This paper will reexamine the “Codman & A ; Shurtleff. Inc. : Planning and Control System” instance survey found in the 2nd edition of ” Accounting for Managers: Texts and Cases” . The instance illustrates a comprehensive formal planning and control system used in explicating and implementing scheme at Codman & A ; Shurtleff. one of Johnson & A ; Johnson’s 155 subordinates. This paper will concentrate on the relationship between organisational invention and formal planning and control systems in a decentralised organisation every bit good as the consequence of organisational wages patterns. Based on the facts presented. the paper will reason by developing a program of action Codman & A ; Shurtleff could potentially take to better their planning and commanding system.
Codman & A ; Shurtleff. Inc. was founded by Thomas Codman in 1838 to plan surgical equipment. After the acquisition of the company by Johnson & A ; Johnson ( J & A ; J ) in 1964. Codman & A ; Shurtleff began operations as one of J & A ; J’s independent subordinates. ( Bruns. 1998 )
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Codman markets about 2. 700 general and forte surgical instruments to infirmaries and sawboness worldwide. Merchandises manufactured by the subordinate involve advanced engineerings and include instruments. equipment. implants. surgical disposables. fiberoptic light beginnings and overseas telegrams. surgical caput lamps. surgical microscopes. coagulants. and electronic hurting control simulators and electrodes. ( Bruns. 1998 )
The instance begins by concentrating on the probationary actions the direction squad at Codman & A ; Shurtleff must take in sing a alteration to their budget marks due to a projected two-million dollar deficit in planned net incomes for the twelvemonth. With merely a few months into the twelvemonth. the jutting deficit is about twice the eventuality fund for the full twelvemonth. ( Bruns. 1998 )
Assorted accounts for the jutting net income deficit include:
An unfavourable currency exchange rate due to a weakening of the US dollar against European currencies. The unexpected failing has improved Codman’s gross revenues in Europe since currencies buy more in footings of US dollars ; nevertheless. the subordinate did non profit since gross revenues additions accrued to a separate European division of the company. Codman merely experienced the negative impact of the exchange rate of higher costs of geting European forte instruments.
Codman experienced an unfavourable gross revenues mix due in portion to a new distribution understanding. Merchandises sold by the Codman gross revenues staff under this new understanding negatively impacts the subordinate due to increased gross revenues of lower net income merchandises alternatively of higher net income merchandises as seen in the yesteryear.
Codman is absorbing stock list discrepancies as a consequence of the fabrication operations consolidation. Higher start-up costs have increased their merchandise costs.
With estimated gross revenues forecasted to be $ 1. 1 million more than originally predicted. the combined consequence of the above issues has a significant impact on expected net incomes. The Codman directors must look for ways to find the true implicit in grounds for the jutting net income deficit.
Measure the planning & A ; commanding system in usage at Johnson & A ; Johnson. What are its strengths and failings?
The planning and commanding system in usage at Johnson & A ; Johnson may be described by the executives quoted in the instance as a procedure with a “long-term” position. Each operating subordinate with J & A ; J had the duty of fixing their ain programs and schemes. Harmonizing to David Clare. president of J & A ; J. this is “one of the cardinal elements in their success” . “Our success is due to three basic dogmas: a basic belief in decentralised direction. a sense of duty to our cardinal components. and a desire to pull off for the long term. ” ( Bruns. 1998 )
The J & A ; J organisation is a aggregation of companies. big and little. that portion a committedness to run intoing the particular demands of a chiseled client. By concentrating on this committedness. they are able to make a broad assortment of ways to successfully run their concerns. Due to the big size of the J & A ; J organisation. decentalisation is necessary to actuate employees. control operations. and compete successfully in diverse locations. ( Internet. World Wide Web. jnj. com )
Direct duty for each company lies within its ain operating direction. headed by the president. general director. or pull offing manager. Coverage is done straight or through a company group president to a member of the Executive Committee.
A decentralised construction has clear advantages. Directors from the operating companies are continually forced to measure their operations and answerability is clear. Since their construction is based on an extended deputation of authorization. directors are instantly able to see the consequences of their public presentation. good or bad. and are able to rapidly react to altering environments. J & A ; J’s systems of planning and control are non used to penalize ; they are used to seek out and rectify jobs. ( Bruns. 1998 )
As a consequence. employee morale is by and large higher for employees in this type of construction. Directors have more control of their local operating subordinate and are more at easiness to add and make new merchandises and services to their division. This construction allows each operating subordinate to hold a stricter control and attending of merchandise lines and the ability to implement schemes to provide more efficaciously to the demands of a clearly defined client group. ( Stoner & A ; Freeman. 1996 )
J & A ; J’s decentralized construction ; nevertheless. does come with some restrictions. Since each operating subordinate requires specializers to run their concerns. the division construction may be dearly-won. Duplication exists of staff services. installations. forces. and computing machine information services. In add-on. specializers are still needed at J & A ; J’s cardinal central offices to organize all of the operating subsidiary’s activities.
