Westelle Ltd
Westelle Ltd is a large, UK based, machine component manufacturing company that has been trading successfully for approximately 45 years. The company has a number of production facilities and wholesale retail outlets throughout the UK. The sales of Westelle’s products currently account for approximately 18% of the total market for machine components in the UK.
Anthony Fisher is production manager of Westelle’s Newcastle production facility. The company has five other production facilities located in Glasgow, Birmingham, Leeds, Swindon and Bristol, and four wholesale retail outlets located in Manchester, Bradford, Sheffield and
Cambridge. The company’s head office is in York.
The Newcastle production facility is a specialist non trading division of the company. The production facility has limited contact with outside agencies (apart from contacting suppliers) and has no retail staff. Transactions at each of the six production facilities are internal in nature – that is with other production facilities and/or wholesale retail outlets within the company.
For accounting purposes, all the company’s production facilities are treated as cost centres rather than an income generating revenue or profit centres.
Senior managers committee meeting Tuesday 17 August 2004
Because of the company’s somewhat dispersed geography, both wholesale retail managers and production facility managers meet on a regular basis but usually only every two months at the company’s head office in York. They discuss management issues relating to the company’s activities.
It is also common practice for head office managers including the company accountant, the company personnel manager and the company operations manager to attend these meetings.
The chairmanship of the senior committee is rotated on an annual basis. This year the chairmanship is in the hands of John Lightman White, Westelle’s operations manager.
Although the August 2004 meeting agenda was unremarkable and similar to those of previous numerous meetings, the final agenda item – proposed by Anthony Fisher – was somewhat unusual and bound to raise the ambient temperature of the meeting. The agenda item concerned the ineffectiveness of the company’s budgetary system as a corporate control mechanism.
The meeting commenced at 10:15 am in the board room at the company’s head office in York. After nearly 11/2 hours of rather mundane pleasantries, bureaucratic idiosyncrasies and tedious committee protocol, at approximately 11.45 pm John Lightman White, in his role as chairman, looked at Anthony Fisher, and said, ‘I believer this final item is your agenda item
Anthony – the meeting is yours.’
With that Anthony looked around at the other members of the committee and took a deep breath. He began: ‘As you may well know, I have been at Newcastle production facility of Westelle Ltd for a little over 18 months and have during that time become increasingly concerned about the ineffectiveness and inefficiency of the company’s budgetary control system.
In my opinion, and may I add an opinion supported by many of you around this table, the company’s corporate accounting department – its accounting information system and in particular its budgetary control system – provides little useful information for either production managers or wholesale retail managers. The historical emphasis of the accounting information system – the historical nature of the budgetary control statements issued monthly to production and wholesale retail managers – continues to have a negative motivational impact on managers because the statements fail to reflect adequately on how efficiently and effectively both production and wholesale retail managers are in their day to day managerial activities.
Indeed, despite repeated representations to the company head office by many of the productions facility managers and repeated attempts to discuss/explore these concerns with the company accountant, over the past 12 months little has changed.
‘In my opinion, the budgetary control statements producted by corporate head office not only lack any realism, they are ambiguous, confusing, disingenuous and misleading.
‘Over the past year the Newcastle production facility – and may I also add, the Birmingham,
Leeds and Swindon production facilities – have all exceeded their budgeted production targets.
Yet for the past 12 months the budgetary control statements continue to show Newcastle,
Birmingham, Leeds and Swindon production facilities as carrying excessive costs. This despite the Newcastle and Leeds production facilities making substantial improvements in raw materials used in the production process, and the Birmingham and Swindon production facilities making vast improvements to man hour output levels – none of which has been, nor will be to my knowledge, ever reflected in the production facilities budgetary control statements. It appears that any information provided by production and wholesale retail managers to head office – and in particular the company accountant – is continually ignored as irrelevant.
‘Looking back over the past two years’ budgetary control statements, all six of the production facilities have shown negative total variances for 20 out of the 24 months – and there appears little that either the production and/or the wholesale retail managers can do.
‘It is clearly time for the accounting information system – and the budgetary control statements – to reflect what is actually happening at the various production and wholesale retail facilities and not some abstract notion created by head office accounting staff of what “might” be happening.
‘Perhaps the company accountant would like to comment using the June 2004 budgetary control statement for the Newcastle production facility and explain why, as in the previous 15 months, actual head office costs have exceeded the budgeted head office costs.’
Anthony distributed a copy of the report to each of the committee members.
