In August 2002, a pricing dispute arose between the managers of some of the divisions of Zumwald AG. Mr. Rolf Fettinger, the company's managing director, had to decide whether to intervene in the dispute.
Zumwald AG, headquartered in Cologne, Germany, produced and sold a range of medical diagnostic imaging systems and biomedical test was equipment and instrumentation- The organized into six operating divisions. Total annual revenues were slightly more than €3 billion. Zumwald managers ran the company On a decentralized basis. The managers of each division were allowed considerable autonomy if their performances were at least On plan. Performance was evaluated, and management bonuses were assigned, based on each division's achievement invested of budgeted targets for retum (RolC) and growth. Even the 'Ompany was partly integrated, managers were to source their from external suppliers if they so chose. Involved in the were three of the the Imaging Systems Division (ISD), the Heidelberg Division (Heidelberg), and the Electronic Components Division (ECD).
ECD sold application-specific integrated circuits and subassemblies. ECD was originally established as a captive supplier to other Zumwald divisions. but in the last decade its managers had found external markets for some of the division's vroducts. Because of this, ECD's managers were given profit center responsibility.
1, 2001, ISD designed a new ultrasound imaging system, called the ~ 7 3H~~~~ were high for ~ 7 3 . . The new system offered users advantages in processing speed and cost, and it took up less space. ~ ~ i d engineers participated in the design ~ l b ~ ~ ~ of ~ 7 3 but ~ ~ i d ~ was e ~ ~ , l b for the full cost of the time its employees spent on this pro,ect. managers ~f~~~ the specifications were set, solicited bids for the materials needed to produce X73 components. Heidelberg was asked to bid to supply the...