What function does J & A ; J’s direction planning & A ; control system drama in accomplishing or impeding this invention?
Harmonizing to the description of J & A ; J’s planning & A ; control system. the operating subordinates have a great trade of liberty in choosing their single schemes and edifice net income programs and budgets. Executive compensation is determined by the part over the long tally. non by public presentation against their forecasted one-year net income program. ( Bruns. 1998 )
J & A ; J’s planning and control system should let the redirection of the direction squad at Codman to concentrate on actions for developing schemes that will better consequences in the long term. non merely merely a short term declaration. As Herbert Stolzer. Executive Committee member explained in the instance. the planning and control system used at J & A ; J allows the corporate office and the operating subordinates to happen jobs every bit good as run the concern. Directors are forced analyze their concern for costs. tendencies. fabrication efficiency. selling programs. and their competitory state of affairss one time a twelvemonth. As a consequence. action programs and plans are developed. ( Bruns. 1998 )
J & A ; J has adopted a creed in stead of a mission statement to steer their actions in carry throughing duties to clients. employees. the community and shareholders. Senior directors on a regular basis meet with employees throughout the company to pass on and reaffirm formal beliefs stated in the creed. By holding a formal beliefs system in topographic point. employees have a clear and consistent apprehension of the nucleus values of the concern every bit good as their topographic point within the concern. Communicating clear and concise nucleus values guides employees on what is considered appropriate behaviour in confronting any unplanned or hard state of affairss that may happen. ( Bruns. 1998 )
Is Codman’s planning and control system consistent with J & A ; J’s?
An analysis of the solutions the Codman directors are sing to cut down the difference between the existent and jutting net income degree suggests they are non runing in a mode consistent with J & A ; J system. The root causes for the net income discrepancy are non being investigated. merely short-run solutions are being considered.
For illustration. one of the jutting net income deficit grounds is due to higher start-up costs attributed to the recent consolidation of their fabrication operations. However. the instance does non advert any meetings with J. A. Cherry. Vice President-Manufacturing Operations. to discourse any cost decrease proposals. His valuable input would help in finding if the cost discrepancy is really impermanent and due to the recent consolidation of operations.
The direction group’s attending should besides be focused on alternate solutions to defray the higher costs of geting European forte instruments ensuing from the unfavourable exchange rate of the US dollar. If this issue is ensuing in lower net income border merchandises. a possible solution may be to buy the necessary supplies from domestic providers to countervail the higher cost. If this is non executable. an addition monetary value for the affected merchandises may be necessary. An addition in monetary value may ensue in a decrease in gross revenues ; nevertheless. increased net incomes may ensue due to a mix of higher net income border points. Since rivals are likely faced with the same unfavourable exchange issue. a decrease in gross revenues may non happen. leting Codman to go on to keep their market portion for those merchandises.
Another jutting net income deficit ground justifying farther attending is the inauspicious affects of the exchange rate due to a weakening of the US dollar against European currencies. Gross saless additions are accrued to a separate European division of the company. This appears to be a structural job within J & A ; J and inconsistent with their doctrine of handling subordinates as independent operations. Ignoring this inconsistent construction in sing solutions for the mid-year alteration is perplexing at best since an account for this was non given in the instance. Since European currencies buy more in footings of US dollars. Codman’s gross revenues in Europe have increased ; nevertheless. the positive income is non being used to countervail the higher cost of European providers.
The Codman directors should besides farther prosecute jobs associated with the profitableness of the merchandise mix. With the handiness of 2. 700 merchandises in the mix. a farther scrutiny is needed to find if lower net incomes degrees may be attributed to dumping in their merchandise line. Changes in construction for their compensation program may be needed to stress net income alternatively of volume.
In add-on. farther idea should be given to the suggestion that the bulk of the cut should happen in the Research and Development country. This is in direct contrast to the belief system of the organisation to stay advanced. Alternatively of cutting R & A ; D. accent should be on doing certain these undertakings remain on agenda.
What has happened since the clip frame of the instance?
