1. Judging the system: could it be improved?
2. Where did this system come from historicaily? \Vhat are its roots?

Capital Expenditure Requests: CERS Part of Stryker's capital allocation process was structured around formal requests for authority to spend funds referred to as Capital Expenditure Requests ("CERS"). Nominally, CERS were forms that had to be filled out before authority to spend could be obtained. More broadly, they embodied a proposal and approval process that was utilized throughout the entire corporation. Internal guidelines split proposals into two broad categories: Operational and M&A. The former included proposals involving buildings, equipment, IT systems, and so forth for Stryker's existing businesses The latter included not only mergers and acquisitions, but also licensing and distribution agreements, joint ventures, equity investments, and development agreements negotiated with outside parties. For both types of CER a "project" was defined to include all parts of multi-phase undertakings and all later-phase expenditures had to be included in descriptive materials and analyses. All CERS, whether Operational or M&A, were comprised of two main sections: one setting forth the business proposition and another summarizing pertinent financial analyses. In addition, submissions often included extensive background and supporting documentation. For a large acquisition, for example, the CER and its accompanying support would be voluminous. For Operational CERS, the first section addressed the following prescribed topics: Project background, key facts and descriptions, and strategic rationale. This part would also review, for example, key industry or competitive trends, salient market facts, the role of the project in the division's annual and strategic plans, and so forth Economic justification and key risk factors. This part of the CER showed that the project's returns on a discounted cash flow basis would exceed Stryker's normal 15% hurdle rate (which could be higher for riskier projects). In many CERS NPV calculations were performed on the basis of five to seven years of cash flows and without a terminal value Calculations of IRR and payback period also were required; these likewise were often computed without a terminal value. Finally, this part of the CER set forth the project's anticipated ongoing cash flow and earnings effects on Stryker as a whole, and described specific risks that could affect the project's ability to deliver the projected economic results HR implementation plan and key milestones. This part set forth the human resource requirements of the project and described the plan for meeting these needs. Descriptions The System in Practice: 2007 In early 2007 participants in the new process were still getting used to it. Some of the goals for the revised system were being met: more data, more depth, more analyses, more standardization and rigor. But there were complaints as well. The stipulated timetable for CER submission and review was not always met. Committee members complained about CERS not being submitted on time Divisions complained about the Committee not being available as such when needed. Indeed, the Committee did not hold regular meetings as a group, but operated more as a "virtual" committee with members contacting one another as needed. extensive documentation struck some managers as unnecessarily bureaucratic for proposals that were "no-brainers" and clearly assured of approval. Indeed, "The vast majority gets approved," controller Jim Praeger observed, "but recently a few CER8 have not been approved." Finally, the heavy corporate involvement in the process clashed somewhat with Stryker's decentralized organization and entrepreneurial culture. One division executive said simply, "It's painful." The requirements for standardization and Capital Investment at Stryker The investment process began in Stryker's decentralized divisions, where marketing, production, and technology specialists proposed projects within their own division for the upcoming year, in accordance with multi-year strategic plans. Generally, proposals were discussed, vetted and prioritized within the division as part of the process of developing division operating plans and budgets. Curt Hartman, President of Global Instruments, commented (in early 2007) on the relationship between the operating budget and the capital budgets: "I already know my 2008 numbers for revenue, operating profit, all the way down to free cash flow. The corporation is going to have a plan to grow adjusted net income by at least 20% and I know what that means for me ... R&D hits operating profit; capital spending hits free cash flow, and so forth. It all has to fit." Generally, the plans presented by divisions to corporate had already been refined by analysis, negotiations, and assessments of tradeoffs within the division. These plans contained goals for revenue, operating profit and cash flow that the divisions felt were both deliverable and consistent with global corporate targets. Total divisional capital spending had to be trimmed to meet cash flow targets. Hartman observed, "Everyone has a wish list [for spending items]. If we roll up everyone's wish list, it's too big by a factor of three. So I have to push back. And we go back and forth until we figure out what works." businesses and new initiatives. The split within Global Instruments, for example, had recently been The capital budget also reflected tradeoffs between spending on existing about 25-35% percent for existing businesses and the remainder for new initiatives. Spending proposals originated with sales and marketing executives, who were listening to customers and watching competitors; with in-house technology experts, mostly engineers; and with business development executives, who studied markets, went to medical conventions and trade shows, and worked with outside experts and consultants. Authority to approve capital spending resided at the division level, the group level, with the Capital Committee, or with the Board of Directors, depending on the purpose and the amount of funds involved. Only the Board could authorize expenditures over $10 million. The Capital Committee had to approve operational projects involving more than $2.5 million, as well as all acquisitions, joint ventures, equity investments, and licensing, development or distribution agreements in excess of $1 million. The Committee likewise reviewed all subsequent changes in cost or scope for projects it had previously approved. Below the Capital Committee, spending authority varied within different groups and