Evaluating tangible asset investments: the value of cross functional teams

Criticizes the attitude of separatism used in evaluating management performance. Asserts that looking at narrow functional areas does not provide a holistic picture of an organization, for example, production may reduce its costs by using inferior quality materials but marketing and sales may not be able to sell the product so their performance declines. Suggests that some organizations suffer from conflict between functional areas because they are evaluated on the outcomes from activities they control, affecting overall organizational performance. Indicates that asset investment decisions should be based on the interdependent relationship between accounting, finance and marketing departments, and that this can best be achieved if a cross‐functional team makes the asset investment decisions. Points out the inherent difficulties in evaluating intangible assets. Focuses on advertising and research and development (R&D) and how investments could be evaluated using functional and cross‐functional teams, based on financial data (on 126 firms) accessed from the Compustat PC Plus database. Takes a look at economic value‐added, which questions the differences between the accounting and economic models of a firm. Uses regression analysis to examine the impact of advertising, R&D and other explanatory variables on market value, accounting profitability and sales. Finds support for using cross‐functional teams in evaluating intangible asset investments. Recommends areas for further research.