Essay on Airtex Aviation Case Study

1100 Words Oct 20th, 2013 5 Pages
AirTex Aviation

1. Did AirTex need a new control system at the time of the takeover? * “The management system that was in place was one woman who magically kept everything in her head. There was limited and almost incomprehensible formal system.” Sarah Arthur, the company’s accountant, had complete autonomy over the company’s information, and she kept this information private. * AirTex was in need of a more formalized accounting system, since accounting was a central department of the company, and profitability was a key measure to ensure the success of the company at the time of the takeover. * Also, Ted and Frank had plans to dispose of Sarah Arthur, who was acting manager upon their arrival. However, given her
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* Results Controls: Ted and Frank adopted a decentralized organizational structure. Each operating activity would be its own profit centre, which gave managers a chance to earn 10% of their profit centre profits. * This bonus aligns their employees’ interests with the overall objective of the company to increase profitability. This control is also supplemented by the personnel/cultural control promoting encouragement and support. The success of this control is contingent on the knowledge and motivation of the employees. The 10% bonus probably wasn’t enough to incentivize managers but it was to get information from them * However, Ted should not have immediately given the department heads access to their receivables, since it is one of the key metrics of the company’s profitability. Although he established a procedure for collections and was constantly monitoring the progress, his employees were not well compensated for the additional risk that they had to bear. They might perceive this additional responsibility as frustrating and unfair. It might also reduce their incentive to take value-maximizing actions, such as choosing a profitable customer, in favor for a customer who may not be as profitable, but can pay in cash. Benefit: Ted and Frank seem to think they can more easily chase credit; ensured people are doing it by having an aging receivables charge; if they get too old, the full amount is charged to

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