Executive Summary This report will give us a clear perspective as to what the optimal organizational structure that suits Rendell Company plus some additional control system in attaining the company’s main objectives. We will be also tackling the roles, functions and responsibilities of a controller in an organization. This case takes us into Rendell Company which is currently having problems between the corporate controller and the divisional controller. We assessed the advantages and disadvantages of the organization structure of Martex whether it can be applied and be implemented to Rendell Company in order to resolve the problem. Through the frameworks and issues, we concluded that while current setup would cause some budgetary discrepancies because of the lack of loyalty between the divisional controllers to the corporate controller, changing the organization structure of Martex would cause a disparity between the division manager and the divisional controller thus resulting in an anxiety in their working environment which is too costly as compared to maintaining the current setup.
I. Case Context Rendell Company is experiencing some difficulties in implementing its modern control techniques due to the irking relationship between the divisional controller and the corporate controller (Mr. Bevins) resulting in an added fat to the organization’s budgets. Now, with these problems, Mr. Bevins is interested with the organizational structure of Martex if this will be the solution of the current problem. II.
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Problem definition How Should Rendell resolve the current reporting relationship of the corporate controller and the divisional controllers to achieve goal congruence? Is the controller relationship of Martex better than that of Rendell’s current organizational relationships? III. Framework The group worked out on these following considerations in resolving the issue: 1. First we identify the company objective which is to achieve profitability and growth. 2. Attaining goal congruence within the organization is important to support the company’s main objective. 3.
Analysis of the current organization and reporting structure by evaluating its strengths and weaknesses. 4. Assessment of the proposed organizational set-up (patterned from the set-up of Martex) by evaluating whether implementation will fit Rendell’s corporate objectives. 5. Identify the roles of the corporate controller and the divisional controllers.
6. We decide which alternative is more aligned with company objective and organizational set-up. 7. Recommendations after analyzing these frameworks. IV. Analysis Current Setup: Strengths: -Current setup is more efficient -This setup would resolve tactical issues much easily because of better relationship between division managers and divisional controllers.
With the division controllers reporting directly to division managers, the current set-up allows tactical issues to be resolved more easily. Weaknesses: wrong-Biased information is provided by the division controllers to the corporate controller. -Hidden fats in expense budget. -Difficulties to implement new control techniques. Proposed Setup: Strengths: -Unbiased and objective reports on division budgets and performance from division controllers to the corporate controller. -Corporate controller is more confident in reports given by the division controllers-Minimized fats in expense budget-Easier to implement new control programs Weaknesses: -Difficult to implement change in organizational structure-Change may not be suitable for diversified companies-Division managers might isolate division controllers from the management team-Organizational change may lead to dysfunction and inefficiencies-Change may lead to conflict between division mangers and division controllers Role of Corporate Controller: Establish the management control system, strategic plans and budgets Controlling the integrity of the accounting system Evaluate performances per division Developing personnel in the controller organization Recommend actions to management based on consolidated information.
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Monitoring adherence to the spending limitations laid down by top mgt Role of Division Controller: Provide staff assistance to division managers in preparing divisional budgets Implements the strategies set by the corporate controller Evaluates the performance of the departments within the division. Decision / Recommendation We recommend that Rendell Company to retain its current organizational structure but implement additional control systems to address budget issues. The following control systems are proposed to be improved or established: Implement centralized accounting systems – we cannot force the divisions to change their accounting systems. It will be too much work and may not exactly match what the division needs. This will lead to inefficiencies and conflict. Better to just develop a corporate accounting system and get the divisions to submit their feeds.
There will be errors, but the company will live with it. Set targets / standards – compare current costs with industry and company standards to minimize “fats.” Current costs may be compared with industry and company-wide standards. Moreover, critical or key variables may be monitored on a more frequent basis in order to achieve better control of the system. Establish incentive system like what Martex did. Corporate controller should take more active involvement in the budget VI. Basic Justification Since an accounting system is already in place in Rendell, change may not be easily accepted by the concerned divisions.
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Such changes may cause a dysfunction in the organizational structure since making division controllers report directly to corporate controller might cause destabilization in the structure of authority in the divisions. Loyalty issues may also arise because division managers may feel by-passed or spied-upon which may cause more problems in the long run. Thus, more importance should be given in preserving the power structure in each division. It is better that the company face the problem of having fats in the expense budget rather than give up order in each division and jeopardize the established line of authority. As a conclusion, maintaining the current setup would be better than changing it into the structure of Martex in achieving the goals and objectives of Rendell Company. VII.
Operation alize / Implementing our Decision Implementing our decision would include retaining the current setup and adapt changes (as mentioned on our decision) from Martex to reduce the “fat” in the budget.