Newcastle Production Facility: Budgetary Control Statement, June 2004
|
Allocation |
Actual cost |
|
|
|
£000 |
£000 |
£000 |
|
|
Materials |
|
|
|
|
Potassium ethnolitrate |
2,000 |
1,980 |
(20) |
|
Abe lithium |
1,980 |
1,970 |
(10) |
|
Zinctricate |
460 |
408 |
(52) |
|
Labour |
|
|
|
|
Skilled |
1,200 |
1,200 |
0 |
|
Technician |
1,180 |
1,090 |
(90) |
|
Semi skilled |
3,040 |
3,010 |
(30) |
|
Manual |
560 |
540 |
(20) |
|
Head office costs Total |
100 |
534 |
434 |
|
10,520 |
10,732 |
212 |
|
/(
)Throughout Anthony’s presentation, most of the company’s productions facility managers nodded in agreement, whilst the wholesale retail managers voiced an occasional word of support.
The company accountant, Alun Wayle, however sat quietly as he listened attentively to Anthony’s critique. ‘Alun, would you like to respond,’ asked the chairman. After a brief pause, Alun Wayle rose to his feet and began his response. ‘Firstly, I think it would be inappropriate for me to respond to the specifics in terms of levels of head office expenditure at each of the outlying production/ wholesale retail facilities as raised by the Newcastle production facility manager.’
‘That’s a surprise,’ whispered Anthony.
Whilst the other production facility managers smiled at Anthony’s witty rhetoric – the company accountant scornfully ignored the comment, treating it with the contempt he believed it deserved. ‘However,’ he continued ‘what I think is important is that we must not lose sight of the bigger picture. The accounting information system and the budgetary reporting system are a component part of a larger corporate information system that has operated successfully in the company for a number of years. Whilst the past few years has seen some change – the introduction of the company’s new “online” accounting system and increased network facilities – the core accounting system has remained generally unchanged and in my opinion rightly so. The budgetary reporting systems have, and indeed continue, to operate and satisfy all the reporting requirements as laid down in the company’s operation procedures guidelines issued some two years ago – and may I add agreed and ratified by this committee. More importantly, to undertake changes alluded to by the Newcastle production facilities manager would require substantial investment – funds which the company does not have available at its disposal.
‘Whilst the budgetary control statements, produced by the budgetary reporting system are the basis for:
§ evaluating the efficiency of both production facilities and wholesale retail facilities, and
§ determining whether managers have compiled with the company’s longer term strategy and performed in accordance with set targets, both production and wholesale retail managers should not worry too much. None of you have been sacked – yet!’
At this Anthony became extremely annoyed and agitated by the truculent attitude and arrogant demeanour of the company accountant. From discussions with other production managers, in particular Jessica Lee, the production manager of the Swindon facility, Anthony was certain that the company accountant was incorrect. He was aware for example, that over the past few years, because of the introduction of new computing technology, some rather substantial changes to the financial reporting systems of other non production and non retail facilities had been made.
As the company accountant retook his seat, Anthony rose to his feet without invitation, and started his reply. ‘May I say that I find the egotistical attitude of the company accountant both naïve and insulting! I am sure that Alun is aware that the staff turnover of production managers at the company continues to be extremely high even though “few” managers have ever been sacked. Most managers seemed to resign – usually in disgust because of the belief that they are not being fairly evaluated – a point I’m sure the company personnel manager could confirm from his personnel records.
‘The following are typical comments of production managers who have left Westelle Ltd over the past year:
§ ‘The company accountant may well be able to justify the numbers they use – but they know nothing about production. I just used to ignore the budgetary control statements entirely and pretend they didn’t exist.’ Len Chapman ex Production facilities manager Leeds
§ ‘No matter what they say about firing people, negative budgetary control statements mean only one thing – negative evaluations.’ Bryn Robson ex Production facilities manager Swindon
§ ‘the company head office in York has never and probably never will listen to production facility managers. They see us as inconsequential – as a blot on the landscape. All the head office bureaucrats are concerned with are those wretched misleading budgetary control statements.’ Jim Barnes ex Production facilities manager Bristol
‘The market we operate in is a select and highly specialised market. Of the five managers who have left the company over the past year, four of them – including the three I have quoted – have taken posts of a similar nature with companies in direct competition with Westelle. Surely that cannot be good for the company – can it!’
‘Absolutely not,’ said Herald Bosse, company personnel manager ‘but may I point out . . .’.
‘Perhaps you could point it out at a later date,’ said John Lightman White, chairperson.
‘Unfortunately we have run out of time. As you are all aware head office imposes a time limit on our meetings of two hours and we have just about reached that time limit. Perhaps we can carry the discussion on item 12 over to our next meeting – on 9 October 2004. Agreed?’
‘Looks like we have no alternative,’ said Anthony disdainfully. ‘Yes – it does look as if we have no alternative, doesn’t it,’ replied the chairman. There were no further dissenting voices. The meeting was adjourned.