Case: Motorola Company Fred Robins, controller of the Motorola Com pany, was concerned about the organizational status of his divisional controllers. In 1935 and for many years previously, the divisional controllers reported to the general managers of their divisions. Although Mr. Robins knew this to be the general practice in many other organized com pa nies. he was not entirely satised with it. His interest in making a change was stimulated by a description of organization responsibilities given him by the controller of the Analog Corporation. The Motorola Company had seven operating divisions: the smallest had $3.1 million in annual sales and the largest 55m million. Each division was responsible for both the manufacturing and marketing of a distinct product line. Some parts and oomponents were transferred between divisions, but the volume of such interdivlsional business was not large. The company had been in the business and profitable for over 51.] years, In the late isms, although it continued to make profits, Its rate of growth slowed considerably. lames Hodgins, later the president, was hired 133:} by the directors because of their concern about the situation. His first position was controller. He became executive vice president in 1533 and president in 1934. Mr Roblnsjolned the company as assistant controller In 1931, when he was 33 years old. He became controller in 1933. In 1330, the corporate control organization was primarily responsible for [1] financial accounting, {2] internal auditing, and [3} analysis of capital budgeting requests. it. budgetary control system was in existence, but the reports prepared under this system were submitted to the top management group directly by the operating divisions, with little analysis by the corporate control organization. Mr. Hodgkin, as controller, thought ls essential that the corporate control organization play a more active role in the process of establishing budgets and analyzing performance. He personally took an active role In reviewing budgets and studying dlvislonal performance report and hired several young analysts to assist him. Mr Robins continued to move In the same direction after his promotion to conb'oller. By 1935 the corporate organization was beginning to be well enough staffed so that It could, and did, give careful attention to the information submitted by the divisions. Divisional controllers reported directly to the divisional general managers, but the corporate conb'oller always was consulted prior to the appointment of a new division, and he also was consulted in connection with salary increases for the divisional oontrollers. The oorporate controller specified the accounting system to which the divisions were expected to conform and the general procedures they were to follow in connection with budgeting and reporting performance. It was cleady understood, however, that budgets and performance reports coming from a division were responsibility of the division's general manager, with the divisional controller acting as his staff assistant In the preparation of these documents. For example, the divisional general manager personally discussed his budget with top management prior to its approval, and although the divisional controller usually was present at these meetings to give Information on technical points, his role was strictly that of a staff man. Most of the divisional controllers had worked for Motorola for 1D years or more. Usually, they worked up through various positions in the controller organization, either at headquarters, in their division, or both. Two of the divisional controllers were in their eady ans, however, and had only a few years\" experience in the headquarters controller organization before being made, first, divisional assistant controller and then divisional controller. Mr. Robins foresaw increasing difficulties with this relationship as the corporation introduced more modern control techniques. For one thing, he thought the existing relationship between himself and the divisional controllers was not so close that he could urge the development and use of new techniques as rapidly as he wished. More important, he thought that he was not getting adequate information about what was actually happening in the divisions. The divisional controller's primary loyalty was to his division manager, and it was unreasonable to expect that he would give Mr. Robins frank, unbiased reports. For example, Mr Robins was quite sure that some fat was hidden in the divisional expense budgets and that the divisional controllers had a pretty good idea where it was. In short, he thought he would get a much better idea of what was going on in the division if reports on divisional activities came directly from controllers working for him, rather than for the divisional manager. Mr. Robins, was, therefore especially interested in the controller organization at the Analog Company as he learned about it from E. F. Ingraham, the Analog controller, when he visited that company. Until his visit to Analog, Mr Robins had not discussed the organization problem with anyone. Shortly thereafter, he gave William Harrigan, his assistant controller, a memorandum describing his visit (see appendix to this case) and asked for Mr, Harrigan's reaction. Mr. Harrigan had been with Motorola for 25 years and had been a divisional controller before going to headquarters in 1982. Mr. Robins respected his knowledge of the company and his opinion on organizational matters. Mr. Harrigan was accustomed to speaking frankly with Mr. Robins. The gist of his comments follows: I don't think the Analog plan would work with us; in fact, I am not even sure it works at Analog on the way suggested by the job description and organization charts Before coming to headquarters, I had five years' experience as a divisional controller. Whin I took the job, I was told by the corporate controller and by my general manager that my function was to help the general manager every way ! could. This is the way I operated. My people got together a lot the information that was helpful in preparing the divisional budget, but the final product represented the thinking and decisions of my general manager, and he was the person who sold it to the top management. I always went with him to the budget