DaimlerChrysler Introduces Integrated, Value-based Controlling System
16 March 1999
DaimlerChrysler Introduces Integrated, Value-based Controlling System
RONA to be the Main Performance Yardstick
On the Group Level 1998 RONA at 11.6% After Taxes
CFO Manfred Gentz: 'Transparent Controlling System Supports Value-Based
Management of the Entire Group'
STUTTGART, Germany and AUBURN HILLS, Mich., March 15 --
DaimlerChrysler has introduced an integrated value-based
controlling system, that will serve as the merged company's management tool.
A coherent set of new performance measures and faster, more extensive
reporting procedures are being implemented following the completion of the
DaimlerChrysler merger.
DaimlerChrysler Chief Financial Officer Manfred Gentz said: "The measures
reflect our commitment to permanently enhancing the value of the group and to
use its funds in the most efficient way. Our new controlling system provides
transparency for the management of the DaimlerChrysler group as well as for
external reporting purposes. At the same time adopting this system and
reducing complexity strengthens our decentralized operations. By monitoring
the allocation of funds from the perspective of the capital markets, our
controlling system supports the value-based management of the entire
DaimlerChrysler group."
In the near term, Return On Net Assets (RONA) will serve as the main
profit performance measure. RONA is being defined as Net Operating Income
divided by Net Assets. The minimum performance target for the DaimlerChrysler
group is for RONA to exceed 9.2% after taxes. This 9.2% hurdle rate is the
weighted average cost of capital for the group, and will be reviewed on a
regular basis.
In 1998, DaimlerChrysler achieved a RONA of 11.6%, substantially exceeding
the minimum target of 9.2%. The comparable 1997 combined figure was 10.2%.
On the business unit level, DaimlerChrysler will use a different
definition of RONA. Here, RONA will be calculated as the quotient of
Operating Profit and Net Assets. Operating Profit was chosen as the profit
performance measure for the business units as it does not include interests
and taxes, since these factors can not be directly influenced by the operative
management. The minimum requirement here is to achieve at least 15.5%,
representing the weighted average cost of capital before taxes (group level as
above: after taxes).
This new controlling system gives DaimlerChrysler the opportunity to work
with the business units to increase value-added, which is created by growth of
RONA and business growth rates. Strategically, the business units are working
to increase RONA and growth rates to the benchmark levels of the relevant
market leaders.
Jim Donlon, Senior Vice President Corporate Accounting, Controlling and
Reporting at DaimlerChrysler, said: "Our goal has been to combine the best
aspects of the former Daimler-Benz and Chrysler controlling systems and we
have achieved that. While in the U.S. the focus is on quarterly reports and
competitive analysis, in Germany management by objectives and decentralized
responsibilities are of utmost importance. Our new system reflects both sets
of requirements, and as a result we are able to implement a consistent
performance measurement concept for all levels of management within
DaimlerChrysler."
Prior to the merger, both Chrysler and Daimler-Benz had already introduced
transparent management processes designed to increase the company's value.
For example, former Daimler-Benz had switched its internal and external
reporting towards the internationally accepted US-GAAP accounting standards in
1996, and also substantially shortened its planning and controlling processes,
significantly increasing transparency within the company. Over the past
several years, the finance staff at the former Chrysler Corporation
implemented several major process redesigns, establishing itself as a world
class benchmark. It had received formal recognition for these achievements
from the business community in the U.S.