to compare notes on the results of midyear teacher evaluations.
All were public school teachers in districts scattered over the state. In the pressured search for new levels of teacher accountability demanded by legislators, the state department of education joined 16 other states in implementing a new teacher evaluation system. The goal is to hold teachers accountable for student learning progress in the classroom. Under the guidance of the National Council for Teacher Quality, criteria varied by state, but in most cases, 40 percent of each teacher's accountability score would be based on the principal's evaluation and ranking based on personal observation, 30 percent would be based on personal observation by a master teacher from outside the district, and the other 30 percent would be based on student test score gains. The state department of education would set a performance goal for each school district, and the principal would set a performance goal for each teacher. In preparation, the state conducted intensive training sessions for principals and designated master teachers who would conduct the evaluations based on four class observations per teacher. Officials use standardized achievement tests to derive value-added scores that measure student learning over the year.
Teacher ratings were 1-5, with 1 being the lowest and 5 representing near perfection. The publication of the first year's evaluations stirred interest and controversy, particularly among teachers who worried about the possible longterm effects on job retention and tenure.
Now, with the first-year evaluations in hand, the three cousins pored over their experiences. The three represented different types of school systems within the state. Jeri Lynn worked for a metropolitan system in the state capital. The system included many low-income students whose first language was not English, and several schools within the system were teetering on the brink of state takeover if improvement in student scores didn't materialize this school year. Tish worked in a county system dominated by upperincome residents, and Joey taught in the rural community in which all three grew up. The rural community had high unemployment, and a low percentage of graduates went on to college. As a result, the cousins came to the table with differing teaching experiences.
"The numbers are all over the place," Jeri Lynn remarked as she studied the pages.
"The whole system is flawed and they need to make changes," Joey said. "It's too subjective. The principal and master teacher observations are subjective because there are personal factors that affect a true outcome."
"Yeah, look at the numbers from your upper-income district," Jeri Lynn said to Tish. "How can 60 percent of the teachers score 5s?"
Tish chuckled. "Yeah, lucky us. Our schools are overflowing with children from wealthy families. These are the kids who will apply to Ivy League schools. I can tell you that the principals are going to avoid confrontation on all fronts. No principal is going to give any indication that their students are receiving an education that's less than perfect, and that means cramming the rankings with 5s. They claim a higher level of motivation for students and thus the selection of an elite team of educators. So with those pressures, I don't think we get personal feedback that is accurate."
"At the other end of the spectrum, we have my rural district," Joey said. "The big problem is that the principals know everyone and have longstanding relationships with everyone in the county, so I think scores are based on personal history. We could almost predict who would get high or low scores before the observations. For principals, it can go back as far as 'his daddy and my daddy hated each other in high school, and now I get to evaluate his daughter.'"
"I think that in many cases, principals feel pressure to align scores with state expectations. The state expected my district to have high scores and expected rural schools such as yours to be lower," Tish said.
"But isn't that partially offset by lower goals for the rural school districts?" responded Joey.
"The key to the accountability system is the principal in each school," Jeri Lynn suggested. "With several of the schools in Metro teetering on the edge of state takeover by the end of the year, we had lots of strict principals who wanted to hold our feet to the fire with lower scores."
"I thought the whole idea was to provide the teachers with feedback so that we would know the areas where we need improvement," Tish said.
"The principals were supposed to conduct two observations in the fall and two more in the spring," Jeri Lynn said. "I think that's asking too much of them when they already have so much on their plates. I think a lot of them are skimping on their visits. I know I only had one observation last semester, and I'm sure Mr. Talley just faked the second set of numbers. The master teachers make only two observations a year, which may be more objective but counts for less."
"I'm wondering, too, how a principal measures performance in a course area outside his area of expertise, such as math," Joey said. "If the guy has a phobia about math, anything the teacher says or does is going to look brilliant- thus a 5."
Tish and Jeri Lynn looked at each other and laughed. "Maybe we picked the wrong subjects," Tish said.
"My question is one of perception," Jeri Lynn said. "A large percentage of my students are ELL. That affects their scores. How do you measure a 3 in my situation against a 5 for Tish? At the end of the school year, little Carlos is thrilled that his reading in English has improved, but there's no Big Bang here. It's a slow steady improvement that may not actually show up in big strides for a couple of years."
"So the question is how do they create a system that is fair?" Tish asked.
"And accurate," added Jeri Lynn.
How might the state control the accuracy of principals who are conducting teacher evaluations? Explain.