meetings, and he often asked me to explain some of the figures. When the monthly reports were prepared, I usually went over them, looking for danger signals, and then took them in to the general manager. He might agree with me, or he might spot other things that needed looking into. In either case, he usually was the one to put the heat on the operating organization, not me. We did have some problems. The worst, and this happened several times a year, was when someone from the corporate controller's office would telephone and ask questions such as, "do you think your division could get along all right if we cut Sx out of the advertising budget?" Or, "Do your really believe that the cost savings estimate on this equipment is realistic?" Usually, I was in complete agreement with the data in question and defended them as best I could. Once ina while, however, I might privately disagree with the "official" figures, but I tried not to say so. Questions of this sort really should be as asked of the general manager, not of me. I realized that the head of office people probably didn't think the question was important enough to warrant bothering the general manager, and in many cases, they were right. The line is fine one. The business of the division controller's being an "unbiased source of information" sounds fine when you word it that way, but another way to say it is that he is a front spy, and that doesn't sound so good. It would indeed make our life easier if we could count on the divisional controllers to give us the real low-down on what is going on. But if it is to their position, then we can't expect that the general manager will continue to treat his controller as a trusted assistant. Either the general manager will find somebody else to take over this work unofficially, or it won't get done. I think we are better off the way we are. Sure, the budgets will have some fat in them, and not all the bad situations will be highlighted in the operating reports, and this makes our job more difficult. But I'd rather have this than the alternative. If we used the Analog method (or, rather, what they claim is their method), we can be sure that the divisional controller will no longer be a member of the management team. They'll isolate him as much as they can, and the control function in the division will suffer. Guide Questions: 1. What is the organizational philosophy of Analog with respect to the controller function? What do you think of it? Should Motorola adopt this philosophy? 2. To whom should the divisional controller's report in the Motorola Company? Why? 3. What should be the relationship between the corporate controller and the divisional controllers? What steps should your take to establish this relationship on a sound footing? 4. Would you recommend any major changes in the basic responsibilities of eighter the corporate controller or the divisional controller?Appendix Notes on Analog Controller Organization Mr Ingraham, the corporate controller, reports directly to the president and has reporting to hem all division controllers and other accounting, data processing, and analyst groups. The Analog Company's descriptions of responsibility and organizational chart are included herein (exhibits 1, 2, 3, and 4) and indicate the structure and function of the organization. The controller's organization is charged with the responsibility of establishing cost and profit standards in the corporation and of taking appropriate action to see that these standards are attained. It reviews all research projects and assigns names and numbers to them in order to coordinate research activities in the various divisions and their central research. The organization also handles all matters involving cost and profit estimates. The present size of divisional controllers' staffs ranges 3 to 22. Division controllers are not involved in preparing division profit and loss statement; these are prepared by a separate group for all division and the corporation. EXHIBIT 1: Position Description from the Analog Management Guidebook Controller The trend of modern business management is to change the basic concept of the controller's position from that of an administration function concerned largely with accounting detail to that of an important position on management as it relates to the control of costs and the profitable operation of the business as a whole. The more our business becomes diversified with operations scattered throughout the United States, the greater is the need for an officer to whom the president delegates authority with respect to those factors affecting costs and profits in the same manner as he may delegate authority to others in strong staff positions. In our vertical type of organization there is a great need for an appointed officer whose responsibility it is to establish budgetary standards of operations and objective percent of profit on sales targets for each of the operating division and domestic subsidiaries. He shall also establish budgetary standards of operations for staff functions in line with divisional and overall company profit objectives. When the standard of operations or profit target is not attained, the controller has the right and the responsibility within his delegated authority to question the failure and recommend changes to accomplish the desired result. The controller shall work with the various divisions of the company through divisional controllers assigned to each major operating division and staff function, It is not intended that the controller take the initiative away from the division managers, since the responsibility for efficient operations and profits is assumed by the managers. However, the controller and his staff should have the right and the responsibility to expect certain operating results from the division head; and when a difference of opinion occurs as to the reasonableness of the demand to results, the matter should then be referred by either party to the president.Along with the foregoing, the following responsibilities are an essential part of the position and apply to the corporation and its subsidiary: 1. The installation and supervision of all accounting records. 