Homestead Foods Limited is a large processor and distributor of packaged foods. Its product lines include soups, vegetables, potatoes, fruits, pasta, TV dinners, juices, and bread. In addition, it has three restaurant chains serving pizza, fish, and hamburgers. Homestead originally started with canned soups 70 years ago. Management is proud of its past traditions. Success is attributed to the firm’s good products and satisfied customers. Accordingly, the key success factors identified and upheld at Homestead are high product quality and customer research. This operating philosophy has been dominant in shaping the organization. There is a high degree of decentralized decision making at the operating division level. The operating divisions (called product group divisions) are responsible for production and marketing of their products and are considered to be profit centres. Performance assessment is based on profitability plus product quality and customer satisfaction. There are eight product group divisions: soups, vegetables and potatoes, fruit, pasta, TV dinners, juices, bread, and restaurants. The head office is small and its activities are limited to preparation of financial statements, marketing research, treasury and legal activities, performance monitoring, and the approval of plans and budgets. The costs of these activities are not charged to operating divisions; they are controlled through a master budget and are reported only in the overall company statements.
Management has become concerned about the increasing costs of the market research department at the head office. Three main types of work are performed by this department: gathering regular market data, testing new product markets, and handling special research requests made by the operating divisions. Because of the emphasis that management has put on customer satisfaction as a key success factor, a wide range of standard data is produced by the market research department. Management originally felt that regularly producing market research data, which are gathered in a carefully planned and controlled manner, and making them available to the divisions would result in cost efficiencies. However, the divisions frequently make special requests for data not routinely gathered. The market research department is considered to be highly successful and the operating divisions are happy with the service provided. The professional members of the market research department are well respected by their colleagues, and a number of them have taken parttime teaching assignments at universities and have had numerous articles and studies published in reputable journals.
Until now, there has been no attempt to measure the efficiency and effectiveness of the market research department. The president suspects that costs of Homestead’s market research are up to double the amount incurred by similar firms for their in-house market research or, alternatively, for contracting with professional market research firms. He wonders whether the benefits of Homestead’s market research activities exceed their costs and has asked you, as assistant controller, to analyze Homestead’s situation and to give recommendations.
Required
Respond to the president’s request.