Question 8

Describe the advantages of using a balanced scorecard to measure and control organizational performance. Suppose you created a balanced scorecard for Walmart. What specific customer service measures would you include?

Question 9

Part Six: Controlling
Range Resources Leads Great
Shale Gas Rush Amidst Global
Recession
When Range Resources began drilling a vertical test well between the towns of Westland and Hickory, Pennsylvania, in 2004, the Texas exploration-and-production (E P) company had no idea what it would discover. The sedimentary layers of gray shale rock lying more than a mile beneath the Appalachian Basin had been thought to hold a modest 1.9 trillion cubic feet of natural gas. But when Range's Renz well No.1 instantly tapped a large methane reserve, the company's technical team realized that they were onto something big. As geological experts descended on the rocky area known as the Marcellus Formation, the public soon learned that the shale might contain as much as 516 trillion cubic feet of natural gas, making it one of the largest natural gas reserves in the world. The Great Shale Gas Rush had begun.
Since the drilling of the Renz well in 2004, leaders in industry and government have called the Marcellus discovery "a game changer" and a potential savior of the U.S. economy. Range Resources, with its 1.4 million acres of drilling territory in the region, is one of only a handful of exploration companies positioned to turn that hope into reality. In 2008, Range's technical teams extracted 30 million cubic feet of natural gas per day from the Marcellus Formation. By 2012, production had jumped to 400 million cubic feet of gas per day. Looking ahead, Range executives predict that crews could capture as much as 1 billion cubic feet of natural gas daily.
"Our technical team is one of the best in the industry," says Jeffrey Ventura, Range's president and CEO. "They not only discovered the Marcellus and ramped production up, but we were the first company to drill a horizontal Devonian shale well in Pennsylvania, which is the shale right on top of the Marcellus, and we were the first to drill a horizontal well in the Utica, which is below the Marcellus. So we have a great technical team and a great acreage position."
According to Range's top executives, the discovery of the Marcellus has led the company to adopt a tenyear growth outlook based on high production and a low-cost operating structure. "Our low-cost structure gives us a huge competitive advantage," says Roger Manny, Range's chief financial officer (CFO). "In the commodity business, all of us are selling our products for about the same price. So being able to do it at a lower cost really gives you a big edge." Manny adds that controlling costs improves Range's cash flow and gives the company discretionary cash to explore and drill more wells.
Range's financial managers have various tools to monitor performance and control costs. "Our balance sheet is the first element of that strategy," says Manny. "It's a simple balance sheet that consists of senior bank debt, ten-year subordinated notes, and common equity. So having a simple strong balance sheet is the core to our financial strategy." While financial statements help measure the company's financial health over time, a strong cash position helps the company battle turbulence in the economy. Because of the topsy-turvy nature of the global recession, Range manages its massive land acreage portfolio in a way that provides added liquidity-the ability to sell assets in a pinch to pay off debts. "Another feature of our financial strategy is having liquidity to absorb shocks in the market," Manny states.
At Range, keeping a lid on expenses is not just the job of company accountants-it's everyone's job. "Maintaining a low-cost structure is not so much what we do but who we are," Manny says. "It's part of our culture." Range encourages employees to make costcutting a part of their regular duties, and it rewards them with equity in the company. "Equity ownership creates a unique bond among employees and also between the employees and shareholders," says Manny, "because, after all, they themselves are shareholders." Range's CFO believes that companies perform best when everyone has skin in the game. "I think the fact that everybody owns equity in the company makes them more willing to be vigilant about costs. And that's a big contributor to the long-term cost performance of the company," Manny states.
Range's money management philosophy has paid off. Over the past ten years, Range Resources has been one of the top three performing E P companies on the New York Stock Exchange (NYSE). In addition, the company has delivered nearly a decade of sequential annual growth with some of the lowest finding and development costs in the industry-all this during a global recession that has torpedoed top corporations. "Clearly, 2009 was one of the most difficult periods in time in terms of running a business in America," says Range executive chairman John Pinkerton, reflecting on the economic downturn. "A number of companies simply didn't make it, a lot of companies had to totally restructure their business, and other companies issued a lot of equity and diluted their shareholders. The good news is that none of that happened at Range; we ended that year with less debt than we started, and we didn't have to issue any equity to prop up our balance sheet."
"Most importantly," Pinkerton adds, "we've had terrific operating results. We drove up double-digit growth in production reserves. So the company came through a very challenging financial market in stronger shape than we began, and I think that really is going to set the tone for the next decade."
Ultimately, effective financial control frees Range to do what it does best: develop America's clean energy future. Says Pinkerton: "I think the most exciting thing when you look at Range going forward is some of the assets we have, in particular the Marcellus. It could be one of the largest gas fields in the United States and maybe the world. To be involved with that is fabulous, and it's going to help drive our growth."
Short-term thinking can be disastrous for a business. What indications are there to show that financial managers at Range Resources take a long-term approach to financial performance and control?

