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koya| |nst|tute of 1echno|ogy

2/12/09
8LnAVICkAL
MANAGLMLN1 CCN1kCL
nomework Ass|gnment
Mon|ca-nr|st|na 1ra|cu

rofessor: nkan ku||vn
2

!"#$%#$&
uest|on 1: Pow could each of Lhe conLrol problems aL Leo's lour-lex 1heaLer be solved
wlLh Lhe use of CulLural ConLrol? ............................................................................................... 3

uest|on 2 WhaL ersonal and CulLural ConLrols do Armco use, and whaL ersonal and
CulLural ConLrols could Lhey use? .............................................................................................. 4

uest|on 3 Clve and explaln examples on how Sands/8ellaglo could use non-flnanclal resulL
conLrols Lo lmprove buslness performance? SLarL from an ldenLlflcaLlon of Lhe key success
facLors (kSl) of a caslno. ............................................................................................................. 6

uest|on 4 WhaL plannlng recommendaLlons would you glve Lo Lhe CLC of Zumwald AC? ... 7

uest|on S ln whaL respecLs are Lhe deparLmenL managers aL Alr1ex sub[ecL Lo LlghL conLrol?
ln whaL respecLs are Lhey loosely conLrolled? 8oLh quesLlons regard Lhe slLuaLlon afLer lrank
and 1ed's Lakeover. .................................................................................................................... 9

uest|on 6 LvaluaLe Lhe dlfferenL Lypes of rewards and punlshmenLs currenLly used ln
1slnghua 1ongfang. ................................................................................................................... 10

uest|on 7 Should 8erkshlre lndusLrles make speclal ad[usLmenLs for Lhe SplrlLs ulvlslon? ln
LhaL case: whaL ad[usLmenL? .................................................................................................... 12

uest|on 8 Pow can audlLs be used Lo deal wlLh unconLrollable facLors? .............................. 13

uest|on 9 ln whaL ways can whaL happened aL LernouL & Pausple be consldered eLhlcal? 13

Case Ana|ys|s ............................................................................................................................ 17
uest|on 1 Was Alr1ex ln a need for a new conLrol sysLem? Why/why noL? ......................... 17

uest|on 2 LvaluaLe how Lhe new conLrol sysLem aL Alr1ex Lakes use of elemenLs of resulLs
conLrol, acLlon conLrol, culLural conLrol, personal conLrol. ...................................................... 18

ersona| Statement 20
keferences 21
3

()%&$*"# +, -". /")01 %2/3 "4 $3% /"#$5"0 65"70%8& 2$ 9%":& ;")5<=0%>
?3%2$%5 7% &"0@%1 .*$3 $3% )&% "4 !)0$)520 !"#$5"0A

Accordlng Lo llLeraLure, culLural conLrols are deslgned Lo encourage muLual monlLorlng".
Shaplng Lhe culLure of a company ls a very hard Lask buL Lhere are ways Lo do lL. 1he mosL
common ways for shaplng culLure are !"#$% "' !"(#)!*, provldlng +,")-./0%$# ,$10,#%,
2(*,0",+0(230*2"(04 *,0(%'$,% and *"($ ',"5 *6$ *"-.
1

!"#$ "& '"(#)'*
A code of conduct should be developed aL Lhe LheaLer. Lven lf lL ls Lhe case of a small
LheaLer, LhaL has a low number of employees, a '",504 1,2**$( #"!)5$(* would help Lhe
workers undersLand whaL ls expecLed from Lhem and would esLabllsh speclflc rules and
prlnclples Lo be followed. As seen ln Lhe example of 7,"82#$(* 9)*)04 :,+0(230*2"(
2
, Lhe
code of conducL provldes expllclL behavloral guldance on dlfferenL lssues. Cne enLry of Lhe
code of conducL of Lhls company speclfles LhaL all records made ln Lhe accounLlng
documenLs should be real and ln accordance wlLh Lhe law. 8lll 8ellly should deflne such
enLrles ln Lhe code of conducL as well Lo prevenL Lhe uneLhlcal behavlor showed by Lhe
employees aL Lhe refreshmenL sLand and aL Lhe LlckeL offlce.
1hls lncenLlve should be supporLed by sLrong leadershlp flgure. Cne of Lhe causes for Lhe low
proflL of Lhe company ls Lhe +,'- "& #./$'*."( from Lhe manager, 8lll 8ellly, who dld noL make
a clear polnL as Lo whaL ls expecLed from Lhe employees.
0/")1 /$2,/#3
A way of encouraglng culLural conLrol ls provldlng rewards based on collecLlve achlevemenL.
3

Lven lf lL ls a small company Lhe LheaLer could Lry Lo lmplemenL Lhe "1$( 4""- 5,(,6$5$(*
Lechnlque, whlch conslsLs ln sharlng Lhe flnanclal resulLs wlLh all Lhe employees and Lralnlng
Lhem Lo undersLand whaL Lhe lnformaLlon means and how can Lhey conLrlbuLe Lo company
performance" ln such a way Lo lncrease Lhe chances of group reward. ln Lhls way Lhe
employees of Lhe LheaLer would noL cheaL by offerlng free refreshmenLs and free enLrles ln
Lhe clnema Lo frlends. lL ls very lmporLanL LhaL Lhe employees undersLand how Lhe LheaLer
works and whlch lLs sources of proflL are.
751+"8$$ /"*,*."(
8y rotat|ng emp|oyees beLween Lhe Lhree polnLs LhaL presenL problems wlll help Lhe LheaLer
prevenL Lhe frauds LhaL have been golng on. lurLhermore, Lo lmprove Lhls Lechnlque Lhe

1
MerchanL and van der SLede, 2007, p83-90
2
MerchanL and van der SLede, 2007, p86
3
MerchanL and van der SLede, 2007, p88
4

manager should asslgn randomly each day who wlll perform each Lasks. ln Lhls way, Lhe
employees wlll noL be prepared and Lhe probablllLy of cheaLlng wlll decrease.
9*/"(6 +$,#$/3:.1
WhaL Leo's lour-lex 1heaLer needs ls a sLrong *"($ ,* *:$ *"1. 8lll 8ellly encouraged Lhls
uneLhlcal Lype of behavlor by offerlng free passes auLhorlzed wlLh hls slgnaLure. lf someLhlng
ls Lo change aL Lhls LheaLer lL should come from Lhe manager lLself. Pe should seL a model of
lnLegrlLy Lo Lhe oLhers employees, noL encourage and LoleraLe uneLhlcal behavlor.
()%&$*"# B C32$ =%5&"#20 2#1 !)0$)520 !"#$5"0& 1" D58/" )&%E 2#1
.32$ =%5&"#20 2#1 !)0$)520 !"#$5"0& /")01 $3%F )&%A

;$/3"(,+ !"(*/"+3
1he deflnlLlon of personal conLrols sLaLes LhaL Lhey bulld on employees' naLural Lendencles
Lo conLrol and/or moLlvaLe Lhemselves". 1hese Lypes of conLrols are used Lo clarlfy
expecLaLlons by maklng everyone undersLand whaL Lhe organlzaLlon wanLs, Lo assure LhaL
Lhe besL quallfled resources ls asslgned for a speclflc Lask and Lo make sure LhaL Lhe proper
resources are avallable ln order Lo perform Lhose Lasks.
4

