From the case, I could notice that divisions and therefore company itself is treating AM division almost as a separate business and the three divisions would like to make more profit while selling goods to AM division. Partly it is a exult of incentive system based only on ROI, and historic fact that in the past all these divisions were separate companies. I would recommend short term solution to make process of fixing the price for AM division simple. Solution could be that we use simple formula for internal AM division : cost price + minimum profit margin.
Since, incentives are not affected directly by this formula, it should be very easy to use it and I can ' t see any valid reason why not to use it instead of current one which is spending directors and division managers time and effort to set the price for every case separately. Long term solution based on my experience is to integrate three divisions into AM division, but keeping all their major advantages as separate divisions and also to incentive divisions as part of AM sale. Second concern is that three divisions are treating AM division as an unwanted brother.
Since company has quite frigid incentive systems divisions don 't benefit while selling to AM division. In their ROI based incentive system it has much more sense to sell same products to MOM than to AM. By keeping this behavior in Abram organization, they are holding AM to grow bigger and show its full potential. By combining incentive with AM division results this problem would be solved. Third concern is excessive inventory throughout the year. Based on my experience would say that this problem has roots in quite complex and slow" organization/management.
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Three completely independent division are unnecessary and by having one one main planning for production (three division) and one planning for sales (AM division), Abram could implement a more leaner inventory planning since instead of having 4 separate planning, and with three of them for production, we will have two major planning. Side effect would be increasing negotiation power while purchasing goods and more efficient inventory level. 2nd Question: What is your overall evaluation of Abram s management control system? Describe and strengths or weaknesses that you identified, but did not include in answering previous question.
What changes, if any, would you recommend to top management? Abram current measurement system is based on ROI. My opinion is that it sin ;t suitable for a company like Abram is. Any investment done in this year will affect your bonuses in the next, and actually this system denominates oh to improve your systems, equipment or educate staff. In the era of fast changing companies and Internet, it is extremely dangerous to have a system in a company that forces managers all the time to use maximum from the equipment and people without any upgrades.
Sometimes, if a competition is strong, and it is stated in the case, that industry is very price sensitive, if you don ' t upgrade or invest you will lose you market share since somebody else will invest only because we gave them the space. Weaknesses of Abram company would be: Dangerous ROI measurement system Fragmented inefficient organization, with implementing leaner systems it can become much more cost efficient Strategy that stops divisions to reach its full potential.
Examples, AM can 't sell products from other brands. Some brands are market leaders in the industry and Abram spare parts could be sold as a side part or compatible part or combo. Divisions are denominated to invest in the future and upgrades. Each division has it own sales director selling to MOM. By having sales centralized, by accomplishing one big MOM deal Abram could sell products from 2 or even three divisions, at the moment their maximum is to sell only product from their division.
Planning is not centralized and therefore company is not using its full negotiating strength Strengths of Abram company would be: They have incentive system which shows that they understand that one of the main drivers to success are employees engaged in companies goals They have clear management structure. It is quite inefficient but by having a structure it shows that they could change it and have more efficient firm structure again They have ongoing business and therefore good position to feel all positive changes they implement.
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