Exhibit 3 implies a change in the way of measuring and managing the finance performance of DS written by DS management committee. As a product line manager, we should also consider the congruence of goals between business unit level and corporate level. Thus considering the memo, we react positively about that. We assume that we are optimistic, not resistant to change, future focus, and like challenges.
To ensure the continuity of company’s profitability, DS product line performance must be measured not only based on the cost incurred, but also the return of investment; in other word, the product line must become a profit center instead of cost center.Given the organizational architecture, the treatment of manufacturing facility can be seen from 3 perspectives; corporate level (CEO) perspective, inter SBU perspective, and inter value chain perspective. In this report we will discuss it from corporate level perspective. From this perspective we should treat the manufacturing facility as profit center. Treating the profit center will be similar with treating a single strategic business unit. Reporting system will also include cost and ROI compare with the former reporting system that only needs cost reporting. Therefore the financial performance as proposed in exhibit 3 is suitable for the new strategy. However this memo has an implication for DS product line manager; it will lead to more works to the unit, a lot of new things to do, for example:a.
Change in a new business paradigm; before the memo of change, the DS workers face almost no competition since it only acts as a supplier. In the new paradigm, and new function they must face tighter competition both internal (other SBUs can get the component from outside the company) and external (compete with the other component manufacturers).b. Cultural change and motivation of workers as the consequences of the new business paradigm.
The changing in here means that they must change all their work ethics, and work schedules.c. New function should be added and organized (e.g. marketing function that previously not exist, administrative team, reporting system, and authority).The function of the finance would be best fit as the controller of DS.
The critical task of the finance is to make different financial statement than before the memo is issued. The differences include the detail of information (e.g. book keeping rules) the addition as statement of investment result such as calculation of ROI. Another task of this finance function is to propose and control budget as needed.DS product line is acts as a business unit, this type of organization has several advantages for example it provides a training ground in general management, the business unit closer to the market for its products than headquarters. Its manager make sounder production and marketing decision than headquarters might, and the unit as a whole can react to new threats or opportunities more quickly. Unfortunately this product line has some disadvantages too, for example the possibility that each business unit staff may duplicate some work that in a functional organization is done at head quarters.
The product line concept will surely change the behavior of people within DS division. Changing the culture is not an easy task because it involves changing normative beliefs, values that are already adopted by the people. Changing in financial system, reporting, administrative will influence the changes of culture as whole. But, some other actions should be taken by DS management committee to make sure the transformation of culture can be done smoothly. According to the organizational behavior theory, transforming an organizational culture should be begun from designing a new code of conduct. This code of conduct may consist of rules, work ethics and standard operating procedures. Management will then try to socialize the new code of conduct by giving some examples of implementation. Because of more authority is transferred to the lower level (product line), corporate level managers should give freedom for product line to make its own unique culture (subculture) which is still in align with the corporate culture.
In developing new strong organizational culture, management of DS can choose three type of culture that can enhance the DS’s economic performance:- Strength perspective which assumes that the strength of DS’s new culture is related to DS’s financial performance.- Fit perspective which assumes that DS’s new culture must align with its business or strategic context- Adaptive perspective which assumes that adaptive culture enhances the DS’s financial performance.These perspectives are expected to enhance the long-term financial performance which is in conformity with the purpose of product lines establishment (to achieve financial performance).Another management controls that we recommend are, first to establish product line controller consist of business and engineering manager, this controller will act as corporate hand in measuring the performance of DS.
Second, elaborate a proper information system to support the flow of information between the engineering department and the product line controller. Third, new implementation of Customer Relationship Management (CRM) to smooth out the marketing effort of DS product both in Business to Business (B2B) and Business to Customer (B2C). This implementation should also be controlled by product line controller to make sure the effective and efficient conduct. Another aspect of control system that should be redesign is the incentive compensation system. The new design is a consequence of changing organization structure work load, authority within DS organization, which will make the former payroll system and reward system are not suitable for the new condition.ConclusionChanging in the organizational structure will lead to redesign of new management control system. The change should cover the changes in:1.
Reporting system2. Budgeting system3. Performance measurement system4. Compensation systemManager should be proactive in leading a change and implementation of the new system.