Harold Mover has been the president of Newprod Ltd. for a little over six months. He was brought in by the board of directors to reverse the trend of falling profits. He had told the board that it would take him a while to get a thorough understanding of how things worked at Newprod.
Newprod is a multi-product manufacturer (see Exhibit 13A-1) that supplies various wholesalers and distributors across Canada. Newprod services its customers from one centrally located production plant just north of Toronto. Sales offices are located across the country.
Within the operations of the plant there are some sequential interdepartmental transfers, since several products may be incorporated into the production process of other departments in addition to being sold directly to consumers.
At Newprod, there is a very clear separation among the production equipment in each production department. However, there are also significant costs related to the plant facilities, such as heat and light, that are not easily segregated. This is partly due to the fact that some product lines depend on other departments within Newprod to manufacture component parts and partly because independent facilities, by product, are not economically feasible.
During his initial months at Newprod, Mover has found that Newprod operates under a strong central management structure, with almost everything flowing to the president for decisions. He has noticed that there is little motivation on the part of senior and middle managers, as they have only minimal participation in management decision making other than those decisions relating to their direct responsibilities. Furthermore, there is no system of performance measurement.
Exhibit 13A-1 Newprod Ltd.Condensed Organization Chart
In his spare moments, Mover has been reviewing some prior correspondence and has noticed the internal auditors have frequently suggested that some type of integrated planning structure should be put in place and that a divisional management performance system would be appropriate for Newprod. Using this as a basis for discussion, Mover has had various meetings with his vice presidents and other supervisory personnel. With the vision of a “light at the end of the tunnel,” the managers were more than willing to contribute their ideas and their preferences. However, while some were in favour of implementing a divisional structure, others were not. One important issue that was raised for discussion was the matter of performance measurement. All managers were in favour of some form of performance measurement, but they were undecided as to what would be best. Each wanted a chance to prove that he or she was performing well but feared a measurement that would be unfair in its application. The managers also expressed a desire to participate in corporate planning and budgeting. As a result of these meetings, Mover has had some serious discussion with Jill Adams, the corporate controller, about how best to proceed. It was generally felt that a good planning system in conjunction with a divisional management structure may be appropriate for Newprod. However, a concern was expressed that any such changes should be implemented only if the major corporate objectives of increased profits and improved employee motivation and morale could be achieved. Jill Adams has asked you, the assistant controller, to prepare a report and provide a recommended plan of action to address the various concerns raised throughout the consultation process.
Required
Prepare the report requested by Jill Adams. Be sure to discuss all of the issues raised above.