Question 10

In zero-based budgeting, every account starts at $0, and every dollar added to the budget is reflected by an actual, documented need. Identify the possible advantages of zero-based budgeting.

Question 11

Most companies have policies that regulate employees' personal use of work computers during work hours. Some even monitor employee e-mails and track the Web sites that have been visited. Do you consider this type of surveillance an invasion of privacy? What are the advantages of restricting employee use of the Internet and e-mail at work?

Question 12

Think of a class that you've taken in the past. What standards of performance did your professor establish? How was your actual performance measured? How was your performance compared to the standards? Do you think the standards and methods of measurement were fair? Were they appropriate to your assigned work? Why or why not?

Question 13

Five Stars Cousins
Jeri Lynn DeBose, Tish Hoover, and Josephine ( Joey) Parks looked forward to meeting up during the Christmas holidays to compare notes on the results of midyear teacher evaluations.
All were public school teachers in districts scattered over the state. In the pressured search for new levels of teacher accountability demanded by legislators, the state department of education joined 16 other states in implementing a new teacher evaluation system. The goal is to hold teachers accountable for student learning progress in the classroom. Under the guidance of the National Council for Teacher Quality, criteria varied by state, but in most cases, 40 percent of each teacher's accountability score would be based on the principal's evaluation and ranking based on personal observation, 30 percent would be based on personal observation by a master teacher from outside the district, and the other 30 percent would be based on student test score gains. The state department of education would set a performance goal for each school district, and the principal would set a performance goal for each teacher. In preparation, the state conducted intensive training sessions for principals and designated master teachers who would conduct the evaluations based on four class observations per teacher. Officials use standardized achievement tests to derive value-added scores that measure student learning over the year.
Teacher ratings were 1-5, with 1 being the lowest and 5 representing near perfection. The publication of the first year's evaluations stirred interest and controversy, particularly among teachers who worried about the possible longterm effects on job retention and tenure.
Now, with the first-year evaluations in hand, the three cousins pored over their experiences. The three represented different types of school systems within the state. Jeri Lynn worked for a metropolitan system in the state capital. The system included many low-income students whose first language was not English, and several schools within the system were teetering on the brink of state takeover if improvement in student scores didn't materialize this school year. Tish worked in a county system dominated by upperincome residents, and Joey taught in the rural community in which all three grew up. The rural community had high unemployment, and a low percentage of graduates went on to college. As a result, the cousins came to the table with differing teaching experiences.
"The numbers are all over the place," Jeri Lynn remarked as she studied the pages.
"The whole system is flawed and they need to make changes," Joey said. "It's too subjective. The principal and master teacher observations are subjective because there are personal factors that affect a true outcome."
"Yeah, look at the numbers from your upper-income district," Jeri Lynn said to Tish. "How can 60 percent of the teachers score 5s?"
