Question

You are the Chief Operations Officer responsible for overall company operations in ATCHULO Company Ltd, a large courier company in Ghana. Your company has 16 regional offices (terminals) scattered around the country in each of the regional capitals and a main office (hub) located in the capital city of the country. Your operations are strictly domestic. You do not accept international shipments.

The day at each terminal begins with the arrival of packages from the hub. The packages are loaded onto trucks for delivery to customers during morning hours. In the afternoon, the same trucks pick up packages that are returned to the terminal in late afternoon and then shipped to the hub where shipments arrive from the terminals into the late evening and are sorted for delivery early the next day for the terminals.

Each terminal in your company is treated as an investment centre and prepares individual income statements each month. Each terminal receives 30% of the revenue from packages that it picks up and 30% of the revenue from the packages it delivers. The remaining 40% of the revenue from each transaction goes to the hub. Each terminal accumulates its own costs. All costs relating to travel to and from the hub are charged to the hub. The revenue per package is based on size and service type and not the distance the package travels. (There are two services: overnight and ground delivery, which takes between 1 and 7 days, depending on the distance traveled).

All customer service is done through a central service group located in the hub. Customers access this service centre through a toll-free telephone number. The most common calls to customer service include requests for package pickup, requests to trace an overdue package, and requests for billing information. The company has invested in complex and expensive package tracking equipment that monitors the package’s trip through the system by scanning the bar code placed on every package. The bar code is scanned when the package is picked up, enters the originating terminal, leaves the originating terminal, arrives at the hub, leaves the hub, arrives at the destination terminal, and is delivered to the customers. All scanning is done with hand held wands that transmit the information to the regional and then central computer.

The major staff functions in each terminal are administrative (accounting, clerical, and executive), marketing (the sales staff), courier (the people who pick up and deliver the shipments and the equipment they use), and operations (the people and equipment who sort packages in the terminal).

This organisation takes customer service very seriously. The revenue for any package that fails to meet the organisation’s service commitment to the customer is not assigned to the originating and destination terminals.

All company employees receive a wage and a bonus based on the terminal’s economic value added. This system has promoted many debates about the sharing rules for revenues, the inherent inequity of the existing system, and the appropriateness of the revenue share for the hub. Service problems have arisen primarily relating to overdue packages. The terminals believe that most of the service problems relate to wrong sorting in the hub, resulting in packages being sent to the wrong terminals.

Required:

1. Explain why an investment centre is or not an appropriate organisational design in ATCHULO Company Ltd.   
2. Assuming that ATCHULO Company Ltd is committed to the current design, how would you improve it?                                                                                                    
3. C) Assuming that ATCHULO Company Ltd has decided that the investment centre model is unacceptable, what model to performance evaluation would you recommend and why?  

Answer 1

A. Explain why an investment centre is or not an appropriate organisational design in ATCHULO Company Ltd.   

An investment center is a business unit where the returns generated is compared with capital deployed. Investment centre accounting is useful to evaluate business unit or segment which is independent and where there is significant investment made.

The activities of Hub are not independent and moreover it doesn't seems to be dependant on capital investments hence it is not appropriate to use investment centre accounting

B. Assuming that ATCHULO Company Ltd is committed to the current design, how would you improve it?

The current policy of the company is not to allocate revenue for the delays ocurred for picking & delivery centre both. The company should make their policy change and allocate the revenue to the regional centre which has not made any mistake and not to allocate the revenue where there is issue and probably it can charge some nominal penalty as well.

It seems that though company have invested huge amount in system but they seems not having detailed data and analysis for the delayed parcel. Company should give priority to work out the process which generates data and proper reason for delay and once those details are available suitable action needs to be planned.

C) Assuming that ATCHULO Company Ltd has decided that the investment centre model is unacceptable, what model to performance evaluation would you recommend and why?  

The comapny can adopt Profit centre accounting rather than investment accounting. Under profit centre accounting each regional centre and hub will be evaluated on net profit they make.