2. The preparation, supervision, and interpretation of all divisional and product profit and loss statements, operating statements, and cost reports, including reports of costs and production, research, distribution, and administration. 3. The supervision of taking and costing of all physical inventories. 4. The reparation and interpretation of all operating statistics and reports, including interpretation of charts and graph, for use by management committees and the board of directors. 5. The preparation, as budget director, in connection with staff officers and heads of divisions and subsidiaries, of an annual budget covering all operations for submission to the president prior to the beginning of the fiscal year. . The initiation, preparation, and issuance of standard practice regulations and the coordination of systems, including clerical and office methods relating to all operating accounting procedures. 7. Membership of the controller or his designated representative in all division and subsidiary management committees. He shall be responsible for the selection, training, development and promotion of qualified personnel for his organization and their compensation within established company policy. He shall submit to the president an organization plan for accomplishing desired objectives. The controller may delegate to members of his organization certain of his responsibilities, but in so doing he does not relinquish his overall responsibility or accountability for results. Treasurer and Assistant Treasurers Subject to the rules and regulations of the Finance Committee, the treasurer is a chief financial officer and generally his functions include control of the corporate funds and attending to the financial affairs of the corporation and its domestic and foreign subsidiaries wherever located. More specifically the duties and responsibilities are as follows: Banking. He shall have custody of and be responsible for all money and securities and shall deposit in the name of the corporation in such depositories as are approved by the president all funds coming into his possession for the company account. Credit and collections. He shall have supervision over all cashiers; cash receipts, and collection records and account receivable ledgers. He shall initiate and approve all credit policies and procedures. Disbursements. He shall authorize disbursements of any kind by signature on checks. This includes direct supervision over accounts payable and payroll departments and indirect supervision over all receiving departments for the purpose of checking on the accuracy of invoices presented for payments. He shall maintain adequate records of authorized appropriations and also determine that all financial transactions covered by minutes of management and executive committees and the board of directors are properly executed and recorded.General financial reports. He shall prepare and supervise all general accounting records. He shall prepare and interpret, all general financial statements, including the preparation of the quarterly and annual reports for mailing to stockholders. This also includes the preparation and approval of the regulations issued by duly constituted governmental agencies and stock exchanges. He shall supervise the continues audit (including internal controls) of all accounts and records and shall supervise the audit and procedures of Certified Public Accountants. Taxes. He shall supervise the preparation and filling of all tax returns and shall have supervision of all matters relating to taxes and shall refer to the general counsel all such matters requiring interpretation of tax laws. Insurance property records. He shall supervise the purchase and placing of insurance of any kind including the insurance required in connection with employee benefits. He shall be responsible for recommending adequate coverage for all ascertainable risks and shall maintain such records as to avoid any possibility that various hazards are not being properly insured. He shall maintain adequate property records and valuations for insurance and other purposes and, if necessary, employ appraisal experts to assist in determining such valuations and records. Loans. He shall approve all loans and advances made to employees within limits prescribed by the Executive Committee. Investments. As fund are available beyond normal requirements, he shall recommend suitable investments to the Finance Committees. He shall have custody of securities so acquired and shall use the safe keeping facilities of the banks for the purpose, as securities are added or removed from such vaults or facilities, he shall be accompanied by an authorized officer of the corporation. Office Management. He shall be responsible for the coordination of all office management functions throughout the company and its domestic subsidiary. Financial planning. He shall initiate and prepare current and long - range cash forecasts, particularly as such forecasts are needed for the financing programs to meet anticipated cash requirements for future growth and expansion. He shall arrange to meet sinking fund requirements for all outstanding debenture bonds and preferred stock and shall anticipate such other duties as may be assigned to him by the board of directors and the president. He shall have such other powers and shall perform such other duties as may be assigned to him by the board of directors and the president. The treasurer shall be responsible for the selection, training, development, and promotion of qualified personnel for his organization and their compensation within established company policy. It is expected that since he will have to delegate many of the duties and responsibilities enumerated above, he shall confer with and submit to the president an organization plan and chart. The treasurer may delegate to members of his organization certain of his responsibilities together with appropriate authority for fulfilment; however, in so doing he does not relinquish his overall responsibility or accountability for results. The treasurer is a member of the Finance, Retirement, and Inventory Review Committees.Exhibit2: Analog Organizational Chart, Division A, January 1, 1985 Division Vice President Assigned Goneral Staff General Staff Services Division Accounting Finance Public Relations Division Division Purchasing Engineer Purchasing Advertising New Products