Source: International Management; for questions, assignments and comments, see Instructor's Manual, p. 19.
An intuitive move
Mogren AB is making profits but something doesn't add up
Call it intuition, a sixth sense or just gut feeling – Bertil Nilsson somehow knows that all is not well with two of the product divisions in his group, Mogren AB. He can't put his finger on it, and there's nothing in the figures to suggest it, but his subconscious warning bells have been ringing for a while now.
The divisions manufacture and distribute a range of automotive components, mainly electrical and electronic. Their customers are the big car and truck groups. It is a tough, highly competitive business, and Nilsson, from his office overlooking Gothenburg's port, does not interfere – out of policy as well as personal choice.
Mogren's origins were in shipping, but it has long since diversified. It still retains some maritime interests among its present seven divisions, but it is highly decentralised, and Nilsson's head office team consists of no more than 50 staff, mostly in the finance and legal sections. The accounts they prepare every month show him that all the divisions are making reasonable profits. Although auto parts have been hit hard by the recession, the losses have been contained and are slowly being turned into profits.
So why the alarm bells? At the monthly meetings Nilsson quizzes the divisional bosses about their performance. They explain their current problems on costs and inventories logically enough, and are resolutely optimistic about achieving their five-year targets once recovery is under way. Growth will still not be exciting, they say, but pruning the product range and rationalizing production on a European basis will yield big savings.
Nilsson is not satisfied. Friends outside the company tell him the product quality may not be keeping pace with Japanese standards, and that important products are losing ground to competitors. But the evidence is anecdotal and he cannot prove it. He has confidence in the two divisional bosses, who have between them 25 years' experience with the group. Anyway, in a decentralised group, he cannot afford to be second-guessing his lieutenants – they would be demotivated, and he would end up running businesses he did not understand.
After talking it over with his finance director and confidant, Anders Heberg, who is able to compare margins, cashflow and return on investment across the group, the pair agree to demand more detail on the figures from the divisional accounts departments. Heberg's team of analysts can then provide a clearer picture of performance, and Nilsson will see whether and where his hunch is justified.
The following month, a deluge of information arrives over the fax. Every nut and bolt that moves, every krona is faithfully accounted for, but in spite of the analysts' best efforts, the picture is more obscure than ever, Nilsson still feels that decentralisation is right, but he must somehow regain control. His warning bells have never given a false alarm in the past.