Du Pont Analysis how it affects Organization Politics

History behind Du Pont Analysis and brief

In 1920, Pierre DuPont became chairman of GM, and during his tenure implemented a
pioneering management accounting system of DuPont Analysis that focused sharply on
planning and control. The analysis helps in bringing objectivity for the corporate centre in
the decision making with regards to different SBUs and also allows for a structure of Multi
division corporation in which GM of SBU was responsible for the operations of the
department and the corporate centre was responsible with general strategy and financial
goals of the business unit. The DuPont decomposition became popular after its successful
use at GM and DuPont.

Du Pont allowed these benefits to organizations:

1. Du Pont allows multidivisional organizations/conglomerates to have centralized
control over decentralized responsibility.
2. It ensures Segregation of Operations and Strategic group to avoid any biases arising
due to preference of most influential department.
3. Quantifiable way to measure ROI of diverse division to compare performance.
4. Distribution of profit and benefits could be done based on individual departments
performance.
5. Goal congruence- It will allow unification of goals across organization to unified vision
of organization.
Implications of Du Pont to depoliticize the organization:
1. It helps depoliticizing the organization by bring objectivity into decision making
versus the subjectivity which otherwise would have prevailed in organization
2. Measuring ROI for each SBU brings goal congruence as the cost of capital and
expected ROI is used by Executive committee to take decisions.
3. Distinction of Strategy and Operational roles and responsibility ensures unbiased
attention to each divisions
4. Distribution of profit on the basis of ROI generated by each division created healthy
competition among them within organization
5. Du Pont analysis ensures a realistic comparison of individual department to its
competition and not among various SBUs within organization

Du Pont helps create the environment within Organization which ensures rational decision
making process and thus decreases the politics in organization.

Refer: http://maaw.info/RelevanceLostLongQues.htm#Chapter 4
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Dupont's prices were based on a target ROI. Their pricing strategy was to set prices 1. low
enough to prevent new firms from entering the market, but 2. high enough to keep enough
competitors to provide a buffer against recession

Dupont's management accounting control techniques to perform 3 tasks

They used: 1. Annual operating forecasts. 2. Sales Reports and Flexible budgets and 3. A
management accounting system that allocated resources and rewards on a uniform basis of
performance criteria
GM used three approaches to promote goal congruence: (pp.114-116). 1. To prevent
managers from under investing to improve ROI, corporate staff was included in the planning
process (p.114). This tended to prevent a division manager's bias from having too much
influence on the planning process. (Note: This meant that divisional managers did not have
complete autonomy, i.e., the divisions were profit centers rather than investment centers. 2.
To offset another deficiency of ROI - that it does not measure the performance of the
mangers, GM used different ROI targets for different divisions (p.115). 3. GM also used a
stock bonus plan that vested after 5 years. Prior to the bonus plans, management incentive
plans were based on division profits which caused some division managers to behave in a
manner inconsistent with the firm's overall goals (p.116)