Question

Question 3

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.
Examiner: Dr. Abubakari Atchulo Page 1 of 2
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. (15 marks)
B) Assuming that ATCHULO Company Ltd is committed to the current design, how would you improve it? (15 marks)
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? (15 marks)

Answer 1

ATCHULO Company Ltd

A) ATCHULO Company Ltd, as it is currently being operated should not be using an investment center as the appropriate organizational design when a profit center structure could have been applied. However, if it wants to continue the use of the investment center model as a preferred organizational structure, then it should implement the structure fully. For one, an investment center is a division in ATCHULO company that is supposed to be in control of all its investment activities (assets), and is responsible for generating profits (revenue and costs) for its sustenance. Its performance will then be evaluated based on the revenue it generates less the expenses, including the capital costs incurred for generating the revenue.

B) For a better operation of the investment center, revenues generated by the investment centers should be assigned to the investment centers and all their costs will be assigned as well. The investment centers should have their operational assets and make the necessary decisions regarding their use.

The hub should not be sorting packages for the investment centers as each investment center could handle the sorting at their various centers and route packages to appropriate destinations, accordingly. The investment centers should operate their own trucks or outsource such services at some costs. Since packages are sent from one center to the other and vice versa, they can charge for the services they provide for one another. In this way, each investment center's performance will be more accurately evaluated.

C) The investment center approach would have been the best for ATCHULO Company Ltd if it were being properly implemented, both in terms of operational activities and performance evaluation.

However, since ATCHULO Company has decided to change the model, I recommend the centers to be operated as profit centers, because this is the next best thing in terms of performance evaluation. However, each center must be able to make its own revenue and cost decisions, so that it can be assessed based on profit performance.

Step-by-step explanation:

An investment center in ATCHULO Company should be a unit of the firm that is responsible for its revenue, cost, and investment decisions, with its performance judged based on the overall outcome achieved or the value added to the company.

A profit center in ATCHULO Company is a unit that is only responsible for its revenue and cost decisions, while investment activities are handled from the headquarters. Its performance is evaluated on profits without consideration of the capital costs incurred in generating the profits.