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Goal congruence is when the decision taken by the divisional manager is the same as the goal of the company which is to increase the profitability for the overall company (not just a division). This is called Goal Congruence – same aim.
If the manager has the same aim as the company then the manager’s decision is goal congruent which can lead to achieve goal congruence. It means that the manager and the company have the same aim and the job of the manager is not simply to make a profit for his division only but to make the level of profit that the company as a whole requires.
However, if the manager is making a profit for his division only but not for the overall company then his decisions are not goal congruent.
[Goal Congruence simply means decisions that will benefit both the manager and the company as a whole]
Goal congruence is only be asked in Divisional Performance Measurement and Transfer Pricing. And we should tell at the end of the question whether the decision of the manager will lead to goal congruence or not?
Is that all correct?
Yes – it is correct.
I don’t understand your point where you said that:
ROI does not lead to goal congruence BUT the RI leads to goal congruent decisions?
Why is that?
I do not say that as being a general rule. I am referring to the specific example in the lecture.