CASE 9 : ASHWOOD HOME IMPROVEMENTS

The case concerns a family business whose autocratic leadership has lead to
problems in a number of areas, notably in organisation, planning, monitoring and
information systems. Internal inefficiencies mean that the company is failing to take
advantage of a niche marketing position.
Tom Ashwood heads up a family business, inherited from his father, which
manufactures and sells home improvement equipment in the areas of insulation,
security, ventilation and air-conditioning. Tom is undeniably arrogant in his bearing
and autocratic in his outlook on business. His one concern is profit, and he exercises
rigid control over all aspects of the business to ensure that each makes a sustainable
contribution.
As Managing Director of the business Tom is probably more involved in the day-today operations than he should be, but he sees this both as his means of exercising
control and of preserving the family heritage. Control is via the measurement and
monitoring of everything and everybody through financial indicators: he is in regular
direct communication, at least twice a day, with all his branch managers to determine
their sales levels and cash position. His Divisional Managers are often critical of Tom
though not within his earshot- since the direct contact with branch managers
effectively cuts them out of the chain of command: they have responsibility without
power. Tom feels that the branch managers are the future of the organisation and as
long as they are delivering healthy profits he is prepared to give them a free rein, or at
least give them the impression that they have a free rein! This places the branch
managers in a strong position relative to their apparent superiors in the organisation
chart (see Figure 9.1).

Direct reporting from branch to MD facilitates game-playing by the branch managers

who play-off the divisional managers against each other, and encourages the
divisional managers to mollycoddle their branch managers to induce congruent
behaviour. If goods are not available for delivery to the customer the DMs get it in the
neck, not the branch managers.
A fortress mentality exists among the branch managers, who use the information
gleaned from the sales force and delivery teams to their own advantage. It is almost
never passed on to the DM, but may be leaked to the DM if it is damaging in other
quarters.
The distribution division is very good at delivering large volume, low margin,
relatively non-technical products. It keeps all the sales branches well-stocked with, for
example, insulation materials. It is less good at achieving on-time delivery of more
sophisticated units (e.g., air-conditioning) on order for specific customers. As well as
delivering finished goods to the branches for sale, distribution delivers products
directly to the customer and raw materials to the manufacturing workshops.
Manufacturing operations have suffered from the family history of growth on
different sites. This causes some problems associated with transfers between sites for
assembly and with a wasteful multiplicity of stockholding at different locations.
Ashwood has just completed a massive investment in its manufacturing base at Site 1
(headed by Dudley Shilton) but has so far resisted the temptation to relocate to a
single site because of disengagement costs and the inevitable loss of skilled staff. The
new machinery is currently underutilised because of both the additional capacity and a
shortage of skilled workers. Site 1 now has a surplus of assembly operatives but
cannot attract sufficient skilled engineers to the manufacturing workshops. Dudley
Shilton is hoping to make better use of the manufacturing capacity by introducing a
night-shift (24 hour operations rather than 16) and by introducing seven-day-a-week
working (instead of the present five). A combination of the two strategies could
double utilisation, but would depend on the willingness of existing staff to work
overtime and unsocial hours, as well as in attracting new staff.
The excess capacity in manufacturing has so far helped to shield the company from
operational inefficiencies. There is no master production schedule and many machines
often spend up to 50% of their time in set-up, being stripped down and reset to meet
the requirements of a new order. Investment has thus far been in machinery to
facilitate the production of many different small orders which exactly meet customer
requirements- rather than in building up inventory. The pressure on existing staff, and
on the workshop managers, has meant the neglect of on-the-job training: planned
training undertaken in 1994 was 80%, but down to 30% in 1996. The pressure to
perform and meet short-term efficiency targets means that nobody thinks long-term.
Doug Hopkinson, the Divisional Manager Manufacturing, has reluctantly accepted the
necessity of such a position.
The investment in manufacturing has largely been driven by the growth of the
security side of the business. Sales and manufacturing of security screen windows and
doors have escalated at a rate consistent with the growth in the number of burglaries
in the community. Ashwood have identified security as a niche area of business in
which it has a significant competitive advantage, and one in which sales turnover has
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increased by 30% in the past two years. Their lead-time for customer supply in this
area is less than four weeks, against an industry standard of six weeks. Even so, they
are able to supply all but the biggest and least standardised orders inside a week, so
that they are developing a well-earned reputation for customer service.
A centralised invoicing procedure means that Tom Ashwood sees everything before
authorisation and maintains control by effectively preventing the branches from acting
independently. However, he recognises that such a situation cannot continue
indefinitely. At the moment he interferes in all aspects of the manufacturing,
distribution and sales activities daily; his reluctance to delegate responsibility is
putting him under increasing personal pressure. He feels that he is losing control of
some aspects of the business and that financial indicators are not always giving him a
timely feel for progress and performance. But he has no system in place to generate
more appropriate management information which would facilitate decision making.
Although happy with the financial status of the company, Tom feels that it should be
growing even faster. Investment in manufacturing capacity has not yet been matched
with increased consumer demand on the scale envisaged. The cause of this mismatch
lies in big orders to supply security-systems company wide; currently Ashwood rarely
wins orders in this area and Tom feels that they are failing in the tendering process.
This is the responsibility of the Divisional Managers in particular Derek Ramsey
who are under great pressure to get their act on track. Derek points to specific
problems associated with the tendering system, the accounting system, organisational
structure and information systems which he feels are responsible for his failures in
this area:
Tendering
The company operates an always quote policy, even where there is little chance of
success. They will even quote on tenders they do not wish to win, to keep potential
future clients aware of them. This quotation policy has significant resource
implications, as evidenced by reference to quotes on big contracts in the previous
year:
No. of Quotes
No. of Successful Quotes
% Successful Quotes
Mean Cost per Quotation
Total Cost of Quotations

