Under the leadership of George Cain (Cain), Abbott laboratories (Abbott) adopted a system called “Responsibility accounting” in 1960s.
Under this system the managers were held responsible for all the items of the cost, income, and investment which come under their sphere of activities. Every manager, no matter what job he is responsible for, was assessed for return on investment (ROI). The organization was more like an investor and the managers were like entrepreneurs.
This system promoted rigor and discipline while stimulating creativity and sprit of entrepreneurship. George Rathmann, the former Cofounder & CEO of Amgen who was a former employee of Abbot, says “Abbott developed a very disciplined organization, but not in a linear way of thinking. It was exemplary at having both financial discipline and the divergent thinking of creative work. We used financial discipline as a way to provide resources for the really creative work.”
As a result of these creative efforts, the company’s administrative costs as a percentage of sales declined to the lowest in the industry. The company also highly innovative. By early 1980s, 65% of revenues flowed from new products that were launched in the previous four years.