1he case suggesLs LhaL persona| contro|s were noL very efflclenL durlng o|d performance
measuremenL sysLem. ;$%"),!$%, also avallable, were overwhelmlng and resulLed ln wasLed
Llme. Managers spend Llme explalnlng everyLhlng down Lo Lhe smallesL expendlLure lnsLead
of Lrylng Lo solve Lhe maln cosL problems.
AnoLher personal conLrol problem relaLed Lo Lhe old sysLem ls LhaL lL dld noL allow %$4'.
5"(2*",2(+ aL lower managerlal levels. All Lhe responslblllLles fall on Lhe shoulders of Lhe
cosL cenLer managers who Lrled Lo solve Lhe problems as Lhey LhoughL besL.
AfLer Lhe lnLroducLlon of Lhe new system whlch dlsLrlbuLed responslblllLy Lo all Lhe
employees Armco could use Lhe followlng meLhods Lo Lry Lo lmplemenL personal conLrols:
! </,.(.(6: slnce all Lhe [obs were reallocaLed and lL was noL Lhe purpose of Lhe new
sysLem Lo Lry Lo replace employees, Armco should use Lralnlng programs Lo Leach all
employees how Lhe new performance evaluaLlon sysLem works. ln Lhls way Lhe
company wlll lncrease Lhe probablllLy LhaL employees perform a good [ob and LhaL
Lhe new sysLem wlll be successful.
! ="4 #$3.6( ,(# 1/">.3."( "& ($'$33,/8 /$3")/'$3? 8ecause Lhe new sysLem ralses Lhe
responslblllLy of lower level managers, Lhls [obs should be redeslgned by maklng
everyone undersLand whaL are Lhelr responslblllLles and Lasks. Also, Lo help

4
MerchanL and van der SLede, 2007, p83

employees do Lhelr besL, Armco shoul
lncludlng lnformaLlon and sLaff supporL are avallable when needed.
!)+*)/,+ !"(*/"+3
Accordlng Lo Lhe flnanclal manager of Armco, whaL Lhe company ls Lrylng Lo do wlLh Lhe new
sysLem ls Lo change Lhe way managers Lhlnk. 1he new sysLem ls noL yeL parL of Lhelr
menLallLy."
3
1herefore, Armco should use every meLhod lL can Lo develop Lhe new culLure.
! !"#$3 "& '"(#)'*? A formallzed documenL based on Lhe 10 key performance
measures should be wrlL
company. 1he documenL should explaln Lhe
as descrlbed ln Lhe followlng flgure
Codes of conducL are a
1here ls no lnformaLlon provlded ln Lhe case Lo wheLher Armco ls uslng or noL a code
of conducL.
! 0/")1@4,3$# /$2,/#3?
lmplemenL reward plans based on colle
noL used before Lhe lmplemenLaLlon of Lhe new sysLem. uurlng LhaL perlod lndlvldual
cash lncenLlves were used.
measure LhaL wlll help Lhe employees aL
! A(*/, "/6,(.B,*."(,+ */,(3&$/3?
aL Armco due Lo [ob speclallzaLlon.
! ;:83.',+ ,//,(6$5$(*3?
communlcaLlon and '4"1 "'
! <"($ &/"5 *:$ *"1? As menLloned above, Lhe company ls well aware LhaL managers
are noL yeL comforLable wlLh Lhe new performance sysLem. 1herefore,
be made Lo promoLe Lhe new dlrecLlon of

3
MerchanL and van der SLede, 2007, p37
6
MerchanL and van der SLede, 2007, p48
7
MerchanL and van der SLede, 2007, p91
3
employees do Lhelr besL, Armco should make sure LhaL all Lhe necessary resources,
lncludlng lnformaLlon and sLaff supporL are avallable when needed.
Accordlng Lo Lhe flnanclal manager of Armco, whaL Lhe company ls Lrylng Lo do wlLh Lhe new
change Lhe way managers Lhlnk. 1he new sysLem ls noL yeL parL of Lhelr
1herefore, Armco should use every meLhod lL can Lo develop Lhe new culLure.
A formallzed documenL based on Lhe 10 key performance
should be wrlLLen Lo creaLe awareness of Lhe new dlrecLlon of Lhe
company. 1he documenL should explaln Lhe 82%2"( of Lhe new managemenL process
as descrlbed ln Lhe followlng flgure.
<2+=> ?2%2"( 50(0+$5$(* -,"!$%%
@

Codes of conducL are a very effecLlve way Lo lnfluence Lhe dlrecLlon of Lhe company.
1here ls no lnformaLlon provlded ln Lhe case Lo wheLher Armco ls uslng or noL a code
4,3$# /$2,/#3? 1o encourage a beLLer culLural conLrol Armco should
lmplemenL reward plans based on collecLlve achlevemenL. 1hls Lype of
noL used before Lhe lmplemenLaLlon of Lhe new sysLem. uurlng LhaL perlod lndlvldual
cash lncenLlves were used. Asslgnlng people Lo work ln group ls a hlghly moLlvaLlonal
measure LhaL wlll help Lhe employees aL Armco ad[usL Lo Lhe new rules.
"/6,(.B,*."(,+ */,(3&$/3? 1hls Lechnlque would be probably hard Lo lmplemenL
aL Armco due Lo [ob speclallzaLlon.
;:83.',+ ,//,(6$5$(*3? Armco could Lry Lo deslgn Lhe open offlce
'4"1 "' 2('",50*2"( beLween members of speclflc deparLmenLs.
As menLloned above, Lhe company ls well aware LhaL managers
are noL yeL comforLable wlLh Lhe new performance sysLem. 1herefore,
be made Lo promoLe Lhe new dlrecLlon of Lhe company. 1hls process wlll be very

MerchanL and van der SLede, 2007, p37
MerchanL and van der SLede, 2007, p48
MerchanL and van der SLede, 2007, p91
d make sure LhaL all Lhe necessary resources,
lncludlng lnformaLlon and sLaff supporL are avallable when needed.
Accordlng Lo Lhe flnanclal manager of Armco, whaL Lhe company ls Lrylng Lo do wlLh Lhe new
change Lhe way managers Lhlnk. 1he new sysLem ls noL yeL parL of Lhelr
1herefore, Armco should use every meLhod lL can Lo develop Lhe new culLure.
A formallzed documenL based on Lhe 10 key performance
of Lhe new dlrecLlon of Lhe
new managemenL process,

way Lo lnfluence Lhe dlrecLlon of Lhe company.
1here ls no lnformaLlon provlded ln Lhe case Lo wheLher Armco ls uslng or noL a code
1o encourage a beLLer culLural conLrol Armco should
cLlve achlevemenL. 1hls Lype of lncenLlve was
noL used before Lhe lmplemenLaLlon of Lhe new sysLem. uurlng LhaL perlod lndlvldual
Asslgnlng people Lo work ln group ls a hlghly moLlvaLlonal
Armco ad[usL Lo Lhe new rules.
7

1hls Lechnlque would be probably hard Lo lmplemenL
Armco could Lry Lo deslgn Lhe open offlce Lo faclllLaLe
beLween members of speclflc deparLmenLs.
As menLloned above, Lhe company ls well aware LhaL managers
are noL yeL comforLable wlLh Lhe new performance sysLem. 1herefore, efforLs should
1hls process wlll be very
6

challenglng because as lndlcaLed ln Lhe LexL Lhe managers llked Lhe old sysLem and
felL more comforLable wlLh lL.
()%&$*"# G H*@% 2#1 %>602*# %>2860%& "# 3". I2#1&JK%002L*" /")01
)&% #"#<4*#2#/*20 5%&)0$ /"#$5"0& $" *865"@% 7)&*#%&& 6%54"582#/%A
I$25$ 45"8 2# *1%#$*4*/2$*"# "4 $3% M%F &)//%&& 42/$"5& NOI;P "4 2 /2&*#"Q

key success facLors are facLors LhaL are a necessary condlLlon for success ln a glven markeL.
8

key success facLors are crlLlcal areas of acLlvlLy LhaL musL be performed well ln order Lo be
successful and Lo survlve ln compeLlLlve markeLs. ldenLlfylng kSl ls a good reference for
measurlng Lhe success of Lhe buslness.
9

