MANAGEMENT POLICY & PRACTICE

ACM CASE Study

Submitted by
Faran Shahid Muhammad Inam Waseem M. Hanif

Association for Computing Machinery (ACM)

ACM had developed from just dealing in automobiles to aerospace and defense since its inception. In a period, from 1956 to 1967 ACM was not only able to accomplish their expansion plans and \also they diversified from medium-sized firm to multidivisional organization. ACM has varying range product lines, and they used to take decision at top corporate level. In other words they were trying to form out a centralized function but this centralized system was not helpful for the company. The performance appraisal and evaluation system at ACM was dissimilar at different levels of management. The top level divisional managers were rewarded in salary increases, stock options and incentive bonuses and they were dependent on divisional performance. The performance was evaluated on ability to achieve the annual target of improvement in sales, profits and ROE. As ACM diversified, Management at ACM switched to diversified and de-centralized systems and gave divisional autonomy to its divisions.

Quantitative facts:
MR Briggs was concerned over the declining trend in sales and earning between 1967 and 1968. Between 1956 and 1967 acquisition were consummated at the rate of roughly one per year which changed the nature of the business. The corporate headquarters unit consisted of approximately 20 management and professional personnel. All corporate and group level managers were located at ACM headquarters but 17 divisions had their own offices which were located in 14 different cities. Top of it ACM had 30 plants which operated in 23 cities. ACM had sales of approximately $ 70 million and 85 % of the total sales are coming from the sales of auto mobile industry. ACM had multi divisional organization of 17 major operating units each of which sold its product in a different four-digit SIC category.

After 1968, only 32% of the total sales went to automotive industry, while 31% was in capital, 11% in railroad equipment, 12% in construction supplies, 7% in consumer goods, and 7% in aerospace and defense.

The organizational structure had changed a lot from beginning mainly due to the fact that initially it was not that much diversified but by 1968, it was divided into two main groups.

One division had submitted a PAR of 2440000 for a 6000 tons press, so the extended ROI has decreased from about 16 % to 12 % but the company had the risk for less than a 15 % ROI.

Qualitative Statements:
Initially it was easy to have a single organizational structure throughout the company. At ACM, due to large diversification, the company follows considerable de-centralization and divisional autonomy. Company had progressed at such a rate that Mr. Briggs was convinced that as ACM was entered a new stage of corporate development for which internal growth and ability to manage existing operations more efficiently was one of the important issues to tackle. The top level divisional managers were rewarded by salary increase, stock options and incentive bonuses which were basically dependent on divisional performance. It was noted that the salary structure was quite favorable to those of other large industrial companies. External factors like unanticipated cutbacks in spending by railroad industry and rising of some tough competition in air conditioner equipment and textile fiber markets. An overall management process where more involvement and tighter control over divisions, and proper approval and appraisal system would be the top priorities for the company. Corporate culture and decision making process, as described earlier, the company follows a decentralized system. It means that every divisions president is responsible for its own division.

Three Divisions
1. LJW Aero is a small but highly profitable division which manufactures and sells a diverse line of highly engineered components used mainly for defense. 2. Indiana Frame is basically a wrong choice for the diversification because it produces and sells a line of standardize automobile frames to approximately a dozen customers. And the major threat top of it is the fluctuating demand, intense competition and very low profit margins. 3. Bradford Fibers is also a good choice but primary uncertainty in it is the area of research and development. 1966 1967 1968

Sales

344.1

334.6

323.7

Net Income

17.6

15.2

14.1

Profit Margin

5.11479

4.54274

4.35589

Sales Growth 5 Years 10 Years 19% 15%

Profit Growth 24% 14%

Return on Capital 8.90% 7.70%

Issues and Problems:Inefficient management inventory system and autonomy of staff personnel
There was lack of staff authority that was prevailing in the organization. It was generating inefficiencies in organization as they were not able to communicate the required information to the corporate staff or to assist them in decision making purposes. The projects were being accepted through informal lines. The relationship between the financial staff and the divisions was in a devastating situation. Moreover, if somebody visited the division as part of the project approval procedure, it was very unwelcoming and the personnel was treated more of a spy by the division, because of the probability existing that whether some confidential information regarding the division might leak out which the division members might not want to reach to the top level managers. In due to such lacking of information from various divisions, the financial division had a little less awareness of what was happening within the divisions. Also the management inventory was generating inefficiencies as it did not reflect the pool of skill existing in a certain division. There was no planning done on how the personnel were supposed to meet the increasing growth of the organization.

