Interior Systems, Inc.: The Decision to Adopt EVA®

Abstract

The purpose of the Interior Systems case is to introduce and critique the use of residual income measures for decision making, performance evaluation, and incentive compensation. In this case we focus on Stern Stewart's proprietary measure of residual income, Economic Value Added (EVA®). The case uses the setting of a multidivisional company that is struggling with the decision of what measure to use in performance evaluation. The company recognizes that the choice of performance measures is likely to affect managers' motivations and in turn decision making. The problem the company faces is which measure to use, especially in light of the differing key success drivers of the different divisions. The case has been used successfully at the undergraduate level, in M.B.A. programs, and in executive education programs.