Kranworth Chair Corporation Case

Topics: Decision making, Management, Organizational structure Pages: 10 (3211 words) Published: March 30, 2015


ACCT 463/CCMA523
Winter 2015
Assignment #1

KRANWORTH CHAIR CORPORATION
CASE

Executive Summary
The present paper has as a subject Kranworth Chair Corporation (KCC) management initiative of decentralization (authority for making decisions pushed down to lower levels) the transition from a functional organization structure to a product division structure and some aspects that derive from this decision. We will first present advantages and disadvantages of the new proposed Product Division Structure and how this new structure impact on the decision making process. We will identify the key recurring decisions that must be made effectively for Kranworth Chair Corporation to be successful and how the authority for making these decisions is shifting between the two organizational structures. Further we evaluate the proposed design for performance evaluation and incentive system linked with the new Product Division Organization Structure. We will assess the alignment (congruence) of performance measurement system with the company’s strategy and strategic objectives and at the same time if meets the criteria of an effective system: controllability, precision, objectivity, timeliness and cost efficiency. Finally we will explore the alternative of further decentralize (give to the product divisions) the R&D function and asses if this decision will trigger changes to the design of KCC performance measurement and incentive system. We will analyze advantages and disadvantages of decentralization of R&D function and give our opinion as what will be the best decision for KCC. Company Overview

Kranworth Chair Corporation (KCC) was incorporated in 1987 by Weston Krantz and Kevin Wentworth. KCC is a manufacturing company, and is associated with the FOLD-IT! brand that includes the production of high-quality and fashionable portable, folding chairs and related products. The main manufacturing line was concentrated to produce (i) folding chairs (produced at several price points) and related products (tripod stools, ottomans, costs, and stadium seats) in Mexican and Chinese manufacturing facilities and (ii) custom-designed products in the Denver location. KCC’s main customers were:

Major retail chains (Wal-Mart, K-Mart, Target) that provided higher sales volumes, but with lower gross margins; Other retail chains (e.g. sporting goods);
Corporations for custom-design product orders.

From the beginning of KCC’s activities, the Company had little competition and high margin rates. However, starting in 1999, the Company faced some cash and business issues related to a $30 million dollar loan to allow the owner’s to withdraw cash from the Company, the new competitors on the market and the worldwide recession.

At that point of time Kevin realized that in order to keep the business in good shape, new changes would be required. These changes had to solve the main strategic issues the company faced, which included: eroding profit margins, fierce completion, inventory spread amongst more than a thousand types of products and parts and rather tight financial situation. Kevin realized that to handle all these issues, the company needed to better understand customer requirements and believed that decentralization could help KCC to achieve success.

Key recurring decisions
New changes in the market that might result in high risk of losing market share and drop in profit caused top management to revise the Company's business direction and structure. In order to reach the proposed objectives the new Company strategy consists in delegating some of the decisions from Top Management (TM) to Division Managers (DM). Table 1 shows how the existing decisions are split between TM and DM. However, considering the Company’s business direction, there would still be new work required to help draw a clearer line on decision-making with regards to important business decisions. For example, under the...
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