Inefficient project approval system

The project approval system was generating inefficiencies. It was dependent on the size of initial investment and the upper level management. However approval of projects did not have any consent about what the project entails, moreover, what benefits it would have would generate for the company in overall. Moreover, there were too many people involved in approval of the projects. And due to this large number of people, the concerned members were more into getting away from the thorough study and analysis, various projects required for approval. Everybody was relying on the others because every project required six operation approvals and five approvals from the accounting department.

Core ISSUE:Control System

Control systems are weak and bypassing of controls is allowed to happen as the Divisional managers have an informal contact with the top management. In such bypassing, the staff members are not involved in the decision making process, which results in inaccurate estimates of costs and earnings. Moreover, funding and expenses should be autonomous for each division.

Appraisal & Reward system

The appraisal of the divisions is inappropriate. Instead of rating divisions on how well the division is performing relative to its specific environment, one-third of the divisions get A rating, and a similar number get a rating of B and C respectively. Moreover, even C category divisions get a hefty bonus for not performing well! Add to this that bonuses are only linked with the earnings resulting in loss of focus on other important functions as developing personnel, or productivity, the end result is a single minded focus earnings.

No Long term Planning & informality

Long term vision is encouraged by the requirement of submission of a 5-year plan, yet this activity is not done to be implemented. Therefore no formal planning for the long term exists at the divisional or corporate level. This will inevitably cause problems in competing with other firms; as the company and divisions have vague ideas of the future trends in the market and the direction in which they must move to survive in a competitive environment. Another important feature is the lack of coordination among the corporate staff. Meetings are held on a one-to-one basis, and the corporate officers do not sit together to plan or coordinate

Recommendations:
There are number of issues to be addressed by Mr. Briggs. He, himself, is of believe that tighter control over operations would help in formulating and solving problems like reorganizing the corporate staff functions, altering grouping of decisions.

Imposing the Strategic Business Unit (SBU)

Any part of a business organization, which is treated separately for strategic management purposes. When organizations face difficulty in managing divisional operations due to an increasing diversity, size, and number of divisions, it becomes difficult for the top management to exercise strategic control. Here, the concept of an SBU is helpful in creating an SBUorganizational structure. In multidivisional organizations, an SBU structure can greatly facilitate strategy-implementation efforts.

Advantages of Strategic Business Unit (SBU)

1. Fixes accountability at the level of distinct business units. 2. Better Operations due to separate Vision and Mission 3. Establishes coordination between divisions having common strategic interests. 4. Facilitates strategic management (Board of Directors and President) and control of large, diverse organizations. 5. Better control over costs and expenses

Board of Directors

CEO

CMO

HRM

R&D

CFO

COO

Automobile SBU

Capital Goods SBU

Railroad Equipment SBU

Construction SBU

Consumer Goods SBU

Aerospace & Defence SBU

Centralized R & D
Centralized R&D will allow technologies to be transferred and resulting in synergies.

Implementation of new evaluation system

The evaluation system in the company has been formulated on the basis of the performance, yet the problem arises where it doesnt reach the basic level. The bonus pool given to each division is left up to the General Manager of the company and as stated in case study, it doesnt reach one lower level than general manager, this way not all the people are getting appraisal. A proper system should be formulated which will encourage the workers and also improve the relations.

Devising a new H.R Scorecard

To make the goals look more objective and achievable a new H.R balanced Scorecard should be developed to gauge the performance of each level of departments and the output they are generating against the amount of funds they are consuming. This would not even quantify the performance with the help of different H.R Matrices and ratios but also should help in formulating the system of Management by Objectives Program which will have greater accountability and objectives associated with each level of hierarchy will be set at the beginning of each year.