Cne of Lhe key success facLors for Lhe caslno ls market|ng. 1he caslno resorL relled on
markeLlng campalgns Lo aLLracL hlgh-end cusLomers Lo dlfferenL speclal evenLs. Also,
campalgns were used Lo promoLe Lhe resorL as a perfecL spoL for organlzlng conferences. 1o
lncrease Lhe success of Lhe markeLlng Leam Lhe managers of Lhe caslno could use non-
f|nanc|a| resu|t contro|s.
lor example, lf a markeLlng agenL could brlng more Lhan 100 cusLomers Lo a speclal
enLerLalnmenL show, he could galn 0 *2!A$* *" 0**$(# '", ',$$ LhaL evenL. CLher non-flnanclal
reward could lnclude a 1$$A.$(# offered by Lhe company ln one of Lhe expenslve hoLels,
!")-"(% for dlnner aL Lhe resLauranLs or Lhe LlLle of B5-4"C$$ "' *6$ 5"(*6". l belleve LhaL
Lhese rewards do have 25-0!* and moLlvaLe Lhe employees. AlLhough we saw Lhe case of
Lhe edlLors from Parvard 8uslness 8evlew LhaL consldered Lhese Lype of glfLs noL good
moLlvaLors
10
, l Lhlnk LhaL ln Lhe case of people worklng ln Lhls
lndusLry Lhey do have 25-0!* and glve a sense of prlde and
would add Lo Lhe [ob saLlsfacLlon.
8elaLed Lo Lhe markeLlng area, Lhe caslno should monlLor
conLlnuously Lhe strengths and awareness of the brand,
whlch ls anoLher crlLlcal facLor.
AnoLher key success facLor ldenLlfled aL Lhe caslno ls
customer sat|sfact|on. 8elaLlons wlLh cusLomers are of
crlLlcal lmporLance ln Lhls buslness. 1he case explalns LhaL lf a
cosLumer complalned Lhe caslno personnel had Lo Lake care lmmedlaLely of LhaL complalnL
dlsregardlng Lhe cosL. 1he caslno relles on cusLomer reLurn.

8 hLLp://markeLlng.abouL.com/od/markeLlngglossary/g/keysuccessdef.hLm
9
hLLp://www.mlndLools.com/pages/arLlcle/newLu8_80.hLm
10
MerchanL and van der SLede, 2007, p403
7

8elaLed Lo Lhls lssue same Lype of reward lncenLlves can be used. lor example, lf an
employee does noL geL any complalnLs from Lhe cusLomer he aLLends LhaL means LhaL he ls
dolng a very good [ob and should recelve any of Lhe compensaLlons menLloned above.
ersonnel worklng ln demandlng poslLlons llke dealers also could be rewarded by $D*,0
80!0*2"( #0C%.
ln Lhe luxury lelsure buslness anoLher lmporLanL klS ls qua||ty of serv|ce. 1he caslno used
5C%*$,C %6"--$,% Lo evaluaLe performance of dealers aL Lhe black[ack Lable. Same Lype of
conLrol could be used Lo all Lhe oLher buslness areas of Lhe caslno: resLauranL, spa eLc.. 1he
evaluaLors could be asked Lo deLermlne ouLsLandlng performance of one employee each
monLh. 1he same rewards could be glven Lo Lhe selecLed
employees.
1echno|ogy ls anoLher crlLlcal facLor for Lhe caslno, mosLly for Lhe
nongamlng and operaLlons and admlnlsLraLlve areas. 1he sysLems
used by Lhe caslno helped enhance guesL servlce and lmproved
yleld managemenL across Lhe company. 1herefore, an error ln Lhe
sysLem could be

()%&$*"# R C32$ 602##*#L 5%/"88%#12$*"#& .")01 F") L*@% $" $3%
!ST "4 U)8.201 DHA

1he -,"/4$5 LhaL caused Lhe dlspuLe aL Zumwald AC was caused by Lhe performance
evaluaLlon sysLem based on flnanclal LargeLs. Zumwald AC was sLrucLured on proflL cenLers.
1he managemenL was hlghly decenLrallzed and each of Lhe slx dlvlslons was able Lo source
componenL from exLernal suppllers. As a consequence, each dlvlslon had ln mlnd lLs own
/)#+$* *0,+$*% and was noL concerned wlLh Lhe "8$,044 /$($'2* of Lhe company noneLheless
wlLh Lhe proflL of Lhe oLher dlvlslons.
lf plannlng and budgeLlng sysLems were used properly such problems could be avolded.
Accordlng Lo MerchanL and van der SLede, one of Lhe maln purposes of plannlng ls Lo
coordlnaLe Lhe dlfferenL buslness unlLs of a company. uurlng Lhe process of plannlng Lhe
flow of lnformaLlon across Lhe organlzaLlon ls hlgh, allowlng all managers Lo have an overall
perspecLlve of Lhe company.
11

lurLher research suggesLs LhaL plannlng should be an lnLegral parL of Lhe sysLem LhaL
creaLes goal congruence wlLhln organlzaLlons." lannlng ls a Lechnlque Lo conLrol Lhe

11
MerchanL and van der SLede, 2007, p329
8

acLlvlLles of groups and lndlvlduals Lo ensure Lhey are ln llne wlLh Lhe deslred organlzaLlon
ouLcomes."
12

WhaL Zumwald AC needs ls a clear #2,$!*2"( "' *6$ +"04% "' *6$ !"5-0(C 0% 0 16"4$>
C"2 ',( *:.3 4$ ,':.$>$#D
llrsL of all, Lhe CLC of Lhe company should revlse some parLs of Lhe 3*/,*$6.' 1+,((.(6E
especlally Lhe ones relaLed Lo Lhe sLraLegy of each buslness unlL ln order Lo make Lhem more
allgned wlLh Lhe sLraLegy of Lhe enLlre company. 1hls wlll help Lhe managers undersLand Lhe
needs of Lhe oLher buslness unlLs.
8elaLed Lo Lhls lssue, Lhe company should conslder alLernaLlve Lhe ,$10,# 0(# !"5-$(%0*2"(
%C%*$5%. unLll now, Zumwald was uslng lncenLlves based on Lhe flnanclal resulLs of each
dlvlslon. 1he performance evaluaLlon sysLem should lnclude +,")- ,$10,#% based on Lhe
collecLlve resulLs. 1hus, Zumwald wlll encourage sLrong collaboraLlon beLween Leams and
wlll supporL culLural conLrol.
8egardlng Lhe ',1.*,+ 4)#6$*.(6, Lhe CLC should Lry Lo ldenLlfy Lhose pro[ecLs LhaL can be
lmplemenLed ln cooperaLlon beLween Lhe slx dlvlslons of Zumwald buL also Lhose LhaL Lake
advanLage of Lhe lndlvldual compeLlLlve advanLage of each buslness unlL. E"55)(2!0*2"( ls
essenLlal durlng Lhls phase slnce Lhe pro[ecLs selecLed should be Lhe ones whlch are mosL
llned up wlLh Zumwald corporaLe ob[ecLlves and wlLh Lhe pro[ecLs of each dlvlslon.
8elaLed Lo Lhe currenL problem faced by Zumwald, lL ls menLloned ln Lhe case LhaL Lhe
buslness volume relaLed Lo Lhe new producL was less Lhan 3 for Lhe flrsL few years. Slnce
we are Lalklng abouL Lhe 2(*,"#)!*2"( phase of Lhe producL llfe cycle, Lhe purpose of Lhe
company should be 52(25232(+ !"%*%, Lhus allowlng lSu dlvlslon Lo ouLsource. lf Lhe producL
resulLs Lo be a success, Lhus represenLlng an lmporLanL revenue source, Zumwald should Lry
Lo flnd a way LhaL wlll beneflL all Lhe dlvlslons of Lhe company.
uurlng Lhe 4)#6$*.(6 1:,3$E Lhe focus of Lhe CLC of Zumwald should be dlrecLed Lowards
seLLlng Lhe -$,'",50(!$ *0,+$*%> Accordlng Lo MerchanL and van der SLede, Lhe use of
preseL performance LargeLs ln buslness organlzaLlons ls almosL unlversal"
13

