Armco. Case

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Armco, Inc. (Armco) is the sixth largest producer of stainless, electrical, and carbon steels and steel products. Kansas City Works (Kansas) is the Armco’s Midwestern Steel Division, and has two primary products: grinding media and carbon wire rod, one being recognized in the industry for its durability while the latter being non profitable and only covering some of its fixed costs through volume. In January 1991, Bob Nenni, the Director of Finance, introduced a new performance measurement system for Kansas City Works to provide managers with the best information that would better enable them to boost up company performance. In order to maximize profits and sustain its position in the US manufacturing steel industry, Armco has adopted a cost leadership strategy with a broad appeal and has managed to achieve growth by engaging in joint ventures expanding its product lines in implementing its strategy. However, the Kansas City Works has the strategy based on differentiation because it has cost disadvantages such as inefficient plant infrastructure and union labor costs. Taking into consideration that Armco’s revenue has been declining and now only generates a marginal profit whereas Kansas succeeds in producing and selling high value products, Armco as a whole should switch the strategy to focus on the differentiation strategy that will lead to sustainable growth and leading position in the industry. In addition to this inconsistency with the strategies of the firm as a whole, the old management control system used at Kansas had numerous problems that lower the quality of performance measurement. In the old system, the Operating Statics Reports were issued only monthly and provided to the managers approximately 15 days after the following month. The lack of timeliness caused manufacturing results measurement controls to be ineffective because variances could not be investigated quickly. This also caused delay in solving problems and contributed to higher...
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