across divisions but had to conform to corporate guidelines. Capital Expenditure Requests: CERS Part of Stryker's capital allocation process was structured around formal requests for authority to spend funds referred to as Capital Expenditure Requests ("CERS"). Nominally, CERS were forms that had to be filled out before authority to spend could be obtained. More broadly, they embodied a proposal and approval process that was utilized throughout the entire corporation. Internal guidelines split proposals into two broad categories: Operational and M&A. The former included proposals involving buildings, equipment, IT systems, and so forth for Stryker's existing businesses The latter included not only mergers and acquisitions, but also licensing and distribution agreements, joint ventures, equity investments, and development agreements negotiated with outside parties. For both types of CER a "project" was defined to include all parts of multi-phase undertakings and all later-phase expenditures had to be included in descriptive materials and analyses. All CERS, whether Operational or M&A, were comprised of two main sections: one setting forth the business proposition and another summarizing pertinent financial analyses. In addition, submissions often included extensive background and supporting documentation. For a large acquisition, for example, the CER and its accompanying support would be voluminous. For Operational CERS, the first section addressed the following prescribed topics: Project background, key facts and descriptions, and strategic rationale. This part would also review, for example, key industry or competitive trends, salient market facts, the role of the project in the division's annual and strategic plans, and so forth Economic justification and key risk factors. This part of the CER showed that the project's returns on a discounted cash flow basis would exceed Stryker's normal 15% hurdle rate (which could be higher for riskier projects). In many CERS NPV calculations were performed on the basis of five to seven years of cash flows and without a terminal value Calculations of IRR and payback period also were required; these likewise were often computed without a terminal value. Finally, this part of the CER set forth the project's anticipated ongoing cash flow and earnings effects on Stryker as a whole, and described specific risks that could affect the project's ability to deliver the projected economic results HR implementation plan and key milestones. This part set forth the human resource requirements of the project and described the plan for meeting these needs. Descriptions The System in Practice: 2007 In early 2007 participants in the new process were still getting used to it. Some of the goals for the revised system were being met: more data, more depth, more analyses, more standardization and rigor. But there were complaints as well. The stipulated timetable for CER submission and review was not always met. Committee members complained about CERS not being submitted on time Divisions complained about the Committee not being available as such when needed. Indeed, the Committee did not hold regular meetings as a group, but operated more as a "virtual" committee with members contacting one another as needed. extensive documentation struck some managers as unnecessarily bureaucratic for proposals that were "no-brainers" and clearly assured of approval. Indeed, "The vast majority gets approved," controller Jim Praeger observed, "but recently a few CER8 have not been approved." Finally, the heavy corporate involvement in the process clashed somewhat with Stryker's decentralized organization and entrepreneurial culture. One division executive said simply, "It's painful." The requirements for standardization and Capital Investment at Stryker The investment process began in Stryker's decentralized divisions, where marketing, production, and technology specialists proposed projects within their own division for the upcoming year, in accordance with multi-year strategic plans. Generally, proposals were discussed, vetted and prioritized within the division as part of the process of developing division operating plans and budgets. Curt Hartman, President of Global Instruments, commented (in early 2007) on the relationship between the operating budget and the capital budgets: "I already know my 2008 numbers for revenue, operating profit, all the way down to free cash flow. The corporation is going to have a plan to grow adjusted net income by at least 20% and I know what that means for me ... R&D hits operating profit; capital spending hits free cash flow, and so forth. It all has to fit." Generally, the plans presented by divisions to corporate had already been refined by analysis, negotiations, and assessments of tradeoffs within the division. These plans contained goals for revenue, operating profit and cash flow that the divisions felt were both deliverable and consistent with global corporate targets. Total divisional capital spending had to be trimmed to meet cash flow targets. Hartman observed, "Everyone has a wish list [for spending items]. If we roll up everyone's wish list, it's too big by a factor of three. So I have to push back. And we go back and forth until we figure out what works." businesses and new initiatives. The split within Global Instruments, for example, had recently been The capital budget also reflected tradeoffs between spending on existing about 25-35% percent for existing businesses and the remainder for new initiatives. Spending proposals originated with sales and marketing executives, who were listening to customers and watching competitors; with in-house technology experts, mostly engineers; and with business development executives, who studied markets, went to medical conventions and trade shows, and worked with outside experts and consultants. Authority to approve capital spending resided at the division level, the group level, with the Capital Committee, or with the Board of Directors, depending on the purpose and the amount of funds involved. Only the Board could authorize expenditures over $10 million. The Capital Committee had to approve operational projects involving more than $2.5 million, as well as all acquisitions, joint ventures, equity investments, and licensing, development or distribution agreements in excess of $1 million. The Committee likewise reviewed all subsequent changes in cost or scope for projects it had previously approved. Below the Capital Committee, spending authority varied within different groups and across divisions but had to conform to corporate guidelines