1he performance LargeLs should be !6044$(+2(+ /)* 0!62$80/4$ Lo sLlmulaLe Lhe moLlvaLlon of
Lhe managers so LhaL Lhey can focus Lhelr efforLs on Lhe Lask. lf LargeLs are seL Lo hlgh Lhe
managers wlll feel dlscouraged and wlll lose commlLmenL Lo Lhe LargeL
14
.
AL Zumwald Lhe performance LargeLs are probably Loo challenglng. Accordlng Lo Lhe case,
Lhls performance evaluaLlon sysLem was based on Lhe flnanclal achlevemenL of each dlvlslon
for ,$*),( "( 2(8$%*$# !0-2*04 (8ClC) and %04$% +,"1*6. 1hls ls Lhe reason why Lhe managers

12
Malml and 8rown, 2008, p291
13
MerchanL and van der SLede, 2007, p333
14
MerchanL and van der SLede, 2007, p336
Hon skriver vldigt efter boken.
9

could noL agree one wlLh Lhe oLher. A posslble soluLlon would be Lo offer Lhe rewards based
on Lhe same lndlcaLors buL aL corporaLe level, noL dlvlslon level.
()%&$*"# V W# .32$ 5%&6%/$& 25% $3% 1%625$8%#$ 82#2L%5& 2$ D*5?%>
&)7X%/$ $" $*L3$ /"#$5"0A W# .32$ 5%&6%/$& 25% $3%F 0""&%0F /"#$5"00%1A
K"$3 Y)%&$*"#& 5%L251 $3% &*$)2$*"# 24$%5 ;52#M 2#1 ?%1:& $2M%"@%5Q

1he new conLrol sysLem lmplemenLed by lrank and 1ed had elemenLs of all conLrol sysLem
buL was based malnly on ,$%)4* !"(*,"4 0(# 0!*2"( !"(*,"4. 1he Lwo managers decentra||zed
Lhe operaLlons of Alr1ex, creaLlng proflL cenLers for each acLlvlLy and grouplng Lhem by
deparLmenLs. 1hey enhanced Lhe responslblllLles of each deparLmenL manager by glvlng
Lhem auLhorlLy over all operaLlons lncludlng: +,0(*2(+ "' !,$#2*, -,2!2(+ 0)*6",2*CF -),!60%2(+
*" 0 -,$#$*$,52($# 4252*, %$**2(+ -"42!2$% and !"44$!*2(+ ,$!$280/4$%.
8ecause Lhe deparLmenL managers were noL used Lo such responslblllLles, 1ed and lrank
lnsLlLuLed a G024C G$-0,*5$(* ;$-",*. 1hls meanL LhaL each deparLmenL had Lo submlL dally
documenLs wlLh all Lhe operaLlng and accounLlng lnformaLlon for LhaL day.
F(,+83.3 "& *:$ '"(*/"+ 383*$5
Accordlng Lo MerchanL and van der SLede LlghL resulL conLrols mlghL lnvolve deLalled and
frequenL budgeL revlews of performance and slgnlflcanL performance-dependenL lncenLlves"
13
l wlll analyze Lhe conLrol sysLem based on Lhe followlng crlLerla proposed by Lhe same
auLhors: #$'2(2*2"(% "' #$%2,$# ,$%)4*%, -$,'",50(!$ 5$0%),$5$(*, and 2(!$(*28$%.
! Def|n|t|on of des|red resu|ts: ln Lhe case of Alr1ex, a company sLruggllng Lo sLay allve,
Lhe new managemenL #2# ("* $D-42!2*4C '",5)40*$ -$,'",50(!$ *0,+$*% ln Lerms of
flnanclal resulLs for each buslness unlL. WhaL 1ed and lrank wanLed was Lo make
proflL and save Lhe company from golng bankrupL. 1he only performance LargeL
menLloned ln Lhe conLrol sysLem sLrucLure ls LhaL a proflL cenLer should have proflL.
ln LhaL case Lhe deparLmenL manager was enLlLled Lo a bonus.
! Powever, Lhe managers Lrled Lo make sure LhaL Lhe new sysLem was
undersLood and applled correcLly by Lhe managers. 1haL ls why Lhey used Lhe
ually ueparLmenL 8eporLs. 1ed and lrank were havlng permanenL conLrol
over Lhe acLlvlLles and Lhe flnanclal slLuaLlon of each deparLmenL.
! 1he dlrecLlon of each deparLmenL was congruent wlLh Lhe goals of Lhe
company.
! Also, regardlng Lhe t|me||ness of Lhe LargeLs, 1ed esLabllshed monLhly charges
agalnsL Lhe deparLmenLal proflL lf recelvables were pald wlLh a delay of more
Lhan 60 days.

13
MerchanL and van der SLede, 2007, p118
10

! erformance measurements ln Lhe managemenL conLrol sLrucLure deflned ln Lhe
case Lhere ls (" -,$!2%$ -$,'",50(!$ *0,+$* 5$(*2"($#. Lven lf Lhe 1ed personally
assumed Lhe responslblllLy of Leachlng and maklng managers undersLand clearly Lhe
Lasks, Lhe conLrol sysLem does noL have LlghL performance measuremenLs.
! Incent|ves: Lvery proflL cenLer manager was rewarded wlLh a bonus of 10 of Lhe
proflL of Lhelr buslness unlL. ln Lhls case Lhere ls a #./$'* +.(- beLween Lhe
achlevemenL of a good performance and Lhe reward. Powever, ln Lhe conLrol sysLem
sLrucLure deflned by 1ed, Lhere ls (" #$&.(.*$ +.(- beLween resulLs and reward, whlch
means LhaL managers LhaL had zero or negaLlve proflL (loss) where punlshed by noL
recelvlng bonuses. 1herefore Lhls facLor conLrlbuLes Lo a 4""%$ !"(*,"4 %C%*$5.
Cverall, *:$ /$3)+* '"(*/"+ 383*$5 .3 ("* *.6:*G
8egardlng Lhe act|on contro|, Lhe only lnformaLlon avallable ln Lhe case ls Lhe facL LhaL proflL
cenLer managers had a -,$#$*$,52($# -),!60%$ 4252*. Powever, 1ed was noL checklng Lhe
purchases up Lo Lhe smallesL amounL of money. lurLhermore, no oLher acLlon conLrol
lncenLlves were lmplemenLed, Lherefore, Lhe acLlon conLrol ls also loose.
ln concluslon, l appreclaLe Lhe conLrol sysLem lmplemenLed by 1ed and lrank aL Alr1ex 4""%$>
()%&$*"# Z S@20)2$% $3% 1*44%5%#$ $F6%& "4 5%.251& 2#1 6)#*&38%#$&
/)55%#$0F )&%1 *# ?&*#L3)2 ?"#L42#LQ

