Economy Fashions Case Evaluation - Essay Example

?economy fashions Economy Fashions’ Case Organizational Structure Table of Contents Evaluation of the Problem 3 Collection of Evidence 3 Quantitative and Qualitative Issues 4 Recommendations 6 Conclusion 7 Economy Fashions Case: An Evaluation Evaluation of the Problem The main problem with Economy Fashions lies within its organizational structure. The lines of authority, decision making and the planning processes are unclear to the employees and the owner of the company. As the company was to be inherited by Joe through his father, it was pretty much evident that he would not focus on the performance aspect of company. He focused on the designing process of the business, leaving the main area of performance vacant. Although it was a good step to follow the designing process which would help Joe to focus on the production area of the company but this focus alone would not really help in isolation. Proper business sense, entrepreneurship and the some ability and knowledge to run the management of the organization was as important as the designing process. The lack f this ability from the start led Joe to act as an autocratic leader within the organization. Although the system within the organization seemed to be a decentralized one, it was not actually a decentralized one. The decision making power lied in the hand of Joe and this blocked the way for innovative ideas being forwarded by the management of the organization, even the smallest decision involving immaterial items were taken by the owner himself. This clearly shows that there is a lack of delegation within the organization and proper delegation would result in better flow of information within the company. Collection of Evidence There are two ways of collecting evidence about these problems, one way is to do quantitative analysis and the other is to perform a qualitative analysis. The quantitative analysis would include analyzing the financial performance of the company and assessing whether those financial records are properly recorded and maintained as per their specified standards. The reduction in the function of the Vice President to a mere office manager suggests that the company may not be recording the financial information correctly. To analyze this further, a proper analysis of all the financial statements prepared by the company should be assessed to ensure that the information is recorded correctly. As Economy Fashions is growing gradually, it would need proper financial records to ensure responsibility accounting within the organization. Responsibility accounting would help in identifying those people kept responsible for the running of any particular department/division. The qualitative analysis would include the assessment of the organization’s structure and the organizational culture to ensure whether a decentralized system can be implemented within the organization. Besides the decentralization issue, there is a clear lack of succession planning within the organization. Succession planning would help in future planning for a company i.e. a replacement for an existing employee at an important position should be properly planned such that when the existing employees retires or quits the job, the replacement of that employee should be ready and he/she should be equally good as the one who quits the job. Quantitative and Qualitative Issues With the implementation of the decentralized structure and the “Coach and Team Syndrome” Concept there would be some other problems that need to be addressed within Economy Fashions. The quantitative and qualitative issues that would need attention would be; Divisional managers performance being appraised on the basis of the “Return on Capital Employed” concept, this would mean that each division’s return would be compared with the initial investment made in that division and finally upon those basis, the performance of the divisional manager would be ascertained. The evaluation of the manager using the ROCE concept would lead to dysfunctional behavior where the manager would not accept any venture/project if it reduces his own division's/department's ROCE because if that department's ROCE reduces, although that project might increase the ROCE of the entire company in totality. The divisional budgets are to be prepared by the divisional accountants, which poses an alarming situation for the credibility and appropriateness of the budgetary information produced. Since, the decentralization approach follows the concept of making judgments about each divisions performance on the basis of the budgets produced compared with the actual results achieved, it is difficult to identify the problems when budgets are set overwhelmingly low or high to show better performance results of the division. Decentralization of the company may be helpful in easing the burden from Joe regarding the business’s operations and decision making. However, there are a number of areas which require proper attention by Joe in order to sustain the growth and profitability of the business. Since, less involvement of Joe in the business affairs may lead to the vulnerability of frauds and errors, there is a need to properly maintain schedule in order to curb the issues that may arise. Joe will still need to assess the performance of each department personally in order to make sure that the managers who are given responsibility of their particular divisions are loyal, competent and able to manage the operations of the business. One of the most important issues of decentralization in the context of Economy Fashions is the delegation of decision making power which may lead to unjustified and unreasonable performances from each division. The lower level managers who will be responsible for making decisions including for the financial, managerial, operating and budgeting issues may not incorporate the ‘big picture’ of the organization. Each divisional manager will be motivated to follow up strategies and implement plans which may be beneficial for their own division. The top management and centralized structure provides a more in depth analysis of the company’s overall performance and requirements. The decisions made by Joe, hence, incorporated the overall performance of the company and strategies adopted were more inclined towards bringing profitability for the company as a whole. The divisional managers are aware of their particular division only, and may not be able to justify their activities and strategies when it comes to achieving organizational objectives. The lack of communication and information between divisions may lead to dissatisfactory results of the company’s overall performance. The decisions made by one division may impact the other division’s performance. For instance, the purchasing manager may avail bulk purchasing discounts in order to improve the financial performance but the production manager may not find it appropriate as the fashion industry requires innovations and frequent changes are required to answer the requirements of the customer. Recommendations In order to avoid the issues pertaining communication and coordination between the divisions and manager, a more efficient communication strategy, clear explanation of the organizational goals to managers and staff, meetings to discuss the performance of each division and regular review of overall company’s performance is required. A controlled system to measure the reasonability of the budgets prepared is required. If the difference between budgets set and the actual performance are high, there is a need to review budgets as closer to the actual results as possible. In addition, to support the performance of each division, targets may be issued by the top management to encourage improvement in the efficiency of the organization’s overall performance. The targets must, however, be achievable but challenging. These targets may help each division to improve their results and performance. Moreover, performance measurement in terms of achievability of the targets set may also be a good move towards organizational success. Such an evaluation system may encourage the divisional managers to make decisions in order to achieve targets which may in turn be in the best interest of the company. In order to properly assess the performance of each division the company should have strict measures to properly ascertain the ROCE of the department and that of the entire company and selecting those projects that in fact increase the ROCE of the company rather than the department only. Proper Budgeting technique would also be needed within the organization to help in controlling and improving the performance of the company. Such budgeting techniques are heavily used to reduce and control costs, all costs are looked upon and any such costs that can be avoided are efficiently forgone. Capital budgeting is a required managerial tool. One duty of a financial manager is to choose investments with satisfactory cash flows and rates of return. Therefore, a financial manager must be able to decide whether an investment is worth undertaking and be able to choose intelligently between two or more alternatives. To do this, a sound procedure to evaluate, compare, and select projects is needed. This procedure is known as capital budgeting. Conclusion In conclusion, we can say that Economy fashions may end up creating greater profits for the company; however, there is a need to properly design the decentralization structure along with the plans and strategies for each of the divisions. The performance measurement tools suggested must be reviewed for their credibility. The budgeting responsibility may either be held with the top management or be reviewed properly to check the fairness of the data reported. The employees must be well communicated about the objectives of the business, targets of their relevant divisions, budgets and other issues regarding the business. Read More