Seri Kinabalu Sdn Bhd (SKSB) is a small local company having strong networking with China manufacturers. The motto of the company is “Work Safely, Go Home Happily.” Abu Bakar is the managing director of SKSB. He makes all major decisions and monitors all the activities of the company. Recently, SKSB has experienced rapid growth in its revenue and eyeing for potential acquisition plan. After attending a series of director’s continuous development programmes, Abu Bakar realizes the need to have a strong and balanced board of directors to drive the business. The new directors need to have the right skills and desirable qualities, able to work under pressure and manage to keep the employees to be focused.
SKSB has grown in size as there is a huge demand for the company’s products throughout the country. SKSB started to have wholly-owned subsidiaries and each of them is headed by a director. All seven (7) SKSB subsidiaries are in the South East Asia countries whereby, each subsidiary has approximately 20 to 25 staffs. In the beginning, SKSB focused only on the distribution of pesticides imported from China. When the company become prominent, more products and services are being added to capture a broader market. SKSB has a hierarchical organizational structure, whereby the staffs are ranked at various levels. In a traditional hierarchy, the subsidiary director is responsible for the company’s strategy, while the lower level should focus on specific functions (finance or sales). Each employee is clear of their role within the organization.
Decision-making and communications are top-down. Middle or low-level managers are not allowed to take initiatives without permission from their superiors. For short term planning and control, the director of the subsidiary uses a traditional management control system whereby the lower-level managers send a monthly report to the director of the subsidiary, and then he aggregates the data and sends it to the SKSB corporate office. The report includes profit and loss statement, actual revenues and costs versus planned budget, balance sheet, comments about present situation and customers, cash flow, etc. However, the most critical indicators are market share and gross margin.
As for long-term planning, the director of the subsidiary gives detailed descriptions of financial targets that should be achieved each year. The lower level managers are not allowed to give any feedback to top management and they are not been included in long term planning process. The employees try to suit the financial target to obtain bonuses at the end of the year. Employees are not inspired to look for opportunities and make their propositions to the working process as the director controls all the processes.
a. Discuss three (3) main capabilities that SKSB subsidiaries’ directors should possess to enable them to perform effectively to create value for the organization. (10 marks)
b. Assess the organizational structure and traditional control system practiced in SKSB. (10 marks) c. Using levers of behavioral control, recommend courses of action to SKSB to overcome deficiencies of the traditional control system. (10 marks) (Total: 30 marks)