7>,+),*."( "& *:$ H$2,/# 983*$5
1he evaluaLlon model for reward sysLem proposed by MerchanL and van der SLede ls based
on Lhe followlng crlLerla:
! H$2,/#3 3:")+# 4$ >,+)$#G Accordlng Lo llLeraLure, money has an lmporLanL
symbollc value"
16
. Many people conslder moneLary rewards as a measure of -,$%*2+$
or even -"1$,. Also, slnce mosL of Lhe personnel aL 11 had graduaLe and posL
graduaLe degrees, -,"5"*2"(% 0(# %*"!A "-*2"(% are also a measure of Lhelr success.
1herefore, Lhe reward sysLem had va|ue for Lhe employees.
! H$2,/#3 3:")+# :,>$ .51,'*> 8esldes Lhe bonus plan, Lhe reward sysLem lncluded a
voLlng evaluaLlon Lo selecL Lhe Lop 1 SLar Lmployee" and Lhe Lop 3 LxcellenL
Lmployee". Accordlng Lo Lhe case, Lhese employees were ellglble for -,"5"*2"(%F
"8$,%$0% %*)#C "--",*)(2*2$% 0(# ($1 %60,$ 2%%)$%> 1hese rewards have 25-0!* and
are 82%2/4$ *" "*6$,%. 66 of Lhe employees aL 11 have bachelor degrees and 22
have masLer degrees, whlch lmply LhaL Lhey are amblLlous persons who wanL
professlonal recognlLlon, compensaLlon and career developmenL.

16
MerchanL and van der SLede, 2007, p404
Enkelt och konsist, bra!
11

! H$2,/#3 3:")+# 4$ )(#$/3*,(#,4+$G
! 1he -$,'",50(!$ $804)0*2"( %C%*$5 and Lhe %*"!A "-*2"( -40( aL 11` could be
evaluaLed as undersLandable. 1hey are descrlbed wlLh clear, ob[ecLlve and
exLenslve crlLerla easy Lo undersLand by all employees.
! Powever, Lhe 0(()04 $5-4"C$$ 8"*$ ls noL based on any ob[ecLlve crlLerla and
Lherefore lL mlghL lead Lo confuslon.
! H$2,/#3 3:")+# 4$ *.5$+8G 8oLh Lhe moneLary and non-moneLary rewards are noL
Llmely.
! H040,C 2(!,$0%$% and /"()%$% are evaluaLed annually Lherefore, lL can Lake up
Lo 12 monLh afLer a successful performance for Lhe reward Lo be galned
! 1he rewards based on Lhe 8"*2(+ %C%*$5 are even more long-Lerm. Lven lf Lhe
voLe Lakes place annually, lL mlghL Lake more Lhan 12 monLh afLer Lhe
employer dld someLhlng good Lo Lhe momenL he recelves Lhe rewards. ln Lhe
case of sLock opLlons, slnce Lhere ls a company LargeL LhaL has Lo be achleved
for sLock opLlons Lo be offered Lhe employee mlghL have Lo walL a very long
Llme Lo be rewarded.
! H$2,/#3 3:")+# 4$ #)/,4+$G
! Accordlng Lo a sLudy presenLed ln Lhe LexLbook, moneLary rewards
parLlcularly small ones are noL durable." 1he case sLudy presenL Lhe resulLs of
a sLudy performed ln Lhe unlLed SLaLes LhaL shows LhaL employees have used
Lhe bonuses Lo pay bllls and oLher common expenses. Lven worse, Lhe case
shows LhaL some of Lhem do noL even remember whaL Lhey dld wlLh Lhe
money. 1herefore, lL can be evaluaLed LhaL all moneLary rewards aL 11 are noL
durable.
17

! Cn Lhe oLher hand, Lhe sLudy opporLunlLles and promoLlons wlll be
remembered by Lhe employee for a long Llme. lL ls hard Lo forgeL an abroad
experlence or Lhe poslLlon you have ln a company.
! H$2,/#3 3:")+# 4$ /$>$/3.4+$G
! ;$8$,%2/4$ ,$10,#% 0* IIJ /"()%$% whlch are allocaLed only durlng one perlod
of evaluaLlon. lf Lhe employee does noL malnLaln Lhe same level of
performance furLher bonuses wlll noL be allocaLed. Also, "8$,%$0% %*)#C
"--",*)(2*2$%F can be lncluded ln Lhe same caLegory.
! K,,$8$,%2/4$ ,$10,#% 0* II %040,C 2(!,$0%$%, -,"5"*2"(, %*"!A "-*2"(%.
Accordlng Lo MerchanL and van der SLede, salary lncreases provlde an
almosL permanenL annual annulLy" LhaL cannoL be wlLhdrawn easlly.
18

! H$2,/#3 3:")+# 4$ '"3* $&&.'.$(*G Cbvlously, all moneLary rewards are expenslve and
Lhe value provlded Lo Lhe employee ls a dlrecL cosL Lo Lhe flrm"
19
.

17
MerchanL and van der SLede, 2007, p403
18
MerchanL and van der SLede, 2007, p403
19
MerchanL and van der SLede, 2007, p403
12

7>,+),*."( "& ;)(.3:5$(* 983*$5
Accordlng Lo MerchanL and van der SLede ln many organlzaLlons punlshmenLs manlfesL
Lhemselves Lhough an absence of poslLlve reward."
20
1hls ls Lhe case of 11 Loo.
1he punlshmenL sysLem ls noL based on publlc humlllaLlon as ln Lhe case of 8lack & uecker
where buslness unlLs manager LhaL dld noL meeL Lhe flnanclal LargeLs were slLed on Lhe rlghL
slde of Lhe room whlle Lhe one who achleved Lhelr LargeL had Lo slL on Lhe lefL.
21

Maybe absence of rewards ls noL as powerful as havlng Lo slL on Lhe rlghL slde of Lhe Lable. ln
Lhe case Lhere ls no lnformaLlon Lo wheLher Lhe paychecks are or noL confldenLlal, buL ln
mosL cases Lhey are, so employees could noL flnd ouL abouL Lhe rewards of peers. 1he
lmpacL was lower.
Powever, as menLloned above, Lhe employees of 11 were amblLlous well educaLed persons,
eager for promoLlons and professlonal recognlLlon. So, lL can be concluded LhaL Lhls
punlshmenL sysLem had a loL of 25-0!* on Lhem.
()%&$*"# [ I3")01 K%5M&3*5% W#1)&$5*%& 82M% &6%/*20 21X)&$8%#$& 4"5
$3% I6*5*$& \*@*&*"#A W# $32$ /2&%, .32$ 21X)&$8%#$A

1he SplrlLs dlvlslon could noL reach Lhe proflL LargeLs due Lo Lhe effecLs of recesslon. uurlng
LhaL year, Lhe cusLomer demand decreased slgnlflcanLly and Lo cope wlLh Lhe slLuaLlon Lhe
markeL prlce for splrlL dropped. ln order Lo survlve, Lhe splrlLs dlvlslon had Lo cuL Lhe prlce
for Lhelr producLs Loo.
8ecesslon ls an uncontro||ab|e factor LhaL cannoL be lnfluenced by Lhe managers and Lhe
employees of Lhe buslness unlL. 1he CLC of 8erkshlre ls faclng a slmllar slLuaLlon wlLh Lhe
one descrlbed ln Lhe Chuang ?e case: unsaLlsfled, unmoLlvaLed managers who do a good [ob
buL cannoL reach LargeL due Lo facLors Lhey cannoL conLrol.
22

ln my oplnlon, ln Llmes of recesslon lL ls necessary Lo 0#L)%*. 1here are several reasons for
Lhls.
! llrsL, as menLloned above, recesslon ls un uncontro||ab|e factor
! Second, Lhe predeLermlned targets are not rea||st|c. ln Lhe currenL markeL slLuaLlon
Lhey could never be reached by anyone.
! 1hlrd, managers wlll |ose mot|vat|on and Lhey mlghL qulL Lhe [ob.
! llnally, Lhe resulLs of Lhe SplrlLs ulvlslon affect the who|e organ|zat|on.

