Controllership February 29th, 2012 Solartronics Inc. Case 10-2 1. In light of the expected, average monthly profit of $30,000, January results were so poor because the budgeted average monthly sales should be $250,000. This is calculated by dividing the $3,000,000 in sales by 12 months. Unfortunately the actual average monthly sales turned out to be $ 165,000. Another reason that results were so poor is because they were in a normal seasonal downturn. Furthermore, during this period, fixed costs also continued to be high which meant that the total allocation of the fixed costs was not spread over a large scale.
. Various external forces could help the company analyze the January performance. Some of these factors include: changes in the general level of economic activity and the effects that these changes have on the volume of sale. Second, any changes in the labor rates could help the company analyze the performance. Third, changes in internal policies like production costs by management could also be of some help. Determining the variances and percent changes in expenses also could be a useful analysis for January’s performance.
The company should consider using a balanced scorecard as a way to align their performance with their strategic goals. Chelala 2 Codman & Shurtleff Inc. Case 3 1. They compete in 12 major product groups. The business is very price sensitive. Johnson & Johnson has a highly decentralized planning and control system which provides innovation within the company. The company delegates strategic planning to operate subsidiaries. Each operating subsidiary must report the plan and review the result with corporate. By controlling output rather than process, it lets the subsidiaries find different ways to achieve the corporate mission.
As stated in the case, “Salary and bonus reviews are entirely subjective and qualitative and are intended to reward effort and give special recognition to those who have performed uniquely. ” It promotes an innovative culture among the company 2. Five- and Ten-year plans at Johnson & Johnson let them have long-term views and learning opportunities. It is in the fast-moving, complex, high competitive health care businesses. It is hard to make a prediction for the future and so the view point is likely to be short-tem focus.
It might have adverse effect on long-term corporate performance. Each subsidiary has to develop a five- and ten-year strategic plan and use it as guidance for short-tem profit plans and budgets. Some of its advantages include: Its long lasting performance and the system’s effectiveness. Using the five- and ten-year planning concept, managers are required to include in their plans an explanation of how and why their estimations have changed over time. This allows the company to adjust their thinking over time and to achieve ex-post learning. 3.
The center of the control function is the Executive Committee comprising the chairman, president, chief financial officer, vice president of administration, and eight Executive Committee members with responsibilities for company sectors This is a decentralized setup that is necessary for their success. Each subsidiary reports to a member of the Executive Committee. On the other hand, each company develops its own plans and strategies, which remain, fixed over a five-year period. The managers set their targets themselves but also held responsible for their actions.
Next, they move toward the goals based on their own decisions. This culture allows no excuses for missing the objectives. Chelala 3 4. Johnson & Johnson’s planning and control system fits the business well. It creates a highly decentralized but accountable and innovative culture within the company. It also builds a learning organization with a long-term viewpoint. The choice of the systems depends on needs of the companies. Johnson & Johnson needs to enhance innovation. But, one must understand that It shows some weaknesses which could have negative impacts on the corporate performance.
The system does not have much power over the process. If it became more diverse and complex, Johnson & Johnson might lose essential controls over the subsidiaries. Furthermore, another weakness of Johnson & Johnson’s planning system is coordination. Many companies conduct are competitors in the same market. The system might fail to ensure that each strategy of the operating subsidiaries doesn’t jeopardize others, creating undesirable competitions between the subsidiaries. 5. If it were up to me to design a reward/incentive system, Mr.
Black and the board would be compensated based on long-term performance and plan execution. If Mr. Black and the rest of the board were to execute a long-term plan with no deviation, they should be compensated very well. Also, by compensating them on a long-term performance basis, the overall solvency of the company is positive. This is because the liquidity of the company isn’t always sustained. To have sustained growth and performance is more important to the company’s overall well being. So having long-term compensation does not allow Mr. Black and the committee to have counteracting goals or desires.
Cite this Solartronics Case
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