Tish chuckled. "Yeah, lucky us. Our schools are overflowing with children from wealthy families. These are the kids who will apply to Ivy League schools. I can tell you that the principals are going to avoid confrontation on all fronts. No principal is going to give any indication that their students are receiving an education that's less than perfect, and that means cramming the rankings with 5s. They claim a higher level of motivation for students and thus the selection of an elite team of educators. So with those pressures, I don't think we get personal feedback that is accurate."
"At the other end of the spectrum, we have my rural district," Joey said. "The big problem is that the principals know everyone and have longstanding relationships with everyone in the county, so I think scores are based on personal history. We could almost predict who would get high or low scores before the observations. For principals, it can go back as far as 'his daddy and my daddy hated each other in high school, and now I get to evaluate his daughter.'"
"I think that in many cases, principals feel pressure to align scores with state expectations. The state expected my district to have high scores and expected rural schools such as yours to be lower," Tish said.
"But isn't that partially offset by lower goals for the rural school districts?" responded Joey.
"The key to the accountability system is the principal in each school," Jeri Lynn suggested. "With several of the schools in Metro teetering on the edge of state takeover by the end of the year, we had lots of strict principals who wanted to hold our feet to the fire with lower scores."
"I thought the whole idea was to provide the teachers with feedback so that we would know the areas where we need improvement," Tish said.
"The principals were supposed to conduct two observations in the fall and two more in the spring," Jeri Lynn said. "I think that's asking too much of them when they already have so much on their plates. I think a lot of them are skimping on their visits. I know I only had one observation last semester, and I'm sure Mr. Talley just faked the second set of numbers. The master teachers make only two observations a year, which may be more objective but counts for less."
"I'm wondering, too, how a principal measures performance in a course area outside his area of expertise, such as math," Joey said. "If the guy has a phobia about math, anything the teacher says or does is going to look brilliant- thus a 5."
Tish and Jeri Lynn looked at each other and laughed. "Maybe we picked the wrong subjects," Tish said.
"My question is one of perception," Jeri Lynn said. "A large percentage of my students are ELL. That affects their scores. How do you measure a 3 in my situation against a 5 for Tish? At the end of the school year, little Carlos is thrilled that his reading in English has improved, but there's no Big Bang here. It's a slow steady improvement that may not actually show up in big strides for a couple of years."
"So the question is how do they create a system that is fair?" Tish asked.
"And accurate," added Jeri Lynn.
What do you see as the major strengths and flaws in the feedback control system used in the schools in this scenario? What changes do you recommend to overcome the flaws?

Question 14

Some critics argue that Six Sigma is a collection of superficial changes that often result in doing a superb job of building the wrong product or offering the wrong service. Do you agree or disagree? Explain.

Question 15

You have been hired to manage a 20-person staff for Nightlight Travels, a travel agency in Las Vegas. For five years, sales have been hammered by the global recession, and staff morale has plummeted as star employees have left for positions in more secure industries. Key customer relationships have been damaged by the sloppy and unprofessional work habits of the remaining staff members. Your first responsibility as new manager is to create next year's budget for all planned expenditures. But first you must decide if you will adopt a hierarchical approach or a decentralized approach to control. Which one would you choose, and why?

Question 16

What types of analysis can managers perform to help them diagnose a company's financial condition? How might a review of financial statements help managers diagnose other kinds of performance problems as well?

