Rendell Company
Essay Preview: Rendell Company
Report this essay
Rendell Company has been in business for over 50 years, the company is structured and operates as distinct business units. There are seven business units, and each unit functions individually and manages their own respective marketing and manufacturing responsibilities for their respective different product lines. Rendell Company business units each have annual sales ranging from $50 million to $500 million and deal with small amounts of transfer pricing between business units, but it does not constitute a large portion of divisional sales.
The divisional controllers of the units report directly to the general managers of the units, and indirectly, on a dotted line, to the corporate controller. The corporate controller chooses the accounting systems and general procedures followed in budgeting and reporting control activities by the divisions. The responsibility of facilitating the budgets and reports lies with the general manager of the division, with the divisional controllers acting as staff supporting the development of these reports.
Mr. Fred Bevins, Rendell Company’s corporate controller, believes that the current indirect (dotted line) relationship with the divisional controllers isn’t functioning as well as it is intended to. One of the issues stemming from this relationship is an inefficient flow of information from corporate to the divisional controllers about introducing new standards and modern control techniques. The second issue with the corporate structure is that Mr. Bevin’s believes that the loyalty of the divisional controllers belongs to the divisional general managers and that this is affecting the flow of information back to corporate. In Rendell’s corporate structure and policies it is the general manager’s responsibility for the budgets and reports of the division. Mr. Bevins believes this leads to the reports being “dressed up” to portray a good image of the manager and bloated numbers in divisions, instead of reporting an accurate picture that may not look so favorably on the general manager.
Mr. Bevins is looking into changes that could be made to corporate structure and culture within the company and the divisions that could lead to more accurate and unbiased information in reports and budgets. Some potential issues that Mr. Bevins has to deal with in leading this transition within the organization. The current president of Rendell Company was the company’s former controller and implemented a lot of the policies and procedures that the company and divisions adhere to. Another issue is that Rendell is a mature company (50 years in business) with a longstanding corporate culture and many of the divisional controllers and managers have worked for the company in excess of 10 years. Both of these factors, the tone at the top and organizational culture could introduce a resistance movement to the changes Mr. Bevins is interested in implementing in the company. Nonetheless Mr. Bevins is looking into Martex Corporation, a company that has a corporate structure that seems to foster the kind of environment Mr. Bevins would like at Rendell Company.
What is the organizational philosophy of Martex with respect to the controller function? What do you think of it? Should Rendell adopt this philosophy?
Within the controller function at Martex, business unit controllers have a solid line relationship with the corporate controller. The corporate controller at Martex has the following responsibilities.
Install and supervise all accounting records
Prepare and interpret divisional accounting statements and reports
Supervise taking and costing inventories
Prepare and interpret operating reports
Prepare annual budget with input from staff officers and division heads
Setup and monitor internal control systems
Be present or represented at division and subsidiary management committee meetings
At Martex, division managers have none of their own staff, but rather staff assigned to them from general staff (typically including a controller, engineer, and purchasing agent), and additional staff that divisional managers may request from corporate headquarters. Divisional managers and controllers are typically promoted from within the organization which leads to them being comfortable and accustomed to this relationship. Martex’s controller system is also successful in part due to the uniform and centralized accounting system, predetermined financial objectives (sales growth and profit as a percentage of sales), and profit sharing by managers and controllers.
The uniform and centralized accounting system is key to the solid line relationship because it provides a common basis divisional financial reports and analysis. This also helps to maintain the bond of confidence between divisional managers, divisional controllers, and the corporate controller. Sometimes, divisional controllers can be looked at as “spies” from corporate, however for Martex divisional mangers like this relationship because it gives them an unbiased advisor with relevant information, the corporate controller is able to better analyze divisions to make better decisions, and there is no argument about affected parties when cost reports are issued.
Martex’s controller function is well designed given the structure of their company. The controller function is able to get reliable and uniform information from the different divisions. Divisional controllers do not show the bias that they might with a dotted line relationship, and they are not looked at as outsiders by divisional managers which can be a problem with a solid line reporting relationship. This system works for Martex because the divisions are structured so that division managers do not have their own staff. This creates a culture among divisional managers and controllers of divisions working in conjunction with headquarters rather than against it. The profit sharing by division managers and divisional controllers also helps to foster the good relationship between corporate and the divisions.
However, Rendell Company should not adopt the controller system used by Martex. A good controller function is designed to fit the existing structure of a company and not the other way around. Rendell Company has a structure where divisional managers have their own staff and are used to having complete control over their staff. Implementing Martex’s system would lead to divisional controllers being viewed as outsiders from corporate. This would create an environment where divisional managers not getting the optimal use out of their divisional controller and the corporate controller not getting