50
4
8
$600
$30,000

The engineering component makes quotations expensive to produce, and company

inefficiencies mean that it struggles to get any quote out on time. Unsuccessful
quotations are usually of the order of 20% higher in dollar terms, compared to the
successful bidder. This lack of understanding of the market, together with quotation
costs, make it imperative that some form of targeting is developed for future
quotations in order to increase the hit rate. The tendering department tends to operate
on a youve got to be in it to win it mentality, and feel the more it quotes, the
greater the chances of success, even though the facts fail to support such a position.
Although the tendering department records the number of tenders that it wins and
loses, it assumes that price is the only relevant variable (i.e., all tenders that were lost,
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were lost because they were priced too high). This may be true in many instances, but
ignores tenders lost on poor delivery and service record, and tenders won because
their price was ridiculously low! There is no formal follow-up on unsuccessful quotes,
so no feedback on how competitive they were, or whether price was the determining
factor. Derek Ramsay wants to devolve more of the tendering responsibility down to
the salesperson level, by asking them to rank projects on a nine-point chance of
winning scale (where 1= absolutely certain, and 9=no chance). The company might
then target all quotes with scores of four or less, say, to avoid the waste of quoting on
impossibilities. This would increase the need for diplomacy and some carefully
worded regret letters, explaining why the company does not feel able to submit a
quote in particular circumstances. Derek recognises that he might have trouble selling
devolution to Tom, especially as it also means a change in corporate culture relative
to quotations.
Accounting Systems
The accounting system apparently contributes to the failure of quotes by ensuring that
tender prices are higher than they need to be. Any item bought from outside the
company is subject to an 8% surcharge (to encourage internal transfers). Overhead
share and profit are then added to total costs after the inclusion of any surcharge. The
net result is an uncompetitive tender. For example, a recent tender for an equipment
installation is shown as follows, in a simplified form:
Components (manufactured)
Components (bought-in) + 8% surcharge
Labour
Share of Overhead (20%)
Gross Profit (10%)

$22,000
$108,000
$40,000
$34,000
$20,400
$224,400

$170,000
$204,000

The tender was lost. The winning quote was $179,500, a difference of nearly $45,000.
The credit control section of accounting is another source of great angst among the
salespeople. They are frequently infuriated, after a fruitful sales pitch, to find that,
when they try to input a sales order, credit control has put a stop on further credit for
that company.
The budget, on the other hand, is seen solely as a control mechanism, designed by
managers to monitor and evaluate organisational and divisional performance against
pre-set targets. It performs no planning or motivational role. Consequently proposals
for system changes and improved work practices do not come from the workforce.
Organisational Structure
Derek points to the organisation chart (Figure 9.1) to illustrate the problems.
Reporting lines from the branches and workshop sites directly to the MD put the
Divisional Managers, like Derek, in an impossible position. Only Tom Ashwood can
solve this problem.

Information Systems
Derek has read something about a balanced scorecard and suggests that it might be a
solution to the dearth of timely management information. He is willing to make
innovations in this area, but only if he is sure that he will get the backing of the MD.
Derek realises that such a suggestion puts his own neck on the chopping block,
because he has backed Tom into a corner; he is uncomfortable about it, but happy that
he has given Tom plenty to think about!
You are required to consider the problems besetting Ashwood Home Improvements
and to outline recommended courses of action for Tom Ashwood.