Question 17

The Wages of Sin? 58
Chris Dykstra, responsible for loss prevention at West wind Electronics, took a deep breath before he launched into making his case for the changes that he was proposing to the company's shoplifting policy. He knew that convincing Ross Chenoweth was going to be a hard sell. Ross, the president and CEO, was the son of the founder of the local, still-family-owned consumer electronics chain based I Phoenix, Arizona. He'd inherited not only the company, but also his father's strict moral code.
"I think it's time to follow the lead of other stores," Chris began. He pointed out that most other retailers didn't bother calling the police and pressing charges unless the thief had shoplifted merchandise worth more than $50 to $100. In contrast, Westwind currently had the zerotolerance policy toward theft that Ross's father had put in place when he started the business. Chris wanted to replace that policy with one that prosecuted only individuals between 18 and 65 who had stolen more than $20 worth of goods, and who had a previous history of theft at Westwind. In the case of first-time culprits under 18 or over 65, he argued for letting them off with a strict warning, regardless of the value of their ill-gotten goods. Repeat offenders would be arrested.
"Frankly, the local police are getting pretty tired of having to come to our stores every time a teenager sticks a CD in his jacket pocket," Chris pointed out. "And besides, we just can't afford the costs associated with prosecuting everyone." Every time he pressed charges against a shoplifter who'd made off with a $10 item, Westwind lost money. The company had to engage a lawyer and pay employees overtime for their court appearances. In addition, Chris was looking at hiring more security guards to keep up with the workload. Westwind was already in a losing battle at the moment with mass retailers who were competing all too successfully on price, so passing on the costs of its zero-tolerance policy to customers wasn't really an option. "Let's concentrate on catching dishonest employees and those organized-theft rings. They're the ones who are really hurting us," Chris concluded.
There was a long pause after Chris finished his carefully prepared speech. Ross thought about his recently deceased father, both an astute businessman and a person for whom honesty was a key guiding principle. If he were sitting here today, he'd no doubt say that theft was theft, that setting a minimum was tantamount to saying that stealing was acceptable just as long as you don't steal too much. He looked at Chris. "You know, we've both got teenagers. Is this really a message you want to send out, especially to kids? You know as well as I do that there's nothing they like better than testing limits. It's almost an invitation to see if you can beat the system." But then Ross faltered as he found himself glancing at the latest financial figures on his desk- another in a string of quarterly losses. If Westwind went under, a lot of employees would be looking for another way to make a living. In his heart, he believed in his father's high moral standards, but he had to ask himself: Just how moral could Westwind afford to be?
What Would You Do?
1. Continue Westwind's zero-tolerance policy toward shoplifting. It's the right thing to do-and it will pay off in the end in higher profitability because the chain's reputation for being tough on crime will reduce overall losses from theft.
2. Adopt Chris Dykstra's proposed changes and show more leniency to first-time offenders. It is a more cost-effective approach to the problem than the current policy, plus it stays close to your father's original intent.
3. Adopt Chris Dykstra's proposed changes with an even higher limit than the proposed $20 amount (say, $50 or $100), but which is still less than the cost of prosecution. In addition, make sure the policy isn't publicized. That way, you'll reduce costs even more and still benefit from your reputation for prosecuting all shoplifters.

Question 18

Why is benchmarking an important component of TQM programs? Do you believe a company could have a successful TQM program without using benchmarking?

Question 19

Is Your Budget in Control?
By the time you are in college, you are in charge of at least some of your own finances. How well you manage your personal budget may indicate how well you will manage your company's budget on the job. Respond to the following statements to evaluate your own budgeting habits. If the statement doesn't apply directly to you, respond the way you think that you would behave in a similar situation.
Remember This
Scoring and Interpretation
Yes responses to statements 2, 9, 10, 13, and 14 point to the most disciplined budgeting habits; Yes responses to 4, 5, 7, and 11 reveal adequate budgeting habits; Yes responses to 1, 3, 6, 8, and 12 indicate the poorest budgeting habits. If you have answered honestly, chances are you'll have a combination of all three. Look to see where you can improve your budgeting behaviors.

Question 20

What is ISO certification? Why would a global company like GE want ISO certification?