➢ Suggestions to performance measurement system:
1) ROI can be used combination with other performance measures to avoid the limitations of ROI. The company can establish a non-financial performance measurement system such as the balanced scorecard .With a good performance measurement system, the incentive compensation plan will be improved. (2) EVA ( Economic value added) can be used instead of RO
➢ Suggestions to improve the existing incentive compensation plan. ➢ Suggestions to transfer pricing.
➢ Suggestion to captive customer-AM division
➢ Suggestions about inventories
This report focuses on the case of Abrams Company which manufactured different parts for use in automobiles, trucks, buses and farm equipment. It has three product divisions and an aftermarket division.
The report analyzes the following issues:
• Abrams Company’s internal and external environment
• Construct the business’ and industry value chain
• Management strategies that the company following
• How management control systems help the firm to execute the strategies • Some recommended improvements or changes
In general, Abrams Company adopts the lowest cost, differentiation, market focus and ROI strategies to accomplish the organization’s goal. Furthermore, In order to implement the strategies the firm establishes its own management control systems.
Abrams Company manufactured automobile parts for trucks, buses, and farm equipment. The three major groups’ parts are ignition parts, transmission parts, and engine parts. They sold them both to OEMs (original equipment manufactures) and to AM (aftermarket) which through wholesalers-retailers-customers way. As we can see from the chart 1 (refer to Appendixes) they had a ‘product division’ for distribution to different markets.
What’s more, they conduct a ROI strategy to evaluate the investment centre performance and focus on their product innovation and cost-effective to satisfy their customers’ needs as marketing strategies. Moreover, they have an incentive bonus plan for employees as well.
◆ Key issues and problems requiring solution
➢ The SWOT analysis of Abrams Company
➢ The business’ and industry value chain
➢ Management strategies that the company following
➢ How management control systems help the firm to implement the strategies. ➢ The overall evaluation of Abrams’s management control system. Identified some strengths or weaknesses of it ➢ Some recommended improvements to the top management
◆ The outcomes of SWOT analysis of Abrams Company
1. The company had a clear management structure.
2. The company had an incentive bonus plan for employees.
3. The products that AM marketing division sold are from the other three divisions, it will help the company save cost by internal input. 4. The three product divisions are independent from each other because they produce different products and sell to different OEMs.
1. The Abrams Company has three totally independent divisions, and the three divisions are lack of connection. The transactions between the three divisions dispute the transfer pricing. 2. Both AM division and the three product division carried excessive inventories most of the year
1. The Abrams Company is focus on their product innovation and cost-effective to satisfy their customers’ needs. It provides a good quality to their customer. However, the Abrams Company should not only be focus on their products, but also focus on their brand name to be more competitive in the future. 2. By providing specialized products on three divisions, the demand will increase 3. The company can expand this product range for other vehicles
1. There are many competitors in the industry.
2. The company needs to adapt new technology and new requirement. 3. The ROI strategy which they used limited the managers’ investment in projects due...