Controller Sales Agent Central Research Office Memt Corp. Counsel Patent Counsel Traffic Engre. & Staff Mig. Personnel Rela. Division Management Committee General Sales General Manufacturing Manager Manager Sales Organization Technical Production Director Manager Research Production Organization Organization Note: Various levels on the chart do not necessarily indicate relative importance of positions. EXHIBIT 3: Organization Chart of Analog Controller's Division, January 1, 1985 Controller E. F. Ingraham General Staff Services Accounting Finance Public Relations Advertising New Products Purchasing Central Research Office Memt. Sales Corp. Counsel Patent Counsel Traffic Engry. & Staff Mig. Personnel Reis Assistant Special Studies Statistics Controller Consultant Manager Digital Computer Billing & Sales Division A Division E Chief Cost Operation Mgr. Force Statistics Controlier Controller Accountant Methods & Applied Math. Division B Division F Inventory Control Procedures Supervisor Controller Controller Supervisor Supervisor Division C Division G Profit & Loss Machine Analysis Controller Controller Statement Operator Supervisor Supervisor Supervisor Division D Staff Services Div. Controller ControllerLine - Staff Relationships A division manager has no staff of his own, not even a personal assistant. He receives staff assistance from two sources. First, he has some people assigned to him from the general staff - typically, a controller, an engineer, and a purchasing agent. All division management and all the corporate staff are located in the corporate headquarters building. However, the assigned staff are located physically with their staff colleagues; for example, a divisional controller and his assistants are located in the controller's section of the building, not neer his divisional manager's office. Second, the division can call on the central staff to the extent that the manager wishes. The division are charged for these services on the basis of service rendered. The central staff units are listed in the General Staff Services box of Exhibit 2. EXHIBIT 4: Organization Chart of Analog Treasurer's Division, January 1, 1985 Division Manager - Controller Relationships Treasurer General Staff Services Accounting Finance Public Relations Division Administrative -Advertising Now Products Purchasing Committee Central Research Office Mamt Sales Corp. Counsel Patent Counsel Traille Engry. & Staff Mig., Personnel Rels Assistant Tax Department Assistant Assistant Treasurer & Assistant Treasurer & Treasurer Manager Treasurer Gen. Office Manager Treas., Intl. Tv. AR. & Auditing General Insurance Branch Sales Reproduction Adjustments General Accounting Dept. Officea Manager Services Mgr. Manager Auditor Manager Manager Credit Office Service Manager Mast. General Payroll Property & Branch Sales Manager Auditor Operations Casualty Oflives Manager Supervisor Anet. Manager Cash Control Employee Branch Sales Manager Arat. General Property Group Ins. Office Auditor Accounting Manager Supervisor Managers Travel Accounts Pension Expense Payable Plans & Analysis Supervisor Supervisor General Accounting Supervisor The success of the Analog controller and its relations with divisional appears to be largely the result of managers and controllers having grown up with the arrangement and accepting it long before they arrived at their managerial positions. Some additional factors that appear to contribute to their successful relationship are the following:1. A uniform and centralized accounting system. 2. Predetermined financial objectives for each division. a. Growth in dollar sales. b. A specified rate of profit as a percent of sales. 3. Profit Sharing by managers and controllers. Accounting System The controller's division has complete control of the accounting system. It determines how and what accounts will be kept. The controller's division has developed an accounting system that is the same for all divisions. Mr. Ingraham pointed out that no division had a system perfectly tailored to its needs, but he believed that the disadvantages to the divisions were more than offset by having a system uniform over all divisions and understood by all concerned. Mr Ingraham indicated it was likely that, if Analog division were free to establish their own accounting systems, every division would have a different one within two years, and interpretations by corporate management would be difficult, if possible at all. The accounting system appears to provide a common basis for all divisional financial reports and analyses, and it aids in maintaining the bond of confidence between division managers and controllers. Division Objectives The corporation has established two financial objectives for each division. These are (1) growth in dollar sales, (2) a specific rate of profit as a percent of sales. These objectives are determined in advance by recommendations of the controller's division with the advice and counsel of divisional managers. The objectives are long range in nature; the target profit rate has been changed only three times since 1965. The particular percentage of sales selected as the target profit rate is based on several factors, among which are (1) the patentability of products, (2) a desired rate of return on investment, (3) the industry's margin of profit, and (4) the industry's rate of return on investment. These factors and others determine the profit rate finally selected. Within limits, attainment of these financial objectives represents the primary task required of division general managers by corporate management. Profit Sharing Divisional managers receive about 75 percent of their total compensation from profit sharing and stock options. Divisional controllers receive about 25 percent of their compensation from profit sharing - half from a share in divisional profits and the other half from corporate profits. Divisional Managers' View of the System Mr Ingraham indicated that divisional managers like to have divisional controllers report to the corporate controller because (1) it gives them an unbiased partner armed with relevant information,(2) the controller is in a better position to do the analysis needed for decision making, and (3) when cost reports are issued there is little or no argument about them among affected parties