Question

Zynga: Organizational Management Your team has been brought in as a consultants to Zynga. The Company is going through significant turmoil. With recent layoffs and significant issues with financial performance, there’s a lot of work to be done. The team’s first task is the following: i. Would you have sales be a profit center or a cost center? Explain the nature of the P&L if a profit center or cost centers (e.g. would you use a “full” P&L – Revenue-COGS-OpEx or a partial P&L – Revenue – marketing expenses - …) ii. Would you have finance be a profit center or a cost center? Explain the nature of the P&L if a profit center or cost center (e.g. would you use a “full” P&L – Revenue-COGS-OpEx or a partial P&L – Revenue – marketing expenses - …) iii. Build a Balance Scorecard for the Finance team at Zynga. Be sure to include what you will measure the team’s success on (Remember: Zynga is in trouble – so be thoughtful in your metrics evaluation given

Answer 1

Sales department should be treated as the profit center as it provides significant financial information to the management regarding the amount of current revenues and expected revenues to achieve the pre-defined standards and benchmarks in order to achieve organizational goals. It also provide certain areas of improvement and overall reduction in the goods sold during the specific period. Sales of goods & services produced by the business are the major source of revenue for any organisation. Hence it should be treated as Profit center.

Full P&L should be used while recording sales as follows

Particulars	Amount
Sales Revenues
(-) Cost of Goods sold (COGS)
Gross Profit
(-) Operating Expenses
Total Operating Profit

For the Finance division, it should be treated as Cost center as the sources of finance can be classified as of two types

• Borrowed funds also known as Debt financing
• Owners funds also know as Equity financing

Equity and Debt funding together form the total invested value for the firm. Cost of capital is different for debt and equity financing.

For cost of equity, Capital Asset pricing method can be used and cost of debt can be calculated using long term treasury bonds.Hence finance should be treated as cost center as almost all business are required to raise funding in order to meet their working capital requirements. In the case of Finance division full P& L should be used as mentioned earlier. Net Income earned should be added displayed in Share Capital. Total of Assets and Liabilities & Shareholder Equity balance should be equal.

Balance Scorecard of the finance team at Zynga should include mission, vision and strategy to be implemented in terms of achieving budgeted and planned targets of the organization

• What are mission in terms of Sales revenues and profit percentage?
• What are the targeted profit margin and gross margin for the certain time period?.
• What are the expected returns on the investments made during the year?  

Once the quantitative and qualitative goals of the business unit are defined then what are the strategies to be adopted in order to achieve those pre-defined goals and objectives.What are the key performance indicators and growth drivers for the finance team at Zygna. Team success should be measured by overall finance department performance. It should be evaluated based on pre-defined standards and as per budgeted targets. Once budgets and bench-marking are done then actual performance should be evaluated and steps should be taken to mitigate deviation in the budgeted and actual performance.