20
MerchanL and van der SLede, 2007, p393
21
MerchanL and van der SLede, 2007, p393
22
MerchanL and van der SLede, 2007, p373
Avslutar nd med EN
sammanfattning, sknt
13

ln class we have seen cases of oLher companles LhaL also ad[usL Lhelr performance
evaluaLlon measures ln case of unconLrollable evenLs. lL has Lo be observed LhaL Lhe cases
presenLed ln class, :4C5-2! E0, M0%6 and <",5"%0 740%*2! N,")- had sub[ecLlve
performance evaluaLlon sysLems, so Lhe ad[usLmenL mlghL be easler ln Lhls case.
23

ln Lhe case of 8erkshlre, Lhe declslon of Lhe CLC has Lo be explalned ln formal documenLs,
such as cont|ngency p|ans, LhaL descrlbe exacLly whaL happened, whaL Lhe consequences are
and why Lhe moneLary rewards changed.
WhaL 8erkshlre should Lo ls hlre an ,)#.* *$,5 Lo have an exLernal polnL of vlew on how Lo
cope wlLh Lhe flucLuaLlng markeL demand. WhaL l Lhlnk happened ln Lhe case of Lhe splrlLs
dlvlslon ls LhaL managers worked so hard Lo achleve Lhe unreallsLlc LargeL LhaL Lhey forgeL Lo
look for soluLlons how Lo geL ouL of Lhls slLuaLlon. 1hls problem of focuslng on shorL-Lerm
resulLs, raLher Lhan looklng aL Lhe problem on Lhe long Lerm ls also known as myop|a. An
exLernal experlenced Leam whlch has already dealL wlLh Lhese Lypes of problems could offer
a vlable soluLlon.
8egardlng Lhe bonuses offered Lo managers, Lhose are based on econom|c prof|t. Slnce Lhe
economlc crlsls affecLs all Lhe dlvlslons of Lhe organlzaLlon ln one way or anoLher, Lhe
manager should Lry lower Lhe bonuses Lo Lhe polnL of noL offerlng Lhem aL all, so LhaL Lhe
managers of Lhe worsL affecLed dlvlslon be rewarded for Lhelr hard work. lf Lhls ls noL Lhe
case, managers mlghL qulL Lhe company, whlch would leave 8erkshlre ln an even worse
slLuaLlon. Pavlng Lo Lraln new people ln a Llme of crlsls, Lo make Lhem undersLand whaL Lhey
have Lo do lL wlll be even more cosLly LhaL keeplng Lhe currenL managers.
()%&$*"# ] -". /2# 2)1*$& 7% )&%1 $" 1%20 .*$3 )#/"#$5"00270%
42/$"5&A

1he deflnlLlon glven by MerchanL and van de SLede for aud|t ls a sysLemaLlc process of
ob[ecLlvely obLalnlng and evaluaLlng evldence regardlng ob[ecLs of lmporLance, [udglng Lhe
degree of correspondence beLween Lhose ob[ecLs and cerLaln crlLerla and communlcaLlng
Lhe resulLs Lo lnLeresLed users.
24

1he same auLhors caLegorlze unconLrollable facLors lnLo Lhe followlng Lhree areas
! Lconomlc and compeLlLlve facLors LhaL affecL among oLher Lhlngs proflL. Such facLors
are changlng cusLomer demand, changlng laws and regulaLlons and forelgn exchange
raLes.
! AcLs of naLure such as hurrlcanes, earLhquakes, floods, LerrorlsL aLLacks, or LhefLs.
! lnLerdependencles lnslde organlzaLlon.

23
Pkan kullven, 2009
24
MerchanL and van der SLede, 2007, p638
14

ln order Lo answer Lhe quesLlon l wlll focus my dlscusslon on how audlLs can be used Lo cope
wlLh Lhe vo|at|||ty of customer demand. ln Lhls purpose l wlll use Lhe !0%$ "' O)!$(*
I$!6("4"+2$%, descrlbed by Moon, MenLzer and 1homas, analyzlng how Lhe company used
audlLs Lo solve forecasLlng problems. 1hen l wlll dlscuss a new audlL meLhodology developed
by Salama, LuzzaLLo, Slanesl and 1owlll.
I)'$(* !,3$
PQ

LucenL, one of Lhe leadlng global suppllers of daLa neLworklng sysLems, has reallzed LhaL
cusLomer demand forecasLs were exLremely lnaccuraLe. 1o help deal wlLh Lhe slLuaLlon Lhe
company hlred a *$05 "' $D-$,2$(!$# 0)#2*",% Lo Lry Lo solve Lhe problem.
1he reasons why LucenL performed Lhls audlL Lo solve Lhe forecasLlng problem ls Lhe same
why any company should use:
1) An audlL ls performed by persons outs|de the company. 1herefore, Lhe persons
lnvolved ln forecasLlng were opened ln reporLlng Lhelr problems. 1hls could be
exLended Lo any Lype of unconLrollable facLors llsLed above. 1he problem ls noL LhaL
lnLernal employees are noL capable Lo resolve Lhe problem, buL Lhey are Loo focused
on shorL-Lerm LargeLs, especlally flnanclal ones, LhaL Lhey become myop|c.
2) An audlL Leam brlngs wlLh lL all Lhe accumulaLed exper|ence. 1hus, Lhey can see
problems from oLher angles dlfferenL from Lhe ones of Lhe managers of a company.
1he phase of obLalnlng and evaluaLlng lnformaLlon ls a lengLhy one. ln Lhe case of LucenL
lasLed more Lhan one monLh due Lo Lhe complexlLy of Lhe company. 1hls process was
"4J$'*.>$F because LucenL hlred $D*$,(04 0)#2*",%. 1hls should be Lhe case of any company
LhaL wanLs Lo undergo such processes, due Lo Lhe facL LhaL lnLernal audlLors could blas Lhe
lnformaLlon.
1he flndlngs of Lhe audlL flrm ln Lhe case of LucenL were dlvlded lnLo #2''$,$(* 0,$0%.Cne of
Lhem was Lhe facL whaL Lhey called R2%40(#% "' 0(04C%2%S>
P@
WhaL mlghL happen ln a company
LhaL goes Lhough unexpecLed evenLs ls LhaL communlcaLlon ls noL well Lransferred beLween
deparLmenLs. Managers Lry Lo focus Lhelr aLLenLlon on escaplng Lhe slLuaLlon, lgnorlng Lhe
oplnlon and flndlngs of oLhers. 1herefore, an audlL Leam whlch analyses Lhe slLuaLlon
exhausLlvely wlll offer a beLLer soluLlon Lo Lhe problem.
1he va|ue of Lhe audlLs comes malnly from Lhe credlblllLy of Lhe lnformaLlon offered. As l
have seen ln Lhe case of LucenL, Lhe audlL Leam had 30 years of experlence, Lhus Lhe
company lmplemenLed Lhe proposal wlLhouL reservaLlon.
Much research has been dedlcaLed Lo Lhe Loplc of audlLory. Cne lnLeresLlng sLudy ls 1he
value of audlLlng supply chalns" ln whlch Lhe auLhors presenL a new meLhodology for

