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:
A) Explain why an investment centre is or not an appropriate organisational design in
ATCHULO Company Ltd.
B) Assuming that ATCHULO Company Ltd is committed to the current design, how would
you improve it?
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) Investment centreis not an appropriate organisational design in ATCHULO Ltd. This is beacuse the investment centres are not independent . A lot of their efficiency and costs and performance depend upon the central hub which assigns the packages to them. Wrong sorting done by the central hub could lead to extra costs and also reduced revenue of the terminals even though the work is done as per the assignment.An investment centre is a business unit within an entity that has responsibility for its own revenue, expenses, and assets, and whose financial results are based on all three factors. The given model does not meet this criteria.

B) If ATCHULO co. Ltd. is committed to the current design, the following improvisations could be made -

- the cost of failure of the terminal to meet customer's commitments and sevice problems beacuse of wrong sorting by the hub should be charged to hub and not the terminal as they have done their part of work.

- The terminal should be given independence to check the packages before taking them from hub so that wrong packages are not taken.

- revenue per package should be based on the distance it travles as size might be huge but the distance traveled might be very small as compared to the distance travelled to deliver smaller packages.

C) the main office in each of the regional office should be made the investment center and the total costs and revenues should be allocated to them . This will make them behave responsibly regarding delivery and sorting ka packages. The terminals should be provided with the required funds to carry out the work and should maintain accounts regarding all the incomes generated and expenditure. Profits for each terminal need not be calculated and if calculated should not be the basis of judging their performance. Reimbursement of funds should be done from time to time.