Rendell Company is experiencing some difficulties in implementing its modern control techniques due to the irking relationship between the divisional controller and the corporate controller. This is mainly because the loyalty of the divisional controllers rest with the divisional managers. Because of this current set-up, Mr Bevins believes that information regarding the divisions’ performance are not reported accurately and biased. .Mr. Bevins is interested if applying a control organization structure similar to Martex will resolve the conflict between the role of the corporate controllers and the divisional controllers.
STATEMENT OF THE PROBLEM
Given the status of goal incongruence between the Corporate Controller and the Division Manager; and the Division Controller caught between, should Rendell Company change its control organization structure similar to Martex?
FRAMEWORK OF ANALYSIS
* Analysis on Rendell and Goal Congruence
* Analysis of Rendell’s current control structure (Pros & Cons) * Analysis on Martex’s control structure (Pros & Cons) * Conclusion & Recommendations
* Case Questions
Rendell Company has seven divisions, each responsible for the manufacturing and marketing their distinct product line with little interdivisional business. The control structure of the company was organized such that Division Controllers (DC) report directly to his Division Manager (DM).
On Goal Incongruence
Because of the company’s control structure, there is conflict of interest between the roles of the Corporate Controller and the Division Managers and conflict on the working relationship between the Division Controllers and the Corporate Controller.
The goal of the corporate controller is to optimize the use of funds (minimize budget allocation and maximize use) for profitability.
The goal of the divisional managers is to receive a bigger budget for his division by reporting numbers that reflect effective management. The Division Controller reports to the DM and has a dotted line relationship to the Corporate Controller. The DC is torn between two conflicting goals of the Division Manager and the Corporate Controller.
Analysis on Rendell’s Control Structure
According to Mr Harrigan’s points of view:
- The Division Manager (DM) trusts the Division Controller (DC), thus information is shared freely compared to Martex structure which opens possibility for DM’s to see the DC’s are a ‘spy’. - The Division Controller shares a common goal with the division and assists the Division Managers the best that he could to achieve these goals. - With the division controllers reporting directly to division managers, the current set-up allows tactical issues to be resolved faster because timely information is easier retrieved.
- Since the DM is the one who reports the numbers to the Corporate Controller, this gives the DM the ability to conceal or overstate financial reports. - Empowerment for Divisional Controllers are not achieved which is the goal of the Corporate Controllers. This is mainly because the DC works for the DM who owns the responsibility of reporting budgets and performance reports. - There is goal incongruence between the Divisional Controller & the Corporate Controller. The reliability of the information provided by the DC may be biased due to loyalty with the DM. Worst case, the DC and DM can connive to hide financial flaws.
Analysis on Martex’s Control Structure
- Objective decision-making on budget standards & percentage of sales because the loyalty of the DC lies on the CC. - Unbiased information provided to the corporate controller. - Division controller is more empowered and plays a more active role in analyzing budgets and performance. - Minimize added fats in division expense budget and overstatement of performance.
- Goal incongruence between the Division...