CHAPTER I INTRODUCTION

First researchers, must know about the reason why researchers choose that choose that case, motivation, what the research question and the aim.

1.1

Backgorund of Case Study Selection

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.

1.2

Motivation Motivation researchers doing research on the appropriate

corporate strategy in its use and see how the control system and organization in the company if there are potential problems during practice and operational processes in progress. By studying and researching about the problems that exist within companies,

researchers can gain a clearer picture of how to do a proper evaluation and what steps should be taken when problems arise. 1.3 Research Question

1. What is the organisational philosophy of Martex with respect to the controll function? What do you think of it? Should Rendell adopt this philosophy?
2. To whom should the divisonal controllers report in the Rendell

Company? Why?
3. What should be the relationship between

the corporate

controller and the divisional controller? What steps would you take to establish this relationship and a sound footing?
4. Would you recommend any major changes in the basic

responsibilty of either the corporate controller or the divisional controller? 1.4 The Aim/Objectivity

1. To know what is the organisational philosophy of Martex with respect

to the controll function? What do you think of it? Should Rendell adopt this philosophy?
2. To know to whom should the divisonal controllers report in the

Rendell Company? Why?

3. To know what should be the relationship between the corporate

controller and the divisional controller? What steps would you take to establish this relationship and a sound footing?

4. To know would you recommend any major changes in the basic

responsibilty of either the corporate controller or the divisional controller?

CHAPTER II LITERATURE REVIEW

2.1

SWOT SWOT Analysis is a simple but useful framework for analyzing

your organization's Strengths and Weaknesses, and the Opportunities and Threats that you face. It helps you focus on your strengths, minimize threats, and take the greatest possible advantage of opportunities available to you. Used in a business context, a SWOT Analysis helps you carve a sustainable niche in your market. Used in a personal context, it helps you develop your career in a way that takes best advantage of your talents, abilities and opportunities. SWOT Analysis can be used to "kick off" strategy formulation, or in a more sophisticated way as a serious strategy tool. You can also use it to get an understanding of your competitors, which can give you the insights you need to craft a coherent and successful competitive position. When carrying out your SWOT Analysis, be realistic and rigorous. Apply it at the right level, and supplement it with other option-generation tools where appropriate.

One can assume that organizational environment is composed of many elements which organizationsdeal with and form complex cause-and-effect type of relationships with. Environment can also be divided into two categories. The first category implies the external environment which contains all changes that take place outside the organization's boundary such as economic, political, cultural, and technological changes upon which organizations have little impact. The second category has to do with internal factors within an organization in various areas such as management, culture, finance, research and development, staff, operational efficiency and capacity, technical frameworks, and organizational structure. SWOT analysis refers to the process through which decision makers develop their awareness of organizational environments so as to influence performance now and in the future. SWOT analysis can help organizations develop an early alarming system that take into considerations all necessary preparations before possible threats rise, and implement capable strategies to face such threats and minimize their negative consequences. In this regard, Thompson suggests that strategy makers should consider the following scheme while implementing SWOT analysis:

 Determining the most important factors and reasons for selecting such factors. Forecasting changes that might influence the mentioned factors. Aligning of all forecasts.
Undertaking

reality

and

honesty

in

assessing

competitors' strengths and weaknesses as well as their own organization. Environmental diagnosis refers to the process of predicting the importance of information we get out from SWOT analysis.

2.2

Organizational Theory "A Review of evidence linking organizational structures to

employees performance and satisfaction leads to a pretty clear conclusion-You can't generalize. Not every prefers the freedom and flexibility of organic structures. Some people are most productive and satisfied when work tasks are standardized and ambiguity is minimized that is in mechanistic structures. So any discussion of the effect of organizational design on employee behavior has to address individual differences. To illustrate this point, let's consider employee preferences for work specialization, span of control, and

centralization" by Stephen Robbins.

To conclude it can be said that the classical theorists of organization were basically concerned with and emphasized single minded to make organizations effective and efficient in terms of making profit. However modern competitive organizations do

understand the fact that modern organizations have several motivations to perform besides making profit, thus modern

organizations have to integrate various aspects of social and economic factors related to productivity and satisfaction of human needs. Attributes of an effective organization

Change is an ongoing organizational process. Structural designs are temporary. Learning is built into the organization. Lateral relationships become increasingly more important.. Linkages and close relationships are developed with

elements in the external environment.

Decision making depends on lateral relationships and mutually satisfactory arrangements.

Management's role changes from control to leadership. People-management practices are involvement oriented rather than control oriented.

