(Organizational strategy and cost management) Flatland Metals Company produces steel products for a variety of customers. One division of the company is Resi¬ dential Products Division. This division was created in the late 1940s and its principal products since that time have been galvanized steel components used in garage door installations. The division has been continuously profitable since 1950 and in 1996 generated profits of $10 million on sales of $300 million.

However, over the past 10 years, growth in the division has been slow; profitability has become stagnant, and few new products have been developed, although the garage door components market has matured. The president of the company, John Stamp, has asked his senior staff to evaluate the operations of the Residential Products Division and to make recommendations for changes that would improve its operations. The staff uncovered the following facts:

■ Tracinda Green, age 53, has been president of the division for the past 15 years.

* Ms. Green receives a compensation package that includes a salary of $175,000 annually plus a cash bonus based on achievement of the budgeted level of annual profit.

* Growth in sales in the residential metal products industry has averaged 12 percent annually over the past decade. Most of the growth has occurred in ornamental products used in residential privacy fencing.

* Nationally, the division’s market share in the overall residential metal products industry has dropped from 12 percent to 7 percent during the past 10 years, and it has dropped from 40 percent to 25 percent for garage door components.

■ 4'he division maintains its own information systems. The systems in use today are mostly the same systems that were in place 15 years ago; however, some of the manual systems have been computerized (e.g., payroll, accounts payable, accounting).

■ The division has no customer service department. A small sales staff solicits and takes orders by phone from national distribution chains.

CHAPTER 15 Introduction to Cost Management Systems 703

■ 1 he major intradivision communication tool is the annual operating budget. No formal statements have been prepared in the division regarding strategies, mission, values, goals and objectives, or identifying core competencies or crit¬ ical success factors.

Given the introductory paragraphs and the facts from the staff of the company’s president, identify the major problems in the Residential Products Division and develop recommendations to address the problems you have identified.

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