23
Moon, MenLzer, 1homas, 2000
26
Moon, MenLzer, 1homas, 2000, p22
13

audlLory of Lhe supply chaln LhaL l Lhlnk can be successfully applled when deallng wlLh
unforeseen slLuaLlons. 1he meLhodology conslsLs of Lhree sLages:
27

! 1he d|agnost|c stage. uurlng Lhls sLage exLenslve sLudy of Lhe lnLeracLlons LhaL Lake
place ln an organlzaLlon (beLween people, processes and Lechnology) ls performed.
1he ouLcome of Lhls phase ls a llsL of posslble soluLlons for Lhe problems LhaL Lhe
audlLory Leam lnvesLlgaLes.
! 1he pr|or|t|es stage. 1he phase conslsLs ln analyzlng Lhe soluLlons based on efforL-
beneflL analysls and prlorlLlzlng Lhe llsL on Lhe basls of leasL efforL compared wlLh
mosL beneflL"
! 1he va|ue stage 1he selecLed soluLlon ls analyzed economlcally, Lhe process endlng
wlLh Lhe calculaLlon of Lhe neL presenL value.
ueallng wlLh unconLrollable facLors ls a challenglng Lask, especlally for a person LhaL worklng
lnslde Lhe company faclng Lhe problems. As suggesLed ln Lhe arLlcle 1he value of audlLlng
supply chalns", someLlmes problems are noL solved because Lhe company falls Lo ldenLlfy
Lhem". A compeLenL audlL Leam wlll offer a conLlngency plan Lo deal wlLh unconLrollable
evenLs.
()%&$*"# ^ W# .32$ .2F& /2# .32$ 3266%#%1 2$ 9%5#")$ _ -2)&6*% 7%
/"#&*1%5%1 %$3*/20A

Lth|ca| mode|s conslder LhaL ln a soclal conLexL eLhlcs concerns Lhe analysls of how acLlons
affecL Lhe lnLeresLs of oLher people".
28
1o dlscuss Lhe LernouL & Pausple case l wlll analyze
Lhe acLlons accordlng Lo Lhe eLhlcal model sLudled ln class: vlrLue, consequenLlallsm and
deonLology.
29

V|rtue
Lxamples of vlrLue lnclude lnLegrlLy, loyalLy and courage.
30
ln Lhe case of L&P Lhe followlng
acLlvlLles could be regarded as $*62!04 accordlng Lo Lhls model:
! 1he Lwo enLrepreneurs Mr. Pausple and Mr. LernouL, showed courage when Lhey
declded Lo sLarL such an amblLlous pro[ecL.
! Courage and lnLegrlLy were demonsLraLed also by Lhe !ohn uuerden, Lhe new
manager of L&P when he ordered an lnvesLlgaLlon by rocewaLerhouseCoopers and
made Lhe resulLs of Lhe lnvesLlgaLlon publlc.


27
Salama, LuzzaLLo, Slanesl, 1owlll, 2009
28
MerchanL and van der SLede, 2007, p687
29
Pkan kullven, 2009, class noLes
30
MerchanL and van der SLede, 2007, p689
16

Consequent|a||sm - Ut|||tar|sm
Accordlng Lo Lhe uLlllLarlanlsm Lheory, Lhe rlghLness of acLlons ls [udged solely on Lhe basls
of Lhelr consequences." 1he model suggesLs LhaL an acLlon can be consldered moral lf lL
maxlmlzes Lhe LoLal of good ln Lhe world".
31

lrom Lhls perspecLlve, we can characLerlze Lhe acLlons of lncludlng flcLlLlous sales Lo lncrease
proflL as a way lncrease Lhe revenues of Lhe sLakeholders. Servlng Lhe beneflLs of Lhe
sLakeholders can be consldered as eLhlcal. Also, by enLerlng Lhe Luropean Lechnology ellLe,
Lhe company was lncreaslng Lhe presLlge of 8elglum, whlch ls presenLed as a very prlde
naLlon. So, Lhe consequences of Lhelr acLlon beneflLed a +,$0* 05")(* "' -$"-4$>
Deonto|ogy
lrom Lhe perspecLlve of deonLology acLlons are analyzed as belng eLhlcal or noL by looklng aL
Lhe speclflc acL, noL aL Lhe consequences as ln Lhe case of consequenLlallsm.
32

unforLunaLely, lL ls Lhe acLlons Laken by Lhe company of !,$0*2(+ '2!*2*2")% !42$(*% and of 4C2(+
2( 0!!")(*2(+ #"!)5$(*% LhaL led Lo Lhe masslve ',0)#>
1he only acLlon LhaL ls eLhlcal, ls Lhe one Laken by Lhe lasL manager of L&P: orderlng Lhe
lnvesLlgaLlon by wC.


31
MerchanL and van der SLede, 2007, p687
32
hLLp://en.wlklpedla.org/wlkl/ueonLologlcal_eLhlcs
17

!2&% D#20F&*&
()%&$*"# + C2& D*5?%> *# 2 #%%1 4"5 2 #%. /"#$5"0 &F&$%8A C3FJ.3F
#"$A

Alr1ex was ln need of a new conLrol sysLem. l wlll dlscuss Lhe causes of Lhe need for a new
conLrol sysLem by assesslng Lhe contro| prob|ems presenL aL Alr1ex before lrank's and 1ed's
Lakeover.
I,'- "& #./$'*."(
1he presldenL of Lhe company, 8lll ulckerson was frequenLly absenL from Lhe company,
leavlng Lhe company ln Lhe unskllled hands of Lhe accounLanL, Sarah ArLhur.
K"*.>,*."(,+ 1/"4+$53
Several moLlvaLlonal problems can be ldenLlfled aL Alr1ex:
! ln Lhe Avlonlcs deparLmenL, Lhe manager demonsLraLed effort avers|on. Leon raxls
was leavlng Lhe [ob aL 3 sharp Lo aLLend oLher personal lnLeresLs.
! ln Lhe fllghL Lralnlng deparLmenL employees were res|stant to change ln every
aspecL: Lechnologlcal, new fllghL meLhodologles or new accounLlng sysLems.
;$/3"(,+ +.5.*,*."(
! 1he flrsL example of personal llmlLaLlon can be ldenLlfled ln Lhe case of Sarah ArLhur,
Lhe person who Look all responslblllLy for Lhe managemenL. AlLhough enLhuslasLlc
and commlLLed Lo Lhe company %6$ 40!A$# *,02(2(+ 0(# 50(0+$,204 %A244%. Also, she
was responslble for keeplng lnformaLlon Lo herself and noL sharlng Lhe slLuaLlon wlLh
Lhe deparLmenL managers
! As a consequence, Lhe deparLmenL managers knew noLhlng abouL Lhe proflLablllLy of
Lhelr operaLlons. 1hey 40!A$# 044 $D2%*2(+ 2('",50*2"( ln regard Lo whaL Lhey were
dolng.
! AnoLher example of personal llmlLaLlon ls Lhe lack of formal educaLlon of deparLmenL
managers.
AfLer Lhe Lakeover, Alr1ex can be descrlbed as a chang|ng organ|zat|on.
33
1ed and lrank Lhe
new managers wanLed Lo resLrucLure Lhe whole organlzaLlon by creaLlng proflL cenLers,
auLhorlzlng deparLmenL managers Lo Lake declslons and lnsLalllng a new accounLlng sysLem.
1hey wanLed Lo creaLe an envlronmenL where Lhe deparLmenLal managers could make
correcL declslon by Lhemselves.

