This case was written as an example of an extreme control failure. It can be used in a class focused on management control, entrepreneurship, or management of small businesses. Al Fiorini, the manager of a small, but reasonably successful, mortgage lending company in Atlanta hired managers to run his business while he went back to school, for his executive MBA, in California. He did his best to monitor the company’s operations while 2,500 miles away. But the managers not only stole from Al, they stole his entire business! The case forces students to analyze the problems Al faced, to identify the controls that he had in place, and to suggest things he might have done to ensure that these problems would not have occurred.
Identify the devices (controls) that Al Fiorini used to control his business both before and after he went back to school. Classify each control as a results, action, or personnel/cultural type of control. 2.
What went wrong? Did Al use the wrong types of controls? Did he use the right types of controls but fail to design or implement them properly? Or was he just unlucky? 3.
What should Al do now? Why?
The Axeon N.V. case was written to illustrate the effects of a management control system and the supporting management processes on one specific, major decision in a decentralized, multinational corporation. The situation, which is real, but disguised, illustrates the real world application of many management accounting concepts, including incremental cost analysis, capital budgeting, sensitivity analysis, and transfer pricing. But perhaps more importantly, the case is about managing the cost/benefit tradeoffs that are inherent in a decentralized firm. The case illustrates some common management process problems involving conflict between a parent and its foreign subsidiary. Visible in the case are common attributes of managerial behaviour in a decentralized organization. The attributes are both positive (motivation, initiative) and negative (suboptimization, parochialism, indecisiveness). Dealing with these behaviours forces students to consider issues about organization design and control system administration. Because of the breadth of issues raised, this is an excellent review case. Many students will become emotionally engaged in the situation and, hence, the case becomes a good vehicle for discussing the advantages and disadvantages of decentralization and the problems faced in administering a control system in a decentralized environment.
1. Is construction of the new factory in the UK in the best interest of Axeon N.V.? 2. Ignoring your answer to question 1, if the plant were not built and AR-42 was shipped from the Netherlands to the UK, what transfer price would be appropriate? 3. What should Mr. van Leuven do?