In their review of individual and social aspects of learning, Salomon and Perkins comment: If organizations can learn, this does not mean that they learn very well. A strong theme in the literature on organizational learning is the weakness of the learning system involved. The learning of the collective suffers from a startling range of limitations. Some of these are equally characteristic of solo and collective learning entities. For instance, rare high-stakes eventsmarriage decisions in an

individual or major shifts of direction in a businessare difficult learning targets because they do not occur often to disambiguate the lessons of experience, and because by the time they occur again circumstances may have changed substantially. Other problems of learning are exacerbated by the specifically organizational character of the learning. For example, different individuals and units within an organization may hold somewhat different criteria of success. Also, advocates of a policy are likely to interpret any difficulties with it as reflecting an insufficiently vigorous pursuit of the policy, while opponents interpret the same data as signifying a bad policy. Feedback about the results of organizational actions may be distorted or suppressed as people rush to protect their turf or to maintain a positive climate.

In summary, organizations, like individuals, can learn. Many of the fundamental phenomena of learning are the same for organizations. However, organizational learning also has distinctive characteristics with reference to what is learned, how it is learned, and the adjustments called for to enhance learning. These derive from the fact that any organization by definition is a collective, with individuals and larger units in different roles that involve different perspectives and values, passing information through their own filters, and with noisy and loss-prone information channels connecting them.

2.3

THEORY X AND THEORY Y. Douglas McGregor contrasted the organization theory that

emerged during the middle of the 20th century with previous views. In the 1950s, McGregor offered his renowned Theory X and Theory Y to explain the differences. In a nutshell, Theory X depicts the old, repressive, pessimistic view of workers. It assumes that people are lazy and have to be coerced to produce with tangible rewards. In fact, McGregor argued that the old view assumed that workers preferred to be directed, wanted to avoid responsibility, and cherished financial security (i.e., jobs) above all else. McGregor believed that organizations that embraced Theory Y were generally more productive. Theory Y adopted a more optimistic

view of human nature. Among other things, it theorized that (1) humans can learn to accept and seek responsibility; (2) most people possess a high degree of imaginative and problem-solving ability; (3) employees will selfgovern, or direct themselves toward goals to which they are committed; and, importantly, (4) satisfaction of ego and self-actualization are among the most important needs that have to be met by (profit-maximizing) organizations.

2.4

Formal Control System Modern, complex control systems for a specific application

domain often display common system design architectures with similar subsystem functionality and interactions, making them suitable for representation by a reusable specification architecture. For example, every spacecraft requires attitude determination and control, power, thermal, communications, and propulsion

subsystems. The similarities between these subsystems in most spacecraft can be exploited to create a model-driven system development environment in which generic reusable specifications and models can be tailored for the specific spacecraft design, executed and validated in a simulation environment, and then either manually or automatically transformed into software or hardware. Modifications to software and hardware during operations can be

similarly made in the same controlled way, that is, starting from a model, validating the change, and finally implementing the change. The approach is illustrated using a spacecraft attitude determination and control subsystem.

CHAPTER III CASE ANALYSIS

In this chapter, researchers must know about background case. Then, researchers can analyze the case.

3.1

Background Case (Rendell Company) The Rendell Company is a firm that has been profitable for 50

years, but has seen its growth rate declining considerably. It is organized in strategic business unit, each unit corresponding to a product line, the marketing and manufacturing operations being therefore the responsibility of each business unit. Every business unit also includes a divisional general manager, and a divisional controller. Budgets and performance reports are the responsibility of the divisional GM, and the divisional controller only helps as an assistant. These points are then discussed with top management after a control of the corporate control. The issue is that the actual controller of the firm is not satisfied with this organization and thinks that budgets and performance reports are sort of biased by the relationship between the divisional general manager and the divisional controller. Moreover, he is inspired by an organizational structure learned during his visit at the

Martex Company, and would want the divisional controller to report directly to him instead of the general managers. His assistant, former divisional controller, does not agree and think that GMs would not trust their controller, considered as spies. Martexs organization differ from Rendells in the status of its divisional controller. They do not belong to the division organization properly said, because they are sort of external assigned staff. This is very important to notice that these controllers are located physically in the controllers section of the building instead of being in the divisional managers office. It clearly means that they belong to the corporate controller unit and work within the division as the eyes of the corporate control. The controller here has more loyalty toward the corporate controller and less toward the division manager. 3.2 Case Study Analysis (Abrams Company) After discuss about Abrams Company, our group will answer some question which related with Rendell Company. There are five questions that will be discussed: Firstly, it is about what is the organisational philosophy of Martex with respect to the controll function? What do you think of it? Should Rendell adopt this philosophy?

The organizational philosophy of Martex with respect to the controller function is that divisional controller report to the corporate controller for transparency of information on budget issues.

According to us it has the following Advantadge and Disadvantadge:

a.

Advantages of Martex Structure Unbiased information is provided by the division controllers to the corporatecontroller - Corporate controller is more confident in reports given by the divisional controller.

Minimized fats in expense budget. Easier to implement new control programs.

b. Disadvantage of Martex Structure

Delay in decision making in the organization. No quality decision making exist on budget issues.

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.

We recommend that Rendell Company to retain its current organizational structure but implement additional control systems to address budget issues.

