Birch Paper Case
Strategy & Key Success Factors: Birch Paper (BP) company is structured in such a way that it is decentralized, and each division acts as a profit centre. Furthermore, it uses vertical integration with examples such as Timberland division supplying pulp, and the Thompson Division (TD) providing printing and colouring. This strategy, which composes of decentralization along with the design of profit centres indicates a profit maximization strategy, which involves keeping costs low through obtaining multiple bids. This strategy is reliant on several key success factors: goal congruence among all divisions. Although managers from each division have the right to choose the supplier they want, the company will not be successful if the selling division charges a full premium to the purchasing division, who is ultimately trying to minimize costs. Coincided with goal congruence, another key success factor is clear communication among divisions. Without this, each division may have differing strategies, which can have negative effects on the entire company’s cash flow. Lastly, complete awareness and competence from management is a critical key success factor. In most companies, the degree of management intervention is dependent on their awareness of the business. However, too much intervention can lead to negative outcomes for the company.
Analysis: The main issue between the divisions involves the presentation of the three bids. Although TD offered the highest bid at $480 a thousand, once you look deeper, the TD bid incurs the lowest amount of cash outflow from the overall company’s perspective (Appendix A). In addition, while West Paper (WP) Company’s offer appears to be the cheapest at $430 a thousand, it is not so in the interests of the entire company, as it results in the greatest cash outflow (Appendix A). As divisions are measured in terms of profitability, ND would probably choose