Adwise: Behavior of Organizations

Management Control Systems

Case Study AdWise: Behavior of organizations

1. Evaluate the old and new organizational structures and list main advantages and disadvantages of both structures.

The old organizational structure

Structure

• A management committee with a CEO on the top level

• The second level consists of one Managing Director (MD) per country

• Every country has its own Heads of IT, Strategy, Operations, Finance and other Country Managers on the third level

Reporting

• The finance manager (CFM) reported directly to the country MD

• “Dotted reporting line” to the CFO especially for group accounting

Responsibilities/Authority

• MD was responsible for recruiting and evaluation/compensation of CFM

• CFO had just advisory role

Collaboration

• CFM was based in the country’s main office, working with its members on daily basis

 business unit organization with countries as units.

The new organizational structure (differences)

Reporting

• CFM directly reports to CFO

• “Dotted reporting line” from CFM to MD

Responsibilities/Authority

• CFO has final say in recruiting/evaluation

• New responsibility for training

• MD has the advisory role

 business unit organization with countries as units remained

Old Structure New Structure

Advantages - Market specialization through specialized country units

- High flexibility

- Clear profit responsibility

- Less burdens for the CFO

- MD has best market based knowledge about the requirements/evaluating CFM

- Through working together at the same location, MD knows best about the performance of CFM

- CFM’s direct authority (MD) is directly addressable

- Market specialization through specialized country units

- High flexibility

- Clear profit responsibility

- CFO has best financial based knowledge about the requirements/evaluating CFM

- Reduced risk of manipulation

- More detailed information for the CFO

Disadvantages - Problems to plan company-wide strategies

- Egoism of units

- Redundancies (solving same problems in every unit)

- Loss of synergy effects

- Too strong connection/loyalty between CFM and MD

- As MD is the supervisor of CFM, he can manipulate him

- MD may lack financial knowledge for recruiting/evaluation

- Problems to plan company-wide strategies

- Egoism of units

- Redundancies (solving same problems in every unit)

- Loss of synergy effects

- Much more administrative burdens for the CFO

- CFO has not the special knowledge of MD for recruiting/evaluation

- Information overload of CFO

- CFM’s direct authority (CFO) is not directly addressable

2. Assess whether the new organizational structure would eliminate the risk of results manipulation

As the CFMs are directly reporting to the CFO who has the final say in recruiting/evaluation of the CFMs, the risk is lower than in the old structure. Especially the fact, that the CFO is the authority of the CFM supports this idea. But one has to consider, that the responsibilities and the information quantity of the CFO increase a lot. That can lead to an excessive demand, so that he cannot review everything properly, which could make things worse.

Also, it must be said, that you can never eliminate the risk of manipulation completely. In particular the CFO could also have selfish interests in “good looking” results because he also depends on a good evaluation by the CEO or by the shareholders.

3. Assess if and