=+6. 'If I were to price these boxes any lower than $480 a thousand', said James Brunner, manager of Birch Paper Company's Thompson division, Td be countermanding my order of last month for our salesmen to stop shaving their bids and to bid fuH-cost quotations. !'ve been trying for weeks to improve the quality of our business, and if I turn around now and accept this job at $430 or $450 or something less than $480, !'H be tearing down this programme !'ve been working so hard to build up. The division can't very weH show a profit by putting in bids that don't even cover a fair share of overhead costs, let alone give us a profit.'

Birch Paper Company was a medium-size, partly integrated paper company, producing white and kraft papers and paperboard. A portion of its paperboard output was converted into corrugated boxes by the Thompson division, wh ich also printed and coloured the outside surface of the boxes. Including Thompson, the company had 4 producing divisions and a timberland division, wh ich supplied part of the company's pulp requirements.

For several years, each division had beenjudged independently on the basis of its profit and return on investment. Top management had been working to gain effective results from a policy of decentralizing responsibility and authority for all decisions except those relating to overall company policy. The company's top officials believed that in the past few years the concept of decentralization had been successfully applied and that the company's profits and competitive position had definitely improved.

Early in 1957, the Northern division designed a special display box for one of its papers in conjunction with the Thompson division, which was equipped to make the box. Thompson's staff for package design and development spent several months perfecting the design, production methods and materials to be used.

Because of the unusual colour and shape, these were far from standard. According to an agreement between the two divisions, the Thompson division was reimbursed by the Northern division for the cost of its design and development work.

When all the specifications were prepared, the Northern division asked for bids on the box from the Thompson division and from two outside companies. Each divisional manager was normally free to buy from whatever supplier he wished; and even on sales within the company, divisions were expected to meet the going market price if they wanted the business.

In 1957, the profit margins of converters such as the Thompson division were being squeezed. Thompson - as did many other similar converters - bought its paperboard, and its function was to print, cut and shape it into boxes. Though it bought most of its materials from other Birch divisions, most of Thompson's sales were made to outside customers. If Thompson got the order from