Ab Thorsten Case

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Table of Contents
Executive Summary3
Company Overview3
Initial Proposal of XL-43
XL-4 Opposiation4
Strategic Planning and Decentralization of Profit Centers4
Goal Congruence and Management Control System5
Conclusion8
Definitions………………………………………………………………….……………………………………………………………………………8 Case Questions………………………………………………………………………………………………………………………………………10 References …………………………………………………………….……………………………………………………………………………..19 Class Discussion Points …………………………………………. .…………………………………………………………………………….19 Multiple Choice Questions ……………………………………………………………………………………………………………………19 References…………………………………………………………………………………………………………………………………………….22

Executive Summary

Company Overview

AB Thorsten is a subsidiary of Roget S.A., one of the largest industrial companies in Belgium. They were acquired in 1972 by Roget and for the following four years sales rose and fell between Skr. 5M and Skr. 7M. Roget had several options; they could either sell the company or completely change the management team. They opted for the latter by hiring a new managing director in Anders Ekstrom, a graduate of the Royal Institute of Technology. Mr. Ekstrom quickly increased sales to over Skr. 20M by utilizing his nearly 16 years of experience in the industry. Roget was very satisfied with his performance and the profits he helped the company achieve (Anthony, Govindarajan. 2007).

Initial Proposal of XL-4

Ekstrom proposed that Thorsten construct a new manufacturing plant in Sweden for the production of a product. This product, called XL-4, was a “starch-based, adhesive chemical used in drying paper” along with the adaptation of customer dryers, would realize drastic cost savings for their clients. Ekstrom supposed that he could develop a market in Sweden as large as Roget’s current worldwide market for XL-4. Currently Roget was producing 600 tons of XL-4 per year, with none of that ever going to Sweden. Research backed Ekstrom’s proposition and estimated that the current market potential in Sweden was 800 tons annually. They also surmised that they would be able to capture half the market in three years if they sold XL-4 at Skr. 1,850 per ton. As part of the due diligence necessary for evaluating the proposal, Ekstrom contacted the head of the corporate engineering division in Belgium to assist in estimating the cost of building a plant that produces 400 tons of XL-4 a year. It took three months; however, the final report was in – Skr. 700,000 to complete the XL-4 plant in Sweden. In other good news, the investment would yield much greater than the minimum 8 percent return required for investments undertaken by the company. This resulted excited feedback from the senior management in the form of questions regarding the longevity of the XL-4 and the potential for increased sales. Ultimately, upon request for the initial capital, the board unanimously voted to fund the construction of the plant (Anthony, Govindarajan. 2007).

XL-4 Opposition

Shortly after the approval of the plant, there were problems. Management of the Belgium plant – director of marketing (Lavanchy), director of sales (Gachoud), vice president for domestic and export (Lambert) – had some issues regarding the feasibility of the XL-4 proposal.

A strong opposition regarding the XL-4 project was put up from the Belgium management team. Regardless of what Ekstrom proposed or how he compromised, the Belgium team simply said that he was too optimistic regarding the projections and did not understand the difficulties involved in manufacturing. Finally, after an all day meeting, Gillot, the SVP of industrial chemicals for Roget, left without giving any clear indicator of whether the project would be approved or discarded (Anthony, Govindarajan. 2007).

Strategic Planning and Decentralization of Profit Centers...
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