Second, it is about to whom should the divisonal controllers report in the Rendell Company? Why? We suggest the divisional controllers report to divisional

general manager in Rendell Company. Analysis on control system. This setup resolve tactical issues much easily because of better relationship betweendivision mangers and divisional controllers. a. Strengths Current setup is more efficient This setup resolve tactical issues much easily because of better relationship betweendivision mangers and divisional controllers. With the division controllers reporting directly to division managers, the current set-up allows tactical issues to be resolved more easily. b. Weakness

Biased information is provided by the division controllers to the corporate controller.

Difficult to implement new program. Hidden fats in expense budget.

Third, it is about what should be the relationship between the corporate controller and the divisional controller? What steps would you take to establish this relationship and a sound footing?

Analysis on Proposed Control System: The relationship between the corporate controller and the divisional controller should be such that :

Unbiased information is provided by the division controllers to the corporatecontroller

Easily implement new programs

Corporate controller be more confident in reports given by the divisional controller. There should be no fats in the expense budget. The following steps should be taken care of while

implementing this relationship:

This change should be suitable for diversified companies. Division managers should not isolate division controllers from the management team.

Organizational change should not lead to dysfunction and inefficiencies.

Change should not lead to conflict between division mangers and division controllers.

a.

Strengths:

Unbiased and objective reports on division budgets and performance controller. from division controllers to the corporate

Corporate controller is more confident in reports given by the division controllers.

Minimized fats in expense budget. Easier to implement new control programs.

b. 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).

Fourth, it is about would you recommend any major changes in the basic responsibilty of either the corporate controller or the divisional controller? a. Basic responsibility of the corporate controller
Establish the management control system, strategic plans and

budgets.
Preparing financial statements and financial reports. Evaluate the performance per division.

 Developing personnel in the controller organization.

b. Basic responsibility of the divisional controller

Implement the strategy setup by the corporate controller. Evaluate the performance of the department within division.

Suggestion on additional management control system Rendell implement additional control system for budget issues.i.e We recommend that Rendell Company to retain its current organizational structure but implement additional control systems to address budget issues such as Implement centralized accounting systems Learnings: Its a business unit structure that is being used. In which business unit managers are responsible for most of the activities of their particular unit and the business unit functions as a semi independent part of the company.

After researchers analyze the case, researcher can continue to Chapter IV Conclusion.

CHAPTER IV CONCLUSION

4.1

Conclusion Division managers are prone to protect their own individual or

divisional interest by putting more importance in meeting division targets than meeting the corporations goal. To achieve goal congruence, division controllers should report to the corporate controller, instead of the division manager as proposed under the Martex Method. Division controllers should gain a level of authority such that they would be able to safe guard the companys financial position.

4.2

Recommendations Corporate Controllers should take division controllers under their juridication. Division general managers should be well aware of the authority and functions of the division controller in terms of the financial and performance status of his department (The division controller is working with him, not under him).

 The division controller should be well aware of both his

ethical and corporate responsibilities. Report should be made truthful and unbiased. The training and development system for corporate and division controllership should be give some attention. We recommend that they follow a minimum years of service in the corporate control appointed as division controllers. Also a time-bound shifting/transfer of divisional control would prevent informal organizations and connivances to be formed between them and the division general manager and his staff. Incentives may be recommended.
The group believes that the best way to implement

office before being

the Martex Method into Randell Company is by using formal control systems to integrate the changes using the new set-up. Communicate the new organizational structure and the roles and responsibilities of each division and department through a formal document. Highlight changes in position and the new relationship between the corporate controller, division controllers and the division manager.

 Formal townhalls and IT-based information systems should be used to ensure goal congruency across all departments. Posters showing the companys VMO should be posted to remind division managers, controllers and all staff members of their ultimate goals as employees of Rendell Company. Formalize the new tasks of the division controllers through a PPM (Process, Procedures and Methods) manual that will be available across all departments. This should also include its role in the PPE (Planning and Performance Evaluation) in each and all of Randell Companys divisions.
Initiate a common Code of Conduct Manual for all

employees that emphasizes that divisional goals are only supports for the over-all corporate goal, and that corporate goals will come first over divisional goals. The Code of Conduct should also include how employees should conduct themselves when submitting information and the

accompanying punishments if employees do not follow the required conduct.

REFERENCES

Govindarajan, Vijay, Robert N. Anthony. 2007. Management Control System. Singapore: The McGraw-Hill Companies Brewer, Garrison, Accounting, 2nd Edition, New York : MC Graw Hill, 2002. Supriyono, R.A; Akmen 3 : Pertama, Cetakan Ketiga, Yogyakarta : BPFE STIE YKPN, 1991. .; Akuntansi Manajemen 2 : Struktur Pengendalian Mnajemen, Edisi Pertama, Yogyakarta : BPFE UGM, 2001. Proses Pengendalian Manajemen, Edisi and Eric W Noreen; Introduction to Managerial