33
Chenhall and Luske, 2007
18

Accordlng Lo llLeraLure, ln Lhe case of an organlzaLlon LhaL ls undergolng change *6$ ,"4$ "' 0
50(0+$5$(* !"(*,"4 %C%*$5 2% 8$,C 25-",*0(*> A sLrong MCS enables lnLeracLlon beLween
cenLral and operaLlonal sub-unlLs and permlLs lnLegraLlng change across Lhe organlzaLlon
because lL can be used Lo dellver lnformaLlon down Lo operaLlng managers Lo enable Lhem
Lo Lake more effecLlve declslons". Slnce 1ed and lrank have decenLrallzed all Lhe acLlvlLles, a
new MCS was Lhe only way Lo 5"(2*", Lhe flnanclal acLlvlLles of Lhe decenLrallzed
deparLmenLs. Also, Lhe MCS provldes a good way Lo sLay ln Louch beLween deparLmenL
managemenL and Lop managemenL, so LhaL Lhe long-Lerm goals of LhaL are relaLed wlLh Lhe
change are successfully lmplemenLed.
34

Also, effecLlve change lnvolves employee commlLmenL". A MSC faclllLaLes Lhe
communlcaLlon and Lhe developmenL of a culLure ln Lhe organlzaLlon and provldes a
)(2'C2(+ 40(+)0+$ 0(# 10C "' *62(A2(+".
33
Alr1ex needed a !"55"( 40(+)0+$F undersLood
by all Lhe people lnvolved ln Lhe company.

()%&$*"# B S@20)2$% 3". $3% #%. /"#$5"0 &F&$%8 2$ D*5?%> $2M%& )&% "4
%0%8%#$& "4 5%&)0$& /"#$5"0E 2/$*"# /"#$5"0E /)0$)520 /"#$5"0E 6%5&"#20
/"#$5"0Q
7+$5$(*3 "& /$3)+*3 '"(*/"+
1he new conLrol sysLem lnLroduced by 1ed and lrank lncluded Lhe followlng elemenLs of
resulLs conLrol:
! 1he conLrol sysLem was based on decentra||zat|on and glven author|ty Lo proflL
cenLer managers
! erformance d|mens|on. As dlscussed ln quesLlon 3, due Lo Lhe looseness of Lhe new
conLrol sysLem performance dlmenslons were noL clearly deflned. 1he company was
Lrylng Lo 50A$ -,"'2* Lo save lLself.
! Measurement of performance. As Lyplcally ln Lhe case of resulLs conLrol Lhe
measuremenL of performance was flnanclal. ln Lhe slLuaLlon of Alr1ex Lhls made even
more sense due Lo Lhe flnanclal crlsls faced by Lhe company.
! erformance targets were noL flxed LlghLly. ln Lhe sLrucLure of Lhe conLrol sysLem
elaboraLed by 1ed Lhere were no flxed flnanclal LargeLs menLloned.
! kewards used ln Lhe case of Alr1ex conslsLed ln bonuses of 10 of Lhe deparLmenL
proflL.


34
Chenhall and Luske, 2007, p603
33
Chenhall and Luske, 2007, p603-607
19

L|ements of act|on contro|
1he only acLlon conLrol elemenLs used ln Lhe new sysLem were 1/$,'*."( /$>.$23. 1here was
a purchase llmlL flxed for each deparLmenL.
L|ements of cu|tura| contro|
1ed and lrank Lrled Lo creaLe a sLrong culLure ln Lhe organlzaLlon by glvlng a sLrong tone
from the top. 1hey wanLed Lo make everyone undersLand LhaL Lhlngs have changed and now
Lhey are responslble for Lhelr acLlons and wanLed Lo show Lhe dlrecLlon of Lhe company.
L|ements of persona| contro|
8egardlng Lhe personal conLrol, Lhe new sysLem used lnformal tra|n|ng. 1ed Look Lhe role of
Leacher for Lhe unskllled deparLmenL managers. ln order Lo do Lhls he lnsLalled a blackboard
and arranged hls offlce as a small classroom where he could dlscuss Lhe quesLlons of Lhe
managers.
1he new conLrol sysLem was based on enhanced responslblllLles for Lhe deparLmenL
managers. 1hey had Lo make declslons by Lhemselves and Lhey were responslble for all Lhe
cash of Lhelr deparLmenL. lor Lhls Lo work, proper measures regardlng Lhe prov|s|on of
necessary resources had Lo be Laken. 1ed made sure LhaL all accounLlng documenLs,
accounLs payable and recelvable were avallable for Lhe use of deparLmenL managers.

20

"#$%&'() *+(+#,#'+
uurlng Lhe course l read Lhe cases and Lhe chapLer before class. 1hls helped me undersLand
beLLer Lhe class dlscusslons and Lhe Loplc presenLed ln class. Also, lL was helpful for Lhe
homework asslgnmenL Loo, as l was already famlllar wlLh Lhe Loplcs and Lhe cases.
Worklng for Lhe semlnar was very lnLeresLlng Loo. 1he work was dlvlded beLween all group
members and we usually meL on week-end Lo puL LogeLher Lhe lnformaLlon.
8egardlng Lhe research l dld for Lhls course, l would llke Lo polnL ouL LhaL l was lnLeresLed ln
Lhe Loplc of flucLuaLlng cusLomer demand because my masLer Lhesls wlll be based on Lhls
and supply chaln managemenL and Lherefore l wanLed Lo see a perspecLlve of how Lo deal
wlLh Lhese Loplcs from Lhe conLrol sysLem polnL of vlew.
21

-#.#$#'/#%
Merchant, k., Van der Stere, W., 2007, K,(,6$5$(* "& !"(*/"+ 983*$5, rent|ce na||

nkan ku||ven, 2009, 8ehav|ora| Management Contro|, Course notes and s||des

Chenda||, k.,Luske, k, 2007, L<:$ H"+$ "& 5,(,6$5$(* '"(*/"+ 383*$53 .( 1+,(($#
"/6,(.B,*."(,+ ':,(6$? F( ,(,+83.3 "& *2" "/6,(.B,*."(M E Account|ng,
Crgan|zat|ons and Soc|ety, Vo|ume 32, Issue 7-8

Ma|m|, 1., 8rown, D., 2008, "K,(,6$5$(* '"(*/"+ 383*$53 ,3 , 1,'-,6$@ N11"/*)(.*.$3E
':,++$(6$3 ,(# /$3$,/': #./$'*."(3M, Management Account|ng kesearch Iourna|,
Vo|ume 19

Sa|ama, k., Luzzatto, D., S|anes|, A., 1ow|||, D., 2009, L<:$ >,+)$ "& ,)#.*.(6 3)11+8 ':,.(3M,
Iourna| of roduct|on Lconom|cs, Vo|ume 119, Issue 34-3S

Moon, M., Mentzer, I., 1homas, D., 2000, "Customer Demand |ann|ng at Lucent
1echno|og|es", Industr|a| Market|ng Management Iourna|, Vo|ume 29

OOO:**1?PP$(G2.-.1$#.,G"/6P2.-.PQ$"(*"+"6.',+R$*:.'3

OOO:**1?PP5,/-$*.(6G,4")*G'"5P"#P5,/-$*.(66+"33,/8P6P-$83)''$33#$&G:*5

OOO:**1?PP222G5.(#*""+3G'"5P1,6$3P,/*.'+$P($2IQHRSTG:*5

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