Westport Electric Corporation (case 4-5)

Case Overview
Westport Electric is a gianta colossal and highly profitable company which that manufactures and sells electric and electronic products. Organisational structure Divided into four groups Each group comprises 25 relatively independent divisions and each division is a profit centre 6 administrative staff offices Administrative Staff Offices at the corporate level, which operates on a cost centre basis. Different approaches toin the budget process for the divisions and the Aadministrative Sstaff Ooffices Responsibilities of the Aadministrative Sstaff Ooffices; Top management advice Advice to operating divisions and other staff offices. Operating divisions are free to accept or reject the advice; however, they rarely ignore it. Coordination among the divisions

Budget of the administrative staff The Bbudgeting Ddepartment issues instructions and timetables in the early autumn of each year instructions and timetables Incremental Budget approach
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Westport Electric Corporation

Presented by expense classification and activity Letter with explanations of changes; Economic changes New activities Dropped activities Changes to existing activities

Presentation of Budget Proposal; PresidentPresident and the Eexecutive Vvice Ppresident: approve and ask questions during the presentation Finance Vvice Ppresident for Finance: no power to approve or disapprove, noreither to intervene during the presentation. Budgeting Department Main function: keep the presentation honest No position on budget appropriateness and efficiency Kings concerns; Increase in expenditure in the legal and industrial relation office Legal office: inefficient and getting approval easily Overall budgeting process of the Aadministrative Sstaff Ooffices Ability of the Ppresident and Eexecutive Vvice Ppresident to: Evaluate the efficiency and effectiveness of the Aadministrative Sstaff Ooffices To assess if additional activities are worthwhile Attitude of the finance Vvice Ppresident for Finance in theduring meetings

Other weaknesses

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1) Industrial Relations Industrial Relations Staff: Senseless training; Wasting time and money Very simple-minded Communication issue, people are afraid to rebel: Assessment of individual performance duringin training might hurt career chances Employees fear to report inefficiency of training To be against management training is like being against motherhood Suggestion: People should feelbe free to rebel against useless practices; Eliminatation ofe individual performance assessment of individual performance in training, because isdue to it being counterproductive Creation ofe an anonymous training course feedback form about training courses

2) Lack of goal congruence of the administrative staff offices Administrative Staff Offices with the corporation earnings. The administrative offices adopt an empire building behaviour without considering the actual profitability of their practises for the firm. Moreover, the Ppresidents approval was not informed: he does not have the time nor the knowledge to evaluate those budgets. Suggestions In-depth analysis of the Aadministrative Sstaff Ooffice budget proposal, eliminating all senseless expenses. The finance vice president Vice President for Finance should ought to be more involved in the process Take The attitude of the divisional controller ought to be taken as an example the attitude of the divisional controller

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Strength Each division is a profit centre: divisions performance is evaluated by profits Incentive to reduce costs In the case where each division is a cost centre, there is not necessarily an incentive to drive down costs, but just only to achieve the cost target established in the budget. Is there an evaluation problem? One can argue that there is no evaluation problem: The business is profitable Executives are satisfied The views expressed in the case study are just those of one employee

King couldan either be a highly motivated worker who is willing to improve the budgeting process for the sake of the business or he can could just be a moanering. He states that the legal staff has a long approval time, and he proposes a lawyer friend as a substitute. In addition, he admits that he feels more strongly than most of the other people about the inappropriateness of the training.

Question
What should Westport Electric do about the evaluation problem raised in the case? 1) The finance vice president Vice President for Finance has an informational advantage compared to the presidentPresident in relation to the budget of the Aadministrative Sstaff Ooffice. However, he can only comment after the presidentPresidents approval and, thus, he is forced to agree. Solution Give power to the finance vice president Vice President for Finance to;

Westport Electric Corporation

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Freely express his opinion Raise questions during the budget presentation Actively participate in the budget approval Give advice to the presidentPresident

2) Incorporate the administrative staff offices Administrative Staff Offices into each group Focusing on profitability since each division is a profit centre Developingment of specialised expertise (e.g. industrial relations Industrial Relations office specific for the Electronic Group) May Possible loss ofe expertise due to fragmentation of the offices Increase in costs and possible replication of expertise

3) Implement Zero Based Budgeting Advantages Every item of expense having must to be approved and justified for every new period. As a consequence, the finance vice president Vice President for Finance will be more involved in the process and the presidentPresidents approval will be more informed No reference to previous years expenditures Efficient resource allocation: based on the actual needs. This will limit useless expenses by the offices and their empire building behaviour Identification ofes inflated budgets, such as those of the legal and the industrial relation officesIndustrial Relation Offices Managers are motivated to find cost effective improvements Increase in communication and coordination within among people involved in the budgeting process (e.g. presidentPresident , finance Vvice presidentPresident for Finance , Ccontroller...)
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Identification ofes wasteful activities, such as the industrial relations Industrial Relations training

May Possible identification ofy opportunitiesy for outsourcing (e.g. activities of the legal staff and training?)

Avoidance of blanket changes to match the previous years budget

Disadvantages More expensive and time consuming than incremental budgeting Requiringes specific training due to increased complexity Huge Immense amount of information needed

Westport Electric Corporation

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