Birch Paper Company Case Solution

QUESTION 

Management Control Structure

Case 1:

  • Harlan NE and Rotch W. 1957. “Birch Paper Company.” HBSP #158001. Revised January 2, 2003. 

Assignment:

  1. What is the management control structure at Birch Paper?
  2. How would you rank the bids from Northern’s point of view? From Birch Paper’s point of view?
  3. Are the division managers being properly motivated?
  4. What should Birch’s commercial vice president do? What changes, if any, would you make?

Management Control Structure

Case 2:

  • Anthony RN and Young DW. 1988. “Mountainview PSRO.” Management Control in Nonprofit Organizations. 4th Edition. 692-696. Figures revised by Richard Siegrist, 2011.

Assignment:

  1. What are the specific reasons for the $9,000 negative variance shown in Exhibit 1?
  2. How much of the total variance resulted from the changes in numbers of studies or reviews?
  3. What does the information tell you about Ms. Nugent’s management decisions during the first six months of the year?
  4. What should Ms. Nugent do?

ANSWER

Case 1

  1. What is the management control structure at Birch Paper?

The management control structure of Birch company is of a board of director based where the decisions are being taken by the manager or the director of each of the department and the decisions or the solution is being passed down to the others in the domain. For example, in the case given the proems between the various departments are being discussed by the managers and a solution is being achieved. The company as is shown in the case also follows both external and internal based mechanism for sales and price optimization. Because of this a much important part of business of the company is a strong understanding and communication between the various departments who are engaged in buying and selling practices between themselves. This type of structure though does work very well in huge organizations as it is very easy to decide as well as disseminate the information for the lower officials to work as per the necessity of the company but on the other hand it generally is restricted to the discussion and the knowledge of only the leaders and is not flexible enough to get inputs and well as possible suggestions from the employees of all levels which in many cases may be beneficial. The hierarchical model is being followed as per the excerpts that are given as part of the case.

  1. How would you rank the bids from Northern’s point of view? From Birch Paper’s point of view?

From northern point of view, the bids that were made had a ranking that were in direct reverse to the costs being asked. As per that logic the bid that would be most lucrative for the project would be from the West Paper company as they were quoting the lowest price to complete the project. A price of only $430 per thousand boxes. This will help to drastically reduce the costs that they are incurring and thus earn a higher revenue or profit per box as part of the transaction. The second and the third positions for the bids from the perspective of Northern were Eire Papers and Thomson Divisions respectively as per their decreasing orders of the bid amounts.

As per the Birch Company perspective the best offer would be the one from the Eire papers. This is because of the fact that beyond the second lowest bid of $432 that Eire Papers is making per thousand boxes it is also bringing in secondary incomes to the company as part of the requirement it has for the outsider liners and printing that will internally take up by the southern division and the Thomson Division for $ 90 and $30 each for every 1000 boxes. This will result in extra income. The next best alternative for the bids given have no other differentiators between the two bidders except the bid amount. In that regard the bid of West Paper being lower than Thomson Division takes the second best preference followed by Thomson Division.

  1. Are the division managers being properly motivated?

The managers of the various divisions of the company are not properly motivated. The main reason for that Is the distributed manner in which the various divisions work. Since all the different divisions have the different parameters of judgment weather the manager is successful in his or her work or how much incentive that particular manager will be getting is also variable thus the motivation level varies from department to department. From the case you can also see that there are various fights among the departments in the quest of maximizing the profits for his or her own division which is a big deterrent for proper motivation to work or maximize profits. The decentralized decision making and responsibilities keeps the different managers of different divisions away from each other where don’t know the aspirations of the other division’s manager and thus acts as completely different entities within the same company. This forces the managers to grow independently and also decide the parameters independent of other divisions. for all the reasons I think that the division managers are not properly motivated towards the goal of the company and try to maximize their own divisions profit or looks after the growth and prosperity of their own divisions without thinking the comprehensive companies growth even if their personal motives or aspirations hamper other divisions within the same parent company.

In the given case itself we can see that the different division managers only thinking about the own targets and requirements even if it is affecting the overall company.

  1. What should Birch’s commercial vice president do? What changes, if any, would you make?

Birch’s commercial vice president should bring few changes as mentioned below which I feel will change the current status quo. The following points if followed will help in significant rise of division manager’s motivation and commitment level thus helping the parent company grow as a single unit all divisions together for success.

i) Bring in a proper standardization and set of criteria’s same for all the division managers on which the performance will be judged and their contribution towards the company will be measured up on. This standardisation will help in bringing a healthy competition within the managers of different divisions because they all will have a same bar to achieve and can compare with each other where they lie.

ii) Individual divisions performance measures should be changed from an individual perspective to a holistic overview, where a division just not have to fulfill it’s own targets but also have to contribute to the parent company along with all other departments together. This will help in building an inclusive culture within the company and also will ensure that the managers of various departments work together towards a common goal of the overall company in which all divisions play an equal part.

iii) Set up regular meetings with managers of all different divisions so that they realize the overall goal to be achieved and also feel more important towards the decision making of the company. More responsibilities on the manager will force them to bring out their best.

Case 2

  1. What are the specific reasons for the $9,000 negative variance shown in Exhibit 1?

Specific reasons for the $9000 negative variance in exhibit 1 are the extra spending in all most all of the heads than the actual budgeted amount. This is a failure on the managers part to correctly forecast the budget from beforehand. The actual spending in Abstracting Personnel was $12000 more than what was budgeted, spending for Non-MD, MCE personnel was $200 more than budgeted and spending for MDs was $4200 more than budgeted. Again the budget of Administration and general also overshot by $1000. All these reasons together led to the $9000 negative variance in the budget in exhibit 1.

  1. How much of the total variance resulted from the changes in numbers of studies or reviews?

If the total number studies and review would have been same the total budget would have been as follows –

  Abstracting Non-MD, MCE Review Coordinators Review Coordinators MDs MDs

 

 
Rate/hour

22

25

30

30

125

125
Hours per review

0.6

8

10

0.8

2

0.1
Budget Total

132000

1200

1800

72072

1500

125000

333572.1
Change

158400

800

1200

86486

1000

150000

397886.5

 

  
Net Change

64314.41

We can see that due to only the change in studies and review numbers, there is a net variance of $64310 (approx.) which is lessened due to various factors like change in effort times, rates etc.

  1. What does the information tell you about Ms. Nugent’s management decisions during the first six months of the year?

From the information given in the case, we can see that Ms. Nugent was wrong in forecasting every aspect. She was wrong in forecasting the time effort required by different personnel for different work and also estimated the cost for them wrongly. Now, when the time effort required by personnel may be mistaken due to various reasons, the cost for the efforts should not have been miscalculated. She should have consulted the respective industry before forecasting. Also, considering the importance of reducing cost and her position in the organization, she should have been more proactive in forecasting the total budget.

  1. What should Ms. Nugent do?

She should take the following steps –

i) Look back at the historical data to understand the correct rates for various work and also the approx. time taken for each activity. This would help her draft a correct forecast.

ii) Analyze the situation better with her experience to understand what costs can be reduced or what can be handed over to cheaper unskilled workforce.

iii) Hire a consultant for the healthcare industry who can helps her in reducing the cost understanding the pain points. This would be a welcoming step considering the current state of affairs as it helps in looking at the same problem from a different and fresh mindset.

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