Flarehouse School System, which is located in Pakistan, is a network of around 750 schools spread throughout the country. The School’s competitive strategy is to provide students with top quality education and essential skills that would be useful in obtaining admissions into top engineering, medical and other higher education institutions in Pakistan and abroad. These institutions typically use standardized tests as one of the significant inputs into their own admission decisions. There are 3 or 4 major competitors of the school system, with similar design and strategy and primarily located in urban areas.

The school system claims to work in a decentralized environment where most of the operating decisions are delegated to the administrator of each school. Each geographic division of the country is responsibility of a District Manager who is responsible for hiring top administration of each school, keeping an eye on each school’s performance within the district and recommending new sites for opening new branches. The Chief Operating Officer at head office decides on whether to accept such recommendations and on infrastructural needs of each branch.

The administrator is relatively free to decide on admissions decisions and hiring of teachers for that school. However, the operating budget for each school every year is decided and communicated by the head office located in Lahore. Some of the schools are located in relatively economically developed areas in cities with low population density. There is also a significant number of schools situated in densely populated but economically weak areas. Then there are some schools that are serving rural population. Marketing is centralized and primarily uses television advertisements for promoting the school system. Administration of each school is headed by a principal. The principal is free to make decisions on hiring teaching and support staff. However, the District Manager makes decision on what kind of trainings would the teaching staff need. Scheduling classes, tweaking curriculum and discipline is also responsibility of the principal.

Saman, a relatively new principal at one of the branches in developing Phase 6 of DHA in Lahore recently received her annual performance appraisal. She called the District Manager and complained, “I was supposed to achieve a profit of Rs.10 million from my branch this year! I couldn’t get it and now I am classified as ‘below par’ in my appraisal. Is profit a good measure for appraising an academic?” The district manager’s response was even more critical of the system; “How can you expect a service organization to have ROI as a performance measure? This is an idea borrowed from manufacturing companies. Do the head office people consider the teachers and classrooms as machines? How do they expect me to achieve a target 12% ROI in one year! This target is same for all District Managers. I feel this system is a bit unfair. The marketing people are only appraised on whether they overspent or underspent their allocated budget for the year.”

Required:

Would you recommend changes to control systems, especially responsibility accounting arrangement for School Principal, District Managers and Marketing Managers at Flarehouse School System? Why?