Harmonizing to J & A ; J’s 2002 one-year study. one of the most of import ways they encourage long-run consistent public presentation is through investings in scientific discipline and engineering. In fact. the subject of the most recent one-year study is “Delivering on the Promise of Technology” . Communicating this subject strengthens the company’s set of belief systems and sets way for employees to encompass. Codman and Shurtleff. Inc. made many alterations since it joined the Johnson and Johnson household. In 1994. the company moved to its present corporate central office in Raynham. Massachusetts. Another cardinal event in 1994 occurred when Codman and Shurtleff. Inc. and Johnson & A ; Johnson Orthopedics combined to organize Johnson & A ; Johnson Professional. Inc.
To day of the month this company is named DePuy. Inc. From this amalgamation. outgrowth of a new managed attention market led to the 1994 formation of Johnson & A ; Johnson Health Care System. Inc. These organisations. which include the former Johnson & A ; Johnson Hospital Services and Johnson & A ; Johnson Advanced Behavioral Technologies. manage catching and history direction with managed attention organisations. wellness care organisations. big infirmaries. physician webs. authorities and employers.
On June 28. 2001. in Raynham. MA. Codman and Shurtleff. Inc. announced that it had entered into a joint venture with Tricumed Medizintechnik GmbH of Kiel. Germany to organize Codman Neuro Science Sarl. Codman Neuro Sciences Sarl acquired all rational belongings related to the design and fabrication of Tricumed Medizintechnik GmbH implantable drug pumps. The company was located in the Canton of Neuchatel. Switzerland. This venture enabled Codman Neuro Sciences Sarl to come in into the quickly spread outing sections of the neurological market. Their cardinal merchandise would be an implantable pump that allows bringing of medicine straight into the cerebrospinal fluid. which so routes drugs to the spinal cord and encephalon.
Presently. Codman and Shurtleff. Inc. has been affiliated with Johnson and Johnson for a one-fourth century. The company has continued to turn and make advanced innovations during this clip. Some of the innovations. including the Bipolar Coagulator. which allows sawboness to command shed blooding with an electrical current. and the first hip prosthetic device for entire hip replacing. have become portion of the karyon of yet another company within Johnson and Johnson. Many earlier innovations evolved. such as the litigating cartridge holder system for wound closing. which subsequently progressed and became an of import lesion and stapling concern for Ethicon. Inc. . a sister company.
At present. Codman and Shurtleff. Inc. continues to turn and thrive. The company’s gross revenues. employee base. repute. and figure of satisfied and loyal clients continues to exhibit solid growing. It produces more than 7. 000 merchandises now. Codman and Shurtleff. Inc. have a committedness to the basicss of client service by which they live. This committedness of understanding. expecting. and run intoing customers’ spread outing demands is still in operation today. The company’s one-year study for 2002 supports these facts. Its basic net gaining per portion for 2001 and 2002 was $ 1. 86 and $ 2. 2 severally.
The amalgamations and acquisitions. while good for the company. have a high monetary value when it comes to employee satisfaction and trueness. There seems to be an addition in the degrees of bureaucratism to back up all the subordinates. and to keep liberty. This leads to excessively many beds of decision-making protocols. They may go a hinderance. if they were allowed to be practiced in the operations sections. It is all right line to pull. and direction is to the full cognizant of it.
The planning and control system at Codman should concentrate on deciding the net income deficit by concentrating on actions that have a long-run consequence on operations. The jobs faced by the Codman directors may be as a consequence of a altering tendency for the industry. Alternatively of looking for ways to cut outgos in the Research & A ; Development country. direction may desire to see looking for ways to do certain undertakings are non delayed. This will guarantee a uninterrupted system is in topographic point to seek for ways to fabricate technological superior merchandises that are less dearly-won to bring forth.
Bruns. William J. . Accounting for Managers: Text and Cases. ( 2nd Ed. )
Southwestern. . 1998
Internet. hypertext transfer protocol: //www. jnj. com/our_company/our_credo/index. htm
Internet. hypertext transfer protocol: //www. jnj. com/news/jnj_news/20020306_1111. htm
Internet. hypertext transfer protocol: //www. jnjgateway. com/home
Marshall. David H. & A ; McManus. Wayne W. Accounting: What the Numbers
Mean. ( 4th Ed. ) Irwin/McGraw-Hill. . 1999
St. simons. Robert. . The Role of Management Control Systems in Creating
Competitive Advantage: New Perspectives. . Accounting. Organizations
and Society. . 1990
Stoner. James A. & A ; Freeman. R. Edward. . Management ( 6th Ed. )
Prentice Hall. Inc. . 1996
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